Goldman Sachs & Ors v Novo Banco: Commercial Court considers Recast Brussels Regulation

The recent decision of the Commercial Court in Goldman Sachs International and Others v Novo Banco S.A.[2015] EWHC 2371 (Comm) is one of the first to consider the English court's jurisdiction under the recast Brussels Regulation (Council Regulation (EU) 1215/2012) (the "Brussels Regulation") and as such puts our Handy Guide to Jurisdiction under the Recast Brussels Regulation to the test.

In this case, the court found that it had jurisdiction to determine the claim because:

1. it was a "civil and commercial matter" within the meaning of Article 1(1) of the Brussels Regulation;
2. the Defendant was bound by an exclusive jurisdiction clause in accordance with Article 25 of the Brussels Regulation, because even though it was not a party to the original facility agreement containing the jurisdiction clause, the rights and liabilities (including the jurisdiction agreement itself) were transferred to the Defendant pursuant to a European Union directive recognised under English law; and
3. it was not a "rare and compelling" case or one which had "exceptionally strong grounds" for the court to order a stay pending the resolution of separate proceedings before the administrative courts of another Member State.

Factual Background

In June 2014, Oak Finance Luxembourg S.A. ("Oak") agreed to lend US$835m to the Portuguese bank Banco Espírito Santo S.A. ("BES"), pursuant to a "Facility Agreement" containing an express choice of English law and exclusive English jurisdiction clause. BES subsequently encountered financial difficulties and a bridge bank was created to continue the business of BES. The bridge bank, Novo Banco S.A. ("NB"), was created by the Bank of Portugal as a 'resolution measure' pursuant to the Bank Recovery and Resolution Directive 2014/59/EU ("EBRRD"). The EBRRD is an EU regulation providing designated authorities within Member States the power to intervene in failing financial institutions. The Bank of Portugal is the 'resolution authority' for Portugal under the EBRRD.

The same 'ruling' of the Bank of Portugal that created NB also transferred from BES to NB certain assets and liabilities, with the exception of certain 'Excluded Liabilities'. This 'ruling' was referred to as the "August Decision". In December 2014, the Bank of Portugal issued a further 'ruling' that the August Decision did not transfer the Facility Agreement to NB (the "December Decision").

Shortly after the December Decision, the first instalment under the Facility Agreement was due for repayment, but was not made. The principal dispute between the parties was whether the liabilities represented by the Facility Agreement were transferred to NB (the Claimants' position), or if they fell within the category of Excluded Liabilities defined by the August Decision (NB's position). Oak, the original lender, has assigned its rights under the Facility Agreement to the Claimants.

The Claimants issued proceedings in the English Commercial Court against NB for repayment of the loan under the terms of the Facility Agreement and proceedings in Portugal: (a) against the Bank of Portugal for an injunction to suspend the effect of the December Decision; and (b) for judicial review of the December Decision.

NB applied to the Commercial Court to set aside the English proceedings on the basis that the court had no jurisdiction to determine the claims or alternatively to stay the proceedings.

Decision

Following arguments from both parties, the court dismissed NB's applications, determining the following issues:

(1) Firstly, that it had jurisdiction to entertain the claim under the recast Brussels Regulation because the claim was a "civil and commercial matter" within the meaning of Article 1(1), which (see page 3, Handy Guide to Jurisdiction) is one of the preliminary questions the court needs to consider. In this case, the court dismissed NB's contention that it was an 'administrative' matter as the 'real issue' in the case was not any term, breach or consequence of the Facility Agreement but the impugning of the consequences of public law acts of the Bank of Portugal and the sidestepping of the appropriate avenue for challenge. The court instead emphasised that the subject matter of the claim was one of debt based on a private law right conferred by the Facility Agreement and that the claim was brought against a company, not a public authority or a body exercising public powers. It noted that although the August Decision was relied on as effecting the transfer of the Facility Agreement from BES to NB, it did not form part of the Particulars of Claim. Whilst the court noted that the December Decision was relied on by NB in its Defence, matters relied on in a party's Defence are irrelevant to the question of determining the subject matter of a claim within the meaning of Article 1(1).

(2) Secondly, in considering (for the purposes of jurisdiction) whether a party has become a party to a jurisdiction agreement, the court must evaluate whether the claimants have the "better argument on the material available" (Canada Trust v Stolzenberg (No.2) [1998] 1 WLR 547). On the evidence available, the Claimants had a good arguable case and the better of the arguments that NB (as distinct from BES) could be taken to have agreed to the jurisdiction clause for the purposes of Article 25 of the Brussels Regulation (see page 5, Handy Guide to Jurisdiction), because:

• a. The liabilities under the Facility Agreement did not constitute an Excluded Liability and were therefore transferred to NB pursuant to the August Decision;
• b. It was common ground between the parties that the August Decision had effect as a matter of English law, by virtue of Regulation 5 of the Credit Institutions (Reorganisation and Winding up) Regulations 2004;
• c. As of August 2014, NB therefore became a party to the jurisdiction clause in the Facility Agreement; and
• d. Whether or not NB subsequently ceased to become a party to the Facility Agreement as a consequence of the December Decision was therefore a matter to be determined pursuant to the exclusive jurisdiction clause in the Facility Agreement, i.e. by the English court.

The Judge summarised:

"NB submitted that the Claimants could not have the “plums” (the August decision) without the “duff” (the December decision). But at the time of the August decision there was no “duff”. At the time that the August decision was made and took effect it was a “plums” only decision. I accordingly accept the Claimants' primary case that…NB became a party to the Jurisdiction Clause in August 2014 as a consequence of the August decision."

Alternatively, the court found that the Claimants had the better argument that the December Decision had no effect in English law, on the basis that it did not constitute a 'transfer' under the EBRRD, nor was it an exercise of the powers thereunder.

(3) Thirdly, there was no issue of the court trespassing on the acts of a foreign body. It was not seeking to adjudicate the validity of the December Decision as that decision was not part of the Claimants' claim. To the extent that the December Decision formed part of NB's defence, the court would not be pronouncing on its validity, but deciding whether or not it had effect as a matter of English law. Further, in purporting to exercise powers under the EBRRD, the Bank of Portugal was not acting as a 'state actor', but in its capacity as a resolution authority within the meaning of the EBRRD. Accordingly, its acts were not regulated by international or national law, but under the terms of the EBRRD itself, meaning there would be no issue of comity in the English court's exercise of jurisdiction.

(4) Finally, on the alternative application for a stay, the court considered that the Brussels Regulation only confers jurisdiction on the English courts to stay proceedings in accordance with its express provisions (e.g. the lis pendens rules in Articles 29 and 30), none of which applied in this case (see discussion at pages 22 to 23, Handy Guide to Jurisdiction). The court then went on to consider the scope of its inherent jurisdiction to order a stay as a matter of its own case management powers, refusing to do so on the basis that such powers would only be exercised in "rare and compelling cases" where there are "exceptionally strong grounds" which was not the case on the facts here.

Comment

This decision represents another robust response from the Commercial Court to an attempt by a foreign party to rely upon related local administrative matters to circumvent an express choice of jurisdiction agreement. The interaction between the private law of commercially negotiated agreements and public administrative law is of increasing relevance in the banking sector since the financial crisis and subsequent state intervention in many jurisdictions. The Commercial Court has sought to uphold the bargain made by the parties and promote certainty. The Defendant has applied for permission to appeal.