“(…) Lord Justice Carnwath:
This is an appeal from an order of Lewison J. The overall dispute concerns
the control and future of Formula One racing. The immediate issue is
much narrower, involving a dispute as to the validity of appointments
of directors to one of the companies. As a preliminary even to that
dispute, there is disagreement as to whether the English court has
jurisdiction in the matter. This turns on the interpretation of Council
Regulation (EC) No 44/2001 (the "Judgments Regulation"); and the
"Lugano Convention" (incorporated into domestic law by Section 3A of the
Civil Jurisdiction and Judgments Act 1982).
Background
The following summary is taken from the judgment below, and is
sufficient for present purposes.
Formula One motor racing is controlled by a number of companies within
the Formula One Group. The principal companies are Formula One A.
Limited and Formula One M. Limited. Another company called Formula
One H. Limited ("FOH") is the parent or great-grandparent of both.
FOH is in turn owned by S. Holdings Limited ("S."). S. is owned 75 per
cent by Sp. Investments Limited ("Sp."), and 25 per cent by B. Holdings
Limited ("B."). Sp. is in turn owned in varying proportions by three banks.
Sp., B., FOH and others are all parties to an agreement called the S.
Shareholders Agreement, made on 12th May 2000. By Clause 30 of the
S. agreement, although the governing law is English law, the parties
submit to "the exclusive jurisdiction of the courts of Geneva Switzerland".
However, it is common ground that this may be displaced, if they apply,
by the exclusive jurisdiction provisions of the Judgments Regulation or the
Lugano Convention.
Clause 3.2 provided that the maximum number of directors of FOH should
be eight and that FOH should permit the holders of a majority in nominal
value of the A shares as defined to appoint four persons to be directors of
FOH. It further provided that FOH should permit the holders of a majority
in nominal value of the B shares to appoint four persons to be directors of
FOH.
Clause 3.3 contained covenants by S. and FOH to procure:
"(A) The holders of a majority in nominal value of the A shares should
be permitted to appoint a director to each of the subsidiaries, the ("A
subsidiary directors");
(B) The holders of a majority in nominal value of the B shares should be
permitted to appoint two directors of each of the subsidiaries, the ("B
subsidiary directors"); and.
(C) The subsidiary directors are sent at the same time as the other
directors of the relevant subsidiary notice of any meeting of the directors
of such subsidiary and a copy of all papers sent to such directors."
Clause 3.6 amplified the provisions relating to the appointment of
directors in the event that an option was exercised. Clause 5 provided
that immediately following the execution of the agreements, the
shareholders should procure the passing of resolutions, adopting new
articles of association of, among other companies, FOH. Those articles of
association were duly adopted.
By clause 4 of the agreement, B. covenanted and undertook to Sp. that
the details set out in parts 1 and 2 of schedule 1 were in all respects
true, complete and accurate. The details set out in part 2 of schedule 1
included a list of directors of FOH in which Messrs Bernard E. and Stephen
M. were described as B-directors.
The immediate cause of the proceedings was the appointment on 7th
October 2002 by B. of the third and fourth defendants, the A., as directors
of FOH. The claimants say that B. was not entitled to appoint the A.,
because it had exhausted its rights of appointment; Messrs E. and M.
were B-directors of FOH. B. and the A. say that the A. were validly
appointed because Messrs E. and M. were not B-directors; they were
appointed as ordinary directors and remained ordinary directors, despite
the provisions of the S. Shareholders Agreement, which mistakenly
described them as B directors.
The present appeal is concerned solely with jurisdiction. The claimants
say the dispute as to the validity of the appointments must be determined
by the English court. The judge agreed with them. B. and the A. appeal.
FOH itself was the first defendant, but it has taken no active part in the
proceedings.
Competing jurisdictions
FOH is a company registered in England and Wales. The two claimants,
Sp. and S. are both Jersey companies. B., the second defendant, is
another Jersey company. The A. are individuals domiciled in Switzerland.
