England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		18 December 2003

Mr Justice Toulson :
1. This is an application by the defendant, Engelhard, to set aside an order of David Steel J, dated 24 June 2003, giving permission under CPR rule 6.20 (5) (c) and (d) for service of proceedings on Engelhard in Japan. Under those provisions the court may permit a claim form to be served out of the jurisdiction if the claim is in respect of a contract which is governed by English law or it contains a term that the court shall have jurisdiction to determine a claim in respect of it.
2. In this case there are separate claims in respect of four contracts. The parties are both dealers in metals and the contracts were for the sale of cobalt by Engelhard to MRG.
3. Each contract contained a term stating:

This contract will be governed and construed in accordance with the laws of England and the parties to this contract hereby submit to the exclusive jurisdiction of the English courts.

4. The contracts are referred to in the particulars of claim as contracts 1, 2, 3 and 4. The earliest was contract 4, dated 9 July 1997. The contract was performed, but MRG has a small quality claim. Contract 2, dated 14 November 1997, was for the supply of 300 MT of cobalt. Contract 3, dated 26 December 1997, was for a similar amount. Contract 4, also dated 26 December 1997, was for the supply of 20 MT. MRG's claims under contracts 1,2 and 3 are for damages for their total non-performance.

The rules

5. Rule 6.21(1) provides that an application for permission to serve a claim form out of the jurisdiction must be supported by written evidence stating:

(a) the grounds on which the application is made and the paragraph or paragraphs of rule 6.20 relied on; and

(b) that the claimant believes that his claim has a reasonable prospect of success.

6. Rule 6.21(2A) further provides that the court will not give permission unless satisfied that England and Wales is the proper place in which to bring the claim.
7. Although there are textual differences between rules 6.20 and 6.21 and the former provisions of RSC Order 11, the differences are not intended to reflect any change in the underlying principles to be found in the decisions of the House of Lords in Seaconsar Far East Limited v Bank Markazi Jomhouri Islam Iran [1994] 1 AC 438 and Spiliada Maritime Corp v Consulex Limited (The Spiliada) [1987] AC 460.
8. An applicant for permission to serve out of the jurisdiction has to establish three matters.
9. First, the applicant must show in respect of each claim that he has a "good arguable case" that it falls within a relevant sub-paragraph of rule 6.20: Seaconsar. This is a less stringent test than requiring proof on the balance of probabilities.
10. Secondly, the applicant must show that there is a serious issue to be tried in respect of each claim which he is seeking to make. The "merits threshold" under this test is the same as if the claimant were resisting an application by the defendant for summary judgment under rule 24.2: De Molestina v Ponton [2002] 1 Lloyd's Rep 271. This is reflected in the requirement, by rule 6.21(b), for the applicant to provide evidence that he believes that his claim has "a reasonable prospect of success" – the antithesis of a claim which has "no real prospect of succeeding" and is therefore liable to summary dismissal under rule 24.2. The underlying rationale is that the court should not subject a foreign litigant to proceedings which the defendant would be entitled to have summarily dismissed.
11. Thirdly, the applicant must persuade the court that England is clearly the appropriate forum.

The Admiralty and Commercial Courts Guide

12. Appendix 15 to the guide gives the following guidance on the written evidence which should support an application for permission to serve out of the jurisdiction:

On applications for permission under rule 6.20 the written evidence must, amongst other things:

(i) identify the paragraph or paragraphs of rule 6.20 relied on as giving the court jurisdiction to order service out, together with a summary of the facts relied on as bringing the case within each such paragraph;

(ii) state the belief of the deponent that there is a good claim and state in what place or country the defendant is or probably may be found;

(iii) summarise the considerations relied upon as showing that the case is a proper one in which to subject a party outside the jurisdiction to proceedings within it;

(iv) draw attention to any features which might reasonably be thought to weigh against the making of the order sought;

(v) state the deponent's grounds of belief and sources of information;

(vi) exhibit copies of the documents referred to and any other significant documents.

The affidavit in support of MRG's application for permission for service out of the jurisdiction

13. The affidavit in support of MRG's application was quite short. It was sworn by an assistant solicitor employed by MRG's solicitors. She referred to the particulars of claim (to which the four contracts were annexed), drawing attention to the governing law and jurisdiction clause, and continued:

10 – All the claims are in respect of contracts, each of which contracts contains an English jurisdiction clause. The intended claimant has a good cause of action against the intended defendant in respect of each of the claims. The claimant believes that it has a reasonable prospect of success in respect of each of the claims. There is between the intended claimant and the intended defendant a real issue which the intended claimant may reasonably ask the court to try for the reasons indicated above.

