Judgment Title: Websense International Technology Limited -v- ITWAY SpA
Neutral Citation:  IESC 5
Supreme Court Record Number: 38/13
High Court Record Number: 2012 1443 S (2012 150 COM)
Date of Delivery: 14/02/2014
Court: Supreme Court
Composition of Court: Clarke J., MacMenamin J., Dunne J.
Judgment by: MacMenamin J.
Status of Judgment: Approved
THE SUPREME COURT
[Appeal No: 38/2013]Clarke J.
Websense International Technology Limited
Judgment of Mr. Justice John MacMenamin delivered the 14th day of February, 2014.
1. Recital 15 of the preamble to Council Regulation (EC) No. 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“the Regulation”) recites:
2. Where these actions are pending at first instance, any court other than the court first seized may also, on the application of one of the parties, decline jurisdiction if the court first seized has jurisdiction over the actions in question and its law permits the consolidation thereof.
3. For the purposes 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.” (emphasis added)
(2) Even if they are related, whether this was an occasion where the court should exercise its discretion under Article 28 to nonetheless allow Websense International’s action to proceed in this jurisdiction despite the existence of the Italian proceedings?
7. The defendant/respondent, Itway SpA (“Itway”), is an Italian company which heads a group which also operates internationally in the information technology sector. It distributes e-business solutions and technologies, and includes, inter alia, a Turkish branch (Itway Turkyie), and a Greek operation (Itway Hellas) respectively. Where necessary, these will be referred to collectively hereafter as “the Itway Companies”.
8. The Websense group supplied information technology products to Itway. In turn, Itway distributed these products to resellers in a range of countries. Websense International says that Itway has failed to pay for products and services provided to it, and that as a consequence, the Irish company had to bring proceedings in this jurisdiction to recover the moneys due and owing on foot of a series of invoices. In this case, Websense International pleaded, no doubt on insufficient available evidence, that there was no other related claim in any proceedings in another Member State; and, for that reason, that it was entitled to bring proceedings here. The Irish proceedings were brought on the 19th April, 2012. However, Itway’s Italian proceedings were actually initiated almost one month earlier, on the 22nd March, 2012. The Italian courts were already, therefore, the courts “first seized” under Article 28.
The distribution agreement
10. Clauses 3 and 18 of the distribution agreement required the Itway Companies to independently develop a “Value Added Reseller” (“VAR”) network, using the necessary financial and human resources. The Itway Companies were required to pay for products delivered by the Websense companies within 45 days of the invoice issue date. The parties later executed a side-letter by which the terms of payment were varied, so that the Itway Companies were afforded a further 15 days of credit, with payments not falling due until 60 days after the invoices were issued.
11. The distribution agreement operated in the following way. First, Itway and its associated companies purchased products from the Websense group in accordance with the terms of the distribution agreement. Second, through separate contractual agreements, the Itway Companies distributed these products to its VAR network. Third, as the value added distributor, the Itway Companies guaranteed regularity of payments to Websense International, notwithstanding any obligations of the VAR network to the Itway Companies. The Itway Companies’ status can, therefore, be seen as something analogous to both a conduit and guarantor of payments to Websense International.
The Italian proceedings
13. The Itway Companies plead that, in or about December 2010, after they had complained to the Websense group about the difficulties in payment, and actual insolvency, they ceased supplying Astel. They then received orders from two other Italian “VARs” outside its network, namely Redco Telematica SpA (“Redco”) and Amelia Informatica S.r.L. (“Amelia”). The Itway companies say that neither Redco nor Amelia paid invoices at the agreed due dates.
14. The Itway Companies now claim that they sustained serious losses through what they claim was a series of somewhat byzantine manoeuvres. They contend that the Websense group induced Redco and Amelia to act as a “front”, and to order Websense products from Itway Companies, but that these consignments were actually intended for Astel. The Itway Companies say that the two VAR companies were induced to sell on to Astel despite its poor financial condition. Neither received payments from Astel. As a consequence, both companies suspended payments to the Itway Companies. As a result of all these actions, the Itway Companies say that they sustained direct losses of some €930,000 due from the three VAR companies, Astel, Redco and Amelia. They also claim for indirect losses. As a result, the Itway Companies say they suspended all payments to the Websense group in July 2011.
The “October Agreement”
16. In the Italian proceedings, the Itway Companies contend that, as a consequence, there was an agreement that it would suspend payment of the sum of €930,000 due to Websense, until it had received in full the amounts due from Redco and Amelia; and that commercial relations between the parties would continue as usual.
