„(…) COOKE J:
Introduction
1. The Defendants (together P.) apply, under CPR Part 11, for a stay of
three Actions begun in England. The same parties are involved in each
of the proceedings and similar issues arise in relation to the applications
in each. The First Defendant (PA.) is the parent company of the P. Group
and the Second Defendant (PM.) is a wholly owned subsidiary of PA. and
itself indirectly owns NV M., a Netherlands company. Both PA. and PM. are
German companies. The issues which arise on these applications, concern
German proceedings begun by P. and English proceedings begun by the
Claimant (JP Mo.).
2. JP Mo. acts as Agent for a number of banks (the S.s) under a Second
Secured Facility Agreement dated 26th March 2002, which provided for
a term loan facility in the amount of Euros 375 Million (the SSFA). PA. is
the borrower under the SSFA and on-lent the sums advanced to it to PM.,
which is the guarantor of the loan made by the S.s.
3. The SSFA is specifically governed by English Law and contains an
exclusive jurisdiction clause in favour of the Courts of England and Wales.
In addition the parties expressly agreed that England was the forum
conveniens: -
"LAW Governing Law
This Agreement shall be governed by, and shall be construed in
accordance with, English Law.
JURISDICTION English Courts
The courts of England have exclusive jurisdiction to hear and determine
any suit, action or proceeding, and to settle any dispute (a "Dispute"),
which may arise out of or in connection with this Agreement (including a
dispute regarding the existence, validity or termination of this Agreement
or the consequences of its nullity).
Convenient Forum
The parties agree that the courts of England are the most convenient and
appropriate courts to settle Disputes between them and accordingly they
will not agree to the contrary.
Service of Process
Each of the Obligors agrees that the documents which start any
proceedings and any other documents required to be served in relation
to those Proceedings may be served on it on B. & McK., London marked
for the attention of "Partner in charge of litigation", or if different, its
registered office."
Background Facts
4. PA. and the P. Group have for some time been in an extremely
uncertain financial position. In the past, P.'s Management has
acknowledged that a considerable insolvency risk exists for PA. and
PM. due to their high debt ratio. P. for sometime anticipated that the
group would not have sufficient resources to comply with its repayment
obligations under a Senior Credit Facility (a secured 1,000,000,000 Euro
revolving facility dated 18th September 2000) and would within the first
six months of 2005, default on those obligations.
5. Despite efforts to negotiate a restructuring and refinancing of the
Group by the S.s, no agreement was reached on this in the summer of
2004.
6. On the 30th June 2004 PA. failed to make an interest payment as
required under the SSFA but because of an agreement between the S.s
and P.'s senior lenders under the Senior Credit Facility, the S.s were
subject to a sixty day standstill period during which they were not to take
action to enforce payment of interest due. On the 25 August 2004, just
prior to the end of the standstill period, PA. paid the overdue interest but
"under reserve". Despite enquiry, no details were given of the nature of
the "reserve".
7. At about this time PA. issued a press release stating that an earlier
accountants' report commissioned by the Management Board of PA.,
which had concluded that P. was significantly over indebted had not been
produced in accordance with applicable standards in Germany.
8. The S.s, as a consequence of the non-payment of interest due on 30th
June, engaged BDO to review P.'s financial position, as they were entitled
to do under the provisions of the SSFA. PA. effectively prevented BDO
from obtaining access to PA.'s books and at about the same time engaged
PwC to perform an over indebtedness analysis. The S.s ultimately agreed
not to proceed with the BDO examination of the position but instead to
allow PwC to carry out the analysis on the basis that the S.s would be
included in the process. In particular they were to have the opportunity
to comment on the factual basis upon which the PwC report was being
prepared before it was finalised and the preliminary and final PwC reports
were to be shared with them. It was envisaged that PwC would complete
its analysis by the end of October 2004.
9. On the 30th September 2004, PA. failed to make another interest
payment on the due date but subsequently paid it "under reserve" just
prior to the expiry of the standstill period. Despite further enquiry, no
details were given of the nature of the "reserve" under which payment
was made. The S.s, as on the previous occasion rejected any "reserve"
put forward.
10. On 9th December 2004, without any prior notice, P. issued a press
release stating that it had issued proceedings in Mainz and on 22nd
December 2004, it issued a further press release stating that it had issued
proceedings in Frankfurt. As a matter of English Law it is clear that both
these proceedings were commenced in breach of the exclusive jurisdiction
clause and the evidence suggests that this was done with the primary
intention of frustrating any possible attempt by JP Mo. and the S.s to seek
appropriate relief in the English Courts in accordance with that jurisdiction
clause. The Mainz proceedings were, after some considerable delay,
served on all the S.s but the Frankfurt proceedings have not yet been
served on a number of the S.s. It is clear that delay is advantageous to P.
and this appears to be one of its objectives.
11. Moreover it is clear that P. have been obstructive in relation to the
provision to JP Mo. of the PwC report, whether in preliminary or final
form. Despite the production of such a report by PwC, P. has prevented
PwC from providing it to JP Mo.. Draft reports were provided to PA. on 9th
December 2004 and 10th February 2005 and a preliminary report on 15th
February 2005. The contents of these reports remain unknown outside
PwC and P.. On the face of it, there is a clear failure by PA. to provide
information as required by Clauses 18.5, 18.1.4 and 20.1.7 of the SSFA.
