„(…) STUART-SMITH LJ, (reading the Judgment of the Court): This
action was begun by writ issued on Apr 14, 1993 in the Commercial
Court. The first plaintiff, G. is a Spanish company; the second plaintiff,
T., is its English subsidiary. The plaintiffs claim damages for fraudulent
conspiracy, moneys alleged to be due under constructive trusts, and
damages for breach of duty by directors of the plaintiff companies. The
personal defendants are officers of or professional advisers to the plaintiff
companies; they are said to have engineered or facilitated the frauds.
The 15th to 20th defendants are off-shore companies provided by the
professional advisers for the purpose, it is said, of carrying out the frauds.
All but one of the defendants (the fourth defendant, W.) challenged the
Jurisdiction of the Court, seeking to set aside or stay the proceedings
under RSC, O 12, r 8 or pursuant to the inherent jurisdiction. The central
question is where should the plaintiffs claims be tried, in England, as
the plaintiffs contend, or in Spain as the defendants contend. Mr Justice
Mance rejected the challenge of all the defendants, save in the case of the
claim of G. against C. where the proceedings have been stayed pursuant
to an arbitration clause (see [1995] 1 Lloyd's Rep 374). Save for the
second defendant, R., they have all appealed against the decision of the
Judge.
The parties
X. is a branch of the Y. established in Kuwait and has as its function the
management of investment of funds belonging to the government of
Kuwait. X. is based in London. It has a number of subsidiary companies
in various parts of the world, including, through the medium of holding
companies, K. and KO., both Dutch companies which owned shares in G..
G. is incorporated in Spain and is indirectly controlled by X.. Through
subsidiary companies it operated in various sectors of the Spanish
economy. Since Dec 10, 1992 it has been in a state of suspension of
payments under Spanish law. T. is a wholly owned subsidiary of G.; at the
material time it was substantially managed from Spain.
The first defendant, S. was until Apr 8, 1992, the chairman of X.. Until
May 26, 1992 he was the chairman of K. and KO. and a director and
president of G.. He was served with the proceedings under RSC, O 11 in
the Bahamas but the Judge held that he was domiciled in England and
could have been served in England. He was represented both before Mr
Justice Mance and in this Court by Mr McCaughran.
Messrs RO., SO., N., M. and P. were together referred to as the "Spanish
defendants", being domiciled in Spain. At the material time, Mr RO. was a
director and vice-president of G., and was alleged to have been the most
senior and active individual controlling G. and T.'s business. Mr SO. was
director of finance of T.. Mr N. was the managing director of G. Mr M. was
a director of G. and is said to have worked closely with Mr RO. Mr P. is a
lawyer who was the company secretary of G. until May 26, 1992. Before
Mr Justice Mance the "Spanish defendants" were represented by Lord
Irvine, QC and Mr Briggs, QC and on appeal to this Court by Mr Briggs.
Mr Ri., Mr J. and Mr MO. were domiciled in England. Mr J. was deputy
chairman and general manager of X. until Apr 20, 1990, a director of
K. and KO. until Mar 15, 1990, and at all material times vice-president
and a director of G.. He was not separately represented on the appeal,
but adopted the submissions of the other appellants. Mr F. is a Spanish
lawyer domiciled in Spain. He is said to have been a director of G. and
signatory to its bank accounts from about Oct 1, 1990. He became
secretary to the board of G. on May 1, 1992. His position is on all
fours with that of the "Spanish defendants", Mr C. is an accountant of
British nationality who lives in Spain. His services are said to have been
supplied to G. through C. ("C.& Co"), an English company. Mr RU. is also
an accountant; he lives in Jersey and practices as a partner of L. The
remaining corporate defendants were provided by the various professional
advisers. CR. and WA. are Gibraltar companies provided by Mr C. WR. (an
English company), O. (a Jersey company), WE. and A. (both Isle of Man
companies), were provided by or associated with Mr RU.. CO. and RQ. are
Dutch companies apparently provided by Mr F. and L.. These defendants
were collectively referred to as the LG. defendants, after the name of their
solicitors. They were represented by Mr Onions.
For jurisdiction purposes the defendants fall into three groups
(A) Those domiciled and served within the jurisdiction in accordance with
art 2 of the Convention Scheduled to the Civil Jurisdiction and Judgments
Act, 1982 as amended by the Civil Jurisdiction and Judgments Act, 1982
(Amendment) Order, 1990 (SI 1990 No 2591), the Brussels Convention.
This Group included Mr Ri., Mr J., Mr MO., C.& Co and LG.. They were all
served on Apr 15, 1993.
Those domiciled in other Contracting States under the Convention. These
included the "Spanish defendants" and Mr F. and Mr C., who were served
on various dates between June 21 and Oct 1993. It also included CO. and
RQ., served in June, 1993.
(C) Those domiciled outside the jurisdiction of any of the Contracting
States (the O 11 defendants). This group included the remainder of the
LG. defendants and S. Leave to serve was granted on Apr 29, 1993 under
O 11, r 1(1)(f)
... Claim founded on a tort and the damage was sustained, or resulted
from an act committed, within the jurisdiction...and under O 11, r 1(1)
(c) on the basis that they were necessary and proper parties to the claim
brought against defendants within the jurisdiction.
The plaintiffs' claims
The plaintiffs' claims relate to four separate but interrelated transactions.
It is unnecessary to describe these transactions in detail. In outline they
were as follows:
1. CR.
In May, 1988 US $27.4 m at the request of Mr RO. and Mr J. was
transferred by X. to G.. The money was transferred through X.'s
subsidiaries, including KO., to the Republic National Bank of New York for
"the account of Merrill Lynch Bank Suisse" to a numbered account. From
there the money disappeared without trace. The Judge described it as the
first "black hole". It is alleged that this payment was not for the benefit of
the plaintiffs.
