1 There are four applications before the Court. The two principal
applications are made by D. M. & C.. ("DMC") as, respectively, claimant
in action 2002 Folio 627 ("action 627") and defendant in action 2002
Folio 730 ("action 730"). In the application in action 627 DMC seeks a
declaration that the Court has no jurisdiction to try the Part 20 claim
initiated by LBJ R. Limited ("LBJR"). In the application in action 730 DMC
seeks a declaration that the Court has no jurisdiction to try the claim
of LBJR or that of the second claimant, CDW I Limited ("CDW"). DMC
asks that these claims be struck out on the grounds that jurisdiction to
try them is regulated by Council Regulation 44/201 ("the Regulation")
and that, by the terms of that Regulation, the claims ought to have been
brought against DMC in the Courts of the Contracting State where DMC
is domiciled i.e. in the French Courts. The two other applications are
subsidiary. They are applications made by CDW and LBJR (1) for an order
that actions 627 and 730 be consolidated and (2) that LBJR be added
as a defendant and claimant by counterclaim to action 627 and that
CDW and LBJR have permission to Re-Amend the Amended Defence and
Counterclaim in that action. The second application is the most recent,
and I shall refer to it as "the January application".
2 The jurisdictional challenge to the Part 20 claim in action 627 raises
a short point of some importance. Is a cross-claim, which is made by a
party who is not a defendant to the original claim, within the definition of
a "counter-claim" in Art.6.3 of the Regulation? LBJR was not a defendant
to the claim in action 627 when it issued the Part 20 claim.
3 The Part 20 claim in action 627, and the claims in action 730 which
largely duplicate the Part 20 claim, were commenced in an attempt by
LBJR to ensure that the Commercial Court in London was first seised of
the subject matter of those claims and was the forum in which those
claims were litigated. At the time they were commenced, LBJR had
already received a letter before action from DMC that it intended, unless
offered acceptable compensation, to bring an action separate from action
627 in respect of those matters. LBJR believed, with good reason, that
DMC might bring that action in France rather than in England. And in due
course DMC did begin an action against LBJR, and several of its associated
companies, in the Tribunal de Commerce in Paris. But the French Court
was seised of that action a few days after the commencement of the
Part 20 claim in action 627 and action 730. An application has been
made by LBJR and its co-defendants in the French action to have that
action stayed. The judgment of the Tribunal de Commerce is awaited.
The decision of this Court on the present applications may well give rise
to further argument in the French Court whichever way the applications
before me are determined.
Factual Background
4 DMC is a French public limited company whose registered office and
headquarters are in Paris. DMC is engaged, among other things, in the
manufacture, dyeing and distribution of high quality fabrics (including
corduroy and standard and stretch flat fabrics), which it supplies to
sportswear manufacturers worldwide. DMC owns factories in France,
Germany and the United States. Levi Strauss, Gap and Marks & Spencer
are major customers of DMC.
5 CDW is a Cayman Islands company. It is a member of a group of
companies, referred to in these proceedings as "the C. Group", which
is owned or controlled from Hong Kong by Mr C. C. M. and his family.
The C. Group's interests include the manufacture of textiles as well as
property development and the management of private equity interests.
LBJR is another company in the C. Group. It is incorporated in the British
Virgin Islands and is a trustee of a trust for the benefit of members
of the C. family as well as being the holding company of several other
companies concerned with the C. Group's textile interests. These include
F. International Limited ("F."), T. O. I. Limited ("TOI"), CDW I. (BVI)
Limited ("CDW BVI") and C. Textiles Limited ("C. Textiles"). The first
three of these companies are incorporated in the British Virgin Islands. C.
Textiles is incorporated in Hong Kong.
6 On July 31, 1996 DMC entered into a Joint Venture Agreement with
CDW whereby the two companies agreed to participate in a joint
venture for the manufacture and marketing of certain fabrics. By other
agreements made on the same date, DMC purchased 49 per cent of the
issued share capital of CDW BVI and F. acquired a minority shareholding
in DMC. F.'s shareholding in DMC has since increased and now stands
at 17.3 per cent. The other 51 per cent of the shares in CDW BVI are
owned by CDP Limited ("CDP"), another wholly owned subsidiary of CDW
incorporated in the British Virgin Islands.
7 The Joint Venture began operating in 1996 and has now been in
operation for about six years. It is divided into a manufacturing arm
and a marketing arm. The manufacturing arm (known as "the JV1
Group") consists of three companies, CDW BVI, which in turn owns CDW
Industries Ltd ("CDWI"), which itself owns C. D. H. Limited ("CDH"). The
marketing arm (known as "JV2") consists only one company, CDP Textiles
Limited ("CDP Textiles"). The share capital of CDP Textiles is owned by
CDP (49 per cent) and DMC (51 per cent).
8 The principal manufacturing asset of the Joint Venture is a factory
situated in Yuen Long in Hong Kong. The Yuen Long factory manufactures
fabrics for sale to (1) CDP Textiles, for on-sale to customers of the Joint
Venture within the Joint Venture Territory (defined in the Joint Venture
Agreement) and (2) DMC, for on-sale to customers of DMC outside the
Joint Venture Territory. DMC says that its principal contribution to the
success of the Joint Venture has been the provision by it of substantial
technical know-how and assistance, and the provision of its customer
base. As a result, since June 2001, the Yuen Long factory has been able
to manufacture a wide range of flat and stretch fabrics and corduroys.
9 In about July 1999, DMC entered into negotiations with various
representatives of the C. Group with a view to the setting up of a second
joint venture for the marketing of fabrics manufactured at much lower
cost in a factory or factories in China. This second joint venture came
to be referred to in the course of the negotiations as "Project Platform".
The negotiations were conducted by correspondence and in telephone
conferences, video conferences and meetings in France, China and Hong
Kong. By November 2001 the negotiations had advanced to the stage
where video conferences between the two sides were being held on a
fortnightly basis.
