UK: Supreme Court Narrowly Interprets Exclusive Jurisdiction Provisions Of Brussels Regime Relating To Validity Of Corporate Decisions

Last Updated: 7 August 2019
Article by Anna Pertoldi, Maura McIntosh and Jan O'Neill

The Supreme Court has held that the English courts did not have exclusive jurisdiction to hear certain claims brought by an English subsidiary company against Turkish domiciled defendants, including its parent company: Akcil v Koza Ltd [2019] UKSC 40.

The judgment overturns the decision of the Court of Appeal and narrowly interprets article 24(2) of the recast Brussels Regulation. This provides that, where proceedings have as their object the validity of a company’s constitution or the decisions of its organs, the EU member state of that company’s seat will have exclusive jurisdiction over the proceedings, regardless of domicile.

The Supreme Court held that a mere link between a claim which engages article 24(2) and one which does not is not sufficient to bring both claims within the scope of the provision.

It has been established for a number of years that article 24(2) only applies where the principal subject matter of the proceedings is a company law matter, so it is not sufficient that some aspect of the case might concern the validity of a decision taken by a company if that is not the principal subject matter overall.

This decision makes clear that it is not legitimate to reverse that approach and find that, by virtue of an overall evaluative judgment in relation to two separate claims – one falling with the article when taken alone and the other not – both come within article 24(2) because the principal subject matter taken together is a company law matter. That would be an illegitimate expansion of the application of article 24(2).

Background

The case concerns a dispute over the ownership and control of a group of companies, the Koza Ipek group, set up by Mr Ipek and his family.

As part of a criminal investigation in Turkey into alleged financing of terrorism, a Turkish court appointed certain individuals as trustees of a number of companies in the group, including Koza Altin, a Turkish plc. The trustees were given power to control the affairs of those companies in place of the existing management.

The trustees then caused Koza Altin to serve a notice on its English subsidiary, Koza Ltd, under section 303 of the Companies Act 2006, requiring the directors to call a general meeting to consider resolutions for their removal and replacement with three of the trustees. No meeting was called, so Koza Altin served a notice pursuant to section 305 of the 2006 Act to convene a meeting to consider those resolutions.

In response, Mr Ipek and Koza Ltd sought injunctive relief from the English court on two grounds:

  • “The English company law claim” – The notices were void as under Koza Ltd’s constitution and share structure the consent of Mr Ipek and his brother were required before there could be any change of directors or changes to the company’s articles.
  • The authority claim” –The notices were void on the basis that the English courts should not recognise the authority of the trustees to cause Koza Altin to do anything as a shareholder of Koza Ltd, as the appointment of the trustees was unlawful under Turkish law, was solely on an interim basis and was in breach of natural justice and/or article 6 of the European Convention on Human rights.

As regards jurisdiction, the claimants argued that the English courts had exclusive jurisdiction under article 24(2) of the recast Brussels Regulation against Koza Altin and the trustees in respect of both the English company law claim and the authority claim.

Article 24(2) gives exclusive jurisdiction to the courts of the member state where a company has its seat in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or the validity of the decisions of their organs. Article 24 takes priority over other jurisdiction grounds in the recast Brussels Regulation.

Injunctive relief was granted, proceedings were issued and Koza Altin and the trustees challenged the jurisdiction of the English court (save in respect of the English company law claim against Koza Altin where it was accepted the English court had jurisdiction).

At first instance Asplin J (as she then was) held that all the claims came within article 24(2) and this was upheld on appeal to the Court of Appeal (see our post on the Court of Appeal decision here).

Koza Altin and the trustees appealed to the Supreme Court with permission of that court.

Decision

The Supreme Court unanimously allowed the appeal, Lord Sales giving the judgment of the court.

The lower courts had been wrong, the court held, to find that the authority claim was inextricably linked with the English company law claim and that article 24(2) required the court to form an overall evaluative judgment as to what the proceedings were principally concerned with.

The court considered that the case law of the CJEU clearly established that article 24, as a derogation from jurisdiction based on domicile, had to be narrowly interpreted and a mere link between a claim which engages article 24(2) and one which does not is not sufficient to bring both claims within the scope of the provision.

The Court of Appeal had misapplied the decision in Berliner Verkehrsbetriebe (BVG), Anstalt des öffentlichen Rechts v JP Morgan Chase Bank NA (Case C-144/10) EU:C:2011:300; [2011] 1 WLR 2087. The effect of that decision was that it is not sufficient to come within article 24(2) that some aspect of the case requires assessment of a company law issue, if this is not the principal subject matter of the proceedings. So in that case, an ultra vires defence did not give exclusive jurisdiction to the German courts in a claim concerning an interest rate swap, where the swap contained an English exclusive jurisdiction clause.

Putting it another way, the Supreme Court said, the effect of the BVG decision was that an evaluative assessment of proceedings relating to a specific claim, taken as a whole, may show that the company law aspect was so bound up with other features of the claim that it could not be said that it was the "principal subject matter" of the proceedings, as required under article 24(2). It did not, however, follow from that decision that the reverse applied, so that it was legitimate to argue that by virtue of an overall evaluative judgment in relation to two claims taken together the second claim also came within article 24(2).

In the present case, the English company law claim and the authority claim were distinct claims which were not inextricably bound up together. The English company law claim could be brought without any need to get into the merits of the authority claim and vice versa. The principal subject matter of the authority claim concerned the validity of the decisions of a company, Koza Altin, which had its seat in Turkey.

The analysis could be tested by asking what the position would have been if Koza Altin had had its seat in a member state, for example Greece. Far from allocating exclusive jurisdiction to the English courts, the recast Regulation would have allocated exclusive jurisdiction over the authority claim against Koza Altin to the Greek courts.

So far as the trustees were concerned, the English courts had no jurisdiction over the trustees with respect to the authority claim as that claim was not within article 24(2). So far as the English company law claim was concerned, the trustees were not necessary parties to that claim, so the court again had no jurisdiction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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