HH Judge Chambers QC:
Introduction
The defendants seek to set aside service upon them in Zug of proceedings
brought by the claimant in respect of the termination of his employment
by the first defendant ("C. Energy"). He seeks damages against that
company for breach of a service agreement dated 28 November 2000.
He sues the second defendant ("C. Resources") under a side letter of
the same date as guarantor of obligations of C. Energy and in respect
of an agreement in the letter to pay a bonus and share of profits. By
amendment, for which permission has been given, the claimant seeks
damages against C. Resources for wrongful inducement of breach of
contract by C. Energy. The service agreement was terminated on 24 May
2002. The claim form was issued on 20 June 2002.
Although, by its express terms, the service agreement conferred
jurisdiction upon the English Courts and is subject to English law, it is
an unfortunate feature of Article 17 of the Lugano Convention that its
wording would appear to render the jurisdiction clause unenforceable by
either party to the agreement, even though it was at the request of the
claimant that the clause was inserted. Leading counsel for the claimant,
Mr Bernard Eder QC, invites me to adopt a purposive approach to the
construction of the article so as to give to the party for whose protection
it must be regarded as having been provided the opportunity to waive the
prohibition. Tempting as that approach may be, the view of those before
me was that I should start with the first of the five issues that they had
helpfully agreed and only move on if an earlier issue had been decided
against the claimant. As I shall adopt the spirit of counsels' invitation and
the Article 17 issue is some way down my list, the need to address the
point will not arise. I shall therefore start with my conclusion.
Conclusion
My conclusion is that the claimant has shown a good arguable case to the
effect that, when this action commenced, C. Resources had its central
administration and principal place of business within this jurisdiction
within the meanings of respectively Article 60(1)(b) and (c) of Council
Regulation (EC) No. 44/2001 ("the Regulation") and that C. Energy may
be sued as a defendant in this action under Article 6(1) of the Lugano
Convention. My reasons for these conclusions are set out in the following
paragraphs.
Reasons
The standard of proof
The parties are agreed that for the claimant to succeed in establishing
jurisdiction, he must show a good arguable case that domicile is
established under Article 60 in respect of one or both of the defendants
and that, if domicile is established against only one of the defendants,
that the other can be made subject to the jurisdiction by a relevant article
of the Lugano Convention. They agree that the standard of proof comes
between that of a serious issue to be tried and success on a balance of
probabilities. They also agree that the standard is a flexible one. However
leading counsel for the defendants, Mr Jeffrey Gruder QC, relies upon
a passage by Waller LJ in the Court of Appeal in Canada Trust Co v
Stolzenberg (No.2) [1998] 1 WLR 547 where at p555 F-G he said:
"…… It is also right to remember that the "good arguable case" test,
although obviously applicable to the ex parte stage, becomes of most
significance at the inter partes stage where two arguments are being
weighed in the interlocutory context which, as I have stressed, must not
become a "trial". "Good arguable case" reflects in that context that one
side has a much better argument on the material available. … …"
In Carnoustie Universal v International Transport Workers Federation
[2002] EWHC 1624 (Comm) at paragraph 47, Mr Richard Siberry QC,
sitting as a Deputy High Court Judge, said when dealing with Articles
17 and 21 of the Brussels Convention, "… I have approached these
issues on the basis that, in this context, "good arguable case" requires
the Claimants to demonstrate that they have much the better of the
argument on the material available".
