Crown Copyright ©
Mr Justice Burton:
1.On 24th May 2010 Gross J gave a judgment in Claim No: 2008 Folio
1324 ("the Corporate Defendants' action") in favour of the Claimants, 30
"one ship" companies, incorporated in a number of off-shore jurisdictions,
all in the ultimate beneficial ownership of the Latvian Shipping Company
("LSC"), after a four day summary judgment hearing against five
companies (four of them registered in the British Virgin Islands ("BVI")
and one in Gibraltar) ("the Corporate Defendants"). It is, at least for
the purposes of this hearing, common ground, that the Defendant and
four others (Mr Berkis, Mr Skoks, Mr Sevcovs and Mr Lembergs) ("the
Beneficial Owners") are the ultimate beneficial owners of the Corporate
Defendants. By that judgment Gross J granted leave to the Corporate
Defendants to defend that action only upon terms of (in effect) a payment
into court of $40 million, to be made by 17 June 2010. The Corporate
Defendants failed to comply with that condition and judgment was
entered against them.
2.The claim in this action is based, as was that against the Corporate
Defendants, upon the Claimants' case that in order dishonestly to siphon
out substantial profits from the chartering business of LSC and the
Claimants, instead of the Claimant companies chartering out their vessels
to arms-length commercial charterers, the Corporate Defendants were
interposed, so that in the case of 63 charterparties they became the
charterers, and the arms-length third parties were caused to be sub-
charterers at substantially higher rates than in the head charters. The
Defendant and the four other Beneficial Owners are said (see paragraph
60 of the Judgment of Gross J) to have "master-minded the Scheme",
whereby he concluded that there was:
"(v) … a real and prima facie cogent case to answer that the Claimants'
corporate opportunities were diverted …that the profits earned by the
[Corporate] Defendants should have been earned by the Claimants and,
hence, by LSC……
(vi) …the secrecy of the Scheme is a powerful pointer to all not being well
with it …
(vii) …it is difficult to avoid the conclusion that the "masterminds" behind
the Scheme … knew enough as to the transactions involved to expose
them to a real and cogent case of dishonesty."
3.The evidence filed on behalf of the Corporate Defendants in that action,
both in response to disclosure orders and in the summary judgment
application, by (among others) Mr Martins Kveps, the lawyer for the
Defendant and for three of the four other Beneficial Owners, by Mr
Paderov, the sole (nominee) shareholder of each of the Corporate
Defendants and by Ms Nina Glebova, who held Power of Attorney for the
Second to Fifth Corporate Defendants and was sole director of the First
Corporate Defendant.
i) the Corporate Defendants were "merely used as vehicles" (Ms Glebova's
fifth affidavit paragraph 13) for the 63 chartering transactions in which
the Corporate Defendants were interposed between the Claimants and
third parties:
ii) the decisions were taken by an informal organisation with regular
meetings, called the "Table", of which the Defendant and the other
Beneficial Owners were the dominant members, who were, as Gross J
found (paragraph 8 of his Judgment), "all senior executive officers of LSC
and had, or are to be taken as having had, effective control of the tanker
fleet department of LSC".
4.In the light of that evidence, and other evidence available to the
Claimants, referred to in the first affidavit of Mr Lockwood dated 10th
December 2008 on their behalf (including a report from a Mr Kodols
dated 1st August 2007), the Claimants have commenced this action
by which (paragraph 3 of the Particulars of Claim dated 7th October
2010) "the Claimants seek to "pierce the corporate veil" and to hold
the Defendant jointly and severally liable with each of the Corporate
Defendants in respect of the Claimants'…losses", including, but not limited
to the estimated sum lost to the Claimants by virtue of the Scheme of
$100 million.
5.The Claimants rely (primarily) in order to establish jurisdiction against
the Defendant upon the jurisdiction clause (41) in the 63 charterparties
to which the Corporate Defendants, and thus, on the Claimants' case, by
virtue of the piercing of the veil, the Defendant were parties, namely that,
by way of a standard form SHELLTIME 4 Time Charterparty, "any dispute
arising under this charter shall be decided by the English Courts to whose
jurisdiction the parties hereby agree".
6.Beatson J granted, on an ex parte application by the Claimants on 17th
November 2010, a freezing order, when he concluded that "although the
evidence is that the Defendant was not the sole controlling mind, if on the
evidence before me there is a good arguable case that he was one of the
controlling minds, then that condition in the principles summarised in Ben
Hashem v Ali Shayif [[2008] EWHC 2380 (Fam)] is satisfied" (paragraph
17 of the judgment) and (paragraph 19) "that the Corporate Defendants
were used solely for pursuing the Scheme … there were no directors of
the Corporate Defendants involved in their management or administration
… the Defendant and the others used the Corporate Defendants as
vehicles for these transactions". He concluded in paragraph 36:-
"… where there is a good arguable case that the requirements for piercing
the corporate veil have been satisfied and that the Defendant is the alter
ego, or one of the alter egos of the Corporate Defendants, there is also
a good arguable case that he should be regarded as stepping into their
shoes so that the acts of those Corporate Defendants are seen as his
acts. For this reason, there is a good arguable case that the Defendant
is to be seen as agreeing to the jurisdiction of the court by reason of the
jurisdiction agreement set out in Clause 41 of the Charters in a manner
which satisfies the requirement of Article 23."
7.By order of Beatson J on 24th November 2010, being the return
date of his original Order, it was agreed that there would be an inter
partes hearing to determine the issue of the Court's jurisdiction in the
proceedings and the jurisdiction to make the continuing freezing order,
which was continued until that date. This has been such hearing, at which
I have been given very great assistance by counsel on both sides, and
there has been no separate argument in relation to the continuation of the
freezing order. If I conclude that this court has no jurisdiction to entertain
these proceedings, then of course the freezing order falls away. If I accept
the Claimants' case as to jurisdiction then there is no material separate
argument as to the existence or non-existence of a good arguable case
(or risk of dissipation) in relation to the freezing order, which would
accordingly continue until trial.
8.The issues appear to me to be as follows, on the Claimants' case, and
by reference to the evidence before me:-
i) Whether the Claimants can pierce the corporate veil on the basis that
the Corporate Defendants were used, by the Defendant (and the other
Beneficial Owners) controlling them, as a device for the purpose of a fraud
on the Claimants, and if so, whether the Defendant (with the others) is
liable as a party to the charterparties which the Claimants were caused to
enter into with the Corporate Defendants, and
ii) if so, whether, by virtue of the exclusive jurisdiction clause in the
charterparties, jurisdiction can be founded against the Defendant under
Article 23 of the Judgments Regulation EC No 44/2001, or
iii) whether the Defendant has submitted to the jurisdiction of the English
court by reference to Article 24.
9.In my judgment, the first question is whether, on the Claimants' case,
at English law the veil can be pierced against the Defendant:-
i) Because the Corporate Defendants were set up and used as a
fraudulent device to conceal the personality and involvement of (among
others) the Defendant ("Piercing the Veil"):
ii) Whether the Defendant (with others) controlled the Corporate
Defendants ("Control"):
iii) Is it required to be, and if so is it, necessary to pierce the corporate
veil ("Necessity")?
iv) Is the Defendant liable to the Claimants as party to the charterparties
("Liability in contract")?
v) Have the Claimants elected against pursuing the Defendant in contract,
by issuing proceedings and obtaining judgment against the Corporate
Defendants ("Election")?
vi) Is the Defendant a party to the jurisdiction clause ("Separability")?