Jersey is not a part of the United Kingdom, either for the purpose of the
Judgments Regulation or for the purposes of the Lugano Convention.
Switzerland is not a member state of the European Union, but it is a
contracting state for the purposes of the Lugano Convention.
It is common ground that in respect of B., not being domiciled in a
member state, the issue turns on Article 22 of the Judgments Regulation
(applied by Article 4). Article 22 comes under Section 6 of the Regulation
(headed "Exclusive jurisdiction"). It provides, so far as relevant:
"The following court shall have exclusive jurisdiction regardless of
domicile.
"2. In proceedings which have as their object the validity of the
constitution, the nullity or the dissolution of companies or other legal
persons or associations of natural or legal persons, or of the validity of
the decisions of their organs, the courts of the member state in which the
company, legal person or association has its seat. In order to determine
that seat, the court shall apply its rules of private international law.
"3. In proceedings which have as their object the validity of entries in
public registers, the courts of the member state in which the register is
kept." (emphasis added)
The position of the A., as Swiss citizens, is governed by the Lugano
Convention, but Article 16 of the Lugano Convention (which in this case
comes under Section 5) is for practical purposes in the same terms as
Article 22 of the Judgments Regulation. FOH was incorporated in England,
and accordingly has its "seat" in the United Kingdom under s.43 of the
Civil Jurisdiction and Judgments Act 1982 (for the purpose of the Lugano
Convention) and under the Civil Jurisdiction and Judgments Order 2001
schedule 1 para 10 (for the purpose of the Regulation).
Thus, the main issue in the case turns on the true interpretation of the
italicised words in Article 16.2. (Both sides, as I understood it, treated
the issue under Article 16.3 as standing or falling with that under 16.3). I
shall call this the "exclusive jurisdiction" issue.
As a separate point (the "stay" issue), the A. (but not B.) rely on Article
21 of the Lugano Convention. That provides:
"Where proceedings involving the same cause of action and between the
same parties are brought in the courts of different contracting states,
any court other than the court first seised shall of its own notion stay its
proceedings until such time as the jurisdiction of the court first seised is
established. Where the jurisdiction of the court first seised is established,
any court other than the court first seised shall decline jurisdiction in
favour of that court." (emphasis added)
Also relevant to this issue are Article 23 of the Lugano Convention, which
provides:
"Where actions come within the exclusive jurisdiction of several courts,
any court other than the court first seised shall decline jurisdiction in
favour of that court"
and Article 28, which provides that "a judgment shall not be recognised"
if it conflicts with (among others) Section 5 of that Convention (which
includes Article 16).
The A. submit that the Swiss court was the court "first seised" of the
action as against them, and that accordingly there is a mandatory
requirement under Article 21 for the English court to stay the proceedings
at this stage. This applies, they say, even if it is ultimately determined
that the English court has "exclusive jurisdiction" under Article 16. The
judge rejected this submission.
As a separate point, the claimants claim that Article 21 has no application
in any event, because the Swiss court was not "first seised" in the sense
required by the Article (the "first seised" issue).
Particulars of claim
Since both parties rely on the terms of the pleaded case as supporting
their respective contentions, I should set out the material parts.
The relevant allegations begin at paragraph 32, which reads:
"32. On 7th October 2002, B. purported to appoint Monsieur A. and
Madame A.-R. as B-directors of FOH pursuant to Article 14 (A) of the new
FOH articles.
33. B. was not entitled to appoint Monsieur A. and Madame A.-R. as B-
directors of FOH because B. had already exhausted its rights to appoint
B-directors under the new FOH articles. Alternatively, B. is estopped from
denying that it had already exhausted its right to appoint B-directors
under the new FOH articles. The claimants will say as follows:
33.1. In connection with the purchase of Sp. by EM.TV and the acquisition
of shares in S. by Sp. in accordance with the master agreement, the
directors of FOH appointed prior to 12th May 2000 were agreed by S.,
FOH, B. and Sp. to be designated A-directors and B-directors respectively
in accordance with the new FOH articles adopted on the same day, as
evidenced by the description of such persons as A-directors and B-
directors in schedule 1, part 2 of the S. Shareholders Agreement.
