JPMorgan Chase Bank NA & Anor v Berliner Verkehrsbetriebe (BVG) & Anor [2009] EWHC 1627 (Comm)

[2009] EWHC 1627 (Comm)Case No 2008 Folio 1052
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 09/07/2009
Before
MR. JUSTICE TEARE
Between
JPMORGAN CHASE BANK, N.A.ClaimantJ.P. MORGAN SECURITIES LTDClaimantBERLINER VERKEHRSBETRIEBE (BVG) ANSTALT DES ÖFFENTLICHEN RECHTSDefendant
Laurence Rabinowitz QC and Richard Handyside QC (instructed by Linklaters LLP) for ClaimantsTim Lord QC, Simon Salzedo and Sarah Abram (instructed by Addleshaw Goddard LLP) for DefendantHearing Hearing dates: 29 and 30 June 2009
Judgment

Mr. Justice Teare:

[1]This is an application by the Defendant for an order pursuant to Article 22(2) of the Council Regulation No.44/2001 on Jurisdiction that this court has no jurisdiction. The proceedings before this court are said to be “proceedings which have as their object ..... the validity of the decisions” of the organs of a legal person, the Defendant, whose seat is in Germany. If that is so, then the courts of the Member State in which the company, legal person or association has its seat have exclusive jurisdiction.

The parties

[2]The First Claimant is JPMorgan Chase Bank NA (“JPM”), a global provider of banking and financial services. The Defendant is Berliner Verkehrsbetriebe (BVG) Anstalt Des Öffenlichen Rechts (“BVG”), a public law institution established under German law. It is responsible for the provision and operation of the Berlin public transport system.

The claim

[3]JPM claims from BVG approximately US$112m. said to be due pursuant to the terms of an Independent Collateral Enhancement Transaction dated 19 July 2007 which was intended to provide protection to BVG against the risks inherent in cross-border leasing arrangements into which it had entered. Part of the transaction was the JPM Swap. Pursuant to the JPM Swap BVG sold to JPM, in return for a net premium of about US$6m., protection worth US$220m. against the credit risk of 150 companies. As a result of the turmoil in the financial markets in the second half of 2008 some of those credit risks (including Federal National Mortgage Association (“Freddie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), Lehman Brothers Holdings Inc. and three Icelandic banks) materialised and gave rise to JPM’s claim. Proceedings were commenced by JPM in this court on 10 October 2008 because the contractual arrangements between the parties contain a choice of English law and jurisdiction. Originally, the claim was for certain declarations, including a declaration that the JPM Swap is “valid, binding and enforceable in accordance with its terms”. On 21 January 2009 it was amended to include the monetary claim to which I have referred.

The German proceedings

[4]On 9 March 2009 BVG filed a complaint against JPM in the Berlin Landgericht (or Regional Court). In those proceedings BVG claim that the JPM Swap is invalid because it is ultra vires BVG. BVG also claims to be released from liability under the JPM Swap (or damages equivalent to the sums claimed by JPM) by reason of “grossly incorrect advice” given by JPM concerning the nature and characteristics of the JPM Swap. Allegations of misrepresentation, non-disclosure and breach of a consultancy agreement are made.[5]The English Court was first seized and so the German Court, having concluded that the English and German proceedings involve the same cause of action within the meaning of Article 27, has stayed the proceedings before it pending the decision by this court as to whether it, the English court, has jurisdiction.

The rival submissions

[6]Before summarising the rival submissions it is necessary to set out the most relevant provisions of the Judgments Regulation. Article 22 The following courts shall have exclusive jurisdiction, regardless of domicile: ………. 2. in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or of the validity of the decisions of their organs, the courts of the Member State in which the company, legal person or association has its seat. In order to determine that seat, the court shall apply its rules of private international law; Article 23 1. If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. ………… 5. Agreements or provisions of a trust instrument conferring jurisdiction shall have no legal force if they are contrary to Article 13, 17 or 21, or if the courts whose jurisdiction they purport to exclude have exclusive jurisdiction by virtue of Article 22. Article 25 Where a court of a Member State is seised of a claim which is principally concerned with a matter over which the courts of another Member State have exclusive jurisdiction by virtue of Article 22, it shall declare of its own motion that it has no jurisdiction. Article 22 The following courts shall have exclusive jurisdiction, regardless of domicile: Article 23