10.The second question in my judgment is then whether the Claimants
can found jurisdiction by reference to Article 23. On the Claimants' case:-
i) Does English law apply to the identity of the parties to the contract
("Identity of the parties")?
ii) Was there consensus between the Claimants and the Defendant so as
to found jurisdiction within Article 23 ("Consensus")?
11.The third question then relates to Article 24, namely as to whether,
on the Claimants' case, the UK Courts have jurisdiction because the
Defendant entered an appearance ("Entry of appearance").
12.After considering those issues, I shall return later to the question as
to what the relevant test is on a challenge to the jurisdiction, such as this
has been, which the Claimants must satisfy, and whether the Claimants
have satisfied such test.
Piercing the Veil
13.Although there have not been many decided cases in which the veil
of incorporation has been pierced so as to render those who control the
company, whether shareholders, directors or beneficial owners, personally
liable, since the seminal decision of Gilford Motor Company v Horne
[1933] Ch. 935, there is now quite a catalogue of such decisions, many
if not all of them put before me: nine in which the veil has been pierced
and ten (including Ben Hashem) in which the adoption of such course
has been considered but in the event rejected. It is clear that the seminal
passage is that in the judgment of Sir Andrew Morritt VC in Trustor AB v
Smallbone and others (No.2) [2001] WLR 1177 at 23:-
"In my judgment the court is entitled to "pierce the corporate veil" and
recognise the receipt of the company as that of the individual(s) in control
of it if the company was used as a device or façade to conceal the true
facts, thereby avoiding or concealing any liability of those individual(s)."
14.It is quite clear that that is exactly what (on the Claimants' case)
occurred here: see also the passage in the judgment of Rimer J in Gencor
ACP v Dalby [2000] 2 BCLC 734 at 744:-
"Burnstead is simply a creature company used for receiving profits for
which equity holds Mr Dalby to be accountable to ACP. Its knowledge was
in all respects the same as his knowledge. The introduction into the story
of such a creature company, is, in my view, insufficient to prevent equity's
eye from identifying it with Mr Dalby: see generally, as to the readiness of
the Courts in appropriate cases to pierce the corporate veil, re: H…[1996]
2 BCLC 500 at 511, per Rose L.J."
15.The only apparent limitation that has been placed on the doctrine,
given the necessary requirement that the trigger for it is not simply
fraudulent dealing by a company but the fraudulent misuse of the
company structure, as Morritt VC made clear, is that, using the gallicised
words of Munby J in Ben Hashem at 199 (referred to by Flaux J in
Lindsay v O'Laughnane [2010] EWHC 529 QB at 134) the wrong-doing
must not be "dehors the company", i.e. something outside the ordinary
business of the company. Whether the phrase "dehors the company"
is ever a very helpful or meaningful expression, I do not know, but
consideration of it is clearly inappropriate on the facts of this case, when
the Corporate Defendants had, on the Claimants' case, no independent or
non-fraudulent existence. The fraud was plainly "dedans" the company,
but that was because the company was set up for that very purpose, in
order to abuse the company's structure.
Control
16.In his skeleton Mr Millett did raise an issue by reference to the fact
that the Defendant was not suggested to have been in sole control of the
Corporate Defendants. Although there may have been cases (such as
Dadourian Group International Inc v Simms [2006] EWHC 2973 (Ch) –
see paragraph 690) in which the existence of some independent element
may mean that, on the facts, no or no sufficient control is vested in the
alleged wrongdoer for it to be possible to be said that the company was
his or her alter ego, in the event, in the course of argument, Mr Millett
did not pursue such contention on the facts of this case. He accepted,
and rightly, that if there were a number of wrongdoers, with a common
purpose, in control of the 'creature' company, then they could all be said
to be in material control, so that the veil of incorporation could be lifted as
against one or all of them: thus in the passage of the judgment in Trustor
recited in paragraph 13 above, the reference to "individual(s) in control
of the … company" and so too in Ben Hashem at paragraph 163, the
reference by Munby J to "control of the company by the wrongdoer(s)".
17.In this case it seems on the evidence that one of the Beneficial
Owners, Mr Lembergs, was more dominant, and a point is made that
neither he, nor in any event the other three Beneficial Owners who remain
in association with the Defendant (unlike Mr Lembergs), have been
joined in this action (though they plainly might be, by the Defendant
or by the Claimants, if it continues) but there is no doubt at all on the
evidence that the Defendant was one of those controlling, and in concert
with the others: just as in Gilford Lawrence LJ was influenced (at 965)
by the fact that although the "inference might have been displaced by
evidence adduced on the part of the Defendants, …no such evidence was
forthcoming", so too here there is at present no counter-evidence from
the Defendant. On the evidence before me, the Defendant was a member
of the LSC Supervisory Council, was an influential member of the Table
and according to Mr Kveps (paragraph 20 of his first affidavit) was the
person who approached Mr Paderov to be nominee shareholder of the
Corporate Defendants: according to the first affidavit of Mr Lockwood on
the Claimants' behalf (paragraph 153), the charterparties were entered
into with the knowledge and assistance of the Defendant.
Necessity
18.This is raised by Mr Millett by reference to the words of Lawrence
Collins J (as he then was) in CMS Dolphin Ltd v Simonet and another
[2002] BCC 600 at para. 103:-
"But I do not think that it is necessary to resort to piercing or lifting the
corporate veil, since Cook v Deeks shows clearly … that the directors are
equally liable with the corporate vehicle formed by them to take unlawful
advantage of the business opportunities"
and to the words of Warren J in Dadourian at para. 682. Warren J there
said:-
"In all of the cases where the court has been willing to pierce the
corporate veil, it has been necessary or convenient to do so to provide the
claimant with an effective remedy to deal with the wrong which has been
done to him and where the interposition of a company would, if effective,
deprive him of that remedy."
What Warren J said seems to me plainly not to be the case. As will be
seen, in Gilford Mr Horne was under a restrictive covenant preventing
competition (clause 9) in his contract of employment, and he set up a
company in order to disguise the existence of such competition. There
would not have been any difficulty in putting the case, and seeking or
granting a remedy, by reference to a claim against the company for
knowing procurement of Mr Horne's breach of contract, or simply relying
upon agency, by granting an injunction against Mr Horne restraining
breaches by himself his servants or agents, which would plainly have
included his company: but this was neither done nor addressed. Similarly
in Jones v Lipman [1962] 1 WLR 832 where Mr Lipman personally entered
into a contract for sale of a property to the plaintiff, and then sold on to
his puppet company (as found), there could have been relief and remedy,
as Mr Millett himself pointed out by virtue of his researches in Snell's
Equity, by the grant of an order in equity for specific performance by
reference to the estate contract, against the puppet company as being
a third party purchaser with notice: but again this was not addressed or
considered at all, and specific performance was granted only by reference
to Gilford and the piercing of the veil. In Trustor too, it is plain that there
could have been a claim against the puppeteer for equitable compensation
for breach of fiduciary duty.
19.In any event it is clear in Dadourian that there was a significant
context. Warren J had concluded that the Dadourians ("Jack and Helga")
were liable in deceit for fraudulent misrepresentation inducing the
contract with the alleged puppet company. Once they had been found
liable for such fraudulent misrepresentation, that would mean recovery
for the claimants against the Dadourians for all the losses flowing from
the misrepresentation, and their consequent entry into the contract – a
measure of damage inconsistent with damages for loss of bargain under
the contract – and it was unnecessary to pierce the veil in order to found
the tort for deceit which in any event lay directly against the Dadourians
as the tortfeasors:-
"684.…It seems to me …that whilst a person committing the tort of deceit
should be liable for all the loss which flows from his misrepresentation, it
would be unprincipled to impose a liability on him for the loss of bargain
suffered by a misrepresentee in respect of a contract with a third party
with whom he had been induced to contract by the misrepresentation"
685. …there is no need and it would be inappropriate, to lift the veil in
order to provide A with a contractual remedy against B; A recovers all his
loss arising as a result of the misrepresentation by his tortious claim in
deceit.