10 The main features of Project Platform were well identified by the
beginning of 2001. It was envisaged that: (1) the assets of CDW i.e.
the assets of the Joint Venture, would be transferred to a new corporate
entity; (2) the C. Group would contribute industrial assets located in
China to the new entity; (3) DMC would contribute assets to the new
entity in the form of know-how, technology and marketing expertise; and
(4) the C. Group would take a maximum holding of 60 per cent in the new
entity, the balance going to DMC. The industrial asset which the parties
had in mind as the new manufacturing base of Project Platform in China
was the H. Y. C. Mill ("the H. Mill"). The C. Group had bought the H. Mill
late in 2000 using LBJR as the holding company. The Mill was owned by
H. Y. Limited ("HYM"), which was in turn owned by P. Industries Limited
("P."). LBJR acquired 66.6 per cent of the shares in P..
11 At a series of meetings in January, February and early March 2002,
Project Platform began to take final shape. According to DMC, there was
general consensus that the assets of the new joint venture would include
the assets of CDW, DMC's own production units in France and the United
States, and the H. Mill. At a meeting of DMC's Supervisory Board on
March 5, 2002, DMC's Chairman gave a detailed description of what he
understood to have been agreed so far. His presentation was translated
into a draft Memorandum of Understanding ("the DMC MOU"), which was
sent to the C. Group's representatives. On March 6, 2002, DMC went
so far as to issue a press release about the launch of Project Platform.
Then, on March 15, 2002, DMC received an e-mail from the C. Group
saying that it was "considering a new approach to the Project Platform".
That new approach found expression in a draft counter-memorandum
("the C. MOU"), which DMC received on March 18. The C. MOU contained
proposals which differed in a number of important respects from those
in the DMC MOU. Instead of the parties' respective holdings in the new
entity being based on contributions of assets, such as know-how and
technical assistance in the case of DMC, the C. MOU proposed that the
parties' holdings should be proportional to their contribution of working
capital in cash. Another proposal was that, instead of the assets of CDH
(the Yuen Long factory) and the H. Mill being given to the new entity,
only the production capacity of the two plants would be contributed. They
would be obliged to contract with the Platform to manufacture on a cost-
plus basis or to process fabric on a tolling charge basis.
12 It was expressly stated in both MOUs that "... this memorandum of
understanding is not intended to create any legally binding obligations
(save as is provided hereunder) and is to serve as the basis for the
drafting and negotiation of definitive contractual documentation to be
concluded between the Parties". Nevertheless DMC believed that the C.
MOU represented a significant departure from the consensus reached in
the negotiations and made Project Platform much less attractive to DMC.
The C. MOU contained a provision which would entitle the C. Group to
withdraw from the Platform Project and cause the new entity to be wound
up if the business failed to reach a specified "Hurdle Rate". DMC feared
that this might leave the C. Group in possession of DMC's technical know-
how and customer database which it could utilise to its own advantage at
the H. Mill.
13 While DMC was still digesting the implications of the C. MOU, it
received notification on March 20, 2002 that LBJR had been nominated
by the C. Group to act henceforth as its principal representative in the
Project Platform negotiations. Powers of attorney were granted to the
directors of LBJR to enable any two of them to conduct the negotiations
on the C. Group's behalf. There followed some further correspondence
between DMC and the C. Group concerning Project Platform, and a
meeting took place in Hong Kong in April 2002. DMC concluded from
these exchanges that the C. Group was unwilling to resile from the
contents of the C. MOU and that the negotiations were at an end.
14 All the while the Joint Venture had continued to operate. Board
meetings of the companies in the JV1 Group and JV2 were scheduled
to take place on June 4, 2002. The board meeting of CDWI passed off
smoothly. Then came the board meeting of CDH, the company in the JV1
Group which owns the Yuen Long factory in Hong Kong. A valuation report
had been tabled which valued the factory premises at substantially less
than that shown in the draft accounts. An issue arose as to whether there
had been an "impairment of assets". The C. Group had also proposed
certain amendments to the articles of association of CDH. When the board
meeting convened, DMC's representatives asked for more time to consider
the latter proposal. According to DMC, the Chairman of CDH, Mr Wong,
refused to adjourn consideration of the amendments to the articles of
association, which consequently were not agreed, but did adjourn the
remainder of the agenda, including consideration of the accounts and the
valuation report. The rest of the board meetings scheduled for that day
were likewise adjourned.
15 The next day CDW purported to issue to DMC a "Warning Notice"
under cl.11.2 of the Joint Venture Agreement. Clause 11.2 provides a
mechanism for dealing with deadlock in the event of a "Material Dispute"
arising (as defined in the clause), and that dispute not being resolved
within 30 days after being referred to the respective chairmen of the
parties to the Joint Venture Agreement. In the event of such deadlock
either party is entitled, within 14 days, to serve a Warning Notice stating
that it intends to implement the deadlock procedure if the matter is not
resolved within a further period of 30 days. The deadlock procedure set
out in clause 11.2 has the consequence that one party may divest itself
of its shares in the JV1 Group at a price calculated in accordance with a
prescribed exit formula, or, ultimately, that the JV1 Group and JV2 are
placed in liquidation.
16 The Warning Notice from CDW stated that a Material Dispute existed
in respect of (i) the proposed amendment to CDH's articles of association
and (2) the asset impairment issue. DMC responded on June 6, denying
that there was any Material Dispute. There was a further exchange of
correspondence which culminated in a letter from DMC to CDW on June
18 in which DMC purported to give notice under cl.3.4 of Sch.2 to the
Joint Venture Agreement (a Default Notice) that CDW was attempting to
engineer a Material Dispute so as to bring the Joint Venture to an end and
was therefore in breach of cl.8.3 of the Agreement.
