2010 FOLIO 1557
Rolls Building, Fetter Lane
London EC4A 1NL
Before
MR JUSTICE POPPLEWELL
Between
UBS Limited UBS AG | Claimants |
- and - | |
Regione Calabria | Defendant |
Ms Sonia Tolaney QC and Mr Tom De Vecchi (instructed by Cleary Gottlieb, Steen & Hamilton LLP) for the Claimants
Mr Andrew Thomas (instructed by McGrigors LLP) for the Defendant
Hearing dates: 16 and 19 March 2012
Judgment
Mr Justice Popplewell :
Introduction
This is an application by the Defendant, Regione Calabria (“Calabria”) which is an Italian public authority. It seeks a declaration that the Court does not have jurisdiction, alternatively should not exercise jurisdiction, over the claims brought against it by the Claimants. The application is made on the basis that the proceedings fall within Article 27, or alternatively Article 28 of the Council (EC) Regulation number 44/2201 of 22 September 2000 (“The Judgment Regulation”). In the alternative it is contended that the Italian courts have exclusive jurisdiction over the dispute under Article 23 of the Judgment Regulation.
The Second Claimant, UBS AG, is the parent company of the UBS Group. It is incorporated in Switzerland. It has a branch in London with a registered branch office at 1 Finsbury Avenue, London, EC2M 2PP. It also carries on business at 100 Liverpool Street, London EC2M 2RH.
The First Claimant, UBS Limited, is a company incorporated under the laws of England and Wales and is a wholly owned subsidiary of UBS AG. Its registered address is 1 Finsbury Avenue, London, EC2M 2PP. It was formerly called UBS Warburg Limited.
On 5 March 2002 Calabria entered into a written agreement (“the Advisory Contract”) with UBS Limited and Banca Nationale del Lavoro (“BNL”) to perform certain services in relation to its regional debt. Under Article 1 Calabria appointed BNL and UBS Limited as rating advisors to advise and assist it in obtaining a credit rating. The work was to comprise obtaining the best possible credit rating for Calabria. It was to include preparing a prospectus to be submitted to credit rating agencies; providing assistance in preparing the meetings with the credit rating agencies; and liaising between the credit rating agencies and Calabria. Under Article 2, BNL and UBS Limited were appointed as arrangers to prepare a Euro denominated medium term note programme for Calabria. The work involved was to include the preparation, in collaboration with both English and Italian legal advisors, of the documentation for the medium term note programme; obtaining the listing of the medium term note programme on the Luxembourg or London Stock Exchange; and selecting, in agreement with Calabria, the dealers for the medium term note programme. By Article 4 BNL and UBS Limited were to provide these services without requesting any remuneration.
By Article 8 Calabria appointed BNL and UBS Limited to “verify possible restructuring transactions for the regional debt, offering the necessary support free of charge in the analysis and restructuring phase, providing [Calabria] with suitable calculation systems, and organising training courses for the regional employees engaged in actively managing the regional debt.”
Article 9 provided: “this contract shall be valid until the conclusion of the transactions necessary for performing the tasks described above.”
Article 11 provided: “This private deed shall be governed by Italian law. In the event of a dispute jurisdiction shall lie with the Italian judge and the Court of Catanzaro.”
Between 2003 and 2007 UBS Limited and UBS AG entered into a number of interest rate swap transactions with Calabria (“the Transactions”) as follows:
Four interest rate swap transactions were entered into between UBS AG and Calabria with a trade date of 3 March 2003.
Pursuant to a written novation agreement, these four transactions were novated from UBS AG to UBS Limited on 1 April 2004.
Two of these were the subject of restructuring interest rate swap transactions entered into between UBS Limited and Calabria with a trade date of 22 December 2005.
Two further restructuring interest rate swap transactions were entered into between UBS Limited and Calabria with trade dates of 31 December 2006 and 13 May 2007 respectively.
The 2003 transactions were governed by an ISDA Master Agreement agreed between UBS AG (through its London branch) and Calabria. On 1 April 2004 the ISDA Master Agreement was novated to UBS Limited together with the first four transactions. Following the novation to UBS Limited, it is both sides’ case that this ISDA Master Agreement governed the subsequent transactions between UBS Limited and Calabria. The ISDA Master Agreement contains an entire agreement clause (clause 9(a)). Clause 13 provides that it is to be governed by English law. Clause 13(b) provides:
“Jurisdiction. With respect to any suit action or proceedings relating to this Agreement… each party irrevocably….submits to the jurisdiction of the English courts if this agreement is expressed to be governed by English Law…”
In a report on Calabria’s accounts for the financial year 2007, the Court of Auditors, through the Regional Audit Department for Calabria, criticised certain aspects of the Transactions and other derivative transactions entered into by Calabria as part of its medium term note programme and stated that they had damaged the regional budget. In consequence Calabria commenced proceedings in the Court of Catanzaro in Calabria. The Summons named a number of banks as defendants including BNL as party to the Advisory Contract, and Nomura and Dresdner Bank as counterparties to derivative contracts. The Summons also named as defendant “UBS Warburg AG, represented by its pro tempore legal representative, with registered office in 100 Liverpool Street, London EC2M 2RH (United Kingdom)”. It then listed UBS Warburg AG again as a separate defendant, this time alleged to be represented by its pro tempore legal representative at the registered office in 1 Finsbury Avenue. I shall have to return to the terms of the Summons in more detail below, but before doing so I set out the relevant procedural chronology.
Procedural Chronology
Process was started in the Court of Catanzaro by the Summons being provided on 8 April 2010 to a process server. The certificate of service subsequently endorsed on the Summons recorded that it had been served on “UBS Warburg AG, a company formed under English law, represented by its pro tempore legal representative, with registered office in 100 Liverpool Street, London EC2M 2RH (United Kingdom) by delivering a true copy by recorded delivery post with a legalised and sworn translation…” It was not in dispute that purported service had been effected in that manner.
