Royal Courts of Justice
Strand, London, WC2A 2LL
Date: July 7, 2004
Before :
THE HONOURABLE MR JUSTICE LAWRENCE COLLINS
Between :
(1) MAZUR MEDIA LIMITED (2) APEX ENTERTAINMENT GROUP LIMITED (both in administrative receivership) | Claimants |
- and - | |
(1) MAZUR MEDIA GmbH (in provisional insolvency under the laws of Germany) (2) MANUEL SACK (3) IRIS MAZUR (4) HANSPETER RHEIN | Defendants |
Murray Rosen QC and Malcolm Chapple (instructed by DMH) for the Claimants
James Turner (instructed by Stephenson Harwood) for the Defendants
Judgment
Mr Justice Lawrence Collins:
I Background
The First and Second Claimants, Mazur Media Ltd (“Mazur Ltd”) and Apex Entertainment Group Ltd (“Apex”) are English companies. The First Defendant, Mazur Media GmbH (“Mazur GmbH”), is a German company. Mazur GmbH is a wholly owned subsidiary of Apex and the parent of Mazur Ltd. All three companies were in the business of the supply of sound recordings to the general public.
On July 24, 2003 the Amtsgericht Hanover appointed the Second Defendant (“Mr Sack”), who is domiciled in Germany, as provisional liquidator of Mazur GmbH, and ordered Mr Sack to investigate whether it was insolvent. He is now, by order dated January 26, 2004 of the Amtsgericht Hanover, the liquidator of Mazur GmbH in insolvency proceedings which were commenced in that court on (according to the order of the Hanover court) January 23, 2004. According to a statement of assets and liabilities of Mazur GmbH prepared by Mr Sack as at January 22, 2004, its assets are 496,000 euros and its liabilities are 1.5 million euros. But the figure for assets includes 440,000 euros for intellectual property rights in recordings which the Claimants say that they have the exclusive right to exploit.
The Third Defendant (“Mrs Mazur”) and the Fourth Defendant (“Mr Rhein”) are German citizens living together in Germany as husband and wife, who were at material times directors of Mazur GmbH and then Apex. Mrs Mazur was the legal and beneficial owner of all the shares in Mazur GmbH before she sold them to Apex in April 2002. She instituted the insolvency proceedings in Germany against Mazur GmbH.
Mazur Ltd and Apex act by their Administrative Receivers, Mr Keith Goodman and Mr Stephen Swaden (partners in Leonard Curtis & Co), who were appointed by Coutts and Co. under mortgage debentures given by them on May 7, 2002 and March 5, 1999, respectively.
These are applications by the Defendants raising the question whether the claims or any of them should be determined by the English court. The parties (and indirectly the creditors of the companies) have incurred legal fees of at least £120,000 in connection with these applications.
II The Agreements
By an agreement in writing dated April 11, 2002 (“the Share Sale Agreement”) between (1) Apex, and (2) Mrs Mazur, Mrs Mazur sold to Apex all the issued shares in Mazur GmbH. The consideration was issue of shares in Apex and the payment of debts (£700,000, much of which was owed to Mrs Mazur’s mother) owed by Mazur GmbH. Mrs Mazur and Mr Rhein were to become directors of Apex. Clause 16 provided that the Agreement was subject to English law and that “the Courts of England shall have exclusive jurisdiction concerning any disputes, actions or proceedings arising in respect hereof.”
Clause 3(2)(j) required Mrs Mazur to deliver (or cause to be delivered) at completion to Apex (inter alia) all “Recordings” (defined by clause 1.1 to include sound recordings); and clause 3(2)(k) required her to deliver (or cause to be delivered) “all property of [Mazur GmbH] not otherwise delivered as part of or prior to Completion.” Clause 13 required Mrs Mazur to do or procure to be done all such acts as might be reasonably required to give effect to the Share Sale Agreement.
The combined effect of clause 4 and schedule 2 of the Share Sale Agreement was that Mrs Mazur warranted that Mazur GmbH had title to its “Catalogue,” which was defined in clause 1.1 to include the Recordings set out in schedule 7. Schedule 7 to the Share Sale Agreement is headed “CATALOGUE” and has a Part A headed “Owned Recordings” and a Part B headed “Licensed Recordings” but neither is filled in with the envisaged details of the recording, date recorded, and date of first release. Nothing turns on this omission. The Recordings which are the subject of the obligation to deliver, and of the warranties, will be referred to as the “Masters.”
By an agreement in writing (“the Assignment”) also dated April 11, 2002 but executed some weeks after the Share Sale Agreement, Mazur GmbH assigned (for a consideration of £1 and “other good and valuable consideration”) to Mazur Ltd “all copyright we have in and to sound recordings, including but not in limitation, those sound recordings set out in the Schedule hereto. Such assignment shall cover all rights of copyright anywhere in the World …” The Assignment provided that English law would govern and that “the Courts of England shall have exclusive jurisdiction in any disputes arising in relation hereto.”
The Masters are apparently the only significant asset owned by any of the companies which are party to these proceedings. The Defendants contend that the Masters (except to the extent of third party security rights) are still vested in Mazur GmbH.
III The claims and the application
Mazur Ltd claims that there was a term of the Assignment (which was on its face only an assignment of copyright) necessarily to be implied for reasons of business efficacy that Mazur Ltd acquired from Mazur GmbH under the Assignment not only the copyright but also the legal and beneficial ownership of, and all rights and legal title to, all the master tapes described in and covered by the Schedule to the Assignment insofar as such ownership, rights and title were not transferred to Apex under the Share Sale Agreement.