17 The adjourned board meetings were rescheduled for June 26. In the
interim, CDW had commissioned Ernst & Young to advise as to whether
the assets of CDH had been impaired. DMC says that its directors on
the board of CDH were not consulted about this or allowed any input
into Ernst & Young's terms of engagement. When the board meetings
reconvened the Ernst & Young report was still awaited, so there was
no discussion of the accounts and Financial Statements of CDH, CDW
BVI and CDP. The board of CDH, at the instigation of the DMC directors,
resolved to appoint the company's auditors, Deloittes, to carry out a
survey of the Joint Venture's related party transactions (in particular those
between the Joint Venture and the H. Mill). The board of CDP resolved
to appoint KPMG to carry out an internal audit of the company. However
DMC complains that the implementation of both of these resolutions was
frustrated by Mr S., who was the managing director of CDH and CDP and
a C. Group nominee.
18 By this time DMC was convinced that CDW was intent on bringing the
Joint Venture to an end. That view was compounded by DMC's suspicion,
which it says was later confirmed in July or August 2002, that the H.
Mill was manufacturing Agreed Fabrics (i.e. fabrics the subject of the
Joint Venture, hitherto produced only by the Yuen Long factory under
the Joint Venture Agreement). CDW strongly denies that the H. Mill
has manufactured, or is capable of manufacturing, Agreed Fabrics. But
DMC felt sufficiently sure of its ground to decide that it would issue
proceedings.
The Procedural Chronology
19 On June 27, 2002, DMC issued the Claim Form in action 627. It
gave brief details of two claims, with Particulars of Claim to follow. DMC
claimed: (1) a declaration that CDW's Warning Notice of June 5 was a
breach of cl.8.3 of the Joint Venture Agreement and a material breach
of a material provision of the Joint Venture Agreement which entitled
DMC to serve the Default Notice contained in its letter of 18th June; and
(2) a declaration that if the H. Mill was to act in any one of a number
of specified ways in competition with the Joint Venture (in particular by
processing and marketing Agreed Fabrics), CDW would be in breach of
cl.12.2 of the Joint Venture Agreement. The action was brought in the
Commercial Court in London by reason of cl.36.1 of the Joint Venture
Agreement. That clause provides that the Agreement shall be governed
by English law and that the English Courts shall have non-exclusive
jurisdiction to settle any disputes arising in connection with it.
20 On July 1, 2002, DMC acted on a second front. It sent a letter before
action to LBJR and to several other companies in the C. Group concerning
the breakdown of the negotiations for Project Platform. The addressees of
the letter included F., C. Textiles and TOI, but not to CDW. The omission
of CDW is controversial and I will revert to it later. The letter set out the
terms of Project Platform which, according to DMC, had been agreed in
the negotiations up to February 2002. It alleged that the C. Group had
"abusively terminated negotiation" by its insistence on the conflicting
counter-proposals in the C. MOU. DMC called upon the C. Group to
indemnify it against the damage it claimed to have suffered by reason of
the termination of the negotiations. The reference in the letter to abusive
termination of the negotiations was intended to reflect a basis of claim or
cause of action which is recognised in French law but has no English law
equivalent, namely, the improper or unlawful termination of negotiations
("rupture abusive de pourparlers").
21 CDW filed an acknowledgment of service in action 627 on July 5. On
the same date CDW withdrew the Warning Notice under the Joint Venture
Agreement. On July 11, DMC obtained permission from the President
of the Tribunal de Commerce in Paris ("the Paris Commercial Court")
to serve a writ of summons at short notice on LBJR and on the other
recipients of the letter before action of July 1. The writ claimed damages
for alleged improper and unlawful termination of the Project Platform
negotiations. On July 16, DMC obtained freezing orders from the Paris
Commercial Court against F. and TOI in respect of their interests in the
share capital of DMC.
22 Although the writ had not yet been served, it was plain to the C.
Group that DMC intended to bring its claim for the failure of the Project
Platform negotiations in Paris. The C. Group was anxious that, if possible,
issues arising out of the Project Platform negotiations should be tried
in London at the same time as action 627. On July 18, CDW and LBJR
instructed City solicitors, Clyde & Co., to take steps to achieve that result.
Clydes prepared a Part 20 claim by CDW and LBJR in action 627 in which
declarations were sought (1) that DMC's reaction to the difficulties it
perceived in the Project Platform negotiations, and DMC's subsequent
actions, constituted a breach of the Joint Venture Agreement, (2) that
the business of the H. Mill is not subject to any of the restrictions in the
Joint Venture Agreement, (3) that the conduct of CDW and LBJR in the
discussions of Project Platform and the breakdown of those discussions
did not constitute a breach of any obligations owed by CDW to DMC under
the Joint Venture Agreement, (4) that CDW and LBJR have no liability to
DMC, in contract tort or otherwise, arising out of the breakdown of the
Project Platform discussions, and (5) that no legal relations and no legal
obligations were created between CDW and/or LBJR on the one hand and
DMC on the other hand by the DMC MOU or the C. MOU.
23 The Admiralty and Commercial Registry declined to issue the Part
20 Claim Form on the ground that it contained a counterclaim by CDW
and that no counterclaim could be filed in action 627 until Particulars
of Claim had been served. The matter was referred to Master Miller on
the afternoon of Friday, July 19. He decided that the question should
be referred to a judge of the Commercial Court. There was no time to
do that on the Friday, so Clydes asked the Registry to issue a separate
Claim Form in the name of CDW and LBJR for identical relief. The Registry
did so, on July 19. This was action 730. Before close of business the
same day, Clydes served the Claim Form in action 730 in London on the
Law Debenture Trust Corporation plc, who was believed to have been
nominated by DMC as agents for service under cl.36 of the Joint Venture
Agreement.
24 The following Monday (22nd July), Langley J. was consulted about
the Part 20 claim. He agreed with the Registry and said that the Part 20
claim could be issued provided that it was in the name of LBJR alone.
Clydes therefore amended the Part 20 claim to delete all references to
CDW as a claimant, and prepared brief Particulars of Claim in the name
of LBJR alone. The Part 20 Claim Form and the Particulars of Claim were
served on July 22on Freshfields in their capacity as solicitors on the
record for DMC in action 627. The Law Debenture Trust Corporation had
meanwhile said that it was not authorised to accept service of action 730.