UBS Warburg AG could not be a company formed under English law, because AG is short for Aktiengesellschaft, a German or Swiss form of incorporated entity. At the time of the issue and service of the summons, there was no company within the UBS group called UBS Warburg AG. There had previously been a company within the group known as UBS Warburg AG, but on 6 June 2003 it had changed its name to UBS Investment Bank AG. It was a separate German legal entity with no registered office at the London address where the summons was purportedly served. It had no involvement in any of the transactions which are the subject of the dispute, nor any dealings with Calabria.
On 13 April 2010 Calabria lodged the Summons with the Italian Court.
On 23 December 2010 UBS Limited issued a claim form in the High Court of Justice in England (2010 Folio 1556). It claims a series of declarations in relation to the Transactions and in relation to the Advisory Contract. In substance it is drafted in sufficiently broad terms as to seek declarations of non liability in respect of any of the potential ways in which liability was being alleged against any UBS entities in the Italian proceedings.
On the same date 23 December 2010, UBS AG also issued a claim form in the High Court of Justice (2010 Folio 1557). The claim form was amended and reissued on 31 December 2010. UBS AG sought declarations of non liability in respect of the 2003 Transactions in similar terms to those sought by UBS Ltd in 2010 Folio 1556. By contrast with the claim form issued by UBS Limited, UBS AG did not include within its claim any relief relating to the Advisory Contract or the later Transactions (to none of which it was a party).
On 5 January 2011 UBS AG and UBS Limited lodged a document with the Court of Catanzaro in the Italian proceedings. The title to the document was (in translation) “Appearance”. It challenged the validity of the Summons and the validity of service of the Summons on grounds which have been repeated before me and which I will address more fully below. It alleged that the Italian Court did not have jurisdiction. It went on to address the merits of the claim advanced in the Summons, without prejudice to the challenges to the validity of the Summons and validity of service of the Summons and the contention that the Court did not have jurisdiction.
On 7 February 2011 there was a hearing in the Court of Catanzaro at which the Court gave the parties permission to file further submissions. On 31 May 2011 Calabria filed its reply to the Appearance.
On 16 June 2011 Calabria issued its application in the English proceedings challenging the jurisdiction of the English Court. It was initially listed to be heard on 4 November 2011, but in the light of the fact that a second hearing had taken place in the Italian proceedings on 10 October 2011, and the decision was awaited, the hearing was adjourned by agreement and relisted for 3 February 2012. In skeleton arguments prior to that hearing, Calabria suggested that pursuant to the principles adumbrated in Bentinck v Bentinck [2007] EWCA Civ 175, it was appropriate to await the outcome of the decision of the Court of Catanzaro in relation to its own jurisdiction. On 2 February Andrew Smith J ordered the hearing to be adjourned and relisted for 16 March 2012 to enable a joint enquiry by the parties to be made of the Court of Catanzaro.
On 28 February 2012 the Court of Catanzaro ordered that there should be a further hearing of the preliminary issues relating to jurisdiction. It ordered that such hearing should take place in over a year’s time on 23 April 2013. The decision of the Court of Catanzaro on those jurisdictional issues is not expected before September 2013, some 18 months from now. Nevertheless Calabria sought a further adjournment of its applications for that period to await the outcome of the decision of the Court of Catanzaro in or after September 2013. On 14 March 2012 Gloster J rejected the proposed adjournment of the hearing for that purpose and the matter came on before me on 16 and 19 March 2012.
The Arguments in Outline
Mr Thomas on behalf of Calabria advanced three bases for bringing a halt to the English proceedings. He submitted first that the Italian Court was first seised of proceedings involving the same cause of action and involving the same parties as the English proceedings so as to engage Article 27 of the Judgment Regulation; or that in any event that the Italian Court was first seised of proceedings which were related to the English proceedings so as to engage Article 28 of the Judgment Regulation. Secondly, and alternatively, he submitted that if the Italian Court was not first seised of any proceedings involving UBS Limited or UBS AG, nevertheless it was first seised of the proceedings against the other banks which are defendants in the Italian Court; and that those Italian proceedings are related to the English proceedings so as to engage Article 28. Thirdly, and in the further alternative, he argued that if neither Article 27 nor 28 were engaged, nevertheless the English proceedings should be stayed pursuant to Article 23 because of the Italian jurisdiction agreement in the Advisory Contract.
On behalf of UBS Limited and UBS AG, Ms Tolaney QC argued that there were no proceedings against UBS Limited or UBS AG in Italy of which the Italian Court was first seised, or indeed seised at all, because the proceedings were purportedly commenced against, and served upon, a nonexistent entity described as UBS Warburg AG. She accepted that if the Italian proceedings are proceedings in which the Italian courts were first seised of the claims against UBS Limited and UBS AG, they would be for the same causes of action as those which UBS Limited and UBS AG, respectively, advance in the English proceedings so as to fall within Article 27. But, she submits, in accordance with the applicable principles of Italian procedural law, there is such uncertainty over the identity of the entity or entities whom Calabria intended to sue, and to serve, as to render invalid and a nullity both the purported service and the Summons itself. In this respect UBS AG and UBS Limited rely upon (1) Article 160 of the Italian Code of Civil Procedure (“CCP”) and (2) further and alternatively Article 164 of the CCP. Article 160 is concerned with the invalidity of service of a summons. Article 164 is concerned with invalidity of the summons itself. It is contended that both service of the Summons and the Summons itself were defective such that the Summons is a nullity, which cannot be remedied retrospectively.
