Israeli will dispute not to be heard in England: Winkler v Shamoon [2016] EWHC 217 (Ch)

The Chancery Division’s lengthy judgment earlier this week in a dispute between the legatees of a billionaire Israeli businessman (Mr Shamoon) makes interesting reading.  The result is that the English court would not take jurisdiction over a dispute about whether certain shares were to be treated as part of Mr Shamoon’s estate.

As well as covering specific points on the scope of the succession exception in Regulation 44/2001 (Brussels I), the judgment contains useful guidance on general points notably, what constitutes submission to the jurisdiction (at common law and under the Regulation).

Background

Mr Shamoon died in 2009 leaving an estate of about USD 1 billion.  In his will, Mr Shamoon made a bequest of USD 30,000 to the first claimant (Mr Winkler).  Mr Winkler was the CFO and manager of a group of Israeli companies owned or controlled by Mr Shamoon.  The first and second defendants (Mrs and Ms Shamoon, Mr Shamoon’s widow and daughter) are the residuary legatees under the will.

Mr Winkler and the second claimant (Arzal, a company owned by Mr Winkler) allege that they are entitled to a percentage of shares in two BVI companies.  The shares are currently in the name of Mr Shamoon and are worth tens of millions of dollars.

In 2014, Mr Winkler asked the Israeli court to transfer the shares to his name.  The Israeli court declined to do so because there was a dispute between the parties as to ownership and said that Mr Winkler “…is obliged to file a suitable claim to the competent court…”.  Henry Carr J had “no doubt that the Israeli judge … intended that the “competent court” would be an Israeli court.”  Nevertheless, Mr Winkler brought proceedings in England.

In the English action, the claimants sought declarations to establish that they are entitled to the shares.  They also claimed against the third defendant (Mr Grumbach, a Swiss lawyer) on the basis that he had negligently failed to have the shares transferred to the claimants.  Under CPR Part 11, the defendants disputed the court’s jurisdiction.

The Chancery Division’s decision (Henry Carr J)

Henry Carr J had to answer the following questions.

The judgment also contains a lengthy analysis of whether Mrs Shamoon was domiciled in England (a point only relevant if Regulation 44/2001 applied). The court decided that she was not. The point is not, however, essential to the court’s reasoning and for reasons of length is not is not discussed below.  It is worth noting, though, that the judge was unimpressed with a great deal of the Claimant’s, Mr Winkler’s, evidence in this context.  In relation to one particular allegation, the judge held it “is correct to describe this as one of a number of scandalous allegations raised by Mr Winkler in his evidence.  It is irrelevant …”.  The judge went on to say that “The attack on [Mrs Shamoon’s] honesty, and on the integrity of her advisers, … will undoubtedly have caused a great deal of costs to be spent.  In my  judgment the credibility attack should never have been raised.”

Submission

The question of whether Mrs and Ms Shamoon had, by their conduct, submitted to the English court’s jurisdiction is an interesting one. At each stage, the defendants stated clearly that they did not intend to submit to the court’s jurisdiction.  These clear protests were the foundation of the judge’s conclusion that they had not submitted to jurisdiction.  The decision is clearly sensible and commercial.  Nevertheless, it will need to be considered on a case by case basis whether such a protest is sufficient to prevent any step from constituting a submission to jurisdiction.

The steps said to constitute submission   The first acts by Mrs and Ms Shamoon which the claimants said amounted to submission resulted from Mrs and Ms Shamoon’s incorrect belief that no Particulars of Claim had been served.

  • First, Mrs and Ms Shamoon did not file an Acknowledgment of Service (required only if Particulars of Claim had been served: CPR 9.1(2)). On the basis of this, on 4 December 2014, the claimants applied for judgment in default against Mrs and Ms Shamoon.  Default judgments were entered on 19 December 2014.
  • In the meantime, on 16 December 2014, Mrs and Ms Shamoon had applied for strike out of the claim under CPR 3.4(2)(c) (failure to comply with a rule). The strike out application (and the covering letter) made clear that Mrs and Ms Shamoon did not intend to submit to the English court’s jurisdiction and reserved their rights to challenge jurisdiction.
  • In light of the default judgments, on 22 December 2014, Mrs and Ms Shamoon confirmed that they would not pursue the strike out application and filed Acknowledgments of Service. These stated that the defendants would contest the court’s jurisdiction.
  • On 23 December 2014, Mrs and Ms Shamoon applied to set aside the default judgments (under CPR Part 13). Like the strike out application, the application and its supporting evidence stated that there was no submission to the jurisdiction.  By 2 February 2015, the claimants had agreed to set aside the judgments in default by consent.

Once these procedural steps were out of the way (and this case should serve as a reminder to check and double check if it is thought Particulars of Claim have not been served), the jurisdiction challenge proceeded.   In January 2015, Mrs and Ms Shamoon sought further information (under CPR Part 18) about the Particulars of Claim.  That request was made expressly for the purpose of the application to challenge jurisdiction.

The decision that there had been no submission  The question was whether, under article 24 of Regulation 44/2001 (Brussels I), Mrs and Ms Shamoon had “entered an appearance” before the court other than an appearance entered to contest the jurisdiction.   If they had, then pursuant to article 24, the English court would have jurisdiction.

Deutsche Bank v Petromena [2015] EWCA Civ 226 was referred to by the judge.  This holds that the question is a matter of English procedural law and, under English law, submission can be by: (1) a “statutory form of submission”; or (2) by “common law wavier”.

