Mrs Justice Gloster, DBE:
1 In this case management conference, I have to decide an application by
the current claimants in the action, H.and B. (collectively "the Claimants")
for a complete stay of these English proceedings.
2 The Claimants are companies with interests in the steel industry. They
allege that they have suffered loss and damage as a result of the deceit of
an employee of the former Second Defendant, K. which they also allege
interfered unlawfully with their business.
3 B. is a company registered in the United Kingdom and is one of the
world's largest independent traders of steel products. K. is one of the
leading multi-metals distribution companies in the world. Recently, the
assets and liabilities of K. passed, by operation of German law, to K.GmbH
as a result of a merger. It has been agreed between the parties as a
matter of formality that this company, which now has vested in it K.'s
interest and liabilities in these proceedings, should formally replace K.
as Defendant. In this judgment I do not need to differentiate further
between the original K., and its succ N.as a result of the merger.
4 HO., a member of the B. Group, acquired 94.5% of the shares in K.
in October 2001. Part of the purchase monies for this acquisition was
advanced by bankers W.to H.pursuant to the terms of a facility agreement
dated October 2001 ("the Facility Agreement"). The balance was to be
financed by H.by the intended sale of assets of the target, K. After the
acquisition, K. alleged that the balance of the purchase price had been
improperly obtained by the misuse of funds of, or derived from, K.,
and that this diversion of funds from K. was illegal under German law,
notwithstanding that it had, apparently, been put in place and structured
on the basis of professional advice from C., solicitors, and O., investment
bankers. As a result, a number of the Claimants' executives became the
subject of criminal investigations in Germany and the events were widely
reported in the press.
5 As an interim measure, whilst investigations took place, W.proposed
the appointment of an independent trustee over HO.' shares in K. This
was implemented by way of a German law Restructuring Agreement
dated 14 March 2002 ("the Restructuring Agreement"). Whilst the
trustee was in place, the Claimants hoped to negotiate refinancing of the
purchase of the K. shares. The Claimants entered into negotiations with,
inter alia, D.and P. for the purpose of obtaining funds to refinance HO.'
purchase of the shares in K. The Claimants allege that these negotiations
were unsuccessful because of representations made to D.by Mr Derrick
N., acting as a director and agent of K. AG, to the effect that, in the
event of control of K. returning to the B. Group, all of the banks and
financing institutions then providing finance to K. and its operating
companies would withdraw their support, with the result that D.and
the other financiers would have to advance a far greater amount that
that contemplated in order for K. to survive. The Claimants' allege
that, because of these misrepresentations, D.and P. withdrew from the
refinancing negotiations and, in particular, withdrew from negotiating a
particular contract referred to as the "DB Contract", whereby D.was to
provide partial refinancing to H.and subject to the conclusion of which P.
was to advance additional funds to HO.
6 On 31 October 2002 W.purported to terminate the Facility Agreement,
and expressed an intention to put HO.' shares in K. up for auction.
On 18 November 2002 the Claimants issued this claim seeking, inter
alia, damages for losses allegedly suffered as a result of K.'s alleged
misrepresentations. The original Defendants included W., Mr N.and
members of the management consultant group appointed as trustee
(including its controlling mind, a Mr WD.) as Third to Seventh Defendants.
7 The Claimants allege that, under very considerable commercial pressure
and to avoid the sale of the K. shares at an undervalue by auction,
the Claimants then entered into two Settlement Agreements with the
former Third to Seventh Defendants (amongst others). In summary the
settlement provided that:
i) HO.' shares in K. would be transferred to W.and another lender in lieu of
payment under the Facility Agreement; however, that transfer would not
take place for two months; the Claimants were to seek refinancing during
this period and in the event of payment by H.the transfer provisions
would become null and void;
ii) the claims against the Third to Seventh Defendants were to be
discontinued and all claims between the Claimants and the Third to
Seventh Defendants (amongst others) were fully and finally settled;
iii) a "litigation cap" was put in place in relation to the enforcement by the
Claimants of any judgment against the First and Second Defendants, who
remained parties to the litigation.
8 This settlement was formalised in two written agreements dated 6
March 2003; one was a German law agreement by which the share
transfer would take place ("the Transfer Agreement") and one was an
English law agreement by which the Proceedings were to be discontinued
("the Settlement Agreement"). In due course, HO.' shares in K. were
purportedly transferred to the lenders, and the proceedings were
discontinued against the Third to Seventh Defendants. The Claimants
then served their Particulars of Claim, which have subsequently been
amended and reamended. The claims made are for damages for deceit
and unlawful interference with the Claimants' trade or business. The claim
against K. is now solely based on its liability as principal for Mr N.alleged
misrepresentations. The loss and damage claimed includes the losses
alleged to have been suffered because of the transfer of the shares and
the settlement with the Third to Seventh Defendants.