So the Claim Form in action 730 was re-served on Freshfields on July
24. Freshfields responded on July 24 stating that they had instructions
to accept service of action 730, but they asked Clydes which set of
proceedings their clients intended to pursue, since the claims in action
730 were identical to those in the Part 20 claim. Eventually Freshfields
acknowledged service of action 730 on August 2 and of the Part 20 claim
on August 8. DMC's applications to have these proceedings struck out for
want of jurisdiction and/or on other grounds (the principal applications
referred to in para.[1] of this judgment) were issued on August 30, 2002.
25 On July 26, DMC's writ in the action in the Paris Commercial Court was
issued. In proceedings in France, service abroad takes place through a
process server nominated by the office of the French Public Prosecutor.
The Court is seised of the action when the writ has been served on at
least one defendant and, following service, has been lodged with the
Court registry. The writ in DMC's action in the Paris Commercial Court was
served in Hong Kong on LBJR and on certain of the other defendants on
30th July. It was lodged immediately with the Paris Commercial Court and
the Court became seised of the action the same day.
26 DMC served Particulars of Claim in action 627 on August 2, 2002. The
pleading made reference to the Project Platform negotiations, but only
by way of explanation of the importance of the H. Mill. The claim for a
declaration in respect of the processing or marketing of Agreed Fabrics by
the H. Mill was pursued; but the claim in respect of the Warning Notice of
5th June was dropped because the Notice had by now been withdrawn.
Two new claims were introduced which arose out of developments since
the issue of the Claim Form on 27th June. The first was a claim for a
declaration that CDW was in material breach of a material provision of
the Joint Venture Agreement for directing or instructing CDH to refuse to
supply fabric to CDP except on COD terms. That direction had allegedly
been given on or about July 15, 2002 when Mr S. had written to DMC
saying that CDW was no longer prepared to guarantee the financial
obligations of CDH as it had done hitherto. He had gone on to say that in
the circumstances it would no longer be possible for CDH to provide the
favourable credit terms to CDP which it had provided to date and that with
effect from August 1, 2002 CDH would only provide fabrics to CDP on a
cash on delivery basis. The second new claim in the Particulars of Claim
arose out of the same letter. DMC claimed an injunction prohibiting CDW
from withdrawing any of the banking guarantees which it had provided in
respect of the obligations of CDH.
27 The dispute between the parties to the Joint Venture Agreement
grew and became acute between August and early November 2002.
The result was that on November 11 DMC applied to Thomas J. for
permission to amend the Particulars of Claim to take account of the latest
developments. Permission was granted. The amendments were extensive.
It is now alleged by DMC that CDW committed further material breaches
of the Joint Venture Agreement by: (1) obstructing the work of Deloittes
and KPMG and therefore preventing the implementation of the resolutions
passed at the board meetings of CDH and CDP on June 26, (2) providing
unreasonably pessimistic profit and loss and cash flow projections to
Ernst & Young in order to procure an opinion from Ernst & Young that the
assets of CDH and CDP were impaired, (3) attempting, through various
steps taken in August and September 2002, to obtain adjustments to
the draft 2001 accounts of the Joint Venture companies, (4) causing
resolutions to be passed at board meetings of CDW BVI, CDH and CDP on
September 6, 2002 and at shareholders' meetings of CDW BVI and CDH
on the same date, in favour of the winding up and dissolution of those
companies, (5) instigating the service of a statutory demand by CDH on
CDP on September 13, 2002 for the payment within seven days of all
sums due to CDH and outstanding for more than 30 days, (6) requesting
Deloittes to sign off revised draft 2001 accounts for CDW BVI and CDH
which did not give a true and fair view of the affairs of those companies,
(7) serving on DMC on October 8, 2002 a further Warning Notice under
cl.11 of the Joint Venture Agreement (purporting to identify Material
Disputes in respect of (i) the approval of the draft 2001 accounts of the
Joint Venture companies, (ii) CDH's demand for repayment from CDP and
(iii) the winding-up of CDW BVI) and a Default Notice pursuant to cl.3.4 of
Sch.1 to the Joint Venture Agreement (claiming that DMC had committed
a material breach by a series of acts which had effectively frustrated the
business of the Joint Venture companies).
28 It is unnecessary to trespass into these allegations in more detail.
They demonstrate that in the period between the issue of the Claim Form
in action 627 on June 27 and the amendments made to the Particulars
of Claim on November 11, 2002, the relationship between the parties
to the Joint Venture all but disintegrated. In the meantime, CDW served
a Defence and Counterclaim in the action on September 30. DMC
acknowledged service of the counterclaim on October 14 and served a
Reply and Defence to Counterclaim on January 15, 2003. I will deal with
the significance of these steps when I come to consider the position of
CDW who, on any view, is entitled to bring a counterclaim as an original
defendant to the claim. The major issue is whether LBJR, who is not a
defendant to any proceedings in England, can bring a counterclaim also.
Article 6.3 of the Regulation
29 The scheme of the Regulation, as of its predecessor the Brussels
Convention, is to provide that as a general rule persons domiciled in a
Member State shall, whatever their nationality, be sued in the courts
of that Member State, but to allow certain specific exceptions to this
principle. Article 6.3 is an exception for counterclaims. No reliance is
placed by CDW and LBJR on Art.6.2. Article 6.3 provides:
"A person domiciled in a Member State may also be sued:
...
3. on a counter-claim arising from the same contract or facts on which
the original claim was based, in the court in which the original claim is
pending;"
30 As a matter of plain English, the Part 20 claim by LBJR in action 627
is not a counter-claim because it was not brought to counter a claim.
LBJR was not an original defendant to the action. Mr Underhill Q.C., for
DMC, submitted that the definition of a "counterclaim" in the glossary to
the Civil Procedure Rules supported this view. A "counterclaim" is there
defined as "A claim brought by a defendant in response to the claimant's
claim, which is included in the same proceedings as the claimant's claim".