686. If that is correct, the question arises whether it is necessary in
the present case to lift the veil …in order to provide the Claimants
with the remedy to which they are entitled. In my judgment, it is not.
Charlton, if it was being used as a device at all, was being used to hide
the involvement of Jack and Helga and, if that concealment had not taken
place, the Option Agreement would not have been entered into. The
Claimants have their remedy against Jack and Helga in the form of an
action for fraudulent misrepresentation. There is simply no need, in order
to give the Claimants redress for that misrepresentation, to lift the veil at
all: indeed to do so would achieve nothing in relation to that wrong."
20.It is in these circumstances that, at the end of a lengthy trial and a
lengthy judgment, Warren J did not think it was necessary to consider
piercing the veil. So too, in not dissimilar circumstances, Flaux J said in
Lindsay:-
"130. Given that I have found that the claim in deceit succeeds, it is not
strictly necessary to decide whether this is an appropriate case in which
to pierce the corporate veil and permit a claim which would otherwise be
pursued against the company to be pursued against the defendant":
and he refers to Warren J's conclusion in paragraph 685 of Dadourian
that the claimant "recovers all his loss arising as a result of the
misrepresentation by his tortious claim in deceit".
21.It is wholly clear to me that the fact that a trial judge may conclude
in his judgment that it is not necessary on the facts of a particular case
(particularly where the defendant sought to be made liable as alter
ego has already been found personally liable, and by reference to an
inconsistent measure of damages), to pierce the veil, in no way supports
the proposition that a claim at the outset of proceedings is demurrable
unless it is shown to be necessary. The concept of necessity is not a fetter
upon such a claim. It does not need to be pleaded or proved in limine.
Piercing the veil is an exceptional course, not a "routine adjunct to any
claim brought against a company for dishonest assistance or knowing
receipt" per Norris J in Law Society v Isaac [2010] EWHC 1670 (Ch)at
para. 40); but it is not a requirement for such a claim, at a time when
the outcome of the proceedings is unknown, for it to be shown to be
necessary.
Liability in Contract
22.The Claimants' case is that, as a result of the piercing of the veil,
the Defendant is jointly and severally liable under the 63 charterparties
into which the Corporate Defendants entered. As for evidence, there is,
on the Claimants' case, sufficient to show that he was responsible for
what the puppet companies did, and, in addition, Mr Kodols' report at
page 19 states that the Defendant "not only knew but most likely also
organised …the conclusion of the hire agreements unbeneficial to [LSC]
and subsequent handing over of the vessel owned by the subsidiary
companies …for sub-hire to other foreign companies for the rates that
were much higher and corresponding to the market rates." If he, with
the others, was alter ego of the puppet companies then his knowledge
was the companies' knowledge, and vice versa (Rimer J in Gencor in
paragraph 14 above) and his acts their acts and vice versa: "wherever I
am, there's always Pooh".
23.Mr Rainey accepts that there is no reported case in which the veil has
been pierced so as to place the puppeteer into the puppet's contract, but
he submits not only that there is nothing in the decided cases to cast
doubt upon his proposition, but that support can be gained from them:-
i) In Gilford, the puppet company was not in existence at the date when
Mr Horne entered the restrictive covenants. The remedy that was granted,
and upheld on appeal, was an injunction restraining breach of clause 9
against both Mr Horne and his company. Mr Rainey submitted that the
company was treated as party to the contract – no other jurisdiction
to grant the injunction against Mr Horne and the company was relied
upon. Mr Millett submitted that it was a question of remedy only, but
Lord Hanworth MR at 956 did expressly refer to breaches of the covenant
by Mr Horne and his company, which tends to support Mr Rainey's
submission. It is a case in which, if such is what occurred, the puppet
was liable under the puppeteer's contract, but, submits Mr Rainey,
there is nothing to prevent the puppeteer being made liable under the
puppet's contract and he would be if, for example, a contract for sale by
Gilford to the puppet company (in breach of a similar obligation on non-
competition) were sought to be enforced against the puppeteer.
ii) In Jones the puppet company was probably in existence at the date
of the sale contract by Lipman (though still on the shelf). Although, as
Mr Millett says (see paragraph 18 above), the cause of action could have
been put on a different basis, it was not. Specific performance of the
contract of purchase was ordered both against puppeteer and puppet,
by express reference to Gilford and piercing of the veil. Again in the
reverse situation the same result could have occurred if it had been, for
example, a sale by the puppet company, and the sale on had been to
the puppeteer; on exactly the same basis the contract could have been
enforced against both.
iii) In Dadourian, the decision of Warren J was not to lift the corporate
veil so as to render "Jack and Helga" liable in contract, though to an
extent the decision could be said to have been obiter, or at any rate
less significant, as he concluded that he would not have lifted the
corporate veil anyway (paragraphs 690-693) and that he would not
have found that the fraud was dehors the company: "the fraud….was
the misrepresentation not the use of a company" (at 692). There was
a finding of fact that Jack and Helga would not have entered into the
contract anyway "if it had been unnecessary to hide their involvement" (at
687). He considered it would be "unprincipled" to impose upon "a person
committing the tort of deceit [and thus] liable for all the loss which flows
from his misrepresentation …a liability … for the loss of bargain suffered
by a misrepresentee" (684 cited above). He concluded:-
"687. If it had been unnecessary to hide Jack and Helga's involvement
(because, counter-factually, DGI would have been willing to sell to them)
it could not, I think, be suggested that the veil should be lifted so as to
make them contractually liable for Charlton's breach of contract. It is
certainly not the case, and I so hold, that Jack and Helga would have
purchased the Tooling and General Equipment themselves rather than
through a company if it had been unnecessary to hide their involvement.
In my judgment, even if Charlton can properly be described as a façade
or sham or device, it is not appropriate to lift the veil to make Jack and
Helga contractually liable for a contract which they would never have
entered into themselves.
688. In case I am wrong in that approach so that in principle the
veil could be lifted to provide the Claimants' with the equivalent of a
contractual remedy against Jack and Helga for loss of bargain, I should
address the evidence further to determine whether this is an appropriate
case, on the facts, for lifting the veil."
As I have set out above, he then concludes, at paragraph 693, that
"this is not a case where it would be appropriate to lift the veil for the
purposes of making Jack and Helga liable for the contractual obligations
of Charlton." However, he then adds "for completeness" in paragraph 694
(b):-
"…I consider that there is a great deal of force in [counsel's] submission
that the arrival on the scene of Eastcastle would not enable Jack and
Helga to escape liability if the veil were…to be lifted. If the veil is to be
lifted at all, it is by virtue of Jack and Helga's involvement in Charlton
coupled with their fraudulent misrepresentations, in the time leading up
to the Option Agreement. They effectively made themselves liable under
Charlton's contract at the time of its conclusion in September 1997. They
cannot escape liability by divesting themselves, even assuming that they
did so, of their interest in Charlton."
