In litigation related to Enron
collapse, English Court of Appeal, Civil Division, upholds refusal of first
instance court to enjoin defendant from pursuing its suit in New York to
decision on merits of claims that mirror issues in English case by rejecting
plaintiff’s claims that filing U.S. action was breach of contract as well as
vexatious and oppressive
The Royal Bank of Canada
(plaintiff or RBC) is a Canadian bank based in Toronto. The Cooperatieve
Centrale Raiffeisen‑Boerenleenbank BA (defendant or Rabobank) is a Netherlands
bank, with its principal place of business in Utrecht. Both parties carry on
the banking business in London and New York. RBC’s claim rests upon a “swap
agreement” with Rabobank recorded in a Total Return Swap Confirmation (TRS)
dated in January 2001. The agreement formed part of, and was subject to, the
1995 International Swap Dealers Association Master Agreement (ISDA or Master
Agreement).
Under its express terms, English
law was to govern both substantive rights and the interpretation of the TRS.
ISDA also contained a non‑exclusive jurisdiction clause authorizing the English
courts to decide disputes arising out of a TRS arrangement. It also had the
following clause: “Nothing in this Agreement precludes either party from
bringing Proceedings in any other jurisdiction... nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.”
According to their swap
agreement, Rabobank was to pay RBC $517m plus $6m interest on June 28, 2002.
The TRS formed part of a structured finance deal. It had to do with a block of
shares in a publicly traded company called EOG Resources Inc, the shares being
owned by Enron Corporation.
The TRS involved two closings. By
the second closing on January 31, 2001, RBC had effectively advanced the full
sum of $517m to an agreed entity called Heracles Trust. Rabobank’s involvement
in the TRS came at the second-closing phase. At this point, there was an Equity
Swap with Enron North America, which Enron guaranteed. In the course of the
second closing, Rabobank assumed part of the Enron credit risk. The present
case deals to a substantial degree with the circumstances surrounding Enron’s
demise.
Next, a dispute sprang up between
the parties. RBC’s claim was for damages of about $523.8m payable under the
contract on June 28, 2002, which Rabobank declared on June 21 it would not pay.
On the latter date, Rabobank filed proceedings in the New York state courts --
mainly to rescind the TRS agreement. Alternatively, it asked for $523.8m in
damages, alleging fraudulent misrepresentation.
RBC filed the instant case in the
English courts on the next working day after June 21. The claims and cross
claims in the English and New York proceedings mirrored each other. The
plaintiff asked the court below to enjoin the defendant from taking any steps
to obtain a ruling on any issue raised in the New York proceedings except in
the context of completing pretrial discovery. In December 2003, the English
court of first instance rejected this application and the plaintiff appealed.
The English Court of Appeal (Civil Division), however, dismisses the appeal.
In the lead opinion, the Judge
points out that RBC’s broad objections are (1) that Rabobank was acting
unconscionably and vexatiously and (2) that it breached its contract when it
filed the New York lawsuit. “Its complaint is that the only proper purpose for
conducting the New York proceedings was in order to use the New York procedures
for disclosure and depositions in order to gather evidence, which can be
deployed in this action. In the course of argument before this court, ... RBC
accepted that, at no stage, had Rabobank given RBC any representation or reason
to assume that, having commenced the New York proceedings, they would not be
pressed to a hearing and judgment.” [¶ 12]
The lead opinion agrees with the
way the lower court sized up the problems that simultaneous litigation in
different countries can bring about. He then cites the following comment by the
lower court. “All this is unattractive: it presents an extreme example of the
‘ugly rush’ that concerned Lord Brandon. However this cannot, in my judgment,
justify the court in interfering with Rabobank’s prima facie right to choose
where it litigates, given that the chosen court has internal jurisdiction over
the defendant and the dispute, and to pursue the litigation to a
determination.”
