Kolden Holdings Ltd v Rodette Commerce Ltd & Anor

This is a dispute about forum. Rodette Commerce Ltd and Taplow Ventures Ltd (“the appellants”) and the respondent Kolden Holdings Limited (“Kolden”) are companies which are owned by opposing Russian interests. But, no doubt for reasons connected with rates of taxation for non-resident companies, and other benefits conferred on international business companies, each of them is incorporated in the Republic of Cyprus.

At the heart of the commercial dispute between the parties are allegations concerning breach of agreements about the transfer of shares in a Russian company. The agreements are expressly governed by English law, and contain a submission to the non-exclusive jurisdiction of the English court. There is no connection with Cyprus except for the fact that the companies involved are incorporated there.

In February 2007 the appellants commenced proceedings in Cyprus for declarations that (inter alia) they are not liable to Kolden and other companies from which it took an assignment of rights in the contracts out of which the dispute arises.

The appellants claim that their Cyprus proceedings should have priority over English proceedings commenced in July 2006. Kolden claims that the English proceedings should have priority. Kolden is an assignee of the original claimants in the English proceedings and was substituted as claimant in those proceedings after the commencement of the appellants’ Cyprus proceedings. The point of law which arises on this appeal is whether the parties to the English proceedings and the parties to the Cyprus proceedings are the “same parties” for the purposes of Article 27 of the Council Regulation 44/2001 (EC) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“the Judgments Regulation”), which gives priority to the courts of the Member State which is first seised.

The proceedings in Cyprus are for negative declarations. For the purposes of Article 27 of the Judgments Regulation (and its predecessor, Article 21 of the Brussels Convention) the European Court has held that an action for a negative declaration involves the “same cause of action” as a claim to establish liability: Case 144/86Gubisch Maschinenfabrik v Palumbo [1987] ECR 4861. In that case the proceedings for the negative declaration were not the first in time, and the ruling meant that the substantive proceedings had priority. But in Case C-405/92The Tatry [1994] ECR I-5436 the reasoning was applied to give priority to the action for a negative declaration which was commenced first.

When I asked Mr Bernard Eder QC, who appeared for the appellants, what possible advantage his clients might obtain from having the proceedings in Cyprus, not only was he without instructions, but he was unable to suggest any possible advantage they might have from suing in Cyprus.

About 20 years ago Kerr LJ said that claims for negative declarations, in particular, “must be viewed with great caution in all situations involving possible conflicts of jurisdictions, since they obviously lend themselves to improper attempts at forum shopping”: The Volvox Hollandia [1988] 2 Lloyd’s Rep. 361, at 371. Although that is not always the case (see Messier Dowty Ltd v Sabena SA [2000] 1 WLR 2040, para 36), it is hard to resist the conclusion that the present case is one of the use of a claim for negative declarations to wrest jurisdiction from the natural forum.

There was a one day hearing before Aikens J in June 2007, and he gave judgment in July 2007. He gave permission to appeal, and there was a one day hearing before this court in December 2007. It is apparent from the costs schedules presented to this court that the legal costs for these hearings have been, in aggregate, at least £400,000.

Kolden is or was beneficially owned by Russia Partners Company LP (“Russia Partners”), a limited partnership incorporated in Delaware. It is an investment fund which specialises in investments in Russia. Russia Partners incorporated companies in Cyprus to act as special purpose vehicles for its investments in Russia. Three of them were Amherst Capital Investments Ltd (“Amherst”), Hensher Enterprises Ltd (“Hensher”) and Conway Holdings Ltd (“Conway”). In addition to Kolden, another associated company is relevant to the present proceedings, Serpell Holdings Ltd (“Serpell”). Russia Partners was at one stage the beneficial owners of all these companies.

Amherst, Hensher and Conway between them held 38.71% of the shares of OAO Maltsovsky Portlandcement (“Maltsovsky”), a joint stock company incorporated under Russian law. Kolden and Serpell are the owners of shares in another Russian company called OAO Eurocement, which is also known and referred to as JSC Eurocement (“JV”). It is one of the largest cement producing companies in Russia. In 2004 Russia Partners indirectly held a minority stake of 44.4% of the shareholding of Eurocement.

The appellants are companies incorporated in Cyprus. Kolden claims the ultimate beneficial owner of the appellants is Mr Filaret Galchev, who is said to be the ultimate beneficial owner of the majority shareholding in JV.

On March 18, 2004 Amherst, Hensher and Conway entered into four Agreements for the sale of their combined shareholding in Maltsovsky to the appellants. All the contracts are in the form of a Securities Sale and Purchase Agreement (the “SPAs”) and all are on the same terms. Each of the contracts specifically provides, by clause 9, that it shall be governed and construed in accordance with the laws of England. The same clause also provides:

Each of the SPAs provides that the seller companies, as owners of an identified parcel of the Maltsovsky shares, will sell them to the appellants. There are four SPAs because Hensher entered into one SPA to sell some shares to Rodette and another SPA to sell some shares to Taplow. The third SPA was between Amherst and Taplow and the fourth was between Conway and Rodette.

Clause 2.1 of each of the SPAs states that the purchaser will take all steps necessary for re-registration of the shares in the name of the purchaser or a nominee within one business day of the date of the SPA. Clause 6.2(d) of each of the SPAs provides:

Kolden claims that the appellants were therefore the middle party in what was envisaged as a series of transactions under which the Maltsovsky Shares would move from Amherst, Hensher, and Conway to JV via the appellants.

The total purchase price under the four SPAs was approximately US$3,350,000. That figure corresponded to the price that Amherst, Hensher, and Conway had themselves paid to acquire the Maltsovsky shares in 2002. It is alleged that this price was far below the market value of the Maltsovsky shares either in 2004 or now.

