Reflex actions: Plaza BV -v- The Law Debenture Trust Corporation
The recent judgment of Mrs Justice Proudman in Plaza BV -v- The Law Debenture Trust Corporation1 illustrates and extends a line of authorities in which the English courts have sought to narrow the scope of the mandatory application of Article 2 of the Brussels Regulation 44/2001.
These cases are a reaction to the broad interpretation of the applicability and effect of Article 2 set out in the ECJ's decision in Owusu –v- Jackson2, and attempt to confine the influence of that decision.
The matter stems from the collapse of Australian entrepreneur Alan Bond's Bell Group in the early 1990s: an insolvency which has left a very long tail of litigation in its wake. The defendant in this particular case, Law Debenture, is the appointed trustee of certain English law bonds which were issued by Bell Group companies. The claimant is a substantial holder of some of those subordinated bonds, and one of the major unsecured creditors of the Bell Group. The bonds formed part of a complex web of inter-group transactions, further complicated by post-insolvency events.
The latter included the commencement of major Australian proceedings by the liquidators against the banks who were the main secured creditors of the Bell Group and who had purported to exercise their rights of security immediately prior to its entry into insolvency. This litigation was funded in large part by Plaza and the Insurance Commission of Western Australia ("IWCA"). IWCA was the registered holder of other series of the Bell Group bonds of which Law Debenture was also trustee. Those Australian proceedings were settled in September 2013 after first instance judgment in favour of the liquidators, and while an appeal was pending. The settlement deed contained a provision which conferred exclusive jurisdiction on the courts of Western Australia. Critically for what follows, Plaza was a party to that settlement deed.
Under the settlement, the liquidators received AU$1.8 billion. The remaining dispute concerns the distribution of those proceeds. In particular there are disputes about the ranking of the unsecured creditors, at the forefront of which are Plaza and IWCA who are now in direct opposition to one another. Those issues are in themselves complex, and are currently the subject of proceedings in the Western Australian Court, being managed under a dedicated judge.
Plaza then issued proceedings in England seeking to restrain Law Debenture from acting in ways which Plaza said were contrary to its interests as beneficiary under the English law trust deed (which also contained a non-exclusive English jurisdiction clause). Further, Plaza accused Law Debenture of having an impossible conflict of interest in its roles as trustee for beneficiaries with diametrically opposing interests in relation to the distribution issues.
The judgment was handed down in respect of an application by Law Debenture to stay the proceedings in favour of the Western Australian Court. The issues which fell to be determined in the application were (i) whether Plaza's claims fell within the scope of the exclusive jurisdiction clause in the Deed of Settlement and (ii) whether under the Brussels Regulation 44/2001, Plaza was mandated to sue Law Debenture in its country of domicile, being England and (iii) whether, irrespective of the Brussels Regulation, the English court was permitted to decline jurisdiction under its case management powers.
The judge first held that the disputes which Plaza was seeking to bring in the English courts did fall within the scope of the Western Australian exclusive jurisdiction clause to which it had signed up in the settlement deed. In doing, she followed the general presumption of the English courts that such clauses are generally intended to be broad in scope so as to avoid a multiplicity of proceedings in different jurisdictions.
The judge then turned to the more interesting question, which was whether Article 2(1) of the Brussels Regulation mandated that Plaza be able to sue Law Debenture in its country of domicile, i.e. England. Article 2(1) states in terms that "Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State."
The starting point for the analysis was, inevitably, the decision of the ECJ in Owusu v. Jackson. In that case, the ECJ held that Article 2(1) applied not just where proceedings could otherwise be commenced against a defendant in another contracting state, but also where proceedings could otherwise be commenced in a non-contracting state. In particular, the ECJ held that:
"the court of a contracting state [is precluded] from declining the jurisdiction conferred on it by Article 2 of that Convention on the ground that a court of a non-contracting state would be a more appropriate forum for the trial of the action, even if the jurisdiction of no other contracting state is in issue or the proceedings have no connecting factor to any other contracting state."
The question then was whether, despite the English court's natural inclination to decline jurisdiction in favour of the Western Australian Court, it was instead bound under Article 2(1) to allow Plaza to bring its case against Law Debenture in England.
Had the alternative court been a court of a contracting state to the Brussels Regulation, the result would have been in very little doubt. The English court would have relied on the exception in Article 23 (which allows contractual jurisdiction clauses to override the basic Article 2 provision) and/or Article 28 (which permits Article 2 to be overridden in situations in which other courts are already seised of related actions). However, both of those exceptions are expressed in terms which envisage that the conflicting jurisdictions are both contracting states.
