Court of Appeal considers that merits of claim against anchor defendant are relevant in establishing jurisdiction under Brussels Regulation against co-defendants domiciled in member states

In a recent decision, a majority in the Court of Appeal held, obiter, that the courts should consider the merits of a claim against an “anchor defendant” when exercising their ancillary jurisdiction under Article 6(1) of the Brussels Regulation 44/2001 (now Article 8(1) of the Brussels I (Recast) Regulation (1215/2012)). If there was no serious issue to be tried against the anchor defendant, then it could be inferred that the claim had been brought to remove the co-defendants from the courts of their domicile, which was not permitted: Sabbagh v Khoury [2017] EWCA Civ 1120.

The relevance of the merits of the claim against the anchor defendant for the purposes of Article 6(1) of the Brussels Regulation has proved to be a difficult and controversial question. There has been academic debate on the issue and there are a number of relevant English and CJEU decisions. None, however, address the question squarely.  The fact that the Court of Appeal was split on this issue highlights the difficulties parties face regarding the correct approach to the application of Article 6(1); a difficulty that is likely to remain until this issue is considered by the CJEU.

John Ogilvie, partner, James Allsop, senior associate, and Gabriella Polledri, associate, in our disputes team, consider the decision further below.

Factual background

The claimant brought proceedings in the High Court in 2013 against a number of defendants for alleged misappropriation of her late father’s assets and conspiracy to deprive her of her entitlement to shares in a Lebanese construction group.

The claimant claimed jurisdiction over the anchor defendant under Article 2(1) as he was domiciled in England, whereas the other nine defendants were all domiciled abroad. Seven of the non-anchor defendants were joined as co-defendants under Article 6(1) of the Brussels Regulation. The defendants challenged the jurisdiction of the English court.

The High Court considered it was necessary to show the claimant had a real prospect of success against the anchor defendant in order for there to be jurisdiction against the co-defendants under Article 6(1). The judge found there was such a prospect of success in respect of the asset misappropriation case but not in respect of the share deprivation case.

The claimant appealed, arguing the share deprivation case did have a real prospect of success but that in any event it was not necessary under Article 6(1) to consider the merits of the claim against the anchor defendant.

Rules

Article 2(1) of the Brussels Regulation provides that “persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State”.

Article 6(1) of the Brussels Regulation operates as an exception from the general rule in Article 2, and as such should be construed restrictively. Article 6(1) provides that “a person domiciled in a Member State may also be sued, where he is one of a number of defendants, in the courts where one of them is domiciled, provided that the claims 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”.

Decision

The Court of Appeal overturned the first instance decision and found that the claimant did have a realistic prospect of establishing the share deprivation claim against the anchor defendant.

It was therefore unnecessary to consider whether the merits were relevant when considering Article 6(1). As the court had, however, heard full argument on the issue it went on to give its (obiter) views.

Majority decision (Patten and Beatson LLJ)

The majority considered that a claim against an anchor defendant with no serious issue to be tried fell within the “sole purpose” exception to Article 6(1) established by the CJEU in Reisch Montage v Kiesel Baumaschinen Handels GmbH (Case C-103/05) [2006] ECR 1-6827. The CJEU in that case commented that where the “sole purpose” of bringing the claim is to oust the foreign co-defendants from their jurisdiction of domicile, the requirements of Article 6(1) are not met. The reasoning of the majority was that taking jurisdiction on the basis of Article 6(1) is a derogation from the general rule which confers jurisdiction on the courts of the defendant’s domicile and such derogations must be restrictively interpreted. In bringing an unsustainable claim against an anchor defendant, it could be inferred that the purpose of making the claim was to remove the co-defendants domiciled in other member states from the jurisdiction of the courts of those states.

In reaching their decision the Judges reviewed the relevant CJEU and English case law.

In the Reisch Montage case, the CJEU held on the facts that Article 6(1) could be relied upon where the claim against the anchor defendant was inadmissible because of bankruptcy proceedings, which operated as a procedural bar. This case was heavily relied on by the claimant, but the judges considered that there was a distinction between a procedural bar and a lack of merits, as the purpose of Article 6(1) was to avoid a risk of irreconcilable judgments. Where there is a procedural bar, there remains a risk of irreconcilable judgments as that bar may not apply in other member states. Where there is no serious issue to be tried because a claim is wholly unarguable on the merits, that risk is unlikely to arise because the outcome would be the same wherever the case was heard.