Article 25

[7]It is common ground that in construing the Regulation the report of Mr. P. Jenard on the Judgments Convention (the predecessor of the Judgments Regulation) may be considered and given such weight as is considered appropriate. The numbering of the articles in the Convention and Regulation is not the same. In this judgment, wherever possible, I shall use the numbering of the Regulation in order to avoid confusion. The relevant parts of the Jenard Report are as follows: Article [22] Article [22] lists the circumstances in which the six States recognize that the courts of one of them have exclusive jurisdiction. The matters referred to in this Article will normally be the subject of exclusive jurisdiction only if they constitute the principal subject-matter of the proceedings of which the court is to be seised. The provisions of Article [22] on jurisdiction may not be departed from either by an agreement purporting to confer jurisdiction on the courts of another Contracting State, or by an implied submission to the jurisdiction (Articles [23] and [24]). Any court of a State other than the State whose courts have exclusive jurisdiction must declare of its own motion that it has no jurisdiction (Article [25]). Failure to observe these rules constitutes a ground for refusal of recognition or enforcement (Articles [35] and [27]). These rules, which take as their criterion the subject matter of the action, are applicable regardless of the domicile or nationality of the parties. …………. Companies and associations of natural or legal persons Article [22(2)] provides that the courts of the State in which a company or other legal person, or an association of natural or legal persons, has its seat, have exclusive jurisdiction in proceedings which are in substance concerned either with the validity of the constitution, the nullity or the dissolution of the company, legal person or association, or with the decisions of its organs. It is important, in the interests of legal certainty, to avoid conflicting judgments being given as regards the existence of a company or association or as regards the validity of the decisions of its organs. For this reason, it is obviously preferable that all proceedings should take place in the courts of the State in which the company or association has its seat. It is in that State that information about the company or association will have been notified and made public. Moreover, the rule adopted will more often than not result in the application of the traditional maxim ‘actor sequitur forum rei’. Such jurisdiction is recognized in particular in German law and, as regards non-profit making organisations, in Luxembourg law. Article [23] Jurisdiction deriving from agreements conferring jurisdiction is already a feature of all the Conventions concluded between Member States of the Community, whether the rules of jurisdiction are direct or indirect: …………… It is unnecessary to stress the importance of this jurisdiction, particularly in commercial relations. Article [25] ………… The words ‘principally concerned’ have the effect that the court is not obliged to declare of its own motion that it has no jurisdiction if an issue which comes within the exclusive jurisdiction of another court is raised only as a preliminary or incidental matter.[8]Mr. Tim Lord QC on behalf of BVG submits that the English court has no jurisdiction in this matter. The reasons underlying that submission may be summarised as follows: i) Were the claim to proceed in England BVG would defend the claim brought against them on the grounds that the JPM Swap was ultra vires BVG and therefore void. (It is, I think, accepted that there will or may be other grounds for resisting the claim, including the contention that BVG was induced to enter the JPM Swap because of incorrect advice given by JPM.) ii) The meaning of the phrase, “proceedings which have as their object”, in Article 22(2) is “proceedings which have as their subject matter” or “proceedings which are principally concerned with”; see Group Torras v Al-Sabah [1996] 1 Lloyd’s Rep.7 at p.15. iii) The proceedings before the English court have as their subject matter, or are principally concerned with, the question whether the JPM Swap is ultra vires BVG, which is a question which concerns the validity of a decision or decisions made by organs of BVG. That is because the ultra vires issue is (potentially) dispositive of JPM’s claim. iv) The courts of Germany, being the courts of the Member State in which BVG has its seat, therefore have exclusive jurisdiction pursuant to Article 22(2) of the Regulation. v) The claim before the English court is one which is “principally concerned” with a matter over which the courts of another Member State therefore have exclusive jurisdiction and so this court must declare that it has no jurisdiction, pursuant to Article 25 of the Regulation. vi) The ultra vires issue is not merely a “preliminary or incidental issue” which would not suffice for the purposes of Articles 22(2) or 25 to give rise to exclusive jurisdiction (see the report of Mr. Jenard). The ultra vires issue is or will be a major feature of the litigation and is therefore a matter with which the action is principally concerned; see the approach of Laddie J. in Coin Controls Ltd v Suzo International (UK) Ltd. [1999] Ch.33 at p.50H – p.51.[9]Mr. Laurence Rabinowitz QC, on behalf of JPM, took two preliminary points which he did not wish to “over emphasise”. First, he suggested that when considering the application of Articles 22(2) and 25 the court should consider only the claim and not the defence. Secondly, he suggested that Article 22(2) was concerned with disputes between the company, its officers or shareholders and is not concerned with dispute between those entities and third parties. Article 22(2) was, it was said, inward looking, not outward looking.