Lehman Brothers Bankhaus AG I. Ins v CMA CGM

An application notice has been issued in an international case involving numerous disputes between the same parties, who are based in Germany and France respectively. Those relevant for present purposes can be grouped under 3 heads. There is a dispute (“the substantive dispute”) as to the meaning and effect of agreements between them. The substantive claim in these proceedings (“the English proceedings”) seeks to resolve that dispute. There has been, and to an extent still is, a dispute or disputes which have been the subject of proceedings in France (“the French proceedings”). The present judgment deals with the third dispute (“the English procedural dispute”), this being the dispute which arises for determination under the application notice. The main issue in the English procedural dispute has become whether the English proceedings should be the subject of a stay (i.e. put on hold) until the final outcome of the French proceedings.

In a decision which was published on 21 December 2012 I held that there should be such a stay. I gave brief reasons. They provide a short account of the parties and the procedural dispute, and for that purpose I set them out here:

In this judgment I set out in detail my reasons for the decision announced on 21 December 2012. The structure of this judgment is as follows:

Mr Lockey QC appeared on behalf of CMA. Mr Andrew Ayres appeared on behalf of LBBA. I am grateful to them both for the clear and succinct written material lodged both before and after the hearing, and to the legal teams on each side who have worked in a spirit of co-operation to enable this application to be dealt with in an efficient manner.

In order to understand the English procedural dispute it is necessary also to have an understanding of the English proceedings and the French proceedings. On their face the English proceedings are relatively straightforward. The parties made a series of agreements (“the settlement agreements”) governed by English law under which a debt of 42 million United States dollars ($42m) was recorded as owing by CMA to LBBA, but it would be satisfied by a procedure under which CMA would pay LBBA $36m by instalments. It is common ground that if certain pre-requisites were met then the settlement agreements envisaged that $42m rather than $36m would be payable. The first pre-requisite can be broadly described as a default by CMA in not paying an instalment when due. The second pre-requisite can be broadly described as failure by CMA to remedy the default within 3 French business days of being given notice of that default. If those two pre-requisites were met, then it was expressly agreed that:

… LBBA may give notice to [CMA] requiring it immediately to pay the amount of US Dollars 42 Millions less whatever has already been transferred to LBBA, and [CMA] shall be liable immediately to pay such amount to LBBA, together with interest …

LBBA said that it had given such notice on 11 March 2010 in reliance on failure by CMA within 3 French business days to remedy a default of which notice had been given on 26 February 2010. It is common ground that on 26 February 2010 only $10m of the $36m had been paid. CMA eventually made relevant payments of $26m in addition to the earlier payments of $10m. Even so, says LBBA, the total of relevant payments is only $36m – whereas following the notice dated 11 March 2010 the total that CMA was bound to pay was $42m.

On 12 August 2011 CMA filed an acknowledgement of service contesting jurisdiction. As to jurisdiction LBBA’s basic case is simple. The agreement under which it claims was expressly governed by English law, and expressly gave exclusive jurisdiction to the High Court of England & Wales. Accordingly LBBA says it is entitled to sue here for recovery of the unpaid $6m.

The potential issues in the English proceedings are, however, less straightforward than might appear from the claim. At least three potential defences have been identified by CMA. The first is that the provision for $42m to become payable is unenforceable as a penalty. The second is that LBBA’s claim is inconsistent with an oral agreement made in early March 2010 between the French lawyers then acting for the two sides in French proceedings. The third relies on propositions of French domestic law and English private international law. The proposition of French domestic law (“the French law proposition”) is that CMA was under no obligation to pay at the time of the relevant default notice and LBBA was not entitled to issue its demand for $32m. The proposition of English private international law is that in the present proceedings this court will give effect to the French law proposition, and, it is said, must do so if the French court has ruled that it is correct. This third defence gives rise to the English procedural dispute. It is said by CMA that it has asked the French courts to determine that the French law proposition is right, and that until the French courts have decided the point one way or the other, or they have said they will not decide it, the English proceedings must or should be stayed.

Thus it seems to me that two salient features emerge from the likely battle lines in the English proceedings. The first salient feature is that CMA has three potential defences, each of which would be a complete answer. One, the penalty argument, has little if any connection with France. The second, the alleged oral agreement, has links both to the settlement agreements and to the proceedings in France. The third is to a substantial extent a French defence, for it concerns the French law proposition and the consequences of that proposition, if sound, as a matter of English private international law. The second salient feature is that the English proceedings cannot be substantively determined in favour of LBBA unless either (1) the French law proposition is wrong, or (2) the French law proposition is right but as a matter of English private international law it does not assist CMA.

