Court of Appeal clarifies approach to exclusive jurisdiction provisions of Brussels regime relating to validity of corporate decisions

The Court of Appeal has held that the English courts had exclusive jurisdiction to hear a claim brought by an English subsidiary company against Turkish domiciled defendants including its parent company: Koza Ltd & Anor v Akcil & Ors [2017] EWCA Civ 1609.

The judgment helps to clarify the scope of article 24(2) of the recast Brussels Regulation (1215/2012). This provides that, where proceedings have as their object the validity of a company’s constitution or the decisions of its organs, the EU member state of that company’s seat will have exclusive jurisdiction over the proceedings. The exclusive jurisdiction provisions under article 24 apply regardless of the defendant’s domicile. Where the defendant is EU domiciled, they also act as an exception to the general rule under the Brussels regime that defendants should be sued in the courts of the member state where they are domiciled.

The decision confirms that when considering whether article 24(2) applies, it is necessary to look at the proceedings as a whole and determine what they are principally concerned with. A mere link to a decision of the company which is ancillary to the heart of a contractual or other dispute is insufficient. In contrast where, as here, the validity of decisions of the organs of the company is at the heart of the claim, it does not matter that other issues are also raised, nor does it matter who the defendants are. The position is however different where two independent claims are made in the same proceedings.

The decision is also of interest in considering, obiter, that the Turkish parent had not submitted to the jurisdiction by counterclaiming. This is the latest in a number of recent cases which have found that steps taken in the proceedings do not necessarily amount to an unequivocal submission to the jurisdiction.

Adam Johnson QC and Kevin Kilgour consider the decision further below.

Background

As part of an investigation by the Turkish authorities relating to alleged financing of terrorism, the Turkish courts made an order replacing the boards of certain Koza Group companies with trustees who were to manage the companies, pending ongoing investigations.

Koza Limited (an English subsidiary in the Koza Group) was served with notices, purportedly on behalf of Koza Altin (its Turkish parent company), under sections 303 and 305 of the Companies Act 2006. These notices purported to requisition a general meeting of Koza Limited for the purpose of passing resolutions to replace its directors with the trustees appointed by the Turkish court. Pursuant to the articles of association of Koza Limited, a resolution to remove a director could only be passed with the signed written consent of Mr Ipek (a director of Koza Limited) and his brother. As a result, Koza Limited and Mr Ipek commenced proceedings in the English High Court against Koza Altin and its management (ie the court-appointed trustees) seeking (i) declarations that the notices were ineffective; and (ii) injunctions preventing the court-appointed trustees from purporting to act for or bind Koza Limited.

Relief was sought on two grounds:

  • The English company law claim” – under section 303 of the Companies Act 2006, a shareholder can only require directors to call a general meeting to consider a resolution if such resolution “may properly be moved” (ie if it would, once passed, be effective). Koza Limited and Mr Ipek argued that the proposed resolutions in question could not be passed without the consent of Mr Ipek and he did not consent. Accordingly, if such resolutions were passed, they would be ineffective.
  • The authority claim” – Koza Limited and Mr Ipek also argued that the court should not recognise any authority of the trustees to cause Koza Altin to serve the notices or take any other steps as shareholders of Koza Limited because the appointment of the trustees was unlawful under Turkish law, was solely on an interim basis and was in breach of natural justice and/or article 6 of the European Convention on Human Rights.

At first instance, Asplin J (as she then was) held that the claim fell within the scope of Article 24(2) and the English courts had jurisdiction to hear it. Even if that were not the case, the defendants had submitted to the jurisdiction by serving a counterclaim that went beyond the claim (despite expressly stating that the counterclaim was subject to their jurisdictional challenge). The defendants appealed.

Decision

The Court of Appeal upheld the High Court’s decision and dismissed the appeal.

Floyd LJ (who gave the leading judgment) noted that, as article 24(2) operates in derogation from the general rule of defendant domicile, it must be construed narrowly, or at least no more broadly than required by the policy objective which guides its interpretation. That is that it is preferable to “centralise jurisdiction in relation to the identified subject matter in order to avoid conflicting decisions, for example as to the existence of a company or the validity of one of its decisions”.