Mazur Ltd and Apex say in the particulars of claim that, although in August 2003 Mazur GmbH purported to deliver the Masters, in a promotional brochure for Mazur GmbH prepared in about 2002 by Mr Rhein for Mazur GmbH and Apex, Mazur GmbH purported to have in its archive inter alia, the following recordings, namely (1) 280 hours of “High Definition Classics”, (2) 168 hours of “High Definition Jazz”, (3) 75 hours of “High Definition World”, (4) 130 hours of “High Definition Nostalgia”, (5) 85 hours of “Beaux Rose + Sense & Sounds”, (6) 28 hours of “Beaux Authentics”, (7) 66 hours of “Beaux”, (8) 14 hours of “Beaux Jazz”, (9) 24 hours of “Gov”, (10) 69 hours of “Memo Music”, (11) 150 hours of “Road Classics”, and (12) 200 hours of “Super Audio CD”, being a total of approximately 1,289 hours of sound recordings.
Mazur Ltd and Apex claim that the Defendants have acted unlawfully in failing, despite requests to do so, to deliver up all the Masters previously owned by Mazur GmbH, insofar as: (1) Mazur GmbH does not own and is not entitled to any interest in any of the Masters in the control of Mazur GmbH; (2) Mazur GmbH is in breach of instructions given on about April 11, 2002 by or on behalf of the owner, i.e. Mazur Ltd or Apex, of all the Masters then in the control of Mazur GmbH to deliver the Masters to Mazur Ltd or Apex; (3) Mrs Mazur does not own and is not entitled to any interest in any of the Masters in the control of any of the Defendants and which were owned by Mazur GmbH prior to April 11, 2002; (4) Mrs Mazur is in breach (a) as a director of Mazur GmbH, of instructions given on about April 11, 2002 by the owner, Mazur Ltd or Apex, of all the Masters in the control of Mazur GmbH to procure the delivery of the Masters to Mazur Ltd or Apex; (b) further or in the alternative, as a party to the Share Sale Agreement, of the terms of the Share Sale Agreement; (5) Mr Rhein does not own and is not entitled to any interest in any of the Masters in the control of any of the Defendants and which were owned by Mazur GmbH prior to April 11, 2002; (6) Mr Rhein is in breach, for the period when he was a director of Mazur GmbH, of instructions given on about April 11, 2002 by Mazur Ltd or Apex to deliver the Master tapes to Apex; (7) Mr Sack has refused to deliver up the Masters.
In the prayer Mazur Ltd and Apex claim (1) a declaration that Mazur Ltd, alternatively Apex, is the legal and beneficial owner of all rights and interests in the Masters, including the copyrights therein and the ownership of the actual items; (2) an order for delivery up of the Masters in the respective Defendant’s possession, power, custody or control; (3) an enquiry as to damages against all Defendants for conversion of the Masters; (4) an enquiry as to damages against Mrs Mazur for breach of the Share Sale Agreement. An account of profits for breach of copyright is no longer pursued.
The Defendants, by application notice dated March 15, 2004, apply for orders (1) that the service of the claim form as against Mr Sack and Mr Rhein be set aside; and (2) that the action be stayed as against Mazur GmbH. The application also seeks, on behalf of Mazur GmbH and Mrs Mazur, a declaration that the court has only “limited jurisdiction” over them. On the merits, the Defendants say that (a) the Assignment of copyright governed by German law is ineffective under German law, because it had already been assigned by way of security to a third party; and (b) in any event, there is no reason to imply the term for which the Claimants contend.
V The parties’ position on jurisdiction
These proceedings are civil or commercial matters within the meaning of the Council Regulation (EC) No. 44/2001 (“the Judgments Regulation”), and each of the Defendants is domiciled in a Regulation State, namely Germany. Accordingly, proceedings can be brought against them in this country only in accordance with the rules set out in Sections 2 to 7 of Chapter II of the Judgments Regulation: Article 3.
The only heads of jurisdiction relied on by the Claimants are:
Article 5(3), by which a person domiciled in a Regulation State may be sued in another Regulation State “in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur.”
Article 23(1): “If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. … Such an agreement conferring jurisdiction shall be either: (a) in writing or evidenced in writing …”
The Defendants say that the English court has no jurisdiction over Mr Sack and Mr Rhein, and only limited jurisdiction over Mazur GmbH and Mrs Mazur. They accept that the English court would have jurisdiction in the claim by Apex against Mrs Mazur for damages under the Share Sale Agreement, by virtue of the exclusive English jurisdiction clause.
The Defendants also originally made a concession (to which I shall revert) that the English court would have jurisdiction in the claim by Mazur Ltd against Mazur GmbH based on the proposition that business efficacy required that a term be implied in the Assignment that title to the Masters was being transferred.
The Defendants’ argument is as follows:
Apex has no properly pleaded claim to title to the Masters, and no basis for the court’s jurisdiction to determine it. Apex pleads (Particulars of Claim, paragraph 18(h)) that the Share Sale Agreement required Mrs Mazur to deliver or cause Mazur GmbH to deliver up to Apex “all Recordings”. But it is legally impossible for the Share Sale Agreement alone, nor a failure by Mrs Mazur to comply with her obligations under it, to result in any transfer of property belonging to Mazur GmbH. Apex cannot establish a case that it has or at any stage had any proprietary or possessory interest in the relevant property, without which it cannot bring itself within any relevant provision of the Judgments Regulation.
It follows that, irrespective of any arguments about the width of the jurisdiction clause in the Share Sale Agreement or the location of any tort, none of Apex’s title-derived claims can be entertained by the English court.
So far as Mr Sack and Mr Rhein are concerned, no jurisdictional basis exists. Since there is no contract between either of Mazur Ltd and Apex and either of Mr Sack and Mr Rhein, the only conceivable head of alternative jurisdiction against them would be under Article 5(3), and even that could only apply to the claims for damages for conversion. The claims for a declaration as to title and for an order for delivery up do not fall within Article 5(3), as they do not seek to establish a liability on the part of the Defendants: see Case 189/87 Kalfelis v Bankhaus Schroder, Munchmeyer, Hengst & Co [1988] ECR 5565. The claim for “further and other relief” is a fortiori.