In order to object to jurisdiction here CMA invokes articles 27 and 28 of the Judgments Regulation. The first hurdle for CMA is that it must establish that at the time of commencement of the substantive proceedings here, the French proceedings had begun and continued to exist in a form meeting the requirements of articles 27 and 28.

Preliminary French proceedings started with commencement by CMA of what can conveniently be described as “debt conciliation proceedings” (the “Procédure de Conciliation”). They were proceedings in relation to all debts owed by CMA, and were begun in Marseilles on 4 February 2010 in the Tribunal de Commerce de Marseille (“the Tribunal”). LBBA was given notice of the debt conciliation proceedings but declined to participate in them.

The first French proceedings relied upon as meeting requirements of articles 27 and 28 were described by the parties as “the suspension proceedings”. It is common ground that the French court was seised of the suspension proceedings on 23 February 2010 when CMA made a claim against LBBA under article 1244-1 of the Code Civil (“CC 1244-1”). This claim asked the Tribunal to exercise its power under CC 1244-1 to defer CMA’s payment obligations to LBBA for a period of 2 years. LBBA defended the claim on the merits, while also asserting both that the Tribunal lacked jurisdiction and that only the High Court of England & Wales could determine the amount owed by CMA to LBBA. The Tribunal made an order on 30 March 2010 granting CMA what it sought, noting that “although the quantum is subject to discussion, the payment of any debt is subject to an application for a 24 month deferment, during which the quantum can be fixed”.

LBBA appealed to the Cour d’Appel d’Aix en Provence (“the Cour d’Appel”). The Cour d’Appel in a ruling on 27 January 2011 dismissed LBBA’s appeal against the making of the order, but nevertheless reduced the length of the period of deferment to 1 year – so that it would end on 31 March 2011.

On 3 June 2011 CMA issued in the Cour d’Appel an application described as being a “petition for interpretation” (Requête en Interprétation). This was relied on by CMA in the English procedural dispute as a continuation of the suspension proceedings, or as the starting of additional proceedings, falling within articles 27 and 28. The petition asked the Cour d’Appel in effect to rule on the correctness of the French law proposition. LBBA opposed the petition, both on jurisdiction and on merits, and claimed damages for abuse of process. As to the merits, LBBA said among other things that no dispute as to the amount of CMA’s indebtedness had previously been raised. On 1 December 2011 the Cour d’Appel rejected the petition, saying that it did not have power to issue the ruling sought by CMA. It also rejected LBBA’s claim for damages for abuse of process.

On 30 March 2012 CMA filed an appeal to the Cour de Cassation against the Cour d’Appel’s decision of 1 December 2011. LBBA has submitted a response. The outcome of the appeal is expected in 2013.

I mention also certain matters which no longer arise:

Accordingly this judgment is confined to examination of questions concerned with the application of articles 27 and 28 to the present case. Before turning to those articles I deal with the history of events, relevant principles of French law, and general aspects of the Judgments Regulation.

The account which follows is largely derived from Mr Ayres’s skeleton argument.

LBBA and CMA signed an ISDA Master Agreement and a Credit Support Annex, each dated 8 May 2008. They governed (1) various transactions undertaken or deemed to be undertaken by the parties, and (2) the novation of various trades previously concluded between CMA and Lehman Brothers Commodity Services. A dispute arose between the parties as to liability as regards most of the transactions. In order to resolve that dispute a written settlement agreement was entered into on 4 September 2009 (“the Settlement Agreement”). This was in the English language and contained the following exclusive jurisdiction clause, clause 5.4:

This Agreement shall be governed by, construed and take effect in accordance with English law. The High Court of Justice of England and Wales shall have exclusive jurisdiction to settle any claim, dispute or matter of difference which may arise out of, or in connection with this Agreement.