33.2. Further or alternatively, by including schedule 1, part 2 of the S.
Shareholders Agreement, each of the parties to the S. Shareholders
Agreement represented to the others that they would treat the persons
set out in the said schedule as A and B-directors respectively as having
been appointed A and B-directors in accordance with the new FOH
articles.
33.3. Further or alternatively, by the S. Shareholders Agreement, B.
contracted with Sp., S. and FOH that the persons described as B-directors
of FOH in schedule 1, part 2 of the S. Shareholders Agreement should be
deemed to be appointed as such B-directors of FOH in accordance with
the new FOH articles. The claimants will refer to clause 4 (A) of the S.
Shareholders Agreement.
33.4. Further or alternatively, S. and B. have thereafter conducted
themselves on the basis that and in reliance on the representation
pleaded in paragraph 33.2 above, that the persons set out in schedule
1, part 2 of the S. Shareholders Agreement as A and B-directors
respectively were appointed as A-directors by Sp. and as B-directors by B.
respectively. Paragraph 27 above is repeated.
34. In the premises, Monsieur A. and Madame A.-R. have not been
appointed as directors of FOH
…
37. On 11th November 2002, S. as sole shareholder in FOH appointed Mr
D. and Mr M. as directors of FOH, not being A-directors or B-directors. B.
and the secretary of FOH have refused to recognise the appointment of
Mr D. and Mr M. on the basis that there were no vacancies of the board of
directors because B. and the secretary of FOH contend that Monsieur A.
and Madame A.-R. were validly appointed.
…
41. A dispute has arisen between FOH, S., Sp. and B. as to who are the
directors of FOH. The register of directors maintained by FOH pursuant
to Section 288 of the Companies Act 1985 records Monsieur A. and
Madame A.-R. as directors of FOH and does not record Mr D. and Mr M. as
directors of FOH. The entry of the names of Monsieur A. and Madame A.-
R. in the said register is invalid and FOH is obliged to include particulars of
Mr D. and Mr M. in the said register.
42. The accounts of FOH for the year ended 31st December 2002 were
due to be filed at Companies House by 31st October 2003. By reason of
the dispute between FOH, S., Sp. and B. as to the identity of the directors
of FOH, substantial difficulties were encountered in approving and filing
the said accounts. It was not possible to call a meeting of the board of
directors because of the dispute as to who had been validly appointed
directors of FOH."
The relief claimed in the action is as follows:
"1. A claim for declarations as to the identity of the directors of the first
defendant.
2. A claim for rectification of invalid entries in the register of directors of
the first defendant.
3. A claim for a declaration as to the validity of a written resolution of the
board of directors of the first defendant."
Exclusive jurisdiction
The judge concluded on this issue:
"In my judgment, the subject matter of the English proceedings is the
composition of the board of directors of Formula One Holdings and
therefore it does fall within Article 22(2). The claim to rectify the register
of directors, in my judgment, falls within Article 22(3)." (para 38)
He relied on a passage of a judgment of this court on Article 16 of the
Brussels Convention, in Grupo Torras v Al-Sabah [1996] 1 LlLR7,15. That
Convention was the predecessor of the Judgments Regulation, and Article
16.2 was in substantially the same terms as Article 22 of the Regulation
and Article 16 of the Lugano Convention. The leading judgment was
given by Stuart-Smith LJ. He recorded that, according to the authorities,
"proceedings which have as their object" meant "proceedings which
have as their subject-matter" or "proceedings which are principally
concerned with". He noted that the correct approach to interpretation of
the Convention was "purposive rather than textual". He continued:
"The paragraphs of Article 16 constitute a series of exceptions to the basic
jurisdictional rules established by the Convention. The objective of Article
16(2) is to confer exclusive jurisdiction to decide questions concerning
the constitution and internal management of a company on the courts
of a 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 Article 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.
