Bank of Tokyo-Mitsubishi Ltd & Anor v Baskan Gida Sanayi Ve Pazarlama & Ors

The claimants are The Bank of Tokyo-Mitsubishi, Ltd. (“BTM”) and KBC Bank NV (“KBC”). BTM is a Japanese bank, and KBC is a Belgian bank. They have branches in the City of London.

The first defendant (“Baskan Gida”) is a Turkish company which was incorporated on December 7, 1990. Baskan Gida was at the relevant times owned and controlled by the second to fifth defendants, Ahmet Baskan, Cevat Baskan, Ismet Baskan and Melih Baskan, and other members of the Baskan family. By 2001 Baskan Gida was the world’s largest exporter of hazelnuts.

The sixth defendant (“Aksu Gida”) is a Turkish company which was incorporated in August 1999. Its chairman and 90% shareholder was Latif Aksu, who had been employed by Baskan Gida as a sales manager with responsibility for domestic sales.

The seventh defendant, Indo Mediterranean Commodities Ltd (“Indo-Med”), was incorporated under the Companies Act 1948 on September 27, 1982. Indo-Med carries on business as a trader of food products. It, and its associated companies, have made purchases of hazelnuts from Baskan Gida on behalf of established clients such as Nestlé and Kraft.

The Ferrero group is one of the world’s leading confectionery companies. It has its headquarters in Alba, Italy. The eighth defendant, Ferrero Industrial Services Ltd (“Ferrero Industrial”), whose registered office is in Alba, was incorporated as a European Economic Interest Grouping on June 16, 2000 by the Ferrero group in Europe with a view to centralising the purchasing of hazelnuts and other commodities.

Mr Alessio Casale (“Mr Casale”) was at all material times the Deputy Purchasing Manager of Ferrero Industrial. Mr Alberto Rosa Brunet (“Mr Rosa Brunet”) was at all material times the managing director of Ferrero Industrial.

The ninth defendant, Ferrero SpA (“Ferrero Italy”), is an Italian company with its registered office in Alba. The tenth defendant, Ferrero OHGmbH (“Ferrero Germany”), is a German company. The eleventh defendant, Ferrero France SA (“Ferrero France”), is a French company. I shall refer to the eighth to eleventh defendants collectively as “the Ferrero Companies.”

By 1999 Baskan Gida had become the biggest supplier of hazelnuts to the Ferrero group and was responsible for 25% of Turkey’s exports of hazelnuts.  The Banks’ evidence is that approximately two thirds of its exports went to the Ferrero group, with sales in excess of $100 million annually for 1999, 2000 and 2001. Baskan Gida’s only other customer of any significance, Storck (a major German confectionery company), made purchases of some $10-15 million p.a. between 1997 and 2001.

In May 2001, PRI Financial Management (“PRI”), a financial institution based in New York, approached the Banks on behalf of Baskan Gida with a view to obtaining for Baskan Gida a loan facility to enable it to fund the purchase of hazelnuts from growers and other suppliers.

Between July 11 and 13, 2001 there were meetings at Baskan Gida’s main plant attended by representatives of the Banks and of PRI, and by Cevat Baskan and Ahmet Baskan and Mr Casale.  The Banks’ case is that, during these meetings, the Banks informed Mr Casale that they required the active co-operation of the Ferrero group before they were prepared to contemplate granting a facility to Baskan Gida; that it was essential that the trading relationship between the Ferrero group and Baskan Gida be reduced into writing in a Framework Contract; and that Baskan Gida would have to provide security for the repayment of any loan made by the Banks.

On July 31, 2001 Mr Casale sent an e-mail to Melih Baskan, which consisted of a letter or e-mail to Mr Byles of BTM. Since a letter in identical terms was sent to Mr Byles on December 13, 2001, it is likely that the communication to Mr Byles in the e-mail to Melih Baskan is a draft which was not sent until December. The full terms of the letter are set out below (para 30). It confirmed that Ferrero had a very close working relationship with Baskan Gida, and that Ferrero relied on Baskan Gida’s ability to provide consistent shipments of the highest standard on a timely basis.

