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Alexander Halban writes on exclusive jurisdiction in company disputes: clarification from the Supreme Court

The Supreme Court has handed down an important judgment on article 24(2) of the Brussels I Regulation (EC 1215/2012), clarifying when the English court has exclusive jurisdiction to determine a dispute relating to an English company; and whether the article can be used to litigate in England disputes concerning foreign companies in the same group.

Background

The case, Akçil v Koza Ltd [2019] UKSC 40, concerns a battle for control over a large Turkish gold mining company called Koza Altin, founded by a Mr Ipek. He claimed that the Turkish government launched unfounded criminal investigations into the business. The Turkish criminal courts appointed trustees to control Koza Altin. In response, Mr Ipek changed the constitution and structure of Koza Ltd, an English subsidiary of Koza Altin, to prevent changes to its articles or directors by the trustees, without his consent.

Koza Altin and the trustees served notices to convene a general meeting of Koza Ltd to amend its articles of association and change its directors to remove Mr Ipek. Mr Ipek and Koza Ltd applied for injunctions to restrain the meeting, arguing that the notices were void because:

1. Mr Ipek did not content to the proposed resolutions, as required by the new provision in the articles which he had introduced (‘the company law claim’);
2. the English courts should not recognise the authority of the trustees to do anything as shareholder in Koza Ltd (‘the authority claim’).

Koza Altin challenged jurisdiction. It was common ground that the English court had exclusive jurisdiction to determine the company law claim, which related to the validity of the internal affairs of Koza Ltd, an English company. This was the effect of article 24(2) of the Regulation, which provides

The following courts of a Member State shall have exclusive jurisdiction, regardless of the domicile of the parties: […]

(2) in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies […], or the validity of the decisions of their organs, the courts of the Member State in which the company […] has its seat. In order to determine that seat, the court shall apply its rules of private international law

The dispute was whether the authority claim also fell under that article, so that the court had exclusive jurisdiction over that claim, or whether it should be litigated in Turkey. The judge found that the English court had exclusive jurisdiction over both claims because the authority claim was inextricably linked to the company law claim. The Court of Appeal agreed, finding that European case law required it to make an evaluative judgment on what the case was about – and, in its view, the case overall concerned the internal affairs of an English company, so that the authority claim also fell within the exclusive jurisdiction.

Supreme Court decision

Koza Altin and the trustees appealed to the Supreme Court. Lord Sales (giving judgment for a unanimous court) allowed their appeal, finding that the authority claim fell outside article 24(2), and so the English court did not have exclusive jurisdiction over that claim or over the trustees. Instead, the authority claim concerned the trustees’ authority to represent the Turkish company and should be litigated in Turkey.

Lord Sales’ judgment contains some important points about the interpretation of article 24(2):

• Article 24(2) contrasts with the general jurisdictional rule in article 4 based on the defendant’s domicile, and the specific rules concerning particular cases in articles 7-9. All of those provisions can give jurisdiction to the courts of more than one state. However, article 24(2) only allows one court can have jurisdiction, to the exclusion of all others.
• Thus, article 24(2) has to be interpreted narrowly because it is an exceptional rule which cut across the normal jurisdictional rules and, in the case of contracts, the parties’ autonomy to choose their forum.
• The interpretation of article 24(2) is the same whether or not the alternative jurisdiction is an EU member state: either a court has exclusive jurisdiction over a company dispute or it does not.
• The article only applies to disputes in which a party is challenging the validity of a decision of a company or an organ of a company under the applicable company law or the company’s articles of association. It does not apply to claims which merely involve a decision of the company, without disputing that the company had the power to make it: Hassett v South Eastern Health Board (Case C-372/08) [2008] ECR I-7403. Nor does it apply simply because the company’s powers are raised in a different context (for instance in a dispute as to the validity of a contract said to be ultra vires the company): Berliner Berkehrsbetriebe (BVG) v JP Morgan Chase Bank NA (Case C-144/10) [2011] 1 WLR 2087
• There must be a ‘particularly close link’ between the dispute and the state whose courts are said to have exclusive jurisdiction, so that those courts must be best placed to decide the issue: EON Czech Holdings AG v Dedouch (Case C-560/16) [2018] 4 WLR 94.
• The ‘evaluative judgment’ as to what the case principally concerned (relied on by the Court of Appeal) was designed by the European Court to narrow the scope of article 24(2) to focus on the key issue in the case, not to expand it so as to include ancillary claims which were not inextricably linked to the company and its place of incorporation.

Comment

The Supreme Court’s decision is important in a number of respects:

• It provides the test to decide whether an ancillary claim can be brought together with a claim for which a court has exclusive jurisdiction. The two claims must be considered separately and the ancillary claim can only be brought under article 24(2) if there is a particularly close link between it and state with exclusive jurisdiction. This will be established if the claim concerns the validity of actions of a company incorporated in that state, but not where the two claims are merely based on connected facts
•  It will have particular relevance in litigation concerning multinational corporate groups. It avoids litigants using a dispute about the internal affairs of one company to bring all other claims concerning the group in the same court, undermining the normal jurisdictional rules. At the same time, it emphasises that the courts of the place of incorporation are best placed to decide on issues which genuinely concern the validity and internal affairs of the company.
• This principle also applies to companies incorporated in non-EU member states: the courts of the non-member state still have primary jurisdiction to determine these disputes, even if it is not an exclusive jurisdiction.
• The Supreme Court found that its interpretation of the Regulation and European caselaw was acte clair, so that it did not have to make a reference to the European Court. The decision can be cited as a clear explanation of European authorities.
• It also emphasises that other grounds for exclusive jurisdiction – concerning land under article 24(1), public registers under article 24(3) and patents under article 24(5) – are also narrowly interpreted and should not be used to undercut the general jurisdictional rules in the Regulation.

Alexander Halban (2009 call) practises in commercial, civil fraud, company and insolvency disputes in a wide range of jurisdictions.