In Freeport plc v Arnoldsson (Case C-98/06) the CJEU held that Article 6(1) could apply where the actions had different legal bases (contract against the anchor defendant and tort against the co-defendant) provided the claims were sufficiently closely connected. The judges took the view that some of the comments in that case suggested that consideration of the substantive merits of the claim against the anchor defendant may be necessary. In particular, the statement that it was for the national court “to take account of all the necessary factors in the case file, which may, if appropriate yet without its being necessary for the assessment, lead it to take into consideration the legal bases of the actions brought before that court.”

In Cartel Damage Claims SA v Akzo Nobel NV (Case C 352/13) the issue was whether there was an abuse of Article 6(1) where proceedings against the anchor defendant were settled, but it was alleged the settlement proceedings had been artificially prolonged in order to join the co-defendants. The CJEU held that Article 6(1) would only be circumvented if there was firm evidence that the claimant and anchor defendant artificially fulfilled or prolonged the fulfilment of Article 6(1)’s applicability. The judges pointed out that there was, however, no consideration of the substantive merits of the claim in the case.

The main English authority on Article 6(1) was the Court of Appeal decision in Joint Stock Co “Aeroflot Russian Airlines” v Berezovsky [2013] EWCA Civ 784 . In that case the court held that when deciding whether there is jurisdiction under Article 6(1), the court is not required to assess the merits of the claim against the non-anchor defendants. The claimant submitted that this argument should be extended to the anchor defendant and the judges accepted that some parts of the judgment provided strong support for the claimant’s case. They took the view, however, that the Aeroflot judgment was in some respects “problematic” and that in any event, there was no reason such logic should apply to an anchor defendant. There was a significant difference between the anchor defendant and the foreign co-defendants; if the claim against the anchor defendant falls away, there is no reason for the foreign co-defendants to not be sued in their country of domicile as there would no longer be a risk of irreconcilable judgments.

Dissenting judgment of Gloster LJ

By contrast, Gloster LJ found in her dissenting judgment that even where the claim against the anchor defendant will not proceed due to lack of merit, jurisdiction against foreign co-defendants can be established under Article 6(1), unless the claim against the anchor defendant constitutes fraudulent abuse, in that the sole purpose for bringing the claim against the anchor defendant was to remove the foreign non-anchor defendants from their jurisdiction of domicile

Gloster LJ did not accept the argument that a hopeless claim against an anchor defendant is equivalent to fraudulent abuse of Article 6(1), and she found that allowing the incorporation of a merits test into Article 6(1) would “fundamentally undermin[e] the certainty, predictability and efficiency of the application of Article 6(1)” and would give rise to the risk of irreconcilable judgments.

So far as the case law was concerned, she did not accept that Reisch Montage only prohibited procedural rules from preventing the application of Article 6(1). The reasoning of the CJEU was expressed in general terms, there was no sensible rationale for the distinction and the line between procedural rules and rules relating to the merits would be difficult to draw. Freeport did not directly address the question of whether a merits test is, or can be, a precondition to the founding of jurisdiction but in her view the judgment overall strongly suggested that the merits were irrelevant. The decision in Cartel Damage Claims was a synthesis of Reisch Montage and Freeport: a claimant could not fraudulently abuse Article 6(1) but nor was it incumbent on them to show that the claim was genuine. Overall, the judge took the view that there was clear CJEU authority that Article 6(1) can be used to establish jurisdiction against co-defendants, even if the claim against the anchor defendant will not proceed, unless the claimant is engaged in a fraudulent abuse of Article 6(1) in the narrow sense. So far as Aeroflot, was concerned, the defendants had accepted there was no merits test in relation to co-defendants. The submission that, nonetheless, there is a merits test in respect of the anchor defendant depended on it being possible to distinguish the two situations. The judge could see no distinction.

Gloster LJ therefore concluded that a merits test should not apply when considering jurisdiction under Article 6(1) and that the court should instead “use all available information and take a common-sense approach” to whether it is expedient to hear the cases together to avoid the risk of irreconcilable judgments. If the requirements of Article 6(1) are met, the only bar to its application would be if the sole purpose for bringing the claim against the anchor defendants was to remove the foreign non-anchor defendants from their jurisdiction of domicile. This would aid certainty, predictability and efficiency and reduce the number of long drawn-out jurisdictional disputes.

John Ogilvie
John Ogilvie
Partner
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+44 20 7466 2359
James Allsop
James Allsop
Senior associate
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+44 20 7466 2588
Gabriella Polledri
Gabriella Polledri
Associate
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+44 20 7466 2731

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