Before : LORD JUSTICE PILL LORD JUSTICE ETHERTON and LORD JUSTICE AIKENS Between :

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1 Neutral Citation Number: [2010] EWCA Civ 390 IN THE HIGH COURT OF JUSTICE COURT OF APPEAL (CIVIL DIVISION) ON APPEAL FROM QUEENS BENCH DIVISION COMMERCIAL COURT MR JUSTICE TEARE Case No 2008, Folio 1052 Before : Case No: A3/2009/1637 Royal Courts of Justice Strand, London, WC2A 2LL Date: 28/04/2010 LORD JUSTICE PILL LORD JUSTICE ETHERTON and LORD JUSTICE AIKENS Between : BERLINER VERKEHRSBETRIEBE (BVG) ANSTALT DES ŐFFENTLICHEN RECHTS - and - (1) JP MORGAN CHASE BANK N.A. (2) JP MORGAN SECURITIES LTD Appellant Respondent Mr Tim Lord QC, Mr Simon Salzedo and Ms Sarah Abram (instructed by Addleshaw Goddard LLP) for the Appellant Mr Laurence Rabinowitz QC and Mr Richard Handyside QC (instructed by Linklaters LLP) for the Respondent Hearing dates : 9 th and 10 th February Judgment

2 Lord Justice Aikens : The Background to the appeal 1. Credit default swap arrangements are giving rise to litigation again. As is so often the case in commercial disputes, the first battle is over jurisdiction. In this case, the battle is whether the English court should have jurisdiction, as the parties agreed in their contractual arrangements, or whether the Berlin Landgericht (or Berlin Regional Court) should have jurisdiction, pursuant to the provisions of Article 22.2 and Article 25 1 of Council Regulation (EC) No 44/2001; viz. the Jurisdiction and Judgments Regulation ( the Regulation ). Teare J held, in his judgment of 9 July 2009, that the English court had jurisdiction, because the proceedings before the Commercial Court were not overall principally concerned with matters that fell within Article 22.2 of the Regulation. Therefore, because the parties had agreed that the English court should have jurisdiction, they should be held to that agreement, pursuant to Article 23 of the Regulation. 2. The judge gave permission to appeal. We heard argument on 9 and 10 February 2010 and reserved judgment. The appeal raises interesting points on the scope and application of Article 22.2 of the Regulation, in particular when proceedings involve multiple issues of which one, at least, falls within the ambit of Article 22.2 of the Regulation and has the potential to be dispositive of the entire proceedings. 3. For the purposes of the appeal, it is not necessary to go into great detail on the basic facts. The respondents are two entities that are part of the well known banking group. I will call them collectively JPM. The appellant ( BVG ) has been a German public law institution for 13 years, but for a total of 80 years it has been responsible for the provision and operation of the public transport system of Berlin. The scope of BVG s powers is set out in the Berlin Service Company Law and in BVG s Articles of Association. It is common ground that BVG s seat is Germany. BVG s case is that it is not an experienced operator in the financial markets and that before the present credit swap arrangements it had concluded only two other interest rate swaps (both with JPM) and had never before entered into a derivative or structured finance transaction. 4. The credit swap arrangement which gives rise to the litigation is called an Independent Collateral Enhancement Transaction or ICE Transaction. It was considered at a series of meetings between JPM and BVG management which took place between July 2006 and June BVG resolved to enter into the ICE Transaction by resolutions of its Management Board in March 2007 and its Supervisory Board in April It is BVG s contention in the present dispute that those decisions of the Management and Supervisory Boards were ultra vires and therefore void and that this means that the subsequent contracts for the credit default swap arrangements are void. It is common ground that the issue of whether any decisions of the Management and Supervisory Boards were ultra vires has to be dealt with according to German law. BVG also contends that in the meetings between its 1 Articles 22 and 25 and all other relevant articles of the Regulation are set out in Appendix A to this judgment.