In September, 1989, Banco Santander, at the request of T., transferred US
$25 m to KO.in "partial repayment" of the transfer of US$27.4 m to the
Republic National Bank. It is then alleged that the payment was concealed
by a series of sham documents and transactions, notably a sham loan
agreement by T. to CR., with extensions, a guarantee of the "loan" signed
by Mr N. on behalf of G.. It is said that finally the "loan" was accounted
for by way of inter-company set-off between G. and T., and then written
off in the G. 1990 profit and loss account.
The balance of the US$27.4 m, plus interest, was covered by a payment
of US$2.576,707 by T. and later reimbursed by G. to T.. This is alleged to
have been concealed by a sham invoice from WA. to T. claiming payment
for services which WA. never did or could provide.
2. O.
This operation related to two payments made to O. by T. of US$55 m
in July, 1989 and US $50 m in June, 1990. The plaintiffs assert that
these "loans" were never intended to be repaid; they were again covered
by a series of sham documents, purporting to show genuine loans and
guarantees. For the most part the money has vanished in the second
"black hole"; but the plaintiffs have succeeded in tracing some of the
money. Of the US$55 m, US$7.5 m is said to have been traced to an
account in Mr J.'s name in a bank in Zurich; smaller sums to companies
associated with Mr RU.. As to the US$50 m, US$10 is said to have been
traced to Mr J.'s Zurich bank, US$22.5 m to an account controlled by S. in
a bank in London and US$15.49 to the account of a company in Jersey of
which Mr RU. is a signatory and whose address is the same as L..
3. PI. Under a fiduciary agreement dated Oct 2, 1990, T. through Banco
Santander (Suiza) SA deposited US$300 m with Bankers Trust AG,
Geneva and the latter agreed for a fee/ commission of US$2.1 m to make,
and did on Oct 3, 1990 make, a loan of US$300 m to PI. at T.'s risk and
expense. PI. is a Jersey company now in liquidation of which Mr RU. was
company secretary and now a liquidator. The US$300 m was funded by
an agreement dated Oct 1 1990 between Mr F. for K. and Mr RO. for G.,
pursuant to which K. agreed to lend, and on Oct 4, 1990 did advance,
Ptas 40 billion to G.. This advance was capitalized in July, 1991. G. was
thus able to transfer some US$410 m to Banco Santander for value
date Oct 5, 1991, out of which the US$300 m was paid to PI.. As to the
remainder US$107 m was returned to G. on Oct 24, 1990. The US$300 m
was not intended to be repaid by PI. from its own funds and was not paid
to PI. for the benefit of G. or T.. It represents the third "black hole".
An extremely complex cover up scheme is alleged to have been set up
to conceal the true nature of this arrangement. It is unnecessary to say
more than that again the "loans" or "transactions" are said to be sham.
Since the hearing before Mr Justice Mance the plaintiffs claim to have
traced US$105 m of the PI. money to an account owned and controlled by
Mr RO..
4. LG.
On May 26, 1992 Ptas 2 billion was transferred by G. to T. in Barcelona
and then by T. to an account in the name of LG. in London. On the same
day LG. transferred Ptas 1.96 billion (on the evidence via O.) to Anslow in
the Isle of Man. This constitutes the fourth "black hole". The payment of
Ptas 2 billion is said not to have been for the benefit of T. or G.. It is said
to have been made pursuant to a purported invoice dated Apr 24, 1992
from LG. to a subsidiary of G. called TO. SA, of which Messrs RO. and F.
were officers, referring to a purported agreement of Sept 4, 1989, both of
which are said to have been sham. The plaintiffs are alleged as a result to
have suffered a loss of Ptas 2 billion.
It is unnecessary to set out the parts played by each of the personal
defendants in these various transactions. Not all were involved in all
four transactions. S. is said to have been central to all of them. The
case against the personal defendants is that they each played a part
in securing or facilitating payments which they knew were not for the
benefit of the plaintiffs and in the cover up operations, either as officers
or employees of either or both of the plaintiffs or as their professional
advisers. The corporate defendants, other than C.& Co, were either the
recipients of the payments, the vehicles through which they were made
or were otherwise used by those controlling them to conceal the truth by
a web of false documentation. The plaintiffs' claim is based on conspiracy
to injure, constructive trust and breach of duty by directors and officers of
the plaintiffs.
The proceedings before Mr Justice Mance
…
The issues which are relevant to this appeal arose from the arguments
of the defendants under the Brussels Convention and O 11. Under the
Convention the defendants advanced three arguments:
First, they argued that the "object" of the proceedings was the "decisions
of [the] organs" of G. and that art 16(2) of the Convention required that
the Courts of Spain, being the Contracting State in which G. has its seat,
have exclusive jurisdiction. If this argument succeeded, the English Court
would wholly have to decline jurisdiction.
Secondly they argued that the proceedings involved "the same cause of
action" and were "between the same parties" as proceedings which were
pending before the Spanish Courts and that art 21 of the Convention
required the English Court to decline, or at the least defer, jurisdiction in
favour of the Spanish Courts as the English Court was not the Court "first
seised". At the time that Mr Justice Mance had to give his decision the
European Court of Justice had not delivered its judgment in The Maciej
Rataj (C-406/92: Dec 6, 1994 [1995] 1 Lloyd's Rep 302). It is accepted
that the effect of that judgment is that art 21 only applies to the extent
that the parties before the respective Courts are the same and --
... it does not prevent the proceedings from continuing between the other
parties. (par 34).