To bring the claim within Article 5(3) would necessarily involve a pleaded allegation that “the harmful event” had occurred within the jurisdiction. No such pleading has been, nor could be, made. There is no such tort in English law or German law as “failure to deliver to a particular address,” as is suggested in the evidence of Mazur Ltd and Apex. The jurisdictionally-significant conduct has all taken place in Germany: Case C-364/93 Marinari v. Lloyd’s Bank [1995] ECR I-2719.
Whatever the width of the jurisdiction clause in the Share Sale Agreement, it cannot extend to any claim brought against Mrs Mazur by Mazur Ltd in tort, since Mazur Ltd is not party to the Share Sale Agreement.
Even in relation to Apex, and assuming that it had any claim in tort, the court has no jurisdiction. In relation to Article 5(3), the same considerations apply as in respect of Mr Sack and Mr Rhein. Apex cannot rely on the exclusive jurisdiction clause in the Share Sale Agreement for the purposes of the tort claim also. The parties have agreed that a “particular legal relationship” should be subject to the jurisdiction of the English court, viz., the Share Sale Agreement. That relationship does not encompass any (alleged) subsequent conversion of property which in any event never belonged to Apex.
Mazur GmbH accepts that the court has jurisdiction to entertain those claims brought in the name of Mazur Ltd which fall within the jurisdiction clause in the Assignment. But this can extend only to the claims under the first two heads of relief sought by Mazur Ltd in the prayer to the Particulars of Claim: a claim for conversion of property said to have been assigned is not a claim “arising in relation to” the Assignment. The Assignment is merely part of the factual background to the claim.
It cannot be said, for the purposes of Article 23(1), that the “particular legal relationship” which “the parties … have agreed” should be subject to the jurisdiction of the English court, viz., the Assignment, extends to encompass any (alleged) conversion of the property (allegedly) assigned: that relationship is merely incidental to any alleged tort.
So far as the claims brought by Apex are concerned, the same considerations apply in relation to Mr Sack and Mr Rhein.
The Claimants’ argument is as follows:
Article 23(1) of the Judgments Regulation confers on the court exclusive jurisdiction to decide all disputes in relation to each of (a) the Share Sale Agreement between Mrs Mazur and Apex and (b) the Assignment between Mazur GmbH and Mazur Ltd.
The place of performance of the obligation by Mrs Mazur under the Share Sale Agreement was England, the place where the delivery of the Masters was to take place.
The Claimants were, as a matter of contract, as against Mazur GmbH, to have the exclusive rights in respect of the Masters, since they embodied the sound recordings in which Mazur Ltd (the subsidiary) was to own the copyright and were the main asset which Apex (the parent) was buying. For the Defendants to deal with the Masters other than to the order of Mazur Ltd and Apex was conversion of the Masters. The Claimants also mentioned in argument that they had a claim for wrongful interference with contract, but no such claim has been made.
The “place where the harmful event occurred” arising from the tort of conversion is England. It is in England that the Masters were supposed to be delivered by Mazur GmbH to Apex pursuant to the Share Sale Agreement. The Defendants are alleged to have converted the Masters by the failure to deliver, or to procure or to allow the delivery of, the Masters in that way. It is in England where the relevant damage was suffered - the failure to deliver there caused physical damage to be done there and that is where the recoverable economic loss is actually suffered.
V Jurisdiction
In principle the appropriate standard which a claimant must satisfy to establish the jurisdiction of the English court for the purposes of the Judgments Regulation is a good arguable case, which is a concept with some degree of flexibility depending upon the issue: Canada Trust Co v Stolzenberg (No.2) [1998] 1 WLR 547, 558, per Waller LJ, approved [2002] 1 AC 1, at 13, per Lord Steyn.
For the purposes of Article 5(3) of the Judgments Regulation “tort, delict or quasi-delict” has an autonomous meaning, and covers actions which seek to establish the liability of a defendant and which are not related to a contract within the meaning of Article 5(1): Case 189/87 Kalfelis v Bankhaus Schroeder Münchmeyer Hengst & Co. [1988] E.C.R. 5565, para 17; Case C-261/90 Reichert v Dresdner Bank AG [1992] E.C.R. I-2149, para 16; Case C-51/97 Réunion Européenne SA v Spliethoff’s Bevrachtingskantoor BV [1998] E.C.R. I-6511, para 22.
The place where the harmful event occurs covers both the place where the damage occurred and the place of the event giving rise to it, and the defendant may be sued, at the option of the claimant, in the courts for either of those places: Case 21/76 Bier v Mines de Potasse d’Alsace [1976] ECR 1735, paras 24-25; Case C-220/88 Dumez France v Hessische Landesbank [1990] ECR I-49, para 10; Case C-69/93 Shevill v Presse Alliance [1995] ECR I-415, para 20; Case C-364/93 Marinari v Lloyd’s Bank plc [1995] E.C.R. 1-2719, para 11.
In Case 21/76 Bier v Mines de Potasse d’Alsace [1976] ECR 1735 the European Court was concerned with a case in which the event which was at the origin of the damage (the discharge into the French part of the Rhine of saline waste) was in France, and the alleged damage (to the horticultural business of the first plaintiff, and to the waters of the Rhine in general) occurred in the Netherlands. The European Court held that both the place of the event giving rise to the damage and the place where the damage occurred constituted a significant connecting factor from the point of view of jurisdiction, and each of them could be particularly helpful from the point of view of evidence and the conduct of proceedings. Accordingly the plaintiff had an option to commence proceedings either at the place where the damage occurred or the place of the event giving rise to it. To decide in favour only of the place of the event giving rise to the damage would cause confusion between the heads of jurisdiction laid down by Articles 2 and 5(3) (i.e. it would tend towards the place of domicile of the defendant), and to decide only in favour of the place of damage would exclude a helpful connecting factor with the jurisdiction of a court particularly near to the cause of the damage.