[10]But if those suggestions were not accepted by the court Mr. Rabinowitz submitted, this time with emphasis, that: i) In assessing whether Articles 22(2) and 25 applied in any particular case and whether the case was “principally concerned with a matter” within article 22(2) it was necessary for the court to make a judgment as to the principal or main subject matter of the case. ii) The principal subject matter of the proceedings or claim before this court is the claim by JPM to enforce a commercial agreement. iii) The defence based on that agreement being ultra vires BVG is a preliminary or incidental matter. iv) The submission made on behalf of BVG that it was sufficient for the purposes of Articles 22(2) and 25 that the ultra vires point might be dispositive of the claim was contrary to the manner in which the courts had applied those articles; see Newtherapeutics Ltd. v Katz [1991] Ch 226, Grupo Torras v Al-Sabah [1995] 1 Lloyd’s Rep. 374 and [1996] 1 Lloyd’s Rep. 7, Speed Investments Ltd. v Formula One Holdings Ltd. [2004] EWCA Civ 1512 and FKI Engineering v Dewind Holdings Ltd. [2007] EWHC 72 (Comm). Those authorities had not been cited to Laddie J. in Coin Controls Ltd v Suzo International (UK) Ltd. [1999] Ch.33. Nor did BVG’s submissions derive support from any decision of the ECJ.[11]The rival submissions as to the manner in which Articles 22(2) and 25 should be applied reveal a fundamental difference of approach and possibly conflicting authorities. Before seeking to resolve the difference between the parties as to how Articles 22(2) and 25 should be applied I must first consider the two preliminary points suggested by Mr. Rabinowitz.[12]The first suggestion is that when considering the application of Articles 22(2) and 25 the court should consider only the claim and not the defence. I am not persuaded that this suggestion is correct. The purpose of Article 22(2) is to “avoid conflicting judgments being given as regards the existence of a company or association or as regards the validity of the decisions of its organs”; see the Jenard report at p.35. If Article 22(2) is construed to give effect to that purpose there is no reason why the court should consider only the claim and not the likely defence. Article 22(2) uses the word “proceedings” which is wide enough to include both the claim and the likely defence.[13]There are textual points in favour of the suggestion but they are not persuasive. i) Article 25 refers to “a claim” but it refers back to Article 22(2) which is concerned with proceedings. ii) The phrase in Article 22(2) “have as their object” is, as a matter of language, suggestive of the claim, but it is now clear that that is not how that phrase should be viewed. The Jenard report stated that “the matters referred to in this Article will normally be the subject of exclusive jurisdiction only if they constitute the principal subject-matter of the proceedings of which the court is seised”; see p.34 of the report. That interpretation has been applied by the English courts; see Grupo Torras v Al-Sabah [1996] 1 Lloyd’s Rep.7 at p.15 in which “proceedings which have as their object” in Article 22(2) was accepted as meaning “proceedings which have as their subject matter” or “proceedings which are principally concerned with”. iii) The phrase in Articles 22(1)-(3), “proceedings which have as their object”, is to be contrasted with the phrase in Articles 22(4)-(5), “proceedings concerned with”. However, I do not consider it appropriate to place any weight on that point because the other language versions of the Article use the same wording for all five sub-paragraphs; see Newtherapeutics Ltd v Katz [1991] Ch. 226 at p.243 H – p.244 A and European Civil Practice 2nd.ed. by Layton and Mercer para.19.006.[14]The authorities support the view that the likely defence may be considered. i) In Coin Controls v Suzo International (UK) Ltd. [1999] Ch. 33 at p.50 Laddie J. held, in the context of Article 25, that the court is not concerned only with claims but with what is in issue before the court. ii) The ECJ has held in the context of Article 22(4) that regard must be had to the issue of a patent’s validity “whatever the form of proceedings in which the issue of a patent’s validity is raised, be it by way of an action or a plea in objection, at the time the case is brought or at a later stage in the proceedings”; see C-4/03 Gesellschaft fur Antriebstechnik mbH & Co.KG v Lamellen und Kupplungsbau Beteiligungs KG [2006] ECR 1-6509 at para.25. Although that case (“GAT”) dealt with the question of patents under Article 22(4) rather than Article 22(2) (as did Coin Controls) the ECJ placed reliance on the position of Article 22 within the scheme of the Convention (now the Regulation) and therefore its reasoning is likely to apply to the whole of Article 22 rather than to just Article 22(4). iii) Both cases were considered by Lewison J. in Knorr-Bremse v Haldex [2008] 2 All ER 448 at paragraphs 40-46. He followed the approach of those cases and held that where it is clear that the validity of a patent will be put in issue the court should decide the application on the basis that validity is one of the issues in the case.[15]Mr. Rabinowitz drew my attention to another decision of the ECJ in Case C-111/01 Gantner Electronic GmbH v Basch Exploiatie Maatscappij BV [2003] ECR 1-4207 in which it was held, in the context of Article 27 (which deals with lis pendens or related actions), that in determining whether two competing cases involved the same cause of action or “had the same subject-matter” account should only be taken of the claims of the respective claimants to the exclusion of the defences raised by a defendant; see paragraphs 24-32. However, the purpose of Article 27 is different from the purpose of Article 22, as is the language used. I am therefore not persuaded that I should follow the approach of the ECJ in Gantner when dealing with Article 22(2). I note that in his Opinion in GAT the Advocate General did not consider that Gantner should be followed in the context of Article 22(4) and the ECJ in its judgment in GAT chose not to refer to Gantner.[16]I therefore consider that I should not adopt the tentative suggestion made by Mr. Rabinowitz that I should consider only the Points of Claim when applying Articles 22(2) and 25. It is plain that ultra vires will be raised as a defence in this case. I should therefore decide this application on the basis that ultra vires will be one of the issues in this case. That approach is consistent with the wording of Article 22(2), with the policy underlying that article and with the approach both of the ECJ and the English courts when dealing with Articles 22 and 25.