Mr Justice Lawrence Collins:
I Background
The First and Second Claimants, M. Media Ltd ("M. Ltd") and A. E. Group
Ltd ("A.") are English companies. The First Defendant, M. M. GmbH ("M.
GmbH"), is a German company. M. GmbH is a wholly owned subsidiary of
A. and the parent of M. Ltd. All three companies were in the business of
the supply of sound recordings to the general public.
On July 24, 2003 the Amtsgericht Hanover appointed the Second
Defendant ("Mr S."), who is domiciled in Germany, as provisional
liquidator of M. GmbH, and ordered Mr S. to investigate whether it was
insolvent. He is now, by order dated January 26, 2004 of the Amtsgericht
Hanover, the liquidator of M. GmbH in insolvency proceedings which were
commenced in that court on (according to the order of the Hanover court)
January 23, 2004. According to a statement of assets and liabilities of M.
GmbH prepared by Mr S. as at January 22, 2004, its assets are 496,000
euros and its liabilities are 1.5 million euros. But the figure for assets
includes 440,000 euros for intellectual property rights in recordings which
the Claimants say that they have the exclusive right to exploit.
The Third Defendant ("Mrs M.") and the Fourth Defendant ("Mr R.") are
German citizens living together in Germany as husband and wife, who
were at material times directors of M. GmbH and then A.. Mrs M. was the
legal and beneficial owner of all the shares in M. GmbH before she sold
them to A. in April 2002. She instituted the insolvency proceedings in
Germany against M. GmbH.
M. Ltd and A. act by their Administrative Receivers, Mr Keith G. and Mr
Stephen S. (partners in L. C. & Co), who were appointed by Coutts and
Co. under mortgage debentures given by them on May 7, 2002 and March
5, 1999, respectively.
These are applications by the Defendants raising the question whether
the claims or any of them should be determined by the English court. The
parties (and indirectly the creditors of the companies) have incurred legal
fees of at least £120,000 in connection with these applications.
II The Agreements
By an agreement in writing dated April 11, 2002 ("the Share Sale
Agreement") between (1) A., and (2) Mrs M., Mrs M. sold to A. all the
issued shares in M. GmbH. The consideration was issue of shares in
A. and the payment of debts (£700,000, much of which was owed to
Mrs M.'s mother) owed by M. GmbH. Mrs M. and Mr R. were to become
directors of A.. Clause 16 provided that the Agreement was subject
to English law and that "the Courts of England shall have exclusive
jurisdiction concerning any disputes, actions or proceedings arising in
respect hereof."
Clause 3(2)(j) required Mrs M. to deliver (or cause to be delivered) at
completion to A. (inter alia) all "Recordings" (defined by clause 1.1 to
include sound recordings); and clause 3(2)(k) required her to deliver (or
cause to be delivered) "all property of [M. GmbH] not otherwise delivered
as part of or prior to Completion." Clause 13 required Mrs M. to do or
procure to be done all such acts as might be reasonably required to give
effect to the Share Sale Agreement.
The combined effect of clause 4 and schedule 2 of the Share Sale
Agreement was that Mrs M. warranted that M. GmbH had title to its
"Catalogue," which was defined in clause 1.1 to include the Recordings
set out in schedule 7. Schedule 7 to the Share Sale Agreement is headed
"CATALOGUE" and has a Part A headed "Owned Recordings" and a Part B
headed "Licensed Recordings" but neither is filled in with the envisaged
details of the recording, date recorded, and date of first release. Nothing
turns on this omission. The Recordings which are the subject of the
obligation to deliver, and of the warranties, will be referred to as the
"Masters."
By an agreement in writing ("the Assignment") also dated April 11,
2002 but executed some weeks after the Share Sale Agreement,
M. GmbH assigned (for a consideration of £1 and "other good and
valuable consideration") to M. Ltd "all copyright we have in and to sound
recordings, including but not in limitation, those sound recordings set
out in the Schedule hereto. Such assignment shall cover all rights of
copyright anywhere in the World …" The Assignment provided that English
law would govern and that "the Courts of England shall have exclusive
jurisdiction in any disputes arising in relation hereto."
The Masters are apparently the only significant asset owned by any of the
companies which are party to these proceedings. The Defendants contend
that the Masters (except to the extent of third party security rights) are
still vested in M. GmbH.
III The claims and the application
M. Ltd claims that there was a term of the Assignment (which was on
its face only an assignment of copyright) necessarily to be implied for
reasons of business efficacy that M. Ltd acquired from M. GmbH under
the Assignment not only the copyright but also the legal and beneficial
ownership of, and all rights and legal title to, all the master tapes
described in and covered by the Schedule to the Assignment insofar as
such ownership, rights and title were not transferred to A. under the
Share Sale Agreement.
M. Ltd and A. say in the particulars of claim that, although in August 2003
M. GmbH purported to deliver the Masters, in a promotional brochure
for M. GmbH prepared in about 2002 by Mr R. for M. GmbH and A., M.
GmbH purported to have in its archive inter alia, the following recordings,
namely (1) 280 hours of "High Definition Classics", (2) 168 hours of "High
Definition Jazz", (3) 75 hours of "High Definition World", (4) 130 hours
of "High Definition Nostalgia", (5) 85 hours of "Beaux Rose + Sense &
Sounds", (6) 28 hours of "Beaux Authentics", (7) 66 hours of "Beaux",
(8) 14 hours of "Beaux Jazz", (9) 24 hours of "Gov", (10) 69 hours of
"Memo Music", (11) 150 hours of "Road Classics", and (12) 200 hours of
"Super Audio CD", being a total of approximately 1,289 hours of sound
recordings.
M. Ltd and A. claim that the Defendants have acted unlawfully in failing,
despite requests to do so, to deliver up all the Masters previously owned
by M. GmbH, insofar as: (1) M. GmbH does not own and is not entitled
to any interest in any of the Masters in the control of M. GmbH; (2) M.