24.None of the other reported cases includes a finding of contractual
liability, but Flaux J in Lindsay said at paragraph 130, set out in paragraph
20 above, that he would not, as there appears, decide whether to pierce
the veil. He continued by referring to Dadourian at paragraph 684-5
where:-
"Warren J held that where a claim in deceit succeeded against the person
controlling the company, it would be inappropriate to permit the veil to
be lifted to enable the claimant to pursue a contractual claim against that
person. As he put it, the claimant "recovers all his loss arising as a result
of the misrepresentation by his tortious claim in deceit" (paragraph 685).
This point was not addressed in the Court of Appeal."
Flaux J then proceeded to consider whether he would have pierced the
corporate veil if for example fraudulent misrepresentations had been
made but were for some reason unenforceable, such as to deprive the
claimant of the remedy in deceit which he had just found was available
to him. On the facts of that case, he concluded that the wrong-doing
was not "dehors" the company, and that it was not a case in which the
companies were being used by the defendant as a façade to disguise his
wrong-doing, so that for that reason (paragraph 140) "this would not be
an appropriate case in which to pierce the corporate veil … [but] the point
is academic since the claimants' claim in deceit succeeds."
25.Mr Millett points out that Warren J at para. 688 of Dadourian, quoted
above, referred to the veil being "lifted to provide the Claimants with
the equivalent of the contractual remedy against Jack and Helga for
loss of bargain", but reference can also be made to paragraph 678, in
which he refers to the fact that if the corporate veil were to be pierced
"this would, of course, make Jack and Helga liable for the loss of bargain
damages which were awarded against Charlton for breach of contract,
although there could not be double counting: the Claimants could not
recover the same damages twice, once for breach of contract and once
for misrepresentation since any recovery of contractual damages would
reduce the loss flowing from the misrepresentation" (my underlining
throughout). Warren J also referred, in paragraph 685 (set out in
paragraph 19 above), to there being "no need … to lift the veil in order to
provide A with a contractual remedy against B". He could have provided,
but did not in the event, that contractual remedy by enforcing the
contract against the Dadourians.
26.I am satisfied that both Warren J in Dadourian and Flaux J in Lindsay
were only ruling out the course of finding the puppeteer liable for breach
of contract because in neither case was it appropriate to do so in the
event, since a remedy of finding the puppeteer personally liable (as
tortfeasor) had already been granted which was, certainly in the case
of Dadourian, inconsistent with taking the contractual route. None of
the reasons which Warren J put forward argues against a conclusion,
depending on how the facts fall out at trial, that in this case the puppeteer
should be held party to the puppet company's contract. There is in my
judgment no good reason of principle or jurisprudence why the victim
cannot enforce the agreement against both the puppet company and the
puppet who, all the time, was pulling the strings. The Claimants seek to
enforce the contract against both puppeteer and the puppet company (as
in Gilford and Jones). Mr Millett's reference to Shogun Finance Limited v
Hudson [2004] 1 AC 919 does not seem to me to be apt. In that case the
victim did not wish to enforce the contract against the fraudster, but to
deny its existence.
27.Two matters remain to be dealt with:
i) I accept the force of Mr Rainey's case that the puppeteer can be made
liable, as a party to the contract, but that as a matter of public policy he
cannot enforce the contract. This is, to an extent, the obverse of the case
where, if a third party can establish that an agreement was entered into
for its benefit, he can enforce, but not be sued under, that contract by
reference to the Contracts (Rights of Third Parties) Act 1999 (see eg WPP
Holdings Italy SRL v Benatti [2006] 2 CLC 142). Mr Millett raised what
he said was an anomaly, if such a submission were accepted, whereby, if
the victim wanted to keep alive a contract after discovery of the existence
of the puppeteer, e.g. in this case to continue with a charterparty, the
puppeteer, though liable under the contract, would not be able to enforce
it, so as, for example, to obtain sums due under it, but that is of course
not a problem, as in such an unlikely event the puppet company could still
enforce the contract, and recover any monies due.
ii) Mr Rainey did run an alternative case that the puppeteer could be
said to have become a party by succession, although recognising the
difficulties that it is only the obligations and not the rights under the
contract to which the puppeteer would be said to have succeeded: Gilford,
where the company was not in existence at the time of the contract, could
only be explained on that basis. He recognised however, in the course
of argument, that in reality his claim in this case is put forward not by
reference to any reliance upon succession, but firmly on the basis that
at the date of the contract the puppeteer was, and then remained, an
original party to the contract.
Election
28.Mr Millett submits that, by analogy with the agency cases, the
Claimants have elected by taking judgment against the Corporate
Defendants. He puts forward no alternative case of estoppel based
upon any other facts. This of course can only succeed if (i) the claims
against the puppeteer and the puppet are alternative; (ii) the decisions on
election as between principal (including undisclosed principal) and agent
are extended. As to the latter, it has always seemed to me that the 19th
century cases of election (e.g. Priestly v Fearney (1863) 3 H&C 977 – and
see Bowstead and Reynolds on Agency (18th Ed) at 8-117) constitute a
wholly unfair historical anomaly, which I see no need or justification to
extend. But as to the former, this is not the Claimants' case, in principle
or in fact. Mr Rainey's case is that there is joint and several liability of
the puppet and puppeteer, as in Gilford where (see paragraph 18 above)
both are in breach, and the injunction is granted against both. The puppet
company is not a sham, such as in Snook v London and West Riding
Investments Ltd [1967] 2 QB 786 at 802, and does not simply disappear,
and the concept of alter ego is not an agency concept. As I put it in the
course of argument, it is not a question of a Russian, or Latvian, doll, with
the company lifted off and disappearing once the alter ego is revealed,
but of the curtains being pulled back to reveal the puppeteer and the
puppet. There has been no election.
Separability
29.Mr Millett's submissions in this regard in my judgement misfire.
This concept draws its basis from Fiona Trust v Privalov [2008] 1
Lloyds Rep 254, and was examined in Deutsche Bank AG v Asia Pacific
Communications Inc [2008] 2 Lloyds Rep 619. The jurisdiction clause has
its own life, irrespective of whether the bulk of the contract is invalid,
so that the court selected by the jurisdiction clause remains to judge,
whether by its domestic law or its private international law, questions
of validity/voidness/voidabililty/illegality of the contract of which the
jurisdiction clause otherwise forms part. The jurisdiction clause is thus
separable, and, as Professor Briggs put it in his Article in the British
Yearbook of International Law (2003) at 540 "does not necessarily go
down with the ship". So much is common ground.
30.That does not however mean that there has to be separate
consideration – in relation to a standard clause, numbered 41 – of
whether the jurisdiction clause also was entered into by the alter ego.
As Hamblen J stated in Polskie Ratownictwo Okretowe v Rallo Vito
SNC [2010] 1 Lloyds Rep 384 at 37 "…it is sufficient for a party to
agree to standard terms that contain a jurisdiction clause. It is not
necessary for there to have been an agreement specifically as to the
jurisdiction clause". As it happens, however, in this case it is clear that
(on the Claimants' case) all the contracts entered into by the Corporate
Defendants were in pursuance of the Scheme, and Mr Solomatins, who
was a member of the Supervisory Council of LSC with the Defendant,
in his affidavit on behalf of the Claimants considered (at paragraph 23)
that the Defendant would have been influential in the setting up of the
agreements, and Mr Lockwood refers (at paragraph 76.5) to an email
from a Mr Markevics, to the effect that the terms of the charterparties
were agreed at LSC management level.
