England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		The Rolls Building 7 Rolls Building Fetter Lane London EC4A 1NL
		25 November 2014

Judge Behrens:

1. Introduction

1. This is an application for permission to appeal two decisions of Master Bowles dated 8^th May 2014 whereby he dismissed applications by Mr McKillen. Mr McKillen had sought a declaration that the Court had no jurisdiction to try each of the claims and/or that the Court should decline to try the claims and/or stay the claims.
2. It is not in dispute that Mr McKillen is not domiciled in England. He is Irish. Master Bowles however held that that the English Court has jurisdiction under Article 6(1) of Council Regulation (EC) 44/2001 ("the Brussels Regulation"). This was on the basis that the Court has jurisdiction over another Defendant, namely Coroin Limited ("Coroin"), which is domiciled in England, and which can therefore be used as an "anchor Defendant" for the purposes of Article 6(1).
3. By order dated 6^th June 2014 Proudman J directed that the application for permission to appeal be listed at an oral hearing with the appeal to follow if permission was granted.
4. Mr McKillen's position, in summary, is that the Master erred in determining that Coroin is an appropriate "anchor Defendant" for Article 6(1) purposes. On proper analysis, there is no real issue between the Claimants and Coroin, and therefore no risk of irreconcilable judgments. The only real issue is between the Claimants and Mr McKillen. Coroin is at most a nominal Defendant, and that is insufficient for the purposes of Article 6(1).
5. The Claimants reject these submissions. In summary they submit that under Article 6(1), the merits of the claim against the anchor Defendant are irrelevant. In any event, they contend that Coroin is not a mere nominal Defendant. It is a necessary party to the present proceedings.
6. The applications in the two actions raise the same issues and are to be heard together. This was the procedure adopted before the Master.

2. Background

7. These proceedings are a further round in the long running dispute over control of Coroin. In the previous proceedings between the parties David Richards J summarised the background in paragraphs 1 to 4 of his judgment ([2012] EWHC 2343 (Ch)):

1. At the heart of this case lies a battle for control of three of London's leading hotels – Claridge's, The Connaught and The Berkeley.

2. The contenders for control are Patrick McKillen and Sir David and Sir Frederick Barclay. Mr McKillen is the last man standing of a consortium of investors who purchased the hotels in 2004. He has a 36.2 % shareholding in Coroin Limited (the company) which heads the group of companies owning the hotels. The Barclay brothers have extensive and diversified business interests, including hotels and in particular the Ritz Hotel in London. In January 2011, a company controlled by them acquired indirectly a 24.78% interest in the company, which has since increased to 28.36%.

3. The remaining shares are owned by Derek Quinlan, also a member of the original consortium but now in severe financial difficulties. His shares are fully charged to secure debts now held by companies controlled by the Barclay brothers.

4. The Barclay brothers have made no secret of their aim to obtain control of the company. There is nothing wrong in this aim, provided that unlawful means or means which are unfairly prejudicial to the interests of other shareholders are not used to achieve it.

8. In 2011 Mr McKillen brought two sets of proceedings. The first was a petition under section 994 of the Companies Act 2006, alleging that the affairs of Coroin had been conducted in a manner unfairly prejudicial to Mr McKillen's interests as a member of the company. He sought an order that the shares held by Mr Quinlan and companies associated with the Barclay brothers be sold to him. This would have given him control of Coroin. The second was a claim for damages in tort for conspiracy to cause him loss by the same unlawful means as were alleged in the petition and for inducing breaches of contract. Mr McKillen's claims failed both at first instance and in the Court of Appeal. Permission to appeal to the Supreme Court was refused in November 2013.
9. The current shareholding in Coroin may be summarised:

1. Mr McKillen is the registered owner of 36.21% of Coroin.

2. Misland (Cyprus) Investments Limited (the Company referred to in paragraph 2 of David Richards J's judgment) is the registered owner of 28.36% of Coroin.

3. Ellerman Corporation Limited and B Overseas Limited are each mortgagees of Mr Quinlan's shares in Coroin. They have each perfected their security by becoming registered shareholders. Mr Quinlan continues to be the beneficial owner, by way of his equity of redemption, of those shares, which represent a 35.43% interest in Coroin.

