In Borelli & Ors v Otaibi & Ors [2024] EWHC 1148 (Comm), Richard Salter KC (sitting as a Deputy Judge of the High Court) stayed a substantial fraud claim against a Luxembourg securitisation vehicle, Floreat Fixed Income SA (“FFISA”), on the ground that the claimants’ claims in dishonest assistance, knowing receipt and conspiracy fell within an exclusive jurisdiction clause in favour of the Luxembourg courts. The Judgment addresses several important questions concerning the 2005 Hague Convention on Choice of Court Agreements, including the treatment of asymmetric jurisdiction clauses and whether the Convention imposes a “material validity” requirement (by analogy to the Brussels Recast Regulation).
The claimants were four investment funds and their joint liquidators. They alleged that D1-3 had perpetuated a complex fraud against the funds and their subsidiaries by causing them to enter into various disadvantageous transactions. The claim against FFISA concerned $81 million of Aviation Notes that had been subscribed for by one of the funds pursuant to four Subscription Agreements. The claimants alleged that the relevant fund had been caused to subscribe for the Notes by its directors acting in breach of their fiduciary duties and that, by its receipt of the consideration for the Notes, FFISA had dishonestly assisted in those breaches and knowingly received the proceeds. The Subscription Agreements contained exclusive jurisdiction clauses in favour of the Luxembourg courts.
The claimants obtained permission to serve FFISA out of the jurisdiction at a without notice hearing before Knowles J on 10 February 2023, at which the claimants failed to disclose the exclusive jurisdiction clauses in the Subscription Agreements.
FFISA applied to set aside service on the basis of the jurisdiction clauses and the claimants’ failures of full and frank disclosure. The Judge agreed with FFISA that the claimants’ claims against FFISA fell within the scope of the Luxembourg exclusive jurisdiction clauses and that, even if the “material validity” test under the Brussels Recast Regulation were to be applied by analogy to the 2005 Hague Convention (which the Judge doubted: [23]), the claimants’ claims arose in connection with the particular legal relationship between the claimants and FFISA under the Subscription Agreements: [24]-[35]. The Judge was therefore required to stay the proceedings against FFISA under the 2005 Hague Convention: [41].
While it was not necessary to decide the point, the Judge doubted that the “material validity” test applied to the 2005 Hague Convention, observing that, unlike the Brussels Recast Regulation, the 2005 Hague Convention did not contain any jurisdictional “fall back” to deal with cases where a clause on its true interpretation covers the claims in question under its governing law but nevertheless falls outside the Convention: [23]. While it was unnecessary to address FFISA’s alternative reliance on an “asymmetric clause” in a set of conditions incorporated into the Subscription Agreements, the Judge indicated in obiter remarks that he would have held that asymmetric jurisdiction clauses fall outside the scope of the 2005 Hague Convention [40].
The Judge also found that, in failing to bring the Luxembourg exclusive jurisdiction clauses to the attention of Knowles J at the without notice hearing, the claimants had failed to comply with their duty of full and frank disclosure. Though he accepted that the claimants had not intentionally misled the Court, the Judge nevertheless held that those failures were sufficiently serious to warrant the immediate discharge of the ex parte Order granting service out against FFISA: [52]. It should have been obvious to the funds’ liquidators and those advising them that the Subscription Agreements might contain jurisdiction clauses and it was no excuse for the claimants to say that they had taken “their eye off the ball”: [50]. The Judge then re-granted the order on terms to ensure the claimants obtained no limitation benefits from the original application and then immediately stayed the proceedings.
Adam Rushworth and Tom Foxton appeared for FFISA, instructed by Allen Overy Shearman Sterling LLP.
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