Kwok & Ors v UBS AG (London Branch)

Factual and Procedural Background

This appeal concerns the interpretation of articles 5(3) and 5(5) of the Lugano II Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters. The Defendant is the London branch of Company A, a Swiss company domiciled in Switzerland. The Defendant contended it could only be sued by two of the three Claimants in Switzerland. The Claimants relied on articles 5(3) and 5(5) to establish special jurisdiction in England and Wales. The trial judge accepted the Claimants' submissions and dismissed the Defendant's jurisdictional challenge. The appellate court was tasked with deciding whether this was correct.

The proceedings were issued before the end of the United Kingdom’s EU exit implementation period, making Lugano II applicable despite the UK’s withdrawal from the EU.

The factual background involves a complex investment transaction. The Claimants allege they suffered losses from a loss-making investment made in reliance on negligent misstatements or advice given by an employee of Company A in Hong Kong concerning how Company A London would act in the event of default. The investment was made via a co-investment agreement involving multiple entities and governed by Hong Kong law, with financing provided by Company A London under English law agreements. The loss manifested when Company A London enforced the financing agreements and sold shares held in a secured account in London, resulting in substantial financial loss to the Claimants.

Legal Issues Presented

1. Whether London was "the place where the harmful event occurred" for the purposes of article 5(3) of Lugano II, thereby conferring jurisdiction in England and Wales.
2. Whether the dispute arose "out of the operations" of the Defendant’s London branch under article 5(5) of Lugano II, justifying jurisdiction in England and Wales.

Arguments of the Parties

Defendant's Arguments

• The proper test under article 5(3) is generally the place where the claimant entered into the transaction or, as an exception, the location of the bank account from which funds were applied, subject to special connecting factors.
• The judge misapplied the law by focusing on where the damage crystallised rather than where the transaction was entered into or where the loss initially occurred.
• The Claimants’ losses occurred when the co-investment agreement was entered into in Hong Kong, not in London.
• The judge erred in concluding that the Defendant’s London branch had sufficiently and significantly participated in the tortious acts under article 5(5).
• The Claimants were not party to any agreement with the London branch, and the London branch did not make the alleged misstatements or act negligently.
• The test for jurisdiction under article 5(3) applied by the judge was vague, indeterminate, and conflicted with core principles of Lugano II.

Claimants' Arguments

• The harmful event occurred in London when Company A London sold the shares, crystallising the loss.
• The dispute arises out of the operations of Company A London because the London branch was the relevant contractual counterparty and its conduct caused the actionable loss.
• The judge’s interpretation of articles 5(3) and 5(5) correctly reflected the facts and applicable law.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook an autonomous interpretation of Lugano II to ensure uniform application and strict construction of exceptions to general jurisdiction rules. The court analysed the factual matrix of the case and the applicable CJEU jurisprudence concerning the place of damage under article 5(3) and the meaning of arising "out of the operations" under article 5(5).

Regarding article 5(3), the court agreed with the trial judge that the relevant place of damage is where the harm manifests itself, not necessarily where the transaction was entered into or where the claimant felt the economic effect. The court found that the harmful event occurred in London when the Defendant’s London branch sold the shares, crystallising the loss. The indirect nature of the Claimants' interest did not negate the connection to London. The court rejected the Defendant’s argument that the loss occurred when the co-investment agreement was entered into in Hong Kong, considering such an approach overly technical and inconsistent with the purpose of article 5(3).

The court examined key CJEU cases and found that no universal test applies to all financial loss cases; the place of damage depends on the facts and connecting factors. The court emphasised foreseeability of suit and the existence of a close connecting factor with the jurisdiction.

Regarding article 5(5), the court considered the CJEU’s flyLAL decision and concluded that the dispute arose out of the operations of the Defendant’s London branch. It found sufficient nexus and significant participation by the branch in the tortious acts, as the London branch was the contractual counterparty, its policies were the subject of alleged misstatements, and its conduct caused the actionable loss.

The court rejected the Defendant’s contention that the branch’s participation was insufficient, noting that essential elements of the claim arose from the London branch’s actions.

Holding and Implications

The court DISMISSED the appeal on all grounds.

The direct effect of this decision is that the English court has jurisdiction under articles 5(3) and 5(5) of Lugano II to hear the claims brought by the Claimants against the Defendant’s London branch. The ruling confirms that the place where damage crystallises and the branch’s significant participation in the tortious acts are determinative factors in establishing special jurisdiction under Lugano II. No new precedent beyond the application of existing CJEU case law was set, but the decision provides clarity on the application of articles 5(3) and 5(5) in complex financial loss cases involving indirect investments and cross-border elements.