However, I am inclined to be cautious about relying on English rules of
procedure to ascertain the meaning of the word "counter-claim" in Art.6.3
of the Regulation. The rules regarding counterclaims have not always
been a reliable guide to substantive jurisdiction. Under the former Order
15 Rule 6(2)(b) of the Rules of the Supreme Court, the Court's power to
add as a party a person with a cross-claim against an existing party was
usually exercised by making the new party a defendant in the action. But
in a case where the plaintiff was domiciled in a Member State and the
Brussels Convention applied, the nominal status of a defendant did not of
itself confer jurisdiction over the counterclaim. Mr Glick Q.C. recognised
that this was so and conceded that LBJR could derive no support from
the old practice of joining cross-claimants as defendants. By the same
token he argued, rightly in my view, that DMC gains no support from the
fact that the CPR now provides that a cross-claimant who is not a party
to the original claim becomes a Part 20 claimant rather than a defendant
(20PD.7).
31 There are, however, two decisions, one of the European Court of
Justice ("ECJ") and one of the House of Lords, which strongly suggest
that only a cross-claim by an original defendant to the claim can qualify
to be treated as a counterclaim within Arts 6(3) and 11 of the Brussels
Convention (now, respectively, Arts 6.3 and 12.2 of the Regulation).
32 In Danvaern Production A/S v Schuhfabriken Otterbeck GmbH & Co.,
Otterbeck, a German company, had sued Danvaern, a Danish company, in
the courts of Denmark claiming payment for goods delivered to Danvaern
under an agency contract which Otterbeck had recently terminated.
Danvaern admitted that it owed the amount claimed but asserted that
it had cross-claims against Otterbeck, including a claim for damages
for wrongful termination of the agency contract, which exceeded the
value of the claim. Danvaern relied on the cross-claims as a defence, and
submitted that Otterbeck's claim should be dismissed, but also sought a
separate judgment against Otterbeck for the amount by which the cross-
claims exceeded the value of the claim. The Danish court of first instance
held that Danvaern's cross-claims were inadmissible, both as a defence
of set-off and insofar as a separate judgment was requested in respect
of them. Danvaern then dropped its request for a separate judgment and
appealed on the set-off point.
33 The appeal court in Denmark referred the matter to the ECJ posing two
questions, the first of which was whether a defence of pure set-off was
a counterclaim and therefore had to satisfy the requirement of being a
claim "arising from the same contract or facts on which the original claim
was based", if the court in which the original claim was brought was to be
entitled to entertain it by virtue of Art.6(3).
34 The European Court held that it was not. The reasoning of the Court is
clear from the following passages in the judgment:
"Procedurally, a defence is an integral part of the action initiated by the
plaintiff and therefore does not involve the plaintiff being "sued" in the
court in which his action is pending, within the meaning of Article 6(3)
of the Convention. The defences which may be raised and the conditions
under which they may be raised are determined by national law.
Article 6(3) of the Convention is not intended to deal with that situation.
By contrast, a claim by the defendant for a separate judgment or decree
against the plaintiff presupposes that the court in which the plaintiff has
brought proceedings also has jurisdiction to hear such an application.
Article 6(3) is specifically intended to establish the conditions under which
a court has jurisdiction to hear a claim which would involve a separate
judgment or decree.
...
The answer to the national court's first question must therefore be that
Article 6(3) of the Convention applies only to claims by defendants which
seek the pronouncement of a separate judgment or decree. It does not
apply to the situation where a defendant raises, as a pure defence, a
claim which he allegedly has against the plaintiff. The defences which
may be raised and the conditions under which they may be raised are
governed by national law."
35 Whilst this ruling did not directly decide that only a defendant to the
original claim could bring a counterclaim, that assumption was implicit
in the Opinion of Advocate General Léger, whose conclusion on the first
question the ECJ followed.
36 The Opinion of the Advocate General in the Danvaern case is
instructive for its explanation of the concept of counterclaim referred to in
Art.6(3) and of the rationale of that provision. Noting that the Convention
itself provided no definition of a counterclaim, A G Léger observed that
in the Jenard Report it was said that Art.6(3) was based on Art.15 of the
draft Belgian Judicial Code. Article 15 of the Code defined a counterclaim
("demande reconventionelle") as "... an incidental claim made by the
defendant which seeks a decision against the plaintiff". The draftsman of
the Code had explained that a counterclaim had two main constituents:
"(1) a counterclaim is incidental, that is to say, it is introduced into
pending proceedings even though it could have given rise to separate
main proceedings; (2) it goes beyond seeking to have the plaintiff's case
dismissed and costs awarded against him: the defendant, acting as a
plaintiff in his turn, seeks a ruling against the defendant.... Such a claim
must doubtless be made during the main proceedings, which makes sense
and implies that the parties should be the same" (my emphasis).
37 Accepting that this definition of a "demande reconventionelle" underlay
the concept of counterclaim in Art.6(3), A G Léger concluded in para.26 of
his Opinion that:
"... a counterclaim is characterised by the following essential aspects:
-- it is a new claim, put forward during the proceedings by the defendant,
who becomes in turn the plaintiff;
-- it relates to a right of any nature whatsoever;
-- it seeks a separate decision against the opponent and is not confined to
seeking the dismissal of the original plaintiff's claims."
38 If there was any doubt that the Advocate General, when referring in
that passage to "the defendant" meant "the defendant to the original
plaintiff's claims", it is dispelled by para.39 of the Opinion, where he said
this:
"... I would point out that the head of jurisdiction provided for by Article
6(3) constitutes an exception to the general rule set out in Article 2. By
introducing a counterclaim, the original defendant will become a plaintiff,
and whereas in principle the plaintiff must bring his action in the courts
of the defendant's domicile (the original plaintiff in these circumstances),
Article 6(3) enables him, by way of exception, to assert his claim in the
court originally seised, that is to say, generally in the court of his domicile,
that is to say, the defendant's court. Consequently, Article 6(3) makes the
forum actoris possible. Admittedly, as has been seen, that provision fulfils
a quite specific aim of the Convention. However, to my mind, Article 6(3)
must continue to be in the nature of an exception and must therefore not
be too broadly interpreted. The opposite interpretation would ultimately
end up by multiplying a head of jurisdiction based on the plaintiff's (even
a person bringing a counterclaim's) domicile, thereby facilitating the
forum actoris, whereas the whole system of jurisdiction introduced by the
Convention gives pre-eminence to the defendant's domicile....".