“The matter, as I see it, must be
tested by considering whether Rabobank is guilty of conduct or threatens
conduct, that can properly be said to be [1] in breach of any contract right
enjoyed by RBC or [2] otherwise unconscionable, vexatious or oppressive, or [3]
an abuse of the English Court. Otherwise, it is for the English Court to manage
the proceedings before it so as best to minimise these problems and to leave
the New York Court to handle the impact of these problems in the New York
proceedings.” [¶ 20 (quoting ¶ 82 of trial judge’s opinion)]
“ ... I cannot accept that the
court should imply a term into the jurisdiction clause that, in the event that
parallel proceedings throw up the possibility of simultaneous trials and one of
the sets of proceedings is in the English court, either of the parties is
entitled to insist that the English trial should take precedence and be
completed before any trial in another jurisdiction can start. Any such implied
term would be inconsistent with the express term of the jurisdiction clause.”
“Since I do not accept that it is
possible to imply the term proposed ... into the jurisdiction clause, it
follows that Rabobank’s pursuit of the New York proceedings to a hearing and
judgment, being permitted by the terms of the agreement between the parties,
cannot constitute a breach of contract by Rabobank [or] vexatious and
oppressive conduct.” [¶¶ 24-25]
The lead opinion also touches
upon the delicacy of having one national court enjoin a party from litigating
in the courts of another sovereign state. “ ... Lord Justice Waller accepted
that although anti‑suit injunctions are theoretically in personam, ‘foreign
courts do consider such injunctions as an interference with proceedings in that
country and that English courts for that reason should be cautious before
granting such an injunction.’”
“In the present case the judge
had a discretion whether or not to grant the injunction sought. His approach to
his decision to refuse the injunction does not reveal any error of law and, in
my judgment, he was right to refuse it. In any event it is clear that he was
entitled to arrive at that conclusion on the material before him.” [¶ 32] Thus,
dismissal of the appeal is appropriate.
A concurring Judge further
illuminates the rationale of the Court. “Rabobank submits and the judge
accepted that, in addition to the fact that the New York suit is coming on for
trial within a usual period, ... trial of the issues in New York is of
legitimate juridical advantage to it, in so far as its claims include some
claims, notably in deceit and fraud which are (Rabobank will submit) subject to
New York law and fall outside clause 13(a). The judge accepted this as a valid
point and gave it some weight [Cite].”
“In my view, it cannot be right
for this court to contemplate interfering indirectly with the trial of the New
York suit at this stage, in circumstances when it must be taken, on RBC’s own
case, that (a) the New York suit was properly commenced and (b) the New York suit
offered Rabobank perceived procedural advantages in terms of pre‑trial
discovery including oral depositions, which RBC itself has not before us sought
to deny; and when, further, (c) both parties have, subsequent to the
commencement of the English action, vigorously participated in the New York
suit over a very considerable period, without any agreement by Rabobank that
the New York suit should not go to trial, (d) the New York court was asked to
stay its own proceedings on grounds of forum non conveniens and refused in
early 2003 in a decision upheld on appeal in June 2003 and (e) the New York
trial date has now been fixed in the ordinary course of the New York court’s
practice in relation to such a suit, as far as the New York judge is
concerned.” [¶¶ 47-48]
Citation: Royal Bank of
Canada v. Cooperatieve Centrale Raiffeisen ‑ Boerenleenbank BA, [2004] E.W.C.A.
Civ. 07, [2004] All E.R. (D) 216 (Jan. 24) (Approved judgment).
**** Mr. Richard Ehrlich is a specialist in Corporate, Estate and Personal Financial Planning in Florida. In the course of his career, he has prepared hundreds of estate plans and helped hundreds of small businesses navigate the various issues involving insurance, retirement and employee retention. He has helped numerous families deal with the difficulties of taking care of elderly relatives and assisted with all of their long-term planning and long-term care needs. Finally, he has helped investors with their losses in unsuitable investments. LinkedIn Profile: https://www.linkedin.com/in/richard-ehrlich-777b513/; Attorney Profile: http://www.eldercounsel.com/profile/richard-ehrlich-ehrlich-law-center-pa/; Attorney Profile: https://solomonlawguild.com/richard-ehrlich%2C-esq; Attorney News: https://attorneygazette.com/richard-ehrlich%2C-esq#c35a1098-f039-43ab-b0dc-06cff6dabf61