GmbH is in breach of instructions given on about April 11, 2002 by or on
behalf of the owner, i.e. M. Ltd or A., of all the Masters then in the control
of M. GmbH to deliver the Masters to M. Ltd or A.; (3) Mrs M. does not
own and is not entitled to any interest in any of the Masters in the control
of any of the Defendants and which were owned by M. GmbH prior to
April 11, 2002; (4) Mrs M. is in breach (a) as a director of M. GmbH, of
instructions given on about April 11, 2002 by the owner, M. Ltd or A., of
all the Masters in the control of M. GmbH to procure the delivery of the
Masters to M. Ltd or A.; (b) further or in the alternative, as a party to the
Share Sale Agreement, of the terms of the Share Sale Agreement; (5) Mr
R. does not own and is not entitled to any interest in any of the Masters in
the control of any of the Defendants and which were owned by M. GmbH
prior to April 11, 2002; (6) Mr R. is in breach, for the period when he was
a director of M. GmbH, of instructions given on about April 11, 2002 by M.
Ltd or A. to deliver the Master tapes to A.; (7) Mr S. has refused to deliver
up the Masters.
In the prayer M. Ltd and A. claim (1) a declaration that M. Ltd,
alternatively A., is the legal and beneficial owner of all rights and interests
in the Masters, including the copyrights therein and the ownership of the
actual items; (2) an order for delivery up of the Masters in the respective
Defendant's possession, power, custody or control; (3) an enquiry as
to damages against all Defendants for conversion of the Masters; (4)
an enquiry as to damages against Mrs M. for breach of the Share Sale
Agreement. An account of profits for breach of copyright is no longer
pursued.
The Defendants, by application notice dated March 15, 2004, apply for
orders (1) that the service of the claim form as against Mr S. and Mr R.
be set aside; and (2) that the action be stayed as against M. GmbH. The
application also seeks, on behalf of M. GmbH and Mrs M., a declaration
that the court has only "limited jurisdiction" over them. On the merits,
the Defendants say that (a) the Assignment of copyright governed by
German law is ineffective under German law, because it had already been
assigned by way of security to a third party; and (b) in any event, there is
no reason to imply the term for which the Claimants contend.
V The parties' position on jurisdiction
These proceedings are civil or commercial matters within the meaning of
the Council Regulation (EC) No. 44/2001 ("the Judgments Regulation"),
and each of the Defendants is domiciled in a Regulation State, namely
Germany. Accordingly, proceedings can be brought against them in this
country only in accordance with the rules set out in Sections 2 to 7 of
Chapter II of the Judgments Regulation: Article 3.
The only heads of jurisdiction relied on by the Claimants are:
(1) Article 5(3), by which a person domiciled in a Regulation State may
be sued in another Regulation State "in matters relating to tort, delict or
quasi-delict, in the courts for the place where the harmful event occurred
or may occur."
(2) Article 23(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 which have arisen or which
may arise in connection with a particular legal relationship, that court
or those courts shall have jurisdiction. … Such an agreement conferring
jurisdiction shall be either: (a) in writing or evidenced in writing …"
The Defendants say that the English court has no jurisdiction over Mr S.
and Mr R., and only limited jurisdiction over M. GmbH and Mrs M.. They
accept that the English court would have jurisdiction in the claim by A.
against Mrs M. for damages under the Share Sale Agreement, by virtue of
the exclusive English jurisdiction clause.
The Defendants also originally made a concession (to which I shall revert)
that the English court would have jurisdiction in the claim by M. Ltd
against M. GmbH based on the proposition that business efficacy required
that a term be implied in the Assignment that title to the Masters was
being transferred.
The Defendants' argument is as follows:
(1) A. has no properly pleaded claim to title to the Masters, and no basis
for the court's jurisdiction to determine it. A. pleads (Particulars of Claim,
paragraph 18(h)) that the Share Sale Agreement required Mrs M. to
deliver or cause M. GmbH to deliver up to A. "all Recordings". But it is
legally impossible for the Share Sale Agreement alone, nor a failure by
Mrs M. to comply with her obligations under it, to result in any transfer
of property belonging to M. GmbH. A. cannot establish a case that it has
or at any stage had any proprietary or possessory interest in the relevant
property, without which it cannot bring itself within any relevant provision
of the Judgments Regulation.
(2) It follows that, irrespective of any arguments about the width of the
jurisdiction clause in the Share Sale Agreement or the location of any tort,
none of A.'s title-derived claims can be entertained by the English court.
(3) So far as Mr S. and Mr R. are concerned, no jurisdictional basis exists.
Since there is no contract between either of M. Ltd and A. and either of Mr
S. and Mr R., the only conceivable head of alternative jurisdiction against
them would be under Article 5(3), and even that could only apply to the
claims for damages for conversion. The claims for a declaration as to title
and for an order for delivery up do not fall within Article 5(3), as they do
not seek to establish a liability on the part of the Defendants: see Case
189/87 Kalfelis v Bankhaus Schroder, Munchmeyer, Hengst & Co [1988]
ECR 5565. The claim for "further and other relief" is a fortiori.
(4) To bring the claim within Article 5(3) would necessarily involve a
pleaded allegation that "the harmful event" had occurred within the
jurisdiction. No such pleading has been, nor could be, made. There is
no such tort in English law or German law as "failure to deliver to a
particular address," as is suggested in the evidence of M. Ltd and A.. The
jurisdictionally-significant conduct has all taken place in Germany: Case
C-364/93 Marinari v. Lloyd's Bank [1995] ECR I-2719.
(5) Whatever the width of the jurisdiction clause in the Share Sale
Agreement, it cannot extend to any claim brought against Mrs M. by M.
Ltd in tort, since M. Ltd is not party to the Share Sale Agreement.
(6) Even in relation to A., and assuming that it had any claim in tort,
the court has no jurisdiction. In relation to Article 5(3), the same
considerations apply as in respect of Mr S. and Mr R.. A. cannot rely
on the exclusive jurisdiction clause in the Share Sale Agreement for
the purposes of the tort claim also. The parties have agreed that a
"particular legal relationship" should be subject to the jurisdiction of the
English court, viz., the Share Sale Agreement. That relationship does not
encompass any (alleged) subsequent conversion of property which in any
event never belonged to A..