At Recital (D) to the Settlement Agreement it was recorded that the amount due from CMA under certain ISDA agreements and transactions “is agreed to be US Dollars 42 Millions”. Recital (E) recorded that CMA had strongly contested most of the transactions on grounds including non-disclosure of the financial situation of LBBA. It was in this context that, under clause 1.2, LBBA agreed to accept in full and final settlement a lesser sum. The sum in question was $36 million, payable in several instalments as set out in clause 1.3: $15m payable on 15 September 2009, $7m payable on 5 January 2010, $7m payable on 5 February 2010 and $7m payable on 5 March 2010. Partial security was to be provided, there was to be no interest on the instalments but clause 1.6 contained a mechanism whereby if an instalment was missed, the amount payable would be the $42m agreed as per Recital (D):

If [CMA] fails to make, when due, payment of any of the above listed Installments in full, and if such failure is not remedied on or before the third French business day after notice of such failure is given by LBBA to [CMA], LBBA may give notice to [CMA] requiring it immediately to pay the amount of US Dollars 42 Millions less whatever has already been transferred to LBBA, and [CMA] shall be liable immediately to pay such amount to LBBA, together with interest at the rate of 3% from the date of notice by LBBA until the date of actual payment (after as well as before judgment) such interest to accrue on a daily basis.

In late 2009, CMA was under what Mr Ayres described as “some creditor stress”. From November 2009, it entered into negotiations with its major creditors, principally banks, to procure a new credit line. It was in this context that CMA missed the very first instalment payable ($15m) and LBBA gave notice under clause 1.6 on 21 October 2009 (“the 1st default notice”).

This led to a First Supplemental Agreement dated 6 November 2009, re-scheduling the instalments in CMA’s favour. This was achieved by substituting clause 1.3 in the Settlement Agreement with the following regime: $9m payable on 9 October 2009, $10m payable on or before 31 December 2009 (with interest on $5m from 16 September 2009 until 9 October 2009 and on $10m from 16 September 2009 until actual payment), $7m payable on 5 January 2010, $7m payable on 5 February 2010 and $7m payable on 5 March 2010. The total payable (subject to the amount of additional interest) remained $36m.

The First Supplemental Agreement repeated at Recital (C) the contingency that $42m would be the sum payable if CMA failed to make payment of any of the instalments. On 9 November 2009, CMA made payment of $5m and, pursuant to clause 1.2 of the First Supplemental Agreement, the 1st default notice was withdrawn.

CMA again failed to comply with its obligations and the second and third instalments payable under the First Supplemental Agreement ($10m payable on or before 31 December 2009 (with interest) and $7m payable on 5 January 2010) were not paid. LBBA issued a default notice on 6 January 2010 (“the 2nd default notice”).

LBBA again agreed to re-schedule payments with CMA and this led to a Second Supplemental Agreement dated 20 January 2010. For clause 1.3 in the Settlement Agreement a payment schedule was further substituted as follows: $5m payable on or before 25 January 2010, $12m payable on or before 31 January 2010 (with interest on $5m from 16 September 2009 until 9 November 2009, on $5m from 16 September 2009 until 25 January 2010, on $5m from 16 September 2009 until 31 January 2010 and on $7m from 5 January 2010 until 31 January 2010), $7m payable on or before 5 February 2010 and $7m payable on or before 5 March 2010.

The total payable (subject to the amount of additional interest) remained $36m (towards which $5m had already been paid – pursuant to the First Supplemental Agreement).

Again, the Second Supplemental Agreement repeated at Recital (C) the contingency that $42m would be the sum payable if CMA failed to make payment of any of the instalments. In addition, CMA’s prior failures were recorded in Recitals (D) and (E).

On 25 January 2010, CMA made payment of $5m pursuant to the Second Supplemental Agreement.

On 31 January 2010, CMA again failed to make a payment, this time in the sum of $12m (with interest), as due as the second instalment under the Second Supplemental Agreement. This was the fourth such failure in around as many months.

On 4 February 2010, CMA submitted an application to the Tribunal to commence debt conciliation proceedings– see section B above and section D below.

On 10 February 2010, LBBA’s representatives issued a further notice (“the 3rd default notice”) based upon a sum of $31m being outstanding and demanded payment of $37m on the basis that the 2nd default notice of 6 January 2010 was still valid and effective. The letter of 10 February 2010 failed to record (it seems because it was unknown to LBBA) the payment of $5m made on 25 January 2010 and thus was wrong to demand payment on the basis of $42m (less any sum paid). LBBA says that because it did not think it needed to do so, the letter of 10 February 2010 did not address the failures of CMA to pay the second and third instalments due under the Second Supplemental Agreement, being $12m (with interest) due on or before 31 January 2010 and $7m due on or before 5 February 2010.

In response to a complaint by CMA, LBBA’s representatives wrote again on 26 February 2010 accepting that the 2nd default notice was no longer effective (due to the operation of clause 1.2 of the Second Supplemental Agreement and the payment of $5m on 25 January 2010).