EU Law/English Law
31.It is common ground that English law (i.e. national law) governs
the existence (i.e. scope and effect) and interpretation of a jurisdiction
clause, and EU law governs formality and consensus (see e.g.Powell
Duffryn PLC v Petereit [1992] ILPr 300 at paragraphs 33, 37, 13, Provimi
Ltd v Aventis Animal Nutrition SA [2003] ECC 29 at 59, Benincasa v
Dentalkit Srl [1997] ILPr 559 at 25, 31). Substantial validity of a contract
– void/voidable/illegal – is governed by the law, including the private
international law rules, of the chosen jurisdiction.
32.The issue before me is as to which law governs the identity of the
parties to the contract, including the jurisdiction clause. Lewison J in
Knorr-Bremse Systems for Commercial Vehicles Ltd v Haldex Brake
Products GmbH [2008] ILPr 26 ("KBS") at paragraph 32 stated:-
"Article 23 of the Judgments Regulation applies where "the parties" have
agreed that a particular court is to have jurisdiction. The agreement
must be in writing or evidenced in writing. The purpose of the formal
requirements is that of legal certainty. One of the fundamental parts of
any agreement is who is a party to it. In my judgment therefore, the
formal requirements of Art. 23 require that there is a written record of
who is party to the agreement."
33.There is however no such provision in Article 23, which reads as
follows:-
"1. If the parties, one or more of whom is domiciled in a Member State,
have agreed that a court or the Courts of a Member State are to have
jurisdiction to settle any disputes …, that court or those Courts shall have
jurisdiction … Such an agreement conferring jurisdiction shall be either:
(a) in writing or evidenced in writing; or
(b) in a form which accords with practices which the parties have
established between themselves; or
(c) in international trade or commerce, in a form which accords with a
usage of which the parties are or ought to have been aware and which
in such trade or commerce is widely known to, and regularly observed
by, parties to contracts of the type involved in the particular trade or
commerce concerned."
34.I consider that Lewison J was wrong in this regard, and Mr Millett did
not actively seek to support the proposition, which is not itself supported
by, nor founded upon, any European authority or any previous English
authority. It is in fact, in my judgment, inconsistent with the authorities
to which I shall refer, and it may have influenced his conclusions on other
aspects of his judgment, to which I shall return.
35.Mr Rainey submits that English law decides the identity of the parties,
and EU law then decides, in relation to the parties so identified, whether
consensus between them can be established. Mr Millett however submits
that EU law decides who the parties to the agreement are: there is no
distinction between the question of who the parties are and whether there
is consensus between them. Alternatively, he submits that if there are two
different questions, then, even if English law governs the identity of the
parties, and if at English law the Defendant was a party to the contract as
alter ego, there was no consensus at EU law between the Claimants and
the Defendant.
Identity of Parties
36.Counsel agree that the pivotal authority is Coreck Maritime GmbH
v Handelsveem [2001] CLC 550. This is a case in which bills of lading
conferred jurisdiction on the court of the country where the carrier had
his principal place of business, and contained an 'identity of carrier clause'
which provided that the shipowner was the carrier and the bills were
signed as agents.
37.There were four questions put to the European court. The first is
summarised at paragraph 10 of the judgment:-
"… the national court essentially asks whether the words 'have agreed' in
the first sentence of the first paragraph of Article [23] of the Convention
must be interpreted as meaning that the jurisdiction clause must be
formulated in such a way that it is possible to identify the court having
jurisdiction on its wording alone.".
The Court then continues at paragraph 13:-
"The Court has held that, by making the validity of a jurisdiction clause
subject to the existence of an 'agreement between the parties', [Article
23] imposes on the court before which the matter is brought the duty of
examining first whether the clause conferring jurisdiction upon it was in
fact the subject of consensus between the parties, which must be clearly
and precisely demonstrated, and that the purpose of the requirements as
to form imposed by [Article 23] is to ensure that consensus between the
parties is in fact established."
The answer is then given at paragraph 15 of the judgment:-
"It follows that the words 'have agreed' in the first sentence of the first
paragraph of [Article 23] cannot be interpreted as meaning that it is
necessary for a jurisdiction clause to be formulated in such a way that the
competent court can be determined on its wording alone. It is sufficient
that the clause states the objective factors on the basis of which the
parties have agreed to choose a court or the courts to which they wish
to submit disputes which have arisen or which may arise between them.
Those factors, which must be sufficiently precise to enable the court
seised to ascertain whether it has jurisdiction, may, where appropriate, be
determined by the particular circumstances of the case."
38.The second question was set out at paragraph 16 of the judgment:-
"…the national court asks about the conditions of application of the first
paragraph of [Article 23]. It essentially asks whether that provision
applies if the jurisdiction clause designates the court for the area where
one of the parties to the original contract has its principal place of
business but it is not proven that that place of business is situated in a
contracting state."
This was answered in paragraph 21 of the judgment:-
"… the reply to the second question must be that the first paragraph of
[Article 23] only applies, if, first, at least one of the parties to the original
contract is domiciled in a contracting state and, secondly, the parties
agree to submit any disputes to a court or the Courts of a contracting
state."
39.The third question is contained in paragraph 22 of the judgment:-
"… the national court essentially asks whether a jurisdiction clause which
has been agreed between a carrier and a shipper and appears in a bill
of lading is valid as against any third party bearer of the bill of lading
or whether it is only valid as against the third party bearer of the bill
of lading who succeeded by virtue of the applicable national law to the
shipper's rights and obligations when he acquired the bill of lading."
40.The fourth question is not directly relevant (and was held inadmissible
in any event).
41.Mr Rainey submits that the structure of the judgment is clear:-
i) The Court at paragraph 20 of the judgment deals with the question
of the identity of the parties to the original contract, and decides that
national law resolves that question:-
"20 … it is settled case law that the validity of a jurisdiction clause
under [Article 23] must be assessed by reference to the relationship
between the parties to the original contract … It follows that it is in
relation to those parties, which it is for the national court to identify,
that the conditions of an application [Article 23]must be assessed. The
circumstances in which a jurisdiction clause may be enforced against a
person who was not privy to the original contract are the subject matter
of the third question, which is considered below."
ii) The Court in paragraphs 23 and 24 of its judgment deals with the
question as to which law deals with succession, concluding:-
"24 …the question whether a party not privy to the original contract
against whom a jurisdiction clause is relied on has succeeded to the
rights and obligations of one of the original parties must be determined
according to the applicable national law."
iii) but
"26. On the other hand, if, under the applicable national law, the party not
privy to the original contract did not succeed to the rights and obligations
of one of the original parties, the court seised must ascertain, having
regard to the requirements laid down in the first paragraph of [Article
23] whether he actually accepted the jurisdiction clause relied on against
him."
42.He submits as follows:-
i) The reference in paragraph 20 to "national court" is to the national law.
He illustrated this by reference to other European court judgments where
the words are used interchangeably (most persuasively Powell Duffryn at
paragraphs 33 and 37), and I conclude that he, and not Mr Millett, is right
in this regard.
ii) The result is that both the question of the identity of the original party
and the issue of whether there has been succession to the contract are
decided by English law, while any question as to whether a party not
suggested to have been an original party to the contract or to have
succeeded to the contract consented to the terms of the jurisdiction
clause – "actually accepted the jurisdiction clause relied on against
him" – is a matter of EU law. Mr Rainey draws comfort from Professor
Briggs in his Article referred to in paragraph 29 above where, although
he is obviously primarily dealing with the question of the scope of the
agreement, he states:-
"Article 23 will deal with whether it is formally valid, and whether it may
be excluded from effect in the particular context in which it is to operate.
But what Article 23 cannot properly do is to breathe life into that which
was stillborn: if the parties did not make an agreement, the impact of
Article 23 is nil."