[17]The second tentative suggestion was that Article 22(2) is concerned with disputes between the company, its officers or shareholders and is not concerned with dispute between those entities and third parties. Article 22(2) is, it was said, inward looking, not outward looking.[18]In support of this suggestion it was observed that none of the decided cases concern a dispute between a third party and a company. They all involve what were described as “internal” disputes; eg Hassett v South Eastern Health Board Case C-372/07 [2008] ECR I-00000 (a dispute between two doctors and their mutual defence organisations) and Grupo Torras v Al-Sabah [1995] 1 Lloyd’s Rep. 374 (a dispute between a company and its directors). It was submitted that Article 22 should be construed narrowly because it is an exception to the rule that a defendant should be sued in the place of his domicile.[19]Whilst I am inclined to accept the latter submission (it is supported by the decision of the ECJ in Hassett v South Eastern Health Board at paragraphs 18 and 19) I am unable to accept that Article 22(2) can properly be interpreted as applying only to “internal” disputes. The language used in Article 22(2) is not apt to include such a restriction on its application and the suggested restriction would sit unhappily with the policy underlying Article 22(2). I therefore decline to adopt Mr. Rabinowitz’ second suggestion. “Principally concerned with”[20]I can therefore return to the crucial issue between the parties on this application. How should Articles 22(2) and 25 be applied when the issues in the case include not only an issue caught by Article 22(2), in this case the ultra vires issue, but another issue which is not caught by Article 22(2), in this case the claim that the JPM Swap was the result of incorrect advice. This latter issue is likely to emerge in the form of allegations of misrepresentation, non-disclosure and breach of an advisory agreement. There may be other issues. BVG has reserved its right in this regard, including any cross or counterclaims; see footnote 105 to Mr. Lord’s Skeleton Argument.[21]It is first necessary to note how the various articles of the Regulation relevant to this application mesh together. The Regulation recognises the commercial importance of agreements conferring jurisdiction on a particular court; see Article 23. Mr. Jenard said at p.37 of his report that “it is unnecessary to stress the importance of this jurisdiction, particularly in commercial matters.” JPM relied on that article in commencing proceedings in this court. However, by way of an exception to that jurisdiction Article 23(5) provides that “agreements ….conferring jurisdiction shall have no legal force ….if the courts whose jurisdiction they purport to exclude have exclusive jurisdiction by virtue of Article 22.”[22]Article 22 provides for certain courts to have exclusive jurisdiction. The language used in that article was explained in the Jenard Report at p.34:
“The matters referred to in this Article will normally be the subject of exclusive jurisdiction only if they constitute the principal subject-matter of the proceedings of which the court is to be seised.”
The “criterion” of the Article is the “subject-matter of the action.” With reference to Article 22(2) the Jenard Report stated that the courts of the state in which the company has its seat have exclusive jurisdiction in “proceedings which are in substance concerned with” a matter within Article 22(2). This interpretation is mirrored (and perhaps prompted) by the express terms of Article 25:
“Where a court of a Member State is seised of a claim which is principally concerned with a matter over which the courts of another Member State have exclusive jurisdiction by virtue of Article 22 ……”
The Jenard Report at p.39 explained that “the words “principally concerned” have the effect that the court is not obliged to declare of its own motion that it has no jurisdiction if an issue which comes within the exclusive jurisdiction of another court is raised only as a preliminary or incidental matter.”[23]As an exception to the basic rule of domicile and to jurisdiction based on agreement Article 22 should be construed strictly, that is, it “must not be given an interpretation broader than is required by [its] objective, since its effect is to deprive the parties of the choice of forum which would otherwise be theirs…”; see Hassett v South Eastern Health Board at paragraphs 18 and 19.[24]Thus, with regard to both Article 22(2) and Article 25, it would seem that a court seized of proceedings which involve several issues including one which is within Article 22(2) must ask itself the following types of question. Does the issue within Article 22(2) constitute the principal subject-matter of the proceedings ? Is that issue the subject-matter of the action ? Are the proceedings principally concerned with that issue ? Is that issue raised only as a preliminary or incidental matter ?[25]Mr. Lord on behalf of BVG submitted that where the issue within Article 22(2), in this case, the ultra vires issue, was potentially dispositive of the proceedings that circumstance was sufficient to enable the court to conclude that the proceedings or claim were “principally concerned with” that issue, that that issue was not raised as a preliminary or incidental matter and that accordingly this court must declare that it has no jurisdiction. That approach was said to be principled and one that enables the answer to the question to be easily answered. It does however also have the effect that the other issues in the case which are not required by the policy underlying Article 22(2) to be determined in the courts of the member state where the company has its seat must nevertheless be determined there. Thus in the present case the issues of misrepresentation, non-disclosure and breach (and perhaps others) must also be determined in Germany. Mr. Rabinowitz on behalf of JPM submitted that the judgment to be exercised by the court requires it to stand back and assess whether it can fairly be said that this case is principally concerned with the ultra vires issue. He submitted that in the present case the court should conclude that the principal subject matter of the proceedings before this court was the claim by JPM to enforce the JPM Swap and that ultra vires was a preliminary or incidental matter. Both counsel claimed to derive support from the authorities.

