Mastermelt Ltd v Siegfried Evionnaz SA: The return of the Italian torpedo?

Published: 12/5/2020

In a recent case before the High Court, Mastermelt Ltd v Siegfried Evionnaz SA [2020] EWHC 927 (QB), a dispute arose over whether the Swiss or English were required to stay their proceedings in circumstances where claims had been issued in both jurisdictions, pursuant to the Lugano Convention 2007.

The court had to consider whether the provisions in Article 27 of the Lugano Convention, which deal with related actions in multiple member states (lis pendens), should be interpreted in a way that was consistent with the provisions of Article 31(2) of the Recast Brussels Regulation relating to exclusive jurisdiction clauses. 

It was held that no such exception can be implied or read in to the Lugano Convention.

This case is a useful reminder of the differences between the Lugano Convention and the Recast Brussels Regulation. Under the former, where there is an exclusive jurisdiction clause in favour of one particular country's courts and proceedings have been commenced first in another country's courts and latterly in the courts agreed in the jurisdiction clause, the courts first seised should be the ones to determine whether they have jurisdiction. Any second seised court should stay its proceedings pending determination of that issue by the first seised court. This is what used to happen under the Brussels Regulation, before it was recast. In contrast, under the Recast Brussels Regulation, the presence of an exclusive jurisdiction clause means that the proceedings in the chosen courts can continue and it is the other proceedings which should be stayed.

This leaves open the possibility under the Lugano Convention for the so called "Italian torpedo" – the tactic of commencing proceedings in a country which has a reputation for having a slow justice system, notwithstanding an exclusive jurisdiction clause in favour of another country's courts, with the aim of frustrating and delaying the other party's claim.

The judgment is available here

Mastermelt Ltd v Siegfried Evionnaz SA: the facts

A dispute arose between Mastermelt, an English company specialising in the reclamation of precious metals (the Claimant in the English proceedings), and Siegfried Evionnaz ("Siegfried"), a Swiss company that manufactures pharmaceutical ingredients using catalysts made of precious metals (the Defendant in the English proceedings).

Mastermelt performed reclamation services for Siegfried in 2018.  Siegfried's standard terms and conditions contained an exclusive jurisdiction clause in favour of the Swiss courts.

A dispute arose as to the quality of Mastermelt's performance, prompting Siegfried to threaten to commence proceedings in the Swiss courts.

Mastermelt pre-emptively issued a claim in England seeking negative declaratory relief. It argued that the parties had not contracted on the basis of Siegfried's terms and conditions and therefore the jurisdiction clause in favour of the Swiss courts did not apply. 

Siegfried subsequently issued proceedings in the Swiss courts and applied to the English court seeking an order that it had no jurisdiction, and so service of the claim should either be set aside or alternatively the claim should be stayed.   

Mastermelt applied to the Swiss court seeking (amongst other things) to stay those proceedings pending a decision on Siegfried's application in the English proceedings on the basis that, pursuant to Article 27 of the Lugano Convention, the English court was first seised of the dispute.

The Lugano Convention provides at Article 27:

"1. Where proceedings involving the same cause of action and between the same parties are brought in courts of different states bound by this Convention, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established.

2. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court."

Mastermelt's application in the Swiss proceedings was heard first. The Swiss court refused the application on the basis that, due to the principle of harmonisation, Article 27 of the Lugano Convention should be interpreted so as to have the same effect as Article 31(2) of the Recast Brussels Regulation.

Article 31(2) of the Recast Brussels Regulation provides:

"Where a court of a member state on which an agreement, as referred to in Article 25, confers exclusive jurisdiction is seised, any court of another member state shall stay the proceedings until such time as the court seised on the basis of the agreement declares that it has no jurisdiction under the agreement."

This meant the Swiss courts were not bound to stay the proceedings there, notwithstanding that these had been commenced after proceedings relating to the same dispute had been commenced in England. (This decision of the Swiss courts is subject to an appeal.)

Siegfried's application in the English proceedings for service of the claim to be set aside or alternatively for the proceedings to stayed then came before the English courts. In that application, Siegfried sought to argue that:

  1. The English court was bound by the Swiss court's decision and the court should automatically stay Mastermelt's claim until the Swiss court had decided the question of its own jurisdiction, based on a decision of the Court of Justice of the European Union, Gothaer v Samskip [2013] QB 548; and

  2. Article 27 of the Lugano Convention had to be read in light of Article 31(2) of the Recast Brussels Regulation and therefore the English proceedings (which were first seised) should be stayed based on the exclusive jurisdiction clause (the same argument which had been accepted by the Swiss courts). In order to reach this conclusion, Siegfried argued that the previous decision of the Court of Justice of the European Union in Gasser v MISAT [2005] 2B1 (where it had been held that the lis pendens provisions in Article 17 of the Brussels Convention applied so as to give priority to the court first seised, even where there was an exclusive jurisdiction clause purportedly in favour of the court second seised) had effectively been rendered obsolete by the new wording included at Article 31(2) of the Recast Brussels Regulation. Since that decision is now obsolete, Siegfried argued, there is no reason why an appropriate carve-out from Article 27 of the Lugano Convention, to the same effect as Article 31(2) of the Recast Brussels Regulation, should not be made. 

The English Court's judgment

The English court held that it was not bound by the Swiss court's interpretation of Article 27. The nature of the Swiss court's decision had been the interpretation of a Lugano Convention provision which had resulted in a refusal to stay its own proceedings; it had not yet ruled on the validity of the exclusive jurisdiction clause. The nature of the Swiss court's decision was therefore too remote to be binding on the English court, and the English court could and should interpret Article 27 for itself.

It also held that the principle of harmonisation did not mean that Article 27 of the Lugano Convention could be expanded so as to be interpreted to the same effect as Article 31(2) of the Regulation. Accordingly, the court was not obliged to stay the claim and await the Swiss court's decision on the exclusive jurisdiction clause.

Nevertheless, the English court held that there was a valid exclusive jurisdiction clause in favour of the Swiss courts and therefore the English proceedings should be either dismissed or stayed.

Comments

This case is particularly significant given the UK's current Brexit plans.  Whilst at present, the Lugano Convention applies between the UK (as an EU member state) and Norway, Iceland and Switzerland, on 8 April 2020 the UK applied to accede to the Lugano Convention from 31 December 2020, at the end of the Brexit transition period. Assuming all goes to plan (which may not happen - according to a recent Financial Times report, Brussels have told EU governments that there are clear grounds for rejection: see the article here - subscription required), the Convention will have far wider application from the UK's perspective, as it will govern questions of jurisdiction and the recognition and enforcement of judgments in civil and commercial matters between the UK and all EU member states, in addition to Norway, Iceland and Switzerland. The Convention will therefore effectively take the place of the current provisions in force between the UK and EU member states regarding jurisdiction – the Recast Brussels Regulation.

This case serves as a timely reminder that whilst the Lugano Convention contains many provisions which are similar to the Recast Brussels Regulation, there is one significant difference: it does not contain the same exception to the lis pendens rule that exists in the Recast Brussels Regulation to cover exclusive jurisdiction agreements.

In a post-Brexit world, therefore, litigants and practitioners will need to be wary of the resurgence of the dreaded Italian torpedo.

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