(7) M. GmbH accepts that the court has jurisdiction to entertain those
claims brought in the name of M. Ltd which fall within the jurisdiction
clause in the Assignment. But this can extend only to the claims under the
first two heads of relief sought by M. Ltd in the prayer to the Particulars
of Claim: a claim for conversion of property said to have been assigned
is not a claim "arising in relation to" the Assignment. The Assignment is
merely part of the factual background to the claim.
(8) It cannot be said, for the purposes of Article 23(1), that the
"particular legal relationship" which "the parties … have agreed" should
be subject to the jurisdiction of the English court, viz., the Assignment,
extends to encompass any (alleged) conversion of the property (allegedly)
assigned: that relationship is merely incidental to any alleged tort.
(9) So far as the claims brought by A. are concerned, the same
considerations apply in relation to Mr S. and Mr R..
The Claimants' argument is as follows:
(1) Article 23(1) of the Judgments Regulation confers on the court
exclusive jurisdiction to decide all disputes in relation to each of (a) the
Share Sale Agreement between Mrs M. and A. and (b) the Assignment
between M. GmbH and M. Ltd.
(2) The place of performance of the obligation by Mrs M. under the Share
Sale Agreement was England, the place where the delivery of the Masters
was to take place.
(3) The Claimants were, as a matter of contract, as against M. GmbH, to
have the exclusive rights in respect of the Masters, since they embodied
the sound recordings in which M. Ltd (the subsidiary) was to own the
copyright and were the main asset which A. (the parent) was buying. For
the Defendants to deal with the Masters other than to the order of M. Ltd
and A. was conversion of the Masters. The Claimants also mentioned in
argument that they had a claim for wrongful interference with contract,
but no such claim has been made.
(4) The "place where the harmful event occurred" arising from the tort of
conversion is England. It is in England that the Masters were supposed
to be delivered by M. GmbH to A. pursuant to the Share Sale Agreement.
The Defendants are alleged to have converted the Masters by the failure
to deliver, or to procure or to allow the delivery of, the Masters in that
way. It is in England where the relevant damage was suffered – the failure
to deliver there caused physical damage to be done there and that is
where the recoverable economic loss is actually suffered.
V Jurisdiction
In principle the appropriate standard which a claimant must satisfy to
establish the jurisdiction of the English court for the purposes of the
Judgments Regulation is a good arguable case, which is a concept with
some degree of flexibility depending upon the issue: Canada Trust Co
v Stolzenberg (No.2) [1998] 1 WLR 547, 558, per Waller LJ, approved
[2002] 1 AC 1, at 13, per Lord Steyn.
For the purposes of Article 5(3) of the Judgments Regulation "tort, delict
or quasi-delict" has an autonomous meaning, and covers actions which
seek to establish the liability of a defendant and which are not related
to a contract within the meaning of Article 5(1): Case 189/87 Kalfelis
v Bankhaus Schroeder Münchmeyer Hengst & Co. [1988] E.C.R. 5565,
para 17; Case C-261/90 Reichert v Dresdner Bank AG [1992] E.C.R.
I-2149, para 16; Case C-51/97 Réunion Européenne SA v Spliethoff's
Bevrachtingskantoor BV [1998] E.C.R. I-6511, para 22.
The place where the harmful event occurs covers both the place where
the damage occurred and the place of the event giving rise to it,
and the defendant may be sued, at the option of the claimant, in the
courts for either of those places: Case 21/76 Bier v Mines de Potasse
d'Alsace [1976] ECR 1735, paras 24-25; Case C-220/88 Dumez France v
Hessische Landesbank [1990] ECR I-49, para 10; Case C-69/93 Shevill
v Presse Alliance [1995] ECR I-415, para 20; Case C-364/93 Marinari v
Lloyd's Bank plc [1995] E.C.R. 1-2719, para 11.
In Case 21/76 Bier v Mines de Potasse d'Alsace [1976] ECR 1735 the
European Court was concerned with a case in which the event which was
at the origin of the damage (the discharge into the French part of the
Rhine of saline waste) was in France, and the alleged damage (to the
horticultural business of the first plaintiff, and to the waters of the Rhine
in general) occurred in the Netherlands. The European Court held that
both the place of the event giving rise to the damage and the place where
the damage occurred constituted a significant connecting factor from
the point of view of jurisdiction, and each of them could be particularly
helpful from the point of view of evidence and the conduct of proceedings.
Accordingly the plaintiff had an option to commence proceedings either
at the place where the damage occurred or the place of the event giving
rise to it. To decide in favour only of the place of the event giving rise
to the damage would cause confusion between the heads of jurisdiction
laid down by Articles 2 and 5(3) (i.e. it would tend towards the place of
domicile of the defendant), and to decide only in favour of the place of
damage would exclude a helpful connecting factor with the jurisdiction of
a court particularly near to the cause of the damage.
When determining the place where the damage occurred, account should
not be taken, for the purposes of determining jurisdiction under Article
5(3), of indirect financial damage, or of the adverse consequences of an
event which has already caused damage elsewhere. If indirect financial
damage qualified, that would give too much weight to the plaintiff's
domicile, and enable a plaintiff to determine the competent court by his
choice of domicile: Case C-220/88 Dumez France v Hessische Landesbank
[1990] ECR I-49, paras 19-20; Case C-364/93 Marinari v Lloyd's Bank plc
[1995] E.C.R. 1-2719, para 14; Case C-51/97 Réunion Européenne SA v
Spliethoff's Bevrachtingskantoor BV [1998] E.C.R. I-6511, para 29; Case
C-168/02 Kronhofer v. Maier, June 10, 2004 (which only became available
after the hearing in this case).
The English court has exclusive jurisdiction by virtue of Article 23(1)
of the Judgments Regulation in relation to claims under the Share Sale
Agreement and the Assignment.