On behalf of Calabria it is contended that there was no such invalidity, alternatively that it was cured by the filing of the Appearance by UBS Limited and UBS AG, with retrospective effect, by reason of Article 156 of the CCP.
In relation to Mr Thomas’s alternative case, relying upon the engagement of Article 28 by reason only of the fact that the Italian Court was (as is not disputed) first seised of proceedings against BNL and the other banks, Ms Tolaney QC submits that there is no risk of irreconcilable judgments; or that if there is, it is not expedient as a matter of discretion to stay the English proceedings.
In respect of Mr Thomas’s third, alternative, argument, based on Article 23 and the jurisdiction clause in the Advisory Contract, Ms Tolaney QC submits that the relevant jurisdiction clause is that contained in clause 13(b) of the ISDA Master Agreement stipulating for English jurisdiction.
Seisin of the Italian Proceedings vis a vis UBS Limited and/or UBS AG
Articles 27 and 28 of the Judgment Regulation state as follows:-
“Article 27
1. Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established.
2. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court.
Article 28
1. Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings.
2. Where these actions are pending at first instance, any court other than the court first seised may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions in question and its law permits the consolidation thereof.
3. For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.”
The provisions of Articles 27 and 28 of the Judgment Regulation are only engaged if the courts of different Member States are "deemed to be seised" of proceedings. That is determined in accordance with Article 30 of the Judgment Regulation, which defines the circumstances in which a court shall be "deemed to be seised". It follows that if no court is deemed to be seised of an action, or if the court in only one Member State is deemed to be seised, then Articles 27 and 28 are not engaged: Stribog Ltd v FKI Engineering Ltd and another [2011] EWCA Civ 622 at [25].
For the purposes of Articles 27 and 28 of the Judgment Regulation, the circumstances in which proceedings are deemed to have been commenced in Italy are provided for by Article 30(2): WPP Holdings Italy SRL and others v Benatti [2007] EWCA Civ 263 at [23]. Article 30(2) states that the court is deemed to be seised:
“if the document [instituting the proceedings] has to be served before being lodged with the court, at the time when it is received by the authority responsible for service, provided that the plaintiff has not subsequently failed to take the steps he was required to take to have the document lodged with the court.”
In this case, whether the Article 30(2) requirement has been satisfied is a matter to be determined by reference to Italian law. While the purpose of Article 30 was to provide for an autonomous regime determining when seisin takes place, the courts of Member States still must have recourse to national laws for certain questions. In particular, whether a particular document is effective to “institute proceedings” is a question of national, and so in this case Italian, law: Benatti (above) at [84].
Under Article 30(2) of the Judgment Regulation the relevant time for the purpose of seisin is when the summons is received by the process server responsible for service. The argument in relation to seisin before me proceeded upon the footing that no distinction was to be drawn between the validity of service itself under Article 160 and the validity of the service which the process serving authority was asked to perform when the Summons was provided to it. The argument proceeded on the footing that:
the service which was purportedly carried out was that which the relevant “authority responsible for service” was requested to carry out; and
the validity of the receipt by “the authority responsible for service”, for the purposes of Article 30(2) of the Judgment Regulation, was to be determined by the validity of the service which it was asked to carry out and in fact carried out.
On behalf of the UBS companies, evidence of Italian law was advanced in the form of a witness statement from their English solicitor, Mr Kelly, stating what he had been advised by an Italian law firm, Studio Legale Macchi di Cellere Gangemi (“Studio Legale Macchi”). He exhibited a translation of the Appearance filed on behalf of UBS AG and UBS Limited on 5 January 2011 in the Italian proceedings, in which the arguments in relation to invalidity of the Summons and its service were set out, together with translations of a number of the underlying Italian materials referred to and relied upon. On behalf of Calabria, the Italian law evidence was adduced in the form of a signed letter of advice from Professor Ruggiero Cafari Panico and Marco Vaccari of K Studio Associato, together with translations of the materials to which they referred. There were differences between the parties both as to Italian law, and as to its application to the facts of this case. I have to resolve such issues as best I can by reference to the underlying Italian materials.
The relevant provisions of the CCP have been translated as follows
“Article 156
Importance of invalidity.
[I] Invalidity may not be declared on the grounds that one of the court papers is not in the proper legal form, unless invalidity is imposed by law.
[II]. However, a court paper may be declared invalid when it does not meet the formal requirements indispensable to the attainment of its object.
[III]. If the court paper has attained its proper purpose, invalidity may never be declared.
Article 160
Invalid service
Service shall be invalid if the provisions regarding the person to whom the copy must be delivered are not observed, or if there is total uncertainty about the person to whom delivery has been made or about the date of delivery, without prejudice to articles 156 and 157.
Article 163
Contents of the summons.
[I]. The claim shall be brought through a summons to appear at a hearing on a fixed date.
[-- -]
[III]. The summons shall:
2) indicate ……….the name, surname, tax code and residence or domicile or abode of the defendant and those respectively representing or assisting him. If the …..defendant is a legal entity, an irregular association or a committee, the summons shall contain the company or business name, and indicate the body or office that is appointed to represent it in court;
3) indicate the subject matter of the claim;
4) describe the facts and the legal grounds underpinning the claim, as well as the forms of relief sought;
[IV]. The summons, signed pursuant to article 125, shall be delivered by the party or its attorney to the process server, who shall serve it in compliance with articles 137 et seq.
Article 164
Invalidity of the summons.
[I]. The summons shall be invalid if any of the required elements indicated in article 163 (1) and (2) are missing or are totally unclear.