The appellants submit that Article 16(2) governs all questions which are
concerned with the internal management of the company and that this
extends to all disputes which arise out of the relationship between a
company and its officers or shareholders or between its shareholders and
officers, possibly even between its shareholders inter se. This submission
is far too wide. Whether an action falls within Article 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, although a claim
that the decision to dismiss him had been taken by a meeting of the
board which was inquorate would do so." (emphasis added)
On the facts of that case, it was held that the subject matter of the
dispute (which was an alleged fraud practised by the defendants) fell
outside Article 16(2).
Reading that explanation literally, and taking a simple view of the present
dispute, it seems to me to fall clearly within the Article. It is a dispute
about the composition of the Board of FOH. Thus the "subject matter"
of the dispute is a "question concerning the internal management of the
company", or, more specifically, concerning the "composition of… (one of
the) organs of the company". It also accords with practical convenience,
and with the reasonable expectations of those involved, that issues of
internal management such as arise in this case (who should be admitted
to Board meetings? who should approve the accounts? who should be on
the register of directors?) should be decided in the courts in which the
company has its seat.
It is true that this interpretation involves some expansion of the language
of the Article. The issue is not, strictly, "the validity" of the constitution,
or of any actual board decisions. However, determining the composition
of the Board is clearly essential for the validity of future decisions. Stuart-
Smith LJ regarded that as within the purpose of the provision. It is also
consistent with the objective, which he identified, of assimilating the
jurisdiction under the Convention rules to choice-of-law principles of
private international law. Thus, Dicey and Morris, Conflict of Laws 13th
Ed, gives the following rule:
"Rule 154(2) All matters concerning the constitution of a corporation are
governed by the law of the place of incorporation."
The supporting text (under the heading "Internal management") states:
"The cases at least establish that the law of the place of incorporation
determines whether directors have been validly appointed…"
(emphasis added; the footnote cites Sierra Leone Telecommunications Ltd
v Barclays Bank plc [1998] 2 All ER 821.)
That sentence encapsulates the issue in this case.
Reference may also be made to the commentary in Professor Jenard's
authoritative report (cited by Knox J in Newtherapeutics v Katz [1991] Ch
226, 245):
"Article 16(2) provides that the courts of the state in which a company
or other legal person, or an association of natural or legal persons, has
its seat, have exclusive jurisdiction in proceedings which are in substance
concerned either with the validity of the constitution, the nullity or the
dissolution of the company, legal person or association, or with the
decisions of its organs. It is important, in the interests of legal certainty,
to avoid conflicting judgments being given as regards the existence of
a company or association or as regards the validity of the decisions of
its organs. For this reason, it is obviously preferable that all proceedings
should take place in the courts of the state in which the company or
association has its seat." (para A1.158, emphasis added)
Consistency will be achieved if the same court has jurisdiction to decide
on the validity of both past and future decisions.
Mr Rosen, for the appellants, challenges that approach. He relies on
the summary of "relevant factors" by Jonathan Parker LJ in Ashurst v
Pollard [2001] Ch 595 para 53; in particular, the need to give the Article
a "restrictive" interpretation, and to distinguish "subject-matter" from
"aim" or "purpose". On that basis, he submits, the real subject-matter
of the dispute is the effect of the share-holders' agreement, which is the
essential foundation of the claimants' pleaded case. The results, in terms
of the composition of the Board, and the amendments to the register, are
purely consequential.
The reference to a "restrictive interpretation" must be read in context.
The accompanying reference is to Reichert's case [1990] I-27. Earlier in
his judgment, Jonathan Parker LJ quotes from the judgment of the ECJ in
that case (para 8, 9, 11), including the following:
"Secondly, as the court has already held, article 16 must not be given a
wider interpretation than is required by its objective, since it results in
depriving the parties of the choice of forum which would otherwise be
theirs and, in certain cases, results in their being brought before a court
which is not that of any of them…"
As I have said, the judge's approach is fully justified by the objectives
of the article as explained by Stuart-Smith LJ, and is consistent with the
reasonable expectations of those involved.
