Attorney William B. Blanchard reviews the case of UBS AG v. HSH Nordbank AG

ST. CHARLES, Ill. - Sept. 20, 2018 - PRLog -- Real Estate Lawyer William Blanchard publishes his first article in a series. In that article, he reviews the case of UBS AG v. HSH Nordbank AG, E.W.C.A. Civ. 585; WL 1657158. Mr. Blanchard provides an overview of the case. This appeal turns on the construction of jurisdiction clauses. The principal issue is whether the English jurisdiction clause in one of the documents recording the complex transaction between the parties applies to the claims in the action in England for the negative declaration. The English court of first instance concluded that it did not. This dispute concerns derivatives in relation to the property market, or Collateralized Debt Obligations (CDOs). The contractual documentation in this matter consists of more than 500 pages; its size and complexity, which is no doubt duplicated in many other transactions, make it easier to understand, if not to excuse, why many senior banking figures throughout the world had little understanding of this market and of the very high risks their institutions were undertaking.

HSH Nordbank AG (HSH) is a commercial bank incorporated in Germany with dual headquarters in Hamburg and Kiel. The first claimant, UBS AG, is incorporated in Switzerland, where it has its head office, and has substantial offices worldwide, including in New York and London.

The second claimant, UBS Securities LLC (UBS LLC), is an affiliate of UBS. It is incorporated in the United States and has its principal place of business here. The appellate court generally refers to either or both of them as "UBS."

The relevant transactions took place in 2002/2003 between UBS and LB Kiel. HSH has assumed all material assets, rights and obligations of LB Kiel, and it is in that capacity that HSH has sued UBS in New York state court and is being sued by UBS in England. HSH is domiciled in Germany for the purposes of Council Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Brussels I Regulation).

UBS filed its English action for negative declaratory relief against HSH on February 25, 2008, in anticipation of proceedings which HSH was going to lodge against UBS in New York later the same day. In its complaint, HSH alleged mis selling and mismanagement of the securities which were the subject of the complex arrangements between the parties. The original complaint relied on the following causes of action: breach of contract; fraud; negligent misrepresentation; breach of fiduciary duty; breach of an implied covenant of good faith and fair dealing; unjust enrichment; and constructive trust.

"The New York complaint alleges, inter alia, that (a) UBS induced HSH to purchase the NS4 Notes by misrepresentations concerning the credit quality of the Reference Pool to which payments under the NS4 Notes were linked; (b) UBS failed to operate a Commitments Committee, as required by the RPSA, so as to select Reference Pool assets with stable or improving credit profiles, carefully monitor the credit status and quality of each asset, and avoid downgrades. As Justice Lowe stated in his decision of October 21, 2008: 'HSH's overarching claim is that UBS failed to maintain the promised high quality of the notes in the Reference Pool, by failing to ensure that the Commitments Committee keep an eye on the condition of the investments.'" [¶ 89].

"Whether a jurisdiction clause applies to a dispute is a question of construction. Where there are numerous jurisdiction agreements which may overlap, the parties must be presumed to be acting commercially, and not to intend that similar claims should be the subject of inconsistent jurisdiction clauses. The jurisdiction clause in the Dealer's Confirmation is a 'boilerplate' bond issue jurisdiction clause, and is primarily intended to deal with technical banking disputes. Where the parties have entered into a complex transaction, it is the jurisdiction clauses in the agreements which are at the commercial centre of the transaction which the parties must have intended to apply to such claims as are made in the New York complaint and reflected in the draft particulars of claim in England." [¶ 95].

"The action in England is intended to mirror the New York proceedings. I have already emphasised that the essence of the claims for misrepresentation in New York is that HSH was induced to purchase the NS4 Notes in reliance on the fraudulent and negligent misrepresentations, and would not have purchased them in the absence of those representations. No sensible commercial interpretation of the jurisdiction clause in the Dealer's Confirmation could have the result that identical misrepresentation claims would fall both within that clause and within the non exclusive New York jurisdiction clauses, simply because the consideration for the transaction was the issue of the Kiel MTN Notes.

The Court concludes that the standard form bond issue jurisdiction clause in the Dealer's Confirmation does not apply to claims that the transaction as a whole, and in particular the purchase of the NS4 Notes, was induced by misrepresentation.

The complete commentary will be published on the Blog of Mr. Blanchard: https://williamblanchardblog.blogspot.com/

About William B. Blanchard

Mr. William Blanchard ("Bill Blanchard") is a solo practice attorney with offices in St. Charles and Oakbrook Terrace, Illinois.  Bill specializes in representing real estate clients for purchases and sales as well as home owner real estate tax assessment appeals.

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