I regret that I have difficulty in understanding precisely what is meant
by the two passages. I certainly do not understand the words of Waller
LJ to mean that, where there is a hearing between the parties, the court
must make what is, in effect, a decision on a balance of probabilities on
the evidence before it. (In any event, the words "much the better" carry
with them the implication that one is concerned with more than a bare
ascendancy: the superiority must be emphatic.) While agreeing with the
judgment of Waller LJ, Nourse LJ at p572 H summarised the position as
follows:
"…… the authorities disclose no confusion at all in rejecting the notion
that the balance of probabilities, the standard appropriate to a trial,
is applicable to a preliminary question of domicile such as that which
has arisen in this case. The balance of probabilities having been firmly
rejected, the authorities establish that "good arguable case" is the
standard of proof to be applied …"
In his careful and detailed judgment in Stolzenberg, Waller LJ placed
considerable reliance upon the decision of the House of Lords in
Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC
438. That case was concerned with service out of the jurisdiction where
leave was required and set out what is now the governing test. That test
involves the use of the standard of "a good arguable case" in deciding
whether a case comes within one of those categories upon which leave
(now permission) to serve out of the jurisdiction may be founded. Waller
LJ considered that the test is to be regarded as flexible because of the
different situations in which it would be applied. In some cases the issue
would be revisited for determination at trial but not in others. However,
I do not understand him to have confined the passage with which I am
concerned to any particular situation. Furthermore, I do not understand
him to have been confining its ambit to a 'Convention case' as against a
'permission case'. That being so, it seems to me that all the words mean
is that, when the argument and analysis consequent upon an inter partes
hearing are over, there must clearly remain a case which has that degree
of cogency necessary to make it a good arguable case.
The application of the test
The law
In the absence of direct authority upon the meaning of Article 60, whether
by decision or commentary, the defendants place considerable reliance
upon The Rewia [1991] 2 Lloyd's Rep 325. In that case what the Court
of Appeal considered was the meaning of the term "the principal place
of business" of a corporation. The decision is usefully summarised in the
passage from the second finding in the headnote which reads:
"the principal place of business was not necessarily the place where
most of the business was carried out; there was nothing uncommercial
or inapposite about the conclusion that the principal place of business
was in Hamburg of a company registered in Liberia owning a ship, the
earnings of which would ultimately be remitted to Germany, and about
which most important decisions would be taken in Germany; although in
practice Turbata had a free hand in the day to day management of the
vessel from Hong Kong all that they did was subject to the control of the
directors in Hamburg; that was the centre from which instructions were
given when necessary and ultimate control exercised; the reference to
"principal place" did not require identification of a particular building…"
At page 334 Leggatt LJ put the matter more shortly: "… the plaintiffs
argue that "principal" means "main". I disagree: in my view it means,
in this context as well as generally, "chief" or "most important". The
principal place of business is not necessarily the place where most of the
business is carried out".
I think it important to remember that the judgment in The Rewia was
delivered against the need both to construe a single isolated term and
upon the basis of cases that were themselves concerned with such
a term. As would be expected, the consideration of what constituted
"business" included management, control and regulation of the affairs of
those corporations that were being considered. Two of those words find
their place in s42(6) of the Civil Jurisdiction and Judgments Act, 1982
which provides that:
"(6) ……. A corporation has its seat in a state other than the United
Kingdom if and only if - … or (b) its central management and control is
exercised in that state."
It seems to me to be obvious, both as a matter of law and commercial
practice, that the conduct of business will involve management
and control, but how does this fit in with the dichotomy between
administration and business to be found in Article 60?
Administration is clearly an aspect of the conduct of business. That aspect
has something of the "back office" about it. Boards decide upon policy
and important aspects of its implementation. Employees sell, supply and
produce. Administration ensures that all runs smoothly: money is got in,
debts are paid, leases and transport are arranged, personnel are looked
after. But what of central administration?
In a small organisation there may be a considerable blurring of functions
because the same person will often discharge a variety of roles. The
larger the organisation, the easier it should be to discern a division of
responsibilities. The location of the company secretary's office in a major
organisation might provide a good clue: a clue which seems to be absent
in the present case. However, without attempting to be exhaustively
precise, I think that in this case a simple listing of those with important
responsibilities in C. Resources will be enough to show where the central
administration is to be found. It also seems to me that the same approach
shows where one may find the company's principal place of business.
Despite their disjunctive appearance in Article 60, I think that there
can be a considerable overlap between what constitutes the central
administration of a company and the carrying on of its principal business.
The Rewia remains an essential tool in deciding what constitutes the
latter.