9 In its Defence, K. denies that the alleged representations were made
at all, and denies that any representations made by Mr N.were false.
In the alternative K. asserts that the statements were statements of
opinion which Mr N.believed, or had reasonable grounds to believe, were
true. In addition, K. denies that any reliance was placed by D.on any
misrepresentation and that the necessary causation loss and damages
had been made out by HO.
10 However, the above summary of the action conceals the fact that,
since the institution of proceedings on 17 November 2002, the action has
already progressed through detailed interlocutory stages. Originally the
claim was by three Claimants against seven Defendants. It was in various
parts. The former First Claimant, A., claimed against the former First
Defendant, K. relief in relation to an alleged Conditional Sale Agreement.
B. and H.claimed against the Second to Seventh Defendants for alleged
misstatements, misrepresentations and broken promises. The action
has undergone a number of significant changes at the instigation of the
Claimants, in particular:
i) A., having been ordered to provide security for costs, served notice
of discontinuance of its claims (with the ultimate result that the
Counterclaim was also discontinued);
ii) B. and H.entered into a settlement with the Third to Seventh
Defendants and those Defendants ceased to be involved in the action;
iii) the Claimants materially amended and altered their claim;
11 Furthermore, there have been extensive pleadings and requests for
and provision of further information; there has been disclosure; and there
has already been one case management conference.
12 As I have said, all that now remains is a claim against K. for damages
for alleged deceit and unlawful interference with B. and HO.' trade or
business.
13 It is at this stage, after more than 2 1/2 years of litigation and a
considerable expenditure of time and money on both sides, that the
Claimants apply to stay the entire proceedings. They do so on the basis
that, in January and April 2005 respectively, they decided to bring other
legal proceedings in Germany and England against other defendants (not
including K.), and they wish to stop these present proceedings until the
new proceedings in Germany and England have been finally resolved. The
reason for the institution of these new proceedings is that the Claimants
assert that, in August 2004, they obtained evidence that led them to
conclude that the Restructuring Agreement and the two Settlement
Agreements (viz. the Transfer Agreement and the Settlement Agreement)
are void ab initio.
14 Accordingly, on 21 January 2005, H.issued a claim before the
Regional Court of DÜsseldorf against W.in respect of the two German law
agreements (the Restructuring Agreement and the Transfer Agreement),
seeking declarations, damages and return of the shares in K. ("the
German proceedings"). HO.' allegations in the German proceedings, in
summary, are that:
i) In January 2002, W.decided, unbeknownst to HO., to attempt to seize
control of K. W.considered that the H.had made an unusually good deal
and that W.should transfer to itself that economic advantage.
ii) W.therefore engineered a situation in which H.would be forced to
default under the Facility Agreement. In particular W.procured the
appointment of DE. (a consultancy firm with which it had it now appears a
long standing and close relationship) as "independent" trustee under the
Restructuring Agreement. It is further alleged that, unbeknownst to HO.:
a) On 6 February 2002, W.had entered into a secret loan agreement
with Mr DE. and/or with his investment firm I., to provide a loan for
the acquisition of up to 50% of the shares in K. In the event that the
acquisition took place, W.was to participate up to 35% in I.
b) W.and Mr DE. planned to implement a strategy they had deployed
before under which W.would install Mr DE.'s company as consultant to its
customers, and, as well as providing consulting services to the customer,
Mr DE. would acquire a stake in it.
c) Following the appointment of DE. GmbH as trustee H.was cut off from
K. and in particular lost access to its liquid funds which it intended to
use to repay the loan facility. Thus it was only a question of time before
H.defaulted under the Facility Agreement. Further, W., DE. GmbH, Mr DE.
and Mr N.took various steps in pursuit of their own interests, with the
result that H.had to acquiesce to W.'s demands to agree to the Transfer
Agreement and Settlement Agreement, thus losing its shares in K.
15 On the basis of these factual allegations, H.alleges that the
Restructuring Agreement, the Transfer Agreement and the act of transfer
of the shares are void ab initio under German law. It is said that the
German law bases for this are analogous to public policy, duress and
deceit.
16 However, the validity of the Settlement Agreement cannot be litigated
in Germany because it contains an English law and jurisdiction clause.