12. By Clause 20.2.5 of the SSFA, P. is prevented from selling certain
assets without first obtaining the consent of an instructing group of the
S.s. P. Netherlands Holdings BV and NV M. (collectively M.) are together
P.'s most valuable asset and significant source of cash flow. From early
September 2004, press reports and market rumours indicated that P.
was intending to dispose of M. without first obtaining the consent of an
instructing group of S.s. From early November 2004 JP Mo. repeatedly
sought assurances from P. that M. would not be sold without the required
consent. No adequate response was obtained and the rumours about a
sale without consent continued.
13. As a result of concerns over any possible sale of M., before being
served with any German proceedings, JP Mo. commenced proceedings in
England on 23rd December 2004, seeking an order preventing disposal
without the contractual consent required ("the Injunction Proceedings").
In the next two weeks, P.'s Solicitors in London gave assurances that
P. had no intention of disposing of M. without the required consent and
stated that there was nothing going on behind the scenes that should
cause JP Mo. any concern. On 7th January, however JP Mo. received a
letter from PA. questioning the need for the S.s' consent to any sale of
M.. In consequence, on 10th January JP Mo. sought and obtained an
interim injunction substantially in the terms of Clause 20.2.5 of the SSFA.
JP Mo.'s concerns were unabated because of further information and
press releases from P. stating that the consent of the lenders under the
Senior Facility to a sale of M. had been obtained and that no one could
prevent any sale from taking place. Receiving no clarification from PA., on
14th January 2005 JP Mo. on behalf of the S.s, commenced proceedings
seeking declarations to the effect that the S.s were entitled to withhold
consent to the proposed sale of M.. The Injunction Proceedings were
subsequently amended to include the request for declaratory relief and
a further more specific interim injunction was obtained. It is to these
proceedings that one of the stay applications relates.
14. On 23rd February, JP Mo. commenced " the PwC Proceedings", in
which they sought an order for specific performance of Clauses 18.5,
18.1.4 and 20.1.7 in order to obtain a copy of the preliminary report
delivered to PA. by PwC on 15th February 2005. An application to stay
these proceedings is also made.
15. On 31st December 2004, PA. had again failed to make the interest
payment due under the SSFA but unlike previous occasions, no payment
was paid prior to the expiry of the 60-day standstill period. On 8th
March 2005, JP Mo. issued a Notice of Default and Demand in which it
accelerated P.'s obligations and demanded immediate repayment of the
loan which, together with the accrued interest and other sums owed,
amounts to Euros 527,291,909.08. The demand has not been met.
16. On 18th January 2005, JP Mo. commenced "the Declaratory
Proceedings" in which it sought declarations that clause 7 of the SSFA
was valid, binding and enforceable in accordance with its terms and that
the Notice of Default which it had served was also valid. Other related
declarations were sought also. This is the third action of which a stay is
sought.
17. It is in these circumstances that P. challenges the jurisdiction of
the English Court on the basis that P. has commenced proceedings in
Germany in both Mainz and Frankfurt ("the German Courts") and that
these are the Courts first seised of proceeding involving the same cause
of action as the three sets of English Proceedings. P. seek a stay in
reliance on Article 27 or alternatively Article 28 of Council Regulation
44/2001 (the Brussels Regulation). JP Mo. and the S.s resist the
application for a stay on either basis but also maintain that they are
entitled to maintain the injunctions preventing the disposal of M. on an
interlocutory basis under Article 31 of the Brussels Regulation, even if a
stay is granted.
The Brussels Regulation.
18. Article 27 of the Brussels Regulation reads as follows: -
"1. Where proceedings involving the same cause of action and between
the same parties are brought in the courts of different Member States,
any court other than the court first seised shall of its own motion stay its
proceedings until such time as the jurisdiction of the court first seised is
established.
2. 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."
19. Article 28 provides: -
"1. Where related actions are pending in the Courts of different
Member States, any Court other than the Court first seised may stay its
proceedings": -
...
3. For the purpose of this Article, actions are deemed to be related where
they are so closely connected that it is expedient to hear and determine
them together to avoid the risk of irreconcilable judgments resulting from
separate proceedings".
20. Article 31 provides: -
"Application may be made to the Court of a Member State for such
provisional including protective, measures that as may be available under
the law of that state, even if, under this Regulation, the Courts of another
Member State have jurisdiction as to the substance of the matter".
21. It is common ground between the parties that the German
Proceedings were begun first and that the parties in interest are the
same for the purpose of Article 27. Issues arise however as to whether
the German and English proceedings involve the same cause of action
and are therefore subject to a compulsory stay until the German Courts
decide upon their own jurisdiction, which is the subject of challenge by
JP Mo. and the S.s in those Courts. Issues also arise as to the degree
of interconnection between the German and English proceedings for the
purposes of Article 28 and as to the exercise of this Court's discretion
whether or not to stay the latter. Further issues arise in relation to the
exercise of the Court's powers to grant protective measures in the shape
of the injunctions preventing the disposal of M., should a stay be granted,
whether under Article 27 or 28.
