Exclusive jurisdiction: Akçil and others v Koza Ltd and another and the narrow interpretation of the Recast Brussels Regulation

It is axiomatic that the question of jurisdiction is fundamental to all litigation, notwithstanding the fact that in many cases it is never raised or considered by the parties. Where it is in issue, it can dominate the time and resources of the parties before a single other point has been addressed. That was the situation in Akçil and others v Koza Ltd and another, in which case the Supreme Court’s determination ended over three years of litigation on a jurisdictional issue concerning the appropriate construction of Article 24(2) of the Brussels I Recast Regulation (Regulation (EU) No 1215/2012) (the Recast Brussels Regulation).

In the process, the court provided welcome guidance on the correct interpretation of the Recast Brussels Regulation, but the case also serves as a helpful reminder that jurisdictional challenges and the law surrounding them deserve careful consideration by all commercial lawyers.

Article 24 of the Recast Brussels Regulation operates as an exception to the general rule, contained in its Article 4, that defendants shall be sued in the member state of their domicile by conferring exclusive jurisdiction on the courts of a member state in certain situations. Article 24(2) provides that:

“… 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, [exclusive jurisdiction is conferred on] the courts of the member state in which the company, legal person or association has its seat…”

Akçil v Koza concerned two substantive claims relating to the internal management and constitution of an English company. The first went to the validity of notices purportedly served by one of its shareholders, a Turkish-incorporated company, to convene a general meeting for the purpose of considering proposed resolutions to remove the present board under sections 303 and 305 of the Companies Act 2006. The parties agreed that this fell squarely within the jurisdiction of the English courts under Article 24(2).

The second claim concerned the authority of the trustee directors of the Turkish corporate shareholder in causing the notices to be served. The respondents/claimants contended that it would be contrary to English public policy to recognise such authority because the trustee directors had been appointed only on an interim basis and, further, in breach of Turkish law, natural justice, and the European Convention on Human Rights.

The appellants/defendants contended that the question of the trustee directors’ authority was a matter of Turkish company law. The appeal thus concerned the appellants/defendants’ challenge to the English jurisdiction in respect of the second claim.

Both the High Court and Court of Appeal approached Article 24(2) by viewing the proceedings as a whole. In the High Court, the judge found that the authority of the trustee directors was inextricably linked with the purported service of the notices. As the validity of service under the Companies Act 2006 was held to be the principal subject matter of the proceedings, it followed that both claims fell within Article 24(2). The Court of Appeal took a similar view, finding that Article 24(2) requires the court to form an “overall evaluative judgment” as to the principal subject matter of the proceedings as a whole.

The Supreme Court found this approach was grounded in an “impermissibly wide” interpretation of Article 24; as a derogating provision from the general rule under Article 4, Article 24 was to be construed narrowly. Therefore, although proceedings may involve several claims that are linked, it is insufficient for the purposes of Article 24(2) that a claim merely involves some connection to a decision made by an organ of a company.

There was no hiding the fact that, although the two claims were linked in the sense that he Turkish company was a shareholder in the English company entitled to serve notices under the Companies Act 2006 and the trustee-directors caused the Turkish company to serve such notices, the question of whether they had validly done so according to the constitution of the Turkish company was clearly a matter of Turkish company law.

Had Turkey been a member state bound to apply the Brussels regime, the Turkish courts would have been conferred exclusive jurisdiction. That Turkey is not a member state did not detract from the conclusion that the English courts could not have jurisdiction under the Recast Brussels Regulation.

The appellants/defendants’ challenge to the jurisdiction in respect of the second claim therefore succeeded.

The timeline

A review of the decisions of the courts below in this case reveals the following chronology:

16 August 2016 – The claim form is issued, and an ex parte injunction granted to prevent the appellants/defendants from convening a general meeting under the Companies Act 2006.

31 August 2016 – Service of particulars of claim.

14 September 2016 – Acknowledgment of service, stating the appellants/defendants intention to contest the jurisdiction.

28 September 2016 – Consent order extending various deadlines in relation to the directions for the hearing of the proposed jurisdiction application, with the appellants/defendants expressly reserving their right to challenge the jurisdiction.

7 October 2016 – The jurisdiction application is issued.

3 November 2016 – A further consent order extending deadlines; the appellants/defendants again expressly reserve their right to challenge the jurisdiction.

9 November 2016 – An amended reply and defence to counterclaim are served subject and without prejudice to the respondents/claimants’ right to impugn the authority of the trustee directors to cause the Turkish company to serve the defence and counterclaim and apply for strike out on that basis.

10 November 2016 – Directions in relation to the jurisdiction application, the strike out application, and other case management issues.

14-16 December 2016 – Hearing in the High Court.

21 December 2016 Judgment of the High Court.

13-14 September 2017 – Hearing before the Court of Appeal.

18 October 2017 Judgment of the Court of Appeal.

19 March 2019 Hearing before the Supreme Court.

29 July 2019 Judgment of the Supreme Court.

The foundational nature of jurisdictional issues is stark from the timeline of these proceedings their litigation often consumes enormous amounts of time and resources (both for the parties and the courts) before any of the substantive issues in a case are settled. It is for this reason that the approach of the Supreme Court is to be welcomed: it signals a preference for a clear, reliable test for whether a matter will fall within the ambit of Article 24(2) of the Recast Brussels Regulation. The clearer the law on jurisdiction, the easier these mammoth battles will be to avoid.

Because jurisdiction will always be the first shot available to be fired in litigation, parties (or at least their representatives) should be acutely aware of the law surrounding it. If it is in your favour, it can be utilised to undermine the case you face from its most embryonic stage and practitioners should not shy away from mounting jurisdictional challenges. These should of course be deployed as early on in the proceedings as possible: we are all aware of the dangers of being found to have submitted to the jurisdiction of the English courts and to have lost a jurisdictional challenge for good. The time and expense invested in Akçil v Koza is a reminder of what a valuable asset that can be to surrender.

This article was first published by Practical Law.