11 – In the circumstances, I believe that the intended claimant has a reasonable prospect of success.

12 – Further, I believe that the English courts are clearly the proper place for this application [presumably a misprint for action] to be heard, in the light of the provisions made at clause 4 of the special conditions of contract 1 and 2 and the quality claim contract, and clause 3 of the special conditions of contract 3. [This was a reference to the governing law and jurisdiction clause.]

14. The affidavit was silent about the background to the dispute or any potential defences which Engelhard might have. In my experience it was not unusual in that regard.

The application to set aside

15. In Engelhard's written application to set aside the order of David Steel J, the grounds were stated to be that:

i) There was substantial non-disclosure by the claimant to the court of facts relating to the background to the contracts between the claimant and the defendant, and such non-disclosure is sufficiently serious for such relief to be granted;

ii) The claimant has provided no explanation as to why it has taken over five years to bring these proceedings and the delay is seriously prejudicial to the defendant;

iii) Japan is the appropriate forum for the resolution of this dispute.

16. With realistic judgment, Mr Gruder QC on behalf of Engelhard did not pursue the third ground, nor did he pursue the second ground as a matter independent of the first. His argument in relation to the second ground was that MRG should have explained to the court not only what the dispute was all about but also why it had taken so long to issue proceedings.
17. It is not disputed that MRG has a good arguable case that the claims fall within rule 6.20(5) (c) and (d), and that they raise serious issues to be tried.
18. The application to set aside is therefore based squarely on the allegation of non-disclosure. Mr Gruder fairly acknowledged that if all the matters which Engelhard says ought to have disclosed to David Steel J had been disclosed, the judge would probably have felt that he had to give the permission which he gave, but Mr Gruder submitted that this was not to the point. The obligations on a party making a without notice application are strict and to be strictly enforced. (If anyone wondered why the point is being argued in circumstances where MRG could make a fresh application to serve proceedings out of the jurisdiction, the explanation is that both sides foresee that MRG could have difficulties because of the limitation period and potential problems of service.)

The matters which Engelhard say ought to have been disclosed

19. The application to set aside was supported by a witness statement of Mr Michael Hassett, an associate general counsel with Engelhard's parent company. He was involved in investigating losses of around US$60 million suffered by Engelhard from dealings with a company, Kanto, and related parties in Japan in the years leading up to 1998. His witness statement tells a complicated story of fraud. Kanto inflated its turnover by a series of fictitious paper transactions purporting to be sales and purchases of valuable metals. Engelhard was one of the companies involved in the chain. It is alleged that Engelhard's managing director, Mr Saito, had a corrupt relationship with Kanto. It is alleged that contracts 1,2 and 3 can only be properly understood against the background of fraudulent dealings between Kanto and Engelhard, in which Mr Saito was complicit. It is alleged that the object of these contracts was to interpose Engelhard between Kanto (or another conspirator company, IDIC) and MRG in order to insulate MRG from the substantial risks of direct dealing with Kanto. According to Engelhard, it is to be inferred from all the circumstances that MRG's representatives, Mr Rami Weisfish and Mr Gavin Sanderson, were aware that Mr Saito was acting in breach of his fiduciary duties to Engelhard in entering into the contracts. Engelhard is accordingly entitled to treat those contracts (including their choice of law and jurisdiction clauses) as void.
20. It is also said that MRG knew of the position which Engelhard was taking in relation to the contracts from an acrimonious meeting in February 1998 between Mr Weisfish and representatives of Engelhard and subsequent correspondence between lawyers acting for the parties. It is contended that MRG ought to have disclosed all these matters and to have explained why no steps had been taken to prosecute its claims for over five years.
21. Mr Hassett's witness statement was answered by witness statements from Mr Weisfish and Mr Sanderson, to which Engelhard responded with a further witness statement from Mr Hassett and other evidence.
22. There were three main strands of argument at the hearing. They related to the rules about disclosure; what information was relevant to be given to the judge; and MRG's knowledge of potential defences.

