Citigroup Global Markets Ltd v Amatra Leveraged Feeder Holdings Ltd [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Andrew Smith J. |
| Judgment Date | 18 May 2012 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 18 May 2012 |
[2012] EWHC 1331 (Comm)
Queen's Bench Division (Commercial Court).
Andrew Smith J.
Antony Zacaroli QC and David Allison (instructed by Allen & Overy LLP) for the claimants/respondents.
Simon Picken QC and Sushma Ananda (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) for the defendants/applicants.
The following cases were referred to in the judgment:
Ainsbury v MillingtonWLR [1987] 1 WLR 379.
AK Investment CJSC v Kyrgyz Mobil Tel LtdUNK [2011] UKPC 7; [2011] 1 CLC 205.
AWB Geneva SA v North America Steamships LtdUNK [2007] EWCA Civ 739; [2007] 2 CLC 117.
Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] CLC 579.
Curtis v Lockheed Martin UK Holdings LtdUNK [2008] EWHC 260 (Comm); [2008] 1 CLC 219.
Equitas Ltd v Allstate Insurance CoUNK [2008] EWHC 1671 (Comm).
Faraday Reinsurance Co Ltd v Howden North America IncUNK [2011] EWHC 2837 (Comm); [2011] 2 CLC 897.
George Munro Ltd v American Cyanamid & Chemical CorpELR [1944] KB 432.
Gouriet v Union of Post Office WorkersELR [1978] AC 435.
Insurance Corp of Ireland v Strombus International Insurance Co LtdUNK [1985] 2 Ll Rep 138.
Johnson v Taylor Bros & Co LtdELR [1922] AC 144.
Konkola Copper Mines plc v Coromin LtdUNK [2006] EWCA Civ 5; [2006] 1 CLC 1.
Mercedes-Benz AG v Leiduck [1995] CLC 1090; [1996] AC 284.
Messier-Dowty Ltd v Sabena SA [2000] CLC 889; [2000] 1 WLR 2040.
Morgan Stanley & Co International plc v China Haisheng Juice Holdings Co Ltd [2012] 2 CLC 263.
New Hampshire Insurance Co v Philips Electronics North America Corp [1998] CLC 1062.
Nomura International plc v Granada Group LtdUNK [2007] EWHC 642 (Comm); [2007] 1 CLC 479.
Owusu v JacksonECAS (Case C-281/02) [2005] 1 CLC 246.
Peekay Intermark Ltd v Australia & New Zealand Banking Group LtdUNK [2006] EWCA Civ 386; [2006] 1 CLC 582.
Reichhold Norway ASA v Goldman Sachs International [2000] CLC 11; [2000] 1 WLR 173.
Rolls-Royce plc v Unite the UnionUNK [2009] EWCA Civ 387.
Rouyer Guillet & Cie v Rouyer Guillet & CoUNK [1949] 1 All ER 244.
S, Re (Hospital Patient: Court's Jurisdiction)ELR [1996] Fam 1.
Sharab v Al-SaudUNK [2009] EWCA Civ 353.
UBS AG v HSH Nordbank AGUNK [2009] EWCA Civ 585; [2009] 1 CLC 934.
Service out of jurisdiction — Stay of proceedings — Jurisdiction clauses — Affiliates — Negative declarations — Banking — Investments — Defendants lost value of substantial investments — Arbitration in US against Citigroup company under rules of Financial Industry Regulatory Authority (FINRA) — Citigroup company brought proceedings in England for declarations of non-liability in respect of itself and its affiliates — Option transactions incorporating ISDA Master Agreement (2002 form) and providing for English law and jurisdiction — No serious issue to be tried for purposes of service out of jurisdiction in respect of affiliate claims — Affiliate claims not useful and more appropriately resolved in FINRA reference — Permission to serve out set aside in respect of affiliate claims — Proceedings exceptionally stayed pending outcome of FINRA reference — English proceedings risked unwarranted interference with FINRA regime.
These were applications by the defendants challenging the jurisdiction of the English court and seeking a stay of the proceedings.
The first and second defendants, incorporated in Jersey and the Cayman Islands, were corporate vehicles for family trusts of which the settlors were the third and fourth defendants, who were businessmen resident in Saudi Arabia.
The claimant (CGML), incorporated in England and Wales, was in the Citicorp group of companies. The defendants banked with Citibank Switzerland.
The defendants' case was that they had lost $198 million which they had invested under Option Transactions entered into with CGML. They had also lost more than $147 million invested in a Private Equity Transaction with Citibank Switzerland.