Facts
The "Executive Summary" of the brochure for the London Office of C.
Resources ("the London brochure") reads as follows:
"C. Resources A.G., Zug ('C.') is a subsidiary of CTF Holdings Ltd, the
parent company of privately owned Alfa Group Consortium. With effect
from 1st July 2000, C. has taken over business previously conducted by
its subsidiary C. Trade & Finance Ltd., Gibraltar ('CTF') and CTF's service
company C. Commodities Ltd., London (together 'the C. Trading Group')."
The first four paragraphs of the brochure read:
"C., together with its branches and affiliates is the international
commodity trading arm of the Alfa Group (their sister company Alpha Eco
undertakes commodities trading within Russia).
C. conducts the business through 3 locations: C.'s Head Office in Zug and
branches in London and Gibraltar. The London branch is a service agent
for the Zug Head Office and the Gibraltar Branch. The London office has
currently over 70 employees. In February this year a representative office
was established in Singapore and later on in Caracas, Venezuela. C.'s
offices in Zug, Gibraltar, Singapore, Caracas and Moscow employ a further
40 people.
On 1st July 2000 C. was capitalised at US$ 70 million … For the financial
year-end 1999, C.'s turnover was approximately US$ 3 billion.
C.'s main business is buying crude oil and products from Russia and other
major producing countries and selling them to the oil majors and other
international state and private buyers. C. purchasers approximately 10%
of Russia's crude and oil products exports. In March 1998 Alpha Group,
together with US-based Access/Renova, acquired a majority shareholding
in Tyumen Oil Company ('TNK')- Russia's third largest oil producer, which
also has a crude oil refining facility at Ryazan. At the end of 1999, the Alfa
Group and its partner increased its stake in TNK to 99.9%."
In a general commercial sense C. Resources can be said to be
international with a Russian background. Despite other interests, its core
activity is trading on a large scale in oil and oil products.
The claimant is an oil trader. He was one of a team of traders that C.
Resources put together to strengthen its trading activities. The team
operated from Zug which is the statutory seat of the two defendants.
Several directors of C. Resources are also based in Zug. They are Jost
V., Rudolf S. and Max M.. It is Mr V. who has given evidence for the
defendants. That evidence is to the effect that it is the presence of the
C. Resources in Zug that constitutes its heart and brain while London
occupies a large but subordinate role. The claimant's evidence is that
these two organs are to be found in London.
The function of C. Energy was to employ the claimant and others in the
trading team to which I have referred. The company is owned by C.
Resources. Just as I think it right to adopt a realistic approach to the
functions of those C. Resources personnel who are located in London, so
I think that for practical purposes one should regard the trading team
as part of the C. Resources business even though employed by another
company.
A certain amount of time was spent on arguing about who met where and
what they decided when they did meet. I am not sure how far this gets
one. Even if there was an obligation for certain people to meet in a certain
place in order to comply with certain technicalities, I do not think that this
is what the present exercise is about. The technical aspect of Article 60
is the determination of the statutory seat in the event that jurisdiction
can be established under sub-paragraph (a). The other two categories are
concerned with substance and not form. That is the clear implication to
be drawn from the cases referred to in The Rewia as well as the judgment
itself.
In contrast with the rather modest premises that it occupied in Zug, C.
Resources occupied and continues to occupy 14,000 square feet of office
space in London's West End. I reject the suggestion that this is merely to
have a showcase in an important commercial centre.
I find that there is a good arguable case to the effect that, when these
proceedings were issued, there were housed within the London Office the
following personnel of C. Resources:
"The Chairman
The Chief Executive Officer
The Chief Financial Officer
The Chief Operating Officer
The Head of Risk Department
The Head of Finance
The Head of Structured Finance
The Head of Business Development
The Head of Legal
The Head of Human Resources"
I accept that both the Chairman and the Chief Executive Officer would
have travelled and note that the London brochure states that the Chief
Executive Officer (Mr S.) is based in Switzerland. (Mr S. is no longer with
the company although I understand that his departure was after the start
of these proceedings.) However I also note that his personal assistant
appears to have had her office in London. I have seen nothing to suggest
that either Mr Spitz or his personal assistant occupied any particular office
space in Zug.