3. The Claims

10. The Claimants' allegations are contained in the Particulars of Claim and may be summarised. In paragraphs 1 to 6 the Claimants set out the ownership of Coroin as summarised above.
11. In paragraphs 7 to 13 reference is made to the Shareholders' Agreement dated 14 May 2004 and to Coroin's Articles of Association. Reliance is placed on Clause 6 of the Shareholders' Agreement which deals with the transfer of shares and the pre-emption rights of shareholders. In particular clause 6.6.2 provides:

"If any Shareholder

…

6.6.2 (being an individual Shareholder) becomes or is adjudged bankrupt in any part of the world or enters into any composition or arrangement with his creditors generally or any Shareholder Security becomes enforceable;…

such Shareholder…if so notified by the Company following a determination by the Directors at any time within a period of one month after the occurrence of any such event, shall be deemed to have given a Transfer Notice in respect of all Shares held by…him on the date of such notice and the provisions of clause 6.7 shall apply.":

12. Shareholder Security is defined as:

"such security (if any) as may from time to time be granted by any Shareholder over his Shares and/or Loan Stock"

13. The effect of a determination by the Directors under clause 6.6.2 is that the relevant shareholder's entire shareholding in Coroin is offered for sale to the other shareholders at a price to be determined in accordance with clause 6.7.
14. Article 5.6 of Coroin's Articles of Association contain a provision in the same terms as clause 6.6. The Shareholders' Agreement is expressed to be governed by Irish law.
15. In paragraphs 14 to 24 reference is made to the terms of a charge ("the Anglo Charge") dated 23^rd July 2008 granted by Mr McKillen over his shares in Coroin to Anglo Irish Bank plc ("Anglo"). A number of provisions from the Anglo Charge are cited in the Particulars of Claim including the definition of "An Event of Default" and clause 10.2.
16. An Event of Default is defined as,

"…any event, howsoever described, specified in any of the Facility Letters as an event upon the occurrence of which the Bank becomes entitled to call for early repayment of all or any of the Indebtedness or any failure by [Mr McKillen] to pay or repay on demand all or any of the Indebtedness which is so payable".

17. Clause 10.2 of the Anglo Charge provides, inter alia, that:

"The power of sale and other powers conferred by section 19 of the Conveyancing and Law of Property Act 1881 and all other enforcement powers conferred by this deed shall be immediately exercisable at any time after an Event of Default has occurred."

18. In paragraphs 25 to 34 the Claimants allege that Anglo loaned very substantial sums (many millions of pounds) to Mr McKillen. Almost all of the loans were repayable before 31 March 2010. Even though the loans were not repaid on the due date Mr McKillen contends and, for the purpose of these proceedings, the Claimants accept that the failure to repay was not an Event of Default within the meaning Anglo Charge.
19. In paragraphs 42 to 50 reference is made to Anglo's well known financial difficulties. As a result of huge trading losses Anglo was taken into the ownership of the Irish State in early 2009. In July 2011 Anglo was renamed Irish Bank Resolution Corporation ("IBRC")
20. On 7 February 2013 the Irish Bank Resolution Corporation Act 2013 ("the 2013 Act") was passed into law in Ireland. The 2013 Act empowered the Irish Minister for Finance to make an order to commence the winding up of IBRC. Pursuant to an order made under the 2013 Act on 7 February 2013 IBRC is now in special liquidation in Ireland.
21. Section 12(1) of the 2013 Act provides:

"The sale or transfer of any asset or liability by IBRC, acting through a special liquidator, or by a special liquidator where such asset or liability has vested in the special liquidator, to any person or the assumption of any obligation or liability relating to such sale or transfer shall take effect notwithstanding—

(a) any provision of any enactment, rule of law, code of practice,

contract, or other agreement—

(i) providing for or requiring—

(I) notice to be given to any person,

(II) the consent, approval or concurrence of any person,

or

(III) any other step, consent, notification, authorisation,

licence or document to similar effect,

or

(ii) prohibiting that sale or transfer,

or

(b) any other legal or equitable restriction, inability or incapacity

relating to the sale or transfer of any asset or liability

or the assumption of any obligation or liability relating

to such sale or transfer."