3 management and JPM representatives, BVG was given incorrect advice about the ICE transaction and its effect. 5. The ICE Transaction, which was ostensibly concluded between the parties on 19 July 2007, consists of two parts. The first part consists of a contract between BVG and the Landesbank Baden Wűrttemberg ( LBBW ). Under that contract LBBW gave BVG credit risk protection in respect of cross-border lease arrangements that BVG had previously concluded with third parties. The present litigation is not directly concerned with that part of the transaction. 6. The second part of the transaction, which has been called the JPM Swap, was (at least ostensibly) concluded between the first respondent, ( JPM Chase ), acting through the second respondent as agent ( JPM Securities ), and BVG. The effect of this part of the arrangement, crucially, was that BVG gave JPM credit risk protection worth US$ 220 million in respect of 150 companies, in return for a net premium of US$ 7 million which JPM paid immediately to BVG. The terms of the JPM Swap provide that BVG will give JPM this credit risk protection for a period of 10 years. BVG asserts that, as a result of the incorrect advice it received from JPM, BVG did not realise that the effect of the JPM Swap was that it was to provide highly leveraged credit protection to JPM and that BVG was exposing itself to a potential risk of US$ 220 million. BVG thought it was just reducing its own risk exposure on the cross border leasing transactions it had in place. The accusations of incorrect advice are likely to take the form of allegations of misrepresentation and nondisclosure by JPM during the meetings between the two parties and also of breaches of terms of a consultancy agreement between JPM and BVG. 7. The full JPM Swap documentation was completed between the parties on 17 August It is long and complex. The confirmation letter consists of 60 pages. It includes the 2002 International Swaps and Derivatives Association ( ISDA ) master agreement terms plus a schedule, as well as the 2003 ISDA credit derivative definitions and various trading standards annexes. The parties agree that the terms contain English law and jurisdiction clauses. 8. Following the turmoil in the financial markets both before and after the collapse of Lehmann Brothers on 15 September 2008, seven out of the 150 credit risks (including Lehman Brothers Holdings Inc and three Icelandic banks) have materialised. As a result, in the present proceedings JPM now claims US$ 112 million from BVG under the terms of the JPM Swap On 10 October 2008, JPM informed BVG that payment obligations would occur under the JPM Swap. On the same day JPM began proceedings in the Commercial Court, pursuant to the English jurisdiction clause in the ICE Transaction contract. JPM sought various declarations, including one that the JPM Swap is valid, binding and enforceable in accordance with its terms. Mr Tim Lord QC, for BVG, accepts that the terms of the declarations sought mirrored the terms of the representations and warranties given by BVG in the JPM Swap contract. 2 We were told by Mr Tim Lord QC, for BVG, that JPM now asserted that BVG s liability on the credit protection had risen to US$ 157 million.

4 10. The proceedings were not then served. On 21 January 2009, JPM s claim form was re-issued and served in an amended form to claim the declarations (including the one mentioned above) and also US$ 112 million pursuant to the terms of the JPM Swap. It was common ground before the judge and before us that the terms of the first declaration sought by JPM in the English proceedings would encompass issues of the vires of decisions of the Management and Supervisory Boards of BVG to enter into the JPM Swap. 11. On 9 March 2009, BVG applied to the Commercial Court for an order that, pursuant to Article 22.2 of the Regulation, the English court had no jurisdiction, because the proceedings brought by JPM had as their object the validity of the decisions of the organs of a legal person, BVG, whose seat is in Germany. Accordingly, under Article 22.2, the German courts must have exclusive jurisdiction over such proceedings. Therefore, pursuant to Article 25 of the Regulation, the English court should declare that it had no jurisdiction to hear the claim of JPM. BVG served evidence with the application, including an expert s report on German law by Professor Dr Assmann. On 1 May 2009, JPM served evidence in response, including an expert s report on German law by Professor Dr Heckmann. On 22 May 2009 BVG served further evidence, including a second report by Professor Dr Assmann. 3 The hearing before Teare J was on June Meanwhile, on 9 March 2009 BVG had filed a Complaint against JPM in the Berlin Regional Court. BVG advanced three substantive motions by its Complaint. First it sought an order that the JPM Swap was invalid. Secondly, it sought an order that JPM Chase be made to release BVG from its obligations (if any) under the JPM Swap and in particular from the claim by JPM for US$ 112 million. Thirdly, BVG sought a declaration that JPM Chase was obliged to compensate BVG for all other damages incurred or yet to be incurred through claims made against it under the JPM Swap. Before us there was argument on the nature of the grounds put forward by BVG in support of the motions in the German proceedings and which of those grounds constituted BVG s principal ground of complaint. I shall have to deal with that later. 13. On 26 May 2009, following written submissions from the parties, the Berlin Regional Court ruled that the English and German proceedings involved the same cause of action for the purposes of Article 27 of the Regulation and that the English Court was the court first seised of the claim. It stayed the German proceedings, pending the decision of the English court on whether it had jurisdiction. 14. BVG appealed the German Court s decision to stay the German proceedings. The first stage of such an appeal is for the first instance court to reconsider its original decision. On 10 December 2009, the Berlin Regional Court confirmed its original decision. The appeal was then referred to the Berlin Kammergericht or Court of Appeal. By a decision on 8 March 2010 (ie. after the hearing of the present appeal), the Kammergericht decided to refer certain questions to the European Court of Justice 3 In summary, Professor Dr Assmann has stated that BVG had no power to enter into a financial transaction in which it was the provider of financial services, where the transaction was not genuinely incidental to the cross-border leases or necessary to reduce BVG s exposure to those leases and where, also, the transaction was highly speculative and exposed BVG to a very large liability. Professor Dr Heckmann has stated that there is no ultra vires doctrine in German law and even if there were, BVG had acted intra vires: judgment of Teare J at [50].