The defendants sought to rely alternatively or cumulatively upon two
sets of Spanish proceedings. One was begun by a querella filed by G. on
Jan 8, 1993. These proceedings are primarily criminal but, in common
with some other continental jurisdictions, it is open to the Court under
Spanish procedural law within the ambit of those proceedings to give a
civil judgment for compensation to be paid to a person who has suffered
loss or injury as a result of conduct which the Court has adjudged to be
criminal. There are various ways in which criminal proceedings may be
instituted before the Spanish Courts; the querella is a form of complaint
which is consistent with the Court in due course exercising the power
to give a civil judgment in favour of G.. It is however possible for the
complainant to reserve the civil claim to be exercised separately. The
defendants argued that, for the purposes of art 21, the parties to these
Spanish criminal proceedings included S. and Messrs J., RO., M., N., F. and
SO.. They submitted that the English Court should decline jurisdiction as
between G. and all these defendants.
The other set of Spanish proceedings were the civil action originally filed
by a Spanish company called QE. SA in June, 1992 against G.. Q. was
owned and controlled by Messrs RO. and M. and had a service agreement
with G.. It took the form of a jactitation action alleging injurious falsehood
on the part of G. in relation to the performance of the agreement. On May
18 these proceedings were amended to add as plaintiffs Messrs RO., M.,
N., F. and SO. and to claim declarations of regularity in relation to (among
other things) the four transactions which by then were the subject of the
English action. This action has, for convenience, been referred to as the
"Q." action. The defendants submit that the English Court should also,
as between G. and the Q. plaintiffs, decline jurisdiction in favour of the
Spanish Court.
The third argument of the defendants was that the totality of the English
action and the two Spanish proceedings were "related" actions, that is to
say, "actions which are so closely related that it is expedient to hear and
determine them together to avoid the risk of irreconcilable judgments",
and the English Court, not being the Court first seised, should therefore
apply art 22 and stay the whole of the action. This argument potentially
applied to the whole of the action without making any distinction between
the parties but, like art 21, only applies if the English Court is not the
Court "first seised". …
The issues on the appeal
The arguments which are advanced on this appeal by the defendants are:
(1) That the Court should decline jurisdiction under art 16(2).
(2) That the Court should decline jurisdiction under art 21 in relation to
the common parties on the basis of -- (a) The querella proceedings, (b)
The Q. action.
(3) That the Court should stay the action under art 22.
(4) That, if the Court accedes to the application under art 21, or only
accedes in part to the applications under arts 16(2) or 22, the Court
should decline to exercise its discretion under O 11, or should stay, the
remainder of the action.
The appellants did not therefore seek to challenge the exercise of the
Judge's discretion, if he was right about arts 16(2), 21 and 22. They
argued that, if the result of the application of those articles was that any
part of this litigation should be referred to Spain, then it was appropriate
that the whole of the litigation should go there. They were prepared to
submit to the jurisdiction of the Spanish Court where that was necessary.
The art 16(2) point is free-standing. The art 21 and 22 points are inter-
related as they both raise the question whether the English Court was
the Court first seised. This is a question partly of European law (the
Convention), partly of English procedural law (when was the English Court
seised of the action?) and partly a question of fact when under Spanish
procedural law the Spanish Courts became seised of the proceedings
before them. …
Before Mr Justice Mance, the defendants submitted that a broad and
purposive construction should be given to the article, and in particular
that the word "validity" did not govern the words "decisions of their
organs". They said that the proceedings were principally concerned with
the decisions of G., its officers and shareholders, and consequently the
Spanish Courts should have exclusive jurisdiction. Mr Justice Mance did
not accept their submissions. On the question of the construction of the
article; he preferred to follow Mr Justice Knox in Newtherapeutic Ltd v
Katz, [1991] Ch 226. But he also held that, even adopting the defendants'
broad construction, the case did not come within art 16(2).
It is accepted that the words "proceedings which have as their object"
in this article mean "proceedings which have as their subject-matter" or
"proceedings which are principally concerned with". This approach to art
16 is well established and is illustrated by such decisions as Rossler v
Rottwinkel, (241/83) [1986] QB 33 and Webb v Webb, (294/92) [1994]
ECR 1717.
There has, however, been debate about how the remainder of art 16(2)
should be read: whether it is concerned with proceedings which have
as their subject-matter "the decisions of their organs" or "the validity
of... the decisions of their organs". The grammar of the English text
suggests the former, but the French, German and Italian texts all
point unequivocally to the latter, and the Dutch text has been similarly
interpreted by an academic writer. The narrower interpretation is
supported by Dicey and Morris, Conflict of Laws, 12th ed, vol 1, p 383;
O'Malley and Layton, European Civil Practice, p 533; the explanation of
the article given in the Jenard report (the preceding paragraph merely
reproduces the text of the English version and is without significance);
and the decision of Mr Justice Knox in Newtherapeutics Ltd v Katz [1991]
Ch 226. …
The paragraphs of art 16 constitute a series of exceptions to the basic
jurisdictional rules established by the Convention. The objective of art
16(2) is to confer exclusive jurisdiction to decide questions concerning
the constitution and internal management of a company on the Courts of
the Contracting State in which the company has its seat. It is generally
accepted as a matter of private international law that the law of the place
of incorporation determines the capacity of the company, the composition
and powers of the various organs of the company, the formalities and
procedures laid down for them, the extent of an individual member's
liability for the debts and liabilities of the company, and other matters
of that kind. The objective of art 16(2) is to confer exclusive jurisdiction
to determine all such questions on the Courts of the state where the
company has its seat. The other paragraphs of the article follow a similar
logic. …
Whether an action falls within art 16(2) depends upon its subject matter
-- the nature of the dispute -- not upon the relationship between the
parties. A claim by an officer of a company for wrongful dismissal, for
example, does not fall within the article, though a claim that the decision
to dismiss him had been taken by a meeting of the board which was
inquorate would do so.