The Mainz Proceedings
22. In these proceedings P. seeks a declaration or order that the S.s are
not entitled to interest under the SSFA at all. Alternatively, P. asks the
Mainz Court to find that there is no claim for interest for the period from
October 1st 2004 to 31st December 2009 because, since 1st October
2004 the defendants have been "in financial crisis" within the meaning
of particular German statutory provisions. In the further alternative, P.
seeks a finding from the Courts that there is no claim for repayment for
the amount loaned under the SSFA until 31st March 2010, which is the
expiry of the term of the loan. Under the fourth head of claim, P. asks
the Court to find that the S.s have no claims against P. arising out of the
Share Option Agreement of 26th March 2002.
23. The basis of the second and third claims which, if successful, would
result in the suspension of interest payments for the periods referred to,
both depend upon provisions of German domestic law which are of no
application if the German Court applies English Law, as the law chosen by
the parties to apply to the SSFA. The first head of claim, as explained in
the expert evidence, arises as a matter of Ordre Public – the public policy
of the German Courts. Under Article 6 of the EGBGB, the German Courts
can disapply the law of another state, if its application leads to a result
that is manifestly irreconcilable with fundamental principles of German
Law. Article 6 reads as follows: -
"Public policy (Ordre Public)
A legal provision of another state is not to be applied if its application
leads to a result that is obviously irreconcilable with the fundamental
principles of German Law. In particular, it is not to be applied if the
application is irreconcilable with the basic rights".
24. P.'s argument is that because Article 138 of the Civil Code (BGB)
provides that "a legal transaction which offends good morals is void"
and because a number of factors can be prayed in aid in support of an
argument under Article 138, the effect of Article 6 is that some or all
of the provisions of the SSFA are unenforceable as a matter of public
policy in Germany. The particular points upon which P. relies are the
rate of interest in the SSFA which is said to be more than double the
market rate at the time of the conclusion of the SSFA, the provisions
in the SSFA which restrict PA. in its business operations and are said to
jeopardise its "business autonomy" and the circumstances in which the
SSFA was concluded, which meant P. had little choice but to agree to
oppressive terms. All these points are hotly contested, but it is said that
the provisions of the SSFA are unconscionable and therefore immoral and
contrary to public policy.
25. The Share Option Agreement is directly linked to the SSFA and is said
to be unethical inasmuch as the SSFA is immoral. It is claimed that no
rights can be derived from the former insofar as the arguments succeed
with regard to the latter.
26. It is common ground between the parties that the German Court
will apply English Law to the SSFA, as its governing law by reason of the
express choice of law clause. No challenge is made to the validity of any
of the provisions of the SSFA as a matter of English Law but it is said that
Article 6 of the EGBGB applies so that English Law will fall to be disapplied
to the extent that it is contrary to the public policy of Germany. The
German Court will therefore concern itself not with questions of validity
of the SSFA but questions of its enforceability or unenforceability to the
extent that it infringes public policy.
The Frankfurt Proceedings
27. These proceedings relate to a Share Pledge Agreement and an
Interest Pledge Agreement concluded on the same date as the SSFA. P.
seek declarations or orders that there are no such pledges constituted
by those agreements. Alternatively P. say that the pledges are not
enforceable until 31 March 2010 (the end date of the term of the loan)
or alternatively are not enforceable until PA.'s financial crisis ends. In
particular they are not enforceable in relation to the interest instalment
due on 31st December 2004. Additionally P. maintains that the S.s are not
entitled to accelerate repayment of capital or terminate the SSFA.
28. These pledge agreements are part of the security for the performance
of PA.'s obligations under the SSFA and P.'s arguments are based on the
premise that, under German law, a pledge does not exist if the claim
which its secures is invalid. The pledges are said to be unenforceable as
long as the claims secured by them are unenforceable. These proceedings
are therefore entirely parasitic upon the Mainz proceedings.
The SSFA
29. Clause 7 of the SSFA sets out provisions as regards to the rate of
interest and payment in respect of it. Clause 20 sets out a series of
covenants given by PA. and PM. upon which both rely in the Mainz and
Frankfurt proceedings as unduly restrictive of their ability to run their
businesses. Reliance appears to be placed on every provision in Clause
20, which is a lengthy clause running to 11 pages in the printed SSFA,
as repressive. These provisions are relied on as demonstrating the
immorality of the contract as a whole. Amongst them is Clause 20.2.5
which requires PA. not to dispose of certain assets without the prior
approval of an instructing group of the S.s and Clause 20.1.7 which
requires PA. to give access to JP Mo., to the extent requested by it, in
given circumstances, to its business accounts, records and documents.
JP Mo. and the S.s rely upon Clause 7, 20.2.5 and 20.1.7 in the context
of the English proceedings which they have commenced but additionally
they seek orders for specific performance of other clauses such as Clause
18.1.4 and 18.5 in relation to the provision of the PwC preliminary report.
30. In the Injunction Proceedings reliance is placed upon Clause 20.2.5
by JP Mo. in seeking a permanent injunction to restrain P. from acting
in breach of it, in particular by disposing of M.. Various declarations
are sought in relation to the obligations of PA. under that clause. JP
Mo. already has the benefit of an interim injunction in substantially the
same terms as the clause and a further interim injunction to the effect
that P. will not dispose of its assets without the prior written consent
of an instructing group unless it is been determined in the Injunction
Proceedings that approval is unnecessary or cannot be lawfully withheld.