Accordingly, on 2 April 2005, H.began further proceedings before this
Court ("the new English proceedings") seeking a declaration that the
Settlement Agreement is also void. The Defendants are those parties to
the Settlement Agreement who maintain its validity -- including W., Mr
DE., DE., I. and Mr N. They do not include K., not surprisingly, because it
was not party to the Settlement Agreement. In summary, the grounds of
the new English claim are that the Settlement Agreement is void because:
i) by its express or implied terms the Settlement Agreement fails if the
Transfer Agreement is void.
ii) there was a total failure of consideration.
iii) H.entered into the Settlement Agreement under a mistaken belief that
the transfer of the shares would be valid.
The Claimants anticipate that the new English proceedings will be stayed
pursuant to Article 28 of Regulation 44/2001 in favour of the German
proceedings and will be very quickly resolved after judgment has been
handed down in the German proceedings.
17 It is against this background that the Claimants seek an order that
the current proceedings be stayed pending final resolution of the German
proceedings (including any appeals) and of the new English proceedings.
18 Mr Smouha QC, who appeared with Ms Susannah Jones, on behalf
of the Claimants, submits that a stay is appropriate for the following
reasons:
i) If the claims in the German proceedings were to succeed, H.would gain
ownership of 94.5% of K., and in that event these proceedings would be
otiose, since there would be no point in H.suing its own subsidiary.
ii) If the three agreements have been validly avoided, the Claimants'
claim for losses suffered because of the transfer of the shares and the
settlement with the Third to Seventh Defendants will not arise.
iii) K. has alleged that the effect of the litigation cap is to render these
proceedings pointless. The Claimants dispute this. However, if K. were
correct, it is crucial that the validity of the litigation cap be determined
before these proceedings continue.
iv) If this claim were to continue:
a) this court, in order to determine quantum, would have to resolve
issues of German law to determine whether the restructuring and Transfer
Agreements are void. The German courts are seised of these issues, and
to require them to be litigated twice would increase costs unnecessarily
and lead to a risk of inconsistent judgments;
b) this court would have to resolve the question whether the Settlement
Agreement is void. K. is not a party to this agreement. This court may
wish to consider consolidating this action with the separate claim in
relation to the Settlement Agreement, a claim that should clearly be
stayed under Article 28 of Regulation 44/2001.
v) The new evidence obtained by H.fundamentally changes the nature
of this action. A substantial part of the Claimants' damages claim is
premised on the validity of the agreements which are being challenged in
Germany and before this court, and it is undesirable for the validity issues
to be determined in this action.
19 Mr Tom Beazley QC, who appeared on behalf of K. together with Mr
Brian Kennelly, on the other hand, submitted that there should not be
a complete stay of the current proceedings, but merely a partial stay of
particular issues. He argued that there should be no stay of the trial of the
liability issues relating to the alleged misrepresentations . He argued that
the following issues ("the Misrepresentation Issues") should be tried now:
i) whether K., by Mr N., made or instigated the alleged
misrepresentations;
ii) whether K. had the relevant intention alleged, and knew that the
representations were false;
iii) whether the alleged misrepresentations were indeed false;
iv) whether, because of the alleged misrepresentations, D.decided not to
enter into the DB contract and accordingly the refinancing negotiations
failed;
He submitted that there was no reason or basis for the determination of
the Misrepresentation Issues to await the outcome of the new German
and English proceedings.
20 On the other hand, Mr Beazley accepts that the issues which can
and should sensibly await the resolution of the new German and English
proceedings, are the issues relating to loss, as opposed to liability, and
which concern the effect of the failure of the buyout negotiations. As
the Re-amended Particulars of Claim demonstrate (see paragraphs 34
and 34A), the claim for loss and damages in the current proceedings
depends in part upon whether the Settlement Agreement and the Transfer
Agreement could be validly avoided or not.
21 In my judgment, relevant factors which guide the court in the exercise
of its discretion to stay proceedings include (in the circumstances of the
present case) the following:
i) The court has a wide discretion to stay proceedings, but in
circumstances where the claimant itself has voluntarily brought the
two sets of proceedings, a stay should only be granted in very rare
circumstances: see Ledra Fishers v Turner [2003] EWHC 1049 Ch,
paragraphs 14 and 38; Reichhold Norway ASA v Goldman Sachs [2000] 1
WLR 173 at pp 179-180.
ii) Even where there are such reasons for a stay, a stay should only be
granted if the benefits of doing so clearly outweigh any disadvantage to
the other party (Reichhold, page 180).
iii) A particularly compelling case would be required for a stay to be
granted to the Claimant years after he has brought the claim (Ledra para
39).