In Newtherapeutics Ltd v Katz Mr Justice Knox drew a distinction between
validity and propriety. He was concerned with an action in which it was
alleged that officers of the company had acted in excess of their powers
(i) because they had acted without the authority of a properly convened
and quorate board meeting and (ii) because the transaction to which
they had committed the company was so detrimental to the interests of
the company that no reasonable board of directors could properly have
assented to it. Mr Justice Knox held that the first of these issues fell within
art 16(2) but that the second did not. We agree with him that the first
issue plainly fell within the scope of the article, but we should wish to
reserve for future consideration the correctness of his decision that the
second did not. The powers of directors and other officers of a company
are limited not only by formal or procedural requirements but also by
the general principle that officers of a company must act bona fide in the
interests of the company. Allegations of the kind made in Newtherapeulics
Ltd v Katz are essentially allegations of want of authority, and there is
much force in the contention that they fall within the scope of art 16(2).
Want or excess of authority, however, is one thing, abuse of authority
is quite another. Honest but misguided directors who faithfully record
their actions and purpose and, conducting themselves openly as the
appropriate organ of the company, commit the company to a transaction
which they mistakenly believe to be for its benefit, may be liable for
acting beyond the scope of their authority if the transaction is not and
could not reasonably be thought to be in the company's interest. But that
is not the present case.
The plaintiffs allege that the defendants, or those of them who were in
a position to do so assisted by the others, misappropriated enormous
sums of the plaintiffs' money by procuring sums to be paid into offshore
bank accounts set up to disguise the identity of the recipients, without
the plaintiffs receiving any benefit from the payments, and that they
arranged for the true nature of the transactions to be concealed from
the plaintiffs and their auditors by a series of complicated but sham
accounting transactions. As a result of interlocutory proceedings, the
destination of some of the money has been identified. Very large sums
have found their way to the first, third and fifth defendants or offshore
companies controlled by them, and substantial sums have been expended
by them on maintaining luxurious lifestyles or funding private business
enterprises of their own.
Such a case has nothing whatever to do with any decisions of the
plaintiffs' organs. If the plaintiffs' allegations are true, …those of the
defendants who were officers of the plaintiffs were not acting openly and
honestly as organs and for the benefit of the plaintiffs, but secretly and
dishonestly for their own personal benefit and in fraud of the plaintiffs.
Had such defendants been only some of the persons who composed the
organs of the plaintiffs, it would have been clear beyond argument that in
misappropriating the plaintiffs' money they were not acting as organs of
the plaintiffs but in fraud of those organs. What would have been in issue
would have been, not the decisions of the organs, but the deceit of the
defendants in procuring those decisions to be made. This does not cease
to be the case because all the persons who together constitute the organs
of the plaintiffs are charged with responsibility for the misappropriations.
…
It was contended before Mr Justice Mance, but only faintly before us, that
the questions whether the plaintiffs suffered any loss and whether the
defendants' acts were authorized, ratified and financed by the ultimate
controlling shareholders involve questions of Spanish company law and
fall within art 16(2). They advanced an argument that the plaintiffs had
not suffered any loss on at least three of the transactions because the
relevant money had originated from loans by K. to G. and in July, 1991, at
an extraordinary shareholders meeting of G., it was resolved to capitalize
the loans by issuing additional share capital to K. in satisfaction for the
liability to repay the loans. …
The subject matter of this action remains the frauds which it is alleged
that the defendants have practised on the plaintiff companies. The object
of these proceedings is not decisions of the organs of G. (nor, for that
matter, of T.).
Accordingly, even on the construction of art 16(2) contended for by the
defendants, the present proceedings clearly fall outside it. Article 16(2)
does not debar the English Courts from assuming jurisdiction in respect of
the present action.
ARTICLES 21, 22
…Chronology
As previously stated, the application of these articles requires that the
Court determine whether or not it is the Court first seised. It is therefore
helpful at the outset to list the dates upon which steps were taken in
the relevant actions, this action in England and the criminal, querella,
proceedings and the Q. action in Spain.
9/6/92 Original Q. proceedings filed
26/7/93 Judge Moreiras orders the non-admission of the criminal
proceedings (on the application of Mr RO.)
19/2/93 Judge Moreiras confirms non-admission of the criminal
proceedings (after further intervention by S. and Mr J.)
14/4/93 English writ issued
15/4/93 English writ served within jurisdiction on J., Ri., MO., C.& Co and
LG.
7/5/93 Missing documentation lodged by Q. in original Q. proceedings
12/5/93 Original Q. proceedings admitted
17-18/5/93 English writ served A., WE., CR., WA., RU., L.and O.
18/5/93 Q. proceedings amended by adding RO., M. N., F. and SO.
21/5/93-15/6/93 English writ served on RU., S., RQ. and Co.
18/6/93 Amended Q. proceedings admitted
21/6/93 English writ served on RO., M., SO., C.and F.
9/7/93 Criminal proceedings again not admitted
1/1O/93 Amended Q. proceedings served on G.
1/10/93 English writ served on P.
15/11/93 English writ served on N.
11/2/94 Audiencia National orders that the criminal proceedings be
admitted
[29/4/94 Judge Foncillas stays the Q. proceedings pending the resolution
of the criminal proceedings]
(The italics refer to proceedings in Spain.)
The expert evidence of Spanish Law
…The Judge made findings in relation to Spanish law and on the question
of when the proceedings would be regarded as definitively pending. The
appellants challenge his findings in relation to both the criminal/civil
proceedings and also the amended Q. proceedings. They also criticized
the basis on which he had made his findings of fact regarding Spanish
law. They submitted that he had not had regard to the fact that both the
content of the foreign law and how the foreign Court would interpret and
apply it were matters of evidence. They said that he had substituted his
own view for those of the expert witnesses and had been over-influenced
by English authority.