When determining the place where the damage occurred, account should not be taken, for the purposes of determining jurisdiction under Article 5(3), of indirect financial damage, or of the adverse consequences of an event which has already caused damage elsewhere. If indirect financial damage qualified, that would give too much weight to the plaintiff’s domicile, and enable a plaintiff to determine the competent court by his choice of domicile: Case C-220/88 Dumez France v Hessische Landesbank [1990] ECR I-49, paras 19-20; Case C-364/93 Marinari v Lloyd’s Bank plc [1995] E.C.R. 1-2719, para 14; Case C-51/97 Réunion Européenne SA v Spliethoff’s Bevrachtingskantoor BV [1998] E.C.R. I-6511, para 29; Case C-168/02 Kronhofer v. Maier, June 10, 2004 (which only became available after the hearing in this case).
The English court has exclusive jurisdiction by virtue of Article 23(1) of the Judgments Regulation in relation to claims under the Share Sale Agreement and the Assignment.
Consequently the English court has jurisdiction to determine the claim by Apex against Mrs Mazur for damages for breach of the obligation in the Share Sale Agreement to deliver the Masters to Apex, or procure them to be delivered. There appears to be no defence to this claim. The English court would also have jurisdiction to order Mrs Mazur to deliver up to Apex such of the Masters as were in her possession, since such an order would be an ancillary order in the contractual claim over which the court has jurisdiction. I should add that in the prayer Mazur Ltd appears to claim damages under the Share Sale Agreement, but this is obviously unsustainable.
There is no legal basis for the claim by Apex under the Share Sale Agreement for a declaration against Mrs Mazur that it is the owner of the Masters. The Share Sale Agreement did not transfer, nor could it have transferred, ownership of the Masters from Mazur GmbH to Apex. It was purely an agreement for the sale of the shares in Mazur GmbH: clause 2 and 7. It follows that there can be no claim by Apex against Mazur GmbH, Mr Sack or Mr Rhein for a declaration that it owns the Masters, or for an order for delivery up ancillary to that declaration.
I deal below with the question whether Apex can sue any of the Defendants for conversion. But even if it had a cause of action in conversion against Mrs Mazur, the claim would not fall within Article 5(3) because the alleged conversion is precisely the same as the alleged breach of contract, and the action would therefore be related to a contract within the meaning of Article 5(1), and therefore not within Article 5(3): Case 189/87 Kalfelis v Bankhaus Schroeder Münchmeyer Hengst & Co. [1988] E.C.R. 5565, para 17; Case C-261/90 Reichert v Dresdner Bank AG [1992] E.C.R. I-2149, para 16; Case C-51/97 Réunion Européenne SA v Spliethoff’s Bevrachtingskantoor BV [1998] E.C.R. I-6511, para 22.
If there is a serious issue to be tried on the merits in relation to a claim by Mazur Ltd against Mazur GmbH under the Assignment, then the English court would have exclusive jurisdiction by virtue of the jurisdiction clause in the Assignment.
The Assignment is expressed to be an Assignment of the copyright in the Masters. As I have said, the Defendants conceded that there was a serious issue to be tried on Mazur Ltd’s claim that there was a term of the Assignment necessarily to be implied for reasons of business efficacy that Mazur Ltd acquired from Mazur GmbH under the Assignment the legal and beneficial ownership of, and all rights and legal title to, all the Masters insofar as such ownership, rights and title were not transferred to Apex under the Share Sale Agreement. In the course of the hearing I questioned whether it was arguable that such a term was required to give business efficacy to the Assignment, since it was executed after the Share Sale Agreement, the effect of which was that possession of the Masters would be in a group, in which Mazur GmbH would be the parent of Mazur Ltd, and Apex would be the parent of Mazur GmbH.
As a result, the Defendants argued that there was no serious issue to be tried on the claim under the Assignment. The Claimants retorted by relying on the evidence by one of the administrative receivers that he had been informed by Mr Maloney (the former managing director of Apex) that it is the custom of the trade to transfer the copyright in a sound recording with title to the master tape holding the sound recording, and that the administrative receiver’s own investigations confirmed Mr Maloney’s views. To succeed in establishing a term to be implied by custom, Mazur Ltd will have to show on the application to amend that it has some prospect of establishing an invariable, notorious, certain and general usage, which is more than a mere trade practice.
The question of whether there was any legitimate claim under the Assignment arose only at the hearing of these applications. It was not possible for the matter to be fully researched and argued, and evidence of the factual matrix might be required. In those circumstances I consider it more consistent with procedural fairness to proceed on the basis of the Defendants’ original concession that there is a serious issue to be tried in relation to the claim under the Assignment by Mazur Ltd for a declaration against Mazur GmbH that Mazur Ltd is the owner of the Masters. That is a contractual claim which would fall within the scope of the jurisdiction clause. Whether there is a basis for that claim to go to trial would be more conveniently decided on an application to strike out the implied term claim, and on any application by Mazur Ltd to amend to plead a term implied by custom.
The English court would have jurisdiction to make an order for delivery up of the Masters, because that would be ancillary to the claim for a declaration as to ownership, but it would not have jurisdiction in a claim by Mazur Ltd against Mazur GmbH for damages for conversion for the same reason as in paragraph 30 above.
Mazur Ltd also claims a declaration against Mr Sack, Mrs Mazur and Mr Rhein that it owns the Masters, and orders for delivery up. There is no basis for jurisdiction in relation to these claims.
That leaves the claims in conversion by Mazur Ltd against Mr Sack, Mrs Mazur and Mr Rhein, and the claims in conversion by Apex against Mazur GmbH, Mr Sack and Mr Rhein. Mazur Ltd’s claim is put on the basis of its immediate right of possession as owner deriving from the Assignment which it claims carried with it a transfer of ownership of the Masters. The claim by Apex is put on the basis of its contractual right to possession deriving out of the Share Sale Agreement, which was an agreement with Mrs Mazur.
Upon completion of the Share Sale Agreement, Apex became the parent company of Mazur GmbH. Mazur GmbH transferred the copyright in the Masters to Mazur Ltd. Apex at no time had any proprietary right in the Masters. They were and are owned by Mazur GmbH (according to the Defendants), or were owned by Mazur GmbH and are now owned by Mazur Ltd (according to the Claimants).