Consequently the English court has jurisdiction to determine the claim
by A. against Mrs M. for damages for breach of the obligation in the
Share Sale Agreement to deliver the Masters to A., or procure them to
be delivered. There appears to be no defence to this claim. The English
court would also have jurisdiction to order Mrs M. to deliver up to A..
such of the Masters as were in her possession, since such an order
would be an ancillary order in the contractual claim over which the
court has jurisdiction. I should add that in the prayer M. Ltd appears to
claim damages under the Share Sale Agreement, but this is obviously
unsustainable.
There is no legal basis for the claim by A. under the Share Sale
Agreement for a declaration against Mrs M. that it is the owner of the
Masters. The Share Sale Agreement did not transfer, nor could it have
transferred, ownership of the Masters from M. GmbH to A.. It was purely
an agreement for the sale of the shares in M. GmbH: clause 2 and 7. It
follows that there can be no claim by A. against M. GmbH, Mr S. or Mr R.
for a declaration that it owns the Masters, or for an order for delivery up
ancillary to that declaration.
I deal below with the question whether A. can sue any of the Defendants
for conversion. But even if it had a cause of action in conversion against
Mrs M., the claim would not fall within Article 5(3) because the alleged
conversion is precisely the same as the alleged breach of contract, and
the action would therefore be related to a contract within the meaning of
Article 5(1), and therefore not within Article 5(3): Case 189/87 Kalfelis
v Bankhaus Schroeder Münchmeyer Hengst & Co. [1988] E.C.R. 5565,
para 17; Case C-261/90 Reichert v Dresdner Bank AG [1992] E.C.R.
I-2149, para 16; Case C-51/97 Réunion Européenne SA v Spliethoff's
Bevrachtingskantoor BV [1998] E.C.R. I-6511, para 22.
If there is a serious issue to be tried on the merits in relation to a claim
by M. Ltd against M. GmbH under the Assignment, then the English court
would have exclusive jurisdiction by virtue of the jurisdiction clause in the
Assignment.
The Assignment is expressed to be an Assignment of the copyright
in the Masters. As I have said, the Defendants conceded that there
was a serious issue to be tried on M. Ltd's claim that there was a term
of the Assignment necessarily to be implied for reasons of business
efficacy that M. Ltd acquired from M. GmbH under the Assignment the
legal and beneficial ownership of, and all rights and legal title to, all the
Masters insofar as such ownership, rights and title were not transferred
to A. under the Share Sale Agreement. In the course of the hearing I
questioned whether it was arguable that such a term was required to give
business efficacy to the Assignment, since it was executed after the Share
Sale Agreement, the effect of which was that possession of the Masters
would be in a group, in which M. GmbH would be the parent of M. Ltd,
and A. would be the parent of M. GmbH.
As a result, the Defendants argued that there was no serious issue to
be tried on the claim under the Assignment. The Claimants retorted by
relying on the evidence by one of the administrative receivers that he had
been informed by Mr Maloney (the former managing director of A.) that it
is the custom of the trade to transfer the copyright in a sound recording
with title to the master tape holding the sound recording, and that the
administrative receiver's own investigations confirmed Mr Maloney's
views. To succeed in establishing a term to be implied by custom, M. Ltd
will have to show on the application to amend that it has some prospect
of establishing an invariable, notorious, certain and general usage, which
is more than a mere trade practice.
The question of whether there was any legitimate claim under the
Assignment arose only at the hearing of these applications. It was not
possible for the matter to be fully researched and argued, and evidence
of the factual matrix might be required. In those circumstances I consider
it more consistent with procedural fairness to proceed on the basis of the
Defendants' original concession that there is a serious issue to be tried
in relation to the claim under the Assignment by M. Ltd for a declaration
against M. GmbH that M. Ltd is the owner of the Masters. That is a
contractual claim which would fall within the scope of the jurisdiction
clause. Whether there is a basis for that claim to go to trial would be
more conveniently decided on an application to strike out the implied term
claim, and on any application by M. Ltd to amend to plead a term implied
by custom.
The English court would have jurisdiction to make an order for delivery
up of the Masters, because that would be ancillary to the claim for a
declaration as to ownership, but it would not have jurisdiction in a claim
by M. Ltd against M. GmbH for damages for conversion for the same
reason as in paragraph 30 above.
M. Ltd also claims a declaration against Mr S., Mrs M. and Mr R. that
it owns the Masters, and orders for delivery up. There is no basis for
jurisdiction in relation to these claims.
That leaves the claims in conversion by M. Ltd against Mr S., Mrs M. and
Mr R., and the claims in conversion by A. against M. GmbH, Mr S. and Mr
R.. M. Ltd's claim is put on the basis of its immediate right of possession
as owner deriving from the Assignment which it claims carried with it
a transfer of ownership of the Masters. The claim by A. is put on the
basis of its contractual right to possession deriving out of the Share Sale
Agreement, which was an agreement with Mrs M..
Upon completion of the Share Sale Agreement, A.. became the parent
company of M. GmbH. M. GmbH transferred the copyright in the Masters
to M. Ltd. A. at no time had any proprietary right in the Masters. They
were and are owned by M. GmbH (according to the Defendants), or were
owned by M. GmbH and are now owned by M. Ltd (according to the
Claimants).
As I have said, Clause 3(2)(j) of the Share Sale Agreement required Mrs
M. to deliver (or cause to be delivered) the Masters to A. at completion.
In International Factors v. Rodriguez [1979] 1 QB 351 the majority view
(Sir David Cairns and Bridge LJ) was that a mere contractual right to
possession (in that case, of cheques) was insufficient to found an action in
conversion, but that the plaintiffs had more than a mere contractual right
to possession, because they had equitable rights in the cheques. Buckley
LJ thought that a contractual right to demand immediate delivery was a
sufficient right to possession to give a status to sue in conversion. In MCC
Proceeds Inc. v. Lehman Brothers [1998] 4 All ER 675 the Court of Appeal
decided that International Factors v. Rodriguez was decided per incuriam
to the extent that it held that equitable rights conferred a status to sue in
conversion, or that the holding was obiter.