The court rejected the claimants’ argument that filing the Acknowledgement of Service, even one indicating an intention to contest jurisdiction, was a statutory submission to jurisdiction.  Filing an acknowledgment of service is required under national procedural rules (prior to making a jurisdiction challenge: CPR 11(2)) and it would be contrary to the objects of Regulation 44/2001 if this requirement were construed as compelling the defendant to enter an appearance. (Maple Leaf Macro Volatility Master Fund v Rouvroy [2009] EWHC 257 (Comm) relied on by the claimants did not decide otherwise).

The court then turned to the question of submission by common law waiver.  To determine this.

  • The judge referred to the description of common law waiver in Deutsche Bank v Petromena (at [32]). This requires the doing of an act inconsistent with maintaining a challenge to the jurisdiction.  The waiver must clearly convey unequivocal renunciation by the defendant of his right to challenge the jurisdiction.
  • The judge also set out the “relevant test” from Rubin v Eurofinance [2012] UKSC 46 (itself citing Williams & Glyn’s Bank [1984] 1 WLR 438 (HL)). That is, the general rule is that the party alleged to have submitted must have “taken some step which is only necessary or only useful if” an objection to jurisdiction “has actually been waived, or if the objection has never been entertained at all.””

Henry Carr J thus decided that none of Mrs and Ms Shamoon’s steps constituted submission.  The overriding reason for his decision was that, at each stage, Mrs and Ms Shamoon had consistently made clear that the steps were without prejudice to their jurisdictional challenge “This is the very opposite of an unequivocal renunciation of such a challenge.”  The judge went on to say that the suggestion that either the procedural strike out application or set aside application could be submission was “absurd”.

As for the suggestion that the result could be different at common law (if Regulation 44/2001 did not apply – which was, in fact, the conclusion the judge reached, see below), citing Denning LJ in Williams & Glyn’s Bank [1984] 1 WLR 438, the judge concluded that Mrs and Ms Shamoon could not be taken as having submitted to the jurisdiction of the court having, “all the time been vigorously protesting that it has no jurisdiction”.

Succession exception

Article 1(1) of Regulation 44/2001 provides that it applies in “civil and commercial matters” and 1(2)(a) provides that it does not apply to “wills and succession”.  Article 1(2)(a) of the Lugano II Convention is in the same terms.  The court concluded that the claims were within these exceptions.

The court applied the following principles.

  • First, the question was to determine the principal subject matter of the claim and whether fell within the exception.
  • Second, the principle (from Case C-292/05 Lechouritou) that to assess whether a claim was a “civil or commercial matter”, the court should consider the substance and not the form of the claim, applied equally to assessing whether a claim was within the exception of article 1(2)(a).
  • Third, the exclusions in article 1(2) should not be broadly interpreted (Case C-292/08 German Graphics did not just apply to insolvency proceedings).

Having referred to the Succession Regulation (Regulation (EU) No 650/2012) as an aid to determine the autonomous meaning of “wills and succession”, the court concluded that the exclusion in Article 1(2)(a) of Regulation 44/2001:

“applies to civil law claims where the principal subject matter of the claim is “… succession to the estate of a deceased person”, which covers “all forms of transfer of assets, rights and obligations by reason of death”.  “Succession claims includes any “sharing out of the estate”; “claims which persons close to the deceased may have against the estate or the heirs”; and “any obligation to restore or account for gifts when determining the shares of the different beneficiaries”.”

In light of the need to consider the substance of the claim, it is perhaps unsurprising that the judge rejected the claimants’ various arguments and held that the exception applied.  Notably, the judge said,

“the Claimants are, in reality, claiming to be entitled to succeed to the estate of a deceased person… and the object of the proceedings is to frustrate the claims of Mrs … and Ms … Shamoon to succeed to the Shares under the terms of the will.”

That the claim involved succession was emphasised by the fact that neither Mrs nor Ms Shamoon was the owner of the relevant shares.

Common law  (i.e. if succession exception applies)

Since the claims fell outside Regulation 44/2001, the court had to determine whether it should take jurisdiction as a matter of common law and/or whether it should grant the claimants’ application for permission to serve proceedings out of the jurisdiction on Mrs Shamoon or Mr Grumbach.

First, applying the Spiliada principles, the judge concluded that “it is clear that Israel is available as a forum for the resolution of this dispute and is more appropriate than England”.

Among the reasons given for the judge’s decision were that: Mr Winkler had originally decided to pursue the claim in Israel; the estate is situated in and administered in Israel, the main witnesses all live in Israel; the alleged promises and representations giving rise to the claim were made in Israel; while on the other hand, the only connection which the claim had to England was the domicile of Ms Shamoon (the judge having decided that Mrs Shamoon was not domiciled in England).

As a result of this decision, the judge held that it was not reasonable for the claim against Ms Shamoon (who was domiciled in England) to be tried in England.

This also meant that, even had the claimants established a real issue to be tried against Ms Shamoon, she could not be used as an anchor defendant to allow Mrs Shamoon (not domiciled in England) to be sued as a “necessary or proper party” (under CPR PD 6B para 3.1(3)).

The judgment includes a lengthy discussion of the anchor defendant claim, the merits of the underlying claim and whether some form of estoppel applied in relation to jurisdiction.   The points were not essential to the court’s decision and, for reasons of length these are not discussed here.

Mr Grumbach

Unsurprisingly in light of the decision in relation to Mrs and Ms Shamoon, the court held it had no jurisdiction over the claim against Mr Grumbach.

  • There was no “anchor defendant” so Mr Grumbach could not be sued as a “necessary or proper party” under the common law rules.
  • The claims against Mr Grumbach were within the succession exception of the Lugano II Convention and so fell outside its scope.
  • Even had the Lugano II Convention applied, there was no risk of irreconcilable judgments against Mr Grumbach and Mrs and Ms Shamoon so Article 6(1) of the convention would not provide any basis for all the claims to be heard together.