Where "Harmful Event" Occurred in Mis-Selling Claim
24 November 2014
Interesting jurisdiction issues arose in McGraw Hill International (UK) Ltd v Deutsche Apotheker Und Arztebank EG  EWHC 2436, 18 July 2014, a mis-selling claim by investors who bought Constant Proportion Debt Obligations (CPDOs) arranged by the then ABN Amro Bank NV, and rated by Standard & Poor's (S&P). The English court accepted jurisdiction over S&P's claim for a negative declaration against both the investors and the Bank. The ruling considers issues which arise in claims for negative declaratory relief (which are often used as a way of forum shopping) against multiple defendants. The investors had purchased the AAA/AA- rated products after having attended meetings (in their own countries – Germany, Austria and Switzerland) at which certain marketing materials and presentations were delivered by the Bank and discussed. The essence of the investors' complaint was an alleged misstatement of risk associated with the CPDOs, in particular that statements concerning the rating were misleading because, the investors alleged, the ratings lacked reasonable grounds and were not the product of the exercise of reasonable care.
The investors had purchased the AAA/AA- rated products after having attended meetings (in their own countries – Germany, Austria and Switzerland) at which certain marketing materials and presentations were delivered by the Bank and discussed. The essence of the investors' complaint was an alleged misstatement of risk associated with the CPDOs, in particular that statements concerning the rating were misleading because, the investors alleged, the ratings lacked reasonable grounds and were not the product of the exercise of reasonable care.
S&P first commenced proceedings against the investors in the English court seeking a negative declaration that it was not liable to the investors, that the Bank was not liable to the investors (the Principal Declaration), and that if S&P was liable to the investors then the Bank was also liable in respect of the same damage (the Alternative Declaration), although there was no claim for a contribution or indemnity. The investors then commenced proceedings in the Netherlands against the Bank and S&P.
The Bank challenged the English court's jurisdiction.
Cooke J cited with approval dicta that supported the Bank's argument that there must be a credible claim (a lis) between a claimant seeking a negative declaration and the defendant. Citing Lord Woolf MR in Messier‑Dowty Ltd v Sabena SA  1 WLR 2040 "… if a defendant is added to the proceedings, despite the absence of any credible claim, solely to claim jurisdiction against a party who would otherwise not be joined to the proceedings. Such tactics are an abuse of the process of the court …"
The Bank argued that, between it and S&P, there was no lis, ie no genuine claim between the claimant and defendant. On the Principal Declaration, Cooke J agreed. Both S&P and the Bank contended that they had no liability to investors, so there was no issue between them. On this ground alone, the court refused jurisdiction over the Principal Declaration claim.
On the Alternative Declaration claim, there was a lis between S&P and the Bank, ie a serious issue to be tried because in the event the contingency (namely that S&P is liable to the investors) comes into play, the Bank will deny that it is liable in respect of the same damage. Cooke J was confident that both would hold diverging opinions as to their share of the liability in these circumstances; there was, therefore, a lis between them.
English court has jurisdiction under Article 5.5 Brussels Regulation (operations of a branch)
Cooke J was satisfied that the English court had jurisdiction over the Alternative Declaration claim under
Article 5.5 Brussels Regulation, because the dispute arose out of the "operations of a branch" in England. Cooke J relied on the key role played by the Bank's London branch, which had:
· created the marketing materials that had been delivered to investors in their countries of domicile during meetings; and
· engaged, communicated with, and provided information to S&P about the rating.
The degree of connection between the dispute and England was to be compared, not with the investors' places of domicile or any other forum conveniens, but instead with the defendant's domicile (Netherlands).1
None of the relevant activities had taken place in the Netherlands. Cooke J found that the connecting link between England and the dispute was "extremely strong" and justified the English court taking jurisdiction under Article 5.5.
No jurisdiction under Article 5.3 (place where the harmful event occurred)
Cooke J agreed with the Bank that the English court could not take jurisdiction under this ground. Article 5.3 can be interpreted to mean either the place where the damage occurred, or the place of the event giving rise to it. In this case there was no contention that the damage occurred in England, so the focus was on the place of the event giving rise to the damage. S&P argued, unsuccessfully, that this was England because the origin of the rating lay in London and in the creation of the marketing material there and that, therefore, this was where the misstatements originated.
Cooke J rejected this argument, finding instead that, in relation to the allegedly misleading written materials, the place where the harmful event occurred for the purposes of Article 5.3 was the place where the materials were delivered and received, not the place where they originated. This was in each investor's country of domicile, where the meeting had taken place, not England.
No jurisdiction under Article 6.2 (third party proceedings)
Cooke J held that the Bank could not be seen as a third party because:
· the Bank was one of a number of defendants to S&P's claim for declarations with no distinction drawn between it and other defendants; and
· S&P was not claiming an indemnity or contribution from the Bank at this stage.
Comment: As Cooke J acknowledged, the primary purpose of the English proceedings seemed to be to secure the appearance of the investors and the Bank in S&P's home jurisdiction, ie England, rather than in the Netherlands. The negative declarations against the investors were not challenged on a jurisdictional basis, but there was more difficulty for S&P in establishing the English court's jurisdiction over the Bank, albeit it ultimately succeeded in doing so for the Alternative Declaration under Article 5.5. Negative declarations involve a reversal of the normal roles of claimant and defendant, and are often used as a strategy to ensure a court is first seised of a dispute, in priority to another. What is interesting about this case is Cooke J's findings on:
· lis: the ruling highlights the importance of there being a lis, or a "serious issue on the merits to be tried",2 between the parties. Especially in multi-party litigation, a court will want to establish that there is a genuine lis between the claimant and each of the defendants – this is described as a threshold requirement, and one which needs to be met before the grounds of special jurisdiction are even considered.
· degree of connection as a relative concept: when considering the special grounds of jurisdiction under the Brussels Regulation (ie those that allow a deviation from the defendant's court of domicile under Article 2), Cooke J reflected on the underlying policy reason for them, ie that in some types of disputes there is a forum that has a closer connection with the dispute than the defendant's domicile. Special grounds of jurisdiction, such as Article 5.5, displace the normal rule that a defendant should be sued in its place of domicile, so it is the place of domicile (ie the Netherlands in this case) which must be compared when considering which court has the required nexus with the dispute – not some other court.
· written marketing materials: if these contain misleading information, in a tortious claim, the harmful event will, for the purposes of Article 5.5 be held to be where the materials were delivered and received, not where they were created. This fact is perhaps not likely to affect how marketing is carried out, but it is perhaps a point to remember when deciding where potential investor claimants are likely to mount legal action in the event of a mis-selling claim.