The Defendants accept that, at least for the purposes of the threshold
test of a serious issue to be tried or good arguable case that a mere
contractual right to possession can found title to sue in conversion,
provided the right to possess is "immediate": see Halsbury's Laws, Vol.
45(2), paras 559-560 TA \l "Halsbury's Laws, Vol. 45(2), §§ 559-560"
\s "Halsbury's Laws, Vol. 45(2), §§ 559-560" \c 8. But they say that
A. did not have a "mere contractual right to possession" in the sense
comprehended by the authorities, which contemplate that the agreement
to transfer possession will be made by a party entitled to do so. As a
matter of principle and common sense, where goods belonging to and
in the immediate possession (whether physical or delegated) of A are
the subject of an agreement by B to transfer to C, it is difficult to see
any good reason how or why such an agreement should bestow upon C
any title to sue A in tort for refusing to surrender them. A contractually-
granted immediate right to possession of goods can only be sufficient to
give title to sue in conversion where the contract is with a party entitled –
as a matter of its own possessory title – to grant it.
The Claimants rely on what Lord Nicholls said in Kuwait Airways Corp v.
Iraqi Airways Co. (Nos. 4 and 5) [2002] 2 AC 883 at page 1084, para 39:
"Conversion of goods can occur in so many different circumstances
that framing a precise definition of universal application is well nigh
impossible. In general the basic features of the tort are threefold. First,
the defendant's conduct was inconsistent with the rights of the owner (or
other persons entitled to possession). Second, the conduct was deliberate,
not accidental. Third, the conduct was so extensive an encroachment on
the rights of the owner as to exclude him from use and possession of the
goods."
A. has had at all material times "an immediate legal right to possession"
of the Masters, albeit a contractual right, by reason of (1) the Share
Sale Agreement, (2) instructions given to all the relevant Defendants by
respective Claimants, (3) delegated possession at material times to M.
GmbH, a wholly owned subsidiary of A. and a member of the same group
of companies as M. Ltd, and (4) the fact that there is no suggestion that
there is a bona fide purchaser for value without notice to defeat A.'s right.
I am satisfied that A. has no right to claim in conversion, or for an order
for delivery up ancillary to that claim. Mrs M. was not the owner, nor
the person in possession. At the time of the Share Sale Agreement that
person was M. GmbH. There is no plea and no evidence that Mrs M.
had possession of the relevant goods, nor that she was entitled to such
possession in her personal capacity. There is no plea or evidence that Mrs
M. was in any way empowered by M. GmbH to transfer or to procure the
transfer of possession of the Masters on behalf of M. GmbH. She entered
into the Share Sale Agreement as shareholder, and gave the undertaking
to A. as a comfort that the share sale would be effective to transfer a
company with the relevant assets. I accept the Defendants' argument that
the agreement to transfer must be made by the person who would, but
for the agreement, otherwise have been entitled to possession of them.
This nexus between the person contracting and the goods in question is,
as a matter of principle and common sense, essential for the contract to
give an immediate right to possession of the goods in the sense required
before title to sue in tort can arise. In this case property in and any
immediate right to possession of the goods in question was vested in M.
GmbH. A. did not, therefore, have a such a right to the possession of the
goods as would be sufficient to give it title to sue in conversion.
But I am satisfied that the English court has no jurisdiction in the
conversion claims even if (a) M. Ltd is right in its contention that there
was an implied term that it was entitled to property in the Masters
under the Assignment; and (b) A. can sue in conversion as a result of
its contractual rights against Mrs M. to possession under the Share Sale
Agreement.
The place where the harmful event occurs covers both the place where
the damage occurred and the place of the event giving rise to it, and the
defendant may be sued, at the option of the claimant, in the courts for
either of those places. But when determining the place where the damage
occurred, account should not be taken, for the purposes of determining
jurisdiction under Article 5(3), of indirect financial damage, or of the
adverse consequences of an event which has already caused damage
elsewhere. In my judgment the alleged tort was not a tort where all
relevant elements occurred in England nor is it a cross-border tort where
the event giving rise to the damage occurred in Germany and the damage
occurred in England.
In Case C-364/93 Marinari v Lloyd's Bank plc [1995] E.C.R. 1-2719, paras
14-15, the European Court said:
"Whilst it has thus been recognized that the term 'place where the
harmful event occurred' within the meaning of Article 5(3) … may cover
both the place where the damage occurred and the place of the event
giving rise to it, that term cannot be construed so extensively as to
encompass any place where the adverse consequences can be felt of an
event which has already caused damage actually arising elsewhere.
Consequently, that term cannot be construed as including the place where
… the victim claims to have suffered financial damage following upon
initial damage arising and suffered by him in another Contracting State."
Mr Marinari had lodged with Lloyd's Bank in Manchester promissory notes
to the value of $752 million. The notes were seized by the police after the
bank's suspicions were aroused. He sued the bank in Italy claiming (inter
alia) the value of the notes of which he had been deprived. The effect of
the decision is that the Italian court did not have jurisdiction, because the
initial damage was suffered in England, and Italy was the place where
the victim had suffered financial damage consequential on the original
damage.
In Domicrest Ltd v Swiss Bank Corporation [1999] QB 548 the English
claimant sued a Swiss bank for negligent mis-statement. The mis-
statement was allegedly made in a telephone conversation between an
English agent of the claimant and an officer of the bank in Switzerland,
who was said to have represented that the transmission of a copy
payment order by the bank to the claimant constituted an assurance
by the bank that payment would be made for the amount referred to
in the order and that such payment was guaranteed by the bank. The
claimant said that as a result of those representations, it agreed, contrary
to its usual practice, to release goods in Switzerland and Italy on receipt
of the copy payment order from the bank rather than waiting until it
had been paid. The bank subsequently refused to pay on three copy
payments orders in respect of goods which had been released from store
in Switzerland and Italy. It was held that the place of the damage was in
Switzerland and Italy, where the goods were released without payment,
rather than England, where the Swiss purchaser would have paid the
price. The reasons for that finding were (a) that it was by reference
to the loss of the goods that the damages were pleaded; and (b) that
the essence of the complaint was that the goods were released prior to
payment.