- Thus, Article 23(1) provides:
"If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction."
- And Article 28(1) provides:
"Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings"
The core question which thus arose for decision was whether the court could apply one or both of these provisions in order to defer jurisdiction to the court of a non-contracting state.
Issue 1: Can Article 23(1) be applied "reflexively"?
In relation to Article 23(1), the judge had assistance from an increasingly clear line of authorities3 in which the English courts have declined to accept jurisdiction over an English domiciled defendant notwithstanding Article 2 and the Owusu decision, and have instead upheld contractual exclusive jurisdiction clauses in favour of non-contracting states.
In doing so, the English courts have interpreted Owusu narrowly. Owusu was not a case in which there was a contractual jurisdiction clause in play; instead, the case concerned the principles of forum non conveniens. The English courts in these judgments have distinguished the Owusu decision on the basis that it is applicable to forum non conveniens situations, but not to situations in which there is a contractual jurisdiction clause in play.
Having sidestepped what might be considered to be the broad thrust of the Owusu judgment, the English courts have then applied what is termed a "reflexive" application of Article 23(1). This involves treating Article 23(1) as being an exception to Article 2 which is equally applicable where parties have elected to confer jurisdiction on the courts of a non-contracting state, notwithstanding the express language which appears to confine it to circumstances in which jurisdiction has been conferred on the courts of a contracting state. The heavy lifting having been done in those earlier cases, the judge in the immediate case had little difficulty in finding that she was able to apply Article 23(1) 'reflexively' in order to override the general principle in Article 2, and in doing so grant a stay of the English proceedings in favour of the Australian courts.
Issue 1: Can Article 28(1) be applied "reflexively"?
In relation to Article 28(1), the judge had less assistance from previous authority. Four earlier cases had been brought to her attention. In two of those, it had in essence been found that Article 28 (or the related Article 27) could be applied reflexively, and in the other two it had in essence been found that it was not permissible to apply those Articles reflexively in light of Owusu.
Here, the key issue which the English courts have yet to fully resolve is that Articles 27 and 28 concern the principles of lis alibi pendens. In English law, either that principle is an aspect of forum non conveniens, or at the very least it is a closely related principle which, where it arises, is a powerful factor to be taken into account in considering issues of forum non-conveniens. Given that close connection, in relation to these Articles it is much more difficult to distinguish Owusu, given that was a judgment given in the context of issues of forum non-conveniens.
In the end, the judge decided that it was unnecessary to reach a firm decision on this point, given that a stay was being granted under Article 23(1) in any event. Accordingly, her conclusion went no further than to set down the marker for the need for a future decision:
"it seems to me that the question of the nature of lis alibi pendens (that is to say, whether it is merely a constituent factor of forum non conveniens and, if so, the effect of Owusu) is one that merits full argument. While I tend to agree … that the Court is not bound by Owusu to reject the lis alibi pendens argument, I can and do limit my decision to the fact that the Deed of Settlement contains an exclusive jurisdiction clause and that… it should be applied."
Issue 3: Can the court decline to take a case on case management grounds, notwithstanding
Finally, the judge found that had she not granted a stay through reflexive application of Article 23, she would nonetheless have granted a stay on case management grounds. In doing so, she drew on authority which contemplates that in rare and compelling cases, the court may simply exercise discretion to decline to accept a case. The judge sought to stress that that this was "not introducing forum non conveniens by the back door; the point is squarely focused on party autonomy or alternatively on lis alibi pendens." To the extent that this power is exercised in that manner, it would add little to a reflexive application of Article 23 and Article 28. However the willingness to further open up this alternative avenue to declining jurisdiction notwithstanding the provisions of Article 2 seems to be a further manifestation of the resistance of the English courts to the approach taken by the ECJ in Owusu.
Further case-law can surely be expected, and from higher courts. It seems inevitable that at some stage these issues will be considered before the CJEU. On the evidence of Owusu, the CJEU may well then take a very different view from that which the English courts have been developing in cases such as this. However, as can be seen from cases such as this, there are very good reasons why the doctrine expressed in Owusu needs to be refined and clarified to allow the courts of the contracting states to deal sensibly with, in particular, international commercial litigation.
1 EWCH 43 (Ch)
3Konkola Copper Mines plc v. Coramin Limited  EWHC 898 (Comm), Winnetka Trading Corporation v. Julius Baer International Limited  EWHC 3146 (Ch) and Ferrexpo v. Gilson Investments  EWHC 721 (Comm)