5 ( ECJ ) for a preliminary ruling, pursuant to the power to do so contained in Article 267 of the Treaty on the Functioning of the European Union ( TFEU ). 4 The full wording of the three questions is set out in Appendix C to this judgment. Broadly speaking, the first question asks whether Article 22.2 of the Regulation extends to court actions in which a legal entity disputes an action brought against it in respect of a contract on the ground that the resolutions of the official body which resulted in the transaction were invalid because of breaches in the legal entity s Articles of Association. The second question asks whether Article 22.2 applies to a legal entity created under public law, insofar as the effectiveness of the resolutions of its official body is to be examined by the civil courts. The third question asks whether a court of a member state which is second seised of an action must apply Article 27 of the Regulation and stay an action in its jurisdiction when it is alleged that the agreement regarding jurisdiction is also invalid because of an invalid resolution of the official body of the legal entity that has concluded the jurisdiction agreement, because of breaches in its Articles of Association. 15. The first of those questions is in more limited terms than the issue that was decided by Teare J and which we must consider. The second question, which concerns the type of legal entity to which Article 22.2 might apply, was not raised in argument before us. I understand Mr Laurence Rabinowitz QC, for JPM, to accept that Article 22.2 does, in principle, apply to a public law institution such as BVG. The third question obviously does not arise in this court, because the English court was the court first seised. 16. As a result of the Berlin Court of Appeal s decision, BVG has invited this court (in written submissions of 26 March 2010) to stay the present appeal to await the outcome of the German court s reference to the ECJ. BVG has also suggested that if this court has European law questions that could be the subject matter of a preliminary ruling by the ECJ, it should formulate and submit them. JPM opposes both those submissions and invites the court to proceed to give judgment on the issues on which we heard argument. Council Regulation (EC) No 44/2001 ( the Regulation ) 17. The relevant provisions of the Regulation are in Chapter II, Sections 6, 7, 8 and 9 and Chapter III, Section 1. They are Articles 22, 23, 25, 27, 29, and 35. I have set them all out in the Appendix to this judgment. I will set out here the relevant parts of Article 22.2 and Article 25 because they are central to this appeal. 18. Article 22.2 and Article 25 provide: Article 22 The following courts shall have exclusive jurisdiction, regardless of domicile:. 2. in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal 4 Otherwise known as the Lisbon Treaty.

6 persons or associations of natural or legal persons, or of the validity of the decisions of their organs, the courts of the Member State in which the company, legal person or association has its seat. In order to determine that seat, the court shall apply its rules of private international law;.. Article 25 Where a court of a member state is seised of a claim which is principally concerned with a matter over which the courts of another member state have exclusive jurisdiction by virtue of Article 22, it shall declare of its own motion that it has no jurisdiction. 19. The predecessor of the Regulation was, of course, the Brussels Convention, whose provisions were incorporated into English law by the Civil Jurisdiction and Judgments Act 1982 ( the CJJA ). The predecessors of Articles 22 and 25 in the Regulation were Articles 16 and 19 of the Brussels Convention. The wording of the Articles has not been changed, except on one significant point. In Article 16.2 of the Brussels Convention the words the validity of.. did not appear before the words the decisions of their organs. But this change has, I think, simply made the previous wording clearer. It has not changed the sense or scope of Article 22.2, as the ECJ confirmed in Hassett v South Eastern Health Board. 5 Therefore, like the judge, I will refer always to Articles 22 and 25, even in cases where the courts were in fact dealing with the Brussels Convention, in the hope that this will make it easier to follow matters. Section 3(1) of the CJJA provides that any question as to the meaning or effect of any provision of what is now the Regulation is to be determined in accordance with the principles laid down by any relevant decision of the ECJ. The Jenard Report 20. Section 3(3)(a) of the CJJA, states that, as an aid to the construction of the Regulation, the English court may consider the reports of Mr P Jenard 6 on the 1968 Convention (and the 1971 Protocol) for the purposes of determining the meaning or effect of any provision in the Convention (ie. what is now the Regulation) and the report is to be given such weight as is appropriate in the circumstances. We were referred to various parts of the Jenard report on the interpretation of what is now Article 22 of the Regulation. I have reproduced the relevant parts of the Jenard report 7 in Appendix B to this judgment, but have substituted the Article numbers of the Regulation in the hope that it makes for easier reference. 5 Case C-372/07 [2008] ECR I 07403: see [19]. 6 Report on the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters: OJ 1979 C59, page 1. The Brussels Convention was, of course, originally signed in 1968 by the six founder members of what was then the EEC. The Jenard report therefore refers to the six states. Professor Schlosser also prepared a report on the Accession Convention signed when Denmark, Ireland and the UK acceded to the Brussels Convention and 1971 Protocol. 7 At pages of the report.