[Il]. If the defendant does not enter his appearance, the judge, having declared the invalidity of the summons pursuant to the first paragraph, shall order it to be renewed by a strict deadline. This shall remedy the defects and the substantive and procedural effects of the claim shall run from the time of its first service. If service is not renewed, the judge shall order the case to be removed from the docket and the proceedings shall be terminated pursuant to the third paragraph of article 307.
[III]. The appearance of the defendant shall remedy the defects in the summons and the substantive and procedural effects referred to in the second paragraph above shall be unaffected; however, if the defendant argues that the deadline for appearance was shorter than the legal minimum or that he received no warning pursuant to article 163 (7), the judge shall fix a new hearing respecting the legal requirements.
[IV]. The summons shall also be invalid if the required element indicated in article 163 (3) is missing or is totally unclear or if there is no presentation of the facts pursuant to paragraph 4 of that article.
[V]. The judge, having declared invalidity pursuant to the previous paragraph, shall set a strict deadline by which the claimant must renew the summons or, if the defendant has entered his appearance, complete the claim. The renewal of service or completion of the claim shall not prejudice any rights accrued before renewal or completion and shall not cure any time limit that has elapsed before renewal or completion.
[VI]. In the event of completion of the claim, the judge shall fix a hearing pursuant to the second paragraph of article 183 and article 167 shall apply.”
The Summons
It is convenient here to consider the nature of the claims advanced in the Summons and the extent to which the document identifies the entity or entities against whom they are advanced. In my judgment this is a question of objective construction of the document. On behalf of Calabria both evidence and argument was advanced that the intention was to make a claim against both UBS Ltd and UBS AG:
Mr Fairhead’s first witness statement contained the somewhat elliptical comment at paragraph 18 that “[Calabria’s] case is that the [Transaction documents] mentioned in the summons (and in the two Claim Forms in the English Proceedings) were entered into sometimes with UBS Ltd and sometimes with UBS AG, but often under the Group’s headed paper with “UBS Warburg” featured at the top.”
At paragraphs 19 and 28, he averred that the Italian proceedings had been commenced against UBS Limited and UBS AG for the reasons set out in Calabria’s reply filed in the Italian proceedings. That reply (at pages 15-17 of the translation) identified Calabria’s argument as being that the reference to UBS Warburg AG “identifies the whole group” and that the intention to sue UBS Ltd and UBS AG was apparent from the fact that they were the parties to the Advisory Contract and the Transactions. Mr Fairhead in his witness statement averred that the reference to UBS Warburg AG identified the UBS Group as a whole and that the references to the Transactions identified UBS Ltd and UBS AG as the relevant members of the UBS Group. Having averred that the Transaction documents were themselves confusing in identifying the relevant contracting party (an averment which is not borne out by the documents themselves) he suggested: “It is perhaps unsurprising that [Calabria] has approached the Italian Proceedings on the basis of considering the Group as a whole…”
In his second witness statement at paragraph 38 he said: “[Calabria’s] position is clear: its claim was and is against both UBS Ltd and UBS AG. It is not (and never has been) contended that the claim was against the UBS Group as a whole… Instead it is merely asserted that the reference to “UBS Warburg AG” in the summons helped to identify the UBS Group as a whole and from that the 2 specific entities against whom the claim was being made.”
Ms Tolaney QC sought to treat this as evidence of Calabria’s subjective intention. She argued that since it was Calabria’s case that they intended to sue more than one group member by naming, as it thought, the UBS Group as a whole, whereas the Summons is directed to a single defendant, there must be uncertainty as to who was intended to be the subject matter of the claim. I do not regard the above evidence as evidence of subjective intention, so much as argument on behalf of Calabria as to what it contends to be the effect of the Summons. But if it were evidence of subjective intention, it seems to me to be irrelevant. There is no justification in the Italian materials put before me for treating the question as anything other than one of objective interpretation of the document. That accords with what one would expect. If a document is totally uncertain about whom is being sued, it would be surprising if the certainty could be supplied by the claimant relying on its unexpressed, or insufficiently expressed, intention as to whom it was seeking to sue. Conversely, if the document were to make clear (be it supposed) that it was addressed to a particular entity, I can see no logical basis for it to cease to be so merely because the Claimant’s intention, again unexpressed or insufficiently expressed in the document, was for it to be addressed additionally to another entity; nor because for what may be understandable forensic reasons the claimant may seek to argue that it has that effect.
The Summons has a number of parts:
At the beginning of the document, the parties are identified together with their registered offices. I shall call this the Identification of the Parties.
Sections 1 to 3 set out the factual basis for the claim.
Section 4 avers the basis for Italian Jurisdiction.
Section 5 identifies the provisions of Italian Law relied on. It is split into section 5.1, which addresses liability in tort, and section 5.2, which addresses liability in contract.
Section 6 explains the basis for the claim in contract by applying the law to the facts.
Section 7 explains the basis for the claim in tort by applying the law to the facts.
Section 8 identifies loss and damage.
There is at the end:
A summoning of the Defendants to appear at a particular place and time. This lists the persons summoned by name and address. I shall call this the Summoning.
A prayer, setting out the relief claimed with a summary of the person against whom it is sought and the legal grounds. I shall call this the Prayer.
In my view sections 1 to 8 of the Summons are drafted with clarity and consistency such as to advance and support a claim against UBS Limited as the only UBS company sued. There is no factual or legal basis identified for seeking any redress against any other UBS company. But the factual and legal basis for seeking redress against UBS Limited is consistent, coherent and comprehensible, whether or not it is well founded.
Early in the chronology of the facts (page 4) the Summons identifies UBS Warburg Ltd with its registered office in London and says that references in the document to “UBS” or “UBS Warburg” are to that entity, ie the company now called UBS Limited.
