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Published 15 April 2015
In the recent decision in Deutsche Bank AG London Branch v Petromena ASA (in bankruptcy), the Court of Appeal has provided useful guidance on a number of different jurisdictional issues in the context of a bond purchase and alleged breaches of fiduciary duty.
Petromena was a holding company registered in Norway which owned four subsidiaries, one of which owned an oil drilling ship, and the other three of which owned oil rigs which were being constructed. Petromena was a publicly traded company until it entered bankruptcy before the commencement of proceedings.
In May 2006, Petromena issued a series of bonds in order to raise funds to part finance the oil rigs then under construction. The terms of the bonds were contained in a loan agreement dated 22 May 2006 ("the Loan Agreement") into which all purchasers of bonds were bound. The Loan Agreement contained a clause conferring exclusive jurisdiction on the Norwegian Courts for all disputes arising "out of or in connection with the Loan Agreement".
Deutsche Bank purchased a number of the Petromena bonds which it subsequently sold to a competitor of Petromena. Thereafter, through an enforced acceleration of its bonds, Petromena entered insolvency. Petromena alleged in bringing a claim against Deutsche Bank in Norway that Deutsche Bank had assumed duties towards it by acting as an adviser during a period before the enforced acceleration and sale which, Petromena argued, constituted breaches of those duties.
It did not fall to the English Courts to decide the substantive claim. Instead, the English Court was asked to consider whether the exclusive jurisdiction clause meant that it should refuse jurisdiction in favour of the Norwegian Courts after Deutsche Bank sought declarations of non-liability from the English Courts for claims brought by Petromena in Norway. The key question was whether the alleged advisory relationship created by Deutsche Bank's conduct before sale of the bonds (such as that examined in the English law context in Hedley Byrne v Heller) "arose out of or was connected to" (in the words of the Loan Agreement) the Loan Agreement itself.
The Court of Appeal held, albeit not without disagreement between the three judges on the bench, that the tortious claims asserted on the basis of the alleged advisory relationship did not arise out of the Loan Agreement. Therefore, the rules applicable under the Lugano Convention, which provide that a jurisdiction clause is to be exclusive unless agreed otherwise, did not apply. Further, the Court held that if the claims had been contractual in nature, the applicable rules of the Lugano Convention would also have conferred jurisdiction on the English Courts, given that England was the place in which the "contract" to provide advisory services, if there was such, was "performed".
The Court also considered the discrete question of whether the filing of a second Acknowledgement of Service form constituted submission to the jurisdiction of the English Courts. Petromena applied for an order declaring that the English Courts had no jurisdiction, but this application was refused. Petromena appealed. However, following the first instance refusal Petromena's solicitors had filed an Acknowledgement of Service form in order (mistakenly) to avoid having a judgment in default entered against it while it sought permission to appeal the first instance refusal of its application. Deutsche Bank argued that by filing this second acknowledgment of service, Petromena had submitted to the jurisdiction.
The Court agreed with Deutsche Bank. The actions of Petromena's solicitors constituted an "appearance" in the English proceedings for the purposes of the Lugano Convention, and Petromena had thereby submitted to the jurisdiction of the English Courts.
This is a timely reminder of the correct approach for defendants to take when they wish to appeal from decisions that the English Court has jurisdiction to try a claim. In order to protect its position without accidentally submitting to the jurisdiction, the defendant should ask the judge to extend the time for acknowledgement of service pending either the appeal or the application for permission to appeal.
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