UBS AG & UBS Securities LLC v HSH Nordbank AG
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE WALKER,Mr Justice Walker |
| Judgment Date | 04 July 2008 |
| Neutral Citation | [2008] EWHC 1529 (Comm) |
| Docket Number | Case No: 2008 Folio 180 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 04 July 2008 |
[2008] EWHC 1529 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Walker
Case No: 2008 Folio 180
Mr David Railton QC and Ms Sonia Tolaney (instructed by Simmons & Simmons) for the claimants
Mr Andrew Henshaw (instructed by Mr Michael McNicholas) for the defendant
Hearing dates: 20, 23 May 2008
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 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 WALKER
Introduction
This is a dispute between banks. They disagree both as to the substance of the dispute – whether certain things happened and what consequences should follow if they did —and as to where it should be tried.
The claimants are UBS AG, a Swiss bank, and UBS Securities LLC (“UBS LLC”, formerly named UBS Warburg LLC), a United States subsidiary of UBS AG. In this judgment I shall refer to them together as “UBS”. They began the present proceedings (“the English claim”) seeking negative declaratory relief against the defendant, a German bank which I shall refer to as “HSH”, by issuing a claim form on 25.2.08. Particulars of claim have been prepared in draft but, in circumstances which I describe below, have not yet been served.
Also on 25.2.08 HSH began proceedings (“the New York claim”) in the Supreme Court of the State of New York, County of New York City (“the New York court”) against UBS. For this purpose HSH filed a complaint (“the New York complaint”) identifying 8 causes of action. UBS have filed a motion in New York (“the Motion to Dismiss”) for an order dismissing the New York complaint on substantive grounds, alternatively dismissing or staying the action on jurisdictional grounds. This is supported by both an initial “Memorandum of Law” and a “Reply Memorandum”. The New York court has heard argument on the Motion to Dismiss and its decision is awaited.
HSH has in the meantime applied in the English claim for an order that this court has no jurisdiction to try the claim which UBS seek to make in these proceedings. In the alternative HSH asks the court to decline to exercise jurisdiction on the grounds that the courts of New York are the natural and proper forum for the resolution of the dispute. The parties are agreed that this court should determine the procedural questions which arise in the English claim without awaiting the decision on the Motion to Dismiss. For that reason I have heard argument and proceed to give judgment now, without intending any discourtesy to the New York court.
The Transaction
It is common ground that on 5 March 2002 a transaction (“the Transaction”) took place between UBS and Landesbank Schleswig-Holstein (“LB Kiel”). HSH was established on 2 June 2003 as the result of the merger between Hamburgische Landesbank and LB Kiel, and thereby assumed all material assets, rights and obligations of LB Kiel. It is in that capacity that HSH brings the New York claim against UBS and is the subject of the English claim brought by UBS.
Both sides agree that the background to the Transaction is accurately summarised in paragraph 6.1 of the draft particulars of claim:
[LB Kiel] wanted to obtain exposure to certain credit products such as real estate related credit and asset backed securities (“ABS”) which, at the time of the Transaction, were viewed in the market as having outperformed similarly rated corporate securities, following analysis published in January 2001 by each of the three principal rating agencies, Standard & Poor's, Moody's and Fitch. …
The Transaction is not easy to summarise. Helpful explanations were given in the written and oral submissions of Mr Andrew Henshaw on behalf of HSH and Mr David Railton QC and Ms Sonia Tolaney on behalf of UBS. What follows is my own attempt at a broad brush picture.
The precise structure of the Transaction had been under discussion for some months beforehand. It involved a Cayman Islands company named North Street Referenced Linked Notes, 2002–4 Limited. This company was set up by UBS. I shall refer to it as “NS4”. In the event NS4 issued notes (“the NS4 Notes”) which were denominated in United States dollars (“$”) and which I can conveniently classify into 3 categories. The first category comprised $500m of floating rate notes of classes A to D (“the Class A to D NS4 Notes”). They were issued to and purchased by UBS so that UBS could sell them to LB Kiel as part of the Transaction. The second and third categories comprised $25m floating rate notes of class E (“the Class E NS4 Notes”) and $49m fixed rate income notes (“the NS4 Income Notes”). They also were issued to UBS but were not involved in the Transaction.