The appellants allegedly did not transfer the Maltsovsky shares to JV as clause 6.2(d) of the SPAs allegedly contemplated, but instead were either retained by the appellants or transferred by them to other parties. The allegation, therefore, is that Mr Galchev’s companies took the whole benefit of the value of the Maltsovsky shares, and not that which would be attributable to his interest in JV.

On July 13, 2006 Amherst, Hensher and Conway issued proceedings in the Commercial Court (“the English Action”), in which the present application was made. In these proceedings, Amherst, Hensher and Conway sought a declaration against the appellants that:

As an alternative, Amherst, Hensher and Conway sought rectification of clause 6.2(d) of each of the SPAs in the following terms:

There was also a claim for damages for breach of contract.

The particulars of claim in the English Action were not served until after Aikens J gave judgment. But it should be noted at this stage (because this played some part in the argument before this court) that the particulars claimed as loss and damage the difference between the purchase price under the SPAs ($3,350,000) and the present value of the shares, alternatively their value at such time as they were sold by the appellants to an independent and bona fide third party, or alternatively the difference between the purchase price and the value at the time of the SPAs. Paragraph 37(g) pleaded that the sellers, and Kolden, had a legitimate interest in preventing the appellants from profiting from their breach of obligation.

On August 3, 2006 Amherst, Hensher and Conway and three other claimants began an action in the Cyprus court: Action No 5166/2006. The other three claimants named are Kolden, Serpell and Russia Partners. In that action the claimants seek damages against the appellants and against OAO Eurocement Group and Mr Galchev. The endorsement on the claim form asserts that the claimants are entitled to “compensation for conspiracy aiming at fraud” and compensation for alleged inducement to commit a breach of the four SPAs by OAO Eurocement Group and Mr Galchev. Those proceedings were served on the appellants on August 8, 2006, who entered appearances on August 31, 2006.

On November 15, 2006, Amherst, Hensher and Conway, as assignors, concluded a Deed of Assignment (“the Assignment”) with Kolden as assignee. This Deed provides for the assignment of rights in the SPAs and rights arising from them. The assignment clause provides:

The Assignment also provides that the assignors would execute Notices of Assignment in a specified form and deliver those Notices to the counterparties to the four SPAs. The Assignment expressly states that it is governed by English law and that any dispute arising out of or in connection with the Deed of Assignment would be settled by arbitration before the London Court of International Arbitration in London.

Notices of Assignment were received at the registered office of the appellants on about December 20, 2006.

On January 29, 2007, Skadden, Arps, Slate, Meagher & Flom (UK) LLP (“Skadden Arps”), solicitors for Kolden, wrote to Steptoe and Johnson, solicitors for the appellants, indicating that Skadden Arps had applied to the English court to substitute Kolden as claimant in the English Action in the place of Amherst, Hensher and Conway, because the latter companies had assigned to Kolden their rights as against the appellants under the Assignment.

No doubt in response, on February 5, 2007, the appellants issued proceedings in Cyprus (Action No 851/2007) claiming, against Amherst, Hensher, Conway and Kolden, declarations that the assignments made by virtue of the Deed of Assignment were invalid and without legal effect, and also damages for breach of express or implied terms as to confidentiality and non-assignability in the SPAs. These proceedings were discontinued on February 20, 2007, and are not material on this appeal.

On February 14, 2007, the appellants issued fresh proceedings in Cyprus (Action No 1067/2007, “the Cyprus Action”) against Amherst, Hensher, and Conway and against Kolden. The relief sought is in summary:

On February 16, 2007, Tomlinson J gave permission, ex parte, to Kolden to be substituted as claimant in place of Amherst, Hensher and Conway (to whom I shall now refer as “the original claimants”) in the English Action. On February 20, 2007 the claim form in the English Action was re-issued with Kolden substituted as the sole claimant.

The proceedings in the English Action were served on the appellants on September 11, 2006. They filed acknowledgments of service indicating an intention to contest the jurisdiction, and subsequently issued applications for stays under Articles 27 and 28 of the Judgments Regulation, which provide:

The judge dismissed the applications. His reasoning can be summarised as follows.

The key question was whether, at the time the Cyprus proceedings were begun on February 14, 2007, there were then in existence two sets of proceedings involving the same cause of action and between “the same parties” within the meaning of Article 27 of the Regulation.

The answer was to be found in the principles in the ruling in Case C-351/96Drouot Assurances SA v Consolidated Metallurgical Industries [1998] ECR I-3075, which established: (a) as a matter of the independent interpretation of Article 21 of the Brussels Convention (and now Article 27 of the Regulation) two legal entities could be regarded as the same party; (b) whether that was so in any particular case would be a matter for the national court to decide; (c) the national court must look at the facts of the case concerned and, in particular, the subject matter of the two disputes in the two relevant proceedings to see if the two legal entities were to be regarded as the same party; (d) the test that the national court must apply was whether the interests of the two legal entities involved in the two disputes were identical to and indissociable from one another in relation to the subject matter of the two disputes concerned; (e) one way of demonstrating this identity of interest was by asking whether a judgment against one legal entity in respect of the subject matter of the two disputes would have the force of res judicata against the other legal entity.

Kolden had a good arguable case that the Assignment was a valid legal assignment. When the Cyprus proceedings were begun on February 14, 2007 Kolden fulfilled the tests for being regarded as “the same party” as the assignor companies. From the moment the appellants received notice of the Assignment, all rights passed to Kolden, and its interest in the SPAs and any rights of action arising out of them were identical to those formerly possessed by the assignor companies. The interests of Kolden, as legal assignee, were indissociable from those of the assignor companies because the rights of Kolden were only those of the assignors.