I agree that that the interpretation and effect of the share-holders'
agreement are central to the issues in the case. To this extent the
subject-matter is not confined to the "constitution" of the company in its
narrowest sense – that is, the memorandum and articles. As paragraphs
33 to 34 of the pleaded case demonstrate, the claimants rely in terms
on the agreement to support their case that the A. have not been validly
appointed. I am not greatly attracted by Miss Jones' attempt to rely on a
technical distinction between the contractual effect of the agreement, and
the company law issues relating to the articles. In the present case, as
her own pleading shows, that seems to me an unreal distinction.
On the other hand, I am unable to accept that, merely because the main
area of live dispute may be as to the effect of the agreement, rather than
of the articles, it ceases to be within Article 16(2). If, as I think, the real
subject-matter of the dispute is the composition of the Board, it does not
matter that the answer may require one to look beyond the strict limits
of the company's constitution, in the technical sense. Nor would it be
realistic to allow questions of "exclusive jurisdiction" in relation to such a
dispute to depend on which particular aspects of the case are contentious
at any particular time (a matter which may vary as the pleadings and the
respective cases evolve.)
In my view this result is consistent with Ashurst v Pollard, to which I have
already referred. The question was whether the trustee in bankruptcy
of an English bankrupt, who owned land in Portugal, could seek in the
English courts an order for sale of that property. Article 16(1) of the
Brussels Convention gave exclusive jurisdiction to the Portuguese courts
in proceedings "which have as their object rights in rem" in immoveable
property in that country. It was held that this was a personal dispute
between the trustee and the husband and wife, and it was not within the
article.
Mr Rosen relies on that case as showing that the nature of the remedy
sought in the proceedings is not necessarily characteristic of the dispute.
Although the trustee was ultimately seeking a sale of land in Portugal,
the underlying issue was a personal one between the trustee and the
defendants. So here, the objective may be to determine the composition
of the Board; but the underlying issue is a contractual one, between the
parties to the agreement.
As I read it, the decision in Ashurst v Pollard turned on the special nature
of the case, in which, as Jonathan Parker LJ said, there was no issue as to
title to land:
"The trustee… is not seeking to establish or protect, let alone, perfect, his
title to Mr Pollard's interest in the Portuguese property." (para 60)
He approved, but distinguished, the decision of Rattee J, in Re Hayward,
decd [1997] Ch 45. In that case, a bankrupt's wife had purported to
transfer his interest in a Minorca property to a creditor; the trustee was
seeking an order that it formed part of the bankrupt's estate, and for
consequent rectification of the Minorca property register. It was held that
this was outside the jurisdiction of the English court, because the principal
subject-matter of the proceedings was the ownership of the Minorca
property.
This contrast shows how difficult it may be in some cases to draw
a clear line. I would in any event be cautious in seeking too close a
parallel between the two parts of the article. Different considerations lie
behind the special status given by the law of conflicts, respectively, to
immoveable property and to issue of internal company management. In
the present case, for the reasons I have given the mere fact that there
appears to be no live issue of English company law, does not change the
fact that the subject-matter is the composition of one of the main organs
of the company, and therefore (at least prospectively) the validity of
decisions of the company. Accordingly, the judge was correct to hold that
the English court had jurisdiction.
The "stay" issue
The assumed background to this issue is that, although the current
proceedings were issued in this country on 1st March 2004, they were
not served on the A. until 19th March 2004. This was after proceedings
had been commenced by B. in Geneva (on 15th March 2004), confirming
the validity of their appointments. On the basis of Dresser UK Ltd v
Falcongate Freight Management Ltd [1992] QB 502, it followed that the
Swiss court was "first seised". In these circumstances, argues Mr Rosen,
Article 21 of the Lugano Convention is mandatory: any other court "shall
of its own motion stay its proceedings…" until the Geneva court has ruled
as to jurisdiction. The judge decided the issue in favour of the claimants.