39 The "specific aim" referred to in that passage was explained by A G
Léger, in para.35 of his Opinion, in the following terms:
"The aim sought by the head of jurisdiction provided for in Article 6(3)
can clearly be understood. By enabling a counterclaim to be raised
before the same court seised of the original claim, the draftsmen of the
Convention sought to obviate superfluous, multiple proceedings and to
enable the parties to settle the whole of their reciprocal claims in the
same proceedings and before the same court....".
40 Mr Glick submitted that this aim would be best served if Art.6.3 of
the Regulation was interpreted to include cross-claims by third parties
who were not original defendants. But such a broad interpretation is not
supported by the Danvaern case. It would create a head of jurisdiction
based, not so much on the plaintiff's domicile (as A G Léger preferred to
put it in para.39 of his Opinion), but on the plaintiff's choice of forum.
The present case is a classic example, since action 627 was only brought
in England by virtue of the jurisdiction clause in the Joint Venture
Agreement.
41 There is undoubtedly a tension between the aim of obviating multiple
proceedings and the structure of the Convention which allows only
limited exceptions to the domicile rule. It is apparent, from para.39 of his
Opinion in the Danvaern case that A G Léger regarded the structure of the
Convention as the paramount consideration. The House of Lords reached
the same conclusion in Jordan Grand Prix Ltd v Baltic Insurance Group.
In that case Jordan brought an action in England against a Lithuanian
insurance company claiming on a policy of insurance which allegedly
covered Jordan's contingent liability to make bonus payments to its
employees if the Jordan team finished in the top six of the Formula One
World Championship. There was no dispute that Jordan was entitled
to sue on the policy in England. But the insurer refused to pay on the
ground that it had been the victim of a conspiracy to defraud it by Jordan
and others. One of the alleged conspirators was a company domiciled in
Ireland which maintained that it had a sponsorship agreement with Jordan
whereby it would pay a sum of $1 million to Jordan on the happening
of the same contingency, and that its liability to make the payment was
also covered by the insurance. Two other co-conspirators were Irish
nationals. The insurer raised a counterclaim for damages which it had
allegedly suffered by reason of the conspiracy, and named the Irish
conspirators amongst the defendants to the counterclaim. Langley J.
and the Court of Appeal dismissed the counterclaim against the Irish
conspirators on the ground that it offended the basic rule in Art.11 of the
Brussels Convention (now Art.12.1 of the Regulation) that "an insurer
may bring proceedings only in the courts of the Member State in which
the defendant is domiciled...". Article 11 went on to provide, in terms
which are now Art.12.2 of the Regulation, that: "The provisions of this
Section shall not affect the right to bring a counterclaim in the court in
which, in accordance with this Section, the original claim is pending".
The insurer argued that this qualification permitted the bringing of a
counterclaim against parties other than the original plaintiff even if those
parties were domiciled in another Member State. Langley J and the Court
of Appeal rejected this argument, and so did the House of Lords.
42 The following passage in the speech of Lord Steyn (with whom the rest
of the Appellate Committee agreed) is worth quoting in full:
"Second question: does "a counterclaim" mean only a counterclaim
against the original plaintiff?
Counsel for Baltic submitted that as a matter of language "counterclaim"
in article 11 is capable of covering not merely a counterclaim against
the original plaintiff but also a counterclaim against new parties. If the
focus is restricted to the meaning of the word "counterclaim," I would be
content to accept this proposition. On the other hand, the concept of a
counterclaim in article 11 apparently derives from article 15 of the draft
Belgian Judicial Code: see the explanation by Advocate General Léger
in his opinion in Danvaern Production A/S v Schuhfabriken Otterbeck
GmbH & Co. (Case C-341/93) [1995] E.C.R. 1-2053, paras 24-26, 35-37.
And under article 15 of the Belgian Judicial Code a counterclaim was
not permitted against new parties. For my part I would not place too
much weight on this point because the primary search must be for an
objective and independent interpretation capable of accommodating the
needs of a diversity of national legal systems. Counsel for Baltic further
submitted that the wider interpretation would promote the objective of
non-fragmentation of legal proceedings: that is the desirable policy of
hearing related matters in one set of proceedings. I would also accept
this general proposition. But what at first glance may seem a reasonable
argument breaks down when one examines contextual considerations
which bear on the problem.
There are three such factors which point to a narrower interpretation
of counterclaim in article 11. First, the structure of the Convention is
important. The general principle is that national courts of the contracting
state in which the defendant is domiciled are to have jurisdiction: first
paragraph of article 2. Derogations from this principle are carefully
circumscribed in articles 2 to 6: those provisions set out when a
defendant in a contracting state may or must be sued in the courts
of another contracting state. The right to counterclaim is a special
jurisdiction: it is a derogation from the general principle. It must therefore
be restrictively construed. It is rightly conceded by Baltic that as a matter
of language "counterclaim" in article 11 is capable of accommodating the
wider and narrower meanings. The structure of the Convention therefore
suggests that the narrower interpretation ought to be preferred.
The second contextual factor relied on by the Irish parties is that, unlike
article 6.1 and 6.2 contained in Section 2, Section 3 in dealing with
matters relating to insurance does not confer on a plaintiff the right to
join co-defendants or third parties. As my noble and learned friend, Lord
Hoffmann put it in argument it would involve a striking asymmetry if a
defendant has a right to join new parties to a counterclaim. This factor
militates strongly in favour of the narrower interpretation.
The third factor is that Section 3 is an independent code governing
"matters relating to insurance" which was devised for the protection
of insured: see the Gerling case [1983] E.C.R. 2503. That protection
would be substantially eroded if a defendant is permitted to join new
parties to a counterclaim: see Gerling. The policy of non-fragmentation of
legal proceeding has been trumped in Section 3 by giving primacy to the
protection of the insured.