The authorities

[26]It is therefore necessary to refer to the authorities which have considered Article 22(2). In Newtherapeutics Ltd. v Katz [1991] Ch 226 a company brought proceedings in this country against two of its directors alleging(i) that they signed documents in the absence of a board meeting and that it was beyond the powers of the directors so to sign the documents and(ii) that the transaction was so detrimental to the company that no reasonable director could have properly entered into it. Knox J. held that the first allegation fell within Article 22(2) whilst the second allegation did not. The correctness of this conclusion was reserved for future consideration by the Court of Appeal in Grupo Torras v Al-Sabah [1996] 1 Lloyd’s Rep. 7 at p.15 but for present purposes the important point is that Knox J. was faced with proceedings in which one claim fell within Article 22(2) and one claim did not.[27]Knox J. said at p.245:
“It was common ground between the parties that the question whether article [22(2)] governs this action has to be solved by identifying the principal subject of the proceedings and seeing whether that falls within article [22(2)]. …………. The problem therefore is to identify from the material before the court what it is that the proceedings are in substance or principally concerned with. ……”
[28]Having decided that one claim was within Article 22(2) and the other not he said, at p.249:
“I am therefore left with the final question: which of the two types of claims of breach of duty made by the company against the defendants raises the principal issue ? They are of equal theoretical importance, in that the company would win the action if it wins on either. No particular yardstick was suggested on either side to solve this conundrum, although, not surprisingly, each side identified a different issue as the principal one. The issue upon which the defendants are, so far as this court can tell, the more likely to lose is likely to be the principal one because they only have to lose one to lose the action. The other issue, on which they are more likely to win, is going to be irrelevant unless of course the forecast is wrong. It must be a matter of judgment which is the principal issue even with the assistance of that test, and my judgment, which I do not propose to elaborate, is that the issue regarding the absence of a board resolution and the need for it is the principal issue in this case. It therefore follows that I consider that article [22(2)] does apply and this court has jurisdiction.”
[29]The following points may be noted: i) Knox J. did not consider that it was sufficient that the claim within Article 22(2) might be dispositive of the case to conclude that the proceedings before him were in substance or principally concerned with an issue within Article 22. He noted that the company would win the case if it won on that claim but did not say that therefore the proceedings were principally concerned with a claim within article 22(2). ii) Knox J. did not say that it was sufficient if the claim within Article 22(2) was a principal issue in the case. On the contrary he was concerned to assess the principal issue. iii) Knox J. did not refer to the passage in the Jenard Report which explained that preliminary or incidental matters were not matters with which proceedings or a claim were principally concerned. But on the facts of the case before him it could not be said that either of the claims against the directors were preliminary or incidental matters. iv) Knox J. appears to have used a test (on which claim are the defendants more likely to lose ?) which is not a test suggested by either party before me and was disapproved in the next case to which I must refer.[30]In my judgment BVG’s argument derives no support from the approach of Knox J. whilst JPM’s argument does derive support. Knox J, having considered the Jenard Report, considered that he had to identify the principal subject matter of the proceedings before him or, to put it another way, identify what it was that the proceedings were in substance or principally concerned with. He did not consider that his task was to consider whether the claim within Article 22(2) was a principal subject of the proceedings.[31]Grupo Torras v Al-Sabah [1995] 1 Lloyd’s Rep. 374 was another case involving a claim by a company against its directors. The causes of action relied upon included conspiracy, constructive trusts and breaches of duty as directors. Mance J. was concerned with allegations of fraud and dishonesty against directors which did not raise issues of corporate law or practice. They raised straightforward issues of motivation and honesty; see p.405 col.2. Whilst defences were to be raised, based on minutes of board meetings, capitalisation and an extraordinary general meeting, that the transactions in question were known and authorised by the company, Mance J. said that the real issue did not appear likely to be whether the defendants had authority but whether they exercised that authority bona fide and properly in the interests of the company; see p.406 col.1. Mance J. did not consider that any company law point was going to be significant in shaping the final outcome of the case; see p.407 col.1. He concluded (at p.408 col.2) that the proceedings were “not principally concerned with … the validity of… organs of [the company]… within the meaning of art [22(2)]... As to liability, the proceedings will focus on the effects and purposes of the four transactions and on the individual involvement, knowledge and motivation of the defendants. That will shape the Court’s decision on the claims of conspiracy, breach of duty and constructive trust. … But I do not think that these issues turn on any point of company law or practice or on any problem associated with the decision-making activities of [the company]….”[32]Two matters are to be noted about this case. i) Whilst Mance J. did not regard Knox J.’s test of seeking to identify the issue upon which the claim is likely to succeed as helpful (see p.403 col.2) he accepted that Article 22(2) called for “an exercise in overall classification”; see p.403 col.1. He said, at p.403 - 404: “The exercise envisaged by art.[22] only really works if the Court bears in mind the underlying rationale of the article and (viewing the litigation overall) attempts to assess whether it is likely to be so closely connected with matters of local company law and internal corporate decision-making in respect of one particular company that it should not be tried anywhere but in the Courts of the State of that company’s seat. In the resolution of that issue, all aspects of the litigation can and must be taken into account. At the end of the day, the Court must form an overall judgment. It is not enough that will be evidence, even considerable evidence, about Spanish company law and practice; it is only if the whole proceedings viewed overall can be said to be principally concerned with such matters that art.