43.Mr Millett submits that, whereas the European court in Coreck was
recognising that it is for the national law (assuming that that was what
was meant by "national court") to resolve the identity of the parties to the
contract, the only circumstance where that arises is where there is in the
jurisdiction clause what he refers to as a 'generic' description of the party,
as in Coreck itself, where the reference was to "carrier", and the national
court is then tasked with finding out who that is:-
i) He refers to paragraph 13 of the judgment (set out in paragraph 37
above), which emphasises the importance of consensus between the
parties. But that is in the context of the answer to the first question,
and is not apt to resolve the issue before me, in the light of the
straightforward words of paragraph 20 of the judgment, set out in
paragraph 41(i) above.
ii) He refers to Benincasa at paragraph 27:-
"It is also consonant with that aim of legal certainty that the court seised
should be able readily to decide whether it has jurisdiction on the basis of
the rules of the Convention, without having to consider the substance of
the case."
However the resolution of issues which he accepts are subject to English
law – scope/effect/interpretation – may include some consideration of
the underlying facts, and yet not the "substance of the case": so too with
identity of the parties.
44.Whether Mr Rainey is right can be examined by a discussion of three
cases:-
i) In Dresser UK Ltd v Falcongate Freight Management Ltd [1992] QB
502, the Court of Appeal was considering the applicability of Article 23
to a jurisdiction clause contained in a bill of lading, to which the claimant
owners and the first defendants as consignees (bailees) were parties, as
between the owners and the third and fourth defendants (sub-bailees),
with whom they were not at English law in a contractual relationship.
Bingham LJ, giving the lead judgment, considered matters entirely by
reference to English law at 511 C-E as follows:-
"Here is the defendants' difficulty. Had the question arisen between
Falcongate and the defendants, there would be no doubt that the
clause had been agreed between them. Had Falcongate contracted as
agents of the plaintiffs, the answer would have been the same. So it
would if the plaintiffs sued as holders of the bill of lading to whom all
Falcongate's rights and obligations under the contract of carriage had
been transferred: [The Tilly Russ] [1985] QB 931. But none of these
situations existed here. So the question which has to be asked is whether
the plaintiffs agreed with the defendants' explanation of the doctrine of
bailment on terms as depending on the bailor's express or implied consent
to the bailee's sub-bailment of goods on certain terms, the resulting
relationship between the bailor and sub-bailee cannot in my view be aptly
described as depending on agreement. The doctrine has evolved because
the bailor cannot sue the sub-bailee in contract; but a contract is what, as
I think, the first sentence of [Article 23] demands".
He concludes, as can be seen above, that if there had been a proven
agency (at English law) between the bailor and the sub-bailee, then
"there would be no doubt that the clause had been agreed between
them".
ii) Just such a case arose in relation to agency in Standard Steamship
Owners' P&I Association (Bermuda) Ltd v GIE Vison Bail [2005] 1 AER
(Comm) 618 ("Steamship"). In that case the agent contracted with the
claimant on behalf his principal, and the principal then denied the agent's
authority, and thus denied that he was bound by the jurisdiction clause
contained in the contract made between the claimant and the agent. The
principal's argument was, as summarised by Cooke J in paragraph 51,
that the claimant needed to show consensus on the part of the principal
himself, and not on the part of any agent whom he had instructed. Cooke
J rejected this argument. He stated as follows:-
"53. The effect of [the principal's] argument is to negate the concept
of agency, at least in a large number of situations and thus to override
principles of national law in relation to it. The whole basis of agency in
English law and elsewhere is that, if the agent has actual or ostensible
authority to conclude a contract on behalf of the principal, then the
principal is bound. As a matter of principle and logic, if the agent specially
agrees a jurisdiction clause, and it is within his actual or ostensible
authority to do so, that ought to bind the principal. The agent stands in
the shoes of the principal. If this was not recognised, a person dealing
with a fully authorised agent would still have to enquire behind the
agency, to ensure there was a specific agreement by the principal to the
jurisdiction clause. I consider that this cannot be right.
54. … If the agent has appropriate authority to bind the principal, the
principal has put the agent in the position where the agents consensus is
that of the principal and no further enquiry beyond the agent's consensus
is therefore required."
It is thus plain that, on the basis of Cooke J's conclusion, with which it is
fair to say that Bingham LJ, in the light of what he said in Dresser, is likely
to have agreed, is that the identity of the party to the contract, i.e. the
decision that the principal was a party to the contract, fell to be decided
at English law. Mr Millett submits that the decision is wrong and points
out that neitherBenincasa nor Coreck was cited. Estasis Salotti v Ruwa
[1976] ECR 1831, however, which is, as will be seen, to very similar effect
as the content of paragraph 13 of the judgment inCoreck, upon which Mr
Millett relies (set out in paragraph 37 above), was addressed by Cooke
J in terms at paragraph 25 and 26 of his judgment. Mr Millett also relies
upon Cooke J's statement in paragraph 52 that "agency or its equivalent
is a concept known in many jurisdictions although the national rules
in relation to it vary" and his reference in paragraph 53 to "the whole
basis of agency in English law and elsewhere", so as to suggest that in
some way the judge is applying an independent concept of agency rather
than the English law of agency. However Cooke J makes the position to
the contrary entirely clear in paragraph 54 of his judgment, in which he
emphasises his intention:-
"not to derogate from the application of principles of agency in
establishing consensus, where the agent could bind the principal as a
matter of national law. In such circumstances it must be the agent's
consensus that is relevant."
Thus the principal is identified in English law as being the party to the
contract, and the EU law test as to consensus is then to be applied to the
principal.
iii) Mr Millett relies upon the decision of Lewison J in KBS, and submitted
that it supported him in his proposition that it was not for the national
law to determine the identity of an original party to the contract. Lewison
J decided, in relation to the issue before him, that national (German)
law was not applicable to the issue of whether the parties before him
were bound by the jurisdiction clause in a settlement agreement. If the
issue before him was limited to whether KBS (UK), not being an original
party to the settlement agreement, and not being suggested to have
become party to the settlement agreement by succession, had in some
other manner accepted or become party to the jurisdiction clause, then
plainly Lewison J's decision was entirely in accordance with Coreck,
as interpreted by Mr Rainey, set out in paragraph 41 above. Mr Millett
however submits that Lewison J's decision went wider. I do not agree.
Whereas the headnote to the report recited as part of the holding that
KBS (UK) "was not a party to the settlement agreement and it was not
suggested that it was a successor to the rights and obligations of its
parent company", Mr Millett pointed to a number of passages in the
judgment in which the Judge refers to the question as being whether KBS
(UK) was "a party to or bound by the settlement agreement" (paragraph
16, the heading above paragraph 22. and paragraph 32). However:-
a) Insofar as the Judge does in fact look at German law (although in the
event concluding it to be irrelevant), it is clear that at German law KBS
(UK) was not a party to the settlement agreement (see paragraph 35 of
the judgment).
b) Although there is consideration in the judgment of Coreck, significantly
the judge only sets out, in paragraph 30 of his judgment, which is plainly
substantially based upon Coreck, reference to the second and third of
the tests set out in paragraph 41 above, and he cites only paragraphs 23
to 26 of the European Court Judgment in Coreck in paragraph 29 of his
own judgment. Thus he does not even consider the relevant paragraph
of Coreck, paragraph 20, which would be the material one if he were
considering the question of whether KBS (UK) was an original party to the
settlement agreement, and which law governs that question.
c) I have already considered, in paragraph 34 above, that he may have
been influenced by his (unsupported) view that the parties to the contract
are required to be identified in writing, itself inconsistent with paragraph
20 of Coreck.