7 The decision of Teare J Before the judge, Mr Rabinowitz, for JPM, had first argued that Article 22.2 applied only to disputes between a company (or other legal entity) and its officers or shareholders and that the Article did not extend to disputes between the legal entity, officers or shareholders and third parties. In other words, he argued that Article 22.2 was confined to internal disputes within the company. The judge rejected that submission. 9 Secondly, Mr Rabinowitz argued that, when considering whether Article 22.2 applied, the court should not look at any defences raised but only the nature and scope of the claim itself. The judge also rejected that argument. 10 Although both those conclusions were the subject matter of a Respondents notice and were dealt with in JPM s written submissions before us, Mr Rabinowitz did not address any oral argument on them. I agree with the judge s conclusions on those points and I do not need to say anything more about them. 22. Thirdly, the judge held that on the correct interpretation of Article 22.2 and 25, where a court was seised of proceedings that involved several issues, including one that was within Article 22.2 and one or more that are not, the court had to ask itself certain questions. He typified those questions as being: does the issue within Article 22.2 constitute the principal subject matter of the proceedings; or is that issue the subject matter of the action; or are the proceedings principally concerned with that issue; or is that issue raised only as a preliminary or incidental matter? Fourthly, the judge held, after a careful review of the authorities, that the court must ask, in relation to the facts of the current case: are the proceedings before the court in substance or principally concerned with the ultra vires issue raised by BVG in its defence to JPM s claims. In posing this question, the judge held that the court was involved in an exercise of overall classification and that the court must view the litigation overall and form an overall judgment, taking into account the underlying rationale of Article Lastly, the judge reviewed the issues raised in the present proceedings, so far as they could be gleaned from material served in these proceedings and in the German proceedings. He noted that it was BVG s case (as set out in the German proceedings) that the JPM Swap was concluded because of incorrect advice from JPM, misrepresentation by JPM and also non disclosure by it, all before the JPM Swap was concluded, as well as breach of a consultancy contract by JPM. The judge concluded that if the English proceedings continued there was likely to be a major trial concerning both the events leading up to the conclusion of the JPM Swap and also what flowed from findings concerning those events. The judge accepted that there would also be the ultra vires issue, which raised questions of German law, on which expert evidence had already been exchanged, as noted above. The judge also accepted that the ultra vires issue was likely to be an important feature of the proceedings, because it could be dispositive of them. He recognised that if the [2010] 2 WLR 690; [2009] EWHC 1627 (Comm). [17] [19] of Teare J s judgment. [12] [16] of Teare J s judgment. [24] of Teare J s judgment. [46] of Teare J s judgment.

8 expert opinion of Professor Dr Assmann, instructed by BVG, was correct, then JPM s claim must fail The judge reached this conclusion:.i have difficulty in concluding that these proceedings are principally concerned with the ultra vires issue. Rather, taking into account all aspects of the litigation, in so far as they are apparent from the materials before the court, and seeking to form an overall judgment, these proceedings can fairly and properly be described as being principally concerned with a claim by JPM to enforce the JPM swap and a likely defence and counterclaim by BVG based on misrepresentation, non disclosure and breach of duty by JPM of a consultancy contract arising out of what was said or not said by JPM to BVG before the JPM swap was entered into. But the proceedings will also involve the determination of an important preliminary issue, namely whether the JPM swap was ultra vires BVG The judge also considered whether the proceedings were likely to be so closely connected with the German corporate law of ultra vires that they should not be tried anywhere but in the courts of Germany. In that regard, the judge took account of a number of factors. These were, in summary: (i) that the ultra vires issue arose in the context of a commercial contract between JPM and BVG which was, by its terms, governed by English law and contained an English jurisdiction clause; (ii) other issues in the proceedings arose which were not within Article 22.2; (iii) the policy underlying Article 22.2 did not require those other issues to be tried in the German courts; (iv) the resolution of the dispute would only affect the parties to the dispute, not other entities or persons. The judge then reviewed the proceedings overall. He concluded that they were not principally concerned with the issues of ultra vires and that the ultra vires issue that did arise, was not one which, in the context of this case, the policy underlying Article 22.2 required it be decided by the German courts The judge further held, on an alternative argument of Mr Lord, for BVG, that the English court should not decline jurisdiction in respect of the ultra vires issue alone, pending determination of that issue by German courts. He noted that this argument (as with Mr Rabinowitz s first two arguments, noted above) had not been pursued with vigour. 16 Before us, neither party supported the idea of a partial stay. Mr Rabinowitz graphically described it as a recipe for chaos. So I need say no more on that issue. The arguments of the parties before this court 28. Mr Lord submits that the judge s approach to the interpretation of Article 22.2 was wrong in law. He says that the guiding principle must be certainty of jurisdiction and certainty of criteria for the application of Article Moreover, if, as JPM had [51] of Teare J s judgment. [51] of the judgment of Teare J. [52] [53] of the judgment of Teare J. [55] of the judgment of Teare J.