As I have said, Clause 3(2)(j) of the Share Sale Agreement required Mrs Mazur to deliver (or cause to be delivered) the Masters to Apex at completion. In International Factors v. Rodriguez [1979] 1 QB 351 the majority view (Sir David Cairns and Bridge LJ) was that a mere contractual right to possession (in that case, of cheques) was insufficient to found an action in conversion, but that the plaintiffs had more than a mere contractual right to possession, because they had equitable rights in the cheques. Buckley LJ thought that a contractual right to demand immediate delivery was a sufficient right to possession to give a status to sue in conversion. In MCC Proceeds Inc. v. Lehman Brothers [1998] 4 All ER 675 the Court of Appeal decided that International Factors v. Rodriguez was decided per incuriam to the extent that it held that equitable rights conferred a status to sue in conversion, or that the holding was obiter.
The Defendants accept that, at least for the purposes of the threshold test of a serious issue to be tried or good arguable case that a mere contractual right to possession can found title to sue in conversion, provided the right to possess is “immediate”: see Halsbury’s Laws, Vol. 45(2), paras 559-560. But they say that Apex did not have a “mere contractual right to possession” in the sense comprehended by the authorities, which contemplate that the agreement to transfer possession will be made by a party entitled to do so. As a matter of principle and common sense, where goods belonging to and in the immediate possession (whether physical or delegated) of A are the subject of an agreement by B to transfer to C, it is difficult to see any good reason how or why such an agreement should bestow upon C any title to sue A in tort for refusing to surrender them. A contractually-granted immediate right to possession of goods can only be sufficient to give title to sue in conversion where the contract is with a party entitled – as a matter of its own possessory title – to grant it.
The Claimants rely on what Lord Nicholls said in Kuwait Airways Corp v. Iraqi Airways Co. (Nos. 4 and 5) [2002] 2 AC 883 at page 1084, para 39:
“Conversion of goods can occur in so many different circumstances that framing a precise definition of universal application is well nigh impossible. In general the basic features of the tort are threefold. First, the defendant’s conduct was inconsistent with the rights of the owner (or other persons entitled to possession). Second, the conduct was deliberate, not accidental. Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods.”
Apex has had at all material times “an immediate legal right to possession” of the Masters, albeit a contractual right, by reason of (1) the Share Sale Agreement, (2) instructions given to all the relevant Defendants by respective Claimants, (3) delegated possession at material times to Mazur GmbH, a wholly owned subsidiary of Apex and a member of the same group of companies as Mazur Ltd, and (4) the fact that there is no suggestion that there is a bona fide purchaser for value without notice to defeat Apex’s right.
I am satisfied that Apex has no right to claim in conversion, or for an order for delivery up ancillary to that claim. Mrs Mazur was not the owner, nor the person in possession. At the time of the Share Sale Agreement that person was Mazur GmbH. There is no plea and no evidence that Mrs Mazur had possession of the relevant goods, nor that she was entitled to such possession in her personal capacity. There is no plea or evidence that Mrs Mazur was in any way empowered by Mazur GmbH to transfer or to procure the transfer of possession of the Masters on behalf of Mazur GmbH. She entered into the Share Sale Agreement as shareholder, and gave the undertaking to Apex as a comfort that the share sale would be effective to transfer a company with the relevant assets. I accept the Defendants’ argument that the agreement to transfer must be made by the person who would, but for the agreement, otherwise have been entitled to possession of them. This nexus between the person contracting and the goods in question is, as a matter of principle and common sense, essential for the contract to give an immediate right to possession of the goods in the sense required before title to sue in tort can arise. In this case property in and any immediate right to possession of the goods in question was vested in Mazur GmbH. Apex did not, therefore, have a such a right to the possession of the goods as would be sufficient to give it title to sue in conversion.
But I am satisfied that the English court has no jurisdiction in the conversion claims even if (a) Mazur Ltd is right in its contention that there was an implied term that it was entitled to property in the Masters under the Assignment; and (b) Apex can sue in conversion as a result of its contractual rights against Mrs Mazur to possession under the Share Sale Agreement.
The place where the harmful event occurs covers both the place where the damage occurred and the place of the event giving rise to it, and the defendant may be sued, at the option of the claimant, in the courts for either of those places. But when determining the place where the damage occurred, account should not be taken, for the purposes of determining jurisdiction under Article 5(3), of indirect financial damage, or of the adverse consequences of an event which has already caused damage elsewhere. In my judgment the alleged tort was not a tort where all relevant elements occurred in England nor is it a cross-border tort where the event giving rise to the damage occurred in Germany and the damage occurred in England.
In Case C-364/93 Marinari v Lloyd’s Bank plc [1995] E.C.R. 1-2719, paras 14-15, the European Court said:
“Whilst it has thus been recognized that the term ‘place where the harmful event occurred’ within the meaning of Article 5(3) … may cover both the place where the damage occurred and the place of the event giving rise to it, that term cannot be construed so extensively as to encompass any place where the adverse consequences can be felt of an event which has already caused damage actually arising elsewhere.
Consequently, that term cannot be construed as including the place where … the victim claims to have suffered financial damage following upon initial damage arising and suffered by him in another Contracting State.”
Mr Marinari had lodged with Lloyd’s Bank in Manchester promissory notes to the value of $752 million. The notes were seized by the police after the bank’s suspicions were aroused. He sued the bank in Italy claiming (inter alia) the value of the notes of which he had been deprived. The effect of the decision is that the Italian court did not have jurisdiction, because the initial damage was suffered in England, and Italy was the place where the victim had suffered financial damage consequential on the original damage.