Mr Rosen does not, as I understand him, suggest that such a stay would
serve any practical purpose. nor that it will decide the matter more
expeditiously. On the contrary, he accepts that the grant of a stay will
result in the loss of the date currently fixed for consideration of this issue
by the English court.
He is also unable to point to any support for his submission, either
in previous authority or in academic writings. By contrast, there is
powerful academic and other support for the contrary view that Article
16 constitutes an implied derogation from the mandatory requirements
of Article 21. The relevant material is reviewed in detail in the judgment,
and I can therefore summarise it briefly:
i) There are two relevant decisions of the European Court of Justice:
Overseas Union Insurance v New Hampshire [1992] 1 QB 434, and Eric
Gasser v MISAT [2004] 1 LlLR 222. Neither decided the matter. In the
first the court left open the possibility that Article 21 of the Brussels
Convention (equivalent to Article 21 of the Lugano Convention) might
not apply where the second seised court had exclusive jurisdiction. The
second concerned the relationship of Article 21 with Article 17 (choice
of law), where the court held that no derogation was permitted. The
Court recorded without dissent the submission of the Commission,
distinguishing this from its view of the position under Article 16.
ii) Professor Kay, in "Civil Jurisdiction and Enforcement of Foreign
Judgments" (1987) at p 1222, supports the case for implied derogation:
"where the second seised court has exclusive jurisdiction under Article 16
and the first seised court non-exclusive jurisdiction, then according to the
spirit and policy of the Convention, Article 21 is inapplicable in the second
seised court and the latter need not therefore decline to adjudicate."
The main reason he gives is that –
"the first seised court's judgment will not be entitled to recognition in
other contracting states… and consequently, community-wide recognition
will not be required to be given to two possibly conflicting judgments…"
iii) Dicey and Morris (op cit at para 12-043) is to similar effect:
"… Article 21 should be inapplicable where the court seised second has
exclusive jurisdiction under Article 16, for a judgment given by the court
seised first in violation of Article 16 will be refused recognition in all
contracting states and there is no sensible purpose in deferring to a court
whose judgment will be a nullity in England…"
iv) Lastly, in Briggs and Rees, Civil Jurisdictions and Judgments 3rd ed
(2002), para 2.08, it is suggested that, if the English court has exclusive
jurisdiction under Article 16, it may exercise it without "further inquiry".
Footnote 47 notes that this point was left open in Overseas Union, but "is
probably correct", adding -
"If a court gives judgment in violation of article 23, its judgment must
not be recognised…. It appears to follow that the court with article 23
jurisdiction should proceed to hear the case, for otherwise there will be
no judgment on the merits capable of being recognised in other member
states."
Although the judge found the arguments "finely-balanced", I have no
doubt that his conclusion was correct. Even without this authoritative
academic support, I would have found little difficulty, adopting a
purposive approach, in reaching a conclusion which accords to the
common sense of the case. The alternative view serves no purpose, but to
increase delay and expense.
First seised
This conclusion makes it unnecessary to consider Miss Jones's alternative
argument, that the Geneva court was not in fact "first seised" of the
matter. This involves the submission that we should reject the powerful
view adopted by this court in Dresser UK v Falcongate [1992] QB 502, in
respect of the equivalent provision of the Brussels Convention. The basis
of that submission is that, in that context, Dresser has been superseded
by the more specific definition of "first seised" in the Judgments
Regulation. Although the Lugano Convention has not yet been amended to
the same effect, it is suggested that, by some process of judicial activism,
we should interpret it in the same way. Beyond admiring the boldness of
that submission, I prefer to express no view.
Conclusion
For these reasons, which are substantially the same as those of the judge,
I would dismiss this appeal.
Lord Justice Neuberger
I agree.
Sir William Aldous
I also agree.
ORDER: Appeal dismissed; terms of the order as agreed; permission to
appeal to the House of Lords refused. (…)“