22. In paragraphs 51 to 57 the Claimants contend that even if no Event of Default has occurred IBRC may under section 12(1) of the 2013 Act sell Mr McKillen's shares in Coroin without the need to serve on him a demand for his indebtedness. In those circumstances it is contended that Mr McKillen's Shareholder Security became enforceable within the terms of clause 6.6 of the Shareholders' Agreement and/or Coroin's Articles of Association.
23. In paragraphs 58 to 60 the Claimants refer to correspondence between the parties' solicitors in which the Claimants' solicitors asserted that Mr McKillen's Shareholder Security became enforceable and in which Mr McKillen's solicitors disputed the claim.
24. In paragraph 61 the Claimants assert that if the court determines that Mr McKillen's Shareholder Security became enforceable the Claimants will requisition the directors of Coroin and invite them to determine that Mr McKillen is deemed to have given a Transfer Notice under clause 6 of the Shareholders' Agreement and/or Article 5.6 of the Articles.
25. The only relief claimed by the Claimants is a declaration that Mr McKillen's Shareholder Security became enforceable within the terms of clause 6.6 of the Shareholders' Agreement and/or Article 5.6.
26. Thus the dispute appears to be between the Claimants and Mr McKillen. The issue is whether Mr McKillen's Shareholder Security became enforceable as a result of section 12 of the 2013 Act. Mr Macdonald QC submits that this does not involve Coroin at all. However, if Mr McKillen's Shareholder Security has become enforceable then under clause 6.6.2 the Directors come under a duty to consider whether to determine that Mr McKillen be deemed to have given a Transfer Notice in respect of his shares. The nature of this duty was considered by Arden LJ in paragraphs 110 – 112 of her judgment in the earlier proceedings:

110. If the directors were to give improper consideration to the question whether to exercise their clause 6.6 power or to prevent a board meeting from being held even on the requisition of a single director under article 88, that might form the substance of a new complaint. However, those circumstances do not exist at the present time.

111. The duties of the directors under clause 6.6 are potentially complex, and were not fully argued. Directors are fiduciaries. They may not use their powers for an improper purpose: see CA 2006, section 171(1)(b). It is in general improper:

'for the directors to use their fiduciary powers over the shares in the company purely for the purpose of destroying an existing majority, or creating a new majority which did not previously exist.'

(see Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 831, 837) .

112. The respondents submit that, where Shareholder Security becomes enforceable, the directors can properly take into account (if it be the case) that the circumstances leading to shareholder security becoming enforceable were trivial or technical (that is, not leading to any enforcement action). They further submit that the directors could wait and see whether the security was in fact enforced, since clause 6.17 would prevent any transfer that overrode the members' pre-emption rights. In my judgment, the court should not express a view on how the directors should make their decision before they have met to do so or decide not to meet to do so. The decision is for them to take in the first instance. If required to do so, the court can then review their decision.

27. It can thus be seen that the question of whether Mr McKillen's Shareholder Security is enforceable is relevant to Coroin because it is the trigger for the directors' powers and duties under clause 6.6.2.

4. Procedural steps

28. The chronology of the procedural steps in the two actions is set out in paragraphs 1 to 5 of Master Bowles's judgment. The Claim Forms were issued on 7 March 2013. They were served together with the Particulars of Claim on Mr McKillen in Ireland and on Coroin at its registered office in early April 2013. Coroin filed Acknowledgments of Service on 4 and 10 April 2013. In each case the Acknowledgment of Service indicated an intention to contest the proceedings. Mr McKillen filed Acknowledgments of Service on 23 and 30 April 2013. In each case he indicated an intention to contest the jurisdiction of this Court. On 7 and 10 May 2013 Mr McKillen issued the application notices which came before Master Bowles on 5 December 2013. Master Bowles reserved judgment and handed down a written judgment on 5 March 2014. The applications were formally dismissed with costs on 8 May 2014.
29. On 6 June 2014 Proudman J adjourned the application for permission to appeal to an oral hearing. That hearing took place before me on 14 November 2014. At the end of the hearing I, too, reserved judgment.
30. Before dealing with the issues it is right that I should acknowledge with thanks the very clear and helpful oral and written submissions that I received from Counsel. In general the preparation for this appeal has been of the highest quality and I have been greatly assisted by it.

5. The Brussels Regulation

31. Whilst Article 6 of the Brussels Regulation is central to the dispute I was referred to various other parts of the Brussels Regulation. Mr MacLean QC referred me to Recitals 2, 6, 8, 11, 12 and 15. Both Mr MacLean QC and Mr Macdonald QC referred me to Article 2.
32. It is pointed out (Recital 2) that provisions to unify the rules of conflict of jurisdiction and to simplify the formalities with a view to rapid and simple recognition and enforcement of judgments in member states are essential. The rules of jurisdiction must (Recital 11) be highly predictable and founded on the principle that jurisdiction is generally based on the Defendant's domicile and jurisdiction must always be available on this ground save in a few well defined situations in which the subject matter of the litigation or the autonomy of the parties warrants a different linking factor. In the interests of the harmonious administration of justice it is necessary (Recital 15) to minimise the possibility of concurrent proceedings and to ensure that irreconcilable judgments will not be given in two Member States.
33. The general rule, which is contained in Article 2, is:

"Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that State."