Consequently, when the Cyprus proceedings were started on February 14, 2007, the English court was the court “first seised” of the “same cause of action” (the contract cause of action) between “the same parties”. The English court had been seised of that cause of action since July 13, 2006. The original claimants were “the same party” as Kolden. It was irrelevant to take into account any defences that the appellants might have been able to advance against the claims of the original claimants on the contract cause of action as at February 14, 2007.

Accordingly the appellants’ application for an order to stay the English Action pursuant to Article 27 of the Regulation was dismissed. The judge added that on his findings Article 28 could not be relevant, because it was only directed at courts other than the court first seised.

The appellants appealed on the basis that the judge erred: (1) in failing to hold that Kolden only became a party to the English Action after February 14, 2007 on which date the Cypriot court became first seised of proceedings between Kolden and the appellants in respect of the same cause of action for the purposes of Article 27 of the Judgments Regulation and thus no lis pendens arose on February 14, 2007; (2) in holding that Kolden was to be regarded as the “same party” as the original claimants, the three assignor companies, for the purposes of Article 27; (3) in applying a “good arguable case” test to determine whether the interests of the parties were identical or indissociable; (4) on the assumption that there was a good arguable case that the Assignment was valid, in holding that he had to assume that it was effective and that the interests of the parties were identical and indissociable; (5) in holding that there was a good arguable case that the Assignment was valid; (6) in failing to take account of these matters: (a) the amended claim form in the English Action fails to identify a cause of action by Kolden against the appellants; (b) the original claimants can continue to influence proceedings involving Kolden by being added as claimants (e.g. in response to the contention that the Assignment is invalid), or being added as defendants by counterclaim.

At the outset of the hearing before this court Mr Eder QC made it clear that he was not pursuing at this stage any questions on the validity of the assignment (or the application of the jurisdiction clause to Kolden, which he had raised in his skeleton argument). In particular he accepted that the judge (and this court) could proceed on the basis that there was an arguable case that there was a valid assignment, and that the only question was whether or not Kolden were the same parties as the original claimants for the purposes of Article 27.

It is common ground that the contract claim in the English Action and the claim in the Cyprus Action for a declaration that the appellants are not in breach are the “same cause of action” for the purposes of Article 27. Indeed that is the basis of the appellants’ application.

The main point on this appeal is the application of the principles underlying the rulings in Case C-405/92The Tatry [1994] ECR I-5439and Case C-351/96Drouot Assurances SA v Consolidated Metallurgical Industries [1998] ECR I-3075 on “the same parties” in Article 21 of the Brussels Convention. The Brussels Convention has now been superseded by the Judgments Regulation. I have set out Articles 27 and 28 in paragraph 30above. Article 21 of the Brussels Convention is in substantially the same terms as Article 27 of the Judgments Regulation. Article 28 of the Judgments Regulation differs somewhat from Article 22 of the Brussels Convention, and Article 30 of the Judgments Regulation introduces an autonomous definition of when a court is “deemed to be seised” of an action. None of these differences is material for the purposes of this appeal.

The principal questions which arise on this appeal are these: First, what is the critical date for determining whether “proceedings … between the same parties are brought in the courts of different Member States”, and does Article 27 apply where the assignee has become a party to the first set of proceedings only after the second proceedings have been commenced? Second, does the “good arguable case” test apply to determine whether parties are “the same parties” for the purpose of Article 27, and, if so, how should it be applied? Third, when, if at all, is an assignee to be regarded as the same party as an assignor?

The appellants’ argument is as follows: no lis pendens arose on February 14, 2007, when the Cyprus court was seised because Kolden only became a party to the English Action after February 14, 2007, and the judge erred in applying a “relation back” principle which treats Kolden as a party to the English Action at a date prior to the date of the assignment; the issue of when Kolden became a “party” to the English proceedings is a matter of English law and procedure; proceedings cannot be regarded as pending “between” the “same parties” for the purposes of Article 27 unless and until the relevant entities are parties in both relevant sets of proceedings (Kinnear v. Falconfilms N.V[1996] 1 W.L.R 920) and the English court is seised of the new claimant’s claim as from the time of its joinder into the proceedings: WPP Holdings Italy SRL v Benatti [2007] EWCA Civ 263, [2007] 1 WLR 2316, para 28.

Kolden’s response is that the relevant date of seisin for the English Action is July 13, 2006, when the claim form was issued. The substitution of Kolden does not result in a new date of seisin as far as the English court is concerned and does not deprive the English court of jurisdiction which it originally had. There is, and has always been, only one English Action. There is no reliance by Kolden on the “relation back” doctrine, nor is it relevant that as a matter of English law Kolden only became party to the English Action when it was substituted. But in any event an added party becomes a party from the date of the proceedings: Yorkshire Regional Health Authority v Fairclough Building Ltd [1996] 1 WLR 210, at 217-8 and 221.

I agree with the judge’s conclusion that the critical question is whether, at the time the Cyprus proceedings were begun on February 14, 2007, there were then in existence two sets of proceedings involving the same cause of action and between “the same parties” within the meaning of Article 27 of the Regulation. If on February 14, 2007 there were two sets of proceedings involving the same cause of action and the same parties, then the subsequent substitution of Kolden for the original claimants would not matter.

The fact that as a matter of English law Kolden only became party to the English Action when it was substituted is irrelevant. The relevant question is whether Kolden and the original claimants are to be regarded as the “same party” for the purposes of Article 27. If they are, then the English court was and remains first seised of the proceedings between the original claimants (and later, by substitution, Kolden) and the appellants.