The rules about disclosure

23. The starting point is that an applicant for an order on a without notice application must make full and frank disclosure of all material facts, that is, facts known to the applicant which might reasonably be taken into account by the judge in deciding whether to grant the application: R v Kensington Income Tax Commissioners ex parte Princess Edmund De Polignac [1917] 1 KB 486, 514 (Scrutton LJ); Siporex Trade SA v Comdel Commodities Limited [1986] 2 Lloyd's Rep 428, 437 (Bingham J); Brink's Mat Limited v Elcombe [1988] 1 WLR 1350, 1356 (Ralph Gibson LJ).
24. It is for the court to determine what is material according to its own judgment and not the assessment of the applicant: Brink's Mat Limited v Elcombe. This means that if the court considers there to have been material non-disclosure, it is not an answer that the applicant in good faith took a different view, although that may affect the court's exercise of its discretion in deciding what to do in the light of the non-disclosure. It does not mean that an applicant is under a duty to disclose facts which could not reasonably have a bearing on the decision which the judge has to make.
25. Materiality therefore depends in every case on the nature of the application and the matters relevant to be known by the judge when hearing it. I was referred to a number of statements on the duty of disclosure in the context of applications for freezing injunctions. In such cases the court is being asked to make an order of an exceptional kind, prohibiting or restricting a defendant's use of its own assets before any adjudication has been made against it. Because of its draconian nature, it is a jurisdiction which requires great caution and a wide range of factors may have a bearing on the court's decision.
26. An application for permission to serve out of the jurisdiction is of a very different nature. The general principles about disclosure on without notice applications still apply, but the context is different. The focus of the inquiry is on whether the court should assume jurisdiction over a dispute. The court needs to be satisfied that there is a dispute properly to be heard (i.e. that there is a serious issue to be tried); that there is a good arguable case that the court has jurisdiction to hear it; and that England is clearly the appropriate forum. Beyond that, the court is not concerned with the merits of the case.
27. Authority supports this approach. In BP Exploration Co (Libya) Limited v Hunt [1976] 3 AER 879 (which concerned an application for leave to serve out of the jurisdiction) Kerr J said at 893:

In my view, a failure to refer to arguments on the merits which the defendant may seek to raise in answer to the plaintiff's claim at the trial should not generally be characterised as a failure to make a full and fair disclosure, unless they are of such weight that their omission may mislead the court in exercising its jurisdiction under the rule and its discretion whether or not to grant leave.

28. In The Electric Furnace Co v Selas Corporation of America [1987] RPC 23, 29 Slade LJ said that where there was no deliberate intention to mislead the court he agreed with those observations of Kerr J. Mr Gruder sought to rely on Slade LJ's words as cutting down what Kerr J had said. Slade LJ was recognising that simple non-disclosure is to be differentiated from a deliberate intention to mislead a court by a combination of things said and left unsaid. In the present case there is no reason to doubt the truthfulness of MRG's evidence in support of its application for permission to serve out of the jurisdiction that it believed that it had a reasonable prospect of success in respect of its claims. As I have remarked, it is not in dispute that it has indeed a reasonable prospect of success within the meaning of the rules. The question at issue is whether MRG had a duty to disclose facts tending to show that Engelhard had or might have a reasonable prospect of success in defending the claims.
29. If MRG was aware of matters which might reasonably have caused the judge to have any doubt whether he should grant permission to serve out of the jurisdiction, those would have been relevant matters and therefore ought to have been disclosed. This must be so in principle, and it is implicit in the authorities to which I have referred.
30. However, Mr Gruder submitted that the duty of disclosure was wider. He submitted that if an applicant knew matters which would not on any reasonable view make any difference to whether there was a serious issue to be tried, or to any of the other questions which the judge had to consider, but which were relevant to the ultimate merits of the action, they must be disclosed. To the question "why?", Mr Gruder's answer was that:

i) it is for the court and not for the applicant to decide what is material and

ii) anything which is relevant to the merits of the claim is potentially relevant to the matters which the judge has to consider.

I do not accept that submission. The first proposition is correct, but Mr Gruder seeks to apply it in such a way as to enlarge the test of materiality. It is for the court to determine what is material, but the test of materiality is that to which I have referred: whether the matter might reasonably be taken into account by the judge in deciding whether to grant the application. The second proposition goes too far. There may be many points which would be relevant to the ultimate merits of an action, but which could not on any reasonable view affect the judge in deciding the "merits threshold" question (or the ultimate question whether to grant the application).