Questions of foreign law are questions of fact which must be proved to the
satisfaction of the Judge. If the evidence of expert witnesses conflicts, it is
the Judge's duty to resolve these differences in the same way as he must
in the case of other conflicting evidence of fact: (Bumper Corporation
v Commissioner of Police of the Metropolis, [1991] 1 WLR 1362 at p
1368F-G). The Judge is free to scrutinize the witness and what he says
as on any other issue of fact and can use his common sense to reject
the evidence of an expert witness if what he says is patently absurd or
inconsistent with the rest of his evidence. However, where the evidence
of an expert witness on foreign law is not contradicted, the Judge should
be reluctant to reject it: (Sharif Azad, [1967] 1 QB 605 per Lord Justice
Diplock at p 616E). The Court of Appeal should in appropriate cases be
more ready to question the Judge's conclusions on an issue of foreign law
than it is on other questions of fact. But it should be extremely reluctant
to substitute its own views where questions of credibility are concerned,
since the Judge has had the benefit of seeing and hearing the witnesses:
(Parkasho v Singh, [1968] P 233 at 250; Dalmia Dairy Industries Ltd v
National Bank of Pakistan Ltd, [1978] 2 Lloyd's Rep 233 per Lord Justice
Megaw at p 286). There was a conflict of evidence before the Judge; he
was not obliged to accept the evidence of any witness in its entirety;
the findings which he made do not disclose an improper approach to the
expert evidence.
Although it will be necessary to consider the correctness of one of his
findings, we do not accept the criticisms which have been made of the
Judge's treatment of the expert evidence of Spanish law.
The decision of Mr Justice Mance
As previously stated, Mr Justice Mance had to give his decision (see
[1995] 1 Lloyd's Rep 374) without the benefit of the judgment of
the European Court in The Maciej Rataj, [1995] 1 Lloyd's Rep 302.
His decision on the question whether, for the purposes of art 21, the
proceedings were between the same parties was therefore, on any view,
reached on the wrong basis and must be reconsidered. …
The Convention
As stated in its preamble, the primary purpose of the Brussels Convention
is to give effect to art 220 of the Treaty of Rome and --
... secure the simplification of formalities governing the reciprocal
recognition and enforcement of judgments of courts or tribunals
in Contracting States. The provisions for the recognition and enforcement
of judgments are contained in Title III of the Convention. Article 26
provides:
A judgment given in a Contracting State shall be recognised in the other
Contracting states without any special procedure being required
Article 27 contains certain exceptions to this principle which broadly
correspond to recognized aspects of private international law. Paragraph 3
provides:
If the judgment is irreconcilable with a judgment given in a dispute
between the same parties in the State in which recognition is sought.
There is a similar provision in par 5 for res judicata arising from an earlier
judgment of a non-contracting state.
Title II of the Convention deals with jurisdiction. This is a necessary
corollary of Title III. In particular, provision is required to reduce the
risk of conflicting judgments being given in different Contracting States
and so raising problems for the mutual recognition of judgments. Title
II acknowledge that it is possible for the Courts of more than one State
to have jurisdiction in relation to a given matter and that an action may
properly be commenced in the Courts of more than one State. Under art
6, a defendant may be joined in an action properly commenced in one
Contracting State even though that defendant is domiciled in another
State (par 1); third party proceedings and counterclaims are permitted
(pars 2 & 3). It is therefore possible that there may at one time be
pending in the Courts of more than one State actions which will give rise
to the risk of inconsistent judgments, either in the strict conflicts sense of
res judicata or in a looser sense. These are the subject of arts 21 and 22
in 8, which is headed: "Lis pendens related actions".
While the problem of conflicting judgments with which these two articles
are dealing is the same, the subject matter of the two articles is different.
Article 21 applies to "proceedings involving the same cause of action and
between the same parties"; art 22 applies to -related actions". that is to
say actions which, whether or not they involve any of the same parties
or causes of action, should sensibly be tried together so as to avoid
the "brisk of irreconcilable judgments". It is only art 21 which directly
corresponds with art 27.3. This relationship was emphasized in Gubisch
Maschinenfabrik KG v Giulio Palumbo, (144/86) [1989] ECR 420; the
Court stressed that art 21 was concerned with lis pendens as defined
in the article, not as previously understood in the domestic law of any
individual Contracting State.
Article 22 involves the exercise of a discretion; in contrast, the provisions
of art 21 are mandatory and require the relevant Court to "decline
jurisdiction" either immediately or ultimately. But both articles adopt a
common approach and apply the same criterion. They apply a criterion
of temporal priority and use the phrase "the court first seised". The Court
which is first seised is not affected and is entitled to proceed; any other
Court is required to observe the requirements of the articles. The meaning
of the phrase "the court first seised" was considered in Zelger v Salinitri,
(129/83) [1984] ECR 2397. In different Contracting States different
criteria existed for when an action became pending and submissions
were made, supported by the Advocate-General, that the Court should
state at what point any action was to be considered to be pending for the
purposes of arts 21 and 22, for instance, the moment the proceedings
were served. The Court reviewed the comparative material that had been
placed before it and continued:
13. It follows from the comparison of the legislation mentioned above
that a common concept of lis pendens cannot be arrived at by a
rapprochement of the various relevant national provisions. A fortiori,
therefore, it is not possible to extend to all the contracting parties, as is
proposed by the plaintiff in the main action, a concept which is peculiar
to German law and which, because of its characteristics, cannot be
transposed to the other legal systems concerned.
14. It may properly be inferred from Article 21, read as a whole, that a
court's obligation to decline jurisdiction in favour of another court only
comes into existence if it is established that proceedings have been
definitively brought before a court in another State involving the same
cause of action and between the same parties. Beyond that, Article 21
gives no indication of the nature of the procedural formalities which must
be taken into account for the purposes of considering whether or not
to recognise the existence of such an effect. In particular, it gives no
indication as to the answer to the question whether a lis pendens comes
into being upon the receipt by a court of an application or upon service or
notification of that application on or to the party concerned.