34. However there are exceptions to the general rule set out in Section 2 headed "Special Jurisdiction". One such exception is Article 6(1) which provides:

"A person domiciled in a Member State may also be sued:

(1) where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims 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".

35. I was referred to a number of authorities on Article 6. These included passages from two leading text books on conflict of laws, the decision of the European Court of Justice in Freeport v Arnoldsson [2008] QB 634 and the decision of the Court of Appeal in Aeroflot v Berezovsky [2013] EWCA 784.
36. As will appear below there is a difference between Counsel as to the effect of the Aeroflot decision.

6. Master Bowles's judgment

37. In his clear and careful judgment Master Bowles held that jurisdiction under Article 6(1) was established.
38. In addition to the claim to jurisdiction under Article 6(1) Master Bowles had to deal with a number of other arguments. He held in paragraph 64 that there was no jurisdiction under Article 5(1). He held in paragraph 76 that there were no compelling reasons to grant a stay to Mr McKillen on case management grounds. There is no appeal from either of these decisions and it is not necessary to refer to them further.
39. In paragraph 37 of his judgment Master Bowles directed himself that the Claimants could only proceed in an English court against Mr McKillen if they could establish much the better of the argument that jurisdiction can be taken by the English court pursuant to Article 6 of the Brussels Regulation.
40. In paragraph 41 he pointed out that the claim is for identical declaratory relief against both Mr McKillen and Coroin. In his view the claims could not be more closely connected. It followed that there was "the plainest risk of irreconcilable judgments and every reason of expediency, therefore, to avoid that risk by ensuring that the two claims be tried together".
41. In paragraph 44 he rejected the submission that Coroin was a nominal Defendant because, as it was said it was taking a neutral position. He pointed out, in paragraph 44, that Coroin had stated it intended to contest the proceedings and, in paragraph 45 that relief was sought against Coroin. In his view, particularly in the context of contentious litigation such as this that it is essential that Coroin is bound by the declarations sought. Thus Coroin is a necessary and proper party to the litigation.

7. The authorities on Article 6

The text books

42. Mr Macdonald QC referred me to Paragraph 2.202 of Briggs and Rees, Civil Jurisdiction and Judgments, Fifth Edition and paragraph 11-320 of Dicey Morris and Collins on the Conflict of Laws Fifteenth Edition.:

"To begin with there must be a genuine claim, or a claim which is properly brought against the defendant who is being sued in the courts of his domicile. It is obvious that the claim against this "anchor" defendant cannot be allowed to be an entirely spurious one, and if there is no proper claim against the one defendant, it will be impossible to satisfy the requirement that it be necessary to hear and determine the claims against the two defendants together to avoid the risk of irreconcilable judgments resulting from separate proceedings"

"Under English law the claimant has to show that there is a real issue on the merits that the court may reasonably be asked to try as to the liability of the additional defendant domiciled in England. If there is no serious issue to be tried against either the anchor defendant or the additional defendant, then there is no risk of irreconcilable judgments."

Freeport

43. The claimant was an employee of a company which carried out retail centre development projects. In the context of negotiations for the transfer of a factory shop in Sweden from that company to an English company it was agreed between the English company and the claimant that he would receive, from the company which was to become the owner of the shop, a success fee on the completion of the project. A subsidiary of the English company, incorporated in Sweden after the making of that agreement, subsequently became the owner of the shop. The claimant, having unsuccessfully claimed payment of the success fee from both the English company and its Swedish subsidiary, brought an action against both of them in Sweden relying on Article 6(1). A number of points were argued. It was argued that as one claim was in contract and the other in tort there was no jurisdiction under Article 6. The ECJ rejected the argument in paragraphs 31 – 47 of the judgment. After drawing attention to the recitals and the fact that the special rules on jurisdiction must be strictly interpreted it said in paragraphs 37 – 40:

37 With regard to the special jurisdiction laid down in Article 6(1) of Regulation No 44/2001, that provision states that a defendant may be sued, where there are a number of defendants, in the courts for the place where any one of them is domiciled, provided "the claims 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".

38 It is not apparent from the wording of Article 6(1) that the conditions laid down for application of that provision include a requirement that the actions brought against different defendants should have identical legal bases.