In Domicrest Ltd v Swiss Bank Corporation [1999] QB 548 the English claimant sued a Swiss bank for negligent mis-statement. The mis-statement was allegedly made in a telephone conversation between an English agent of the claimant and an officer of the bank in Switzerland, who was said to have represented that the transmission of a copy payment order by the bank to the claimant constituted an assurance by the bank that payment would be made for the amount referred to in the order and that such payment was guaranteed by the bank. The claimant said that as a result of those representations, it agreed, contrary to its usual practice, to release goods in Switzerland and Italy on receipt of the copy payment order from the bank rather than waiting until it had been paid. The bank subsequently refused to pay on three copy payments orders in respect of goods which had been released from store in Switzerland and Italy. It was held that the place of the damage was in Switzerland and Italy, where the goods were released without payment, rather than England, where the Swiss purchaser would have paid the price. The reasons for that finding were (a) that it was by reference to the loss of the goods that the damages were pleaded; and (b) that the essence of the complaint was that the goods were released prior to payment.
In the present case, the Claimants have not established, either on the evidence or by argument, that the harmful event occurred in England, either because England is the place where the damage occurred, or because England was the place of the event giving rise to the damage. The Defendants asserted in their evidence that the harmful event for the purposes of jurisdiction under Article 5(3) over the claims by both Claimants against Mr Sack and Mr Rhein occurred in Germany where the alleged wrongful possession and/or use of the Masters took place, even if consequential financial loss was later suffered in England. In reply, the Claimants said in Mr Goodman’s witness statement that “the harmful event upon which the Second Claimant [i.e. Apex] relies is the failure to deliver up the master tapes to the Second Claimant at its offices in Wembley.” In argument, the Claimants said that the place where the harmful event occurred was England: the Masters were supposed to be delivered in England under the Share Sale Agreement, and the Defendants were alleged to have converted the Masters by the failure to deliver, or to procure or allow the delivery of, the Masters in England. They said that the relevant damage was suffered in England: the failure to deliver there caused physical damage to be done there and that is where the recoverable economic loss was actually suffered.
In my judgment, none of these arguments is sustainable. The Claimants do not, as they must, distinguish between the claims by Mazur Ltd and Apex. If Apex has a claim in conversion against Mazur GmbH, Mr Sack and Mr Rhein, it is based on their continued detention and use of the Masters in Germany, and that is plainly where (if anywhere) the event giving rise to any damage occurred. There is no evidence or argument on the alleged damage to Apex, but the only likely candidate for damage to Apex is the diminution in value of its shares in Mazur GmbH, a German company, as a result of the failure of Mrs Mazur to deliver the Masters, or as a result of the detention of the Masters by the relevant Defendants. There is no possible basis for regarding that loss as damage in England for the purposes of Article 5(3).
If Mazur Ltd is the owner of the Masters, then its claim in conversion against Mr Sack, Mrs Mazur and Mr Rhein is also based on their continued detention and use of the Masters in Germany. The fact that Mrs Mazur was under a contractual obligation to deliver them in England cannot alter that fact. I do not consider that I am assisted by the Claimants’ reliance on Case C-51/97 Réunion Européenne SA v Spliethoff’s Bevrachtingskantoor BV [1998] E.C.R. I-6511, paras 34-37 for the proposition that the contractual place of delivery is the place where the damage arose. But that ruling was in the context of a case in which the place where the event giving rise to the damage occurred may be difficult or impossible to determine. The Court (at para 29) confirmed the need to avoid interpreting Article 5(3) so as to confer jurisdiction on the court of the plaintiff’s domicile.
Nor is there any evidence that any consequential loss to Mazur Ltd in England was anything other than indirect. The Assignment of copyright was worldwide, and not only is there is no evidence that England was the sole intended place of exploitation of the copyright, but also it is clear from the evidence of Mr Maloney that until the parties fell out the group had a Europe wide business. In any event I consider that for the purposes of Article 5(3) damage flowing from inability to exploit the copyright as a result of not having physical possession of the Masters would be, for the purposes of Article 5(3), the kind of financial loss which the decision in Case C-364/93 Marinari v Lloyd’s Bank plc [1995] E.C.R. 1-2719 rules out.
VI Stay application by Mazur GmbH and the Insolvency Regulation
Mazur GmbH has applied for a stay of the English proceedings against it on the ground of the existence of the German insolvency proceedings. If I am right in my conclusions on jurisdiction, then the only relevant claim to which this application would apply is the claim by Mazur Ltd against Mazur GmbH for a declaration and delivery up under the Assignment. But I will also consider it in relation to the conversion claims against Mazur GmbH, in case I am wrong on jurisdiction.
The evidence on German law is broadly to the effect that following insolvency proceedings all pending actions in Germany are subject to an automatic stay. A claim for damages is lodged in the insolvency proceedings, and if it is disputed by the liquidator, the claimant may seek recognition of the claim with the court having conduct of the insolvency proceedings. But it is common ground that in the circumstances of this case the effect of the Insolvency Regulation is that it is for English law to determine whether the proceedings against Mazur GmbH by Mazur Ltd and Apex should be stayed, and whether Mazur Ltd and Apex should be required to prove their claims in the German insolvency proceedings.
By section 130(2) of the Insolvency Act 1986: “When a winding-up order has been made … no action or proceeding shall be proceeded with or commenced against the company or its property, except by leave of the court and subject to such terms as the court may impose.” Section 130(2) gives the court freedom to do what is right and fair in all the circumstances: New Cap Reinsurance Corp Ltd v HIH Casualty and General Insurance Ltd [2002] 2 BCLC 228, 233 (C.A.).
Mazur GmbH contended that the English court should maintain the stay of the claims against it under section 130(2) of the Insolvency Act 1986, because of the German insolvency proceedings. Its argument was as follows:
Council Regulation (EC) No.1346/2000 (“the Insolvency Regulation”) governs the effect in England of the German insolvency proceedings against Mazur GmbH.