Three causes of action are identified:
a claim for breach of contract;
a claim in tort under Articles 2043 and 1440 of the Italian Civil Code;
a claim in tort under Article 21 of Legislative Decree no. 58/1998 known by the acronym of its Italian description of the Consolidated Law on Finance: “the TUF”.
So far as concerns the breach of contract claim:
The relevant contract is the Advisory Contract, which is referred to, correctly, as being between “UBS” or “UBS Warburg” and Calabria and is exhibited to the Summons (pp 6, 9).
The liability for breach of contract is repeatedly stated to be that of “UBS” (see for example the heading to Section 6 at p46 and reference to “UBS” throughout that section, and elsewhere eg p70).
The breaches alleged are that
UBS failed to advise on and arrange the Transactions and the other swaps with the other banks in a way which was in Calabria’s best interests (p47);
On the contrary UBS had a conflict of interest because it was the counterparty to the Transactions (p48,50). The Transactions are consistently referred to as being between Calabria and “UBS” (see for example p7, 10, 11, 12,), and so is the ISDA Master Agreement (p48). Ms Tolaney QC points out that this is erroneous because the 2003 Transactions were entered into by UBS AG as was the ISDA Master Agreement. But this is an accurate averment of the identity of Calabria’s counterparty to all the Transactions as a matter of legal effect taking account of the novation in 2004. If the Summons chooses to draw no distinction between the counterparty to the 2003 Transactions before and after the novation, that is simply part of the basis of the claim which it advances. Moreover it can not assist the UBS companies on this application to say that there are aspects of the claim advanced in the Summons which are wrong; what matters is whether the allegations are sufficiently certain as allegations.
“UBS” gave an incorrect evaluation of the proposed derivative transactions, and in particular predicted expected savings of EUR 6.8m of which EUR 3.1m was guaranteed by 30 June 2003 (p7, 50).
“UBS” advised on the entering into of swaps which were unduly favourable to the counterparties (p50) because they contained hidden commission, were not neutrally risk balanced at the time they were entered into, and contained no upfront payment in favour of Calabria (pp51-61, which address liability in contract as well as tort: see eg pp56, 59-60).
These breaches occurred in relation to the original 2003 swaps and the restructuring swaps in 2005 (p51).
The liability in contract of “UBS” and BNL is alleged to be joint and several for breaches by either of them (p69).
So far as concerns the claim in tort under Articles 2043 and 1440 of the Italian Civil Code:
The liability is expressed to be that of “UBS” (see eg the reference to “they” at the beginning of section 7 at p51). Sometimes the liability is confined to the “arranger Banks” which can only be a reference to the parties to the Advisory Contract, including “UBS”. Where the liability is said to arise for all the banks it allegedly arises from entering into the derivative transactions (see eg p55 where the allegation is of breach by the banks in misleading Calabria by charging millions of Euros in implicit costs). Therefore so far as UBS companies are concerned, the relevant company is UBS Ltd because it is the arranger Bank under the Advisory Contract and it is this company which is alleged to be the counterparty to all the relevant Transactions.
The complaint is of conduct, both acts and omissions, inducing Calabria to enter into the swap transactions and the restructuring swaps (p102). This comprised intentionally providing misleading calculations of the profitability of the transactions and concealing the implicit costs (p52-53). A specific example of this so far as “UBS” is concerned is at p7.
The liability of “UBS” in tort is alleged to be joint and several with that of BNL (p121-122).
So far as concerns the claim in tort under Article 21 of the TUF, the allegations are as follows:
Article 21 imposes a duty of good faith on “financial intermediaries” which requires market transparency and integrity (see p49, 63).
The counterparties to the derivatives transactions were in breach of Article 21 in the same respects as are complained of for the tort claim under the Italian Civil Code, including failure to provide information, to explain how the financial benefits were calculated, that hidden commission was being charged, and that there were digital options whose risky nature was not drawn to Calabria’s attention (p65). The banks were acting in their own interests as the counterparties (p64). It is their conduct in the negotiations for those transactions which engages the Article (p63). Again therefore the target of the claim is the relevant counterparty to the derivative transactions, which in the case of the Transactions is alleged to be UBS Limited.
Thus far the body of the Summons is clear and consistent: the claim is advanced against UBS Limited on the grounds identified. In sections 1 to 8 which identify the nature of the claim and the grounds for advancing it against someone, that someone is clearly identified as UBS Limited. There is no reference to UBS AG or any other group company, and no reference to UBS Warburg AG (save at p32 which is the linking paragraph between the facts and the law and makes a reference to who is being summoned).
Mr Thomas sought to argue that the references in the tort claims to Banks who were counterparties to the derivatives transactions must be treated as a reference in relation to the 2003 Transactions to UBS AG because that was the UBS company which was in fact the counterparty to the 2003 Transactions. But that is not what the Summons asserts. The Summons treats “UBS” as the counterparty to the 2003 Transactions and as bearing such legal responsibilities as attach to that role, which is perfectly comprehensible in the light of the 2004 novation to UBS Limited of the 2003 Transactions, whether or not it is well founded. I reject the argument that the Summons can be taken to identify UBS AG as an intended target of the claim or as identifying any grounds for advancing the claim against UBS AG.
So far as UBS Limited is concerned, the potential for uncertainty in this case arises because UBS Warburg AG is named as the relevant entity:
in the Identification of Parties at the beginning of the document (twice) (p2);
in the Summoning at the end of the document (twice) (p78);
in the Prayer at the end of the document (p79-83).
In the Prayer there is to be found some synthesis.
Paragraph 1 (p79) seeks a finding of liability for damages in tort against UBS Warburg AG “for the reasons described in the above section on the facts”. The only factual basis for a claim in tort against a UBS company to which this could be a reference back is the factual basis advanced against UBS Limited pursuant to the Advisory Contract or as the averred counterparty to the Transactions and the ISDA Master Agreement.
