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London branch of EU domiciled bank entitled to freeze assets following foreign attachment orders

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management - Freezing Orders

03-06-2018

 

London branch of EU domiciled bank entitled to
freeze assets following foreign attachment orders

 

National Bank of Kazakhstan & The Republic of Kazakhstan v The Bank of New York Mellon SA/NV, London Branch [2017] EWHC 3512 (Comm)

Facts of the case

– The respondent (“R”) is incorporated in Belgium but with a branch inter alia in London.

– R provided banking and custody services to the first claimant (“C1”) in respect of the National Fund of Kazakhstan (the “Fund”) under a global custody agreement (“GCA”). This contained English law and non-exclusive English jurisdiction clauses.

– Various third parties seeking to enforce an arbitration award against the second claimant (“C2”) had obtained Belgian and Dutch attachment orders. These were served on R. Applications were subsequently brought in Belgium and the Netherlands by the claimants (the “Cs”) to have these set aside.

– R considered it was able to freeze the Fund under the GCA and that it should do so avoid to civil and/orcriminal liability in Belgium and/or the Netherlands.

– The Cs sought various declarations, including that R was not obliged or entitled to freeze the Fund. R challenged the jurisdiction of the English court on the basis that:

– neither article 7 (5) of the Recast Brussels Regulation (the “Regulation”) (disputes arising out of the operations of branches) nor article 25 (jurisdiction agreements) were engaged where R took a neutral position since there was no dispute; or

– the court should stay the proceedings (i) pursuant to article 30 (where related actions are pending in the courts of different member states, any court other than the court first seized may stay its proceedings) because the Belgian court was first seized, or (ii) on case management grounds pending the decisions of the Dutch and Belgian courts on the applications to set aside the attachment orders.

– This briefing focuses primarily on the jurisdictional aspects of the court’s judgment.

The decision

– Popplewell J declined to make the declarations sought, inter alia finding that R was entitled to freeze the Fund on the basis of the wording of the GCA. Specifically on the issue of jurisdiction, he found that:

– articles 7(5) and 25 are only engaged where there is a dispute. However, there is a relevant dispute where R is taking a neutral position since by not accepting an element of Cs’ claim, R is disputing it;

– the claim fell within article 7(5) because (i) R is registered in England and Wales as an overseas company, and as a UK establishment and therefore is subject to the in personam jurisdiction of the English court, and (ii) there is a sufficient causal link between the dispute and R, with C1 and R being parties to the GCA and R managing the Fund in respect of which C2 has a beneficial interest;

– article 30 does not apply because inter alia there are no significant overlapping issues, including because the issues are being addressed as matters which arise under different applicable laws. Accordingly there was no risk of “irreconcilable judgments resulting from separate proceedings”; and

– given that jurisdiction had been established under the Regulation, only in exception or compelling circumstances would a stay be granted on case management grounds and there were none in this case.

Analysis and practical advice

– The case will be of interest to financial institutions because of the confirmation that there will be a relevant dispute for the purposes of articles 7(5) and 25 of the Regulation even where, as is commonly the case, a financial institution takes a neutral stance, neither objecting nor consenting to an application.

– The case also provided a useful reminder of the principles for the granting of declarations, namely that:

1. The power is a discretionary one.

2. There must be a real and present dispute between the parties before the court as to the existence or extent of a legal right between them. However, the claimant does not need to have a present cause of action against the defendant.

3. Each party must in general be affected by the court’s determination of the issues concerning the legal right in question.

4. The fact that the claimant is not a party to the relevant contract in respect of which a declarationis sought is not fatal, provided that it is directly affected by the issue.

5. The court will be prepared to give declaratory relief in respect of a “friendly action”, or where there is an“academic question” if all parties wish so.

6. However, the court must be satisfied that all sides of the argument will be fully and properly put. It must therefore ensure that all those affected are either before it or will have their arguments put.

7. Assuming the other tests are satisfied, the court must always ask: is this the most effective way of resolving the issues raised? In answering that question, it must consider the other options.