The defendants brought arbitration proceedings against a US company (CGMI) which was part of the Citicorp group and a member of the Financial Industry Regulatory Authority (“FINRA”), the US regulator. Such arbitration was mandatory under the rules of FINRA. In the reference, to which CGML was not party, the defendants made allegations against CGMI and its affiliates, including CGML, and made claims about both the Option Transactions and the Private Equity Transaction. The defendants said that although they had dealt with CGMI, CGML had been put forward as the counterparty to the swap transactions at the last minute.
CGMI had brought US proceedings seeking a declaration that the claims brought in the FINRA arbitration were not arbitrable, and an order restraining the defendants from pursuing the reference, on the grounds that that the defendants were not customers of CGMI and no dispute arose from CGMI's business activities.
Citibank Switzerland had brought Swiss proceedings seeking declarations that it was not liable in relation to the Private Equity Transaction.
CGML had issued English proceedings for declarations that CGML and its affiliates (excluding Citibank Switzerland) were not liable to the defendants. The Option Transaction agreements, through the incorporation of the ISDA Master Agreement, provided for English law and jurisdiction. The corporate defendants had also entered into further agreements with CGML in Structuring Services letters, which provided for English law and jurisdiction. The third defendant had also countersigned a non-reliance letter, which recorded his understanding of the Option Transactions.
CGML said that the relevant provisions of the Option Transaction agreements, the Structuring Services letters and the non-reliance letter excluded any reliance by the corporate defendants on any representations or advice of CGML or its affiliates and excluded any fiduciary relationship.
CGML obtained permission to serve the corporate defendants out of the jurisdiction on the basis of the English law and jurisdiction clauses and to serve the individual defendants as necessary or proper parties.
The corporate defendants challenged the court's jurisdiction over claims by CGML for declarations in respect of its affiliates. The defendants also applied for a stay of the proceedings in view of the FINRA reference and the US proceedings, in order to avoid duplication of proceedings involving the same issues and the associated risk of inconsistent decisions.
Held , staying the proceedings:
1. There was no real prospect that the court would grant declarations in respect of the affiliate claims. The defendants had not averred as against CGML that CGMI was liable to any of them, and CGML did not assert a belief that it would face such an averment. There was therefore no purpose in determining whether CGML had rights of the kind that it asserted concerning the position of CGMI. Further, the affiliate claims would apparently require the court to consider the position between CGMI and the different defendants in respect of numerous possible causes of action, which might well raise private international law issues and issues under different governing laws. The issues raised by the affiliate claims were likely to be before the FINRA arbitrators, if the New York court allowed the reference to proceed. Thus the affiliate claims did not give rise to any serious issue to be tried, because they did not reflect any real and present dispute between CGML and the corporate defendants; allowing CGML to claim declaratory relief was not the most effective way of resolving the issues raised by the affiliate claims: they would be resolved more effectively in the FINRA reference (if the corporate defendants were not restrained from pursuing it); the affiliate claims were not useful, and involved inappropriate forum shopping, because the jurisdiction agreements covered only disputes between CGML and the corporate defendants, and in reality the disputes to which the affiliate claims were directed were between CGMI and the defendants. Therefore the affiliate claims against the corporate defendants did not satisfy the merits requirement for service out of the jurisdiction, and the permission to serve the proceedings out of the jurisdiction was set aside in respect of those claims. For essentially similar reasons, the court would also decline to exercise its exorbitant jurisdiction as a matter of discretion. For the same reasons, the individual defendants' challenge to the court's jurisdiction over the affiliate claims against them succeeded. (New Hampshire Insurance Co v Philips Electronics North America Corp[1998] CLC 1062andRolls-Royce plc v Unite the UnionUNK[2009] EWCA Civ 387applied.)
2. The fourth defendant was not a necessary or proper party to the non-affiliate claims. The pleading in the FINRA arbitration did not give rise to a reasonable apprehension on the part of CGML that he would bring proceedings against it. The only claims made or threatened by the fourth defendant were those in the FINRA reference, and they could not be made against CGML. The criticisms of CGML in the pleading were made in the context of claims of vicarious liability against CGMI. The fourth defendant's challenge to the jurisdiction succeeded in respect of the non-affiliate claims as well as the affiliate claims.
3. if the proceedings were not stayed, there was a prospect that the parties would face the costs and inconvenience of duplicated proceedings. There was also a risk of inconsistent decisions, which would be reduced, if not entirely removed, by a stay. Those considerations did not in themselves amount to unusual and compelling circumstances justifying a stay. However, what was unusual was that the foreign proceedings were brought under a regulatory regime to which CGML's affiliate was subject as a matter of US public policy, and the proceedings risked unwarranted interference with that regime. The non-affiliate claims...
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