Third State jurisdiction clause respected – Owusu considered
31 March 2015
To what extent, if at all, does the English court have discretion to decline jurisdiction over proceedings commenced on the basis of domicile of the defendant, if the appropriate forum is a third state court? In particular, what if the dispute should be resolved before that third state court pursuant to a jurisdiction clause? The decision in Plaza BV v Law Debenture Trust Corp plc  EWHC 43 (Ch), 16 January 2015, of Mrs Justice Proudman in the Chancery Division grapples with these tricky questions, which remain unresolved, ten years after the controversial 2005 decision of the Court of Justice of the European Union (CJEU) in Owusu v Jackson (C-281/02). Mrs Justice Proudman's decision was given under the old Brussels Regulation and no mention appears to have been made of the new Brussels (Recast) Regulation (applicable to proceedings commenced on or after 10 January 2015).
The defendant (LDTC) was a trustee of five subordinated bond issues issued by an Australian group of companies, the Bell Group. All the trust deeds were governed by English law and had non-exclusive English jurisdiction clauses. The claimant (Plaza) was a substantial holder and beneficiary of certain bonds.
The backdrop to this action was the collapse of the Bell Group in the early 1990s, when certain companies within the group went into liquidation. There followed almost a decade of litigation in Australia, with the liquidators of the principal companies in the Bell Group commencing proceedings in Western Australia challenging security taken prior to the collapse by groups of banks. In 2013 the main Australian action was settled by a Deed of Settlement (Deed). The parties to the Deed included LDTC (as trustee) and, importantly, Plaza. The Deed's principal purpose was to resolve the issues between the Bell group of companies and the defendant banks by disposal of all the proceedings. The banks dropped their claims as creditors in the liquidation and under this Deed the liquidators of certain Bell companies received 1.7 billion Australian dollars. The Deed was governed by the laws of Western Australia and the parties submitted to the exclusive jurisdiction of the courts of Western Australia.
In the English action Plaza sought to restrain LDTC from acting contrary to Plaza's interests in alleged breach of trust and in alleged conflict of interest. Plaza sought injunctive relief restraining LDTC from implementing certain supplemental deeds claiming that all such deeds should be delivered up and LDTC's execution of a previous deed should be annulled.
The question the court first had to address was whether the exclusive Australian jurisdiction clause in the Deed of Settlement was engaged. Secondly, it had to consider what the effect of Article 21 of the Brussels Regulation was in the light of Owusu. In this matter, the defendant was an English domiciled company.
Scope of jurisdiction clause
The jurisdiction clause in the Deed included a submission to the Australian courts and reference to "any proceedings in connection with the Deed" being resolved by the "courts of Western Australia". The court noted these words should be given a broad and purposive construction (as per Sebastian Holdings Inc v Deutsche Bank AG  EWCA Civ 998). Mrs Justice Proudman noted that in reaching a decision the court must consider a wide range of material including all the pleadings and the circumstances directly or indirectly referred to in the pleadings, and that wider assessment exposed the connection between issues in the English proceedings and the Deed.
Although Plaza's claim did not directly reference the Deed, Mrs Justice Proudman concluded that the substance of its claim was that it would be a breach of trust for LDTC to comply with its obligations under the Deed of Settlement. Such a claim was squarely "in connection with this Deed".
Article 2 vs third state jurisdiction clause: Owusu considered
On the second issue, Plaza argued that the mandatory effect of Article 2 of the Brussels Regulation meant that, as LDTC was domiciled in England, it must be sued in England. It was submitted by Mr Moss QC for Plaza that Owusu has ousted the jurisdiction of the court of any Member State to stay its proceedings on forum non conveniens grounds and that, moreover, exclusive jurisdiction clauses and the principle of lis abibi pendens are no more than constituent factors in the wider principle of forum non conveniens. Plaza argued that, notwithstanding the exclusive Australian jurisdiction clause and the fact that there were other proceedings on foot in Australia, the Brussels Regulation positively required Plaza to bring proceedings in England to obtain a remedy for alleged breaches of trust by an English domiciled trustee.
Mrs Justice Proudman rejected these submissions. Her Ladyship held that Article 23(1) should be given "reflexive" effect2 and the English proceedings stayed on the basis that there was an exclusive Australian jurisdiction clause.
In the course of the judgment, Mrs Justice Proudman analysed various English authorities that had considered Owusu and whether the English court was excluded from enforcing exclusive jurisdiction clauses in favour of third state courts (Konkola Copper Mines plc v Coramin Ltd  EWHC 898 (Comm), Winnetka Trading Corp v Julius Baer International Ltd  EWHC 3146 (Ch) and Ferrexpo v Gilson Investments)  EWHC 721 Comm). Mrs Justice Proudman referred in particular to the comments of Lawrence Collins LJ (as he then was) in Masri v Consolidated Contractors International Co SAL  EWCA Civ 303;  2 Lloyd's Rep 128, who referenced the rules concerning Member State jurisdiction clauses in the Brussels Regulation, and noted that it would be ‘odd' if this regime did not permit the English court to stay its proceedings where there was a jurisdiction clause in favour of the courts of a non Member State (eg a New York jurisdiction clause) and proceedings had been brought in England in breach of that contract.