iv) A stay will not, at least in general, be appropriate if the other
proceedings will not even bind the parties to the action stayed, let alone
finally resolve all the issues in the case to be stayed.
v) A stay will not, at least in general, be appropriate if the parties to the
other proceedings are not the same.
vi) A Defendant against whom a serious allegation (such as deceit) is
made is entitled to an expeditious hearing, and should not be left for
years waiting for the outcome of another case over which he (and the
Court) has no control. An action alleging fraud should come to trial
quickly; thus unwarranted delay may lead to an action being dismissed
for want of prosecution even before the limitation period has expired:
e.g. Clerk & Lindsell on Torts (18th ed., 2003) 15-38, Yiannides v Radley
Gowns Ltd (1975) 119 SJ 711, the overriding objective (CPR 1.1, 1.2 and
1.4(2)(l)) and Article 6 of the ECHR.
22 In my judgment, it is appropriate in the present case that there
should be a stay, but only the limited stay for which Mr Beazley contends.
I consider that it would be wrong for there to be a complete stay of
the current proceedings against K. pending the resolution of the new
proceedings brought by H.against different parties in Germany and
England. The Misrepresentation Issues should in my judgment be tried
without delay. My reasons may be summarised as follows.
23 First, it will inevitably take a considerable time for the new German
proceedings to be resolved. K.'s estimate is that, including possible
appeals, the new German proceedings are unlikely to be resolved before
2010/2011. Even the Claimants accept that, with appeals, the German
proceedings will not be determined until 2009.
24 Second, moreover, and in any event, the German proceedings will
not be determinative of the Misrepresentation Issues of liability as
against K. in the present case. Whether the Restructuring Agreement
and the Transfer Agreement (or indeed the Settlement Agreement)
are void or valid as between W.and H.(or the other parties to the
Settlement Agreement) is irrelevant to the issue whether K., by Mr N.,
misrepresented K.'s financial position in the course of HO.' negotiations
with D.in relation to the proposed refinancing, and whether the latter
relied upon such misrepresentations in coming to its decision not to
proceed with refinancing.
25 Third, it is highly undesirable, in my judgment, that the
Misrepresentation Issues, involving allegations of fraud and deceit as
they do, should be delayed for perhaps many years while the other
proceedings are heard. At the time of hearing, Mr N.was the Chief
Executive Officer of K. I have been advised that subsequently, on 30 June
2005, he ceased to act in this capacity. Irrespective of his departure from
K., in my judgment, it is most undesirable that he should have these
allegations against him outstanding and unresolved for a period of four
to five years when they can, in my judgment, be separately determined
at this stage, in isolation from the issues relating to losses. I accept that
the substance of such allegations does have an adverse effect both on the
reputation of Mr N.and upon K., the corporate entity, and they should in
my judgment be resolved as speedily as possible.
26 Mr Smouha submits that the notion that there will be personal finality
for Mr N.and K., if there is only a partial stay and the Misrepresentation
Issues are resolved first, is illusory. He emphasises that there is a much
wider dispute being fought in the German proceedings, where Mr N.is a
compellable witness and where his actions will be scrutinised. He also
referred to further proceedings brought by K. in Germany against certain
other executives.
27 However, I do not consider that the fact that Mr N.will be a compellable
witness in the German proceedings between H.and W.in relation to
the Restructuring Agreement and the Transfer Agreement (where the
allegations relate to a wholly different transaction and to which neither
K. nor Mr N.is a party) affords any sort of reason why the trial of the
Misrepresentation Issues (which involve serious allegations of deceit)
should be postponed indefinitely. The German proceedings do not appear
to have alleged misrepresentation. Mr N.may have to give evidence
in such proceedings, but the focus there clearly will not be directed at
the misrepresentations relating to the failure of the proposed D.funded
refinancing. Nor am I persuaded that the existence of the other German
proceedings relating to the H.takeover brought by K. before the Regional
Court in Duisberg against former executives is any reason why these
current proceedings should be completely stayed.
28 Fourth, I accept Mr Beazley's submissions that the resolution of
the Misrepresentation Issues is heavily dependent upon oral evidence,
and that it is highly undesirable that there should be a delay in the
presentation of that evidence. I reject Mr Smouha's argument that these
problems can be addressed by the taking of detailed witness statements.