Apart from what is said by Mr V., there is nothing in the evidence to
suggest that any of the several directors based in Zug, occupied positions
that are potentially determinative of these proceedings. It is not entirely
apparent what Mr V.'s function is and was. He calls himself Head of
Administration but is referred to as "Manager, Zug" in a memorandum
dated 19 December 2001, which was sent to the claimant by several
senior executives of C. Resources. The impression that I have is that Mr
V. looked after the Zug end of the operation in a way that can be fairly
described as administrative. However to suggest that he was in any way
central to the administration of C. Resources would be misleading.
The two committees that were at the heart of the operations of C.
Resources were the Management Committee and the Risk Management
Committee.
The Risk Management Committee is described in the London brochure as
follows:
"RISK MANAGEMENT
All aspects of risk and risk management in C. come under the
responsibility of the risk committee. This committee is made up of the
Chief Executive Officer (Elliot S.), the Chief Financial Officer (Vladimir
P.) and the Chief Operating Officer (Christopher S.). Other departmental
managers are co-opted onto the committee when the specific issues
under discussion relate to their activities. Overall, C. has a risk averse
stance in terms of position and credit risk."
I have seen nothing to suggest that the committee was situated anywhere
other than London.
Although the claimant, as Head of Energy Trading, had once been upon
it; at the time of service the Management Committee (which had full
authority to direct the Energy Division) appears to have consisted of:
"The Chairman
The Chief Executive Officer
(Chairman of the Committee)
The Chief Operations Officer
(Secretary of the Committee)
The Chief Finance Officer
Jost V.
The Head of Energy
(Ian K.)"
The sense of the mix of the committee is that the directing elements of
C. Resources were working with the chief income producers of whom the
head was Mr K. based in Zug. There can be no doubt where the power lay.
Conclusion
I find that when this action was started, the central administration of C.
Resources was in London.
Despite the fact the main income of C. Resources may well have been
derived from the traders in Zug, the application of the criteria to be
derived from The Rewia leads me to the conclusion that there is a good
arguable case to the effect that its principal place of business is and was
in London.
Either of the above findings is sufficient to establish jurisdiction against C.
Resources in England.
C. Energy
C. Energy is a Swiss company whose purpose was to employ people
in Switzerland. It may well have been directed from London where its
guiding personnel are probably to be found; but I do not know enough
about the position to persuade me to make a finding under Article 60
when I do not have to do so. I think it clear that C. Energy comes within
Article 6(1) of the Lugano Convention.
Article 6(1) reads:
"A person domiciled in a Contracting State may also be sued-
1. Where he is one of a number of defendants, in the courts of the place
where any one of them is domiciled."
The application of the provision is governed by the decision of the
European Court of Justice in Kalfelis v Schroeder[1988] ECR 5565.
Paragraph 12 of the judgment states:
"The rule laid down in Article 6(1) therefore applies where the actions
brought against the various defendants are related when the proceedings
are instituted, that is to say where it is expedient to here and determine
them together in order to avoid the risk of irreconcilable judgments
resulting from separate proceedings. …"
Although it is a case under article 22 of the Brussels Convention, it seems
to me that where a case meets the criteria set out in Sarrio SA v Kuwait
Investment Authority [1999] 1 AC 32 it must also justify the exercise of
the discretion under Article 6(1). Under Article 22 the question is whether
"the actions 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". The answer is to be determined in a
broad common sense manner bearing in mind the object of the article and
the width of its terms.
I think it axiomatic that the exercise of deciding whether C. Resources is
liable to the claimant will involve travelling much the same road as must
be followed in order to see whether C. Energy is liable under the service
agreement. It is entirely desirable that the two cases be heard together.
Overall conclusion
The applications are dismissed.