Mrs Justice Proudman concluded that she agreed with Norris J in Winnetka and Lawrence Collins LJ's observations in Masri. Her Ladyship stated that "the parties' autonomy to choose the forum in which to settle their disputes is an important one which exists in European law, as well as national law, as can be seen from Article 23(1) itself. The court should not lightly override that principle".
Mrs Justice Proudman rejected the suggestion that to respect the Australian jurisdiction clause was contrary to the ECJ's decision in Owusu, noting that "Article 23(1) is a mandatory exception to Article 2, unlike forum non conveniens. In my judgment, Owusu does not bar a reflexive application of Article 23(1). A mandatory exception to a rule does not have the same potential to undermine legal certainty as a discretionary exception".
Related actions pending in a third state
The court also considered whether Article 28 of the Brussels Regulation should be given "reflexive" effect. In other words, does the English court have discretion to stay proceedings on grounds that another court is already seised of a dispute which is so closely connected to the proceedings that there is a risk of irreconcilable judgments. The court considered various decisions touching on this issue: Catalyst Investments Group Ltd v Lewinsohn  EWHC 1964 (Ch);  Ch 218 and Skype Technologies SA & anr v Joltid and Kasesalu & ors  EWHC 2783 (Ch), (Mittal v Mittal  EWCA Civ 1255). The court also considered case law on Article 28, itself, including the Supreme Court's decision in The Alexandros T  UKSC 70.
Adopting a "broad and common sense" approach, the court concluded that the Australian court was seised of related issues. The court noted that the Brussels Regulation did not say that Member State courts had lost their discretionary powers to stay proceedings where a non Member (third) State court has been first seised of as issue. Indeed, not only did the CJEU in Owusu not rule out a stay of proceedings on the basis of lis alibi pendens, at 47-52 the court noted it expressly declined to answer that question.
Ultimately Mrs Justice Proudman left the issue open, concluding that "it may be open to apply Article 28 reflexively". The court observed that the question of the nature of lis alibi pendens (whether it is merely a constituent factor of forum non conveniens and, if so, the effect of Owusu) is one that merited full argument. As a result, the court rested it decision on the exclusive Australian jurisdiction clause.
Finally, the court considered whether it was open to it under its inherent power or under CPR rule 3.1(2)(f) to stay proceedings. The court considered Reichhold Norward ASA v Goldman Sachs International  1 All ER (Comm) 40 where the Court of Appeal (confirming Moore Bick J's first instance decision) held that a case management stay may be granted in "rare and compelling circumstances" where there were concurrent proceedings on foot. The court concluded that if it had not ordered a stay by virtue of the reflexive application of Article 23, it would have ordered a case management stay.
The trust documents contained a non-exclusive jurisdiction clause but the court concluded that Article 23(4) (concerning jurisdiction clauses in trust documents) was not applicable in the present case. The court also rejected Plaza's argument that Article 5(6) might be relevant to the application.
This decision addresses an issue that has troubled many in the private international law field, namely, the extent to which the Brussels Regulation (as applied, specifically, by the CJEU in its ruling in Owusu) allows a Member State court where it has jurisdiction under the Regulation, to exercise a discretion to stay its proceedings in favour of a third state court, on the basis that the parties have agreed that disputes should be referred to the courts of that third state. Mrs Justice Proudman very clearly concludes the court does retain such a discretion and that Article 23(1) should be given "reflexive" effect. This decision provides some welcome clarification to this area (although a decision of the CJEU would be needed to provide certainty of the position under European law).
There is however a further potential complication. It has been argued by some that the new international lis pendens rules introduced by the Recast Regulation (new Article 33 and 34) may restrict the basis upon which a Member State court might stay proceedings brought before it. By way of reminder, while sweeping away the requirement regarding the domicile of the parties, Article 25 (jurisdiction clauses) remains confined to jurisdiction clauses that designate a Member State court. The new international lis pendens rules provide Member State courts with a statutory discretion to stay proceedings before them (on the basis of domicile and certain other grounds), where there are already related proceedings pending before a third state court (and provided other requirements are satisfied). It has been suggested that this new international lis pendens rule might constitute a comprehensive or exhaustive regime under which Member State courts might stay proceedings in favour of third state courts. In other words, even if parties have agreed to have their disputes resolved before, say, the New York courts, if the test in Article 33/34 is not satisfied (for example, because proceedings had not been first commenced in New York) then Member State courts would have no discretion to stay proceedings brought before them, albeit in breach of contract. Interestingly, although this decision was handed down on 16 January 2015, there is apparently no discussion of the position under the Recast Regulation (applicable to proceedings issued on or after 15 January 2015).
Although based on the old Brussels Regulation, Mrs Justice Proudman's decision does provide some comfort that a third state jurisdiction clause would be respected by the English courts (at least). Going forward it is thought that the EU's ratification of the Hague Convention3 may also provide greater certainty in this area: signatory states agree to respect exclusive jurisdiction agreements in favour of the courts of other signatory dates. However, to date, only Mexico has ratified this Convention.
For all these reasons, the Owusu debate looks likely to rumble on.
1. Article 2 (now Article 4 of the Recast) is the default rule to sue in the courts of the place of the defendant's domicile.
2. Although the subject of some debate broadly "reflexive" effect is where Member State courts give effect to provisions of the Brussels regime by analogy, as though non Member States were Member States.
3. Hague Convention on Choice of Court Agreements of 30 June 2015.