On October 15, 2001, Baskan Gida and Ferrero Industrial (“for itself and on behalf of each of Ferrero Companies”) entered into what was described as a “Framework of General Terms and Conditions” (“the Framework Contract”).

Under the contract the Ferrero Companies did not have any obligation to purchase. Clause 2 stated that since the centralisation of its purchasing department in 1999, Ferrero had purchased over 30,000 tons of hazelnuts from Baskan Gida annually, and expected those trends to continue.

Clause 3 provided for a method of supply, under which Baskan Gida would report to Ferrero on a daily basis the amount and price of the different quality hazelnuts which had been purchased by Baskan Gida, and every 2 or 3 days Ferrero would inform Baskan Gida about the amount and specification of hazelnuts which each Ferrero Company required, and Baskan Gida would indicate the prices, and send invoices. By clause 3.3, “Subject to terms of the contracts” Baskan Gida would deliver the hazelnuts to Ferrero on FOT and/or CPT terms at Baskan Gida’s facilities, i.e. in Turkey, when property and risk would pass (clause 5.1).

By clause 6 payment for each order was to be made by the relevant Ferrero company in euros to a bank account in Baskan Gida’s name or to such other bank account as might be advised by Baskan Gida to Ferrero from time to time on the date after delivery against presentation of documents.

By clause 8: “The governing law of the contracts signed between Ferrero and Baskan are determined on each of the contract [sic] signed, which is generally the governing law of the country the Ferrero Company signing the contract is located.”

By clause 9 either party could assign its rights under the contract by way of security or otherwise, without having to obtain the approval of the other party. By clause 9(2) any such assignment would be effected by notice in writing from the assignor, countersigned by the assignee to signify its acceptance of the obligations under the Framework Contract.

On December 14, 2001 the Banks entered into a $35 million pre-export financing facility agreement with Baskan Gida (“the facility agreement”), the purpose of which was to provide Baskan Gida with finance to purchase hazelnuts up to a maximum of the lesser of 90% of sales contract value and 100% of the purchase price paid by Baskan Gida to cover the gap between purchase of the hazelnuts from local farmers until payment was received from buyers. The facility agreement was subject to English law and English jurisdiction (but the Banks retained the right to sue elsewhere).

The conditions precedent to utilisation of the facility included execution of Security Documents, and the provision of notices of assignment to Baskan Gida’s customers (including, of course, Ferrero) and acknowledgements of such notices: clause 4 and Schedule 2.

The mechanics for use of the facility were, in summary, as follows: (a) Baskan Gida would make a utilisation request (which was a request to BTM to issue a letter of credit: see Schedule 3), accompanied by a copy of the relevant Ferrero purchase order; (b) BTM would issue a letter of credit (clause 5.1); (c) Akbank TAS, a Turkish bank (“Akbank”), would act as advising and negotiating bank (clause 5.1(h)); (d) each payment made by BTM under a letter of credit would be deemed to be an advance (clause 5.4); (e) BTM would reimburse Akbank for payments made under the letter of credit pursuant to UCP 500 (Schedule 6).

The Security Documents comprised what were described as: Account Charge, Master Assignment Agreement, Master Pledge Agreement and Master Trust Receipt.  The effect of the Security Documents was to give the Banks the following security:

The Account Charge, the Master Assignment Agreement and the Master Trust Receipt all contained express clauses by which they were to be governed by English law and by which Baskan Gida submitted to the jurisdiction of the English Courts.  The Master Pledge Agreement was subject to Turkish law.

No release of hazelnuts from the warehouse would be permitted without the written authorisation of KBC to SGS.  Once released the hazelnuts were together with their proceeds of sale held on trust by Baskan Gida pursuant to the terms of the Master Trust Receipt.