39 As the court has already held, for Article 6(1) of the Brussels Convention to apply, it must be ascertained whether, between various claims brought by the same plaintiff against different defendants, there is a connection of such a kind that it is expedient to determine those actions together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings: Kalfelis v Bankhaus Schröder Münchmeyer Hengst & Co (Case 189/87) [1988] ECR 5565, para 13.

40 The Court has had occasion to point out that, in order that decisions may be regarded as contradictory, it is not sufficient that there be a divergence in the outcome of the dispute, but that divergence must also arise in the context of the same situation of law and fact: Roche Nederland BV v Primus (Case C-539/03) [2006] ECR I-6535, para 26.

44. The Court also held that there is no need to establish separately that the claims were not brought with the sole object of ousting the jurisdiction of the courts of the member state where one of the defendants is domiciled.

Aeroflot

45. The facts in Aeroflot are complex and are summarised in section I of the judgment of Aikens LJ. I shall not attempt a further summary. It is, however, important to note that Aeroflot had a claim against Mr Berezovsky and Holdings in which it alleged fraud and conspiracy. Mr Berezovsky was domiciled in England and was thus "the anchor Defendant" for the purpose of Article 6. It was not suggested that the claim against Mr Berezovsky was not genuine or bona fide. Holdings was domiciled in Luxembourg. It was Holdings' case that there was no arguable case against it and that accordingly there was no jurisdiction under Article 6. Aikens LJ dealt with that argument in paragraphs 102 – 110 of his judgment.

102. Mr Tregear's argument is that it cannot be "expedient to hear and determine" Aeroflot's claim against Holdings together with those against the individual defendants if, in fact, there is no arguable claim against Holdings. So, it is said, Aeroflot must first of all demonstrate that it has either a "good arguable case" on the merits against Holdings or that there is, at least, a "serious issue to be tried" as between Aeroflot and Holdings. It is said that only if that issue is decided in Aeroflot's favour should the court go on to consider whether there is a sufficient "connection" between Aeroflot's case against the individual defendants and that against Holdings to enable Aeroflot to establish the English court's jurisdiction in relation to Holdings pursuant to Article 6(1).…

105. From this Mr Tregear seeks to draw the general proposition that in a case where a claimant wishes to serve proceedings (without needing permission) on a defendant pursuant to the Judgment Regulation and CPR Pt 6.33, on the basis that Article 6(1) of the Regulation applies, then, as a matter of English procedural law, there is a requirement that the claimant must establish that there be a "good arguable case" or a "serious issue to be tried" as against that defendant, or else the service on the foreign defendant must be set aside. …

106. I do not accept that such a broad proposition can be derived from the Chefaro case. First, in principle it is inappropriate simply to import into Judgment Regulation cases all or part of the tripartite test established in cases where CPR Pt 6.36 and PD 6B applies (ie. where permission to serve out of the jurisdiction is needed). This is because in a Judgments Regulation case (or a Lugano Convention case), I think that the sole question that has to be decided at this "jurisdiction" stage in the proceedings is that stated by Lord Rodger of Earlsferry in the Bols Distilleries case:^[1] ie. whether the court is satisfied "…or as satisfied as it can be having regard to the limitations which an interlocutory process imposes, that factors exist which allow the court to take jurisdiction". The standard of "satisfaction" is that of a "good arguable case", as the Privy Council decided in the Bols Distilleries case.

107. Secondly, the ECJ has stated in Freeport plc v Arnoldsson^[2] that in an Article 6(1) case, it is for the national court to determine a single question: whether there is a connection between the different claims brought before it, "…that is to say, a risk of irreconcilable judgments if those claims were determined separately…". To determine this question, the national court must "take account of all the necessary factors in the case file", which may require it to take into consideration also the legal bases of the actions brought before the court. The ECJ also held in that case^[3] that, where it is asserted that the national court has jurisdiction by virtue of Article 6(1), the national court should not concern itself with the question of whether the claim against the non-resident defendant was brought in those proceedings with the sole object of ousting the jurisdiction of the court of the Member State where that defendant is domiciled. The ECJ therefore specifically rejected the proposition that the national court should consider and decide whether other possible motives for bringing that defendant into the proceedings should be taken into account. The judgment does not indicate, at any stage, that the national court has to assess the merits of the claimant's case against the non-domiciled defendant. The whole approach of the ECJ seems to me to be consistent with the principle that the Judgments Regulation is only concerned with the basis for establishing jurisdiction and has nothing to do with assessing the merits of the claims against the various defendants.