On 23 February 2010 CMA filed an application before the Tribunal requesting a two year suspension of its payment obligations to LBBA pursuant to Article 1244-1, and thus began the suspension proceedings (see section B above). The suspension proceedings were in the form of fast track proceedings. They were served on LBBA on 23 February 2010. At that stage CMA had failed to pay the second and third instalments due under the Second Supplemental Agreement, being $12m (with interest) due on or before 31 January 2010 and $7m due on or before 5 February 2010. A letter dated 26 February 2010 sent by LBBA (“the 4th default notice”) demanded payment of outstanding instalments within 3 French business days.

LBBA acknowledges that on 5 March 2010 LBBA’s French counsel at the time (Maître Allemand) wrote agreeing that LBBA would suspend “toute exécution ou action” pending the decision of the Tribunal. CMA says Me. Allemand contacted CMA’s legal advisors by telephone asking to postpone a hearing which had been fixed for 8 March 2010, and CMA agreed to this on the basis that LBBA agreed to suspend any further action under the settlement agreement dated 4 September 2009 as amended pending the decision of the Tribunal. This assertion by CMA is contested by LBBA.

The next relevant event was that on 11 March 2010 LBBA gave notice (“the 5th default notice”) referring to the letter of 26 February 2010 and demanding $32m plus interest, i.e. the larger sum of $42m less the two instalments which had been paid.

There is a dispute both as to the effect of the 11 March 2010 letter and as to the forum for deciding its effect. CMA’s position is that it was not a valid notice. LBBA’s position is that the agreement between lawyers had been not to bring legal action or enforcement proceedings and had not precluded the service of notices. LBBA asserts also that the meaning and effect of the 5 March 2010 letter is not in issue before the French courts, and can only be decided in proceedings here.

LBBA accepts that it participated in the French proceedings in the sense that it resisted CMA’s application for a two year grace period. On 30 March 2010, the Tribunal gave a ruling pursuant to CC 1244-1 that CMA was entitled to a two year suspension in respect of all its obligations to LBBA. The ruling was on the basis that LBBA’s attempts to obtain payment from CMA posed a threat to the success of the Procédure de Conciliation. There is a disagreement about the date from which that suspension took effect. CMA contends that the suspension operated from the date of the application, being 23 February 2010. There is also disagreement as to whether this was a decision “on the merits”, as CMA contends. LBBA says that it was certainly not an order for liability and quantum of the payment obligation.

LBBA sought to appeal this decision and was partly successful. On 27 January 2011, the Cour d’Appel reduced the period to a one year suspension, i.e. until 31 March 2011. It ruled that the debt should carry the contractual rate of interest (3%) during the suspension period. LBBA contends that the Cour d’Appel did not adjudicate on or require payment of the debt, which it described as “disputed”.

CMA asserted that LBBA relied and relies on the decision of the Cour d’Appel and took steps to enforce its decision. LBBA replied that this was not correct: LBBA relied (inter alia) on the 5th default notice as giving rise to a liability to pay $32m plus interest. There was no reliance upon or “enforcement” of a decision of the French Court. All that had happened was that LBBA waited until the end of the “grace period” afforded by the French Court as matter of French law and then reasserted its contractual rights under the Settlement Agreement (as amended). There had been a “signification” process, but LBBA said this was irrelevant. Relying on the judgment of the Cour d’Appel (which dealt only with the “grace period”) was not an acknowledgment of the jurisdiction of the French Court to deal with the substantive merits. LBBA’s case is that pending the outcome of the application under CC 1244-1 in France, LBBA voluntarily did not issue proceedings in England. It was after the judgment of the Cour d’Appel that LBBA sent a letter before action dated 21 March 2011. CMA’s response on 13 April 2011 was to make payment of $26m plus interest of $824,876.71. A further demand for payment, including the $6m allegedly due under clause 1.6, was made by LBBA on 27 April 2011.

On 3 June 2011, CMA issued the petition described in section B above.

The claim form in the present proceedings was issued by LBBA on 10 June 2011 with the declaration described in section A above. On 12 August 2011 CMA filed an acknowledgement of service contesting jurisdiction and on 16 September 2011 it issued the present application notice. CMA asserts that no steps were taken, however, to fix a hearing, and that the petition was allowed to take its course in the Cour d’Appel. LBBA filed its response to the petition on 24 October 2011.

On 1 December 2011, the Cour d’Appel dismissed the petition on the basis that there were no grounds to make the request. The Cour d’Appel stated that it would not accept new elements in the claim which CMA did not previously submit to the Court and that there were no grounds for “interpretation”.

