In Berliner Verkehrsbetriebe Anstalt v JP Morgan and Depfa Bank plc v Provincia Di Pisa, the Defendants to claims for the enforcement of swap agreements attempted to use Article 22.2 of the Brussels Regulation to by-pass an agreed jurisdiction clause.

Article 22.2 of the Brussels Regulation states that "proceedings which have as their object . . .the validity of the decisions of [a company's] organs shall be exclusively held in the courts of the Member State in which the company. . . has its seat". Pursuant to Article 25, "where a court of a Member State is seised of a claim which is principally concerned with a matter over which the courts of another Member State have exclusive jurisdiction by virtue of Article 22, it shall declare of its own motion that it has no jurisdiction".

The Defendants in these cases contended that as their defences included an argument that their directors had acted ultra vires, the case involved a question of the validity of the relevant companies' decisions. They further submitted that the mere presence of this issue was enough to require exclusive jurisdiction to be transferred to Germany (or Italy in the Depfa Bank case), or in the alternative, the fact that the issue was capable of determining the outcome of the claim satisfied the Article 22.2 conditions.

The Court in both cases found that the English Courts did have jurisdiction. In particular, the Court of Appeal in Berliner held that:

  1. The Court was to interpret the words "proceedings which have as their object" in Article 22.2 as "proceedings which are principally concerned with". That proceedings might (amongst other matters) concern decisions taken by a company's directors did not necessarily mean that those proceedings were "principally concerned with" that issue, even if that issue might ultimately be dispositive of the proceedings.
  2. The correct approach required the Court to undertake an exercise in "overall classification" and make an "overall judgement" as to whether the proceedings were "principally concerned" with such matters.
  3. The proceedings were, in fact, "principally concerned with" the validity of the swaps and whether the Claimant could enforce its rights under them.

In another recent case, UBS AG and UBS Global Asset Management (UK) Limited v Kommunale Wasserwerke Leipzig GmbH [2010] EWHC 2566 (Comm), the Court again considered a challenge to the jurisdiction of the English Courts based on Article 22.2. The Defendant in that case, the Leipzig water supplier, argued that swap agreements were invalid because the execution of the swaps fell outside of the statutory purposes of the water supplier, and its directors were unauthorised to enter into them without the prior approval of shareholders (which had not been obtained). The Court again concluded that the English proceedings were not "principally concerned" with the validity of these decisions and that accordingly the German Courts did not have exclusive jurisdiction. The Court relied on the guidance set out by the Court of Appeal in Berliner and found that the English proceedings were principally concerned with the enforceability of the swaps and UBS's entitlement to receive payment under those swaps, as well as the conduct of UBS as portfolio manager. Accordingly, the ultra vires defence was not likely to be a principal focus for the proceedings as a whole.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

This article was originally written for Stephenson Harwood's quarterly publication, Finance Litigation Legal Eye. If you would like to receive this publication, please contact Stephenson Harwood.