108. Thirdly, in the Chefaro case itself, it is not clear whether the basis for the English court's jurisdiction was the Brussels Convention equivalent of Article 6(1) or Article 22(4) of the Judgments Regulation. So it is not clear that this Court was attempting specifically to impose a further test in relation to Article 6(1). Moreover, the case on which the court relied for the imposition of a "good arguable case" test as to the merits, Unilever plc v Gillette (UK) Ltd,^[4] was not a Brussels Convention case. The foreign defendant in that case was a US company, so that leave to serve out was needed under the non-Convention procedure then to be found in RSC Order 11 rule 1. Under that regime, (as Mustill LJ noted in his judgment in Uniliver v Gillette) it was long established that there had to be a "good arguable case" on the merits before leave to serve out would be granted.

109. I would, if necessary, distinguish the Chefaro case on its facts, because it is clear that the prime motivation for including the second defendant in the proceedings was to obtain discovery and the court held that this was not good enough. But, in any event, I think that a straightforward requirement that, in an Article 6(1) case, the claimant must establish a "good arguable case" or "serious issue to be tried" against the non-domiciled defendant is inconsistent with the "autonomous" construction of Article 6(1) taken by the ECJ in Freeport plc v Andersson. Insofar as the Forus argument might be that Aeroflot has joined Holding so as to establish English jurisdiction and to avoid the Luxembourg court having jurisdiction in any dispute against Holdings, that consideration is impermissible, as Freeport plc v Arnoldsson makes plain.

105.Accordingly, I reject Mr Tregear's submissions on this issue. I would, however, accept that, in principle, it must be open to Holdings, once the jurisdiction issues have been determined, to attempt to strike out Aeroflot's claim against it. That may be difficult where, as here, the claim is based on foreign law, which itself would therefore involve determination of issues of "fact". But that is for another day.

46. In paragraph 111 of the judgment Aikens LJ set out the test to be applied in the following terms:

111. I move on then to what I regard as the sole question to be answered so far as Holdings is concerned: has Aeroflot demonstrated a "good arguable case" in the sense that it has shown that it has "the better of the argument" that there is a connection between the different claims brought before the English court so that "…there would be a risk of irreconcilable judgments if those claims were determined separately…"? To determine this question, the national court must "take account of all the necessary factors in the case file", which may require it to take into consideration also the legal bases of the actions brought before the court. In my view Aeroflot has plainly satisfied this test. The "anchor" claim of Aeroflot to establish the English court's jurisdiction is that against the individual defendants and that case is based on an allegation of a conspiracy. The anchor claim relies primarily on breaches of Russian law. That claim will remain before the English court, despite the removal of the claims against Services and Cyprus if my views are shared by my colleagues.

Sabbagh v Khoury [2014] EWHC 3233 (Comm)

47. Sabbagh is a recent decision of Carr J given after the decision in Aeroflot. In paragraphs 97 – 99 of her judgment Carr J said:

97. As is already apparent, the existence of a triable claim against Wael is the gateway to jurisdiction. Without such a claim, not only will the claim against Wael itself be abusive, but it will not be expedient for his co-defendants to be sued here and extraterritorial jurisdiction against them will not be established. Dicey, Morris & Collins on the Conflict of Laws (15^th Edn) ("Dicey") put it in this way (in rule 35) :

"…

98. The well-established practice of the English courts is thus to establish whether there is a real claim against the anchor defendant, that is to say a claim with a real prospect of success. There needs to be proper scrutiny in this regard. As Lloyd LJ said in Golden Ocean Assurance Ltd v Martin (The Golden Mariner) [1990] 2 Lloyd's Rep 215 at 222 (cited with approval in Altimo Holdings v Kyrgz Mobil Tel Ltd (supra) at paragraph 73) :

"I agree…that caution must always be exercised in bringing foreign defendants within our jurisdiction under Ord 11 r 1(1)c). It must never become the practice to bring foreign defendants here as a matter of course, on the ground that the only alternative requires more than one suit in more than one different jurisdiction."

99. But the test remains whether or not there is a serious issue to be tried (see Altimo Holdings v Kyrgz Mobil Tel Ltd (supra) per Lord Collins at paragraph 68). This engages the test for summary judgment under CPR Part 24. The claimant must show some real prospect of success. The court will disregard prospects which are false, fanciful or imaginary. Where extremely serious allegations are made, the proof to establish that there is a serious issue to be tried must be commensurate to the seriousness of the allegation (see Ashton Investments Ltd v Rasal [2006] EWHC 2545 (Comm)).

