As the long-awaited upsurge in litigation stemming from the fi nancial crisis gathers momentum in London, the High Court has been awash with jurisdictional battles.
The UBS v HSH Nordbank decision was a forerunner. The issue in that case was how to deal with a situation where several agreements are in place between the two parties, with competing jurisdiction clauses in different agreements. The typically pragmatic approach taken at fi rst instance, and upheld in the Court of Appeal,1 was to focus on the jurisdiction provisions in the contract that lay at the heart of the dispute, ignoring inconsistent provisions in more peripheral agreements. If such an approach might lead to a proliferation of proceedings in other jurisdictions on the basis of elements of the dispute that related to the peripheral contracts, so be it.
There has been a string of challenges to the jurisdiction of the English courts in relation to swap transactions - the most recent challenge to fail being in UBS v Kommunale Wasserwerke Leipzig.2 In such cases entities from other EU jurisdictions which were swap counterparties to out-of-the-money swaps sold from London have argued that the swap contract was void because they were constitutionally incapable of entering into this type of transaction, running the classic ultra vires defence exemplifi ed in Hazell v Hammersmith & Fulham Council.3 In a jurisdictional context, the argument has been that the power and capacity of the defendant to enter into the transaction properly is a matter for the defendant’s home courts under Article 22 of the Brussels Regulation, with such provision trumping the contractual English jurisdiction clauses that would otherwise have been given effect under Article 23. The English courts have robustly dismissed such attempts to escape their jurisdiction. The test has been framed in broad, purposive terms: “With what will the English proceedings be principally concerned?”4 If the answer is that the connection is primarily with England or with contracts governed by English law and jurisdiction clauses, the English courts will assume jurisdiction.
JSC BTA Bank litigation
In the most recent decision in the JSC BTA Bank litigation, the courts considered another jurisdictional question. The issue arises in the context of international disputes with a matrix of claims and crossclaims between multiple parties based in different countries, each with their own set of contractual documents and fact sets. In such circumstances it is likely that if each individual claim within the matrix were considered in isolation, the answer to the question of which court properly had jurisdiction would differ for different parts of the overall dispute. There is an obvious tension between this position and the desirability of having an entire dispute determined by one court, both for reasons of effi ciency and in the interest of avoiding confl icting judgments.
Once English jurisdiction has been established in relation to a dispute between two of the parties to a dispute, the English courts address the question by examining whether the other parties are necessary and proper parties to be joined to the dispute; if it can be shown that they are, permission may be granted to serve proceedings on them outside the jurisdiction.
The JSC BTA Bank litigation has already occupied much court time. It stems from the state takeover of one of the largest banks in Kazakhstan in early 2009 - the Kazakh state describes the takeover as a rescue following the bank’s collapse, although this is disputed. The bank claims that it was massively defrauded by its former chairman and majority benefi cial owner, Mr Ablyazov, who was allegedly aided and abetted by the chairman of the management board, Mr Zharimbetov. The proceedings that are the subject of the latest judgment are the second to be brought by the bank in England against Ablyazov, Zharimbetov and others on the basis of fraud allegations. The bank claims that the two men fraudulently extracted over $1bn from the bank by procuring the approval of loans to four companies, ostensibly for the purchase of oil industry equipment. The money was paid into a Latvian bank pursuant to letters of credit in favour of six companies that were ostensibly to act as intermediaries in the equipment purchase transactions. It appears that the oil equipment did not exist. The money was paid to recipients that are as yet publicly unidentifi ed; the bank alleges that it was ultimately received by Ablyazov and Zharimbetov.
The defendants all vigorously deny these claims. Ablyazov’s position is that the English proceedings are politically motivated. He maintains that they are part of a scheme by which the president of Kazakhstan is allegedly seeking both to expropriate the bank from him and to remove him from a leading role in Kazakh opposition politics.
Wherever the truth lies, the heart of the dispute is clearly in Kazakhstan. In the words of Justice Clarke, summarising submissions made to him on that issue:
“the bank is a Kazakh bank which claims to have been the victim of a fraud directed by two Kazakh nationals in Kazakhstan in breach of their Kazakh law duties as offi cers of the bank. It brings claims governed by Kazakh law against those Kazakh nationals and the applicants who have no connection with [the United Kingdom]. The likely issues… will involve consideration of the actions of up to two dozen nationals of Kazakhstan; the application of Kazakh law,
which expressly incorporates the ethical norms of Kazakh society; and many documents, most of which are in Russian. Most of the witnesses will be residents of Kazakhstan, speaking Russian or Kazakh and not English.”
