#4986 - Global Partners Fund Ltd V. Babcock And Brown - Conflict of Laws BCL

Global Partners Fund Ltd v. Babcock and Brown (Australia)

Facts

The applicant (GPF) is the managing general partner of an investment scheme (the Partnership) constituted as a limited partnership under the Limited Partnership Act 1907 (UK). In proceedings instituted in the Commercial List of this Court, GPF sought to recoup from the respondents losses allegedly suffered by the Partnership on an investment made prior to GPF becoming the managing general partner.

The first respondent, Babcock & Brown Limited (in liquidation) (BBL) was at all relevant times the holding company of the Babcock & Brown Group (BB Group). The second to fourth respondents (BBI, BBGUP and BBUS) were, at all relevant times, BB Group members.

BB Group made an investment by the Partnership of approximately 52 million (US$70 million) in the acquisition of Coinmach Service Corporation (Coinmach), a Delaware company. In 2007, a “deal team” within the BB Group (BB Coinmach Deal Team) identified and developed a proposal to acquire Coinmach. In June 2007, approval was given on behalf of the Partnership to invest approximately US$70 million of the Partnership’s money in the acquisition of Coinmach. The Partnership was to make its investment as part of a consortium that included other BB Group entities or associates, together with the Royal Bank of Scotland (RBS). In or about November 2007, RBS decided that it did not wish to proceed with the Coinmach acquisition. RBS proposed to the BB Coinmach Deal Team that the consortium withdraw from the Coinmach acquisition, on the basis that RBS would pay the whole of the Cancellation Fee. The BB Coinmach Deal Team rejected the RBS Proposal and instead negotiated with RBS and Coinmach an arrangement which enabled the Coinmach acquisition to complete on 20 November 2007.

GPF alleges that the completion of the transaction was delegated to the BB Coinmach Deal Team (which included, or was supervised by, relevant BB Group senior executives), and that the conduct of the BB Coinmach Deal Team, in rejecting the RBS Proposal and proceeding with the investment, involved: (i) a failure to obtain fully informed consent from the Partnership; (ii) failure to disclose material facts that the Partnership was entitled to know before proceeding; (iii) a failure to act strictly in the interests of the Partnership, and with reasonable care and diligence.

GPF’s case is that BBL, BBI and BBUS are responsible at law for the conduct of the BB Coinmach Deal Team. Each of BBL, BBI, BBUS and BBMGP is therefore said to be liable for breach of fiduciary duty (as principal or accessory) and for breach of a common law duty of care to the Partnership.

Furthermore, on 23 December 2009 solicitors acting on behalf of “The Babcock & Brown Group” wrote a Pre-Action Letter to GPF in accordance with the English Civil Procedure Rules, foreshadowing proceedings by BBMGP to recover amounts claimed to be due as management fees and compensation for termination of its appointment as managing general partner of the Partnership.

On 29 January 2010 GPF commenced the proceedings in this Court. On that same day solicitors for GPF in London replied to the Pre-Action Letter disputing BBMGP’s entitlement to management fees and termination compensation, in large measure, on the basis of the conduct raised in the proceedings in this Court.

On 1 February 2010 BBMGP, BBI and BBUS commenced proceedings in the Commercial Court, Queens Bench Division of the High Court of Justice seeking recovery of management fees and compensation for termination. Going beyond the Pre-Action letter, the applicants in those proceedings also sought a negative declaration to the effect that they had not breached any duties owed, and had no liability to, the Partnership and GPF in relation to the Coinmach transaction. All respondents, other than BBL, have submitted to the jurisdiction of the English courts.

With respect to the negative declarations sought in London, I note that in the proceedings in this Court, GPF seeks to agitate the claims for management fees and termination compensation by means of a similarly negative pleading.