[22](2) applies.” ii) In reaching his conclusion he was heavily influenced by the circumstance that although the defendants would claim that their actions had been authorised by the plaintiff Spanish company it was unlikely that the case would turn on or would be shaped by such matters. Thus such matters were unlikely to be dispositive of the claim.[33]In my judgment BVG derives some limited support from this case. It shows that an issue of local company law which is or may be dispositive of the proceedings is a relevant matter. I accept that that must be so when the court is carrying out the “overall classification” or “overall judgment” required. To that extent it supports BVG’s case on this application. But the support is limited because Mance J’s approach does not show that if an issue of local company law is or may be dispositive of the proceedings then it follows that the proceedings are principally concerned with the validity of decisions of organs of the company in question. In my judgment JPM derives support from this case because Mance J., like Knox J., asked himself whether the proceedings were principally concerned with the validity of decisions of organs of the company in question. Moreover, Mance J.’s description of the nature of the exercise on which the court is engaged, viewing the “litigation overall” supports the submissions made by Mr. Rabinovitz as to what I should do in this case; namely stand back and form an overall judgment. The decision of Mance J. was upheld in the Court of Appeal which agreed that “the subject matter of this action remains the frauds which it is alleged that the defendants have practised on the plaintiff companies”; see [1996] 1 Lloyd’s Rep. 7 at p.16.[34]Coin Controls Ltd. v Suzo International [1999] Ch.33 was a case in which the plaintiff sought relief in respect of an alleged infringement of its patent. However, since the defendants maintained that the patent was invalid, a matter within Article 22(4) of the Convention, the court considered that it must decline jurisdiction pursuant to Article 25. Laddie J. referred to the Jenard Report and its explanation that the words “principally concerned” had the effect that matters which were only preliminary or incidental did not result in exclusive jurisdiction. Laddie J. noted that he had not been referred to any case as to the meaning of “principally concerned”. Thus he was not referred to Newtherapeutics Ltd. v Katz or to Grupo Torras v Al-Sabah.[35]A submission was made that “a claim which is principally concerned” with an issue did not mean “a claim in which an important issue is” that issue. The former phrase was said to refer to something which is the foundation of the claim. Laddie J. then said, at p.50 H:
“In the absence of binding authority, I also do not accept the second argument as to the meaning of “principally concerned”
. I can see no reason to give the article a narrow linguistic interpretation. The Jenard report suggests that what is excluded is incidental matter. Something which is a major feature of the litigation is not incidental and is therefore a matter with which the action is principally concerned. The issue which has to be decided then is whether the three foreign claims sought to be raised in the English courts are principally concerned, in this broad sense, with the issue of validity of the foreign patents”.[36]This case plainly supports the approach of BVG. However, Laddie J. did not have the assistance of the judgment of the Court of Appeal in Grupo Torras v Al-Sabah which upheld Mance J.’s decision and commented on Knox J.’s decision in Newtherapeutics Ltd. v Katz. I do not suggest that that if he had had that assistance his decision would have been different or that his decision was wrong. For, as observed by Laddie J., in patent infringement actions validity is frequently in issue. “We have always taken the view that you cannot infringe an invalid patent (p51B).” He also said that infringement and validity of a patent are “so closely interrelated that they should be treated for jurisdiction purposes as one issue or claim” (p51D-E).” This approach was approved by the Court of Appeal in In the matter of Fort Dodge Animal Health Limitedand others decided on 27 October 1997. Thus even if Laddie J. had applied the test referred to in the earlier English cases he may well have reached the conclusion that the case was principally concerned with the validity of the patent. But one must at least pause before accepting Laddie J’s statement of principle. It gives, as Laddie J. recognised, a broad interpretation to Articles 22 and 25 whereas the European authorities show, as noted by Knox J. (at p.245-246 of his judgment) and by Mance J. (at p. 402 of his judgment), that Article 22 operates by way of exception to the basic jurisdictional rules established by the Convention and that its scope must for this reason be limited to that which is required by its objective. In a case where there are multiple issues, only one of which is within Article 22, the effect of Laddie J.’s reasoning would be that all issues would be subject to the exclusive jurisdictions provided for by Article 22. It is at least questionable whether that is required by the objective underlying Article 22.[37]In Speed Investments v Formula One Holdings [2005] 1 WLR 1936 the Court of Appeal was concerned with Article 22(2) of the Regulation. In that case the claimants disputed the validity of appointments to the board of the first defendant, an English company. The claimants and the defendants were parties to a shareholders’ agreement. Whether or not the appointments were valid depended upon the terms of the shareholders’ agreement which was the main area of live dispute. Thus the proceedings before the court involved the effect of the shareholders’ agreement and the effect of that on the validity of the appointments to the board. The Court of Appeal, having noted its decision in Grupo Torras v Al-Sabah, asked itself what the subject matter of the dispute was and said it was a dispute about the composition of the board. The proceedings were therefore caught by Article 22(2), a decision which was considered consistent with the objective underlying Article 22(2).[38]It is difficult to say whether this decision favours the argument of BVG in this case. There was no issue of English company law in that case and therefore no such issue could be said to be dispositive of the case. Possibly, it might be said to favour JPM’s case because the court asked itself what the subject matter of the dispute was. But the case is so different from the present case that it is difficult to draw any such conclusions.