On 30 March 2012 CMA filed an appeal before the Cour de Cassation. In England LBBA obtained a date of 16 April 2012 for the hearing of the application. According to CMA it was LBBA’s failure to serve evidence in good time that led to an adjournment of that hearing.

In this section I begin by setting out broad areas of agreement on relevant principles of French law.

First, in the present case the application under CC 1244-1 could only be made after commencement of debt conciliation proceedings.

Second, debt conciliation proceedings are governed by articles L611-1 to L611-15 of the Code de Commerce. In the present case debt conciliation proceedings were begun on 4 February 2010, when CMA submitted an application to the Tribunal for that purpose. As to those proceedings:

Articles 1235 to 1248 of the Code Civil are concerned with payment in general. As in force at relevant times, provision for suspension proceedings was made in articles 1244-1, 1244-2 and 1244-3. They need to be read in the context of article 1244 itself. These four articles state:

Art. 1244

A debtor may not compel a creditor to receive payment in part of a debt, even divisible.

Art 1244-1

However, taking into account the debtor’s position and in consideration of the creditor’s needs, a judge may, within a two-year limit, defer or spread out the payment of sums due.

By a special judgement, setting out the grounds on which it is based, the judge may order that the sums corresponding to the deferred due dates carry interest at a reduced rate which may not be lower than the statutory rate or that the payments be appropriated first to the capital.

Furthermore, he may subordinate those measures to the performance, by the debtor, of acts appropriate for facilitating or guaranteeing the payment of the debt.

The provisions of this Article shall not apply to debts for maintenance.

Art. 1244-2

The judgment handed down under Article 1244-1 stays the enforcement proceedings which may have been instituted by the creditor. Increases of interest or penalties incurred because of delay cease to be due during the period fixed by the judge.

Art. 1244-3

Any stipulation contrary to the provisions of Articles 1244-1 and 1244-2 shall be deemed not written.

The petition for interpretation was described by CMA’s French lawyer, Maître Moatti, in his first affidavit at paragraphs 29 and 30:

29

On 3 June 2011 CMA CGM issued a Requête en Interpretation seeking clarification of the meaning and effect of the order of the Cour d’Appel … In accordance with French procedure, this application forms part of the Suspension Proceedings and will be considered as part of the same case initiated by CMA CGM against Lehmans (for a suspension), as it concerns an interpretation of the meaning and effect of a Court decision, without prejudice to the fact that the decision has become definitive.

30

As discussed above, the decision of the Cour d’Appel d’Aix en Provence suspended payment by CMA CGM of sums due to Lehmans in accordance with specific mandatory laws (“lois de police”) which were held to be applicable in the context of the Procedure de Conciliation. The purpose of the Requête en Interprétation is to obtain express confirmation from the Cour d’Appel d’Aix en Provence that by submitting its request and respecting the suspension period granted by the presiding judge (and so not paying the outstanding sums), CMA CGM could not have been in default and incurred a penalty for late payment, being the $6 million which is now being claimed in accordance with clause 1.6 of the Settlement Agreement.

I turn to CMA’s appeal to the Cour de Cassation. Maître Moatti at paragraph 11 of his third affidavit described courses of action which the Cour de Cassation might take in response to CMA’s appeal. I set them out below, adding my own numbering in square brackets.:

11.

Maître Lefort seems to think in paragraph 47 of his witness statement that the decision of 1 December 2011 was final and that there was no risk that the decision of the Cour d’Appel would be challenged. This is incorrect, since the company [CMA] has filed an appeal to the Cour de Cassation against the decision of 1 December 2011 …

[1] The Cour de Cassation could overrule the decision of 1 December 2011 and refer the dispute to a differently constituted Cour d’Appel for it to respond to the question posed for clarification, unless

[2] it decides to set aside the decision of the Cour d’Appel without referral, giving of its own motion the clarification sought. …

[3] If [CMA’s] appeal is rejected by the Cour de Cassation, such rejection would be based on the Cour de Cassation finding that the decision of the Cour d’Appel of 1 December 2011 was well founded in deciding that it was not within its power to provide the clarification sought. However, a decision rejecting the appeal of CMA CGM, like the ruling of the Cour d’Appel of 1 December 2011, would not settle the question of the effect of granting a deferral of the due date on the application of the penalty for late payment.