31. In the Declaratory Proceedings, JP Mo. seeks declarations as to the
validity and enforceability of Clause 7 and as to whether PA.'s failure to
pay interest constitutes a event of default within the meaning of SSFA and
the consequent rights of the S.s in those circumstances.
32. In the PwC Proceedings, specific performance is claimed of PA.'s
information providing obligations under the clauses of the SSFA to which I
have already referred.
Article 27
33. There is only one issue between the parties in relation to the
application of this Article and that is the question whether or not the
English and German proceedings involve the same cause of action. If they
do, the German Courts are the courts first seised and it is incumbent upon
the English Court to stay its proceedings until such time as the German
Courts have decided upon their own jurisdiction, as provided by Article
27.1. Once a decision has been reached by the German Courts, then if
they decide that they have jurisdiction, the English Court is bound to
decline jurisdiction in favour of those Courts under Article 27.2.
34. It is difficult to see how the German Courts could find that they are
entitled to exercise jurisdiction in the face of the exclusive jurisdiction
clause in the SSFA. It is common ground between the parties that clauses
of this kind have an existence independent of the balance of the contract
so that issues relating to the unenforceability of the substantive provisions
of the SSFA do not affect the validity of the exclusive jurisdiction clause,
as is plain from the decisions in Case C-269/95 Benincasa v Dentalkit
Srl [1997] ECR I-3767 (at paragraphs 28 and 29) and Case C-159/97
Transporti Castelletti v Trumpy 119991 ECR I-1597 (at Paragraph 48).
Mr Ali Malek QC on behalf of P. maintained that it was clear that P. did
contest the applicability of the jurisdiction clause from the very fact that
proceedings had been commenced in Germany. He also suggested that
there might be some public policy argument against the effectiveness of
the clause but there was no German Law evidence of any kind suggesting
that there were any arguments available to P. in this respect.
35. Nonetheless Mr Malek maintained that the German Courts were the
Courts first seised and that the principles enunciated by the European
Court of Justice (ECJ) meant that this Court must stay the three sets of
English proceedings until the German Courts had determined their own
jurisdiction in Mainz and Frankfurt.
36. Despite the arguments of Mr Carr QC for JP Mo., I hold that this is
the effect of the decision of the ECJ in Case C/116/02 Erich Gasser GmbH
v MISAT Srl [2005] 1QB 1, if the causes of action in the English and
German proceedings are the same. The terms of paragraphs 41-54 set
out the rationale of Article 27. Articles 27 and 28 are "intended, in the
interests of the proper administration of justice within the Community,
to prevent parallel proceedings before the Courts of different contracting
states and to avoid conflicts between decisions which might result
therefrom ". The rules are therefore "designed to preclude, so far as
possible and from the outset, the possibility of a situation arising such as
that referred to in Articles 27 (3) of the Convention [Article 34 (3) of the
Regulation], that is to say the non recognition of a judgment on account
of its irreconcilability with a judgment given in the proceedings between
the same parties in the state in which recognition is sought".
37. In paragraph 51 reference is made to the possibility of disputes, which
could arise as to the existence of an exclusive jurisdiction agreement of
the kind found in the present case. If there is such a dispute so that there
is doubt whether an agreement complies with the terms of Article 23,
such a dispute must be determined in the Court first seised. In paragraph
53 however reference is made to the situation where there is in truth
no genuine argument to be raised with regard to the applicability of the
exclusive jurisdiction clause in the following terms:-
"Finally, the difficulties of the kind referred to by the UK Government
stemming from delaying tactics by parties who, with the intention of
delaying settlement of the substantive dispute, commence proceedings
before a Court which they know to lack jurisdiction by reason of the
existence of a jurisdiction clause, are not such as to call into question in
the interpretation of the Brussels Convention, as deduced by its wording
and its purpose.
The ECJ went on to find that the equivalent provision in the Brussels
Convention to Article 27 in the Regulation had to be interpreted as
meaning that a Court second seised, whose jurisdiction was claimed
under an agreement conferring jurisdiction, had nonetheless to stay
its proceedings until the Court first seised had declared that it had no
jurisdiction.
38. It is therefore clear that the only issue which arises for me to decide
under Article 27 is the question whether or not the same cause of action
is involved in one or more of the English and German proceedings.
39. The term "cause of action" in Article 27 is an independent
autonomous term which is not to be confused with the use of the same
term in English legal jargon. As pointed out in Case C-406/92 The
Tatry [1994] ECR I-05439 at paragraph 38 and by Rix J in Glencore
International AG v Shell International Trading and Shipping Co Limited
[1999] 2 Lloyds Reports 692 at page 694, the French and other versions
of article 27 refer not simply to "the same cause of action" but to two
concepts – "la meme objet et la meme cause ". The latter "comprises the
facts and the rule of law relied on as the basis of the action" whilst the
former means "the end the action has in view" according to paragraphs
39 and 41 of the Tatry decision and as reinforced by the Court of Appeal
in Haji Ioannou v Frangos [1999] 2 Lloyds Reports 337 at page 351.
40. Rix J in the Glencore decision stated that the court's task in
identifying the objet of any action was to identify objectively the essential
issue raised between the parties to that action.
41. Mr Malek QC for P. contends that the facts and the rule of law relied
on are the same in each of the different sets of proceedings, as is the end
in view in each. All, he says, turn upon the question of the enforceability
of the SSFA and that is enough for the purposes of article 27.
