Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [QBD (Comm)]

JurisdictionEngland & Wales
JudgeRix J.
Judgment Date21 December 1998
CourtQueen's Bench Division (Commercial Court)
Date21 December 1998

Queen's Bench Division (Commercial Court).

Rix J.

Credit Suisse First Boston (Europe) Ltd
MLC (Bermuda) Ltd

Iain Milligan QC and Christopher Butcher (instructed by Allen & Overy) for the plaintiff.

Richard Salter QC and Jonathan Nash (instructed by Richards Butler) for the defendant.

The following cases were referred to in the judgment:

Airbus Industrie GIE v Patel [1998] CLC 702; [1999] 1 AC 119

Akai Pty Ltd v People's Insurance Co Ltd [1997] CLC 1508

Angelic Grace, TheUNK [1995] 1 L1 Rep 87

Aratra Potato Co Ltd v Egyptian Navigation Co (“The El Amria”)UNK [1981] 2 L1 Rep 119

Bouygues Offshore SA v Caspian Shipping Co (No. 2)UNK [1997] 2 L1 Rep 485

British Aerospace plc v Dee Howard CoUNK [1993] 1 L1 Rep 368

Continental Bank NA v Aeakos Compania Naviera SAWLR [1994] 1 WLR 588

Ocarina Marine Ltd v Marcard Stein & CoUNK [1994] 2 L1 Rep 524

Philip Alexander Securities & Futures Ltd v Bamberger [1996] CLC 1757

Snelling v John G Snelling LtdELR [1973] QB 87

Société Nationale Industrielle Aerospatiale v Lee Kui JakELR [1987] AC 871

Ultisol Transport Contractors Ltd v Bouygues Offshore SA (“The Bos 400”) [1998] CLC 1526 (CA)

Conflict of laws — Anti-suit injunction — Exclusive and non-exclusive jurisdiction clauses in contracts relating to sale of bonds — Seller of bonds sued in England for buyer's failure to repurchase — Buyer took proceedings in US — Whether US proceedings should be restrained.

This was the plaintiff's application for an anti-suit injunction to restrain the defendant's pursuit of proceedings in New York.

The defendant, “MLC”, was a hedge fund which through its US investment manager, “MLC Group”, bought an amount of two series of Russian loan notes sold by the plaintiff English company, “CS Europe”, and issued by “CS Switzerland”. The transactions took place in New York between MLC Group and CS Europe's US agent, “CS US”. MLC had appointed CS US as its prime broker under a customer agreement which contained a New York law clause but no jurisdiction clause. The purchase of the notes was financed by means of repurchase transactions and a global master repurchase agreement (“GMRA”) between CS Europe and MLC contained a non-exclusive English jurisdiction clause and provided that CS US was acting only as a facilitating agent and would have no liability in respect of the agreement (cl. 2(g)(ii)). The purchase agreements for the bonds between CS Europe and MLC contained an English jurisdiction clause (cl. 5.2) which provided for the purchaser to submit irrevocably to the English courts and gave the seller option to take proceedings in any other court of competent jurisdiction. The bonds themselves were expressed to be governed by English law and contained an non-exclusive English jurisdiction clause.

The bonds became valueless after the Russian government in August 1998 announced a moratorium on the repayment of foreign debt. When MLC became liable to repurchase the notes from CS Europe it failed to pay the price, totalling some US$7.6m. CS US acting under the customer agreement liquidated assets belonging to MLC which it held and transferred the proceeds of about US$4.5m to CS Europe. CS Europe issued proceedings for the balance under the GMRA. MLC commenced proceedings in New York against CS Europe, CS US and CS Switzerland alleging misrepresentation and non-disclosure in the sale of the bonds and in the after-sale period, and fraud, and conversion of MLC's assets by liquidating the US accounts. CS Europe sought an anti-suit injunction to restrain MLC's US proceedings relying on cl. 2(g)(ii) of the GMRA and cl. 5 of the purchase agreements. CS Europe also sought to join CS US and CS Switzerland as second and third plaintiffs.

Held giving leave to amend to add the new plaintiffs and granting an anti-suit injunction in relation to the defendant's claims in the New York proceedings which fell within the purchase agreements:

1.Clause 5.2 of the purchase agreements was an exclusive jurisdiction clause so far as claims brought by MLC were concerned. Despite the absence of the word “exclusive”, the existence of the unilateral option for CS Europe to take proceedings elsewhere indicated that MLC was bound to bring proceedings arising out of or in connection with the purchase agreements exclusively in the English courts. (Continental Bank NA v Aeakos Compania Naviera SAWLR[1994] 1 WLR 588applied.)

