Bank of America Europe DAC (formerly Merrill Lynch International Bank Ltd) v Citta Metropolitana Di Milano

Hearing date: 9 June 2022.

Draft judgment to the parties: 13 June 2022

Approved Judgment

I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

THE HONOURABLE Mr Justice Foxton

This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Monday 20 June 2022 at 14:00 pm.

INTRODUCTION

This is an application by the Claimant in Claim No CL-2015-000029 ( BAE and the BAE Proceedings) and the Claimant in Claim No CL-2016-000041 ( MLI and the MLI Proceedings) to lift a stay of those proceedings ( the English Proceedings) imposed automatically under CPR 15.11. If MLI's application succeeds, the Defendant ( Milano) seeks an extension of time within which to acknowledge service of the MLI Proceedings, for the purposes of challenging the court's jurisdiction.

The proceedings are among a number of claims commenced in the Commercial Court and the Financial List arising from dealings between financial institutions and Italian local or regional authorities in relation to certain kinds of financial transactions.

In this case:

i) MLI and Dexia SpA ( Dexia Crediop) entered into an agreement with Milano in 2001 ( the 2001 Agreement), by which they agreed to provide advice on credit ratings, and which also referred to the possibility of Milano appointing MLI and Dexia as co-arrangers for a Euro Medium-Term Note ( EMTN) programme and as joint lead-managers and joint bookrunners of such a programme. The 2001 Agreement provided for Italian law and jurisdiction.

ii) MLI and Dexia were in due course appointed as arrangers, joint lead-managers and joint bookrunners for the EMTN programme.

iii) In 2002, Milano entered into two interest rate swap transactions with BAE on the terms of the ISDA Master Agreement 1992 form. On 13 November 2002, BAE and Milano entered into the First Swap. On 26 November 2002, they entered into the Second Swap. The First and Second Swaps provided for English law and jurisdiction. Similar transactions were entered into by Milano and Dexia ( the Dexia Transactions), also on the terms of the ISDA Master Agreement 1992 form. The Second Swap was novated to Barclays Bank on 7 June 2005.

iv) On 10 June 2015, Milano sent a letter ( the Letter of Complaint) to BAE making various complaints about the First Swap and threatening to commence proceedings against BAE in Italy. In response, on 12 June 2015, BAE commenced the BAE Proceedings seeking declaratory relief which largely sought to give effect to protective representations made by Milano in the First and Second Swaps. BAE also responded to the Letter of Complaint by a letter from the Milan office of Freshfields Bruckhaus Deringer LLP ( Freshfields). A mediation between Milano and BAE on 9 November 2015 was not fruitful.

v) The BAE Proceedings were served on Milano on 1 December 2015.

vi) On 7 December 2015, Dexia issued proceedings against Milano before the courts of England and Wales seeking declarations in terms of the protective representations in the ISDA Master Agreement.

vii) On 29 December 2015, Milano resolved to appoint lawyers to commence proceedings against BAE before the Italian courts in respect of claims for “extra-contractual” (which I understand to mean non-contractual) damages ( the 2015 Resolutions).

viii) There were passages in the Letter of Complaint and the 2015 Resolutions which related to matters involving MLI, which led MLI to commence the MLI Proceedings on 22 January 2016. The MLI Proceedings were served on Milano on 4 February 2016.

ix) BAE and MLI served the English proceedings in Italy in reliance on CPR 6.33 which addressed “service of the claim form where the permission of the court is not required – out of the United Kingdom.” In support of the contention that the English court had jurisdiction under Regulation (EU) No 1215/2012 of 12 December 2012 ( the Brussels Regulation Recast) BAE relied upon the English jurisdiction agreement in the First and Second Swaps as giving the English court jurisdiction under Article 25; and MLI relied on Article 7(2), on the basis that it was seeking a negative declaration as to its liability in tort where the acts said to give rise to the damage or the damage itself had occurred in England (although there are parts of the claim form which seek a declaration as to the absence of liability in contract).