8. Submissions

Mr Macdonald QC's submissions

47. Mr Macdonald QC's submissions covered three areas. First, he submitted that it was relevant and necessary to consider whether there was a genuine claim against Coroin, the anchor Defendant. He supported this by reference to the passages from the two text books referred to above, to two quotations from cases at first instance – ET plus SA and others v Welter and Others [2006] ILPr 18 and Brown v Innovatorone Plc (in Liquidation) [2010] EWHC 2281 (Comm) and to the passages from the judgment of Carr J in Sabbagh.
48. He submitted that the decision in Aeroflot does not change that position. In their skeleton argument Mr Macdonald QC and Miss Allsop put the matter in this way:

In Aeroflot, the Court of Appeal held that the claimant had demonstrated a good arguable case for the purposes of article 6(1) that the connection between the different claims brought before the English court gave rise to a risk of irreconcilable judgments if those claims were determined separately. In those circumstances, the Court of Appeal held that the Claimant did not have to establish as an additional requirement, that there was a serious issue to be tried against the non-domiciled defendant (emphasis added). The decision is not, as the Claimants appear to be saying, authority for the proposition that in determining whether the requirements of article 6(1) are met, the court should disregard the merits of the claim against the anchor defendant.

49. Second he submitted that Master Bowles failed to apply proper scrutiny to the question of whether there was a genuine claim against Coroin. He submitted that as the only relief claimed was a declaration that Mr McKillen's Shareholder Security had become enforceable Coroin was not a proper contradictor to that declaration. The question of whether the directors of Coroin determine that Mr McKillen is deemed to have given a transfer Notice is a separate and future question which does not fall for determination in these proceedings.
50. He points out that Coroin is ultimately controlled by the Claimants. In those circumstances he submits that the prospect of a dispute between the Claimants and Coroin is fanciful and thus it cannot be said that there is a risk of irreconcilable judgments arising from the present proceedings.
51. Third, he submitted that that a declaration will not be made unless the Claimant can " … secure a proper contradictor, that is to say, someone presently existing who has a true interest to oppose the declaration sought" (per Lord Dunedin in Russian Commercial and Industrial Bank v. British Bank for Foreign Trade [1921] 2 AC 438, at p. 448, per Lord Dunedin). It followed that a declaration directly affecting the rights of Mr McKillen could not properly be granted in proceedings to which he was not a party, and in which Coroin only was Defendant.

Mr MacLean QC's submissions

52. Mr MacLean QC submitted that the merits of the claim against the anchor Defendant are irrelevant. Thus in paragraphs 46 and 47 of their skeleton argument Mr MacLean QC and Mr Fealy QC cite Aeroflot as authority for the proposition:

In any event, Mr McKillen's case on article 6(1) is based on a fundamental misunderstanding of the scope of that article. Unlike the position under the provisions of the CPR dealing with leave to serve out, the merits of the claim against the anchor defendant domiciled in England are irrelevant to whether the court can take jurisdiction over a defendant such as Mr McKillen under article 6(1).

53. In his oral submissions Mr MacLean QC accepted that the Aeroflot decision was concerned with the genuineness of the case against the non-domiciled Defendant. However, he submitted that by parity of reasoning the decision applied with equal force in respect of the case against the anchor Defendant.
54. Second he submitted that Coroin was not a mere nominal Defendant. He submitted that Master Bowles correctly applied the terms of Article 6(1) in reaching his conclusions that there would be the plainest risk of irreconcilable judgments if the claims were to proceed separately. He submitted that Coroin is manifestly a necessary party to the claims brought.
55. The neutrality of Coroin is irrelevant. The question is whether the requirements of Article 6(1) were met at the claim forms were issued.
56. Third, he submitted that the question whether a declaration can be made in proceedings to which Mr McKillen is not a party was not raised before Master Bowles. In those circumstances Mr McKillen should not be permitted to raise it on appeal. It was, in any event, a hopeless point because the law relating to declaratory judgments is now much wider than it used to be in the 1920s.