42. Mr Carr QC argued that the English and German proceedings did not
involve the same cause, as neither the same facts nor the same rule of
law were involved. He relied on the decision of the ECJ in Maersk Olie
and A/S v Firma M De Haan (case C-39/02) [2005] 1 Lloyds Reports
210. At paragraph 38 the Court distinguished between the legal rule
invoked as the basis of a claim for damages for a tortious act in damaging
a pipeline and the legal rule which formed the basis of a limitation
action and the establishment of a limitation fund under the International
Convention relating to the Limitation of the Liability of Owners of Sea-
Going Ships 1957 and the Netherlands legislation which gave effect to it.
The expression "legal rule" or "rule of law" appears to mean the juridical
basis upon which arguments as to the facts will take place so that, in
investigating "cause" the court looks to the basic facts (whether in dispute
or not) and the basic claimed rights and obligations of the parties to see
if there is co-incidence between them in the actions in different countries,
making due allowance for the specific form that proceedings may take in
one national court with different classifications of rights and obligations
from those in a different national court. With regard to the objet, the
search is for "the end the action has in view" or the "essential issue raised
between the parties".
43. If consideration is given to the Declaratory Proceedings in England,
it is clear that JP Mo. seeks a declaration that clause 7 of the SSFA is
binding, that there has been an event of default in failure to pay interest
and that a valid default notice has been served with the result that it
is open to PA. to accelerate repayment of the entire loan. In the Mainz
proceedings, P. is attempting to persuade the court that the interest
provisions are unenforceable and that capital repayment cannot be
accelerated in consequence. When looking at the objet, the end that
both actions have in view is identical inasmuch as the essential issue
raised between them on an objective basis is the enforceability of the
interest provisions and its consequent effect upon other provisions in the
agreement relating to default and the repayment of capital.
44. The only basis for distinguishing between the German proceedings
and the Declaratory Proceeding is the issue of the "legal rule" or "rule
of law". The Declaratory proceedings will self-evidently proceed on the
basis of applicable English law, where P. have not as yet put forward any
answer to JP Mo.'s claim. The Mainz proceedings will however proceed on
the assumption that the provisions of the contract are valid under English
law but will consider issues of German public policy, in the light of German
domestic law relating to immoral or unconscionable agreements. The
question is whether or not the "legal rule" of each set of proceedings is
the same or different in such circumstances.
45. Fundamentally, it is the rights and obligations of the parties in relation
to the same facts which, in my judgment, matters here. Each court will
be concerned with the respective rights and obligations of the parties,
however those are classified and determined by the national courts of
each country. I consider therefore that, notwithstanding the different
approach to the question of enforceability of the interest provisions
and the consequent effect, the Declaratory Proceedings and the Mainz
proceedings do involve the same cause of action within the meaning of
article 27.
46. If I had applied the test set out in Briggs and Rees, Civil Jurisdiction
and Judgments at paragraph 2.189, I would have come to a different
conclusion, because it is there suggested that another way of determining
this point is to ask whether a decision in one set of proceedings would be
a conclusive answer to the questions raised in the other. A decision in the
English Court would not answer the question which the German Courts
have to consider as a matter of public policy. Equally, a decision by the
German Courts will assume the validity of the SSFA under English law
which, in the absence of any argument advanced to the contrary, is the
conclusion which the English Court seems bound to reach.
47. It appears to me however that this is too narrow an approach, since
otherwise it would be possible to argue that Article 27 did not apply to
proceedings where a national court's decision, based on the application of
its domestic law (which it found to be applicable under its rules of private
international law) did not answer the question determinable by a different
national court under its own law (which it regarded as applicable under
its own rules of private international law). The way the claim is framed
and the arguments in support of it may fall to be taken into account, but
ultimately, the question must be seen broadly in terms of the judgment
sought and not in terms of the issues raised on the way (see The Happy
Fellow [1998] 1 Lloyd's Reports 12 at ppp17-18 and, by way of example,
The Sennar no 2 [1985] 1 Lloyd's Reports 521).
48. I am mindful, in coming to my conclusion, of the possibility, however
remote, that P. might succeed in maintaining German jurisdiction and
that the Mainz Court might ultimately decide, in accordance with its
Ordre Public that the interest provisions are unenforceable to a greater or
lesser extent. Although P. would not seek to export the order as such, if
faced with an action in England for damages for breach of the exclusive
jurisdiction clause, it would undoubtedly argue that the Mainz Court's
decision ought to be recognised here. Issues would then arise under
article 34.1 as to whether recognition of the Mainz Court's decision,
reached in breach of the exclusive jurisdiction clause as a matter of
English law, and based on German public policy and contrary to the
provisions of English law should be enforced or whether recognition of
such an order or judgment would be manifestly contrary to public policy in
this jurisdiction.
49. Despite these potential problems, I am driven to the conclusion,
by reference to the ECJ decisions that the same cause of action is
involved in these two sets of proceedings in relation to interest and
that the requirements of legal certainty, comity, and trust in the judicial
institutions in the Community require me to stay the Declaratory
Proceedings under article 27.1 until such time as the Mainz court decides
upon its own jurisdiction.