9 accepted below, the ultra vires issue might be dispositive of JPM s claim altogether, that must be sufficient to bring these proceedings within the ambit of Article Therefore, the English court must declare that it has no jurisdiction in respect of the proceedings, pursuant to Article 25 of the Regulation. 29. In the alternative, Mr Lord submits that if the judge was correct to carry out an evaluation of the issues overall, he failed to give sufficient prominence to the ultra vires issue. It would have to be considered in a trial of the issues between the parties. That issue must trump other issues, because it requires a consideration of the validity of resolutions of the managing and supervisory boards of BVG. That comes within the subject matter of Article Because Article 22 is the only Article of the Regulation that stipulates when a member state s courts must have exclusive jurisdiction, any issue which falls within its scope must be accorded decisive weight, because Article 22 of the Regulation is at the top of the jurisdiction structure of the Regulation. 30. Mr Rabinowitz submits that the judge correctly interpreted Article 22.2 in holding that the court had to look at the proceedings overall. The judge had rightly assessed the issues involved in this case and had properly concluded that this was a multi-issue case where more than one issue will be of importance. The judge correctly found that the ultra vires issue was not the principal matter with which the English court would be concerned in these proceedings. Moreover, the Court of Appeal should be slow to interfere with the conclusion of the judge, which was a matter of assessment and judgment on the facts. The principal issues that arise on the appeal 31. Both parties accept that the English proceedings raise a number of issues, including the issue of whether the decisions taken by BVG s management and supervisory boards were ultra vires, so as to make void or invalidate the contracts for the JPM Swap. It is also common ground that if Article 22.2 applies to the English proceedings, then the English court will be obliged, in accordance with Article 25 of the Regulation, to declare that it has no jurisdiction to entertain the current English proceedings. 32. Therefore, in my view, the focus of this appeal must be on Article 22.2, although it is clear that the correct interpretation of Article 22.2 is also going to involve consideration of the interpretation of the words principally concerned with in Article 25. Therefore I think that the two principal issues we have to decide are: (1) what is the correct interpretation of Article 22.2; and (2) how are the facts of this case to be applied to the correct interpretation of Article 22.2 and Article 25? In dealing with the second question, there is a threshold matter which I believe has to be considered. It is this: if the judge was correct in holding that Article 22.2 requires an overall judgment of the facts and issues of this case (as they appear now), in what circumstances is this court, in reviewing the judge s conclusion, entitled to replace the judge s assessment of the facts, inferences, opinions and nuances of this case with its own view of them? 33. In the light of the parties written submissions made since the Berlin Court of Appeal referred three questions to the ECJ for preliminary rulings, two further issues arise on this appeal. First, should this court now stay the English proceedings pending the

10 ECJ s decision on the three questions referred to it? Secondly, should this court itself pose questions to the ECJ for a preliminary ruling? As the first two issues were argued out fully before us, I think I must give my full answers to the first two issues before coming to the second two. Issue One: the correct interpretation of Article The place of Article 22.2 and Article 25 in the Regulation 34. Recital (2) to the Regulation states that the objective behind the unification of rules governing jurisdiction and recognition of judgments is to further the sound operation of the internal market. Recital (11) stipulates that the general principle for jurisdiction should be the defendant s domicile and that jurisdiction must be available on this ground except in a few well-defined situations in which the subject-matter of the litigation or the autonomy of the parties warrants a different linking factor. Recital (14) confirms that, save in certain special cases, the autonomy of the parties to a contract to determine the court having jurisdiction must be respected subject to the exclusive grounds of jurisdiction laid down in this Regulation. That last reference is to Article 22. The structure of the Regulation follows these objectives. Its Articles must therefore be examined and their terms interpreted with these general objectives in mind. 35. Two relevant general principles about the interpretation of the Brussels Convention have been stated by the ECJ, which continue to apply equally to its replacement, the Regulation. The first is that all the provisions of the Regulation must be given an independent, Community law, interpretation. The second is that because Article 22 is one of the Articles on jurisdiction which creates an exception to the general rule of jurisdiction set out in the Regulation, (ie. that jurisdiction is based on the defendant s domicile), 17 it must not be given an interpretation that is broader than is required by its objective. 18 This is because the effect of Article 22 is to deprive the parties of the choice of forum which would otherwise be theirs, or, in certain other cases, its provisions will result in the parties being brought before a court which is not in the state of the domicile of any of them The ECJ has also stated, in Gesellschaft für Antriebstecnik mbh & Co KG (GAT) v Lamellen und Jupplungsbau Beteiligungs KG 20 (the GAT case ), that the objective of Article 22 of the Regulation is to ensure that jurisdiction rests with the courts that are closely linked, in fact and law, with the proceedings that are within its provisions. The aim of the Regulation as a whole is to prevent the possibility of conflicting decisions. That is particularly important in relation to the matters dealt with in Article 22. That is why the rules of jurisdiction provided for in Article 22 are 17 See recital 11 of the preamble to the Regulation, Article 2 and Hassett v South Eastern Health Board (Case C-373/07) [2008] ECR I-7403: particularly at [18]. 18 See: Land Oberösterreich v CAZ AS (Case C-343/04) [2006] ECR I-4557; [2006] 2 All ER Comm 665 at paras That case concerned Article 16.1 of the Brussels Convention, but it was agreed before us that similar principles must be applied to Article 22 of the Regulation. See also: Hassett v South Eastern Health Board (Case C-373/07) [2008] ECR I-7403, a case concerning Article 22.2, at [19]. 19 Hassett v South Eastern Health Board at [19]. 20 (Case C-4/03) [2006] ECR I ECJ. That case concerned Article 16(4), now Article 22.4, which concerns patents cases.