In the present case, the Claimants have not established, either on the
evidence or by argument, that the harmful event occurred in England,
either because England is the place where the damage occurred, or
because England was the place of the event giving rise to the damage.
The Defendants asserted in their evidence that the harmful event for
the purposes of jurisdiction under Article 5(3) over the claims by both
Claimants against Mr S. and Mr R. occurred in Germany where the
alleged wrongful possession and/or use of the Masters took place, even
if consequential financial loss was later suffered in England. In reply,
the Claimants said in Mr G.'s witness statement that "the harmful event
upon which the Second Claimant [i.e. A.] relies is the failure to deliver
up the master tapes to the Second Claimant at its offices in Wembley."
In argument, the Claimants said that the place where the harmful event
occurred was England: the Masters were supposed to be delivered in
England under the Share Sale Agreement, and the Defendants were
alleged to have converted the Masters by the failure to deliver, or to
procure or allow the delivery of, the Masters in England. They said that
the relevant damage was suffered in England: the failure to deliver
there caused physical damage to be done there and that is where the
recoverable economic loss was actually suffered.
In my judgment, none of these arguments is sustainable. The Claimants
do not, as they must, distinguish between the claims by M. Ltd and A.. If
A. has a claim in conversion against M. GmbH, Mr S. and Mr R., it is based
on their continued detention and use of the Masters in Germany, and
that is plainly where (if anywhere) the event giving rise to any damage
occurred. There is no evidence or argument on the alleged damage to
A., but the only likely candidate for damage to A. is the diminution in
value of its shares in M. GmbH, a German company, as a result of the
failure of Mrs M. to deliver the Masters, or as a result of the detention of
the Masters by the relevant Defendants. There is no possible basis for
regarding that loss as damage in England for the purposes of Article 5(3).
If M. Ltd is the owner of the Masters, then its claim in conversion against
Mr S., Mrs M. and Mr R. is also based on their continued detention
and use of the Masters in Germany. The fact that Mrs M. was under a
contractual obligation to deliver them in England cannot alter that fact.
I do not consider that I am assisted by the Claimants' reliance on Case
C-51/97 Réunion Européenne SA v Spliethoff's Bevrachtingskantoor BV
[1998] E.C.R. I-6511, paras 34-37 for the proposition that the contractual
place of delivery is the place where the damage arose. But that ruling was
in the context of a case in which the place where the event giving rise
to the damage occurred may be difficult or impossible to determine. The
Court (at para 29) confirmed the need to avoid interpreting Article 5(3) so
as to confer jurisdiction on the court of the plaintiff's domicile.
Nor is there any evidence that any consequential loss to M. Ltd in England
was anything other than indirect. The Assignment of copyright was
worldwide, and not only is there is no evidence that England was the sole
intended place of exploitation of the copyright, but also it is clear from
the evidence of Mr Maloney that until the parties fell out the group had
a Europe wide business. In any event I consider that for the purposes of
Article 5(3) damage flowing from inability to exploit the copyright as a
result of not having physical possession of the Masters would be, for the
purposes of Article 5(3), the kind of financial loss which the decision in
Case C-364/93 Marinari v Lloyd's Bank plc [1995] E.C.R. 1-2719 rules
out.
VI Stay application by M. GmbH and the Insolvency Regulation
M. GmbH has applied for a stay of the English proceedings against it on
the ground of the existence of the German insolvency proceedings. If I
am right in my conclusions on jurisdiction, then the only relevant claim to
which this application would apply is the claim by M. Ltd against M. GmbH
for a declaration and delivery up under the Assignment. But I will also
consider it in relation to the conversion claims against M. GmbH, in case I
am wrong on jurisdiction.
The evidence on German law is broadly to the effect that following
insolvency proceedings all pending actions in Germany are subject to
an automatic stay. A claim for damages is lodged in the insolvency
proceedings, and if it is disputed by the liquidator, the claimant may seek
recognition of the claim with the court having conduct of the insolvency
proceedings. But it is common ground that in the circumstances of this
case the effect of the Insolvency Regulation is that it is for English law to
determine whether the proceedings against M. GmbH by M. Ltd and A.
should be stayed, and whether M. Ltd and A. should be required to prove
their claims in the German insolvency proceedings.
By section 130(2) of the Insolvency Act 1986: "When a winding-up order
has been made … no action or proceeding shall be proceeded with or
commenced against the company or its property, except by leave of
the court and subject to such terms as the court may impose." Section
130(2) gives the court freedom to do what is right and fair in all the
circumstances: New Cap Reinsurance Corp Ltd v HIH Casualty and
General Insurance Ltd [2002] 2 BCLC 228, 233 (C.A.).
M. GmbH contended that the English court should maintain the stay of
the claims against it under section 130(2) of the Insolvency Act 1986,
because of the German insolvency proceedings. Its argument was as
follows:
(1) Council Regulation (EC) No.1346/2000 ("the Insolvency Regulation")
governs the effect in England of the German insolvency proceedings
against M. GmbH.
(2) By Article 4: "(1) Save as otherwise provided in this Regulation,
the law applicable to insolvency proceedings and their effects shall be
that of the Member State within the territory of which such proceedings
are opened, hereafter referred to as the 'State of the opening of
proceedings.' (2) The law of the State of the opening of proceedings
shall determine the conditions for the opening of those proceedings, their
conduct and their closure. It shall determine in particular: ….. (b) the
assets which form part of the estate … (e) the effects of the insolvency
proceedings on proceedings brought by individual creditors, with the
exception of lawsuits pending … "
(3) By Article 15: "The effects of insolvency proceedings on a lawsuit
pending concerning an asset or a right of which the debtor has been
divested shall be governed solely by the law of the Member State in which
that lawsuit is pending."