15. Since the object of the Convention is not to unify those formalities,
which are closely linked to the organisation of judicial procedure in the
various states, the question as to the moment which the conditions for
definitive seisin for the purposes of Article 21 are met must be appraised
and resolved, in the case of each court, according to the rules of its own
national law. That method allows each court to establish with a sufficient
degree of certainty, by reference to its own national law, as regards itself,
and by reference to the national law of any other court which has been
seised, as regards that court, the order or priority in time of several
actions brought within the conditions laid down by the Convention.
16. The answer to the question raised by the Oberlandesgericht Munchen
is therefore that Article 21 of the Convention must be interpreted
as meaning that the court "first seised" is the one before which the
requirements for proceedings to become definitively pending are first
fulfilled, such requirements to be determined in accordance with the
national law of each of the courts concerned.
Thus the Court declined the invitation to lay down any particular time at
which any action would become pending. In the final sentence of par 14,
the Court accepted that the Convention does not preclude the possibility
that the receipt by a Court of an application may be the moment at which
a lis pendens comes into being. It left the question to the national law
of each of the Courts concerned. But it stated that the test which the
Convention requires the national Court to apply is:
The court "first seised" is the one before which the requirements for
proceedings to become definitively pending are first fulfilled.
It is this test which in our judgment is decisive of the questions which
arise in the present case. It is also to be noted that the Zelger judgment
expressly recognizes that a Court considering an art 21 or 22 question will
have not only to consider the pendency of the action before it under its
own national law but also the pendency under the national laws of other
States of any relevant actions pending before the Courts of the other
States (par 15). Thus it recognizes that the Courts of the one State will
have to reach a decision regarding the pendency of an action before the
Courts of another State notwithstanding that the question involves the
national law of that other State. …
Prior to the judgment of the European Court of Justice in The Maciej
Rataj, (406/92) [1995] 1 Lloyd's Rep 302, delivered on Dec 6, 1994, no
judgment had had to address the question of multiple parties. That case
concerned the carriage on the vessel, the Tatry, of various consignments
of soya bean oil which had been discharged at Rotterdam and Hamburg
contaminated, it was said, by diesel oil. Various actions and cross-actions,
in rem and in personam, were commenced by or against three different
groups of cargo-owners by or against the carriers or one or other of
their vessels in various Courts in The Netherlands and England. The
questions referred to the Court by the English Court of Appeal included
the question of the breadth of the phrases "same cause of action" and
"related actions"; one question directly raised the question how the
phrase "between the same parties" in art 21 was to be understood and
applied. The Court again linked the use of that phrase in art 21 with its
use in art 27(3) and emphasized the need to construe the two provisions
together. The Court held:
33. In the light of the wording of art 21 of the Convention and the
objective set out above, that article must be understood as requiring,
as a condition of the obligation of the second court seised to decline
jurisdiction, that the parties to the two actions be identical.
34. Consequently, where some of the parties are the same as the parties
to an action which has already been started, art 21 requires the second
Court seised to decline jurisdiction only to the extent to which the
parties to the proceedings pending before it are also parties to the action
previously started before the Court of another Contracting State; it does
not prevent the proceedings from continuing between the other parties.
35. Admittedly, that interpretation of art 21 involves fragmenting
the proceedings. However, art 22 mitigates that disadvantage. That
article allows the second Court seised to stay proceedings or to decline
jurisdiction on the ground that the actions are related, if the conditions
there set out are satisfied.
36. Accordingly, the answer to the first question is that, on a proper
construction of art 21 of the Convention, where two actions involve the
same cause of action and some but not all of the parties to the second
action are the same as the parties to the action commenced earlier in
another Contracting State, the second Court seised is required to decline
jurisdiction only to the extent to which the parties to the proceedings
before it are also parties to the action previously commenced; it does not
prevent the proceedings from continuing between the other parties.
Thus the Court held that a party by party approach must be adopted: to
the extent that any of the parties in the relevant actions are the same,
then art 21 applies to those actions in so far as those actions are between
those parties and not otherwise. The Court also recognized that this has
the result that litigation may become fragmented. A Court may have
to decline jurisdiction as between some parties but allow the action to
continue as between others. An art 22 question will then almost certainly
arise and have to be addressed by the Court (or Courts) to which that
article applies.
The Court in The Maciej Rataj was not as such asked, and therefore did
not express a view about, how the question which Court was first seised
was to be answered under art 21 when there were multiple parties. This
point was keenly debated before us. The appellants argued that art 21,
as construed in the Zelger and The Maciej Rataj judgments, requires
the question of definitive pendency to be answered party by party.
The subject matter of the article is the lis between the relevant pairs
of parties; when did that lis become definitively pending? The answer
that the question will receive will depend upon which lis one is asking
about. The logical force of this submission is compelling and it is clearly
supported by the authorities. The respondents on the other hand argued
for a more pragmatic approach. They pointed out that part of the purpose
of the Convention was the simplification of procedures. They argued that
arts 22 and 21 should be construed together and that the Court should
always ask itself as a threshold question which Court was first seised;
it is only after that question has been answered that the Court second
seised need consider under art 21 the extent to which the action before
it involves the same cause of action and is between the same parties.
Hence, they argue that the relevant date for art 21 (and art 22) is the
first date upon which it can be said that any defendant has been served.
…
Mr Justice Mance had to reach his decision without the assistance of the
European Court's judgment in The Maciej Rataj. He did not adopt a party
by party approach; he found it difficult to reconcile with what he regarded
as the rational aims of the Convention. He held (at p 420, col 1) that:
The interpretation "which best matches the context and purpose of
the Convention" is in my judgment one which gives a single date of
definite pendency for each action by taking the date of first service on any
defendant in a case of multiple defendants.