There is nothing in Kinnear v. Falconfilms N.V[1996] 1 W.L.R 920 or WPP Holdings Italy SRL v Benatti [2007] EWCA Civ 263, [2007] 1 WLR 2316 which is inconsistent with this conclusion. Each case contemplated the addition of different parties involving different causes of action being added after the date proceedings were first issued. In Kinnear v. Falconfilms N.V Phillips J (as he then was) was concerned with new third party claims: see at p 930. WPP Holdings Italy SRL v Benatti was concerned in the relevant aspect with the addition of a new claimant with its own cause of action: see paras 27, 28.

The way the point was put in the notice of appeal was that the judge erred in applying the “good arguable case” standard to determine whether the interests of parties were identical or indissociable. Before this court, it was argued that where there is a possibility of the assignment being invalid, it cannot be concluded that the interests of the purported assignor and those of the purported assignee are identical and indissociable. The court must form its own view on the balance of probabilities: Drouot, para 23; WPP Holdings Italy SRL v Benatti[2007] EWCA Civ 263, [2007] 1 WLR 2316.

I am satisfied that there is nothing in this point for two reasons. First, Mr Eder QC accepted for the purposes of this hearing that there was an arguable case that the assignment was valid. He did not invite the court to decide a preliminary issue on the validity of the assignment. There is therefore no reason for the court not to proceed on the basis that there was a valid assignment, subject to Mr Eder’s other points on the application of Article 27. Secondly, the “good arguable case” test is of sufficient flexibility to ensure that the English court performs its task under the Judgments Regulation.

Jurisdictional issues ought generally to be dealt with quickly, and without oral evidence or mini-trials: Canada Trust Co v Stolzenberg (No 2)[2002] 1 AC 1 at [13], per Lord Steyn. Consequently jurisdictional issues are normally resolved on the basis that the person asserting that the English court has jurisdiction or should retain jurisdiction as a result of a jurisdictional requirement in the CPR (formerly RSC Order 11) or the Brussels/Lugano Conventions or the Judgments Regulation must show a “good arguable case”: see, e.g. Seaconsar Far East v Bank Markazi Iran [1994] 1 AC 438; Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547, at 553-559, affd [2002] 1 AC 1 at [13]; Bank of Tokyo-Mitsubishi Ltd v Baskan Gida Sanayi [2004] 2 Lloyd’s Rep 395, paras 193-194; Konkola Copper Mines plc v Coromin Ltd [2006] EWCA Civ 5, [2006] 1 Lloyd’s Rep 410.

The “good arguable case” test is a flexible one, depending on the issue: Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547, at 558, per Waller LJ. That is a lower threshold than proof on a balance of probabilities: ibid. In Bols Distilleries BV v Superior Yacht Services Ltd[2006] UKPC 45, [2007] 1 WLR 12 (a case involving a disputed jurisdiction agreement) Lord Rodger of Earlsferry agreed with Lord Steyn in endorsing the approach of Waller LJ in Canada Trust Co v Stolzenberg (No 2), and said that (at para 28) “in practice, what amounts to a ‘good arguable case’ depends on what requires to be shown in any particular situation in order to establish jurisdiction.”

Despite the appellants’ reliance on WPP Holdings Italy SRL v Benatti[2007] EWCA Civ 263, [2007] 1 WLR 2316 there is nothing in the decision which is inconsistent with this approach. The point on “good arguable case” arose in relation to two issues in that decision. The first issue was whether the contract at issue was an “individual contract of employment” for the purposes of the special regime for such contracts in section 5 of the Judgments Regulation. On that issue Toulson LJ (at para 41) dealt with the question on the flexible “good arguable case” approach.

The second issue in WPP Holdings Italy SRL v Benatti was whether the Italian court had been seised prior to the English court. On that issue Toulson LJ said (at para 62) that that issue was a procedural issue of a quite different kind from the question whether the court otherwise had jurisdiction: although the parties were agreed that the defendant in the English proceedings had the burden of showing a good arguable case that the Italian Court was first seised, he was not sure that that was correct. Article 27 required a court of its own motion to stay its proceedings if another court had been first seised of the same cause of action between the same parties. He went on: “At first sight, this would seem to require a court, if it is aware that another court has arguably been first seised of the same cause of action between the same parties, to form its own view which court has been first seised under the test laid down in art 30. However it makes no difference in the present case and I would reserve a final opinion on the point.” What Toulson LJ said must be read in the light of the fact that this issue depended on a question of construction of the provision in Article 30 as to when a court is seised. If a question of law arises it would not be appropriate to decide it on a “good arguable case” basis. That was why Buxton LJ agreed (at para 89) that for the reasons given by Toulson LJ (at 62) the issue was not to be determined by the burden of proof.

Nor does the statement in Drouot (para 23) that “it is for the national court to ascertain whether this [namely, whether the interests can be considered to be identical and indissociable] is in fact the case” affect this conclusion. The European Court is leaving it to the national court to decide the question, but it is not imposing a uniform rule as to the appropriate standard.

The appellants say that the interests of a (purported) assignor and (purported) assignee are neither “identical” nor “indissociable.” First, a valid assignment operates merely to transfer the benefit of a contract or the rights arising thereunder but it does not operate to transfer the burden. Second, the assignor continues to remain primarily liable to the obligor for the non-performance of its outstanding contractual obligations. Third, the assignors caninfluence proceedings involving the assignees. Kolden is suing in its own name and there is nothing to prevent the original claimants from becoming parties to the proceedings again, either by being added as claimants (e.g. in response to the contention that the assignment is invalid) or by being added as defendants by counterclaim.