Paragraph 2 (p79-80) seeks a finding of liability for damages against UBS Warburg AG “for breach of the advisory contract for the reasons described in the above section on the facts”. This can only be understood to be a reference to UBS Limited as the party to the contract and as the only UBS company identified in the factual section as alleged to be liable for its breach.
Paragraph 2 of the prayer for consequential relief seeks reconstruction and adjustment of the derivatives contracts redressing the balance between values, interest rates, options and contractual details so as to make the fair value of the contracts at the trade date equal to zero. Paragraph 2(iii) seeks an order that “the defendant Banks, for the future performance of the contract until its expiry date…..pay to the Region of Calabria damages equal to the difference between the net payment flows to be made on the basis of the derivative contracts in force and those to be paid on the basis of the readjusted contracts”. This must be a reference, so far as UBS companies are concerned, to UBS Limited because the relevant contracts referred to are the Transactions to which UBS Limited alone is alleged to be the counterparty.
Paragraph 1 of a subordinate request in the Prayer (p81) seeks against UBS Warburg AG payment of EUR 8,733,304.00. This is a reference back to page 59 where the amount of the “overall cost of the derivative transactions”, estimated in a technical report annexed to the Summons, is split between the various banks with this sum being attributable to “UBS” ie UBS Ltd. This again is consistent with the Summons treating UBS as the counterparty to the Transactions.
Ms Tolaney QC argued that the choice of UBS Warburg AG as the named defendant and Summoned party can not have been accidental and must have been a deliberate choice of an entity other than UBS Limited. I agree that one can infer from the terms of the Summons that the use of the name UBS Warburg AG was not accidental; but it does not follow, in my judgment, that it was chosen so as to exclude UBS Ltd. That would have involved the whole Summons advancing no factual or legal basis for a claim against the very entity whose relationship and dealings with Calabria are identified in the document as forming the factual and legal basis for the claim.
Accordingly I conclude that the terms of the Summons identify reasonably clearly that the entity against whom the claim is being advanced is, or at least includes, UBS Limited. The use of UBS Warburg AG introduces an element of doubt, but on a careful analysis of the document, the room for uncertainty so far as UBS Limited is concerned is small. That is so essentially because:
The body of the Summons, setting out in sections 1 to 8 the basis in fact and law for the claim, is clear and consistent in identifying UBS Limited as the party against whom liability is alleged and sets out a comprehensible and coherent basis for alleging such liability. There is no basis advanced in fact or law for claiming against any other UBS company.
The Prayer makes clear that this basis of liability is what is relied on for summoning UBS Warburg AG such that that expression is intended to mean or at least include UBS Limited.
The parties’ submissions proceeded on the basis that the applications of UBS Limited and UBS AG should stand or fall together. Ms Tolaney QC submitted that there was incurable or uncured uncertainty in relation to both UBS companies. Mr Thomas submitted that there was total uncertainty as to neither, or that if there were, it was cured. However my interpretation of the Summons renders it appropriate to consider the position of UBS Ltd and UBS AG separately. I canvassed during the course of argument the possibility of the interpretation of the Summons being that it identified a claim with sufficient certainty against UBS Limited but not UBS AG. Mr Thomas confirmed that, as an alternative to his primary argument that it contained a valid claim against both, he would adopt the suggestion that it certainly contained a claim against UBS Limited and so Article 27 applied to the UBS Limited claim, with Article 28 then applying to the claim by UBS AG.
UBS Limited
Validity of Service Article 160
Article 160 provides for service to be invalid if there is “total uncertainty” about the person to whom delivery has been made. The concepts of “total uncertainty” (CCP Article 160) and “totally unclear” (Article 164(I) and (IV)) were not greatly elucidated in the Italian materials I was shown. A commentary by Professor Consolo and Professor Luiso used the expression “absolute uncertainty”, which was the translation given in the Claimant’s version of CCP Article 160. The commentary gave (at pages 11-12) some examples which I did not find of any great assistance in this case, at least in the summary given in the commentary. A passage in La Corte Suprema di Cassazione decision no 7448 of 2001 suggested that for Article 164 purposes it was necessary to look not only at the facts and matters specifically alleged, but also at what may be inferred from them. It would seem obvious from the language of the Articles that the use of the qualificatory words “total” or “absolute”, and “totally”, is intended to give the benefit of any doubt to the party against whom uncertainty is alleged.
In paragraph 4.8 of their letter, the K Studio Associato Italian lawyers argued that Article 160 of the CCP could not render service invalid on the facts of this case. However their reasoning is difficult to follow. Ultimately Mr Thomas was minded to concede that there was total uncertainty for the purposes of CCP Article 160 about the person upon whom service of the Summons had purportedly been made. This was because it had simply been sent by post addressed to “UBS Warburg AG” to offices where there were a number of UBS companies registered or having an office. This concession was made in the context of his case then being advanced that the applications by UBS Limited and UBS AG stood or fell together. It does not bind him in relation to the intermediate position, which was only subsequently raised by me in argument, that the Summons advances a claim against UBS Limited alone.