On 23.1.02 UBS LLC and LB Kiel signed a letter agreement (“the Letter Agreement”) superseding prior discussions. This stated that LB Kiel and UBS had confirmed the purchase and sale of the Class A to D NS4 Notes subject to acceptable documentation. Clause 1 recorded a mutual expectation that the structure of the Transaction would be substantially as described in a Term Sheet dated January 2002 (“the Letter Agreement Term Sheet”). However it also recorded that the final structure would be as described in the final offering memorandum relating to the Class A to D NS4 Notes. Clauses 2 to 5 dealt with various aspects of the Transaction and the parties' involvement in it. Under clause 6 the Letter Agreement was governed by New York law. The Letter Agreement was silent as to jurisdiction.
The final offering memorandum relating to the Class A to D NS4 Notes – and also to the Class E NS4 Notes and the NS4 Income Notes —was a document described as an “offering circular” dated 1.3.02 (“the Offering Circular”). It described features of the NS4 Notes which came to be embodied in an Indenture (“the Indenture”) dated “as of March 5, 2002.” Among other things the Offering Circular described how the performance of the Class A to D NS4 Notes was to be linked, through a credit swap with UBS AG, to the performance of assets forming a US$3 billion notional amount reference pool (“the Reference Pool”). Under the credit swap NS4 would be obliged to make payments (“Credit Protection Payments”) to UBS AG in the event of defaults on the assets, and the Offering Circular explained that such payments would give rise to corresponding reductions in the unpaid accrued interest on the NS4 Income Notes and thereafter the principal balance of the NS4 Notes, working progressively upwards from the NS4 Income Notes through classes E, D, C, B and A. The Indenture provided that the NS4 Notes were governed by New York law and it contained a New York jurisdiction clause.
Accompanying the Offering Circular was a “Summary of Terms”. This explained in relation to the Reference Pool that UBS would designate a portfolio of “Reference Entities”, and that with respect to each Reference Entity, it would designate one or more “Reference Obligations”. The Summary of Terms also noted that UBS would have the right, subject to certain conditions, to make changes to the Reference Pool.
Contemporaneously with the Transaction, and in accordance with the Offering Circular, UBS and NS4 entered into a credit swap (“the Credit Swap”). Under the Credit Swap UBS purchased credit default protection from NS4 with respect to the Reference Pool. In consideration of such protection, a total premium of US$574 million —subject to reduction in certain events —was to be paid by UBS to NS4 as periodic premium payments over the life of the swap. The Credit Swap provided for Credit Protection Payments as described in the Offering Circular. It was governed by English law and contained a jurisdiction clause in favour of the English courts.
The Transaction involved a number of contracts between LB Kiel and one or both of UBS AG and UBS LLC. They included:
i) an agreement dated “as of March 5, 2002” between UBS and LB Kiel, known as the “Reference Pool Side Agreement” or “RPSA”, which HSH says provided LB Kiel with important protections regarding UBS's management of the portfolio comprising the Reference Pool. This agreement was subject to New York law and contained a non-exclusive New York jurisdiction clause.
ii) the issue on 5 March 2002 by LB Kiel to UBS of $500 million of “puttable” medium term notes. I shall refer to them as “the Kiel Notes”, although the parties sometimes refer to them as “the Kiel MTN Notes” or simply the “MTN Notes”. They were “puttable” in the sense that the principal amount of each note with accrued interest would become payable to a noteholder on any business day at the noteholder's option subject to written notice being given 5 business days in advance. The detailed arrangements for these notes, and certain other matters, were the subject of two documents. One was described as a “pricing supplement” (“the Pricing Supplement”). It was signed by LB Kiel and was dated 5 March 2002. The other was a document described as a “dealer's confirmation” signed by UBS AG and also dated 5 March 2002. It was in effect an initial purchase agreement for the Kiel Notes and I shall refer to it as “the Kiel Notes IPA”. These documents were each governed by English law and each contained an exclusive English jurisdiction clause. Immediately upon issue by LB Kiel to UBS the Kiel Notes were transferred by UBS to NS4 in exchange for the issue by NS4 to UBS of the Class A to D NS4 Notes. This transfer was envisaged by the Offering Circular, which explained that payments of principal under the Class A to D NS4 Notes, along with Credit Protection Payments affecting those notes, would be funded by NS4 exercising its option to...
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