The Banks’ evidence is that on November 15, 2001, the Banks’ solicitors, in anticipation of the execution of the facility agreement and related Security Documents, circulated a draft Master Assignment Agreement attached to which was a draft notice of Master Assignment Agreement and draft acknowledgement of the Master Assignment Agreement. Copies of these drafts were forwarded to Mr Casale by Baskan Gida and/or PRI at some time prior to December 4, 2001.  Mr Casale then proposed a number of amendments to the draft acknowledgement which was then forwarded to the Banks by Baskan Gida’s solicitors on December 5, 2001.

On December 6 Mr Ismet Baskan sent to Mr Casale draft documentation for Ferrero Industrial and Ferrero France (as a sample for the other Ferrero entities, including not only the Ferrero Companies, the defendants in these proceedings, but also the Ferrero companies in Australia and the United States) consisting of a notification by Baskan Gida that it had agreed to the terms of a working capital facility with the Banks, and requesting the relevant Ferrero company to make payment to accounts of Baskan Gida with KBC; and acknowledgements by Ferrero Industrial and Ferrero France, which contained an undertaking to pay any amounts due under each sales contract dated on or after December 10, 2001 until July 31, 2002 (although this, and the final versions, wrongly stated the year as 2001) to the KBC accounts with Akbank as collecting agent for Baskan Gida.

On December 6, 2001, acknowledgements were executed by the Ferrero Companies. The Ferrero Industrial acknowledgement (which, unlike the others, contains a heading, “Acknowledgement of Notice of Assignment of General terms and conditions for sale of hazelnuts”) includes a confirmation of receipt of a notice from Baskan Gida which is said to be attached (and which is plainly intended to be a reference to a notice of assignment, although Ferrero’s evidence is that the notice, which was ultimately dated December 17, was not attached). No assignment in fact took place until the financing documents were completed on December 14.

The acknowledgements were faxed to Baskan Gida, which copied them to PRI. The Banks’ case is that they received a copy from PRI on December 6 or (in the case of Ferrero France) December 7, 2001.

Each of the acknowledgements had a space for the KBC sort codes and account numbers, but in none of them was the relevant information included. Each of them contained the following note: “Same account information will appear on each invoice supplied by Baskan Gida” to the relevant Ferrero company.

On December 13, 2001 Ferrero Industrial executed a further acknowledgement (dated December 17) of a notice of assignment. It differed from the acknowledgement dated December 8, in that (a) it referred in terms to the notice of which receipt was acknowledged as being a notice that Baskan Gida had assigned its rights in the Framework Contract to KBC and (b) it contained the KBC and Akbank account numbers.

On the same day, December 13, 2001, Mr Casale wrote to Mr Byles of BTM:

“I am writing to confirm our discussion of FERRERO’s experience with Baskan as a supplier. Our company has been working with Baskan Gida since 1991, and on a large-scale basis after initial testing since 1993. Hazelnuts are FERRERO’s single most important source of raw materials, and Baskan has been for several years our largest single supplier of hazelnuts. We have a very close working relationship to coordinate the market strategy for this important commodity, maintaining communication on a daily basis during the harvest season.

As the Deputy Purchasing Manager for FERRERO, I am responsible for coordinating this relationship and can report no significant difficulties since we began cooperating with Baskan. Since the centralization of FERRERO’s purchasing department in 1999, we have purchased over 30,000 tons of natural hazelnuts from Baskan annually. We expect these trends to continue.

In terms of quality, we rely on Baskan’s ability to provide consistent shipments of the highest standard on a timely basis. In fact, out of 200,000 tons supplied since 1991, I am aware of only 4 or 5 truckloads amounting to a total of approximately 100 tons, that FERRERO did not accept under the standards presented by Baskan. These shipments were simply regraded and accepted as a less expensive category. We expect these demanding quality standards to continue on both sides of the relationship.