The appellants also say: (1) The particulars of claim (especially paragraph 37(g), to which I referred at paragraph 21above, and which pleaded that the sellers, and Kolden, had a legitimate interest in preventing the appellants from profiting from their breach of obligation) showed that Kolden was claiming damage to itself. If Kolden had simply taken the Assignment and not been substituted, the appellants would have filed proceedings in Cyprus (as they have done at present) challenging the validity of the alleged assignment, and this could have caused any subsequent English proceedings to be stayed pursuant to Article 28 of the Judgments Regulation. (2) The amended claim form is fundamentally flawed in that it fails to identify any cause of action by Kolden against the appellants. It does not plead the (purported) assignment and thus does not disclose any cause of action in favour of Kolden, contrary to CPR 16.2. Kolden’s purported rights derive from an alleged unpleaded assignment and not from any alleged breach nor the SPAs themselves.

Kolden says that the original claimants and Kolden are the same parties. First, judgment against Kolden would constitute res judicata against the original claimants, and vice versa: Gleeson v J Wippell & Co Ltd[1977] 1 WLR 510. Second, as regards (a) the rights of the assignee and assignor, and (b) the claims brought on the basis of those rights by the assignee and assignor, there is an identity of interest in the precise sense that there is only one interest. That is in the nature of assignment: there is only one right, and there are successive owners of that one right. Third, after the assignment, the original claimants cannot influence the proceedings.

Kolden also says that the fact that an assignment only passes the benefit and not the burden of a contract (and that the assignor remains primarily liable to the obligor for the non-performance of its outstanding contractual obligations) is irrelevant. There are no “outstanding contractual obligations” on the part of the original claimants. It is the appellants who continue to have an obligation under the SPAs to transfer the Maltsovsky Shares immediately onwards to JV (or to pay damages for breach of that obligation).

I come to my conclusions on this aspect of the appeal. The rulings in Case C-305/92The Tatry [1994] ECR I-5439and Case C-351/96Drouot Assurances SA v Consolidated Metallurgical Industries [1998] ECR I-3075 are very fact-specific, and it is necessary to deal with the rulings in some detail to extract the principles.

The facts may be summarised as follows. A cargo of soya bean oil was contaminated with diesel on a voyage from Brazil to Rotterdam (for part of the cargo) and Hamburg (for the rest) in the vessel Tatry. In November 1988, before any other proceedings had commenced, the shipowners brought an action in the Rotterdam District Court against the cargo owners (other than Philip Brothers Ltd –“Phibro” - who owned part of the cargo carried to Rotterdam under separate bills of lading), claiming a declaration that they were not liable for the alleged contamination.

The cargo owners brought two Admiralty actions in rem (one of them by Phibro) in the Admiralty Court (“the cargo actions”) against a sister-ship of the Tatry, the Maciej Rataj. Those actions were begun on September 15, 1989, when the Maciej Rataj was arrested. The vessel was subsequently released from arrest against the provision of a guarantee. The claims in the Admiralty actions in rem were for damages for the contaminated cargo, i.e. the same subject matter as the cause of action as in the shipowners’ action.

The shipowners then brought an action in Rotterdam against Phibro for a declaration of non-liability. In October 1990 the shipowners brought proceedings in the Netherlands to limit their liability as against all the cargo interests.

The Admiralty Court refused an application by the shipowners to stay the English proceedings under Article 21. It held that the cargo actions and the shipowners’ action did not involve the same parties or subject matter. The English Court of Appeal made a reference to the European Court on the question (inter alia) whether a claim brought in rem involved the same parties and the same cause of action for the purposes of Article 21 as an in personam action: The Maciej Rataj [1992] 2 Lloyd’s Rep 552.

The European Court ruled: (a) the term “the same parties” had an autonomous meaning; (b) Article 21 must be understood as requiring that the parties to the two actions be identical; (c) re-affirming Case 144/86Gubisch Maschinenfabrik v Palumbo [1987] ECR 4861, the question of whether the parties were the same did not depend on the procedural position of each of them in the two relevant proceedings; (d) the rules set out in Articles 21 and 22 (now 27 and 28) were designed to preclude, as far as possible, the possibility of the non-recognition of a judgment on account of its irreconcilability with a judgment given in a dispute between the same parties in the state in which recognition was sought.

For present purposes, the only relevant part of the ruling in The Tatry is that which held that the fact that English admiralty procedure regarded an action in rem against a ship as different from an action in personam against an owner or other interested party was irrelevant:

In this case a barge sank in Netherlands waters. The hull insurer, Druout Assurances SA (“Druout”), acting on its own behalf, paid for the barge to be refloated. In December 1990 Druout brought proceedings in Paris (“the French proceedings”) against the cargo owner and cargo insurer for a contribution in general average.

But in August 1990 the owners of the cargo and the cargo insurers (together “the cargo interests”) had brought proceedings in the Rotterdam District Court (“the Dutch proceedings”) against the owner of the barge. The cargo interests claimed a declaration that they were not liable to contribute in general average, on the ground that the vessel was unseaworthy at the start of her voyage because of overloading.

In the French proceedings the cargo interests raised an objection of lis alibi pendens in the form of the Dutch proceedings.

The Cour de cassation considered that the case raised a question on the scope of the phrase “the same parties” in Article 21 of the Brussels Convention and referred the matter to the European Court. The issue referred was whether the owner of the barge, which was impleaded in the Dutch proceedings was, for the purposes of Article 21 and on the facts of this case, to be regarded as “the same party” as the hull insurers of the barge, viz. Druout, who were impleaded in the French proceedings.