50. Insofar as the Frankfurt proceedings are concerned, where it is
contended that there is no entitlement in the S.s to terminate the SSFA
because P. has complied with its provisions (on the basis that the interest
provisions are unenforceable), there is, for the same reasons as set
out above, the same cause of action involved as in the Declaratory
Proceedings with the result that a stay of the Declaratory Proceedings
must also be granted until the decision of the Frankfurt Court on its own
jurisdiction.
51. With regard to the Injunction Proceedings and the PwC Proceedings,
it is clear that the objet of each of these proceedings is not the same as
that in the Mainz or Frankfurt proceedings. The end which the Injunction
Proceedings have in view is the enforcement of clause 20.2.5 of the
SSFA and the prevention of the sale to M. without the required consent.
Whilst it is true that a challenge is made in the Mainz proceedings to the
enforceability of the interest provisions on the basis that the SSFA as
a whole is immoral, there is no specific challenge of any kind to clause
20.2.5, nor to the right to enforce it.
52. Whilst it is said in terms that the SSFA is immoral, unethical or
unconscionable, the consequences of such a finding by the court would
be that the interest provisions were unenforceable, either permanently
or temporarily. The Mainz statement of case puts the point thus, in
translation: "it is clear that the loan agreement is immoral and therefore
an obligation to pay interest does not exist".
53. The German law evidence shows that the German courts will only
override English law "if and to the extent that there is a strong violation
of important and fundamental principles of German public policy", which
amounts to "the rule of the smallest possible interference with the
applicable foreign law ". Thus, if the German courts did conclude that
Article 6 was engaged, they would only be concerned with declining to
enforce the consequences of the applicable English law to the extent
necessary to cure the violation of German public policy. The German
courts would, at most, in accordance with what they are being asked
to do, refrain from enforcing the interest provisions either to their full
extent or at all, but would treat all other provisions of the SSFA, including
those relied on in the pleading as demonstrating the restrictive nature
of the SSFA, as valid. There is no plea of any kind which challenges the
enforceability of the clauses which form the basis of the English Injunction
Proceedings and PWC proceeding.
54. The facts in issue in the Mainz and Frankfurt proceedings equally
do not coincide with the facts which are relevant for the Injunction
Proceedings, save insofar as the existence of the SSFA is common to
both. Different issues arise. Different facts are relevant, including the
threat of a proposed sale and the absence of any request for consent. The
central issues are not the same so that the "cause" as well as the "objet"
is different.
55. Equally, the end that the PwC Proceedings have in view is the specific
performance of clauses 18.1.4 and/or 18.5 and/or 20.1.7 of the SSFA and
the provision of the PwC preliminary report. This issue does not arise in
the German proceedings and is in no sense the end that either German
action has in view. The central issues of those actions are different from
the central issue in the PwC Proceedings. Once again for similar reasons
to those already set out in relation to the Injunction Proceedings, the
objet is not the same, because the Mainz and Frankfurt proceedings look
to the issue of interest and its effect on the SSFA and capital repayment
obligations and no more than that. The relevant facts upon which reliance
is placed in relation to the failure to provide information and the efforts
to obtain it under the relevant clauses do not feature in the German
proceedings either, so that neither the "cause" nor the "objet" are the
same.
56. For these reasons therefore there is no basis to stay the Injunction
Proceedings or the PwC Proceedings on the basis of Article 27 and it
becomes necessary to examine the position under Article 28.
Article 28
57. If I had not found that the Declaratory proceedings involved the same
cause of action as the Mainz proceedings, I would have found that the
two actions were connected but not that it was expedient to hear and
determine them together to avoid the risk of irreconcilable judgements
resulting from separate proceedings. I have in mind the comments of
Lord Saville in Sarrio Sa v Kuwait Investment Authority [1999] AC 32
at page 40, but here the two actions are not capable of being heard
and determined together in any real sense of the word because the
Declaratory Proceedings will proceed on the basis of English law whilst
the German actions proceed on the basis of the validity of the SSFA as
a matter of English law but then seek to apply German public policy
considerations.
58. The Declaratory Proceedings could not be heard together with either
the Mainz or Frankfurt actions because they proceed on a different footing
and it would plainly be inexpedient for the Declaratory Proceedings in
this jurisdiction to be conjoined in any way with the German actions
because the considerations which the German courts would apply, would
ex hypothesi, if applicable, override any decision based on English law.
59. If matters proceeded in both jurisdictions, there would be a decision
in this country based on the proper law of the contract, whilst the Mainz
and Frankfurt decisions would be based on ordre public in Germany, on
the assumption that the English law judgment was valid. There may
therefore in truth be no irreconcilability of judgments, even though the
German Courts might hold that the interest provisions were unenforceable
in part or whole in Germany and the English Courts might hold that the
interest provisions were enforceable as a matter of English law. Nor in
my judgment is there a risk that the reasoning in the judgments of the
different courts may conflict, because the German Courts will accept the
validity of the provisions as a matter of English law as the premise to their
own consideration of issues of German public policy.
60. Although each party might seek to export a judgment in its favour
to other Convention countries for recognition, it would then be a matter
for the courts of each such country to decide the issue of recognition or
enforcement, if necessary by consideration of issues under Article 34.1
as a matter of its own public policy. The inconsistency of the German and
English judgments on this hypothesis is superficial only. On examination,
they are found, not only to be capable of reconciliation, but the German
Courts' judgment in favour of P. would proceed on the premises that the
English Court's judgment in favour of JP Mo. was, as a matter of English
law, correct.