Prima facie the circumstances of service by post on “UBS Warburg AG” gave rise to total uncertainty as to the UBS company which was intended to be served. The circumstances of the service alone would not have identified whom it was intended to serve. But it appears that as a matter of Italian procedural law, the issue of uncertainty in the service process as to the identity of the person upon whom service is intended to be made falls to be judged not only from the circumstances of the service, but also from the terms of the Summons. In the case of Fallimento Belleli SpA v Dikema & Chabot Holding BV (Court of Mantova, Case No 4597/2003) the summons was purportedly served on a non-existent company called “Dikema & Chabot Holding now Dikema Staal Nederland BV”. Two different real companies existed known as “Dikema & Chabot Holding BV” and “Dikema Staal Nederland BV”. Dikema Staal Nederland BV appeared before the court and challenged the summons on the basis of Article 160 (alternatively Article 164). The Court of Mantova held that it was not possible “to dispel the doubt as to which of the two subjects the [claimant] really intended to summon to trial”. Significantly, however, it also held that “there are no further elements in any part of the deed that enable us to dispel the uncertainty as to the vocatio in ius”. This suggests that uncertainty in service can be dispelled if the summons itself sufficiently identifies the entity at which service is directed. This may be achieved by the summons identifying with sufficient certainty the identity of the entity against whom the claim is advanced.
In my judgment the fact that the Summons itself identifies with reasonable clarity that the claim is advanced against UBS Limited renders the service on the London place of business of its parent company, UBS AG, sufficient to identify with sufficient certainty the intention that such service was to be on UBS Limited for the purposes of Article 160. Even if there were room for some doubt, this is to be resolved in favour of UBS Limited and there would not be “total uncertainty” about it.
If I were wrong in this conclusion, I would have found that any defect in service was cured by the Appearance filed by UBS Limited and that such cure operated retrospectively to the date of the original purported service. The Italian materials before me indicated the following:
Under Article 156, the purpose of the service provisions is fulfilled if the person on whom the summons was intended to be served receives it. Italian civil procedural law is governed by the general principle that invalidity of court papers may never be declared, even if they lack the formal requirements imposed by the law, when they have attained their proper legal purpose. The purpose of service of a summons is to bring about the appearance of the defendant.
Lodging an Appearance, even for the purposes of challenging the validity of service, demonstrates that such purpose has been fulfilled because of the very act of the intended defendant coming before the Court. This is so irrespective of the fact that the Appearance is made to challenge the validity of service.
Such Appearance operates retrospectively, or “ex tunc” as it is put in the cases and commentaries.
These propositions were supported by K Studio Associato and four decisions of La Corte Suprema Corte di Cassazione: no 6040 of 17 June 1998; no 1184 of 27 January 2001; no 14066 of 28 May 2008; and no 6470 of 21 March 2011. Ms Tolaney QC relied on a passage in the Dikema Staal Nederland BV case that although that company had appeared before the court, the court said that pursuant to Article 160 “the defectiveness of the notification is considered serious enough to produce the alleged non-existence of the writ of summons, it being impossible to correct the latter in any way.” But this was a comment in the face of an averment by the claimant that it did not wish to sue Dikema Staal Nederland BV but rather Dikema & Chabot Holding BV, who had not lodged an Appearance. It is therefore of limited assistance on the retrospective effect of an Appearance by a defendant whom it is intended to sue. On that issue, the decisions of La Corte Suprema de Cassazione to which I refer above all suggest retrospective effect, so that the validation operates “ex tunc”.
The materials I was shown were less clear as to what precise moment of time the “tunc” denoted; in particular as to whether retrospective validation referred back to the moment of original service or the moment when the party upon whom service was intended received the document. I do not regard the distinction as of importance for present purposes because I conclude that UBS Limited must have received the Summons before commencing its English proceedings, couched as they were in terms designed to cover the scope of the claims advanced in Italy. If it mattered I would have preferred the view that the retrospective validation dates back to the date of purported service.
Article 164[1]
Article 164[1] treats a summons as invalid by reference to the requirements of Article 163(2) if the identity of the party sued is “totally unclear”. For the reasons I have given, I do not regard the Summons as fulfilling that requirement so far as UBS Limited is concerned. Accordingly there is no invalidity under Article 164[I] so far as UBS Limited is concerned.
Had I found otherwise, I would have found that the defect was cured retrospectively by UBS Limited lodging the Appearance. In this case the purpose of Article 164[1] is to call the relevant party to answer the claim on the merits. It is part of what is described as the “vocatio in ius”. The purpose is met when UBS Limited addresses the merits of the claim on the footing that a claim is or may be being made against it. This purpose is met even if such argument on the merits is stated to be subject to, and without prejudice to, the reservation about validity made in the same document. Support for this approach is to be found in the terms of Article 164[III].
Article 164[IV]
Article 164[IV] treats a summons as invalid by reference to the requirements of Article 163(4) if the facts and the legal grounds underpinning the claim are totally unclear. Ms Tolaney QC’s principal argument on this aspect of the case was that the uncertainty arose out of the failure clearly to identify the relevant UBS company as the party against whom the claim was intended to be made and therefore the basis of the claim against such company. For the reasons given above I reject this argument so far as UBS Limited is concerned. She advanced a subsidiary argument under Article 164[IV] that the facts and legal basis underpinning the tort claim were totally uncertain because it was not clear who was said to have done what to induce the derivative transactions, nor how and when. So far as UBS Limited is concerned, I reject this submission. The basis for the tort claim is set out with reasonable clarity, and is coherent and comprehensible. The liability arises out of the advice given (or not given) by UBS Limited as party to the Advisory Contract in relation to the entering into of the derivative transactions; and from UBS Limited’s status and conduct as the (alleged) counterparty to the Transactions. If and to the extent that there is a lack of particularity, that is not something which leaves the elements required by Article 163(4) “totally unclear”. Nor could it in any event invalidate the whole proceedings since it does not apply to the claim in contract.
Conclusion re UBS Limited
It follows that vis a vis UBS Limited the Italian Court was first seised of proceedings brought by Calabria. Those proceedings are not subject to any nullity or invalidity. They involve the same cause of action as the proceedings brought by UBS Limited against Calabria in England. The English Court will therefore stay those proceedings pursuant to Article 27 of the Judgment Regulation.