Fennelly A-G’s view was that the wording of Article 21 and the European Court’s judgments in Gubisch v Palumbo and The Tatry required that a strict interpretation be given to the words “the same parties”. He concluded:

The European Court did not follow the opinion of the Advocate General. It reaffirmed the view expressed in The Tatry that “the terms used in Article 21 of the Convention in order to determine whether a situation of lis pendens arises must be regarded as independent”: para. 16.

The European Court re-stated the requirement in The Tatry (para 33) that Article 21 required the parties in the two actions to be “identical”, and continued:

Several other cases were relied on by the parties, but none of them takes the matter much further. The only cases which deal directly with the effect of assignment on the question of the “same parties” are two German appellate decisions which come to opposite conclusions.

In Case 9 U125/99, Regional Court of Appeal, Stuttgart, November 24, 1999, the claimant company undertook four transactions on the London Stock Exchange with Union CAL Ltd which resulted in losses, and as a result Union CAL Ltd had claims for about £26,000. Union CAL Ltd assigned its claim to Union Discount Co. Ltd, which brought an action for payment in England. After the proceedings became pending in London, the individual brought an action in Germany against both Union CAL Ltd and Union Discount Co. Ltd for a negative declaration and a declaration that Union CAL Ltd was obliged to reimburse it in respect of all losses which exceeded the payments already made to it, and it sought a declaration against Union Discount Co. Ltd that it had no liability arising under the assignment. The court stayed the proceedings under Article 22 because the second action was related, but refused a stay under Article 21 of the proceedings against Union CAL Ltd because the claim against Union CAL Ltd was not between the same parties as the London proceedings because only Union Discount Co. Ltd was the claimant in London. There is no elaboration of this conclusion.

In Case 16 U 110/02, Regional Court of Appeal, Cologne, September 8, 2003, a Greek distributor purchased condensed milk and other milk products from a German supplier, but failed to pay the price. The distributor brought proceedings against the German supplier in the Greek courts, for damages which were said to be greater than the price claimed. The German supplier assigned its claim to the claimant, whose liquidator brought proceedings in Germany for payment. The distributor contested the jurisdiction of the German courts on the basis of Article 27 of the Judgments Regulation. The claimant assignee argued that Article 27 had no application as the proceedings in Greece (distributor v supplier) and in Germany (assignee v distributor) were not between the same parties. The Regional Court of Appeal at Cologne found that Article 27 did apply, and that as the German court was second seised, it had no jurisdiction.

Article 27 was held to apply even though the supplier and his assignee, were not the same party. The court held that both under German procedural law (which appears to have been the main basis of the decision) and also under the Judgments Regulation (as interpreted in Drouot) there was identity of parties because res judicata effect extends to an assignee who can therefore plead lisalibi pendens (para 5(a)-(c)).

Berkeley Administration Inc v McClelland[1995] ILPr 201 and Turner v Grovit [2000] 1 QB 345 each concerned businesses controlled by Mr Felix Grovit, who has made a rich contribution to English and European jurisprudence: see also Berkeley Administration Inc v McClelland [1990] 2 QB 407; Case C-68/93Shevill v Presse Alliance [1995] 2 AC 18; Shevill v Presse Alliance [1996] AC 959; Grovit v Doctor [1997] 1 WLR 640; Grovit v Nederlandsche Bank [2007] EWCA Civ 953.

But I do not consider that either of these cases is of substantial assistance. In Berkeley Administration Inc v McClelland[1995] ILPr 201 the English proceedings were by Berkeley Administration Inc who ran a chain of bureaux de change. The defendants were ex-employees, and the fourth defendant Maccorp GB was an English company set up by some of the defendants to run a rival bureaux de change business. In the course of that action an order was made against the defendants relating to commercial premises in Paris.

In France Berkeley applied to restrain Maccorp France (a wholly owned subsidiary of Maccorp GB) from acquiring any interest in premises in Paris, and then Maccorp GB and Maccorp France countered by issuing their own proceedings in France claiming that Berkeley were by unfair means attempting to prevent Maccorp GB from setting up business in France. The claim of Maccorp France was that the bringing of the French proceedings by Berkeley against Maccorp France was unfair competition and an abuse of process and for a declaration that there had been no unfair competition or misuse of confidential information on the part of Maccorp France or Maccorp GB. Berkeley claimed initially that under Article 21 the claims of Maccorp France and Maccorp GB ought to be stayed in favour of the English courts, but that was abandoned after the judgment adverse to Berkeley on the substance of the matter in April 1990. The French courts decided that none of the claims of any party had been made out.

The decision therefore concerned Article 27(3) which provides that a judgment will not be recognised if it is irreconcilable with a judgment given in a dispute between “the same parties” in the State in which recognition is sought. Dillon LJ said (at para 29) that because the English order relating to premises in Paris was made against Maccorp GB. Maccorp France was formed after the order was made, but Dillon LJ considered that it was bound by the order (para 13). Consequently he said (para 29) that because the order made in England against Maccorp GB bound Maccorp France, he would regard the French proceedings brought by Maccorp GB and Maccorp France and the English action “as being for all material purposes between the same parties.” He went on (para 30) “in the context of this case I would regard it as wholly unreal to separate Maccorp France, the wholly owned subsidiary acquired by Maccorp GB, as being a wholly separate company with the result that the parties are different because Maccorp France has never been formally a party to this action.” Consequently the parties were the same even though Maccorp France was not in English procedural terms a party.