He therefore accepted the argument of the plaintiffs that the English
Courts were first seised when the first defendant was served; he gave
the same answer under art 21 as under art 22. Although it is accepted
that the reasoning of Mr Justice Mance cannot, as such, stand with
the judgment of the Court in The Maciej Rataj, the arguments of the
respondents before us are substantially to the same effect and would, if
accepted, lead to the same conclusion. The respondents, relying upon the
arguments to which we have referred, submitted that the date upon which
the English Court became seised of the present action was still, for the
purposes of art 21, Apr 15, 1993, the date upon which the first batch of
defendants were served. But it is not necessary for us to rule upon this
submission since in our judgment the English Court was the first seised
whether the Apr 15 is the correct date or some later date down to the
end of June by which time, on either side's submissions, all the relevant
defendants save Mr N. had been served with the English writ.
The application of art 2, the Q. action
For the purposes of art 21, the proceedings which are relevant are, in
England, the present action and, in Spain, the "Q." proceedings. (We
will leave on one side for the time being the criminal proceedings; we
consider that the Judge was clearly correct in his conclusion that they
could not assist the defendants' case on art 21.) After the amendment
of the Q. action, the parties who are common to the English action and
to the amended Q. action are G. and Messrs RO., M., N., F. and SO.. It
is accepted for present purposes that the causes of action as between
these parties are the same in the two actions. Approaching the matter on
a party by party basis, as contended for by the appellants, and applying
Dresser, the date at which the English Courts first became seised as
between these parties was June 21, 1993, with the exception of Mr N.
who was not served until Nov 15, 1993.
On this assumption, the relevant question is whether the Spanish Courts
became seised as between these parties before June 21, 1993. Mr
Justice Mance held that they did because he held that the Spanish Courts
became seised on June 18, 1993, the date upon which the amended
Q. proceedings were admitted. Before us both sides challenge this
conclusion. The respondents submit, by their amended respondents'
notice, that the Judge should have found that the Spanish Courts were
not seised until Oct 1, 1994, the date upon which G. was served with
the amended Q. proceedings; if this submission is right, the English
proceedings would take priority whichever of the rival interpretations
of art 21 was to be preferred, save in the case of Mr N.. When the draft
judgments in this appeal were handed down the exceptional position
of Mr N. was not appreciated by the Court, since the argument had
proceeded on the basis that all the added Q. plaintiffs could be treated
similarly. It was then pointed out that this was not so. The matter was
adjourned so that the plaintiffs could decide whether they wished to
continue the action against Mr N., in which case the Court would have to
resolve the dispute as to the interpretation of art 21 to which we have
adverted. In the result the plaintiffs discontinued the action against him
and accordingly, if the respondents are right that the Spanish Courts were
not seised of the Q. proceedings until Oct 1, 1993, we do not have to
resolve this question. We should add that at the same time the plaintiffs'
discontinued against Mr Pique; he is not a party to the Q. proceedings,
but a question in relation to art 22 might have arisen in his case, but for
the discontinuance. The appellants submit that the correct finding is that
the Spanish Courts were seised before June 21, 1993. They put their case
in a number of alternative ways:
(1) The Spanish Courts became seised on June 9, 1992 because once the
Q. proceedings had been amended (on May 18, 1993) the amendment
related back under Spanish procedural law to the original date of filing
and the date of filing is the date upon which a Spanish Court becomes
under Spanish procedural law seised of an action. This way of putting
their case would, if accepted, also make the art 21 interpretation dispute
academic; June 9, 1992 precedes any possible date for the English
proceedings.
(2) Alternatively, if the date of admission not filing is to be taken, the
Spanish Courts became seised on May 12, 1993, the date on which the
original Q. proceedings were admitted.
(3) Alternatively, the date of filing the amendment of the Q. proceedings,
May 18, 1993, is the date upon which the Spanish Court became seised of
the amended Q. proceedings.
(4) Alternatively, if the date of admission not filing is to be taken, the
relevant date is then, as the Judge found, June 18, 1993.
Therefore the critical questions become whether the respondents are right
that the date upon which civil proceedings become definitively pending
under Spanish procedural law is the date of service and whether the
appellants are right that they can rely upon the principle of relation back
recognized by Spanish procedural law. These questions are in fact inter-
related because the appellants use the relation back argument to support
their argument in support of taking the filing date. …
The Judge's finding that admission was the critical date for civil
proceedings was contrary to the views of both side's experts. It has been
submitted to us that he failed to make a necessary distinction between
what was involved in the admission of ordinary civil proceedings (like the
Q. action) and the admission of criminal proceedings started by querella.
He said (at p 435, col 2):
As in the criminal context, the decision by a Spanish civil Court whether
or not to admit represents the process by which the Court determines
whether it will seise itself [of] proceedings which up to that point have
merely been the subject of a claim formulated by a claimant. Admission
is the key to pursuit of the matter. It involves the Spanish Court taking a
positive view as to the regularity of the proceedings both procedurally and
substantively. After admission the Court automatically effects service.
It was accepted before us that the effect of the expert evidence was
that in ordinary civil proceedings the step of admission was a purely
administrative exercise, checking the documents filed by the plaintiff to
see that they comply with the formal requirements and are complete.
Unlike the position in the procedural law governing Spanish criminal
proceedings, admission does not involve any decision by the Court or any
determination that the Court seise itself of the proceedings. Put at its
highest, it is merely the stage at which the papers are accepted as fit for
service. Therefore we accept the primary submission of both parties that,
on the evidence, the date of admission cannot be taken as the date on
which the Spanish Court became seised of the Q. or amended Q. action.
If admission is not to be adopted as the stage at which the Spanish Civil
Court is to be treated as seised of the action for the purposes of the
Convention, the choice lies between the date of filing and the date of
service. In our judgment, the choice does not depend upon determining
any contentious question of Spanish law: the difference between the
parties depends upon how the question ought to be approached as a
matter of the implementation of the Convention.