x) No Acknowledgements of Service ( AOS) or defences were filed. Nor did BAE and MLI apply for judgment in default in respect of the declaratory relief which formed the subject of the proceedings they had commenced. I will return to the reasons why the parties took their respective courses below. However, the combined effect of the parties' decisions was that the English Proceedings became subject to an automatic stay under CPR 15.11 on 11 September and 4 October 2016 respectively ( the Automatic Stays). By contrast, Dexia sought and obtained default judgment on 24 June 2016 in the terms of the declarations it had sought.

xi) Nor did Milano commence proceedings against any of BAE, MLI or Dexia in Italy (although on 30 December 2016, Milano once again authorised the commencement of proceedings against BAE in Italy, this time in terms which referred to bringing a claim for damages generally). Instead, Milano continued to make payments under the First Swap, without acknowledging the validity of that transactions or withdrawing its complaints.

xii) Milano says that it decided in 2017 not to commence proceedings against BAE, MLI and Dexia before the Italian courts, but in 2020 the legal landscape there was changed by favourable court decisions.

xiii) On 21 April 2021, Milano issued a summons in the Milan Civil Court seeking damages against MLI, BAE and Dexia in relation to the First and Second Swaps and the Dexia Transactions ( the Italian Proceedings). For the first time, Milano's claims were formulated as alleged breaches of the 2001 Agreement.

xiv) In July 2021, the prosecutor of the Corte dei Conte (the Italian Court of Auditors) sent a document – the Invito – to 66 entities, including BAE, Dexia and a number of former officials of Milano, inviting them to respond to various allegations relating to the First and Second Swap and the Dexia Transactions.

xv) This has led to BAE's and MLI's applications to lift the Automatic Stays and to Milano's counter-application for an extension of time to file an AOS in the MLI Proceedings if, contrary to its primary position, the stay of the MLI Proceedings is lifted.

THE APPLICATIONS TO LIFT THE AUTOMATIC STAYS

Introduction

CPR 15.11 provides:

“(1) Where –

(a) at least 6 months have expired since the end of the period for filing a defence specified in rule 15.4;

(b) no defendant has served or filed an admission or filed a defence or counterclaim; and

(c) the claimant has not entered or applied for judgment under Part 12 (default judgment) or Part 24 (summary judgment)

the claim shall be stayed.

(2) Where a claim is stayed under this rule any party may apply for the stay to be lifted.”

The clear purpose of CPR 15.11 is to avoid there being claims which continue in being but are not being progressed nor otherwise subject to judicial case management. It will be noted from the language in (1)(b) (“no defendant”) that in a case with more than one defendant, the fact that one defendant does not file an admission or defence will not lead to the claim against that defendant being stayed in the absence of an application by the claimant for default or summary judgment, provided that at least one other defendant has filed an admission or defence. That is presumably because, in those circumstances, the case will come before the court, giving the court the opportunity to manage the case appropriately.

What test is to be applied when determining whether to grant an application under CPR 15.11(2)?

There is a dispute between the parties as to whether an application under CPR 15.11(2) is to be characterised as an application for relief against sanctions so as to engage the test in Denton v TH White Ltd[2014] EWCA Civ 906 ( theDentontest), or whether a less onerous test falls to be applied. Support can be found for both positions.

BAE's and MLI's argument

In support of the view that the CPR 15.11 automatic stay is not a sanction and that an application under CPR 15.11(2) does not engage the Denton test, Mr Handyside QC relied upon the following:

i) CPR 3.9 applies in terms only when a sanction is imposed “for a failure to comply with any rule, practice direction or court order.” He argues that BAE and MLI did not breach “any rule, practice direction or court order” in failing to apply for summary or default judgment.

ii) The view that an application under CPR 15.11(2) is not an application for relief against sanctions is supported by the observations of Cockerill J (expressed, it must be noted, in deliberately tentative terms) in King v Stiefel[2021] EWHC 1045 (Comm), [44]. When addressing the argument that a defendant who had issued an application for reverse summary judgment was nonetheless...