Kwok Ho Wan & Ors v UBS AG (London Branch)

For special jurisdiction under article 5(3) of the Lugano Convention, financial damage occurs where the damage claimed actually manifests itself. No universal place-of-commitment or place-of-payment rule governs financial-loss cases. The inquiry is pragmatic and fact-sensitive. The loss must manifest in the jurisdiction, and the dispute must have connecting factors sufficiently close to justify special jurisdiction.

A tortious dispute arises out of a branch’s operations under article 5(5) where the branch actually participated in some of the actions constituting the alleged tort. A general test of sufficient nexus should not replace that requirement. Participation may exist where the branch’s transactions and subsequent conduct create the actionable loss, although the representations were made elsewhere.

Mr Kwok and Ace Decade alleged that they relied on negligent representations made in Hong Kong about how UBS’s London branch would exercise its rights under financing and security agreements. Ace Decade indirectly invested in shares acquired by Dawn State with funding that included a US$750 million loan from UBS London. When the share price fell, UBS London demanded repayment and sold the secured shares in London, leaving Ace Decade with a claimed loss of about US$495 million.

Cockerill J dismissed UBS London’s jurisdiction challenge in [2022] EWHC 245 (Comm). UBS London appealed. The issues were whether London was the place where the harmful event occurred under article 5(3) of the Lugano Convention and whether the dispute arose out of the operations of UBS London under article 5(5).

1. Appeal dismissed. London was the place where the harmful event occurred under article 5(3), and the claims arose out of the operations of UBS London under article 5(5). Carr LJ and Lord Burnett CJ agreed with the judgment of Sir Geoffrey Vos MR.
2. Article 5(3) requires an autonomous and pragmatic inquiry into where the damage claimed actually manifested itself. The CJEU authorities did not establish a universal rule that financial loss occurs where the claimant committed to the transaction, subject only to an exception for a payment account accompanied by special factors. Financial-loss cases are fact-sensitive. The loss must manifest in the jurisdiction, and there must be factors connecting the dispute sufficiently closely to that jurisdiction. Foreseeability and the sound administration of justice cannot independently confer jurisdiction, although they may assist as cross-checks.
3. The substantive loss claimed manifested in London when UBS London sold the secured shares. Before that sale, the shares might have recovered and there was no realistic claim for the principal loss. Ace Decade’s indirect interest did not alter where that loss occurred. The financing arrangements were connected to its co-investment, the shares were held in London, and the relevant financing and security agreements were centred there. Proceedings in London were foreseeable. The judge therefore reached the correct conclusion under article 5(3), although the Court of Appeal’s reasoning differed slightly.
4. Under article 5(5), a tortious dispute arises out of a branch’s operations where the branch actually participated in some of the actions constituting the alleged tort. The CJEU’s formulation in flyLAL should be applied without replacing it with a general test of sufficient nexus. The judge had been wrong to suggest that involvement in the tortious acts was unnecessary, but she correctly found actual and significant participation.
5. UBS London entered the financing and security agreements, sold the shares and thereby created the actionable loss. The alleged representations also concerned UBS London’s policies. Essential parts of the claims therefore arose from its operations, notwithstanding that the representations and other elements occurred in Hong Kong or China.

1. Court of Appeal (Civil Division): In [2023] EWCA Civ 222, unanimously dismissed UBS London’s appeal on both jurisdictional grounds.
2. High Court, Commercial Court: Cockerill J dismissed UBS London’s jurisdiction challenge in [2022] EWHC 245 (Comm), holding that London was where the harmful event occurred and that UBS London had sufficiently and significantly participated in the causes of action.