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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> UBS Ag & Anor v HSH Nordbank Ag [2008] EWHC 1529 (Comm) (04 July 2008) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2008/1529.html Cite as: [2008] EWHC 1529 (Comm), [2008] 2 Lloyd's Rep 500, [2008] ILPr 46 |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
(1) UBS AG (2) UBS SECURITIES LLC |
Claimants |
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- and - |
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HSH NORDBANK AG |
Defendant |
____________________
Mr Andrew Henshaw (instructed by Mr Michael McNicholas) for the defendant
Hearing dates: 20, 23 May 2008
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Crown Copyright ©
Mr Justice Walker :
Introduction
The Transaction
[LB Kiel] wanted to obtain exposure to certain credit products such as real estate related credit and asset backed securities ("ABS") which, at the time of the Transaction, were viewed in the market as having outperformed similarly rated corporate securities, following analysis published in January 2001 by each of the three principal rating agencies, Standard & Poor's, Moody's and Fitch. …
i) an agreement dated "as of March 5, 2002" between UBS and LB Kiel, known as the "Reference Pool Side Agreement" or "RPSA", which HSH says provided LB Kiel with important protections regarding UBS's management of the portfolio comprising the Reference Pool. This agreement was subject to New York law and contained a non-exclusive New York jurisdiction clause.
ii) the issue on 5 March 2002 by LB Kiel to UBS of $500 million of "puttable" medium term notes. I shall refer to them as "the Kiel Notes", although the parties sometimes refer to them as "the Kiel MTN Notes" or simply the "MTN Notes". They were "puttable" in the sense that the principal amount of each note with accrued interest would become payable to a noteholder on any business day at the noteholder's option subject to written notice being given 5 business days in advance. The detailed arrangements for these notes, and certain other matters, were the subject of two documents. One was described as a "pricing supplement" ("the Pricing Supplement"). It was signed by LB Kiel and was dated 5 March 2002. The other was a document described as a "dealer's confirmation" signed by UBS AG and also dated 5 March 2002. It was in effect an initial purchase agreement for the Kiel Notes and I shall refer to it as "the Kiel Notes IPA". These documents were each governed by English law and each contained an exclusive English jurisdiction clause. Immediately upon issue by LB Kiel to UBS the Kiel Notes were transferred by UBS to NS4 in exchange for the issue by NS4 to UBS of the Class A to D NS4 Notes. This transfer was envisaged by the Offering Circular, which explained that payments of principal under the Class A to D NS4 Notes, along with Credit Protection Payments affecting those notes, would be funded by NS4 exercising its option to redeem the Kiel Notes.
iii) the sale by UBS to LB Kiel of the Class A to D NS4 Notes in exchange for the issue to UBS of the Kiel Notes. This sale was envisaged by the Letter Agreement Term Sheet. It is common ground that pursuant to this sale the Class A to D NS4 Notes, upon issue by NS4 to UBS on 5 March 2002, were immediately transferred by UBS to LB Kiel. It is also common ground that, unlike other parts of the Transaction, the sale was not the subject of any new contract post-dating the Letter Agreement. Mr Henshaw submitted, and Mr Railton did not dispute, that the sale should be treated as having taken place pursuant to the Letter Agreement. It follows that the sale was subject to New York law but did not involve any express term as to jurisdiction.
English jurisdiction: the Regulation and the Issues
23 (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 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; or…..
The RPSA
(a) This agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws.
(b) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST [UBS] OR [LB KIEL] ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK AND ANY APPELLATE COURT FROM ANY SUCH COURT, AND, BY ITS EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF [UBS] AND [LB KIEL] ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT
(c) [designation of agent for service]…
The Pricing Supplement and the Kiel Notes IPA
(b) Subject as provided [below], the parties agree that the courts of England are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with the …[Kiel Notes]… and the parties accordingly submit to the exclusive jurisdiction of the English courts… nothing contained in this condition shall limit any right of the … Noteholders… to take proceedings against [LB Kiel] in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not.