By Article 4: “(1) Save as otherwise provided in this Regulation, the law applicable to insolvency proceedings and their effects shall be that of the Member State within the territory of which such proceedings are opened, hereafter referred to as the ‘State of the opening of proceedings.’ (2) The law of the State of the opening of proceedings shall determine the conditions for the opening of those proceedings, their conduct and their closure. It shall determine in particular: ….. (b) the assets which form part of the estate … (e) the effects of the insolvency proceedings on proceedings brought by individual creditors, with the exception of lawsuits pending … ”
By Article 15: “The effects of insolvency proceedings on a lawsuit pending concerning an asset or a right of which the debtor has been divested shall be governed solely by the law of the Member State in which that lawsuit is pending.”
In the circumstances of this case a stay would be appropriate for these reasons: (a) any claim in tort can only add to the cost of the proceedings, for no realistic benefit; (b) either the claim in respect of title will succeed, in which case the Claimants will recover and Mazur GmbH lose the Masters – and any judgment for substantial damages will be worth at most a very few cents in the Euro in the German liquidation; or the claim in respect of title will fail, in which case any damages claim will fall with it; (c) in relation to the remaining claims (i.e., those which relate to the disputed title to the Masters), there is another available jurisdiction which may hear them – and probably at less expense; (d) if the tortious claims against the other Defendants have to be heard in Germany and that the issue of title is key to those claims also, commonsense suggests that – if a multiplicity of proceedings (with the attendant duplication of cost and risk of inconsistent decisions) is to be avoided – a stay would be appropriate and fair, not least given that the bank behind the Claimants will have deep pockets, whereas the German liquidator’s means will be far more restricted.
The position of Mazur Ltd and Apex was that the court’s discretion should be exercised to permit them to continue with their claims against Mazur GmbH. Justice required that result: the English court has a much closer connection with the rights and interests in the Masters than the court in Germany; this action was commenced prior to the commencement of the Hanover proceedings; it is better for the rights and interests of parties under English law to be considered and decided by the English court, and not by the German court through experts on English law; the issues are defined and the pre-action protocols have been satisfied in this action, and so the parties are further advanced here; one party, at least, Mrs Mazur, will have this action continued against her in this jurisdiction, even if only to a limited extent; and it is to be much preferred that all interested litigants (who can properly be made parties to this action concerning, effectively, the same subject matter) are a part of this action.
I invited submissions on (a) whether section 130(2) had any application to this case, since it deals with winding up by the court in England, and gives no power to stay, or continue the stay, of proceedings caused by a foreign winding up; and (b) if section 130(2) had no application, whether the court had power to stay the English proceedings. As a consequence, I received written submissions from both sides following the hearing.
Mazur GmbH’s position was that section 130(2) could apply directly, but if not, then it could be applied by analogy. There was a general principle in favour of giving judicial assistance to foreign insolvency proceedings by preventing their disruption by the actions of individual creditors: Banque Indosuez v. Ferromet Resources [1993] BCLC 112, 117-8, per Hoffmann J. Where, as here, the foreign liquidator has applied for the stay of the proceedings not to be lifted, the English court should take this into account when considering what course would be right and fair in the circumstances of this case.
The argument on behalf of Mazur GmbH was elaborated in this way:
By section 221 of the 1986 Act and subject to the provisions of Part V “all the provisions of this Act and the Companies Act about winding up apply to an unregistered company”. A foreign company is an “unregistered company” within the meaning of Part V: Stocznia Gdanska v. Latreefers (No. 2) [2001] 2 BCLC 116. That is so whether or not it carries on business in England. “Winding up order” in section 130(2) can be taken to extend to such orders or their equivalent in other EU jurisdictions.
Parliament had an opportunity, when amending the 1986 Act to take account of the Insolvency Regulation, to make express the application of section 130(2) to foreign windings-up. It did not do so, and, in not doing so, it must have considered that the wording of section 221(1) was sufficiently wide to achieve that result. Were its intention otherwise, then the result would be that an English liquidation would result in a stay of English proceedings, but a German (or French, or Spanish etc.) liquidation would not.
Such a result would breach the fundamental principle of non-discrimination on grounds of nationality enshrined in Article 12 of the Treaty of Rome. The creditors of a company having its main centre of interest in another EU country will tend to be nationals of that country. Their position vis-à-vis English litigation will be less favourable than that of creditors of an English company in liquidation here. Such a result would also be inconsistent with the automatic recognition of insolvency proceedings prescribed by Article 16(1) of the Insolvency Regulation, and would render Article 15, in cases such as the present, a dead letter.
It was, alternatively, submitted on behalf of Mazur GmbH that the provisions of section 130(2) should be applied by analogy to achieve the same objective.
The Claimants’ position is that section 130(2) cannot apply, and that there is no basis for a stay. Section 14 of the Insolvency Act 2000 grants power to the Secretary of State to give effect in English law to the UNCITRAL model law and, inter alia, to require courts with insolvency jurisdiction to co-operate with each other. The power under section 14 expressly includes amendments to section 426(4) of the Insolvency Act 1986, which requires the English court to assist the courts in a “relevant country” (a country designated by the Secretary of State under section 426(11)), but no such amendment has been made. By the Insolvency Act 1986 (Amendment) Regulations 2002, the Secretary of State has made amendments to include in the 1986 Act a number of references to the Insolvency Regulation, but they do not affect sections 130 and 426. There is no residual discretion in the court to stay these proceedings.
The Claimants say that Mazur GmbH is not an unregistered company for the purposes of section 130(2). They argue that section 221 of the 1986 Act applies only to unregistered companies which have a place of business in Great Britain. Stocznia Gdanska v Latreefers (No. 2) [2001] 2 BCLC 116 is authority only for the proposition that an overseas incorporated company, which has been carrying on business in Great Britain “may be wound up as an unregistered company under [the 1986 Act]” (section 225). Section 225 is a deeming provision, providing that such an overseas incorporated company doing business in Great Britain may be wound up as if it were an unregistered company. Because it was doing business in England, Latreefers had to be treated as an unregistered company anyway. By contrast, in this case, for Mazur GmbH to be considered, by virtue of section 221(1) of the 1986 Act, “a company” for the purposes of section 130(2), it must firstly be categorised as “an unregistered company”. But, on the Claimants’ case, it cannot be.