11 of an exclusive and mandatory nature and are specifically binding on both litigants and courts of member states In relation to Article 22.2 in particular, the ECJ has stated, in Hassett v South Eastern Health Board, 22 that the essential objective of the rule of attributing exclusive jurisdiction to the courts of the Member State in which the company has its seat is one of centralising jurisdiction in order to avoid conflicting judgments being given as regards the existence of a company or as regards the validity of the decisions of its organs. This objective is achieved by giving exclusive jurisdiction to the courts of the Member State in which the company has its seat. Those courts would appear to be best placed to deal with such disputes, inter alia because it is in that State that information about the company will have been notified and made public. Exclusive jurisdiction is thus attributed to those courts in the interests of the sound administration of justice However, it does not follow that Article 22.2 must apply to any dispute which involves some link with a decision of an organ of a company. If that had been the rule, it would mean that almost all disputes involving companies would fall within the scope of Article But, as the ECJ stated in the Hassett case 24 : that provision must be interpreted as covering only disputes in which a party is challenging the validity of a decision of an organ of a company under the company law applicable or under the provisions governing the functioning of its organs, as laid down in its Articles of Association. 39. Those statements of principle do not, however, deal specifically with a case such as the present, where it is clear that if the English proceedings are to continue they will raise issues concerning not only the validity of the decisions of BVG s Management Board in March 2007 and its Supervisory Board in April 2007, but also questions concerning alleged misrepresentation and non-disclosure by JPM concerning the JPM Swap and the advice that was given by JPM to BVG about entering into that contract. Therefore it is necessary to consider further the scope of Article 22.2 to see how it is to be applied in multi-issue cases. The Jenard report on Article 22 and The Jenard report on what are now Article 22 and Article 25 makes four important general points. First, the provisions of Article 22 cannot be departed from either by agreement of the parties or by an implied submission to another jurisdiction. Secondly, any court of a state other than the state whose courts have the exclusive jurisdiction must declare of its own motion that it has no jurisdiction: Article 25. Thirdly, a failure to observe these rules is a ground to refuse recognition or enforcement of a judgment: Article 35. Lastly, and most importantly, Jenard comments that the matters referred to in [Article 22] will normally be the subject of exclusive jurisdiction only if they constitute the principal subject matter of the See the GAT case, at [21] [29]. (Case C-373/07) [2008] ECR I-7403: particularly at [20]. Ibid. at [21]. At [26].

12 proceedings of which the court is to be seised. He also puts it another way: These rules [in Article 22] take as their criterion the subject-matter of the action. 41. In commenting on Article 22.2 in particular, Jenard states that the proceedings before the court having exclusive jurisdiction will be in substance concerned either with the validity of the constitution, the nullity or dissolution of the company, legal person or association, or with the decisions of its organs. The rationale for giving exclusive jurisdiction to the courts of the state where the company (or other legal entity within Article 22.2) is that the state concerned will have all relevant information concerning the company and it will be made public. This last point does not strike me as being particularly compelling, at least in proceedings in common law jurisdictions, where all relevant documents and information would have to be disclosed to the other parties involved. But that may not be so in other jurisdictions. 42. With regard to the words principally concerned in Article 25, Jenard makes the comment that they have the effect that a court is not obliged to reject jurisdiction if an issue which comes within the exclusive jurisdiction of another court is raised only as a preliminary or incidental matter. This remark gave rise to argument before us. Did it follow that if a court of a member state was seised of proceedings in which one of the issues in it fell within one of the six paragraphs of Article 22, but that issue was not simply preliminary or incidental, then those proceedings must therefore be principally concerned with a matter over which the courts of another member state had jurisdiction by virtue of Article 22? If it did, then the consequence must be, in accordance with Article 25, that the court seised must declare (of its own motion) that it had no jurisdiction. The cases 43. We were taken through the cases in which various of the paragraphs of Article 22 have been considered by either the ECJ or the English courts. We were not referred to any decisions of other courts of EU member states on the construction of Article I will consider first the cases where what is now Article 22.2 has been considered and I will do so in chronological order. 44. First, we were referred to a decision of Knox J in Newtherapeutics Ltd v Katz. 25 Proceedings were brought by an English registered company against two of its directors, who were domiciled in the USA and in France, alleging breach of their duty as directors of the company. The claim asserted, first, that certain documents relating to a contract with another company had been signed by the defendant directors without calling a board meeting and in excess of authority and, secondly, that the contract was detrimental to the company. The defendants sought to set aside the leave to serve out of the jurisdiction. The company argued that the English court had exclusive jurisdiction under Article 22.2 of the Regulation. 45. Knox J stated, first, that the words at the beginning of Article 22.2, proceedings which have as their object the validity of the constitution [etc], do not refer to the purpose of the proceedings, but to the subject matter of the proceedings. 26 Secondly, he recorded that it was common ground between the parties that the question of [1991] Ch 226 See page 243H.