My Lords, in combination these contextual considerations are decisive.
They convincingly demonstrate that the semantic argument of Baltic, as
well as the reliance by Baltic on a general policy of non-fragmentation,
are outweighed by more cogent considerations. I am satisfied that the
correct interpretation of article 11 is that "counterclaim" means only
a counterclaim against the original plaintiff. Given this conclusion it is
unnecessary to consider an alternative argument of the Irish parties that
the counterclaim against them is not made out because the counterclaim
as pleaded does not satisfy the requirements of article 6.3 of the
Convention, which only permits "a counterclaim arising from the same
contract or facts on which the original claim was based."
43 It is true that in the present case the second and third of Lord Steyn's
contextual factors are absent, because the dispute has nothing to do
with insurance. There may therefore be greater scope to argue under s.2
of the Regulation, rather than s.3, that a person other than the original
plaintiff may be made defendant to a "counterclaim". But in my judgment
the first of Lord Steyn's contextual factors, namely the structure of the
Convention, is of itself sufficiently powerful to preclude my going so far
as to interpret "counter-claim" in Art.6.3 as including a cross-claim by a
person who was not an original defendant to the claim. If "counter-claim"
in Art.6.3 were to be construed so broadly, I see no reason why a cross-
claim brought by someone who was not an original defendant against
the plaintiff and others who were not original plaintiffs should not also
qualify as a counterclaim. I do not think that Art.6.3 justifies such a wide
derogation from the domicile rule.
Adding LBJR as a defendant under CPR 19(2)(b)
44 It was at one point suggested that the problem of jurisdiction could be
cured by joining LBJR as a defendant to action 627 under CPR 19(2)(b):
but I fail to see how such joinder could constitute LBJR a defendant to
the original claim. I am not even persuaded that it would be appropriate
under the CPR to call LBJR a defendant. LBJR is a Part 20 Claimant in
these circumstances. In my judgment, the joinder of LBJR to action 627,
under whatever title, or the consolidation of actions 627 and 730, affords
no solution to the jurisdictional question.
45 That is sufficient to dispose of the applications against LBJR. If I am
right thus far, the Court has no jurisdiction to entertain LBJR's Part 20
claim or LBJR's claim in action 730 and DMC is entitled to the relief it
seeks. But in case I should be wrong in this conclusion, I will deal with the
arguments which arise if the Court does have jurisdiction to consider a
counterclaim by a party who is not a defendant to the original claim.
Irregularity and discretion
46 Mr Underhill submitted that the Part 20 claim by LBJR was irregular
because at the time the Part 20 Claim Form was issued LBJR was not
a party to the action. Implicit in this submission is that CPR Part 20
assumes that a Part 20 claimant is already a party to the action either as
a claimant, or as a defendant to the original claim, or as a defendant to a
Part 20 claim already served. Part 20 does not make this clear, nor does
the Practice Direction which supplements it: but I think that the point is
well-founded. In my judgment, CPR 20.2 does not confer any right on a
non-party to join in existing proceedings in order to make a claim. LBJR
ought to have applied under CPR 19.4 to be joined as a Part 20 claimant.
The Court would then have determined the application by reference to
CPR 19.2(2) and to any other objection to its jurisdiction that might have
been raised.
47 The Claim Form was irregular in a second respect. It gave DMC's
address for service as "c/o Freshfields" in London when Freshfields had
given no indication that they were authorised to accept service. The giving
of a London address obviated the need for Clydes to consider whether
it could make a statement under CPR 6.19(1A) of grounds on which
LBJR was entitled to serve the Part 20 Claim Form on DMC in Paris. The
consequence of both of these irregularities was that the Part 20 claim was
issued and served very much more quickly than would otherwise have
been the case.
48 Neither of these irregularities invalidates the Part 20 claim. They were
errors of procedure capable of being remedied under CPR 3.10. LBJR can
still be joined. As for service out of the jurisdiction, Freshfields agreed to
accept service. Whether the defects should be cured by an appropriate
order is a matter of discretion. The factors which were urged on me as
being relevant to the exercise of the discretion were (1) whether LBJR's
solicitors deliberately cut procedural corners in a race to ensure that
the English court was first seised of any issues arising out of the Project
Platform negotiations, (2) whether DMC had been prejudiced by these
tactics, and (3) whether the claims in the Part 20 claim form and the
claims in the Particulars of Claim in action 627 were sufficiently related.
As to (1), I am satisfied that Mr Tricks, the partner at Clydes who had
the conduct of the matter on behalf of LBJR, did not set out deliberately
to break the rules. The errors were inadvertent. Even if Mr Tricks was
reckless, I would not refuse to remedy the errors solely on that account.
So far as prejudice is concerned, I am not persuaded that the time saved
made the difference as to which court, the Commercial Court in London
or the Paris Commercial Court, was first seised of any issues relating
to the Project Platform negotiations. Even if DMC had been aware, on
or about 19th July, that LBJR was applying to be joined as a party to
action 627, I doubt that the service and lodging of the French writ could
have been achieved before an urgent application to join LBJR as a party
to action 627 had been heard by a judge of the Commercial Court in
London. The acceptance of service by Freshfields I regard as a neutral
factor. Freshfields was not misled into accepting service. On the other
hand service was accepted under a threat from Clydes to enter a default
judgment on the Part 20 claim. In the circumstances I do not consider
that the acceptance of service waived the irregularities. The suggestion
by Mr Glick that it was CDW and LBJR who were prejudiced because
Freshfields did not take the point about CPR 6.19(1A) is to my mind
fanciful. I would therefore be minded to exercise the Court's discretion to
correct the errors, were it not for the third matter, namely, the connection
between the subject matter of action 627 and the subject matter of the
Part 20 claim.
49 The premise of the argument about irregularities was that a
counterclaim by a person who is not a party to the original claim is
permitted by Art.6.3. But there is a second hurdle to be surmounted if
jurisdiction is to be established under that provision of the Regulation.