The Claimants say that, in any event, “winding-up order” in section 130(2) is limited to winding-up by the English court. On that basis it does not contravene the non-discrimination principle of Article 12 in the Treaty of Rome. Section 130(2) has a limited purpose. It is designed to simplify and lower the cost of domestic insolvency proceedings and prevent a multiplicity of actions within the same legal system. Cross-border insolvency conflicts are governed by the Insolvency Regulation. The European Court has taken a robust view in rejecting claims of covert or indirect discrimination against foreign nationals introduced by a civil legal procedure aimed at simplifying the process of recovering debts, particularly where creditors can bring proceedings in other EU countries: Case 22/80 Boussac Saint-Frères SA v. Gerstenmeier [1980] ECR 3427.
In my judgment, the Claimants’ conclusion is right, although I do not accept much of their reasoning. First, I do not accept the Claimants’ suggestion in Counsels’ further note of June 29, 2004 that section 130(2) does not apply to a foreign company with no place of business in England. It is plain from the authorities that a foreign company (subject to the jurisdictional requirements of the Insolvency Regulation where it applies) may be wound up in England as an unregistered company under section 221(1) (and its predecessors, including Companies Act 1948, s. 399(1) and Companies Act 1985, s. 666(1)) if there is a sufficient connection with the jurisdiction. That connection may, but does not necessarily have to, consist of assets within the jurisdiction: for recent examples in the Court of Appeal see Banco Nacional de Cuba v Cosmos Trading Corp [2000] BCC 910 and Stocznia Gdanska v Latreefers (No. 2) [2001] 2 BCLC 116. In Re Drax Holdings Ltd [2003] EWHC 2743 (Ch), [2004] 1 WLR 1049 I held that the criteria went to the discretion of the court rather than its jurisdiction.
Second, section 225 of the Insolvency Act 1986 does not affect the position. That section (like its predecessors, including Companies Act 1948, s. 400 and Companies Act 1985, s. 670) gives the court power to wind up a company which has been carrying on business in England but has ceased to do so, notwithstanding that it has been dissolved or ceased to exist under the law of its incorporation. This is a separate power (rarely if ever exercised) and does not affect the power of the court to wind up a foreign company which does not carry on business, or has not carried on business, in England, provided that there is some connection with the jurisdiction.
Accordingly section 130(2) can apply in the case of the winding up in England of a foreign company, but I am satisfied that there is no basis for an argument that section 130(2) can apply to a foreign insolvency proceeding.
It is clear from its context that section 130(2) does not apply to foreign insolvency proceedings, and section 221(1) does not extend it to foreign insolvency proceedings. Nor is there any basis for any argument that it could apply by analogy. Nor do I see any element of discrimination. The effect of Article 4(2)(e) and Article 15 of the Insolvency Regulation is to leave the question whether there should be a stay to the English court in the circumstances in which they apply.
In fact the court has an inherent discretion, re-inforced by the Supreme Court Act 1981, section 49(3), to stay proceedings, whenever it is necessary to prevent injustice. But the power cannot be used in a manner which is inconsistent with the Judgments Regulation. The Civil Jurisdiction and Judgments Act 1982, section 49, provides that nothing in that Act prevents the court from exercising its power to stay, where to do so is not inconsistent with the Brussels or Lugano Conventions. That section has not been amended to refer to the Judgments Regulation, because the Regulation is directly applicable without national legislation. Where the court has jurisdiction under the Judgments Regulation, the power of the court to stay proceedings cannot be used simply because another Regulation State is the forum conveniens: Dicey and Morris, Conflict of Laws, 13th ed 2000, para 11-012.
It follows that the power should not be used simply because the claim in the English proceedings could be made, or more appropriately made, in the German insolvency. I would accept that there is a power to stay English proceedings in favour of insolvency proceedings in a Regulation State to prevent injustice, but it would require exceptionally strong grounds for the English court to exercise that power, particularly where (as regards the contractual claim) the parties have conferred exclusive jurisdiction on the English court. Otherwise, the court would be circumventing the Judgments Regulation by introducing forum non conveniens principles by the back door.
In my judgment none of the factors relied on by Mazur GmbH is such individually or collectively as to amount to such exceptional circumstances as to justify a stay. Each of the factors relied on is a typical forum conveniens factor: the cost of proceedings; the limited value of a damages judgment in the German insolvency; the availability of the German court to determine title to the Masters; and the multiplicity of proceedings and danger of inconsistent judgments. I do not consider that these are legitimate considerations in a case where the court has jurisdiction under the Judgments Regulation (especially exclusive jurisdiction in the case of claims under the Assignment). Even if they were legitimate considerations, they would not have justified a stay. The Assignment is expressly governed by English law, albeit that there may be some proprietary issues governed by German law, and (if there is a defence, which seems doubtful) the claim against Mrs Mazur under the Share Sale Agreement will proceed in England.
VII Overall conclusion
The effect of this judgment is: (a) the English court has jurisdiction to determine Apex’s claim for damages and for delivery up against Mrs Mazur under the Share Sale Agreement; (b) it will also have jurisdiction to determine Mazur Ltd’s claim against Mazur GmbH to title to the Masters under the Assignment and for delivery up, subject to the determination of the issue as to whether Mazur Ltd has an arguable case for a term to be implied by business efficacy principles or by custom; (c) there is no substantive or jurisdictional basis for Apex’s claim for a declaration that it has title to the Masters; (d) the court does not have jurisdiction over the tortious claims against any of the Defendants, nor over the claims against them (other than Mrs Mazur) for delivery up; and (e) there will be no stay in relation to those claims against Mazur GmbH over which the English court has jurisdiction.
After this judgment was circulated in draft, the Defendants indicated that certain factual matters which were treated at the hearing as being common ground might in fact be contentious. I will therefore add what is obvious, namely that for the purposes of this application I am not making any findings of fact. I will hear argument on the form of the order if it cannot be agreed.