13 whether an action was governed by Article 22.2 was to be solved by identifying the principal subject of the proceedings and seeing whether that fell within Article Thirdly, he held that the allegations concerning the signature of documents without a board meeting and beyond the directors authority came within Article 22.2, but those regarding the characteristics of the contract did not. 28 Lastly, he asked the question, which of the two claims raised by the company against the directors raised the principal issue? Knox J appeared to propose two solutions to this conundrum. First, the issue upon which the defendants were likely to lose (so far as the court could tell) is likely to be the principal one..because they have only to lose one to lose the action. Secondly, he said that, as a matter of judgment, he regarded the issue concerning the absence of a board resolution to be the principal issue in the case. The judge appears to have preferred the second solution as the correct one and he therefore held that the English court had jurisdiction under Article It was agreed before us that the first of Knox J s proposed methods of identifying the principal issue in a case could not be correct. It has not been followed in later cases and it is easy to understand why. Decisions on jurisdiction have to be made at an early stage in proceedings. At that stage the court is usually in a poor position to judge the merits of a particular claim or defence. Moreover, there may be a degree of manipulation of the importance of certain issues if jurisdictional arguments arise such as the present Article 22.2 issue. A party may lose the whole case on a preliminary point, which may be difficult to characterise as the principal issue in terms of material involved, witnesses and so forth. 47. Mr Lord criticises the second approach of Knox J as imprecise and unprincipled. He submits we should not follow it. 48. Article 22.2 was next considered, in detail, by Mance J in Grupo Torras SA v Sheikh Fahad Mohammed Al-Sabah and others. 30 An action was brought in the Commercial Court by a Spanish company and its English subsidiary against 22 defendants. Amongst many allegations made it was claimed that certain defendants had been in breach of duty as directors in relation to four particular transactions. The defendants applied to set aside the English proceedings, arguing (amongst many other points) that the case should proceed in the Spanish court because it had exclusive jurisdiction under Article 22.2 as the proceedings had as their object the decisions or validity of decisions of organs of the Spanish claimant company. 49. First of all, Mance J agreed with Knox J that the words proceedings which have as their object in Article 22.2 are to be interpreted as proceedings which are principally concerned with. 31 Next, Mance J considered the scope of the words the validity of the constitution of companies or the decisions of their organs which was the wording of Article 16.2 of the Brussels Convention. 32 He said that he See page 245C. See page 246D-E. See page 249C-E. [1995] 1 Lloyd s Rep 374. See page 401, left hand column. As already noted, this wording has been changed in Article 22.2 to add the words the validity of before the decisions of their organs.

14 preferred a narrower interpretation, so that the words should be read as applying only to proceedings which were principally concerned with the validity of decisions of organs of companies etc, not with the decisions of organs of companies and other legal entities. 33 In the course of his analysis of the meaning of the phrase, Mance J noted that if the second half of Article 22.2 were to be construed as applying to all proceedings principally concerned with the decisions of organs of companies, that would literally cover any dispute arising from a decision of the board of a company, eg to determine a contract. 34 And, I would add, it would cover any dispute arising out of the decision of a board of a company or other legal entity to enter into a transaction, such as the ICE transaction in this case. That, in my view, would be far too wide a construction. 50. Mance J next tackled the question of how Article 22.2 was to be applied in a case where there were multiple claims against multiple defendants raising many issues. He starts the discussion by stating the principle that Article 22.2 requires an exercise in.overall classification. 35 Mance J rejects the first proposal of Knox J, ie. that the court should try and identify the issue on which a defendant will lose. He then states that the court has to view the litigation overall and (bearing in mind the underlying rationale of Article 22) must attempt to assess whether it is likely to be so closely connected with matters of local company law and internal corporate decision-making in respect of one particular company that it should not be tried anywhere but in the courts of the State of that company s seat. 36 In the view of Mance J, it is only if the proceedings overall are principally concerned with the relevant company law and practice that Article 22.2 applies Mance J then analysed the overall position of the Spanish company claimant towards the various defendants in the context of the claims brought. He concluded that the proceedings were not principally concerned with either the validity of decisions of organs of the Spanish company, or, if it were the correct interpretation of the second half of Article 22.2, with decisions of organs of that company. He reached this overall conclusion either by looking at the claims of the Spanish company alone or in connection with its English subsidiary In my view it is clear that Mance J interpreted Article 22.2 as requiring a court to look at the proceedings overall and to arrive at what he called an overall classification of the nature of the proceedings, in particular where they raised multiple issues. To do this required, in his view, an overall judgment to be made on the nature of the proceedings and their connection with matters of local company law and internal corporate decision making. 53. Mr Lord emphasises the fact that Mance J had used phrases such as whether the case would turn on complicated issues of Spanish law; or whether those issues would be at the core of the issues to be decided at the trial or decisive of the See page 403, left hand column. Ibid. See page 403, left hand side. See page 403, right hand side. See page 404, left hand side. See page 408, right hand side.