Please let me know if I can provide any further information.”

Following execution of the facility agreement on December 14, 2001 Baskan Gida executed a notice of assignment (dated December 17, 2001) of the Framework Contract, addressed to Ferrero Industrial and the other Ferrero Companies, which gave notice that pursuant to the Master Assignment Agreement, Baskan Gida had assigned to KBC all of its rights, benefit and interest in the Framework Contract. Baskan Gida instructed the Ferrero Companies to make payments of any amounts becoming due and payable under or in connection with the Framework Contract to the accounts at KBC, and account numbers were specified. The notice asked for an acknowledgement.

There are, in addition, notices dated December 19, 2001 (but apparently sent on December 20, 2001) in which Baskan Gida gives notice to Ferrero Italy, Ferrero France, and Ferrero Germany of assignment of all their rights in all sales contracts, and acknowledgements by those companies dated December 19, 2001 (also apparently sent on December 20, 2001) of the notices of assignments and undertaking to pay any amounts due by them under each sale contract dated on or after December 17, 2001 to the KBC accounts. Ferrero says that these are forgeries. The Banks accept that the signatures of the relevant Ferrero Companies were added to these documents by photocopying signature portions of earlier documents.

On December 21, 2001 Mr Lewis of KBC informed each of Ferrero Industrial, Ferrero Italy, Ferrero Germany and Ferrero France that there was a typographical error in the account numbers for euro payments in the acknowledgements (which must have been the acknowledgements dated December 17 and 19, 2001) and gave the correct account numbers. Mr Lewis asked for an acknowledgement by the Ferrero Companies, but it would appear that only Ferrero France formally acknowledged.

Baskan Gida drew down over €22,821,000 under the facility agreement in 11 tranches between January 3 and February 26, 2002. Only about €1,402,000 has been repaid.

Notice of the Banks’ claim as assignees was sent to Ferrero Industrial and Ferrero Italy under cover of letters dated December 20, 2002. In the letter to Ferrero Industrial, the Banks relied on the acknowledgements by Ferrero Industrial dated December 6 and December 17, 2001. In the letter to Ferrero Italy, the Banks relied on the December 6, 2001 acknowledgement of assignment and on the later acknowledgement signed by Ferrero Industrial, and also stated that “a notice in similar terms may have been sent to Ferrero [Italy] on 19 December 2001 and acknowledged shortly afterwards”.

A without prejudice meeting between the Banks’ solicitor, BTM’s internal counsel, and Italian lawyers acting for Ferrero Industrial and Ferrero Italy, took place on January 22, 2003.

On January 28, 2003 proceedings were commenced in Alba, Italy (which is the centre of Ferrero’s operations) against the Banks (and against Baskan Gida) by Ferrero Industrial and Ferrero Italy, which were served on the Banks on January 31, 2003.

By Article 30(2) of the Council Regulation (EC) 44/2001 on jurisdiction and the enforcement of judgments in civil and commercial matters (“the Judgments Regulation”), a court is deemed to be seised at the time when the document to be served is received by the authority responsible for service, provided that the plaintiff has not subsequently failed to take the steps he was required to take to have the document lodged with the court. It is accepted that the Italian court was seised of the proceedings on January 31, 2003, several months before this action was commenced in the English court.

The plaintiffs are Ferrero Industrial and Ferrero Italy, and the defendants are Baskan Gida and the Banks. Since KBC is a Belgian company, the jurisdiction of the Italian court will depend on the Judgments Regulation. The Judgments Regulation does not apply to BTM, which is a Japanese company. The effect of the Italian Law on Private International Law of 1995 is that the Italian court will have jurisdiction over BTM if (a) it has a representative in Italy authorised to take part in legal proceedings; or (b) any of the jurisdictional rules in the Brussels Convention would (had BTM been domiciled in a Brussels Convention country) apply.