17. The Itway Companies claim that they fulfilled the terms of the October agreement and continued with legal proceedings against Redco and Amelia, ultimately obtaining a judgment against the former in the sum of €178,942. They claim that Websense Italia’s subsequent refusal to continue to supply them on credit constituted a breach of the settlement allegedly entered into in October 2011. The Itway Companies allege that by refusing to supply them on credit, and other unlawful conduct, Websense Italia excluded the Itway companies from the market in breach of the Italian Civil Code, which prohibits “boycotting”, thereby causing the Itway Companies to suffer economic losses in an estimated sum of €3 million, which they seek to recover against Websense Italia.
The Irish Proceedings
19. Websense International pleads that a choice of jurisdiction clause in the distribution agreement stipulated that the agreement was to be governed by, and construed in accordance with, the laws of Ireland, and that Ireland had exclusive jurisdiction, a point to which I will return later in this judgment. It is said that, as a result of reorganisation, the benefit of the agreement was transferred to Websense International in December 2010, and that, by an addendum to the agreement of the 12th April, 2011, a clause stipulating a credit period of 45 days was extended to 60 days. Websense International pleads that the Websense group provided its products for distribution in Italy, Greece and Turkey to the Itway companies, issued corresponding invoices which it has failed to pay, and that the total amount now due and owing is €1,351,198.12, including €171,925.34 for products supplied for further distribution in Greece; €709,724.06 for products supplied for further distribution in Italy; and €469,548.72 for products supplied for further distribution in Turkey.
20. Clearly, if Itway’s narrative is correct, the Irish proceedings must be seen as part of a larger, more complex and multi-faceted “contractual nexus” and, in that sense, a “subset” of the Italian proceedings.
The present motion
22. At the hearing of the appeal, it was clear that only Article 28 of the Regulation was engaged, as there could be no question that these cases came within the terms of Article 27 of the Regulation, which concerns the same cause of action between the same parties. Furthermore, although the motion sought to set aside service of the proceedings, the primary relief actually sought was a stay on the Irish proceedings. As a consequence, this judgment addresses only the issue of a stay under Article 28(1) of the Regulation.
The judgment of the High Court
24. Counsel for Websense International now makes the point that the Italian court has, in fact, decided to try the question of jurisdiction at the same time as the substantive hearing, so there will be no preliminary hearing on jurisdiction. Websense International now contends that the trial judge erred in failing to take account the exclusive jurisdiction clause in any way. I deal with this point later.
25. The High Court judge held that the Italian proceedings involved (a) a claim against Websense Italia for breach of the distribution agreement of the 26th April, 2010; (b) a claim for breach of the October agreement; and (c) a non-contractual claim. Websense International points out, correctly, that, in fact, there is no claim by the Itway Companies for breach by the Websense group of the distribution agreement in the Italian proceedings, and that this claim is made only in the Irish proceedings. Despite this, the distribution agreement is unavoidably a backdrop to the entire claim.
26. Counsel for Websense International submits that the judge’s conclusion that there were “striking similarities” between the two sets of proceedings is unjustified. Counsel says that this conclusion is derived from the fact that both sets of proceedings arose out of the distribution agreement, and that the parties in the Irish proceedings would have included some part of these issues in the Italian suit, were it not for the transfer of the benefit of the distribution agreement to the appellant in December 2010 as a consequence of Websense’s global reorganisation. In my view, these are distinctions which make no difference to the main points of relationship.
27. It has been established, at minimum, that there is a significant overlap of issues between the Italian and Irish proceedings. Both emanate from the distribution agreement entered into in 2010. Both must ultimately address whether that agreement was varied in October 2011. There is a degree of overlap between the parties involved. There must be an overlap of witnesses. The object of each proceeding is to identify liabilities said to arise from transactions in 2010 and 2011. Itway’s indebtedness, as Websense International claims in the Irish proceedings, is said to derive from the latter’s alleged wrongful collateral actions as outlined earlier.
28. The binding nature of the choice of jurisdiction clause will, of necessity, have to be litigated in the Italian proceedings, even though it has been subsumed in the substantive hearing. As an ancillary submission, Websense International contend that in the event of the Italian proceedings being permitted to proceed, they will suffer prejudice, in that the Italian proceedings will take longer to proceed to hearing than those initiated in Ireland.
The Regulation and its purpose
30. The primary objective of the Regulation is certainty. This is to be achieved by the provisions of rules which enable:
31. Of course, the purpose of Article 28 of the Regulation is, where possible, to avoid cases in which a judgment given in one contracting state is liable to conflict with a judgment given by another contracting state. The first question is whether it can be said the two cases at hand are “related” causes of action under Article 28. The test, which is set out in the Regulation itself is that 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”. However, Article 28(1) vests a discretion in the national court which “may stay its proceedings” where it is found proceedings may be deemed to be related in the sense of a close connection referred to earlier. The second question, assuming both proceedings to be related, is as to whether any discretion arising could or should or should be exercised against a stay.