The only reason that the English courts have jurisdiction over the claims against Ablyazov and Zharimbetov is that they fl ed Kazakhstan and became domiciled in the United Kingdom - there is no other real connection with England. In the past, the English courts would have retained a discretion under common law to decline to accept jurisdiction over the claims against Ablyazov and Zharimbetov if it were deemed that, when viewed in the round, all the claims and cross-claims between the protagonists would be better dealt with in the courts of another jurisdiction. That is no longer the case under the Brussels Regulation, since the European Court of Justice’s decision on the referral in Owusu v Jackson.5 As a result of that decision, a contracting state court cannot decline jurisdiction if the party being sued is domiciled in its jurisdiction, even if the court believes that the dispute would be better heard in the courts of a noncontracting state. Thus, the English court was bound to assume jurisdiction over the bank’s claims against Ablyazov and Zharimbetov. However, what was the proper approach to other parties to the dispute, which were not domiciled in England and to which Owusu did not apply?
Applicability of Owusu
The application considered in Clarke’s latest judgment was to set aside an order granting permission to serve the applicants outside the jurisdiction in order to join them to the proceedings between the bank and Ablyazov and Zharimbetov. The applicants were the borrower companies and four of the six intermediary companies. All of the companies were registered in the British Virgin Islands or the Seychelles. The bank claimed that they were all ultimately controlled by Ablyazov and Zharimbetov.
The applicants argued that as Owusu did not directly apply to them; as they were not domiciled in England, it should not be allowed to infl uence the approach to the question of whether the English courts should assume jurisdiction over the dispute as a whole - and thus over them. They argued that the court should approach the question as it would have done before Owusu, by considering where the whole dispute would best be determined. In so doing, it should ignore the fact that the English court was already bound to hear part of the dispute - that is, the claims against Ablyazov and Zharimbetov - under Owusu. If a court, pre-Owusu and under the common law, would have declined jurisdiction over the dispute as a whole because it would better be heard in another jurisdiction, the other parties should not be joined to the English proceedings simply because Owusu required the English courts to hear the claims against Ablyazov and Zharimbetov.
The test that was applied was robust, but generalised and pragmatic. Clarke rejected the contention that the fact that jurisdiction had been assumed over Ablyazov and Zharimbetov under Owusu should be ignored in considering the position of the other parties to the dispute. The fact that some proceedings were already underway could not be discounted entirely, as to do so would:
“[fail] to distinguish the case in which the anchor defendant is the chief protagonist from the case where he is a minor player. A decision that permission should be granted to serve the protagonist out of the jurisdiction because the minor player is domiciled within the jurisdiction would indeed allow the tail to wag the dog. But if the anchor defendant is the protagonist, a decision to allow a minor player to be served outside the jurisdiction may be entirely appropriate. That would be, to continue the metaphor, to allow the dog to wag the tail.”
He explained further that:
“I do not mean thereby to suggest that whether or not jurisdiction should be exercised against a foreign defendant is necessarily determined by whether the anchor defendant, or the defendant sought to be joined, fi ts into some particular descriptive category (‘major/minor’ or ‘principal/secondary’); only that a decision as to appropriate forum must necessarily take account of the relative importance in the case of different defendants, and particularly those against whom proceedings in England are practically bound to continue.”
The decision was complicated by the fact that jurisdiction over the anchor defendants in the case was established only by the effect of their domicile under the Owusu principle.
The test itself applies more broadly. If some proceedings are bound to take place in England because of Owusu, that is relevant in deciding whether the English courts should assume jurisdiction over other parties and the wider dispute. However, this will not be allowed to lead to purely tactical forum shopping. If, instead of being at the heart of the dispute, Ablyazov and Zharimbetov had been merely minor or peripheral fi gures, the English courts would not have been swayed into accepting jurisdiction over such a Kazakh-centred dispute simply because they were bound to hear the bank’s claims against the two men.
This approach is in tune with the general tenor of the recent jurisdiction cases in the High Court and the Court of Appeal. The circumstances will be assessed in the round and a pragmatic decision will be taken on the issues, protagonists and legal relations that lie at the heart of the dispute. Naturally, the heart of a dog is not in its tail.