The Lugano Convention governs issues of jurisdiction and enforcement of judgments between EU member states and European Free Trade Association countries, other than Liechtenstein. A fundamental principle of the Convention is to limit the possibility of concurrent proceedings in different jurisdictions, thereby reducing the risk of irreconcilable judgments. The recent High Court ruling in Lehman Brothers Finance AG v Klaus Tschira Stiftung GmbH [2014] on the scope of ‘proceedings’ and ‘court’ in Articles 27 and 30 of the Convention is a pragmatic decision, consistent with the overall aim of the Convention.

The Convention

Articles 27-30 of the Convention contain provisions with regard to related actions. Article 27 provides that where proceedings involving the same cause of action between the same parties are brought in the courts of different states bound by the Convention, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. 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.

Article 30 provides that a court is deemed seised either when the document instituting the proceedings is lodged with the court, provided the claimant subsequently takes the necessary steps to have service effected, or, if the document has to be served before being lodged with the court, when the document is received by the authority responsible for service, provided the claimant subsequently takes the required steps to lodge the document with the court.

Article 27 will only apply if the proceedings are still pending in the court first seised when the proceedings are commenced in the court second seised. If the proceedings in the court first seised have terminated for any reason, Article 27 will not apply.

Lehman Brothers v Klaus Tschira Stiftung GmbH

The recent ruling in Lehman Brothers has taken a common-sense approach to the interpretation of the words ‘proceedings’ and ‘court’ in Articles 27 and 30, providing useful clarification of the scope of the Articles’ application.

A dispute had arisen between Lehman Brothers Finance AG (in liquidation) and Klaus Tschira Stiftung GmbH in relation to the calculation of loss under an ISDA master agreement. It was common ground between the parties that the filing of Chapter 11 proceedings in the US by Lehman Brothers Inc had given rise to an automatic early termination, but the parties disagreed about how loss was to be calculated and who was to be the paying party.

On 18 March 2013, Lehman Brothers’ English solicitors sent a letter of claim to Klaus Tschira seeking payment of the sums alleged to be due. Following receipt of the letter, on 25 March 2013 Klaus Tschira submitted a request for conciliation to the conciliation authority in Zurich in accordance with the Swiss Civil Procedure Code, seeking a declaration of non-liability. On 2 April 2013, Lehman Brothers issued a claim form in the Chancery Division of the High Court in London. The claim form was served in August 2013. In the interim, on 23 May 2013, a conciliation meeting was held in Zurich in accordance with the provisions of the Swiss Code. No settlement was reached and Klaus Tschira was granted permission to file a complaint pursuant to Article 209 of the Swiss Code. Subsequently, the District Court of Zurich declined to hear the action on the basis that jurisdiction lay with the Commercial Court in Zurich. Klaus Tschira appealed but the appeal was dismissed by the Superior Court of Zurich.

Therefore, by the time the application by Klaus Tschira to stay the English action came to a hearing, there were no extant proceedings in Switzerland and no basis for a stay of the English proceedings. However, Klaus Tschira had stated an intention to appeal to the Swiss Federal Tribunal. Therefore, the parties asked the English court to rule on whether the procedure initiated in Switzerland constituted ‘proceedings’ before a ‘court’ within the meaning of Articles 27 and 30 of the Convention.

Conciliation procedure

The process commenced in Switzerland was a conciliation procedure pursuant to Article 197 of the Swiss Code. The expert evidence before the court was clear that as of 1 January 2011 the Swiss legislature had incorporated mandatory conciliation as part of the Swiss Code. As such, it was not possible for a claimant to introduce in an adjudicative proceeding any claim which had not first been the subject of a conciliation procedure.

The expert evidence was that the conciliation procedure could result in a final disposal of the dispute, the binding decision of which would be enforceable in the same way as a judgment. If there was no resolution, the conciliation authority would issue an authorisation to proceed and the claimant would be permitted to file a claim within three months thereafter.