32. The fact that the term “related action” has an autonomous meaning derives from the undoubted fact that it will not have the same interpretation in all Member States in their national laws. As a consequence, in Case C-406/92 The Tatry v Maciej Rataj  ECR I-5439, the Court of Justice held that:
33. There is a strongly expressed persuasive authority to this effect from the neighbouring jurisdiction. In Sarrio SA v Kuwait Investment Authority  1 Lloyd’s Rep. 113, the Court of Appeal concluded that the issues which must be considered in order to decide whether or not there was a risk of irreconcilable judgments included the issues of fact and law which had to be decided in order that the court could reach its judgment in a particular case. That Court described these as “primary” issues “limited to those facts which were necessary to establish a cause of action”. Evans L.J. considered that these “primary issues” represented “the process of reasoning” upon which a court’s judgment is based, but they did not include “other issues of fact which the court may or may not decide and which are not essential to its conclusion in this way”. The Court concluded that the “primary issues of fact” in the Sarrio proceedings were distinct from those in related Spanish proceedings, and that there was no risk of irreconcilable judgments.
34. Any such “close analysis” approach was decisively, and unanimously, rejected by the House of Lords (Sarrio SA v Kuwait Investment Authority  1 AC 32). In the single speech, Lord Saville, speaking for the panel, pointed out that, in Maciej Rataj, the Court of Justice had been at pains to emphasise that the phrase “irreconcilable judgments” should not be given a limited meaning. In the quotations which follow now, the Article number referred to relates to the Regulation’s predecessor. There is no material difference in content. Lord Saville put matters this way:
38. When one asks oneself the first question - is there a connection between these two set of proceedings - the answer must undoubtedly be “yes”. The next question is whether there must inevitably be a significant overlap between the witnesses in the two cases? The answer must be “yes” also. Finally, one might ask whether a determination in one case would have a significant bearing on the ultimate outcome of the two cases, having regard to claims and potential counterclaims? Here, the answer is “yes” again. The real issue then is, whether on these transactions, Websense owes Itway money or vice versa? To my mind, the answers to the three key questions above point one way. They lead inexorably to the conclusion that it is expedient that the actions should be heard and determined together by the same court. This conclusion does not, of course, detract from the fact that it will be necessary for the Italian Court to make an initial determination on the choice of jurisdiction clause contained in the contract. But it is impossible to escape the conclusion that the issues, and the source of the inter partes litigation, emanate from the distribution agreement. This conclusion gains traction from, what I will term, the “confluence” of further matters in dispute arising from what is said to have transpired in October 2011. When viewed in this way, the answers to the critical questions posed are almost self-evident.
39. In The Tatry, the Court of Justice specifically directed attention to the fact that the objective of the law then embodied in the Convention was to improve coordination in the exercise of judicial functions within the then Community, and to avoid conflicting and contradictory decisions even where the separate enforcement of each of them was not precluded. Where does the dividing line lie? The judgment in The Tatry held that an action brought in a contracting state by one group of cargo owners against a ship owner seeking damages for harm caused to a part of the cargo carried in bulk under separate but identical contracts, and a second action in damages brought in another contracting state against the same ship owner by the owner of another part of the cargo shipped under the same conditions, and under contracts which were separate but identical to those between the first group and the ship owner, were sufficiently close. The Court of Justice, as it then was, nonetheless held that a separate trial and judgment would involve the risk of conflicting decisions, albeit not necessarily involving the risk of giving rise to mutually exclusive legal consequences. The connection between the two claims here is surely as close, if not even closer.
The exclusive jurisdiction clause
41. Gasser concerned the approach to be adopted by a national court secondly seised where its jurisdiction was invoked upon the basis of a choice of jurisdiction clause in a contract, while the case before the court first seised was based upon the primary rule of the defendant’s domicile. Albeit in the context of what is now Article 27 of the Regulation, the Court of Justice held in such circumstances that the court secondly seised is not entitled to ignore the existence of the prior proceedings between the same parties. The fact that the prior proceeding had apparently been commenced in disregard of the choice of jurisdiction clause did not oust the jurisdiction which might be exercised by the court first seised, and did not remove the obligation of the court secondly seised to permit the issue of jurisdiction to be “established” by the court having seisin of the prior proceedings. Referring to the now superseded Article to the same effect, the Court of Justice observed:
Thus, here, although there is, on the face of the agreement, a choice of jurisdiction clause, it is nonetheless necessary for the Italian court to establish whether its jurisdiction can be properly exercised as a preliminary issue.