2.The claims of MLC in New York were not all covered by the jurisdiction clause in the purchase agreements. Claims which arose out of or in connection with the GMRA did not necessarily also arise out the purchase agreements, and where the claims arose out of both agreements the GMRA clause prevailed either because in a case of conflict on standardforms put forward by CS Europe MLC should be entitled to exercise the broader rights or because the clause in the contract which was closer to the claim prevailed over the more distant clause.

3.Disputes between MLC and anyone other than CS Europe were not within cl. 5.2. CS US could not take advantage of the clause because it signed the agreements as agent only.

4.CS US was intended to be a party to the GMRA for the purpose of cl. 2(g) but was not intended to have a complete immunity. A failure by CS US to comply with applicable US securities laws in performing its duties as facilitating agent was specifically excepted under cl. 2(g)(ii) and MLC's complaints fell within that exception.

5.It was not in the interests of justice to prevent MLC from pursuing its New York claims against CS US and CS Switzerland. The claims against CS US under federal law or the law of New York or the customer agreement were not subject to a jurisdiction clause and it could not be said that New York was an inappropriate forum. As a matter of comity it was for the New York court to consider whether the claims should under applicable New York principles be stayed in favour of English jurisdiction. Nor would the court restrain MLC's claims against CS Europe under the GMRA, since the right to sue in New York, if New York accepted jurisdiction, was expressly reserved to MLC. MLC should be restrained from pursuing in New York its claims arising out of or in connection with the purchase agreements on the basis of the jurisdiction clause. That might encourage MLC to litigate its claims as a whole in London. (The Angelic Grace[1995] 1 LI Rep 87applied.)


Rix J:


The defendant, MLC (Bermuda) Ltd (“MLC”), is a hedge fund. As its name suggests, it is a Bermudan company, but it operates through its investment manager, MLC International Investment Group (“MLC Group”), which has offices in New York (and Dallas). This litigation arises out of MLC's purchase of some Russian bonds from the plaintiff, Credit Suisse First Boston (Europe) Ltd, an English company (“CS Europe”). The actual deals were made on the telephone in New York, between Mr Amit Agarwala and Mr Marc Tishfield of MLC Group and Mr Aaron Tighe of Credit Suisse First Boston Corp, a Massachusetts corporation with offices in New York which operates as CS Europe's agent (“CS US”).

There were two series of bonds. On 12 March 1998 MLC purchased US$3m nominal Tatneft Credit Linked Notes, due 18 August 1998, series EM399 (the “Tatneft notes”). The Tatneft notes were issued by a third Credit Suisse company, Credit Suisse First Boston, a Swiss company (“CS Switzerland”). The value of the Tatneft notes was linked to the performance of the underlying obligation of a Russian oil company, OA Tatneft. The second series of bonds was an issue of Russian Federation GKO Credit & Convertibility Linked Notes series EM438, due 16 October 1998 (the “GKO notes”). The underlying security in this case was expressed in Russian roubles, so that purchase of such notes involved a currency risk which as part of the overall purchase was hedged by a forward contract written with CS Switzerland. The rationale was that if the rouble declined in value, the currency contract appreciated: ultimately, however, there was a credit risk on a Russian bank. On 5 May 1998 MLC bought US$20m nominal of the GKO notes.

The troubles of the Russian economy which ultimately burst on the international financial scene in August 1998 are well known. Although there is a degree of dispute about the residual value of the notes, it would seem that their value may have shrunk to nothing. MLC managed to sell US$13m nominal of the GKO notes at a loss in two tranches before the final melt-down, but on 17 August they were told that the Tatneft notes had zero value, and it was at about the same time that the Russian government announced a moratorium on the repayment of foreign debt, following a calamitous decline in the value of the rouble. It was, I think, that moratorium which has led to the ineffectiveness of the hedge.

The purchase of the notes was financed by means of repurchase transactions (“repos”). These were transactions by which CS Europe agreed to repurchase the notes (first leg) and then after a defined interval to sell them back again to MLC at a price which reflected the first leg repurchase price plus a financing charge (second leg). The effect of these transactions was that MLC obtained credit for their purchases (82 per cent on the Tatneft notes and 90 per cent on the GKO notes), but CS Europe retained the security of title to the notes itself.

On 17 August 1998 CS Europe made a margin call in respect of the Tatneft notes which MLC failed to pay. On 18 August MLC became liable to repurchase the Tatneft notes, but failed to pay the repurchase price of US$1,665,969.16. By reason of MLC's default, MLC became liable to pay a further US$6,058,882.28 in respect of the GKO notes. On 25 September CS US, at Europe's request, liquidated assets belonging to MLC which realised US$4,490,625.71 which was then transferred to CS Europe. On the same day CS Europe commenced these proceedings for the balance claimed to be due by serving...

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