In Turner v Grovit [2000] 1 QB 345 Mr Grovit was the guiding mind, controller and ultimate owner of Harada (an Irish company) and CSA (a Spanish company). Mr Turner was employed as group solicitor, and moved to the group’s Madrid office. He commenced proceedings in the Employment Tribunal in London against Harada. Subsequently CSA issued proceedings against him in Madrid for damages for breach of a contract of service. In the Court of Appeal he was granted an injunction to restrain the Spanish proceedings on the basis that they had been brought to harass and oppress him. In support of the application for an injunction it was argued on his behalf that the Employment Tribunal was the court first seised and consequently the Spanish court would be obliged by Article 21 to decline jurisdiction. Laws LJ said (at 363-4) that even though Harada and CSA were distinct legal entities:

But subsequently ([2001] UKHL 65, [2002] 1 WLR 107) the House of Lords referred to the European Court the question whether it was consistent with the Brussels Convention to grant anti-suit injunctions to restrain proceedings in other Contracting States, and received an answer in the negative: Case C-159/02Turner v Grovit [2004] ECR I-3565, [2005] 1 AC 101. Consequently the judgment of the Court of Appeal lost its substratum. Nevertheless what Laws LJ said about identity of parties being regarded pragmatically accords with the rulings of the European Court.

In Sony Computer Entertainment Limited v RH Freight Services Limited[2007] EWHC 302 (Comm) proceedings were commenced in the Netherlands, and subsequently in England. The claimant in the English proceedings was not a party to the Dutch proceedings, but the plaintiff in the Dutch proceedings sought a stay of the English proceedings on the ground that the fact that the claimant’s insurer was a party to the Dutch proceedings made the two sets of proceedings between the same parties for the purposes of article 27. It was held that they were not the same parties because a judgment in the Dutch proceedings as to the amount of damages recoverable would not be determinative (because, in particular, the claim for damages was over and above the insured sum).

Finally, in Re Cover Europe Ltd [2002] EWHC 861Mr Leslie Kosmin QC, sitting as a Deputy High Court Judge in the Chancery Division, had to consider whether a liquidator of a company, appointed under the Insolvency Act 1986, could be regarded as the same party as the company for the purposes of Article 21 of the Brussels Convention. CEL gave a guarantee to Kvaerner (the well known Finish construction company) to secure the performance by an Italian company of its payment obligations to Kvaerner which had agreed to build a ship for it. The Italian company defaulted and subsequently went into liquidation in Italy. CEL went into members’ voluntary liquidation in England, and Kvaerner submitted a proof in the liquidation in respect of CEL’s liability under the guarantee. The liquidator challenged the validity of the guarantee, but instead of rejecting Kvaerner’s proof, it indicated that it would issue proceedings in Rome to determine whether the guarantee was valid. Kvaerner issued an application under the Insolvency Act 1986 in England to seek a direction from the Companies Court that the liquidator should admit its proof. Subsequently the liquidator caused CEL to issue proceedings in Rome against Kvaerner and the Italian company seeking a declaration that the guarantee was invalid.

The Companies Court directed a trial of preliminary issues to determine whether Kvaerner’s application in England should be stayed in favour of the Rome proceedings, and one of the questions was whether the two sets of proceedings involved the same cause of action and/or the same parties within the meaning of Article 21. The deputy judge found that although the proceedings in Rome had been issued in the name of CEL acting by its liquidator and the application in England had been made in the name of the liquidator, for the purpose of construing Article 21 the issue “must be decided as a matter of substance and not form”. There was no relevant distinction between the liquidator as respondent in making his application in England for directions and CEL acting by its liquidator as claimant in the Rome proceedings. Accordingly both proceedings were between “the same parties” within the meaning of Article 21.

The starting point is that these general propositions can be derived from The Tatry and Drouot. First, the object of Article 27 is to prevent parallel proceedings in different Member States and to avoid conflicts between decisions and irreconcilable judgments: The Tatry, para 32; Drouot, para 17. Second, the term between “the same parties” has an independent or autonomous meaning: The Tatry, para 47. Third, in considering whether two entities are the “same party” for the purposes of applying the regulation, the court looks to the substance, and not the form: The Tatry. Fourth, although the parties must be “identical” (The Tatry, para 33; Drouot, para 18), this identity is not destroyed by the mere fact of there being separate legal entities involved: in The Tatry in the English proceedings the party was the sister-ship, and in the Dutch proceedings was the shipowner; in Drout the barge owner and the hull insurer were held to be capable of being the “same parties.”Fifth, whether they are identical for this purpose may depend on whether there is such a degree of identity between the interests of the entities that a judgment given against one of them would have the force of res judicata as against the other (Drouot, para 19). Sixth, it will also depend on whether the interests of the entities are identical and indissociable, and it is for the national court to ascertain whether this is in fact the case: Drouot, para 23. In the context of a subrogated claim the Court also emphasised that the insured would not be in a position to influence the proceedings: Drout, para 19.

How are these principles to be applied to the present case? If there has been an effective legal assignment of the rights of the original claimants under the Assignment, then (section 136(1) of the Law of Property Act 1925) the assignment is effective to transfer (from the date of notice to the “debtor”), the legal right in the thing in action transferred, all legal and other remedies for the thing in action and also “... the power to give a good discharge for the same without the concurrence of the assignor.” As the judge said (para 69 of the judgment), the effect of this is that the assignee becomes the owner of the thing in action. He can sue the debtor in his own name without joining the assignor: In re Westerton: Public Trustee v Gray[1919] 2 Ch 104. The assignor has no further interest in the right in action: see Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101, 121.

First, as I have said, the parties must be “identical” (The Tatry, para 33; Drouot, para 18), but this does not mean that two separate legal entities cannot be “identical” for this purpose, as is shown by the rulings in those cases.