(4) In the circumstances of this case a stay would be appropriate for
these reasons: (a) any claim in tort can only add to the cost of the
proceedings, for no realistic benefit; (b) either the claim in respect of title
will succeed, in which case the Claimants will recover and M. GmbH lose
the Masters – and any judgment for substantial damages will be worth
at most a very few cents in the Euro in the German liquidation; or the
claim in respect of title will fail, in which case any damages claim will fall
with it; (c) in relation to the remaining claims (i.e., those which relate to
the disputed title to the Masters), there is another available jurisdiction
which may hear them – and probably at less expense; (d) if the tortious
claims against the other Defendants have to be heard in Germany and
that the issue of title is key to those claims also, commonsense suggests
that – if a multiplicity of proceedings (with the attendant duplication of
cost and risk of inconsistent decisions) is to be avoided – a stay would be
appropriate and fair, not least given that the bank behind the Claimants
will have deep pockets, whereas the German liquidator's means will be far
more restricted.
The position of M. Ltd and A. was that the court's discretion should
be exercised to permit them to continue with their claims against M.
GmbH. Justice required that result: the English court has a much closer
connection with the rights and interests in the Masters than the court in
Germany; this action was commenced prior to the commencement of the
Hanover proceedings; it is better for the rights and interests of parties
under English law to be considered and decided by the English court, and
not by the German court through experts on English law; the issues are
defined and the pre-action protocols have been satisfied in this action,
and so the parties are further advanced here; one party, at least, Mrs
M., will have this action continued against her in this jurisdiction, even if
only to a limited extent; and it is to be much preferred that all interested
litigants (who can properly be made parties to this action concerning,
effectively, the same subject matter) are a part of this action.
I invited submissions on (a) whether section 130(2) had any application
to this case, since it deals with winding up by the court in England, and
gives no power to stay, or continue the stay, of proceedings caused by a
foreign winding up; and (b) if section 130(2) had no application, whether
the court had power to stay the English proceedings. As a consequence, I
received written submissions from both sides following the hearing.
M. GmbH's position was that section 130(2) could apply directly, but if
not, then it could be applied by analogy. TA \l "Article 12 of the Treaty
of Rome" \s "Article 12 of the Treaty of Rome" \c 8 There was a general
principle in favour of giving judicial assistance to foreign insolvency
proceedings by preventing their disruption by the actions of individual
creditors: Banque Indosuez v. Ferromet Resources [1993] BCLC 112,
117-8, TA \l "Banque Indosuez v. Ferromet Resources [1993] BCLC 112"
\s "Banque Indosuez v. Ferromet Resources [1993] BCLC 112" \c 8 per
Hoffmann J. Where, as here, the foreign liquidator has applied for the
stay of the proceedings not to be lifted, the English court should take this
into account when considering what course would be right and fair in the
circumstances of this case.
The argument on behalf of M. GmbH was elaborated in this way:
(1) By section 221 of the 1986 Act and subject to the provisions of
Part V "all the provisions of this Act and the Companies Act about
winding up apply to an unregistered company". A foreign company is an
"unregistered company" within the meaning of Part V: Stocznia Gdanska
v. Latreefers (No. 2) [2001] 2 BCLC 116. TA \l "Stoczina Gdanska v.
Latreefers No. 2) [2001] 2 BCLC 116" \s "Stoczina Gdanska v. Latreefers
No. 2) [2001] 2 BCLC 116" \c 8 That is so whether or not it carries on
business in England. "Winding up order" in section 130(2) can be taken to
extend to such orders or their equivalent in other EU jurisdictions.
(2) Parliament had an opportunity, when amending the 1986 Act to take
account of the Insolvency Regulation, to make express the application
of section 130(2) to foreign windings-up. It did not do so, and, in not
doing so, it must have considered that the wording of section 221(1) was
sufficiently wide to achieve that result. Were its intention otherwise, then
the result would be that an English liquidation would result in a stay of
English proceedings, but a German (or French, or Spanish etc.) liquidation
would not.
(3) Such a result would breach the fundamental principle of non-
discrimination on grounds of nationality enshrined in Article 12 of the
Treaty of Rome. The creditors of a company having its main centre of
interest in another EU country will tend to be nationals of that country.
Their position vis-à-vis English litigation will be less favourable than that
of creditors of an English company in liquidation here. Such a result
would also be inconsistent with the automatic recognition of insolvency
proceedings prescribed by Article 16(1) of the Insolvency Regulation, and
would render Article 15, in cases such as the present, a dead letter.
It was, alternatively, submitted on behalf of M. GmbH that the provisions
of section 130(2) should be applied by analogy to achieve the same
objective.
The Claimants' position is that section 130(2) cannot apply, and that
there is no basis for a stay. Section 14 of the Insolvency Act 2000 grants
power to the Secretary of State to give effect in English law to the
UNCITRAL model law and, inter alia, to require courts with insolvency
jurisdiction to co-operate with each other. The power under section 14
expressly includes amendments to section 426(4) of the Insolvency Act
1986, which requires the English court to assist the courts in a "relevant
country" (a country designated by the Secretary of State under section
426(11)), but no such amendment has been made. By the Insolvency Act
1986 (Amendment) Regulations 2002, the Secretary of State has made
amendments to include in the 1986 Act a number of references to the
Insolvency Regulation, but they do not affect sections 130 and 426. There
is no residual discretion in the court to stay these proceedings.
The Claimants say that M. GmbH is not an unregistered company for the
purposes of section 130(2). They argue that section 221 of the 1986 Act
applies only to unregistered companies which have a place of business in
Great Britain. Stocznia Gdanska v Latreefers (No. 2) [2001] 2 BCLC 116 is
authority only for the proposition that an overseas incorporated company,
which has been carrying on business in Great Britain "may be wound up
as an unregistered company under [the 1986 Act]" (section 225). Section
225 is a deeming provision, providing that such an overseas incorporated
company doing business in Great Britain may be wound up as if it were
an unregistered company. Because it was doing business in England,
Latreefers had to be treated as an unregistered company anyway. By
contrast, in this case, for M. GmbH to be considered, by virtue of section
221(1) of the 1986 Act, "a company" for the purposes of section 130(2),
it must firstly be categorised as "an unregistered company". But, on the
Claimants' case, it cannot be.