61. Moreover, as a matter of discretion, for reasons which appear in
relation to the other two sets of English proceedings, I would not have
been prepared to stay the Declaratory proceedings in any event.
62. The Injunction Proceedings and the PwC Proceedings raise no
possibility of inconsistent or irreconcilable judgments with the German
proceedings. Moreover the degree of connection is much less. Each of
the actions arises in respect of the SSFA but the issues in the Mainz and
Frankfurt proceedings, insofar as they directly concern the SSFA, relate
primarily to the enforceability of the interest provisions in that contract
and their knock-on effect, whilst the Injunction Proceedings in England
relate to the enforceability of clause 20.2.5 and the PwC Proceedings
relate to the enforcement of the information provisions in clauses 18.1.4,
18.5 and 20.1.7. Although some of those clauses are relied on by P. in
support of its German law contentions that PA.'s freedom to operate
commercially has been repressed, no specific allegation is made in
relation to the enforceability of any of those provisions. The same features
fall for consideration here under Article 28 as apply under Article 27
when looking at the elements involved in each action, albeit in a different
context. In my judgment therefore the Injunction Proceedings and PwC
Proceedings are not so closely connected with the German proceedings
that it is expedient to hear and determine them together to avoid the
risk of an irreconcilable judgment. The connection is more limited than
might appear at first sight and there is no risk of irreconcilable judgments
because of the different basis upon which each proceeds.
63. Furthermore, as a matter of discretion all the discretionary factors
are against a stay of either of the Injunction Proceedings or the PwC
Proceedings.
64. The court must exercise its powers under Article 28 in accordance
with the purpose and object for which the power was granted, which is
to minimise the possibility of concurrent proceedings and to ensure that
irreconcilable judgments will not be given in two member states. I have
already dealt with the question of irreconcilable judgments but also bear
fully in mind the undesirability of concurrent proceedings. Because these
two sets of English proceedings and the German proceedings involve
different issues however, there is no impairment to the harmonious
administration of justice in allowing the concurrent proceedings to move
forward and, in the light of the law, jurisdiction and forum conveniens
clauses in the SSFA, it is hard to see how the court could properly
exercise its discretion to stay proceedings which were brought in
accordance with the terms of those clauses to which P. agreed.
65. Even if I had found that these two sets of proceedings and the
German proceedings were related within the meaning of Article 28,
"the strong presumption" which "lies in favour of the applicant" on an
application for a stay would be overridden here by virtue of the terms
of the SSFA. Although the ECJ decision in Gasser means that a stay is
mandatory where Article 27 applies, there is no reason why weight should
be given to that decision in the context of Article 28, where a discretion
is given to the court, the jurisdiction of which has been agreed by the
parties as exclusive. It is nothing to the point that an English court could
not have issued an anti-suit injunction to prevent the German proceedings
(as per C-159/02 Turner v Grovit [2004] 2 Lloyds Reports 169). The
injustice of giving precedence to proceedings brought in breach of an
exclusive jurisdiction clause where the parties have agreed that England is
the appropriate forum is self-evident. To breach the clause and to gain the
benefit of priority for the German Courts by such breach offends justice,
where the Court has a discretionary decision to make.
66. Although the jurisdiction challenges may be heard in Germany within
a period of about four months, there is apparently an unrestricted right
of appeal in Germany which could result in considerable further delay.
There is some urgency in the English actions brought by JP Mo. where
it intends to proceed to summary judgment as soon as possible in order
to ascertain the financial position of P. and to take decisions as to the
S.s' future course of action in relation to the SSFA. The need for the
injunctions speaks for itself. I can see no reason why JP Mo. should be
prevented from pursuing matters in the way it desires in the English
Courts in accordance with the terms of the SSFA
67. There is no indirect interference with the German courts and the
issues with which they are concerned and the evidence indicates that
P. have brought proceedings in Germany with a view to delaying or
frustrating the exercise by JP Mo. and the S.s of their contractual rights.
68. In such circumstances I have no hesitation in refusing to stay the
Injunction Proceedings and the PwC Proceedings by reference to the
terms of Article 28.
Article 31
69. As I have refused a stay of the Injunction Proceedings, the interim
injunctions already granted in relation to the disposal of assets, and in
particular M., remain in being.
70. If I had been persuaded that the Injunction Proceedings should be
stayed the issue would then have arisen as to whether or not this Court
should continue the interim injunctions as protective measures under
Article 31. In case C-391/95 Van Uden Maritime BV v Firma Deco-Line
[1998] ECR I-07091 the ECJ considered the basis upon which a court
might grant protective measures. At paragraph 19 the point is made
that, where a court has jurisdiction as to the substance of the case
under the terms of the Convention (now the Regulations) it also has
jurisdiction to order any provisional or protective measures which may
prove necessary. On this basis JP Mo. argues that the protective measures
are available because the English Court retains substantive jurisdiction
and thus jurisdiction to order protective measures, even if it stays the
matter and that it should, in the circumstances of this case, exercise
that jurisdiction. Alternatively, if the court has no jurisdiction over the
substance of the case, there are sufficient links to justify the granting of
protective measures in accordance with decided authority. P. resists the
maintenance of injunctions on both bases.