Limited Partnership Agreement

Of particular relevance to these proceedings is the “exclusive jurisdiction” clause in cl 18.11 of the Limited Partnership Agreement. That provision is in the following terms:

“This Agreement and the rights, obligations and relationships of the parties hereto under this Agreement and in respect of the Private Placement Memorandum shall be governed by and construed in accordance with the laws of England and all the parties irrevocably agree that the courts of England are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Agreement or the Private Placement Memorandum or the acquisition of Commitments, whether or not governed by the laws of England, and that accordingly any suit, action or proceedings arising out of or in connection with this Agreement or Private Placement Memorandum or the acquisition of Commitments shall be brought in such court.”

BBL, BBI and BBUS are not parties to the LPA. However, they are members of the “Babcock and Brown Group” as defined in the LPA and as referred to in the Private Placement Memorandum.

Arguments

GPF accepted that cl 18.11 applied to some of the issues which arise between GPF and BBMGP. BBMGP is a party to the LPA and issues such as those which arise with respect to its claim for fees and termination compensation are clearly encompassed within cl 18.11.

However, in the case of all defendants, GPF contended that its causes of action, other than those involving the termination of BBMGP, do not “arise out of or in connection with” the LPA, by reason of the fact that they depend on rights created at law, rather than by the contract.

Furthermore, GPF maintained its contention that BBL, BBI and BBUS are not parties to the LPA and, for that reason, cl 18.11 does not apply to any of the claims made against them.

Holding

Disputes fall within the Scope of the Jurisdiction Clause

I cannot see how the words “in connection with” can be read down so as not to extend to claims of the character referred to in the immediately preceding paragraphs. Such an interpretation may have been available if the clause went no further than referring to disputes which “may arise out of” the LPA, although I am inclined to the view that it would respond. However, the addition of the words “in connection with” make it clear that so narrow an interpretation cannot be adopted.

The breadth of the parties’ intention is reinforced by the application of the exclusive jurisdiction clause beyond disputes arising under or in connection with the LPA itself, to encompass any disputes “which may arise out of or in connection with … the Private Placement Memorandum or the acquisition of Commitments”. With respect to each Limited Partner the conclusion is further reinforced by the repetition of the same exclusive jurisdiction clause in cl 15 of the Deed of Adherence and by the addition in that clause of “proceedings arising out of or in connection with” the Deed of Adherence itself.

These extensions clearly encompass the full range of proceedings that could be launched in the broad range of jurisdictions from which investors could come with respect to the original investment, as well as the conduct of the affairs of the Partnership.

Furthermore, cl 18.11 states that disputes are to be dealt with in the English courts “whether or not governed by the laws of England”. The contract is, by the very same clause, governed by the laws of England. The clause expressly contemplates disputes governed by foreign law. Accordingly, the words “in connection with” are clearly intended to extend exclusive jurisdiction beyond disputes under the contract.

Following Fiona Trust Reasoning: Finally, in my opinion an exclusive jurisdiction clause should be interpreted in the same liberal manner as is authoritatively established with respect to arbitration clauses. The two kinds of clauses have frequently been treated as legally cognate and authorities on the scope of arbitration clauses are frequently cited in authorities on exclusive jurisdiction clauses. In both cases, all disputes which, as a matter of substance, arise from the contractual relationship between the parties are intended to be determined by the same tribunal. It is not appropriate to give general words in such a commercial context a narrow interpretation, with the consequence that some disputes which, in a practical sense, arise from the contractual relationship could be determined by courts or tribunals other than that to which the parties have agreed to submit their disputes.

This approach reinforces the conclusion to which I have come on the basis of the natural and ordinary meaning of the words “in connection with”. The approach is especially apt in the context of a contract with an international dimension.

A significant purpose of an exclusive jurisdiction clause is to ensure that all disputes are determined in a coherent manner by a single jurisdiction. There is a clear commercial interest in minimising the possibility of a dispute being determined by multiple tribunals, with the consequent prospect of divergent findings. Furthermore, the parties, in advance, have determined that a particular jurisdiction is acceptable to them, both in terms of the speed and efficacy of its civil dispute resolution procedures and for the competence and skill of its judges and lawyers. A party to such a clause should be held to its...