Subject as provided in this sub-clause (2), the parties hereby irrevocably agree that the courts of England are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and the parties accordingly submit to the exclusive jurisdiction of the English courts for any suit, action or proceedings arising out of or in connection with this Agreement (together referred to as "Proceedings").
Each of [LB Kiel and LB Finance] hereby irrevocably waives any objection which it may have to the laying of the venue of any proceedings in the courts of England and any claim that any such Proceedings have been brought in an inconvenient forum and herby further irrevocably agrees that a judgment in any Proceedings brought in the English courts shall be conclusive and binding upon it and may be enforced in the courts of any other jurisdiction. Nothing contained herein shall limit any right of the Dealers to take Proceedings against the [LB Kiel and/or LB Finance] in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not.
...
The New York complaint
(a) UBS in selling the Class A to D NS4 Notes to LB Kiel made various misrepresentations to LB Kiel, some fraudulently.
(b) UBS breached the contract for the sale of the Class A to D NS4 Notes to LB Kiel, by failing to deliver notes with the characteristics promised.
(c) UBS breached the RPSA.
Proposed revisions to the New York complaint
[1] This letter affirms that HSH is withdrawing its request that the North Street 4 transaction be unwound, and that, after Justice Lowe issues his decision on the pending motion to dismiss, HSH will amend the complaint to omit the request for such rescission. Though the request for rescission never concerned the Medium Term Notes ("MTNs") issued by HSH - which MTNs are no longer even held by UBS – this amendment will make clear that the MTNs are not at issue in the dispute before the Supreme Court, contrary to the statement of UBS's counsel in the UK proceedings.
[2] For the same reason, we will also amend our complaint to clarify that the conversion claim set forth therein seeks damages in relation to UBS's misuse of assets in the Reference Pool, and does not assert a claim for conversion of the MTNs. While we believe this is clear in the complaint as drafted, we affirm that the complaint will be amended to clarify that the property which was converted was HSH's interest in the Reference Pool through its holding of the Notes issued by NS-4. As alleged, UBS converted HSH's interest by abusing its position as the manager of the Reference Pool and misusing HSH's interest for its own advantage by using the structure to offload its own risks and losses instead of selecting assets for the Reference Pool in conformity with its representations of stable value management. The harm suffered by HSH as a result of the conversion was the alleged reduction in the value of the NS-4 Notes.
[3] In making these amendments, HSH reserves its right to assert all other claims for relief that are permitted by New York law, including the requests for damages and injunctive relief set forth in the complaint. We also reserve the right to make any further amendments that may be necessary
[4] HSH is not amending the complaint right now because the parties already have fully briefed and argued a motion to dismiss the complaint. The amendment is not relevant to the issues before the Court on that motion. I am advising you of this amendment, however, because of UBS's misleading assertion in the UK proceedings that the New York dispute involves the MTNs. It does not, and this amendment will make that clearer.
3. I confirm that HSH accordingly no longer seeks rescission of the North Street 4 transaction, and revises its claim for conversion in the manner indicated above. I further confirm HSH's unequivocal intention to amend its Complaint in New York, to reflect such withdrawal and revision, on the terms stated in paragraph 2 above.
4. As indicated in the [22 May letter], HSH does not believe its Complaint as originally formulated involves any dispute connected to or arising in connection with the MTN Notes, but has decided to make these revisions in the interest of clarity.
The dispute as described in UBS's claim form
in connection with a series of related written agreements between, inter alia, the Claimants and the Defendant which together govern a Credit Linked Note transaction (the "Transaction") between the Claimants and the Defendant in March 2002 including inter alia …
(a) the Credit Swap;
(b) "a subscription by the Defendant for" the Class A to D NS4 Notes;
(c) "a subscription by [NS4] for" the Kiel Notes; and
(d) the RPSA.
The draft particulars of claim
HSH decided to participate in the Transaction by issuing to UBS on a principal to principal basis US$500 million of puttable medium term notes ("the MTNs") under HSH's existing MTN programme, and pursuant to a series of Agreements ("the MTN Agreements") in return for HSH providing credit protection to UBS against certain credit risks in relation to the Reference Pool. HSH's objective was to enhance its interest yield on the MTNs, in return for assuming a degree of risk on the Reference Pool.