[39]The final English case to which reference was made in this context was FKI Engineering Ltd.v Dewind Holdings Ltd. [2007] EWHC 72 (Comm), [2007] I.L.Pr.17. In that case David Steel J., when dealing with a jurisdictional challenge based on Article 22(2), said that the essential test was to identify whether the proceedings were in substance or principally concerned with the validity of a decision of the organ of the company. In so doing he followed Newtherapeutics v Katz and Grupo Torras v Al-Sabah. To that extent the decision assists the argument of JPM. However, little more can be extracted from the decision for the purposes of the case before me because David Steel J. did not further elaborate his reasons for reaching the conclusion that the “essential test” was not satisfied. (The case went to the Court of Appeal but not on this point; see [2008] I.L.PR.492.)[40]I was also referred to a number of European cases. Case C-294/92 Webb v Webb [1994] ECR 1-1717 concerned Article 22(1); proceedings which have as their object rights in rem in immoveable property. A father sought an order requiring his son to execute such documents as were necessary to transfer land in France to him. The claim was based upon a fiduciary relationship. It was held that the proceedings were not caught by Article 22(1). The claim was not based upon a right in rem. It was based upon a right in personam. It was held not to be sufficient for Article 22(1) to apply that a right in rem was involved in the action or that the action had a link with immoveable property. I do not consider that this decision assists either BVG or JPM. It is consistent with the cases of each.[41]The second case, also involving Article 16(1), was Case C-343/04 Land Oberösterreich v ČEZ as [2006] ECR 1-4557. An order was sought restraining a power company from emitting ionising radiation from a power plant onto land. It was held that since the real and immoveable nature of the land affected was only of marginal significance and would not have a decisive influence on the issues to be determined the proceedings were not caught by Article 22(1). This case confirms that where an issue within Article 22 may be dispositive of the proceedings that will be a relevant matter to take into account. To that extent the decision assists BVG. However, the case does not establish that where several issues may be dispositive of proceedings and one of those issues is within Article 22 that is sufficient to bring the proceedings within the Article, that is, to make the proceedings “principally concerned with” a matter within the Article.[42]I have already referred to the GAT case, Case C-4/03 [2006] ECR 1-4557, in the context of the question whether it was permissible to have regard to the likely defence. It was submitted that GAT was authority for the proposition that, for the purposes of the “principally concerned” test, it is sufficient that the issue within Article 22 is one of a number of potentially dispositive issues. The basis of this submission was that an issue raised for the first time by way of defence will never be the only potentially dispositive issue in the proceedings. However, GAT was a patent case in which, as I have already noted, an infringement allegation is typically met with an invalidity allegation. It is necessary to recall that in Coin Controls Laddie J said that such issues are so closely interrelated that they should be treated for jurisdictional purposes as one issue or claim. I therefore do not consider that a patent case is a sure foundation for the conclusion BVG seek to draw from that case. GAT was not a clear case of multiple issues such as the present. The court was not asked to consider whether in circumstances where the proceedings involved two or more issues, each one of which was potentially dispositive of the proceedings and one of which was within was within Article 22, that was sufficient to meet the “principally concerned” test.[43]The last case referred to was Case C-372/07 Hassett v South Eastern Health Board C-372/07 [2008] ECR 1-00000 and involved Article 22(2). The case concerned a dispute between two doctors and their mutual defence organisation. The doctors sought indemnity from the association in respect of their alleged liability for professional negligence. The board of management of the association decided not to grant indemnity. That decision was challenged and the association said that the claim was against the validity of the decision of its board of management and so was caught by Article 22(2). The ECJ stated that the exclusive jurisdiction provisions in Article 22(2) must be interpreted strictly, that is not be given an interpretation broader than is required by the objective of Article 22(2); see paragraphs 16-19. The essential objective of Article 22(2) was one of centralising jurisdiction in order to avoid conflicting judgments regarding the existence of a company or as regards the validity of the decisions of its organs; see paragraphs 20-21. Following Webb v Webb it was said that it was insufficient for Article 22(2) to apply that a legal action involved some link with a decision adopted by an organ of a company; see paragraphs 22-23. If that were sufficient the scope of Article 22(2) would extend beyond what was required by its objective; see paragraphs 24-25. Article 22(2) must therefore be interpreted “as covering only disputes in which a party is challenging the validity of a decision of an organ of a company under the company law applicable or under the provisions governing the functioning of its organs, as laid down in its Articles of Association”; see paragraph 26. Since the doctors were not challenging that the board of management was empowered to reject claims for an indemnity but challenging the way in which that power was exercised the proceedings were not caught by Article 22(2).[44]Hassett assists BVG in the sense that its ultra vires challenge is a challenge to “the validity of a decision of an organ of a company under the company law applicable”. However, Hassett was not a case where the proceedings in question involved multiple issues, one of which was issue within Article 22(2) and other issues which were not within Article 22(2).[45]I was provided with relevant extracts from the various textbooks dealing with this subject. However, neither counsel suggested that the particular issue which I have to resolve is considered in The Conflict of Laws by Dicey Morris and Collins 14th.ed., in European Civil Practice 2nd.ed., by Layton and Mercer or in Civil Jurisdiction and Judgments 4th.ed., by Briggs. Mr. Rabinowitz referred me to Civil Jurisdiction and Enforcement of Foreign Judgments by Kaye (1987) at pp.438 and 965 where it is suggested that a defence of ultra vires to a claim for breach of contract would not result in exclusive jurisdiction under Article 22. However, the reasoning underlying that opinion is not clear. It is possible that the author had in mind that only claims could be looked at, not defences, a view which can now be said to be mistaken.