In oral submissions Mr Ayres invited me to find that the material lodged with the Cour de Cassation would not suffice for the Cour de Cassation to take the courses of action I have numbered as [1] and [2] above. Mr Ayres frankly acknowledged that his submission in that regard was unsupported by evidence. Nonetheless he maintained not only that I could make such a finding but also that I could do so without trespassing on the function of the Cour de Cassation. In my view it would be quite impossible for me to embark on any such exercise without trespassing on the function of the Cour de Cassation. Accordingly I decline to accept Mr Ayres’s invitation.

The Judgments Regulation was adopted on 22 December 2000. In referring to it as the Judgments Regulation I have adopted the short form used in CPR 6. It deals with jurisdiction as well as with recognition and enforcement of judgments in civil and commercial matters.

The preamble to the Judgments Regulation includes the following

(11)

The rules of jurisdiction must be highly predictable and founded on the principle that jurisdiction is generally based on the defendant's domicile and jurisdiction must always be available on this ground save in a few well-defined situations in which the subject-matter of the litigation or the autonomy of the parties warrants a different linking factor. The domicile of a legal person must be defined autonomously so as to make the common rules more transparent and avoid conflicts of jurisdiction.

...

(15)

In the interests of the harmonious administration of justice it is necessary to minimise the possibility of concurrent proceedings and to ensure that irreconcilable judgments will not be given in two Member States. There must be a clear and effective mechanism for resolving cases of lis pendens and related actions and for obviating problems flowing from national differences as to the determination of the time when a case is regarded as pending. For the purposes of this Regulation that time should be defined autonomously.

Chapter II is headed, “Jurisdiction.” In section 1, “General Provisions” it establishes a general rule that persons domiciled in a Member State are to be sued in the courts of that Member State. Exceptions are then set out, among them those in section 7, “Prorogation of Jurisdiction.” In section 7 article 23 states:

1.

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. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either:

(a)

in writing or evidenced in writing; …

Section 8 of Chapter II is headed, “Examination as to jurisdiction and admissibility.” In section 8 article 25 states:

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.

Also in section 8 article 26 states at 26.1 and 26.2:

1.

Where a defendant domiciled in one Member State is sued in a court of another Member State and does not enter an appearance, the court shall declare of its own motion that it has no jurisdiction unless its jurisdiction is derived from the provisions of this Regulation.

2.

The court shall stay the proceedings so long as it is not shown that the defendant has been able to receive the document instituting the proceedings or an equivalent document in sufficient time to enable him to arrange for his defence, or that all necessary steps have been taken to this end.

Section 9 of Chapter II is headed “Lis pendens – related actions”. It comprises articles 27 to 30.

Article 27 states:

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 states:

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.

Article 29 states:

Where actions come within the exclusive jurisdiction of several courts, any court other than the court first seised shall decline jurisdiction in favour of that court.

For the purposes of this judgment it is unnecessary to set out article 30.

The first requirement when applying article 27 to the present case is that at the time the English proceedings were begun the French court was already seised of “proceedings” within the meaning of article 27. LBBA said that this requirement was not satisfied. In Mr Ayres’s skeleton argument three points were made:

I am not persuaded that any of these contentions is sound. As regards the “grace period”, a decision is pending from the Cour de Cassation as to whether the Cour d’Appel erred in law in rejecting CMA’s petition.

As to the second point in paragraph 30.6, CMA has repeatedly pointed out that in France it does not seek a decision as to the amount of the debt. What it seeks is a determination which in broad terms is that the French court’s grant of a suspension period carried with it an inability on the part of LBBA to complain during that period of failure on the part of CMA to meet payment obligations which were deferred by the French court until the end of that period.

For both these reasons it seems to me that there is no reason to doubt Me Moatti’s opinion that the petition and the appeal to the Cour de Cassation form part of the suspension proceedings. Even if they do not, however, the petition was brought before the English proceedings were begun. I see no reason why it should not, if necessary, constitute proceedings of which the Cour d’Appel was seised and the Cour de Cassation now is seised.

I turn to the suggestion that CMA’s case is “thin”. There is a short answer to that suggestion. As Mr Lockey pointed out, how strong a case CMA has in that regard is a matter for the Cour de Cassation, not for me.

As to the complaint about importing alien judicial proceedings, it must be inevitable that among Member States there will in some be judicial procedures not known to others. One purpose of articles 27 and 28 is to provide a framework to cope with this.