The counterclaim must be one "arising from the same contract or facts
on which the original claim was based". As the editors of Dicey point
out, these requirements are stricter than a requirement that the matters
merely be "related". They are also stricter than the test the Court applies
under CPR 19.2(2) in deciding whether it is appropriate that a party
should be joined. There is no purpose determining whether LBJR ought
to be joined unless there is an underlying basis of jurisdiction. Whilst I
see the force of the argument that the Platform Project negotiations raise
issues which are connected with the claim in action 627 and that it is
desirable that LBJR should be joined so that those issues can be resolved
in the one set of proceedings (CPR 19.2(2)(b)), I do not think that in
the present case the conditions of Art.6.3 are met. The Part 20 claim
does not arise out of the same contract. It is true that four out of the five
declarations claimed in the Part 20 Particulars of Claim refer to the Joint
Venture Agreement. But this is somewhat contrived. There is no dispute
between DMC and LBJR arising out of the Joint Venture Agreement. LBJR
is not a party to that Agreement. The real purpose of the Part 20 claim by
LBJR is to raise in the English Court all of its defences to the issues raised
in the action in the Paris Commercial Court. Those issues do not concern
breach of the Joint Venture Agreement. They concern the alleged wrongful
termination of negotiations which, if they had borne fruit, would have led
to the Joint Venture Agreement being terminated and replaced by a new
joint venture.
50 Whether the Part 20 claim arises from the same facts is a more
difficult issue. I interpret "same facts" in Art.6.3 as meaning "substantially
the same facts", rather than that the facts must be identical. Even
so, I do not consider that the overlap here is sufficient to meet the
requirements of Art.6.3. Whilst there is no doubt that a good deal of
the background is common, in that the Project Platform negotiations
arose out of the pre-existing relationship between DMC and the C. Group
under the Joint Venture Agreement, the negotiations did not begin until
July 1999 and the complaint about their wrongful termination is focused
on the period February to April 2002. The alleged breaches of the Joint
Venture Agreement did not occur before May 2002. Furthermore DMC
maintains that the parties to the claim for breach of the Joint Venture
Agreement and to the claim for wrongful termination of the Project
Platform negotiations are not common. This brings me to the omission
of CDW as a defendant in the French action and the inclusion of CDW as
a counterclaimant in action 627 and co-claimant in action 730. Mr Glick
submitted that DMC's decision to leave CDW out of the French writ was
a tactical ploy designed to distance those proceedings from action 627.
DMC's evidence is that the decision not to sue CDW in Paris was taken
in the genuine belief that CDW was not a counterparty to the Project
Platform negotiations. DMC has emphasised this point by conceding that
CDW has no liability for the termination of the negotiations (see below).
Given the concession, I see no reason to doubt DMC's sincerity. If it was a
tactical ploy, it is one which was always liable to backfire. I am, however,
more than a little suspicious that the reason why CDW was joined as a co-
claimant in action 730 and why it has counterclaimed in action 627 is to
improve LBJR's chances of having the Project Platform issues litigated in
England.
51 I acknowledge that there is a risk of inconsistent findings if the two
disputes are not tried at one and the same time: but inconsistency is
unlikely to occur on any point which is central to either dispute because
they are essentially different in character and largely concern different
points in time. I recognise, on the other hand, that whilst the Commercial
Court in London is quite capable of trying a claim for "rupture abusive de
pourparlers", the better forum in which to try that cause of action is the
Paris Commercial Court. In the end, however, these considerations are
not relevant because in my judgment the Part 20 claim does not meet the
identity requirements of Art.6.3, even if it is no obstacle that LBJR is not
a party to the original claim. It follows that no purpose would be served
by remedying the procedural errors or in allowing the January application
and permitting LBJR to start again.
The position of CDW
52 No point is taken by DMC that the Court lacks jurisdiction to determine
the counterclaim raised by CDW in action 627. Although it raises issues
concerning Project Platform which are materially identical to those raised
in the Part 20 claim, DMC does not object that it is not a counterclaim
"arising from the same contract or facts on which the original claim was
based". This does not mean that DMC accepts that the counterclaim
meets that test. It is a practical concession, made because DMC believes
that none of the Project Platform negotiations were conducted with CDW
and that it has no claim against CDW in respect of those negotiations.
Hence the concession to which I have already referred. DMC has admitted
that CDW is entitled to the declarations of non-liability in respect of the
Platform Project negotiations which it counterclaims. In the Reply and
Defence to Counterclaim served on January 15, 2003, DMC has pleaded
as follows:
"It is admitted and averred that CDW was not a party to the Platform
Negotiations, has no liability to DMC under the JV Agreement or otherwise
arising out of or in connection with the breakdown of the Platform
Negotiations and no legal obligations to DMC by virtue of the DMC MOU or
the C. MOU..."
The future of action 730
53 The question remains as to what should be done about action 730.
If the Court has no jurisdiction to entertain the Part 20 claim by LBJR in
action 627, it likewise has no jurisdiction to entertain the identical claim
by LBJR in action 730. As for CDW, the claim made by CDW as second
claimant in action 730 mirrors the counterclaim in action 627. As such
it is duplicative and an abuse of process. On the fact of it, therefore,
both claims in action 730 should be struck out. But Mr Glick submits that
a reprieve of the claims will serve a purpose if, but only if, as a result
of the decision on the present applications, either in this Court or on
appeal, LBJR is left with some proceedings in England e.g. if the January
application succeeded and LBJR was allowed to start the Part 20 claim
afresh. In that event, the existence of action 730 would preclude it being
argued by DMC in the French action that the French Court was first seised
of issues arising out of the Project Platform negotiations.
54 LBJR has not persuaded me that this Court has any jurisdiction to
entertain its claim over the Project Platform issues. It follows that action
730 should be dismissed in its entirety. However, in case LBJR should
appeal and I should be held to be wrong on the question of jurisdiction,
the order I will make is that action 730 will be dismissed unless LBJR
obtains permission to appeal this judgment and serves a notice of appeal
within the prescribed time. If such a notice is served, it will be for the
Court of Appeal to decide whether action 730 survives.