Jurisdiction: “anchor” defendants in multi-party litigation

Key points

A claimant with a sustainable claim against an English anchor defendant can join a foreign defendant to the proceedings provided there is a close connection between the claims, even if the sole object of pursuing the English anchor defendant is to join the foreign defendant to the English proceedings.

The Court arrived at this conclusion by interpreting the provisions of the Lugano Convention which govern the important question of where a defendant can rightfully be sued. It was recognised that there was no binding authority on this point, either from the European or domestic English Courts. This decision therefore represents important clarification in this area of the law.

The Court cited several factors in support of its conclusion. However, a key aspect of the Court’s reasoning was that under the relevant provisions of Lugano, defendants can only be sued outside the jurisdiction in which they are domiciled if there is a close connection between the claims to be brought against them (wherever that might be) and the claims brought against the anchor defendants in the foreign proceedings.

The requirement that the claims be closely connected was deemed an important protection for defendants. It also serves the policy objective of avoiding satellite litigation and irreconcilable judgments in separate but connected proceedings.

This decision will likely have implications beyond the immediate case: it will affect the prospects of claimants successfully bringing together multi-defendant litigation before the English Courts in areas such as conspiracy or tort.

The Lugano Convention

The Lugano Convention determines jurisdiction in respect of disputes involving defendants based in a small number of jurisdictions, including Iceland, Norway or Switzerland. Although the Lugano Convention applies to only a handful of states, many of its provisions (including article 6) mirror those in the Recast Brussels Regulation. Therefore, its case law has potentially wider relevance.

Article 2 sets out the default position as to jurisdiction, and provides that defendants should be sued in the jurisdiction they are domiciled in. Article 6 provides an exception to this and states, among other things, that:

"a person domiciled in a State bound by this Convention may also be sued: (1) where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments from separate proceedings."

The facts

The claimant Ukrainian bank (the Bank) alleged that its former owners, two individuals domiciled in Switzerland, had fraudulently misappropriated around $1.9 billion from the Bank using loans and bogus supply agreements with the assistance of three English companies and two BVI companies controlled by Swiss-domiciled defendants.

The Bank brought a claim against the Swiss-domiciled defendants, the English companies and the BVI companies in the English courts, using the English companies as anchor defendants.

In 2018, the court declared that it did not have jurisdiction to hear the claim against the Swiss-domiciled defendants. This was on the basis that using the English companies as an anchor to bring the Swiss-domiciled defendants into the English jurisdiction was an abuse of article 6(1) of the Lugano Convention.

The Bank appealed the decision.

Court of Appeal decision

The court considered three key issues; the primary one being whether Article 6(1) of the Lugano Convention is subject to a requirement that a claim brought against a defendant must not be brought for the sole object of joining a defendant domiciled in another state to the proceedings.¹

By a majority decision, the court overturned the first instance decision.

It was concluded that provided a claimant has a sustainable claim against an anchor defendant, which it intends to pursue to judgment in proceedings to which a foreign defendant is joined as a co-defendant facing claims that are closely connected to those against the anchor defendant, that claimant is entitled to rely on Article 6(1) even if the sole object in issuing those proceedings against the anchor defendant is sue the foreign defendant in the same proceedings.

The requirement in Article 6(1) that the two claims are closely connected was considered sufficient to prevent most potential abuses of that provision. It was accepted that an abuse of Article 6(1) can arise in some narrow circumstances where the close connection requirement is artificially fulfilled. However, the Court noted that claimants may have other valid reasons for pursuing English anchor defendants - for example a desire to obtain their documents through disclosure in support of the overall claim - and such arguments are likely to be used by claimants that are seeking to justify the use of anchor defendants to establish English jurisdiction.

Furthermore, the court reasoned that to analyse a claimant’s motivations in commencing proceedings when applying Article 6(1) would introduce an undesirable degree of uncertainty into jurisdictional issues in which there is obvious value in certainty and predictability.

Practical implications

This decision has provided useful clarification regarding the application of Article 6(1) Lugano Convention by affirming that the sole object test does not apply. As mentioned above, this has potentially wider relevance to international disputes carried out in Recast Brussels Regulation member states.

It is possible that this decision may give rise to an increased use of anchor defendants to found jurisdiction outside of the Member State of the primary defendants. Those involved in cross-border disputes should consider whether the provisions of Article 6(1) of the Lugano Convention (or indeed its corresponding provision, Article 8(1) of the Recast Brussels Regulation) validly allow for joining a non-domiciled defendant to the proceedings.

¹ _{The other issues considered by the court were whether the English proceedings should be stayed in favour of Ukrainian proceedings, and whether there had been a material non-disclosure by the Bank when applying for a freezing order that the court had granted against the Defendants.}