The Claimants say that, in any event, "winding-up order" in section
130(2) is limited to winding-up by the English court. On that basis it
does not contravene the non-discrimination principle of Article 12 in the
Treaty of Rome. Section 130(2) has a limited purpose. It is designed
to simplify and lower the cost of domestic insolvency proceedings and
prevent a multiplicity of actions within the same legal system. Cross-
border insolvency conflicts are governed by the Insolvency Regulation.
The European Court has taken a robust view in rejecting claims of covert
or indirect discrimination against foreign nationals introduced by a civil
legal procedure aimed at simplifying the process of recovering debts,
particularly where creditors can bring proceedings in other EU countries:
Case 22/80 Boussac Saint-Frères SA v. Gerstenmeier [1980] ECR 3427.
In my judgment, the Claimants' conclusion is right, although I do not
accept much of their reasoning. First, I do not accept the Claimants'
suggestion in Counsels' further note of June 29, 2004 that section 130(2)
does not apply to a foreign company with no place of business in England.
It is plain from the authorities that a foreign company (subject to the
jurisdictional requirements of the Insolvency Regulation where it applies)
may be wound up in England as an unregistered company under section
221(1) (and its predecessors, including Companies Act 1948, s. 399(1)
and Companies Act 1985, s. 666(1)) if there is a sufficient connection with
the jurisdiction. That connection may, but does not necessarily have to,
consist of assets within the jurisdiction: for recent examples in the Court
of Appeal see Banco Nacional de Cuba v Cosmos Trading Corp [2000]
BCC 910 and Stocznia Gdanska v Latreefers (No. 2) [2001] 2 BCLC 116.
In Re Drax Holdings Ltd [2003] EWHC 2743 (Ch), [2004] 1 WLR 1049 I
held that the criteria went to the discretion of the court rather than its
jurisdiction.
Second, section 225 of the Insolvency Act 1986 does not affect the
position. That section (like its predecessors, including Companies Act
1948, s. 400 and Companies Act 1985, s. 670) gives the court power to
wind up a company which has been carrying on business in England but
has ceased to do so, notwithstanding that it has been dissolved or ceased
to exist under the law of its incorporation. This is a separate power (rarely
if ever exercised) and does not affect the power of the court to wind up
a foreign company which does not carry on business, or has not carried
on business, in England, provided that there is some connection with the
jurisdiction.
Accordingly section 130(2) can apply in the case of the winding up in
England of a foreign company, but I am satisfied that there is no basis
for an argument that section 130(2) can apply to a foreign insolvency
proceeding.
It is clear from its context that section 130(2) does not apply to foreign
insolvency proceedings, and section 221(1) does not extend it to foreign
insolvency proceedings. Nor is there any basis for any argument that it
could apply by analogy. Nor do I see any element of discrimination. The
effect of Article 4(2)(e) and Article 15 of the Insolvency Regulation is to
leave the question whether there should be a stay to the English court in
the circumstances in which they apply.
In fact the court has an inherent discretion, re-inforced by the Supreme
Court Act 1981, section 49(3), to stay proceedings, whenever it is
necessary to prevent injustice. But the power cannot be used in a manner
which is inconsistent with the Judgments Regulation. The Civil Jurisdiction
and Judgments Act 1982, section 49, provides that nothing in that Act
prevents the court from exercising its power to stay, where to do so is
not inconsistent with the Brussels or Lugano Conventions. That section
has not been amended to refer to the Judgments Regulation, because
the Regulation is directly applicable without national legislation. Where
the court has jurisdiction under the Judgments Regulation, the power of
the court to stay proceedings cannot be used simply because another
Regulation State is the forum conveniens: Dicey and Morris, Conflict of
Laws, 13th ed 2000, para 11-012.
It follows that the power should not be used simply because the claim
in the English proceedings could be made, or more appropriately
made, in the German insolvency. I would accept that there is a power
to stay English proceedings in favour of insolvency proceedings in a
Regulation State to prevent injustice, but it would require exceptionally
strong grounds for the English court to exercise that power, particularly
where (as regards the contractual claim) the parties have conferred
exclusive jurisdiction on the English court. Otherwise, the court would
be circumventing the Judgments Regulation by introducing forum non
conveniens principles by the back door.
In my judgment none of the factors relied on by M. GmbH is such
individually or collectively as to amount to such exceptional circumstances
as to justify a stay. Each of the factors relied on is a typical forum
conveniens factor: the cost of proceedings; the limited value of a
damages judgment in the German insolvency; the availability of the
German court to determine title to the Masters; and the multiplicity of
proceedings and danger of inconsistent judgments. I do not consider
that these are legitimate considerations in a case where the court
has jurisdiction under the Judgments Regulation (especially exclusive
jurisdiction in the case of claims under the Assignment). Even if they
were legitimate considerations, they would not have justified a stay. The
Assignment is expressly governed by English law, albeit that there may
be some proprietary issues governed by German law, and (if there is a
defence, which seems doubtful) the claim against Mrs M. under the Share
Sale Agreement will proceed in England.
VII Overall conclusion
The effect of this judgment is: (a) the English court has jurisdiction to
determine A.'s claim for damages and for delivery up against Mrs M.
under the Share Sale Agreement; (b) it will also have jurisdiction to
determine M. Ltd's claim against M. GmbH to title to the Masters under
the Assignment and for delivery up, subject to the determination of the
issue as to whether M. Ltd has an arguable case for a term to be implied
by business efficacy principles or by custom; (c) there is no substantive
or jurisdictional basis for A.'s claim for a declaration that it has title to
the Masters; (d) the court does not have jurisdiction over the tortious
claims against any of the Defendants, nor over the claims against them
(other than Mrs M.) for delivery up; and (e) there will be no stay in
relation to those claims against M. GmbH over which the English court has
jurisdiction.
After this judgment was circulated in draft, the Defendants indicated
that certain factual matters which were treated at the hearing as being
common ground might in fact be contentious. I will therefore add what is
obvious, namely that for the purposes of this application I am not making
any findings of fact. I will hear argument on the form of the order if it
cannot be agreed.