The complaint claims that Baskan Gida is liable for fraud against Ferrero Italy and Ferrero Industrial. Baskan Gida induced the Banks to agree to the facility and misled them as to compliance with the conditions imposed by the Banks, and issued false invoices thus obtaining significant sums from the Banks.

The Banks are said to be liable for having made unlawful demands for payment against Ferrero Italy and Ferrero Industrial. Baskan Gida’s fraudulent project would not have been successful if the Banks themselves had not been seriously negligent. They accepted incomplete documentation, on the basis of which the Banks decided to grant Baskan Gida the facility. The negligence of the Banks had dragged Ferrero Italy and Ferrero Industrial into a damaging action. The Banks knew that the faxes were forgeries when they instructed their lawyers to make the demands, and by their violation of the general rules of loyalty and good faith the Banks are responsible for existing and future damage to the plaintiffs. The damage is twofold: firstly, the disbursements to defend themselves against the unjust claims; secondly, damage to their reputation caused by the discredit attached to the accusation that Ferrero Industrial and Ferrero Italy are in arrears with their payments to their suppliers.

The plaintiffs also claim that the Master Assignment Agreement cannot be asserted against them. For the assignment to be effective against them, Baskan Gida had to give them written notice countersigned by the Banks under clause 9(2) of the Framework Contract, which was not done. After December 14, 2001 no notice of the assignment was ever sent to Ferrero Industrial or any of the Ferrero operating companies. Failure to comply with clause 9(2) was not remedied by the letters sent on December 6 and December 13, 2001. The December 6 acknowledgements were irrelevant because the assignment had not then taken place, as is the document faxed by Ferrero Industrial on December 13. It bears the date December 17, has no attachments and is addressed not only to Baskan Gida but also to KBC to whom it was never sent. Ferrero Industrial’s December 17 acknowledgement could not commit Ferrero Industrial (which had never entered into any supply contract) to make any payments and it was given in its own name, and not on behalf of any group company. Mr Casale removed from the draft proposed by Baskan Gida the statement that Ferrero Industrial was giving a commitment on behalf of the group companies. None of the Ferrero Companies acknowledged the communication from KBC, with the exception of Ferrero France which had an “overzealous accountant.

The negligence forms not only the basis for the compensation claim, but also evidences the foundation for the application that the court should find that no obligation exists. Once the forgeries are set aside, the Banks cannot maintain that the plaintiffs are under any obligation to make payments.

Accordingly the plaintiffs invite the court to compensate Ferrero Italy, and to state and declare that the Master Assignment Agreement cannot be asserted against Ferrero Italy and Ferrero Industrial due to non-compliance with clause 9(2) of the Framework Contract, and in all cases to state and declare that the plaintiffs owe nothing to Baskan Gida or the Banks with respect to the contracts for the sale of hazelnuts.

The Ferrero Italy claim is:

“b)

to state and declare that the Master Assignment Agreement signed by Baskan and KBC (acting in its own name and as agent of BTM) cannot be asserted against Ferrero SpA due to non-compliance with the terms of art.9.2 of said contract entitled “General Terms and Conditions for the Sake of Hazelnuts (Framework)” dated 15 October 2001 between Baskan and GEIE, acting in its own name and on behalf of Ferrero S.p.A., Ferrero OHGmbH, Ferrero France S.A., Ferrero USA Inc. and Ferrero Australasia Manufacturing Pty Ltd.;

c)

In all cases to state and declare that Ferrero S.p.A. owes nothing to Baskan, KBC or BTM for whatever reason with respect to the contracts with Baskan for the sale of hazelnuts that Baskan has identified as numbers 5093, 5094, 5095 5096 and 5097.”

and the Ferrero Industrial claim is:

“b)

to state and declare that the Master Assignment Agreement signed by Baskan and KBC (acting in its own name and as agent of BTM) cannot be asserted against Ferrero Industrial Services-GEIE due to non-compliance with the terms of art.9.2. of said contract entitled “General Terms and Conditions for the Sale of Hazelnuts (Framework)” dated 15 October 2001 between Baskan and Ferrero Industrial Services-GEIE, acting in its own name and on behalf of Ferrero S.p.A., Ferrero OHGmbH, Ferrero France S.A., Ferrero USA Inc. and Ferrero Australasia Manufacturing PTY Ltd.;

c)

to state that Ferrero Industrial Services-GEIE has entered into no contract with Baskan for the sale of hazelnuts and to declare that it owes nothing to Baskan, KBC or BTM for any reason connected with the contracts for the sale of hazelnuts between Baskan and Ferrero SpA, Ferrero OHGmbH and Ferrero France S.A.”

On October 14, 2003 the Banks served their defence in the Italian proceedings. The Banks say that they contest the jurisdiction of the Alba court, and that any plea on the merits is without prejudice to the objection to the jurisdiction. In their reply the plaintiffs say that the Banks had submitted to the jurisdiction of the Alba court by pleading on the merits and implicitly bringing a counterclaim, and that in any event the court has jurisdiction in the claim by Ferrero Italy because the purchase orders contain an Italian jurisdiction clause, and also in any event over BTM because it has a subsidiary in Milan with an officer authorised to take part in court proceedings. The Banks deny that they have made a counterclaim.

On October 14, 2003 there was a procedural hearing in the Alba court, at which a timetable was agreed for the next procedural steps. There was a further hearing in the Alba court on January 13, 2004 at which the judge decided that the question of jurisdiction should be heard as a preliminary issue. The Banks have since decided to apply directly to the Corte di cassazione (“the Court of Cassation”) in Rome to deal with the issue of jurisdiction.

The Banks accept that they could have issued an application in the Court of Cassation challenging jurisdiction prior to October 14, 2003. But they say that it was perfectly proper as a matter of procedure to wait until now (and in particular to wait to see the nature of the submissions made by Ferrero Industrial and Ferrero Italy concerning jurisdiction) before applying to the Court of Cassation.

There is some difference between the parties on the estimated length of the Italian proceedings, but it would seem that the decision on jurisdiction will be in about a year from now. If the Court of Cassation decides that the Italian courts have jurisdiction, a first instance decision on liability may be given within two and a half to three years (according to Ferrero) or in a minimum of four years (according to the Banks), and that appeals may take up to two years thereafter.

On July 18, 2003 proceedings were issued by the Banks in the High Court. The claim in the English proceedings is this.

Between December 24, 2001 and February 9, 2002, 9,656,320 kg of hazelnuts were received by SGS into Warehouse Number 2. These hazelnuts were held by SGS on behalf of KBC pursuant to the Master Pledge Agreement as security for the monies advanced by the Banks.

Between January 5, 2002 and February 16, 2002, KBC received from Baskan Gida release requests relating to the release of the hazelnuts which it had undertaken to hold and deal with pursuant to the terms of the Master Trust Receipt. In response 8,811,870 kg were released by SGS (acting on the authority of KBC) to Baskan Gida.

The hazelnuts released were all (or with some minor variations) delivered by or on behalf of Baskan Gida to Ferrero Italy, Ferrero Germany and Ferrero France. 

From about the middle of January 2002, Baskan Gida transferred all its assets to Aksu Gida and Baskan Yuksel in an attempt to defeat the claims or potential claims of its creditors:

Also in January 2002 Ahmet Baskan and/or Cevat Baskan, acting through Latif Aksu to whom they had given a power of attorney dated January 17, 2002, sold various parcels of land and buildings to third parties in an attempt to defeat the claims or potential claims of their creditors.