As regards article 27, however, it is in my view clear that the relationship between the French proceedings and the English proceedings is not such as to fall within that framework. The test is whether the two sets of proceedings involve the “same cause of action”. It is common ground that (1) “cause of action” here does not have its technical English sense, but is a European concept defined by reference to the French version “le même objet et la même cause”; and (2) “cause” comprises the facts and rule of law relied on as the basis of the action.

In the present case it is impossible to say that the two sets of proceedings involve the same facts and rule of law. The English proceedings are concerned precisely with the legal concept which CMA avers is no part of the French proceedings – the amount of the debt. The relevant rules of law are those concerning contractual agreements. The relevant rules of law in the French proceedings are those concerned with protection for businesses which are in difficulties. Accordingly in so far as CMA’s application is based on article 27 I hold that it fails.

Here, too, an important requirement when applying article 28 to the present case is that at the time the English proceedings were begun the French court was already seised of “proceedings” within the meaning of article 28. Neither side suggested that there was any difference between the two articles in this regard. Accordingly, if article 28 otherwise calls for the grant of a stay I hold that this requirement is met.

Major aspects of the approach to be taken to article 28 are common ground:

LBBA advanced a general proposition that the existence of an exclusive jurisdiction clause strongly points to refusal of a stay under Article 28. It relied for this purpose on what was said by Cooke J in JP Morgan Europe Ltd v Primacom AG [2005] EWHC 508 (Comm) at [65]:

Even if I had found that these two sets of proceedings and the German proceedings were related within the meaning of Article 28, ‘the strong presumption’ which ‘lies in favour of the applicant’ on an application for a stay would be overridden here by virtue of the terms of the SSFA. Although the ECJ decision in Gasser means that a stay is mandatory where Article 27 applies, there is no reason why weight should be given to that decision in the context of Article 28, where a discretion is given to the court, the jurisdiction of which has been agreed by the parties as exclusive. It is nothing to the point that an English court could not have issued an anti-suit injunction to prevent the German proceedings (as per C-159/02 Turner v Grovit [2004] 1 CLC 864). The injustice of giving precedence to proceedings brought in breach of an exclusive jurisdiction clause where the parties have agreed that England is the appropriate forum is self-evident. To breach the clause and to gain the benefit of priority for the German Courts by such breach offends justice, where the Court has a discretionary decision to make.

On consideration it seems to me that the German proceedings in that case were rather different from the French proceedings in the present case. Primacom was seeking to have determined in Germany issues which the contract required to be determined in England. The proceedings brought by CMA in France, however, are proceedings which French law insists must be available to businesses in France, and they are proceedings which could not be utilised in England. Consideration of this aspect of the matter after the hearing led me to doubt whether the exclusive jurisdiction clause in the present case was intended to apply to the French proceedings. In that respect, and in certain other respects, it seemed to me that assistance might be gained from the decision of the Court of Appeal in AWB (Geneva) SA v North America Steamships Ltd [2007] EWCA Civ 739; [2007] 2 Lloyd's Rep. 315.

I stress at the outset that AWB did not involve the Judgments Regulation. Claimant companies, who can conveniently be referred to as “P”, had entered into forward freight swap contracts for 2006 and 2007 with a Canadian company (N) on terms governed by the ISDA master agreement. The swap contracts were governed by English law and conferred exclusive jurisdiction on the High Court of Justice in London. N had incurred losses on the swaps and as a result became insolvent before the end of 2006. Since then the market rate had moved in N's favour with the result that P would owe money to N under the 2007 swaps. P took the view that they were not liable to make any payment under the 2007 swaps because events of default had occurred as a result of N's failure to pay and its bankruptcy. N's trustee in bankruptcy disagreed and had affirmed the swaps. The trustee then filed a petition under the Companies' Creditors Arrangement Act of Canada seeking among other things an order prohibiting P from relying on insolvency defaults under the various swaps which constituted receivables of N. P sought an anti-suit injunction from the English court to restrain the trustee's proceedings and a declaration that events of default had occurred. The judge refused an injunction and stayed the claim for a declaration. P submitted that the relief sought in the Canadian proceedings amounted to an attempt to re-write the contractual obligations in the swap contracts and therefore fell within the jurisdiction clause. The trustee submitted that the judge had been right that there was no point in the Commercial Court hearing the claim for a declaration as to the meaning of the swaps until after the Canadian court had declined to make the proposed initial draft order or final order in the Canadian proceedings.