I am entirely satisfied that KBS is no support for Mr Millett's case.
45.I conclude that there is nothing in the European Court Judgment in
Coreck, by reference to paragraph 20, which would limit its ambit to
questions of identity of the parties to cases where there is a generic
description of the party in the clause. I consider that the approach of
Cooke J was correct, in referring the issue of the identity of the parties
in that case – was the principal a party by virtue of the resolution of the
contested issue of authority of the agent? – to English law.
46.It is in my judgment significant that the same would and ought
to apply to a question involving what English law would describe as
an "undisclosed principal". Mr Millett had to concede that he had no
answer as to how EU law would resolve this issue. I am satisfied that
the question whether C, an alleged undisclosed principal, who was
subsequently asserting that he was a party to a contract through his
previously undisclosed agent, was a party to the contract would be
answered, in accordance with Coreck, by English law: so too would be the
question whether C in this case, the alleged undisclosed puppeteer/alter
ego, was party to the contract. It is in those circumstances unnecessary
and not in accordance with Coreck to look at EU law. As it happens,
Mr Rainey points out that, like agency, the alter ego principle is, as
recorded by Advocate General Trstenjak in her Opinion in Idrima Tipou
AE v Ipourgos Tipou Case C-81/09 at paragraph 34 "recognised in all the
Member States".
Consensus
47.It is common ground that the issue of consensus is decided by EU law.
The European Court at paragraph 14 of its judgment in The Tilly Russ
[1985] QB 931 stated that "the purpose of Article [23]is to ensure that
the parties have actually consented to such a clause, which derogates
from the ordinary jurisdiction rules laid down in Articles 2, 5 and 6 of the
Convention, and that their consent is clearly and precisely demonstrated."
48.The question thus is whether, once English law has identified the
parties to this contract (including the jurisdiction clause) as being
the Claimants, the puppet companies and the puppeteer, such test is
established in relation to them. It has been said by Lawrence Collins J
in Bank of Tokyo-Mitsubishi Ltd v Baskan Gida Sanayi Ve Pazarlama AS
[2004] ILPr 26 at paragraph 192 that there are two questions under
Article 23, first whether there has been an agreement or consensus and
secondly whether the formal requirements have been fulfilled. However
this two-stage test does not in fact appear to be reflected in the European
authorities, but rather it appears to be acknowledged that the purpose
of the formality is to establish the consensus: see Salotti at paragraph
7 ("the purpose of the formal requirements imposed by Article 23 is to
ensure that the consensus between the parties is in fact established"),
similarly in Galeries Segoura SPRL v Rahim Bonakdarian [1976] ECR
1851, and in Coreck at paragraph 13 (paragraph 37 above). Professor
Briggs in Civil Jurisdiction and Judgments (5th Ed 2009) at 2.115 says as
follows:-
"For this reason it is necessary to reiterate that statements in the
jurisprudence of the Court of Justice, which appear to require strict
compliance with the formal rules, are meant and intended to underline
the need for there to be consensus as to the jurisdiction of the nominated
court: they are a means to an end, and are not the end in themselves…
The only question, sight of which must not be lost, is that the formal
requirements are there to ensure that there was consensus. If the
consensus can be clearly and precisely established by other means, they
serve no additional function, and there is no further need to consider
them".
49.There must be agreement, and although the concept, recognised in EU
Law, of good faith, akin to estoppel, could be used to fill the gaps – for
example agreement to a company's Articles in Powell Duffryn (paragraphs
19, 28 ("every shareholder is deemed to be aware of the clause") and
29 ("the formal requirements laid down in Article [23] must be deemed
to be fulfilled in relation to each shareholder")) or an oral agreement or
agreement by conduct (Berghoefer v ASA [1986] 1 CMLR 13, Iveco Fiat
Spa v Van Hool SA [1986] ECR 3337, MSG v Les Gravieres S.a.r.l.[1997]
QB 731 and Kolmar Group Ag v Visen Industries Ltd [2010] ILPr 23) –
such concept cannot create agreement if there is none.
50.The authorities refer to "consensus between the parties": Benincasa
at paragraph 29, Coreck at paragraph 13. However the consensus does
not need to be simultaneous, as Professor Briggs makes clear in his work
Agreements on Jurisdiction and Choice of Law (2008) under the general
heading "UNILATERAL OR BILATERAL AGREEMENT?":-
"7.36. … No contract is required; none may even be involved. All that is
called for is the agreement of the party to be bound or restricted in his
choice of jurisdictional rules where a claim arises in connection with a
particular legal relationship, and which is expressed in a form sufficient
to ensure that it is fair and appropriate to confine him to the jurisdiction
of that court and of only that court. It is not necessary to interpret the
expression 'if the parties … have agreed' as meaning that the two parties
to the litigation have made a contract to this effect. It is therefore time
to challenge the proposition that there must be formal consensus, as
opposed to a public willingness, by the party said to have done it, to
waive the usual rules of jurisdiction and agree instead to the jurisdiction
of a named court: waiver, or a unilateral agreement.
7.37. The use of the plural form was inevitable because when the
agreement is made it is not known who will be suing whom. But it does
not mean that the agreement to accept the jurisdiction of a court is
bilateral or contractual in nature, as distinct from indicating the unilateral
acceptances of each of the parties, now to be given jurisdictional effect,
sufficiently demonstrated and formalised to be fairly invoked. The
language of consent and waiver, rather than agreement, may have been
more useful than we realised. It is what the Court said in Estasis Salotti:
the need was for a guarantee 'that the other party has really consented to
the clause waiving the normal rules of jurisdiction'."
51.Consensus can be achieved by the consent being unilateral on one
side and then subsequently accepted. Morison J allowed for this, though
rejecting it on its facts in Andromeda Marine SA v OW Bunker AS [2006] 1
CLC 730 at paragraph 21:-
"In this case the question is whether it can be said that Andromeda has
agreed by acceptance to be bound by the jurisdiction clause. It might, I
suppose, be possible for an acceptance to be demonstrated by the issue
of proceedings in the chosen jurisdiction; but it does not seem to me that
Andromeda can be said to have accepted, let alone accepted clearly and
precisely, the jurisdiction clause when the purpose of the proceedings is to
deny that they are bound by the contract which contained the clause."
52.Mr Millett's case is that there was no consensus between the Claimant
companies (A) and the Defendant (C). A did not know about C, and C,
if indeed he was puppeteer, did not consent to his being sued in this
jurisdiction, but only to the puppet B being sued in this jurisdiction.
53.Mr Rainey submits that, once the puppeteer has been found to be
a party to the contract, he and the company thus both agreed to the
jurisdiction clause, and so to be sued in this jurisdiction. Just as Cooke
J rejected the submission recorded in paragraph 51 of his judgment in
Steamship that he should consider consensus only on the part of the
principal and not the agent, so too in this case, once it is concluded that
both puppet and puppeteer are parties to the contract, the position of
both of them must be considered.
54.Professor Briggs, in the passage set out in paragraph 50 above,
emphasises the question, by reference to Salotti, as being whether "the
other party has really consented", and both he, in that same passage, and
Cooke J, in paragraph 51, use the expression 'consensus by' or 'consensus
on the part of' the party being sued. This is because the issue is always
going to be whether the party, which is being sued in the jurisdiction has
or has not consented/agreed to that course.