42. It is finally necessary to turn to the question of discretion. Mr. Brian Kennedy S.C., on behalf of Websense International, made a persuasive and succinct submission. He sought to persuade us that we should adopt an approach to be found in a number of decisions of the Court of Appeal of England and Wales, where these courts had declined the grant to stay notwithstanding proceedings found to be related, albeit in very specific circumstances.
43. One such circumstance was said to be the state of actual, or likely, progress in proceedings in both jurisdictions. In Cooper Tire Europe Limited v Bayer Public Co Limited  Bus LR 1697, the English High Court considered the stage which the proceedings had reached in its jurisdiction as being “one factor” upon which he should exercise his discretion. In doing so he relied on para. 78 of Advocate General Lenz’s opinion in Case C-129/82 Owens Bank Limited v Bracco  QB 509. The Court of Appeal, per Longmore L.J., commented that the High Court Judge had engaged in a carefully considered balancing exercise. But then he said:
44. Counsel drew our attention to JP Morgan Europe Limited v Primacom AG and Another  EWHC 508 (Comm), where Cooke J. in the English High Court had to consider two sets of proceedings, which to his mind raised “no possibility of consistent or irreconcilable judgments”, and where a strong degree of connection had not been established.
45. Insofar as any observation in JP Morgan might be interpreted to the effect that the Gasser decision is not of weight in the consideration of Article 28 applications, I am unable to agree. Although the Court of Justice was dealing with what was then an Article 21 application in Gasser, it nonetheless observed:
47. I say this having regard to the views of Advocate General Lenz in Owens Banks Limited v Bracco, where he observed:
48. That said, however, the Advocate General went on to identify three factors which may “be relevant” to the exercise of the discretion vested in national courts. These were, first, the extent of the relatedness and the risk of mutually irreconcilable decisions; second, the stage reached in each set of proceedings, and, third, the proximity of the courts to the subject matter of the case.
49. But, nonetheless, as a general rule, I think a stay should be granted by the second court. For a case to be clear, the facts would have to very clearly indeed point to a refusal of a stay. The Advocate General’s observations must be seen in light of the judgments of the Court of Justice.
50. Even were I persuaded that there was not a high degree of “relatedness” in this case, I am not persuaded on the available information that any of the other factors identified in submissions is in any way of sufficient significance in order to show that the trial judge exercised his discretion in an incorrect way. It is true that there is a degree of dispute between the lawyers on both sides as to the speed at which the Italian proceedings will progress, but that must be seen in light of the Court of Justice’s observations in Gasser. The differentiation of time is not such as would warrant an interference with a judge’s discretion.
51. It should be emphasised that, for the reasons which I have sought to address, the jurisprudence of CJEU emphasises the importance of certainty in determining jurisdiction under the Regulation. It does, however, have to be acknowledged that certainty can give rise to a significant risk of impracticality if the rules are insufficiently nuanced to prevent procedural disruption. This Court is, of course, obliged to comply with the Regulation (which forms part of the law of this jurisdiction) as interpreted by the CJEU. However, the practical consequences for the facts of this case are worth noting.
52. There is a dispute between the parties as to whether Italy has jurisdiction to deal with the issues which arise between the Websense group and the Itway Companies. That dispute arises not least because of the question of the applicability of the choice of jurisdiction clause to which reference has already been made. There is no doubt that, in accordance with the Regulation, it is for the Italian court, as the court first seised, to decide on the question of whether the courts of Italy have been deprived of any jurisdiction which they might otherwise have by virtue of that choice of jurisdiction clause. However, unless and until an Italian court determines that question against Italy having jurisdiction, then, in the absence of the exercise of the discretion conferred on the Irish courts by Art. 28, no related proceedings in Ireland can progress. Where, as here, the Italian courts have, as this Court has been informed, decided to defer determining the question of jurisdiction until a full hearing of all of the issues between the parties, there is no prospect of the Irish courts being able to progress these proceedings (even if the Italian courts deem the choice of jurisdiction to be applicable) until the related Italian proceedings have concluded. Thus, the vista appears of the Irish courts being asked, at some point in the future when the Italian proceedings have concluded, to reactivate these proceedings on the basis that the Italian courts may have decided that they do not have jurisdiction to deal with any issues which would overlap with those which arise in these proceedings. That is potentially a most unsatisfactory state of affairs. To move away from the undoubted value of certainty which the Regulation brings would be impermissible in the light of the jurisprudence of the CJEU and may well not be desirable in any event. However, it seems to me that there are strong grounds for suggesting that a more nuanced approach to the rules contained within the Regulation is necessary if the commitment to certainty is not to lead to impractical situations being mandated. This Court can do no more than suggest that, for reasons such as those identified not only in this case but in other cases which have come before the Irish courts, a review of the rules in respect of jurisdiction contained within the Regulation is highly desirable.