HSH also expressly confirmed that it understood, acknowledged and agreed that UBS was only acting as initial purchaser for the Transaction and was not acting as adviser to HSH (clause 2 of the Letter Agreement), and that the Letter Agreement constituted the entire agreement and understanding of the parties with respect to the Transaction and superseded all oral or written communications in relation thereto (clause 6(b) of the Letter Agreement).
at the time at which HSH entered into the Transaction it did so of its own volition based on its own judgment (following advice from its independent advisors and not on the basis of any advice or representation made by UBS), at its own risk and solely on the terms of the written agreements comprising the Transaction.
Issue 1: the arguments
I find the evaluation of these competing submissions rather elusive. In one sense all that happened, beginning with the negotiations for the purchase of the notes and ending in MLC's alleged defaults and the liquidation of its accounts, is part of a single narrative, which it is artificial to divide up into different compartments. On the other hand, where different agreements are entered into for different aspects of an overall relationship, and those different agreements contain different terms as to jurisdiction, it would seem to be applying too broad and indiscriminate a brush simply to ignore the parties' careful selection of palette.
Sometimes it is possible confidently to divide the claims between wholly different agreements, as in Ocarina Marine Ltd. v. Marcard Stein & Co., [1994] 2 Lloyd's Rep. 524 at p. 531. In such cases the mutually exclusive allocation of claim to relevant jurisdiction clause becomes much easier. In the present case, however, I do not regard such a hard and fast division to be possible. However, this difficulty must redound in CS Europe's rather than in MLC's favour. It is of course possible that [the jurisdiction clause in the Purchase Agreements] exerts an influence beyond the time of the Purchase Agreements themselves: but it is conceded that the GMRA does not exert an influence the other way. … Moreover, I am inclined to think that the centre of gravity of MLC's complaints, however they are or could be pleaded, is focused on the alleged vice of the initial deals, in the sense that if once that vice was proved or failed of proof, MLC's claim would either flourish or have the heart torn out of it accordingly.
I am nevertheless reluctant to hold that those of MLC's claims in its New York complaint which refer to the GMRA are claims which arise out of or in connection with the Purchase Agreements and do not arise out of or in connection with the GMRA. If they arise out of or in connection with both the Purchase Agreements and the GMRA, then, where the jurisdiction clauses are in conflict, I do not see why the GMRA clause should not prevail: either on the basis that, in a case of conflict on standard forms plainly drafted by CS Europe, MLC should be entitled to exercise the broader rights; or on the basis that the clause in the contract which is closer to the claim and which is more specifically invoked in the claim should prevail over the clause which is only more distantly or collaterally involved.
(a) the [Credit Swap]: which is an agreement between [NS4] and UBS, to which HSH is not a party and under which it has made no claim;
(b) HSH's subscription for the [Class A to D NS4] Notes: the terms of which contain a non-exclusive New York jurisdiction clause;
(c) "a subscription by North Street 4" for the [Kiel] MTN Notes issued by HSH: thus apparently referring to the relationship between [NS4] (which is the holder of the [Kiel] MTN Notes, but is not a party to the claim) and HSH, in relation to which no dispute exists; and
(d) The [RPSA]: an agreement under which HSH does make claims in the New York court, as it is contractually entitled to pursuant to the non-exclusive New York jurisdiction clause in that agreement.
[53] The phrases "out of or in connection with" are wider than "under" the contract. They cover matters which arise out of the performance of the contract and in connection with that performance. The side agreements and the disputes under them arose out of the performance of the contract or in connection with them."
Issue 1: Analysis
… what the court is endeavouring to do is to find a concept not capable of very precise definition which reflects that the plaintiff must properly satisfy the court that it is right for the court to take jurisdiction. … "Good arguable case" reflects in that context that one side has a much better argument on the material available. It is the concept which the phrase reflects on which it is important to concentrate, ie of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction. …
the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
Issue 2
Conclusion