9. Discussion and Conclusions

57. In my view the points raised by Mr Macdonald QC on behalf of Mr McKillen are well arguable. Furthermore it is by no means clear that Mr Macdonald QC's third point was not taken before Master Bowles. It is not a point that has taken Mr MacLean QC by surprise and it has been fully argued before me.
58. In those circumstances I propose to grant Mr McKillen permission to appeal and to permit (insofar as permission is necessary) him to raise the point about the scope of declaratory relief.
59. It is convenient to start by considering the claims against Mr McKillen and Coroin. I do not accept Mr Macdonald QC's submission that the primary dispute is between the Claimants and Mr McKillen. The Claimants are not parties to the Anglo Charge and have no rights to enforce it. The only relevance of the question of whether Mr McKillen's Shareholder Security has become enforceable is in relation to their rights under clause 6.6 of the Shareholders' Agreement and/or Article 5.6 of the Articles. If it has become enforceable the directors of Coroin can be requisitioned to consider whether Mr McKillen is deemed to have served a Transfer Notice in respect of his shares. If it has not they cannot.
60. Thus, as it seems to me, Coroin is as interested as the Claimants in knowing whether Mr McKillen's Shareholder Security has become enforceable. Both need to know whether the directors can be requisitioned in accordance with clause 6.6/Article 5.6. In my view both are proper parties to the proceedings.
61. Equally I do not accept that there is no risk of irreconcilable judgments. As Master Bowles pointed out the claims are closely connected in that they raise exactly the same issue – whether Mr McKillen's Shareholder Security has become enforceable. If, for example, in proceedings to which Coroin was not a party an Irish Court were to decide that it had not become enforceable there would be nothing to stop the directors of Coroin taking a different view. This could lead to separate proceedings in an English Court with the English Court reaching the opposite conclusion. The fact that the Claimants have a controlling interest in Coroin does not affect this.
62. It follows that I agree with Master Bowles that Coroin is a party with a real (rather than a nominal) interest in the litigation. The proceedings against Coroin can in no sense be described as abusive. The issue is one in which Coroin has a real interest in the outcome. I also agree that the issues 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
63. Whilst I accept that the absence of a relevant party is a factor against making a declaration in matters that affect his rights it does not, in my view, follow that if he is given the opportunity to make representations the Court will not make such a declaration.
64. I was referred to the 2014 edition of the White Book. The power to make declaratory judgments is conferred by CPR 40.20. The notes on p 1318 contain a number of observations:

The power to make declarations is a discretionary power. As between the parties to a claim, the court can grant a declaration as to their rights, or as to the existence of facts, or as to a principle of law (Financial Services Authority v Rourke [2002] CP Rep 14 (Neuberger J.)). When considering whether to grant a declaration or not, the court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose, and whether there are any other special reasons why or why not the court should grant the declaration. …

In the Supreme Court Practice 1999, the commentary following RSC Ord.15 r.16, was extensive (see Vol.1, paras 15/16/1 to 15/16/10 and para.19/7/15). That material, much of which was illustrative of the exercise of the court's discretion in this respect, is not repeated here. In modern times, declaratory relief in relation to commercial disputes and judicial review has developed significantly, and much of the old authority should be treated with caution.

In succinctly stating and explaining the principles to be applied, Aikens LJ. noted that the circumstances in which the court will be prepared to grant declaratory relief have been widened considerably in modern times

65. Furthermore as Mr MacLean QC and Mr Fealy QC point out in paragraph 58 of their skeleton argument the court now adopts a pragmatic approach to the circumstances in which declaratory relief is granted.
66. In the circumstances I do not accept that it follows that the claim against Coroin for a declaration was bound to fail.
67. In the circumstances I agree with Master Bowles that the requirements of Article 6(1) are met and that he was right to dismiss the applications.
68. My conclusion that Coroin is not a nominal Defendant and is a proper party to the proceedings makes it unnecessary to decide the difficult question of the scope of the decision in Aeroflot. Mr MacLean QC's submissions are extremely wide ranging involving, as they must, the submission that the two leading text books need to be reconsidered in the light of the judgment of Aikens LJ and that the decision of Carr J (which came after Aeroflot and which referred to it) was either wrong or made "per incuriam". It is also to be noted that in Aeroflot Aiken LJ was dealing with the foreign rather than the anchor Defendant. Thus the decision is not directly in point.
69. Any view I express would necessarily be obiter. Furthermore, as I understand the position, I should follow Carr J unless convinced she was wrong. Whilst it is unnecessary to express a final opinion I am far from convinced that Carr J was wrong. Thus my provisional view is that if I had not been satisfied as to the genuineness of the claim against Coroin I would have allowed the appeal.
70. In the result the appeal will be dismissed.

Note 1   [2007] 1 WLR 12 at [28].    [Back]

Note 2   [2008] QB 634 at [41] and [47].    [Back]

Note 3   At [54].    [Back]

Note 4   [1989] RPC 583.    [Back]