The conciliation procedure was distinct from mediation, the latter being a voluntary process finally disposed of at the conciliation stage and any outcome would be enforceable as a judgment. The judge concluded that in circumstances where conciliation proceedings were mandatory it was unrealistic not to regard them as part of proceedings which may lead to an enforceable judgment. A ruling achievement of the avoidance of parallel proceedings and inconsistent judgments if the commencement of conciliation proceedings fell outside Articles 27-30. Given that the Swiss proceedings had terminated, the judge did not grant a stay of the English proceedings, but organised by the parties which focused on solving a dispute as a whole rather than in accordance with the strict application of law.

There was no dispute between the parties 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.  The issue for determination was whether the earlier lodging of the request for conciliation with the Justices of the Peace in Zurich also satisfied Article 30 with the result that the court in Zurich was first seised. This required a consideration of the meanings of ‘proceedings’ and ‘court’ in the Convention.

The meaning of ‘proceedings’

Mr Justice David Richards noted that the term ‘proceedings’ was not defined in the Convention but its meaning could be deduced from the purpose of the Convention and the context in which it was used. He considered that prior authority dictated that the term should be interpreted broadly. This stemmed from the fact that Articles 27-30 were largely designed to protect parties against the burden of parallel proceedings and conflicting judgments, with the consequential difficulties of recognition and enforcement.

The judge noted that conciliation proceedings were the subject of detailed provision within the Swiss Code and were a mandatory first step in the resolution of civil and commercial disputes within the Swiss court system. Save for very limited circumstances, the adjudicative process in the court could not be started without the authorisation issued following completion of the conciliation stage. Further, a dispute could be finally disposed of at the conciliation stage and any outcome would be enforceable as a judgment. The judge concluded that in circumstances where conciliation proceedings were mandatory it was unrealistic not to regard them as part of proceedings which may lead to an enforceable judgment. A ruling that conciliation proceedings in Switzerland were not proceedings for the purposes of the Convention would discriminate without cause against those who legitimately wished to pursue a claim in Switzerland.

The definition of ‘court’

In relation to the meaning of ‘court’, the judge referred to Article 62 of the Convention and to the official explanatory report on the Convention, which stated that the Convention adopted a broader meaning of ‘court’, to include any authority in a national system having jurisdiction in the matters falling within the scope of the Convention.

He considered that the need to give Article 27 a broad interpretation required an examination of the role of the conciliation authorities in the context of Swiss civil procedure. The Justices of the Peace in Zurich were part of the judicial system and conciliation before the Justices of the Peace was the first stage in the pursuit of a civil claim. It was appropriate therefore to identify the conciliation authorities as bodies which fell within the definition of ‘court’ as they were an integral part of Swiss civil proceedings.

In light of the overall purpose of the Convention, he thought it would be contrary to the achievement of the avoidance of parallel proceedings and inconsistent judgments if the commencement of conciliation proceedings fell outside Articles 27-30. Given that the Swiss proceedings had terminated, the judge did not grant a stay of the English proceedings, but indicated that he would have done if the Swiss proceedings had not been dismissed.

Comment

The view reached that the priority of a claim should be determined according to the first mandatory act required to commence an action, even if that act is akin to an ADR procedure, provides helpful clarification of the approach to be taken when applying Articles 27 and 30. The English court has not adopted a very technical approach to the meaning of ‘proceedings’ and ‘court’, but a pragmatic one, with the result that the Swiss conciliation proceedings fell within Article 30, which provision determines when a court is seised for the purposes of Article 27. It is implicit that to remain first seised, the claimant would need to take any other necessary steps for the proceedings to remain underway following the first mandatory act.

The judgment is also relevant to the Brussels Regulation, which sets out a system on jurisdiction and the reciprocal enforcement of judgments between European Union member states and Denmark, which is materially the same as that set out in the Convention.