Berliner Verkehrsbetriebe (BVG) Anstalt Des Offentlichen Rechts v JP Morgan Chase Bank NA

JurisdictionEngland & Wales
JudgeEtherton,Pill,Aikens L JJ.
Judgment Date28 April 2010
Neutral Citation[2010] EWCA Civ 390
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A3/2009/1637
Date28 April 2010

[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

Before: Lord Justice Pill

Lord Justice Etherton

and

Lord Justice Aikens

Case No: A3/2009/1637

Case No 2008, Folio 1052

Between
Berliner Verkehrsbetriebe (BVG) Anstalt Des Offentlichen Rechts
Appellant
and
(1) JP Morgan Chase Bank N.A.
Respondent
(2) JP Morgan Securities Ltd

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 2010

Lord Justice Aikens

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 2007. BVG resolved to enter into the ICE Transaction by resolutions of its Management Board in March 2007 and its Supervisory Board in April 2007. 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

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 – Wurttemberg (“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 non-disclosure 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 2007. 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. 2

9

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.

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. 3The hearing before Teare J was on 29–30 June 2009.

12

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.

...

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