Jp Morgan V. Primacom Notes

JP Morgan v. Primacom (2005)

Facts

JP Morgan acts as Agent for a number of banks (the SSLs) under a Second Secured Facility Agreement dated 26 March 2002, which provided for a term loan facility in the amount of 375 million (the SSFA). PAG is the borrower under the SSFA and on-lent the sums advanced to it to PMG, which is the guarantor of the loan made by the SSLs.

The SSFA is specifically governed by English law and contains an exclusive jurisdiction clause in favour of the courts of England and Wales. In addition the parties expressly agreed that England was the forum conveniens.

Default by Primacom Group: On 30 June 2004 PAG failed to make an interest payment as required under the SSFA but because of an agreement between the SSLs and Primacom's senior lenders under the Senior Credit Facility, the SSLs were subject to a 60-day standstill period during which they were not to take action to enforce payment of interest due.

Pre-emptive proceedings by Primacom in Germany: On 9 December 2004, without any prior notice, Primacom issued a press release stating that it had issued proceedings in Mainz, and on 22 December 2004 it issued a further press release stating that it had issued proceedings in Frankfurt. As a matter of English law it is clear that both these proceedings were commenced in breach of the exclusive jurisdiction clause and the evidence suggests that this was done with the primary intention of frustrating any possible attempt by JP Morgan and the SSLs to seek appropriate relief in the English courts in accordance with that jurisdiction clause.

Attempts to sell off assets: By clause 20.2.5 of the SSFA, Primacom is prevented from selling certain assets without first obtaining the consent of an instructing group of the SSLs. Primacom Netherlands Holdings BV and NV Multikabel (collectively Multikabel) are together Primacom's most valuable asset and significant source of cash flow. From early September 2004 press reports and market rumours indicated that Primacom was intending to dispose of Multikabel without first obtaining the consent of an instructing group of SSLs.

English proceedings by JP Morgan: As a result of concerns over any possible sale of Multikabel, before being served with any German proceedings, JP Morgan commenced proceedings in England on 23 December 2004, seeking an order preventing disposal without the contractual consent required ("the Injunction Proceedings"). In the next two weeks, Primacom's solicitors in London gave assurances that Primacom had no intention of disposing of Multikabel without the required consent and stated that there was nothing going on behind the scenes that should cause JP Morgan any concern. On 7 January, however JP Morgan received a letter from PAG questioning the need for the SSLs' consent to any sale of Multikabel. In consequence, on 10 January JP Morgan sought and obtained an interim injunction substantially in the terms of clause 20.2.5 of the SSFA.

Receiving no clarification from PAG, on 14 January 2005 JP Morgan on behalf of the SSLs, commenced proceedings seeking declarations to the effect that the SSLs were entitled to withhold consent to the proposed sale of Multikabel. The Injunction Proceedings were subsequently amended to include the request for declaratory relief and a further more specific interim injunction was obtained. It is to these proceedings that one of the stay applications relates.

Primacom’s application for stay: Primacom challenges the jurisdiction of the English court on the basis that Primacom has commenced proceedings in Germany in both Mainz and Frankfurt ("the German courts") and that these are the courts first seised of proceeding involving the same cause of action as the three sets of English Proceedings. Primacom seek a stay in reliance on article 27 or alternatively article 28 of Council Regulation 44/2001 (the Brussels Regulation). JP Morgan and the SSLs resist the application for a stay on either basis but also maintain that they are entitled to maintain the injunctions preventing the disposal of Multikabel on an interlocutory basis under article 31 of the Brussels Regulation, even if a stay is granted.

Claim in the Mainz proceedings: It is common ground between the parties that the German court will apply English Law to the SSFA, as its governing law by reason of the express choice of law clause. No challenge is made to the validity of any of the provisions of the SSFA as a matter of English law but it is said that article 6 of the EGBGB applies so that English law will fall to be disapplied to the extent that it is contrary to the public policy of Germany. The German court will therefore concern itself not with questions of validity of the SSFA but questions of its enforceability or unenforceability to the extent that it infringes public policy.

Frankfurt proceedings: These pledge agreements are part of the security for the performance of PAG's obligations under the SSFA and Primacom's arguments are based on the premise that, under German law, a pledge does not exist if the claim which its secures is invalid. The pledges are said to be unenforceable as long as the claims secured by them are unenforceable. These proceedings are therefore entirely parasitic upon the Mainz proceedings.

Holding

Application of Art. 27

There is only one issue between the parties in relation to the application of this article and that is the question whether or not the English and German proceedings involve the same cause of action.

Mr Malek maintained that the German courts were the courts first seised and that the principles enunciated by the European Court of Justice (ECJ) meant that this court must stay the three sets of English proceedings until the German courts had determined their own jurisdiction in Mainz and Frankfurt. Despite the arguments of Mr Carr QC for JP Morgan, I hold that this is the effect of the decision of the ECJ in Erich Gasser GmbH v MISAT Srl Case C-116/02 [2005] 1 QB 1, if the causes of...

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