Second, a decision against one must be res judicata as against the other. In English law res judicata estoppels operate for or against not only the parties, but those who are privy to them in interest, and privies include any person who is identified in estate or interest, and accordingly “assignees will be bound as privies of the assignor” (Spencer Bower, Turner and Handley, Res Judicata, 3^rd ed. 1996, 230-231, citing Effem Foods Pty Ltd v Trawl Industries Pty Ltd (1993) 43 FCR 510, 540-2). Sir Robert Megarry VC said in Gleeson v J Wippell & Co Ltd[1977] 1 WLR 510 (in a passage approved in Johnson v Gore Wood & Co[2002] 2 AC 1 at 10, per Lord Bingham of Cornhill, and applied in Powell v Wiltshire[2004] EWCA Civ 534, [2005] QB 117):

I am satisfied that there is the requisite privity of interest which would preclude an assignor from re-litigating any finding on liability under the contracts in a proceeding to which the assignee had been a party.

Third, their interests must be “identical” and “indissociable.” The word “indissociable” is very rarely used in English legal parlance except where it has been used to translate the same French word in judgments of the European Court of Justice and the European Court of Human Rights, and acts of the European institutions. The point frequently arises in the context of VAT in determining whether the supply of goods and services is one service, or two: see, e.g. Case 353/85Commission v United Kingdom [1988] STC 25; Doctor Beynon and Partners v Customs and Excise Commissioners[2004] UKHL 53, [2005] STC 55. The European Court of Human Rights has emphasised that some of the rights are indissociable from “a danger of arbitrary power” (Golder v United Kingdom(1975) 1EHRR 524, para 35) or indissociable “from a democratic society” (Kokkinakis v Greece(1993) 17 EHRR 397, para 31: see also New Testament Church of God vStewart[2007] EWCA Civ 1004, paras 38-39). So also Council Regulation 243/2003 (Dublin II) provides in Article 4(iii) that the situation of a minor who is accompanying the asylum seeker and meets the definition of a family member is to be “indissociable” from that of his parent or guardian: see AA(Somalia) v Secretary of State for the Home Department[2006] EWCA Civ 1540.

In my judgment the interests are identical, because in relation to each of the SPAs there is only one right, and there are successive owners of that one right. It follows that the interests of assignor and assignee are indissociable in the sense of indivisible. It does not matter that an assignment only passes the benefit and not the burden of a contract, nor that the assignor remains primarily liable to the obligor for the non-performance of its outstanding contractual obligations. The interest of the assignor and assignee in relation to the claim being advanced against the appellants is identical. There is also force in the point made by Kolden that the question of outstanding contractual obligations is irrelevant on the facts, as the SPAs are executed so far as the original claimants are concerned; they have no further obligations under the SPAs. It is the appellants who continue to have an obligation under the SPAs, viz. to transfer the Maltsovsky shares immediately onwards to JV (or to pay damages for breach of that obligation).

Fourth, in Drouot (para 19) the European Court mentioned, in the context of subrogation, the fact that the insured could not influence the proceedings. I accept Kolden’s answer to the point made by the appellants that the original claimants could influence proceedings involving assignees, because they could seek to be added to the claim, e.g. in response to the appellants’ contention that the Assignment is invalid. The answer is that the question of “the same parties” is to be determined by looking at the claims, and not at the subsequent defences.

This approach is supported by the European Court’s decision on a similar question in relation to “the same cause of action” in Article 27. For the purposes of Article 27, the question whether the “same cause of action” is raised before the courts of two Member States is answered by looking at the claims made, and not at the defences raised at a later stage to those claims: Case C-11/01 Gantner Electronic GmbH v Basch ExploitatieMaatschappij [2003] ECR I-4207, para 30: whether the “same cause of action” is raised in the two actions is to be determined on the basis of “the respective claims in each of the sets of proceedings, and not to the defence which may be raised by a defendant.” For a similar approach on whether an action is a civil or commercial matter see Case C-266/01Préservatrice Foncière TIARD SA v Netherlands [2003] ECR I-4867, para 42: “In order to determine whether an action falls within the scope of the Brussels Convention, only the subject-matter of the action must be taken into account.”

Nor is there anything in the appellants’ points on the claim form and the particulars of claim. The amended claim form complies with CPR 16.2, which provides that it must contain a concise statement of the “nature of the claim”. Nor is there anything in the suggestion that the particulars of claim, in referring to Kolden’s “interest,” shows that its interests do not coincide with those of the original claimants. All the passage was doing was responding to the allegation of champerty.

I also accept Kolden’s submission (as indeed does Mr Eder QC) that the appellants’ approach gives rise to a number of anomalous and arbitrary consequences. First, if Kolden’s submissions are wrong, and assignor and assignee are not the same party for the purposes of Article 27, there would be an easy way to defeat the application of Article 27 and frustrate the purpose of the Regulation. If A sues B, and B wishes to sue A in a reverse action in another Member State, B cannot, because B’s action against A will be second in time, and the court second seised would have to decline jurisdiction under Article 27. However, if B assigns his claim to C, and C sues A, C will be able to do so, because (on this hypothesis) Article 27 will have no application as B and C are not the same parties. So also if a claim is made in England by C1 against D, and D is warned that C2 will take an assignment of the claim and continue it in its own name, D may institute proceedings of its own in another Member State against C2 in the time gap. The result would be that the English court would be first seised only of the claim by C1, but would be second seised so far as concerns the claim involving C2. Mr Eder’s only, but insufficient, answer was that the absurd consequences would be avoided by a stay under Article 28.

I would therefore dismiss the appeal, and express the hope that the parties (having wasted some £400,000 on this sterile exercise) will now turn their attention to dealing with the substance of their dispute.

I agree.

I also agree.