Conclusions

[46]Having considered the relevant articles of the Regulation, the Jenard report, and the authorities to which I was referred I have reached the conclusion that, consistently with the approach of Knox J. in Newtherapeutics v Katz and of Mance J. in Grupo Torras v Al-Sabah which appears to have been accepted by the Court of Appeal in Grupo Torras v Al-Sabah and in Speed Investments, I should ask myself, as David Steel J. did in FKI Engineering, whether the proceedings before this court are in substance or principally concerned with the ultra vires issue raised by BVG by way of defence to JPM’s claim. In doing so I consider that it is appropriate to be guided by Mance J.’s approach, namely, that the court is involved in an exercise of “overall classification” and that I must view the “litigation overall” and form an “overall judgment”, taking into account the underlying rationale of Article 22(2). In carrying out that exercise it is helpful and appropriate to have well in mind the guidance in the Jenard Report that where an issue within Article 22(2) is only a preliminary or incidental matter the proceedings will not be “principally concerned” with it.[47]I am not persuaded that the patent cases on which BVG rely are properly to be regarded as multiple issue cases. Laddie J. regarded infringement and validity as one issue. Even if they can fairly be regarded as multiple issue cases the manner in which the “principally concerned” test is applied to the different sub-paragraphs of Article 22 need not be uniform. The meaning of “have as their object” in the sense of “principally concerned” must apply to each sub-paragraph (or at least to (1)-(3)) but the manner in which it is applied may legitimately vary because the subject-matter of the sub-paragraphs is different and therefore the extent to which the policy underlying each sub-paragraph may require a particular conclusion may vary; see Speed Investments at paragraph 35. Therefore, and with respect to Laddie J., I do not consider that I should follow the admittedly simpler approach suggested by him in Coin Controls, namely, that it is sufficient if an issue which is within Article 22 is a major feature of the proceedings. Nor do I consider that I should follow the approach suggested by BVG, namely, that it is sufficient if an issue within Article 22 is or may be dispositive of the proceedings. However, I accept that whether or not an issue within Article 22(2) is a major feature of the proceedings or is or may be dispositive of the proceedings must be a relevant matter to consider when forming the overall judgment required of the court in answering the question whether the proceedings in this court are principally concerned with the ultra vires issue.[48]The proceedings before this court involve a claim by JPM to enforce the terms of a commercial agreement, the JPM Swap. JPM claims US$112m and associated declarations, including one that the JPM Swap is valid, binding and enforceable in accordance with its terms. The declarations were sought in consequence of claims made by BVG that it had only agreed to the JPM Swap because of incorrect advice. When the proceedings were commenced the declarations were not intended to cover the issue of ultra vires because that had not been raised. However, that issue now has been raised and any declaration as to the validity of the JPM Swap being valid, binding and enforceable will have to take into account the ultra vires issue.[49]The JPM Swap is a complex agreement. It consists of a Confirmation Letter running to 60 pages, the 2002 ISDA Master Agreement and Schedule, the 2003 ISDA Credit Derivatives Definitions and various Trading Standards Annexes. Counsel for BVG sought to explain how it works in an Appendix of 7 pages to his Skeleton Argument. I was not told that there was any dispute as to whether the sums claimed by JPM pursuant to the JPM Swap were properly due pursuant to its terms but the mechanism of the JPM Swap and the manner in which it operates will have to be studied at the trial because of the allegation of incorrect advice. BVG say that they thought they would be reducing their risk exposure on cross-border leasing transactions by entering into the JPM Swap but instead they added to it. The allegations of incorrect advice are likely to take the form of allegations of misrepresentation, non-disclosure and breach of contract. The German proceedings suggest that what was said or not said by JPM and what was understood or not understood by BVG at a number of meetings (said to be 11 from June 2006-July 2007) will require to be investigated and assessed in the context of the complex nature of the JPM Swap.[50]There is therefore likely to be a major trial concerning the events leading up to the JPM Swap, the meaning and effect of the JPM Swap, BVG’s understanding of the Swap, the extent to which BVG misunderstood the JPM Swap, and if BVG did misunderstand the JPM Swap, the extent to which that misunderstanding was the result of what was said or not said by JPM to BVG. But one issue at the trial will also be the issue of ultra vires, which has been raised by BVG and arises independently of the allegation of incorrect advice. The resolution of that issue will involve expert evidence of German law. There has already been an exchange of expert evidence. The expert instructed by BVG, Professor Assmann, states that BVG had no power to enter into a financial transaction in which it was the provider of financial services, where the transaction was not genuinely incidental to the cross-border leases or necessary to reduce its exposure on those leases and where the transaction was highly speculative and exposed BVG to a very large liability. The expert instructed by JPM, Professor Heckmann, disagrees. He states that there is no ultra vires doctrine in German law and that, if there is, BVG acted intra vires.[51]That issue of German law is likely to be an important feature of the proceedings because it may be dispositive of the proceedings. If Professor Assman’s opinion is accepted the claim of JPM will fail; at any rate it was not suggested that it would not fail in that event. Whilst this is a relevant matter to take fully into account I have difficulty in concluding that these proceedings are principally concerned with the ultra vires issue or that the principal subject matter of proceedings is the ultra vires issue or that the proceedings are in substance concerned with the ultra vires issue. Rather, taking into account all aspects of the litigation, in so far as they are apparent from the materials before the court, and seeking to form an overall judgment, these proceedings can fairly and properly be described as being principally concerned with a claim by JPM to enforce the JPM Swap and a likely defence and counterclaim by BVG based on misrepresentation, non-disclosure and breach of duty by JPM of a consultancy contract arising out of what was said or not said by JPM to BVG before the JPM Swap was entered into. But the proceedings will also involve the determination of an important preliminary issue, namely, whether the JPM Swap was ultra vires BVG.[52]I have further considered whether, bearing in mind the underlying rationale of Article 22(2), and adopting the language of Mance J., the proceedings are likely to be so closely connected with the German corporate law of ultra vires that they should not be tried anywhere but in the courts of Germany. The following considerations appear to be significant: i) The ultra vires issue has arisen in the context of a commercial contract between JPM and BVG, the terms of which contain an apparent agreement that this court shall have jurisdiction to determine disputes between the parties. Apart from the ultra vires issue the other important issues in the proceedings are not within Article 22(2). The policy underlying Article 22(2) does not require those issues to be tried in Germany. ii) The resolution of the dispute between the parties, and in particular the ultra vires issue, will affect only the parties to the dispute. It was not suggested that there are other entities or persons who may potentially be affected by the determination of the dispute between the parties. The position may well be different with patents where decisions may have erga omnes effect; see GAT at paragraph 30. iii) Article 25, as explained in the Jenard Report, contemplates that there can be issues in a case, albeit preliminary or incidental issues, which are within the class of issues otherwise subject to the exclusive jurisdiction of a particular court pursuant to Article 22 but which do not require the court seized of the case to declare that it has no jurisdiction. But even preliminary issues have to be decided. It follows that the mere fact that they have to be decided and so give rise to a risk of conflicting judgments does not require the court seized of the case to declare that it has no jurisdiction. The court is only required to do so when the case is principally concerned with an issue subject to the exclusive jurisdiction of a particular court pursuant to Article 22. iv) It has been suggested that the policy underlying Article 22(2) will be promoted by enabling the German courts to develop the direction in which the ultra vires doctrine in German law should develop. Whilst this court often makes findings as to issues of foreign law on the basis of expert evidence, it is of course preferable that German courts should decide issues of German law. But that is not the policy underlying Article 22(2). That policy is to avoid conflicting decisions as to the validity of decisions of organs of a company or other association. The present case is not one in which it is said that BVG’s Management Board or Supervisory Board (the relevant organs of BVG) have taken or will take other decisions liable to be struck down on the ground of ultra vires. Indeed, having regard to the dispute in this case it is improbable that any such decision will be taken in the future. The present case is therefore different from Speed Investments in which there was a challenge to the validity of the appointment of directors to the board of a company. Since the board in Speed Investments was likely to take further decisions in the future there was a risk of conflicting decisions in the future as to the validity of the appointments of those directors. The possibility that a finding of this court as to the German law of ultra vires will hinder the policy of Article 22 therefore seems remote.[53]Having reviewed the proceedings before this court “overall” I have concluded that they are not principally concerned with the issue of ultra vires and that the issue of ultra vires, viewed in its context, is not one which the policy underlying Article 22(2) requires to be decided by the German courts.[54]It was submitted, in the alternative, that the court should decline jurisdiction in respect of the ultra vires issue and stay the rest of the English proceedings pending determination of the ultra vires dispute by the German courts. This submission was not pursued with vigour. It was not clear how the text of the Regulation would permit such an approach, though it is discussed in Civil Jurisdiction and Judgments by Briggs at paragraphs 2.56-2.57 in relation to Article 22(4), was suggested in Coin Controls by Laddie J., and in GAT by AG Geelhoed (though not by the Court) and appears to have been adopted by the Dutch courts; see Expandable Grafts v Boston Scientific [1999] FSR 352 at para.29. Whether or not such an approach is permissible I do not consider that it would be appropriate in the present case having regard to my conclusion that the issue of ultra vires, viewed in its context, is not one which the policy underlying Article 22(2) requires to be decided by the German courts.[55]For the reasons I have endeavoured to explain I must dismiss BVG’s application.