Citigroup Global Markets Ltd v Amatra Leveraged Feeder Holdings Ltd & Ors

The claimant (CGML) sought a series of negative declarations concerning duties, misrepresentation and liability in respect of Option Transactions and related structuring services. The court considered whether it should permit service out of the jurisdiction and whether it should exercise its inherent jurisdiction to stay proceedings in favour of a FINRA arbitration and related litigation in the United States.

The court applied the usual requirements for the exercise of the exorbitant jurisdiction: a jurisdictional gateway, a merits threshold (a serious issue to be tried), and forum conveniens, together with the discretionary considerations that attend negative declarations (utility and avoidance of inappropriate forum shopping). The mandatory nature of the FINRA arbitration regime and the risk of interfering with that regulatory scheme were treated as weighty considerations.

Key holdings: the court set aside permission to serve out of the jurisdiction so far as it related to the "affiliate" declarations (claims which, in substance, sought to determine or affect the position of CGML's U.S. affiliate CGMI) because those claims did not satisfy the merits/utility requirement and amounted to inappropriate forum shopping; the court held that AA was not a proper party to the remaining claims and set aside service on him; the remaining non-affiliate claims were stayed as an exercise of the court's discretion because of the risk of prejudicing the FINRA regime and duplicative proceedings.

Background and parties. CGML (an English company in the Citigroup group) entered Option Transaction agreements and related Structuring Services letters with two corporate defendants (Amatra and Ajial) which were Jersey and Cayman Islands vehicles connected with a wealthy Saudi family (AA and GA). The contracts incorporated the ISDA Master Agreement, were governed by English law and contained jurisdiction clauses. GA also signed a non-reliance letter. The defendants initiated a FINRA arbitration in the United States against CGMI (CGML's United States affiliate). CGML issued proceedings in England seeking negative declarations that CGML and its affiliates (other than Citibank (Switzerland)) owed no duties or liabilities in respect of the Transactions and that disputes under the Structuring Services letters were subject to the exclusive jurisdiction of the English courts.

Nature of the application. The court was asked to determine challenges to jurisdiction by the corporate defendants and by GA and AA and, alternatively, to stay the English proceedings pending the outcome of the FINRA arbitration or the related New York proceedings concerning whether the FINRA claims were arbitrable.

Issues framed. (i) Whether the English court could properly exercise its exorbitant jurisdiction to permit service out of the jurisdiction for the declarations (jurisdictional gateway). (ii) Whether the claims met the merits threshold (a serious issue to be tried) and whether the negative declarations would be useful. (iii) Forum conveniens and the exercise of discretion to grant service out or to stay proceedings given the existence and mandatory character of the FINRA arbitration regime.

Court’s reasoning and conclusions. The court emphasised that, beyond satisfying gateway rules and the merits threshold, requests for negative declarations are scrutinised for utility and to prevent forum shopping. The FINRA regime is mandatory for US broker-dealers and their customers; the court must avoid unwarranted interference with that regulatory scheme. The so-called "affiliate" declarations, which sought to determine the position of CGMI and other affiliates by reference to agreements between CGML and the corporate defendants, were in substance directed to disputes between the defendants and CGMI and would not be a useful or appropriate exercise of the English exorbitant jurisdiction. The judge therefore set aside permission to serve out in relation to those affiliate claims. The court also held that AA was not a proper party to the proceedings and set aside service on him. For the remaining non-affiliate claims (claims directed to CGML itself), the court exercised its discretion to stay the proceedings pending resolution of the FINRA arbitration (if allowed to proceed) because of the unusual and compelling circumstance of the mandatory regulatory arbitration regime and the risk of interference and duplication.

Relief sought and disposition. CGML’s permission to serve out was set aside in respect of the affiliate declarations; AA was removed as a defendant; the remaining claims were stayed pending determination of the FINRA arbitration (or, as appropriate, the New York proceedings determining arbitrability).

This was a first instance determination. The court allowed the defendants' jurisdictional challenges in part. Permission to serve out of the jurisdiction was set aside insofar as it related to the affiliate declarations (those claims were refused permission because they did not satisfy the merits/utility requirement and amounted to inappropriate forum shopping). AA was held not to be a proper party and service on him was set aside. The court exercised its discretion to stay the remaining non-affiliate claims because of the mandatory nature of the FINRA arbitration regime and the risk of prejudicing that regime and of duplicative proceedings.