31. Mr Gruder submitted that if the applicant is not required to disclose all matters which go to the merits of the action, but only those matters which go to the questions whether there is a serious issue to be tried, whether the court has jurisdiction to hear it and whether England is clearly the appropriate forum, the result will be to reduce the judge's role on such an application to a "rubber stamping" exercise. I would not agree with that description, although I do agree that the issues which the judge is required to consider are limited. This is because the judge is at this stage concerned with the question whether the court should assume jurisdiction, rather than with the question who is likely to win.
32. It is also right to bear in mind the overriding objective of the Civil Procedure Rules and practical considerations. If an applicant for permission to serve out of the jurisdiction is required not only to show that the claim raises a serious issue to be tried, but also to make full and fair disclosure about possible defences available to the defendant, notwithstanding that such information would not affect the question whether there is a serious issue to be tried, the question will arise (as it has arisen in this case) what amounts to full and fair disclosure.
33. Mr Gruder submitted that MRG ought to have set out in detail the background history about relations between the parties, Kanto and associated companies, to which I have referred only in brief outline. If so, the judge considering the application would have had to read a lot of material which (I can say from reading it) could not even arguably have affected his decision making process.
34. Before the hearing it took me about 3 hours to digest the evidence, with the assistance of detailed skeleton arguments. To have required the substance of that evidence to be put before the judge on the application for permission to serve out of the jurisdiction would have added to the costs of the application, and to the burden on the judge, for no beneficial purpose. Time in the Commercial Court is a precious commodity, and the purpose of sparing the judge from reading unnecessary material is to enable judicial time to be used productively.
35. The alternative of a brief summary would be less burdensome, but no more beneficial. Moreover it would be most undesirable if a short summary were to provoke satellite disputes about whether the extent of the disclosure had been sufficiently full and fair.
36. Appendix 15 to the Admiralty and Commercial Courts Guide gives good guidance about the evidence which should support an application for permission to serve out of the jurisdiction. The guidance focuses on the matters which the judge will need to take into account in deciding whether it is a proper case in which to give permission. I conclude that MRG was not obliged to set out matters which would go no further than showing that Engelhard had or might have arguable grounds for disputing the validity of the contracts or some of them.

What information was relevant to be given to the judge

37. In view of that conclusion, I can deal with the evidence on this matter shortly.
38. Many of the issues raised in the witness statements could only be resolved at a trial. However, there is no dispute that at least one of the contracts (contract 3) replaced a similar contract between MRG and Kanto, which was simultaneously cancelled. It is also accepted that by that time MRG suspected Kanto of being involved in fraudulent activities, of which MRG was a possible victim. MRG was concerned about the extent of its exposure to Kanto and about Kanto's credit worthiness. It is MRG's case that Mr Weisfish and Mr Sanderson told Mr Saito in the negotiations which led to contract 3 that they were concerned about Kanto's credit worthiness and MRG's exposure to Kanto, but did not discuss Kanto's probity.
39. Engelhard's case, as it came to be summarised by Mr Gruder in his submissions, is that there could not have been an honest commercial explanation for Mr Saito agreeing to commit Engelhard to a contract with MRG in place of Kanto, and that Mr Weischfish and Mr Sanderson must have known that he was acting in breach of fiduciary duty. This is strongly denied by MRG. Mr Weischfish and Mr Sanderson say that they had no reason to know at that time that Mr Saito was acting in fraud of his principal. They had no knowledge of the state of dealings between Kanto and Engelhard and had no reason to doubt that Mr Saito saw sound commercial reasons for acting as he did. He had reason to anticipate making a profit. This is plainly not a matter on which a court could, or should attempt to, form a view at this stage of the proceedings.
40. If at the time of the application for permission to serve out of the jurisdiction MRG had been aware that Engelhard might advance the line of defence to which I have referred, I am not persuaded for the reasons stated that it was MRG's duty to place such matters before the court.

MRG's knowledge of potential defences

41. At the acrimonious meeting in February 1998 to which I have referred, Engelhard accused Mr Weisfish, in effect, of being in a conspiracy with Kanto and of taking advantage of Mr Saito. Mr Weisfish's evidence is that he regarded the allegation as baseless and offensive. Some sabre rattling correspondence followed between lawyers for the parties. MRG threatened to sue for defamation and for breach of contract. Engelhard responded that such claims would be defended. No further action was taken by MRG for several years.
42. There is now no assertion of a fraudulent conspiracy between MRG and Kanto. The allegation that MRG conspired with Kanto to take advantage of Mr Saito is an allegation of a different kind from the allegation that MRG must have appreciated that Mr Saito was acting in breach of fiduciary duty to Engelhard. There is no evidence for concluding that MRG ought to have anticipated at the time of its application for permission to serve out of the jurisdiction that Engelhard would advance the defence now put forward.

Conclusion

43. It follows that the application to set aside the order of David Steel J fails. If I had concluded that there had been wrongful non-disclosure, I would still have declined to set aside the order, because I would have regarded such a step as disproportionate and contrary to the overriding objective of dealing with the case justly. If there are serious issues to be tried, arising out of contracts containing English choice of law and jurisdiction clauses, and in respect of which England is clearly the appropriate forum, it would not advance the objective of dealing with the case justly to decline jurisdiction. In the absence of any intention on the part of MRG to mislead the court, non-disclosure could be penalised without prejudicing that objective by some form of costs sanction.