The Court of Appeal affirmed the judge’s decision to refuse an anti-suit injunction. If the proceedings in Canada were proceedings which related to a dispute under the contract then that would be characterised as a contractual issue and subject to the exclusive jurisdiction clause which was wide in its scope. However that was not the nature of the proceedings in Canada. Those proceedings were part of insolvency proceedings and the issues that arose within them were governed by Canadian law. The issues encompassed within the insolvency proceedings were wide. It was a matter for the Canadian court to decide on the relief that it was prepared to grant within the scope of those proceedings as it was concerned with issues of insolvency and not with issues that related to the contractual obligations under the agreements. The application in relation to the exercise of its insolvency jurisdiction was therefore not within the clause. Whether any relief granted had any effect on the contractual obligations under the swaps was a matter to be determined after the Canadian court had made its decision, as the question of the effectiveness of any order made by the Canadian court was governed by English law as the proper law of the swaps. As the proceedings under the Companies' Creditors Arrangement Act were not within the scope of the jurisdiction clause the question whether the court should grant an anti-suit injunction simply did not arise.

However the judge’s grant of a stay was reversed by the Court of Appeal. The challenge made by the trustee to the meaning of the swaps involved a contention that certain clauses of the ISDA master agreement were ineffective. The ISDA master agreement was widely used in all types of derivative transactions on the international markets. The trustee's contentions, if correct, could have ramifications for the financial markets and the sooner the issues raised were determined the better. It would also be very helpful to the judge considering the trustee's proposal in the Canadian proceedings to have the decision of the Commercial Court on the interpretation of the relevant provisions of the ISDA master agreement. Therefore the appeal on that issue should be allowed and the stay lifted to enable the Commercial Court to determine the dispute as to the meaning of the ISDA master agreement.

I sought written submissions from the parties as the relevance of matters discussed in AWB. Mr Lockey, while maintaining a stance advanced at the hearing that it was for the French court to determine whether it had jurisdiction to deal with the French proceedings, adopted the analysis of the scope of the jurisdiction clause in AWB. That case was, he submitted, persuasive authority that the French proceedings do not fall within the scope of the jurisdiction agreement. In any event, the Cour d’Appel had already ruled in terms that the suspension proceedings do not infringe the jurisdiction agreement, a ruling which he submitted binds LBBA. The relevance of the jurisdiction agreement to the Art. 28 discretion was therefore said to be de minimis.

Submissions by Mr Ayres in answer did not expressly accept that the scope of the jurisdiction clause was limited in the way suggested in AWB. However they did not take issue with it. What was said instead was that CMA’s assertions that the French proceedings did not fall within the jurisdiction clause demonstrated that, far from being related to the English proceedings, the French proceedings were entirely separate. In addition Mr Ayres relied on AWB as showing that it did not matter for the purposes of the English proceedings what the outcome might be in the French proceedings, while for the purposes of the French proceedings it would be useful for the French courts to know the outcome of the English proceedings.

To my mind the considerations which underlie the observations of the Court of Appeal point the other way. They are of course observations which are specific to the facts of AWB itself. They are useful, however, as indicating the advantages to a harmonious administration of justice in waiting for a foreign court to determine the impact of its domestic law designed to protect businesses, and deferring consideration of that impact until the foreign court has done so. In AWB there was good reason for pushing ahead speedily with the English action for a declaration: the declaration would decide pressing issues as to the meaning of the master agreement, without trespassing on the Canadian proceedings. In the present case I accept that LBBA has a legitimate interest in pressing ahead with the English claim, especially as it is in liquidation and it runs any risk which may arise as to CMA’s continued solvency, but I do not consider that it is in the same league as the pressing need in AWB. Nor do I consider that the danger to LBBA from delay is so great as to make a stay in itself unwarranted.

Adopting the approach in Research in Motion, I first address the degree of connection. It seems to me to be highly relevant that, as noted in section B above, the English proceedings cannot be substantively determined in favour of LBBA unless either (1) the French law proposition is wrong, or (2) the French law proposition is right but as a matter of English private international law it does not assist CMA. In this regard I consider that there is a substantial degree of connection. Pushing on with the English proceedings runs a substantial risk of trespassing on the French proceedings with the consequent danger of irreconcilable judgments.

I then make a value judgment as to the expediency of hearing the two actions together in order to avoid the risk of inconsistent judgments. As regards the French law proposition this may be achieved if the Cour de Cassation concludes that it should be decided. In all the circumstances my value judgment is that substantive consideration of the English proceedings will be more advantageously dealt with after the French courts have determined whether or not they will decide the French law proposition, and if so what the answer is and why.

It is for these reasons that I reached the conclusion announced earlier.