The evidence is that Spanish law has, like many other continental
jurisdictions, a well established doctrine of lis pendens which can give
rise to a procedural defence, litispendencia. Its statutory basis is to be
found in art 533(5) of the Spanish Code of Civil Procedure which allows
a defendant to raise as an "exception" "the lis pendens in the same or
another court with jurisdiction". The exception litispendencia has the
character of a procedural defence. Its validity is determined upon a
basis of priority. The prior action has the status of being pending; it is
treated as being the "master" and the second action must defer to it.
The exception of litispendencia having been raised in the second action
and upheld, the Judge has various procedural powers to ensure that the
relevant matters are all determined in the first action. It was the view of
the Spanish witnesses, at least on the defendants' side, that art 21 of the
Convention was an implementation of the same principle of procedural
law. …
However it is also clear, and it is accepted by the appellants before us,
that the exception cannot be taken until the proceedings in the action
alleged to be the pending action (the lis pendens) have not only been filed
but also admitted and served. The Judge found:
... They [the witnesses] were on common ground that an exceptio
litispendencia could not be relied on without service of the allegedly
earlier proceedings. Dr CA.' view was that once there had been such
service, the order of filing would govern... (p 434, col 1).
Dr CA. was the defendants' expert.
Thus under Spanish law the priority of two sets of civil proceedings will be
determined by their dates of filing, assuming both to have been not only
admitted but also served when the exceptio litispendencia is raised... (p
435, col 2).
The appellants accepted, and relied upon, these findings.
It is now necessary, using these findings, to apply the test laid down in
Zelger.
Article 21 of the Convention must be interpreted as meaning that
the court "first seised" is the one before which the requirements for
proceedings to become definitively pending are first fulfilled, such
requirements to be determined in accordance with the national law of
each of the courts concerned... (par 16).
On the findings which the appellants accept, it is clear that the
requirements of Spanish law for an action to become definitively
pending are that it has been filed, accepted and served. Until all those
requirements have been met, it cannot be relied upon as a lis pendens; it
merely has a provisional character. The appellants' case confuses the test
for pendency with the procedural rule which applies in Spanish law once
pendency has been established. But it is the Convention, as interpreted
in Zelger, which lays down what the consequences of pendency are to be;
Zelger confines the role of the domestic law to answering the question
when were the requirements of that law for the action to have become
definitively pending first fulfilled. It follows that for the purposes of
arts 21 and 22 of the Convention the Spanish Courts did not become
seised of the Q. proceedings as between the relevant parties until Oct 1,
1993, that is to say, a date after the date upon which the English Court
had, on any view, become seised of the present action as between the
relevant parties, which no longer includes Mr N. and Mr P.because of the
discontinuance of the action against them. …
Accordingly the ground of appeal which was founded on the submission
that as between G. and the Q. plaintiffs, other than Mr N., that is to say,
Messrs RO., M., F. and SO., the Spanish Court was the first seised, fails.
The English Court was the Court first seised under art 21.
The criminal (querella) proceedings
The problems for the defendants in their reliance upon the Spanish
querella proceedings were substantial. Although such proceedings
included within them proceedings which could give rise to a civil
judgment, the civil aspect was ancillary to and dependant upon the
criminal proceedings. The proceedings are started by the filing of a
querella but that is followed by a substantive decision whether the
proceedings are to be admitted. The Judge's finding about the significance
of admission was accurate in relation to the criminal procedure. If not
admitted the proceedings can proceed no further. If the proceedings
are admitted, the matter is then referred to an investigating Judge
who will carry out his own investigations. These are not limited to the
matters or persons referred to in the querella. If at the conclusion of his
investigations, he considers that any criminal charges should be brought
against any person, he passes the file to another Judge who prepares the
provisional qualification, "calificacion provisional". It is at this stage that
the charges will be formulated. It is after this that oral evidence is taken,
a final qualification is settled and the matter proceeds to trial. Who will be
tried and for what will depend upon the formulation of the charges and
the terms of the qualification. It is at the conclusion of the resultant trial
that a finding of civil liability can be made.
It will be appreciated that this procedure means that it will be difficult to
satisfy the Zelger test at any of the earlier stages. It may be impossible
to say definitively who are going to be the parties and what are going to
be the causes of action. All these difficulties applied in the present case.
But the appellants had a further difficulty. As at the end of June, 1993,
by which time all the relevant defendants had been served with the writ
in the English action and the English action was on any view definitively
pending, the status of the Spanish criminal proceedings was that Judge
Moreiras had ruled that they should not be admitted. It was not until
February, 1994 that they were finally admitted by an appellate Court.
(Currently the investigating Judge is still carrying out his investigations.)
Unless the appellants can rely upon some principle of relation back, they
on any view cannot succeed on this ground of appeal. But as is clearly
stated in Zelger, the criterion to be applied is a chronological one. When
were the requirements for the criminal proceedings to become definitively
pending first fulfilled? The date when these requirements were satisfied
could not on the evidence be earlier than February, 1994.
Accordingly this ground of appeal fails as well.
ARTICLE 22, ORDER 11 AND FORUM NON-CONVENIENS
The grounds of appeal relating to art 22, forum conveniens and O 11
leave all postulated that the appeal under art 21 would succeed and
that there would be at least some proceedings which under art 21 would
have to take place in Spain. The appeal under art 21 having failed on the
ground that the English Court was the Court first seised, the dependants'
appeals must fail as well. It is therefore unnecessary for us to enter upon
any consideration of what would have been the potential impact of art 22
upon related proceedings in this country and Spain.
CONCLUSION
It follows that these appeals must be dismissed.
DISPOSITION:
Appeals dismissed. (…)“