55.What is necessary is to show consensus between A and B and C. This
can be established in two ways:-
i) there was consensus, since A agreed with B and by virtue of the
operation of the alter ego principle in identifying B and C as both being
party to the contract, also with C. This is a similar exercise to that
adopted by Cooke J by reference to agency principles which identify (at
English law) C as a party to the contract, and thus lead to consensus
between A and C: and/or
ii) there was consent by B and hence by its alter ego C, which was
accepted by A, by suing on the jurisdiction clause, thus creating or
confirming the consensus.
56.Mr Rainey submits that, adopting a straightforward European test to
the existence of consensus, once the parties to the contract have been
identified, there is actual consensus between them as to the application of
the jurisdiction clause to the contract. If there needs to be application of
any super-added concept of bad faith (as per paragraph 49 above), that
would not be misplaced, since in fact there was agreement by each of the
three parties A, B through its puppeteer C and C, to the jurisdiction being
incorporated into the charterparties.
Entry of Appearance
57.Mr Rainey relies in the alternative on Article 24 of the Judgments
Regulation, which reads:
"… a court of a Member State before which a defendant enters an
appearance shall have jurisdiction. This rule shall not apply where
appearance was entered to contest the jurisdiction, or where another
court has exclusive jurisdiction by virtue of Article 22."
He submits that when the Corporate Defendants entered an appearance in
the Corporate Defendants' action, so too did the Defendant as their alter
ego. It seems to me that it could be argued that in such circumstances
a defendant may have submitted to the jurisdiction in that way (cf The
Ikarian Reefer (No 2) [2000] 1 WLR 603) but that is not the test for
Article 24. The question is whether the Defendant entered an appearance,
and he did not. In any event, even if he had, he has not entered an
appearance in this action and, in my judgment, jurisdiction cannot arise
because a party has entered an appearance in some earlier action at
some point in time – which might be many years ago. Mr Rainey sought
to submit that there would be some limitation, at least in terms of there
needing to be an action between the same or similar parties, or in relation
to the same or similar subject matter, but there is, in my judgment, no
such limitation. Article 24 is, in my judgment, dedicated to a situation
in which a defendant enters an appearance in the instant action, and
thereby clothes that court with jurisdiction. This ground is not arguable.
The applicable test for jurisdiction
58.It is common ground that the ordinary test applicable at the stage
of challenge to the jurisdiction is whether the Claimants have a good
arguable case. This has been clarified on a number of occasions recently,
and particularly in the Privy Council in Bols Distilleries v Superior Yacht
Services Ltd [2007] 1WLR 12 at 28, whereby Lord Rodger stated that
"applying the "good arguable case" standard, the claimants must show
that they have a much better argument than the defendants, that on
the material available at present, the requirements of form in Article
23(1) are met and that it can be established, clearly and precisely,
that the clause confirming jurisdiction on the court was the subject
of consensus between the parties". This does not make for an easy
answer to such question in every case, because this must mean, as both
counsel accepted, something different from resolution on the balance of
probabilities. The party asserting jurisdiction does not therefore have to
win the argument by 51% to 49%. He must simply be more likely to be
right, more than a short head in front – Mr Millett submitted that there
must be clear water between the parties.
59.But it is again accepted between counsel that this ordinary test only
applies where the issues are of fact, or of mixed law and fact, and does
not apply where the question is solely one of law when, as Aikens J states
in Marubeni v Mongolian Government [2002] 2 AER (Comm) 873 at
882j-883a (by reference to the view of Kerr LJ in Hutton v Mofarrij [1989]
1 WLR 488 at 495) "when the English court has to decide issues involving
only law … for the purposes of deciding whether it will accept jurisdiction,
then it makes a decision on the point, rather than saying whether there is
a good arguable case or not." This distinction does not seem to me wholly
logical, not least because there will be issues of fact to be resolved at the
jurisdictional stage (such as for example where a contract was made)
which may never fall to be resolved again at a substantive trial, and yet
by virtue of the disapproval in Canada Trust Co. v Stolzenberg (No.2)
[1998] 1WLR 547 CA at 555B of the views of Staughton LJ in Attock
Cement Co. Ltd v Romanian Bank for Foreign Trade [1989] 1 WLR 1147,
the test in such a case is still that of a good arguable case. Nevertheless I
shall do my best to apply those tests to the questions before me, to which
exercise I now turn.
Conclusions
60.I am satisfied by reference to what is set out in paragraphs 13 to 30
above that there is a good arguable case that the veil of incorporation
should be pierced in order to permit the Claimants to seek to enforce
the charterparties as against the Defendant as a party to them. My
detailed consideration of Dadourian and Lindsay above satisfies me that
by reference to both judgments such a course is available to be taken,
and that in any event there is no authority, binding or otherwise, which
prevents such a conclusion being reached, whereby a victim would be
entitled to enforce a contract entered into by a puppet company against
both puppet company and puppeteer. This is a mixed question of law and
fact, and I am satisfied that the Claimants have a good arguable case,
i.e. that they have much the better of the argument on the face of the
evidence as it stands before me.
61.I then turn to the question as to whether English law or EU law decides
the identity of the parties to a contract, which then falls to be tested
under Article 23. This seems to me to be a question of pure law, which, in
order to accord with the conclusions of Aikens J in Marubeni, with which
Mr Rainey does not invite me to disagree, I need to resolve. I conclude
that in the light of the European Court decision in Coreck, and in accord
with the approach of Cooke J in Steamship, it is English law which falls to
be applied to identify the parties to the contract, whose consensus must
then be tested. I see no difficulty about the fact that at English law the
puppeteer can be rendered liable under the contract but as a matter of
public policy not entitled to enforce it. He is still party to the contract or
(as described in paragraphs 20, 23 and 26 of the judgment in Coreck)
privy to it, and agreed to its terms. In reaching this decision as to the
applicability of English law and not EU law to the question of the identity
of the parties referred to in Article 23, I am satisfied that nothing in the
decision in KBS, even if it were otherwise binding upon me, stands in the
way of such conclusion.
62.EU law then falls to be considered to consider the question as to
whether there was consensus between the parties so identified. There
are two formulations which I have found helpful. In Bank of Tokyo at
paragraph 192 Lawrence Collins J stated:-
"Whether there has been a sufficient consensus so as to satisfy Article
23 as predominantly a question of fact for the court seised and it is to be
answered without recourse to rules of national law."
This was expanded by Hamblen J in Polskie, expressly by reference to
Lawrence Collins J wearing his academic hat in the 14th Edition of Dicey,
Morris and Collins at 12-108, namely:-
"As to the need for agreement – the claimant must show that both the
parties "clearly and precisely" consented to the alleged jurisdictional
agreement. In a case, such as this, where a party alleges that it never
accepted the clause, the task of the court is to determine if there was
sufficient consensus between the parties as a question of fact, without
recourse to any rules of national law."
63.I am satisfied that this question is a mixed question of law and fact,
and that there is a good arguable case, in the sense referred to above,
that the Claimants will establish such consensus by and between the
Claimants and the Defendant as puppeteer.
64.Hence after hearing full argument I reach the same conclusion as
did Beatson J ex parte (as set out in paragraph 6 above). Accordingly
I dismiss the Defendant's application to set aside service of the claim
form on the ground that the Courts of England and Wales do not have
jurisdiction to hear this claim. As for the continuation of the freezing
order, the only specific matter that Mr Millett mentioned related to the
issue of election, and for the reasons set out in paragraph 28 above, I
am entirely satisfied that the Claimants have at least an arguable case
(for the purpose of continuation of the freezing order) that they have not
elected. That apart, in the light of the Claimants' case, as addressed by
Gross J, and set out, where relevant to the issues on this application,
above by me, I am satisfied that the freezing order should continue until
trial.