On 20 May this year, Richard Salter KC (sitting as deputy judge of the High Court) handed down his judgment in relation to two interim applications made in the ongoing fraud claims brought by 23 claimants, the principal claimants being four investment funds and their joint liquidators (the funds), against 28 defendants.

Of particular interest was his judgment in respect of the application by the 23rd defendant, Floreat Fixed Income SA (FFISA), a Luxembourg securitisation vehicle, to set-aside an earlier order granting the claimants permission to serve the amended claim form and particulars of claim on FFISA out of the jurisdiction and to stay or dismiss the proceedings against FFISA.

In allowing FFISA’s application, and staying the proceedings against them, the judgment deals with the Hague Convention on Choice of Court Agreements 2005, including the treatment of asymmetric jurisdiction clauses and whether the convention imposes a “material validity” requirement (by analogy to the Brussels Recast Regulation).

The funds had claimed that they and their subsidiaries were the victims of a complex fraud perpetrated by the first, second and third defendants (together the ‘Floreat Principals’), who control and beneficially own the Floreat Group, of which most of the other defendants are corporate members. The Floreat Group operates as a private financial investment management and advisory service provider.

The claims included the tort of conspiracy for the equitable wrongs of dishonest assistance in breaches of trust and/or of fiduciary duty and – against some of the defendants – for knowing receipt of property belonging to the funds.

The funds alleged that the Floreat Principals and/or members of the Floreat Group (acting at the direction of the Floreat Principals) used their positions to “milk” them of their assets, by causing or influencing them to enter into transactions which are said to have been disadvantageous to them but advantageous to the Floreat Principals and/or to the Floreat Group and/or by causing or influencing them to pay certain excessive or otherwise improper fees and other amounts.  

On 3 August 2016, FFISA was incorporated as a public limited company in Luxembourg as a securitisation vehicle, which allowed the creation of segregated compartments within a securitisation vehicle, with each compartment being treated in practice as a separate entity, and its assets ring-fenced by law so as to be available only to the investors and creditors of the particular compartment. The intention was for FFISA to be the issuer of $81m of asset-backed securities in two series, each ascribed to a separate compartment.

The claims against FFISA concerned alleged unauthorised, excessive, duplicative or improper fees arising out of the subscription by the fourth claimant, Global Fixed Income Fund 1 Limited (GFIF). Two of the directors of FFISA were the first and third defendants, who at the time were also directors of GFIF.  

Crucially, each of the subscription agreements contained jurisdiction clauses in favour of the Luxembourg courts; however, some terms and conditions incorporated by reference into those agreements also contained an asymmetric jurisdiction clause to the benefit of FFISA, which constrained GFIF to the jurisdiction of the Luxembourg district courts, but also permitted FFISA to bring proceedings in any other jurisdiction.

At a without notice hearing before Knowles J in February 2023, the funds did not bring the existence of the exclusive jurisdiction clauses in favour of the Luxembourg courts to the judge’s attention.

FFISA’s application was, therefore, based on three grounds: 
(i)    that there was no serious issue to be tried on the merits of the claim against FFISA; 
(ii)   that the claims against FFISA fall within the scope of the exclusive jurisdiction clauses in the subscription agreements between FFISA and GFIF, which conferred exclusive jurisdiction for the purposes of the Hague Convention 2005 Article 6 in relation to the claims of GFIF, the only claimant alleged to have suffered loss cause by FFISA, on the courts of Luxembourg; and 
(iii)   that the claimants failed to disclose the existence of those jurisdiction clauses (and certain other matters) to Knowles J at the without notice application which led to the order.  

The judge held that the funds’ claims against FFISA fell within the scope of the exclusive jurisdiction clauses in the subscription agreements, and that, even if the test under the Brussels Recast Regulation were to be applied by analogy to the Hague Convention 2005 (which he doubted), the funds’ claims arose in connection with the particular legal relationship between GFIF and FFISA under the subscription agreements. Accordingly, he was required to stay the proceedings against FFISA under the Hague Convention 2005.

In relation to the failure to draw Knowles J’s attention to the exclusive jurisdiction clauses at the without notice hearing, the funds had seriously failed to comply with their duty as applicant of full disclosure. While he accepted that the funds had not intentionally misled the court, he nevertheless held that those failures were sufficiently serious to warrant the immediate discharge of the order, insofar as it affected FFISA. The funds and their advisers were aware of the existence of the subscription agreements and had access to them, and it should have been obvious that they might contain jurisdiction clauses. It was no excuse for the claimants or their advisers to have taken “their eye off the ball” by focusing only on the breaches of fiduciary duties by the Floreat Principals and not the subscription agreements.

Although he did not have to decide the point, the judge observed that, unlike the position under the Brussels Recast Regulation, there is no jurisdictional fall back in the Hague Convention 2005 to deal with a case where the clause on its true interpretation under its governing or applicable law covers the claims in question but nevertheless falls outside the convention.

While it was unnecessary for the judge to address FFISA’s alternative reliance on an “asymmetric clause” in the terms and conditions incorporated into the subscription agreements, the judge indicated that he would have held that asymmetric jurisdiction clauses fall outside the scope of the Hague Convention 2005.  

For practitioners, this case offers a useful insight into the role of jurisdiction clauses. Namely that it is vital to check, check and check again if there are any jurisdiction clauses (asymmetric, exclusive or otherwise) that should be drawn to the court’s attention at any ex parte hearing and, if so, carefully consider their impact on jurisdiction and ensure that they are properly raised with the court.

Alina Neal, of counsel, at Quillon Law. Alina Neal is an English and Hong Kong qualified commercial litigator with more than 17 years’ experience in resolving complex commercial and financial disputes.