It was common ground that:

  • article 24(2) applied in the circumstances regardless of the fact that Turkey is not a member state of the European Union;
  • the seat of Koza Limited was in England and Wales;
  • the board of directors and the shareholders of Koza Limited in general meeting constituted organs of Koza Limited; and
  • the English company law claim fell within the scope of Article 24(2).

It was also common ground that, as established in JP Morgan Chase Bank NA and another v Berliner Verkehrsbetriebe Anstalt des Öffentlichen Rechts [2010] EWCA Civ 390 (in relation to article 22 of the original Brussels Regulation, which is broadly equivalent to article 24 of the recast Brussels Regulation), when the court assesses the “object” of proceedings, this does not mean their “purpose”. Rather, it requires the court to determine whether the proceedings are “principally concerned” with one of the matters falling within the article.

Therefore, the main question for the court was whether these proceedings, which dealt with multiple issues (being, in particular, the English company law claim and the authority claim), could be described as “principally concerned” with the validity of decisions of an organ of Koza Limited. To this end, the court was required to make an “overall judgment” looking at the proceedings as a whole. The proceedings need not exclusively relate to issues of local company law to fall within the exception.

The Court of Appeal observed, however, that a mere link to a company’s decision, or an issue raised which was ancillary to the heart of a contractual or other dispute, would not be sufficient to bring such proceedings within the scope of the exception. For example, article 24(2) would not be engaged where proceedings deal with a contract and the claimant argues that the contract is unenforceable due to a corporate decision, which resulted in the conclusion of the contract, being invalid.

Severability of issues

Floyd LJ rejected the appellants’ argument that the English company law claim and the authority claim were severable and constituted two distinct claims, which had to be looked at separately for the purposes of article 24(2). He agreed with the first instance judge that the claims were in fact “inextricably linked”, given that both issues concerned the validity of the notices in question and therefore the validity of intended decisions of Koza Limited. The issues, in essence, both concerned preconditions for a valid decision to be made by an organ of the company.

The court contrasted the present case to one where there are two clearly independent claims brought during the same proceedings, commenting that in those circumstances jurisdiction in relation to each claim would have to be determined separately.

Issues unrelated to English company law

The Court of Appeal recognised that the authority claim raised issues of law which were not issues of English company law. However, that did not prevent the proceedings (as a whole) being principally concerned with the validity of the English company’s decisions. In any event, the relevance of the non-company law issues went to the validity of the notices served and therefore the validity of the company’s decisions. The requirement for valid notices is a requirement of English company law.

In addition, the court commented that it was not required to assess the amount of evidence or argument which supported individual issues. To approach article 24 in that way would be “to shut one’s eyes to what the proceedings were principally about”.

Timing of decisions

The decisions in question had not yet been made by the company, as the claimants had brought the proceedings and obtained an injunction to prevent the meeting taking place and resolutions being passed. The Court of Appeal held that whether the relevant decision has already been taken, or is threatened or is imminent, does not affect the assessment for jurisdiction purposes.

Identity of defendants

The Court of Appeal also rejected the argument that the position of the trustees needed to be considered separately from that of Koza Altin, even if the claim against that company fell within article 24(2). The court’s assessment for the purposes of article 24(2) is concerned with the subject matter of the proceedings, not the parties, and the action against the trustees related to the same subject matter as the action against Koza Altin. The identity of the defendants did not therefore matter.

Submission

The Court of Appeal disagreed, however, with the judge’s finding that Koza Altin had submitted to the jurisdiction by counterclaiming. The counterclaim made it clear that it was without prejudice to the jurisdiction challenge, and the factual allegations made related entirely to the issue on which the defendants accepted the court had jurisdiction. There was therefore no unequivocal submission to the jurisdiction as required by Smay Investments Limited v Sachdev [2003] EWHC 474 (CH) and approved by the Court of Appeal in Zumax Nigeria v First City Monument Bank [2016] EWCA Civ 567.

Adam Johnson
Adam Johnson
Partner
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+44 20 7466 2064
Kevin Kilgour
Kevin Kilgour
Senior associate
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+44 20 7466 2584

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