UBS AG
So far as UBS AG is concerned my conclusion is that the Italian Court is not and never has been seised of valid or effective proceedings, for reasons which I can express briefly.
It is reasonably clear that the Italian proceedings do not advance any claim against UBS AG. For the reasons I have identified, the Summons advances a coherent case against UBS Limited alone, and against no other UBS company.
Alternatively:
It is totally unclear that the Summons is intended to advance any claim against UBS AG, or if so what the legal or factual basis for any such claim would be.
It is totally unclear that service of the Summons on UBS Warburg AG was service directed to UBS AG and such uncertainty was not resolved by the terms of the Summons itself.
There was therefore invalidity of the Summons and the service under each of Article 160, Article 164[I] and Article 164[IV] of the CCP.
Whilst such invalidity under Article 160 and 164[I] was cured retrospectively by UBS AG lodging the Appearance, invalidity under Article 164[IV] can not be cured by the lodging of an Appearance or remedied retrospectively.
As to the retrospective curing of invalidity under Article 164[IV], Mr Thomas contended that there was no reason why Article 156 should not in this case operate retrospectively. But this submission was contrary to the weight of the evidence of Italian procedural law put before me. In particular:
Article 164[IV] is not concerned with the “vocatio in ius” but with the “editio actionis”, that is the identification of the factual and legal basis for the claim. Accordingly the mere fact of appearance by a defendant before the court does not remedy the defect by fulfilling the purpose of the Article. It is the claimant who needs to do something to remedy the deficiency in the substance of the claim.
This was the stance taken by Calabria itself in its reply in the Italian proceedings: see page 18 which avers that the appearance of the defendant does not, in the case of editio actionis, correct the faults which result in nullity.
This was the view expressed by Calabria’s lawyers, K Studio Associato in their evidence (paragraph 5.9).
This is the view expressed by Professors Consolo and Luiso in their commentary to the CCP (page 12 paragraph 15).
This is the view of Studio Legale Macchi as recounted in the witness statement of Mr. Kelly (paragraphs 47-49).
The contrast between Article 164 [III] and 164[V] illustrates that retrospective cure is possible for the vocatio in ius but not for the editio actionis.
Article 28
So far as the claim by UBS AG is concerned, therefore, Calabria’s application must rely upon the proceedings in Italy being related proceedings for the purposes of Article 28 of the Judgment Regulation. This is Mr Thomas’ second argument, but on a different hypothesis from that on which the point was argued on each side, which was that the Italian Court was first seised only of proceedings against the non UBS banks. It arises however, on my findings, on the footing that the Italian Court was also first seised of a claim against UBS Limited. The comparison is therefore between (i) English proceedings for a declaration of non liability by UBS AG alone and (ii) Italian proceedings against UBS Limited and the other bank defendants who were counterparties to the derivative transactions.
Proceedings are related proceedings for the purposes of Article 28 if they are so closely related that it is expedient to hear and determine them together in order to avoid the risk of irreconcilable judgments. This requires a broad approach to the question of relatedness: see Sarrio SA V Kuwait Investment Authority [1999] 1 AC 32.
In my view they are so related:
The English Court will not make declarations of non liability in respect of potential liabilities which are hypothetical. The basis for the English claim by UBS AG must therefore be that:
the Italian proceedings may be held by the Italian Court to advance the tort claims against UBS AG; or
The Italian proceedings will be amended to advance such claims, in the light of Calabria’s argument before this Court and in Italy that such is their effect.
In either of those circumstances there will be substantial overlap between the issues in those claims and the issues in Calabria’s existing claims in Italy against UBS Limited, of which the Italian Court will remain seised. The issues common to both will include:
the application of the Italian law obligations under Article 21 of the TUF to the counterparties to the Transactions;
the application of the Italian tort law obligations to the counterparties to the Transactions;
the fairness and “balance” of the Transactions, including whether they were unduly favourable to the counterparties because they contained hidden commissions, were not neutrally risk balanced at the time they were entered into, and contained no upfront payment in favour of Calabria;
the effect of the terms of the ISDA Master Agreement on Calabria’s tort claims.
It would be obviously undesirable and contrary to the objective of Article 28 for the Courts in England and Italy each to consider these issues and make findings which could potentially conflict.
Where proceedings are related, the Court still retains a discretion under Article 28 as to whether to stay proceedings. The exercise is not mechanical and involves a value judgment: Research in Motion UK Ltd v Visto Corporation [2008] EWCA Civ 153, [2008] 2 All ER Comm 560 [36-37]. The relevant factors include those set out by the Advocate General in Owens Bank Ltd v Bracco [1994] QB 509. In this case the discretionary factors point strongly towards granting a stay:
The degree of overlap is such that the risk of conflicting decisions is substantial and acute.
The Italian tort claims are governed by Italian law which an Italian Court is best placed to determine. Against this it is said on behalf of UBS AG that English law issues arise in relation to the scope and application of the ISDA Master Agreement. But those are issues with which the Italian Court will inevitably be dealing in any event in relation to the claim against UBS Limited (and quite probably the other banks).
It is relevant to consider when the respective courts might make a decision (see Cooper Tire & Rubber Company Europe Ltd & Ors v Dow Deutschland Inc & Ors [2010] EWCA Civ 864 at [54]). In this case there is little prospect of a decision by the Italian court before the end of 2013 at the earliest. But in circumstances where UBS Limited will be tied to the Italian timetable whatever that may be, I regard this as a factor of little weight.
Accordingly the claim by UBS AG should be stayed pursuant to Article 28.
Article 23
It is not necessary for me to deal with Mr. Thomas’ third argument based on Article 23 of the Judgment Regulation.