15 outcome. 39 It is illegitimate to pick up individual phrases such as those and characterise them as setting out the judge s decision on interpretation of the Article. That has to be gleaned from looking at the tenor of the judgment as a whole but also by examining closely those passages where Mance J particularly analyses the interpretation of Article In my view it is clear that Mance J summed up the test in the first sentence of the Conclusion on the Article 22.2 issue, where he stated that the proceedings in that case were not principally concerned with either the validity of decisions of organs of [the Spanish company] or, if it be the test, with decisions of organs of [the Spanish company] within [Article 22.2]. 54. The scope of Article 22.2 was next considered by the Court of Appeal in the same case. 40 Stuart-Smith LJ (who gave the judgment of the court) stated, first, that it was well-established that the words proceedings which have as their object in Article 22.2, meant proceedings which have as their subject-matter or proceedings which are principally concerned with. 41 I would note here that the same phraseology is used in Article 22.1 and In Article 22.4 and 22.5 the phrase used is proceedings concerned with. However if one refers to the French text, which has at the outset of all five paragraphs the phrase en matière de, it is plain that no difference of emphasis is intended in any of the paragraphs. 42 This also fits in with the use of the phrase principally concerned with in Article 25 of the Regulation. 55. Secondly, Stuart-Smith LJ stated that he wished to reserve the question of whether questions of want of authority of directors were within Article He said that there was much force in the contention that such issues would fall within its terms. 43 Thirdly, he said that the issue of whether an action fell within Article 22.2 depended upon its subject-matter, ie. the nature of the dispute, not upon the relationship between the parties. 44 He concluded that the subject matter of that action was the alleged fraud which the defendants had practiced on the claimant companies, not the decisions of the organs of either the Spanish company or its English subsidiary. Therefore the proceedings fell outside Article Chronologically, the next case concerning Article 22.2 to which we were referred is Speed Investments Ltd v Formula One Holdings Ltd (No 2), 46 another decision of the Court of Appeal. That case concerned a dispute between parties in a shareholders agreement over the appointment of directors to an English registered company. Two claimant companies, who were party to the shareholders agreement, challenged the appointment of two directors by another company that was also a party to the shareholders agreement; the claimants started proceedings in the English court. That other company then started proceedings in the Swiss courts seeking a declaration that the directors had been validly appointed. It also sought a declaration, in the Page 407 left and right hand columns. [1996] 1 Lloyd s Rep 7 at See page 15, left hand side. See the remarks of Knox J in Newtherapeutics Ltd v Katz [1991] Ch 226 at 243G. 43 See page 15, right hand side. 44 This statement was quoted with approval by Sir John Chadwick, giving the principal judgment in Chaitan Choudhary v Damodar Prasad Bhatter [2009] EWCA Civ 1176: see [44]. Ward and Stanley Burnton LJJ agreed. Although the later case dealt with Article 22.2 issues it adds nothing else to the present debate. 45 See pages 15, right hand side and 16 right hand side. 46 [2005] 1 WLR 1936.

16 English proceedings, that the English court had no jurisdiction. The judge held that the English proceedings had as their object the validity of the decisions of the organs of the company that had appointed the directors of the English company whose appointment was challenged, so that the English court had exclusive jurisdiction under Article 22 of the Regulation On appeal, Carnwarth LJ referred to the Court of Appeal s decision in the Grupo Torras case, 48 with apparent approval of its principles. He held that the subject matter of the dispute was the composition of the board of the English company, rather than the effect of the shareholders agreement and how it was to be implemented. 49 Therefore the proceedings concerned the internal management of the English company, so Article 22.2 applied and the English courts had exclusive jurisdiction. 58. I confess to having some difficulty with the reasoning in that case. Carnwarth LJ accepted that his analysis of the issues in the case involved some expansion of the language of [Article 22.2]. He accepted that the issue in the case was not, strictly, the validity of the constitution or the validity of any board decisions of the English company. 50 Moreover, Carnwarth LJ accepted that the..main area of live dispute may be as to the effect of the [Shareholder Agreement], but he nevertheless held that this did not prevent the proceedings from coming within Article With respect, I find it difficult to square this analysis with principles laid down by the ECJ on the scope of Article 22.2 and with the statements of the Court of Appeal in the Grupo Torras case. Therefore I would prefer to regard this as a decision on its rather special facts which provides no help with the present problem, save that the Court of Appeal purported to follow the principles set out in Grupo Torras. 59. There are three further English cases dealing with Article In FKI Engineering Ltd v Dewind Holdings Ltd, 51 Steel J referred to the decisions in the Newtherapeutics case and Grupo Torras. He said the correct approach was to ask whether the substance of the relevant claims involved the validity of a decision of an organ of the relevant company. He held that they did not. In Calyon v Wytwornia Sprzetu Komunikacynego PZL Swidnik SA, 52 which was decided after Teare J had delivered his judgment in this case, Field J followed the approach of Knox J in the Newtherapeutics case The last case on Article 22.2 I should examine is the ECJ decision in Hassett v SE Health Board, 54 to which I have already referred. In that case, two claimants had sued Irish health authorities in the Irish High Court, alleging medical negligence against two doctors employed by the authorities. The health authorities joined the doctors as third parties. They in turn claimed indemnities from their medical defence The argument actually concerned the Lugano Convention, but the wording is the same. See [25] of the judgment of Carnwarth LJ. See [25] [28]. See [26]. [2007] ILPr 17, [2007] EWHC 72 (Comm) [2009] 2 All ER (Comm) 603 [90]-[96] of the judgment of Field J. Case C-4/03 [2008] ECR I-7403.