29 Fifth, I refer to Mr Smouha's submission that, if the German claim
were to succeed in its entirety and the K. shares were to be retransferred
to HO., this action would be otiose because H.would again own 94.5% of
the K. shares, and thus become part of the B. Group. This appears to me
to be a wholly unconvincing reason for granting a blanket stay. First of all,
the evidence (including information supplied to me after the hearing by
means of further statements and letters) shows that ownership of the K.
shares was transferred on 16 March 2005 from the W.subsidiary and other
nominees holding them to an independent third party, which is not under
the corporate control of W., for a consideration of approximately /320
million. It may, of course, be possible that, in the German proceedings,
such a third party could be joined as a defendant to the proceedings
and have the sale of the K. shares to it set aside on the grounds of the
purchaser's bad faith and knowledge of HO.' claim (as envisaged in the
Claimants' evidence). But the possibility of such an event occurring after
so many years, when damages would appear to be an adequate remedy
must be highly questionable.
30 Moreover, it is highly unsatisfactory for this court to have to approach
its decision whether to order a stay on the basis that the Claimants
may decide at some stage in the future no longer to pursue their claim
because they will have acquired control of the Defendant. It appears
to me that the Claimants have a choice: either they decide that their
remedies in the other actions against other defendants are adequate
and they do not need to pursue these claims against K. (in which case
they discontinue) or they should proceed to trial expeditiously with their
allegations of deceit. It is wholly undesirable that such allegations, the
making of which have reputational issues for Mr N.and others, should be
left in abeyance pending the litigation of a different complaint against
different parties in a different jurisdiction.
31 Sixth, I am not persuaded that to separate out the trial of the
Misrepresentation Issues from the trial of the remaining issues relating
to loss would be impractical or duplicative, as suggested by Mr Smouha.
In the current trial, there will have to be determined whether the alleged
misrepresentations were made with the requisite knowledge of K. and
whether by reason of such misrepresentations (if any) D.decided not to
enter into the DB contract and accordingly the refinancing negotiations
failed. But those issues are factually and logically separate and distinct
from the issues as to what were the consequences of D’s decision, as
an analysis of the Re-amended Particulars of Claim demonstrates. Thus
subparagraphs 32(a)-(c) and 34 and 34A relate to the consequences, and
thus the loss that the Claimants have allegedly incurred.
32 Mr Smouha submitted that inevitably there would have to be cross-
examination in the current proceedings of Mr N.role in relation to W.,
Mr DE. and the subject matter of the German proceedings because the
conduct was in effect one long continuum. I am not convinced that it will
be necessary for this to happen since the misrepresentation allegations
are very specific. In case management terms, one can well envisage that
the trial judge might well restrict wide-ranging cross-examination that
traversed the W.transaction.
33 Seventh, disclosure has to a significant extent already taken place and
will have to be completed in relation to the Misrepresentation Issues. But
in my judgment, the evidence does not suggest that restrictive disclosure
will be a problem. The fact that, at a subsequent stage, witnesses may
have to produce further statements relating to the remaining loss issues
and return to give evidence is, of course, a consideration, but, although
further costs will inevitably be incurred at that stage, I do not accept
that the further evidence will involve material duplication or materially
increase costs. Nor do I accept Mr Smouha's submission that the costs of
a trial to determine the Misrepresentation Issues would be little different
from the costs that would be incurred if the matter were to be litigated
in one trial in four or five years time. On the contrary, there will, in my
judgment, be a current cost saving if the loss issues are deferred. Indeed,
if the Claimants fail on the Misrepresentation Issues such costs will never
be incurred. On the other hand, if they succeed, it is to be anticipated
that, after the conclusion of the new German proceedings, albeit that any
judgment will not be binding on K. in these proceedings, the question of
what loss the Claimants have actually suffered will be far more sharply
defined, and costs will not therefore be spent in the current proceedings
exploring hypothetical loss issues.
34 Eighth, contrary to Mr Smouha's submissions, I do not consider
that trying the Misrepresentation Issues would unduly prolong the
resolution of the dispute. On the contrary, the trial in the near future of
the Misrepresentation Issues might well serve to produce an opportunity
for compromise of that dispute, or, at least, a compromise conditional
upon the ultimate outcome of HO.' other litigation in Germany and in the
new English proceedings.
35 Ninth, the respective arguments relating to the issue of the litigation
cap, and whether, as K. contends, and the Claimants deny, it would
prevent the Claimants from execution is, in my judgment, irrelevant to
the question whether there should be a limited or a complete stay.
36 For all the above reasons, in my judgment, Mr Beazley's submissions
are to be preferred. Accordingly, I direct that the determination of the
Misrepresentation Issues should proceed to trial and that there should
be a stay of the loss issues pending resolution of the new German
proceedings and the new English proceedings. I will hear argument as to
the precise form of the directions as to the future conduct of the trial.