71. The terms of Article 27.1 and 27.2 draw a distinction between the
situation before the court first seised decides on its own jurisdiction and
the position thereafter. Under Article 27.1, the court second seised must
stay its proceedings until such time as the court first seised makes its own
decision on jurisdiction. Under Article 27.2 however, once the jurisdiction
of the court first seised is established by that court, any court seised
thereafter must decline jurisdiction.
72. In my judgment this distinction is significant with the result that, until
the court first seised does decide upon its own jurisdiction, proceedings
are stayed by the court second seised, even though it maintains
Convention jurisdiction until the first court's decision. If the court first
seised then declines jurisdiction, the court second seised can exercise
the Convention jurisdiction which it already had. Jurisdiction lies with
the English court here by virtue of the exclusive jurisdiction clause and
Convention jurisdiction is thus not lost until it declines jurisdiction on the
basis of the first court's decision that it has convention jurisdiction. It
follows therefore that the English court can grant protective measures.
73. Regardless of substantive jurisdiction resting in the English court,
Article 31 provides that this court can order protective measures even if
the courts of another member state have jurisdiction as to the substance
of the matter. The decision in Van Uden, at paragraph 40 sets out the
need for the existence of a real connecting link between the subject
matter of the measures sought and the territorial jurisdiction of the state
of the court before which the measures are sought. The decision is based
upon the premise that this is an exorbitant jurisdiction which is to be
exercised with great caution. The courts of the place where the assets
subject to the measures sought are located are usually the courts best
able to assess the circumstances which might lead to the grant or refusal
of the measures sought.
74. In Motorola Credit Corporation v Uzan and others (no. 2) [2004] 1
WLR 113, a case not involving Convention jurisdiction, the Court of Appeal
considered the circumstances in which a worldwide freezing injunction
might be granted by the English courts where there was no substantive
jurisdiction in relation to the underlying claims. Potter LJ at paragraph 115
referred to five considerations which appear to me to be of relevance to
the exercise of jurisdiction under Article 31. Those factors are as follows.
i) First, whether the making of the order will interfere with the
management of the case in the primary court e.g. where the order is
inconsistent with an order in the primary court or overlaps with it. As
there is no contrary order in Germany, the point does not arise here.
ii) Second, whether it is the policy in the primary jurisdiction not to
make orders of the kind sought. On that point there is no evidence in the
present case.
iii) Third, whether there is a danger that the orders made will give rise
to disharmony or confusion and/or risk of conflicting, inconsistent or
overlapping orders in other jurisdictions, in particular in the court of the
state where the person enjoined resides or where the assets affected are
located. For much the same reasons that I have already given in relation
to the arguments under Article 27 and Article 28, it does not seem to me
that there is any real danger of this in the present case.
iv) Fourth, whether at the time the order is sought there is likely to
be a potential conflict as to jurisdiction, rendering it inappropriate and
inexpedient to make a worldwide order. As applied to the present case,
this consideration is said to militate in favour of P., inasmuch as there is a
conflict on jurisdiction in both the English and German courts.
v) Fifth, whether in a case where jurisdiction is resisted and disobedience
is to be expected, the court would be making an order which it could not
enforce. There was no evidence here that P. would disobey any order of
the English courts.
75. M. is situated in the Netherlands whilst P. is in Germany. The S.s
consist of a number of banks in various jurisdictions. There is however a
major connecting link to England in the SSFA itself and in its provisions
relating to English law, exclusive English jurisdiction and England as
the forum conveniens. This provides a strong link to the English Courts
which entitles this Court to order protective measures, even though
the threatened sale is by a German company of a Netherlands asset
outside the territorial jurisdiction. Although, on the hypothesis under
which Article 31 falls to be considered, there is a conflict over jurisdiction,
the conferring of jurisdiction on this court by agreement of the parties
is a very strong factor in the consideration of the link to this Court
and the appropriateness of injunctions until the German Courts have
decided on their own jurisdiction. The existence of injunctions would in
no way interfere with the German Courts' decision making processes
and would merely preserve the position until the German Courts made
their jurisdiction decisions, whereas, if the injunctions were lifted, there
remains the possibility of a disposal in breach of the SSFA before the
German Courts have decided the position.
76. If therefore it had been necessary to consider an order under Article
31, I would have made such an order and continued the injunctions
already granted in respect of disposal of assets (and M. in particular) until
the determination by the German Courts of their own jurisdiction.
Conclusion
77. For all the above reasons, P.'s application for a stay of the Declaratory
Proceedings succeeds under Article 27 but its applications for a stay of
the Injunction Proceedings and the PwC Proceedings fail, whether under
Article 27 or 28. The interim injunctions in the Injunction Proceedings
continue until trial or further order herein. The stay of the Declaratory
Proceedings against PA. and PM. operates until the Mainz Court decides on
its own jurisdiction (since both P. defendants are parties there) and in the
case of PM. also operates until the decision of the Frankfurt Court on its
jurisdiction (since only PM. and not PA. is party to those proceedings).
78. Unless there are special factors of which I am unaware, it appears
to me that any order for costs which I make must reflect the relative
success and failure of each of the parties on the applications. There will
undoubtedly be consequential matters which need to be considered and
directions to be given. If the parties can reach agreement about these
issues, so much the better. If not I will hear submissions upon them. (…)“