Background

ENPAM, a pension fund, entered into a transaction with Barclays Bank plc (the "Bank") whereby it exchanged fund assets for securities in the form of credit-linked notes, effected by a ‘Conditional Asset Exchange Letter’ (the “Letter Agreement”). The Letter Agreement contained a jurisdiction clause which provided that “the courts of England are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this letter.” ENPAM subsequently alleged that the securities were risky, complex and wholly inappropriate for its investment objectives, and that it suffered a major loss as a result of the transaction. It initiated proceedings against the Bank in the Civil Court of Milan in June 2014 (the “Milan proceedings”), claiming damages on the basis that the Bank had acted contrary to Italian law and as a result had incurred pre-contractual and extra-contractual liability. 

The jurisdiction question

The Bank claimed that the Milan proceedings were initiated in breach of the exclusive jurisdiction clause in the Letter Agreement and sought a declaration to that effect from the English High Court in September 2014. ENPAM responded with an application for an order that the High Court should not exercise its jurisdiction over the dispute because the first claim was brought in the Civil Court of Milan (i.e. the Milan court was the first court ‘seised’ of the dispute for the purposes of the Brussels Regulation). In May 2015 the Bank applied for summary judgment, arguing that ENPAM had no real prospect of defending the application for a declaration that the Milan proceedings breached the exclusive jurisdiction clause. 

Legal framework

Council Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments (the “Brussels Regulation”) sets out a system for determining which EU Member State court should have jurisdiction over a dispute and how the judgments of a court in one Member State should be recognised and enforced in the courts of other Member States. The Brussels Regulation has recently been superseded by Council Regulation 1215/2012 (the “Recast Regulation”) which applies to proceedings instituted on or after 10 January 2015. As the Barclays v ENPAM proceedings were commenced prior to 10 January 2015, they were governed by the Brussels Regulation.  Article 27 of the Brussels Regulation provides that where proceedings involving the same cause of action between the same parties are brought in the courts of different Member States, any court other than the court first seised of the dispute must stay its proceedings until the first court has determined whether it has jurisdiction. This is the case even where an exclusive jurisdiction clause favours the second court.  Article 28 of the Brussels Regulation is more flexible, giving courts discretion as to whether they cede jurisdiction to the court first seised. It provides that where related actions are pending in the courts of different Member States, any court other than the first court may stay its proceedings. Actions are deemed to be ‘related’ where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings. 

The judgment

Article 27 – mirror image proceedings

In his discussion of the principles applicable to Article 27, Blair J referred to the Supreme Court’s decision in The Alexandros T case - the leading English authority on exclusive jurisdiction. He recalled that, in considering whether two sets of proceedings involve the same cause of action, “the essential question is whether the claims are mirror images of one another and thus legally irreconcilable.” In Alexandros T, the court confirmed that where claims are brought for breaches of an exclusive jurisdiction clause, these “are different causes of action from claims for substantive relief based on a breach of the underlying contract.” Blair J also acknowledged the well-established principle that jurisdiction clauses are separable from the agreement as a whole. Accordingly, he considered that the claims in the Milan proceedings, which attacked the Letter Agreement as a whole using tortious and restitutionary causes of action, did not equate to an attack on the separate jurisdiction agreement contained within the Letter Agreement, which was the subject of the English proceedings. The causes of action were not the same and ENPAM could not rely on Article 27 to require the English courts to cede jurisdiction to Milan. 

Article 28 – related actions

The Bank and ENPAM did not dispute that the two sets of proceedings were ‘related’ actions and that Article 28 was therefore engaged. However, as the decision regarding a stay under Article 28 is a discretionary one, ENPAM sought to persuade the Court that various factors present in this particular case supported an order to stay the English proceedings, such as common issues with the Milan proceedings, the risk of conflicting decisions and the factual and legal proximity with Italy. Blair J was not persuaded. He found that the common issues in the proceedings were not substantial and that the claims in the English proceedings did not have factual and legal proximity with Italy. The fact that the Bank would be a party to the Milan proceedings in any event did not carry much weight. Moreover, the fact that the parties had agreed an exclusive jurisdiction clause was a “powerful factor” in support of refusing the stay. The Court found in the Bank’s favour and refused ENPAM’s application for a stay of the English proceedings. 

Comment

This decision provides useful guidance on the approach of the English courts to jurisdictional disputes between EU Member States. Traditionally the courts have been reluctant to interfere where proceedings are pending in a foreign sovereign state; it has been said (and indeed ENPAM argued) that a strong presumption has developed in favour of staying the domestic proceedings. However, the jurisdictional regime for EU Member States has undergone significant change with the coming into force of the Recast Regulation, which gives primacy to the parties’ chosen court to determine jurisdiction. Article 31.2 of the Recast Regulation provides that “where a court of a Member State on which an agreement […] confers exclusive jurisdiction is seised, any court of another Member State shall stay the proceedings until such time as the court seised on the basis of the agreement declares that it has no jurisdiction under the agreement.” The new regime therefore enhances the protection for exclusive jurisdiction agreements.

Although the Barclays v ENPAM [2015] EWHC 2857 proceedings were governed by the previous regime, the decision does signal a change in emphasis from the courts. Significant weight was given to the parties’ exclusive jurisdiction clause, which was a “powerful factor in support of the refusal of a stay”. The same outcome would have been achieved if Barclays v ENPAM had been subject to the new rules under the Recast Regulation, but by a different and arguably more straightforward route. This case serves as a timely reminder for contracting parties to consider carefully what jurisdictional arrangements they may require and to ensure that these are clearly reflected in their agreements.