Baskan Gida and Aksu Gida have sought (in proceedings brought against them by one of Baskan Gida’s creditors in Turkey) to justify the transfer of assets by Baskan Gida to Aksu Gida by reference to a series of agreements entered into between Baskan Gida, Indo-Med and/or Aksu Gida:

These agreements were shams and/or were intended to defeat the interests of Baskan Gida’s secured creditors including the Banks’ security interest in the hazelnuts purchased by Baskan Gida with the Banks’ funds. Aksu Gida had been incorporated for the purpose of registering on its books some of Baskan Gida’s workforce; Aksu Gida’s sole director and principal shareholder, Latif Aksu, held his shares in Aksu Gida as nominee for Baskan Gida and/or its directors; prior to February 2002, Aksu Gida did not trade and had no assets; Aksu Gida did not have the resources to commence operations as a processor and trader of hazelnuts; Baskan Gida and its directors would not have been prepared to relinquish their control of Aksu Gida’s shares for no consideration; Baskan Gida did not owe Indo-Med the sums of US$8,000,000 and US$2,000,000 as recorded in the agreements; as at January 2002 Baskan Gida had substantially performed its outstanding delivery obligations to Indo-Med; the alleged acquisition by Indo-Med of a controlling interest in Aksu Gida was not a genuine transaction in that the parties never intended that Aksu Gida would be controlled by Indo-Med but was a device to enable Baskan Gida to contend that the arrangements it entered into with Aksu Gida were genuine arm’s length transactions so as to justify (or seek to justify) the transfer of the bulk of its assets to Aksu Gida.

To the extent to which some monies were owed by Baskan Gida to Indo-Med, the aim of the parties to the agreements was to bring about a result whereby the claims of Baskan Gida’s other creditors including the Banks were defeated; hazelnuts belonging to the Banks were transferred to Aksu Gida for no consideration; Indo-Med was repaid the monies it was owed by Aksu Gida in preference to other creditors including the Banks; Latif Aksu would through Aksu Gida operate Baskan Gida’s existing business on behalf of Ahmet Baskan, Cevat Baskan, Ismet Baskan, Melih Baskan and/or other members of the Baskan family; Aksu Gida would in particular perform the existing contracts entered into between Baskan Gida and Ferrero Industrial on behalf of Ferrero Italy, Ferrero Germany and Ferrero France using hazelnuts in which the Banks had a security interest; Ahmet Baskan, Cevat Baskan, Ismet Baskan, Melih Baskan and/or other members of the Baskan family would retain a controlling interest alternatively a substantial beneficial interest in Aksu Gida.

A meeting was held between Melih Baskan and Mr Casale in Italy on about January 25, 2002.  It is to be inferred from the subsequent willingness of the Ferrero Companies to permit Aksu Gida to perform outstanding orders that had been placed with Baskan Gida that Melih Baskan informed Mr Casale that Baskan Gida was not going to be able to continue making deliveries to the Ferrero Companies in its own name but that the balance of the orders placed by Ferrero Industrial on behalf of Ferrero Italy, Ferrero Germany and Ferrero France would be fulfilled by Aksu Gida, a company which he and other members of the Baskan family controlled.

On February 14, 2002, Aksu Gida made its first delivery of hazelnuts to the Ferrero Companies.

The previous day, February 13, 2002, Ferrero Industrial, acting by Mr Rosa Brunet and Mr Casale, signed an amendment to the Framework Contract incorporating details in clause 6.2 of the Collection Account referred to in paragraph 15 above.

Subsequently, Aksu Gida entered into a supply contract with Ferrero Industrial acting on behalf of Ferrero Italy, Ferrero Germany and Ferrero France relating to the sale of shelled hazelnuts. Pursuant to this contract, Aksu Gida supplied at least 4,152,000 kg of hazelnuts to Ferrero Italy, Ferrero Germany and Ferrero France and was paid a total of at least €10,907,584 between about February 2002 and June 2002.

The hazelnuts supplied by Aksu Gida under this contract had all been acquired by Baskan Gida using monies advanced by the Banks and were subject to the Banks’ security interest.

Aksu Gida ceased trading in about May 2002.

Thereafter Baskan Yuksel made deliveries of hazelnuts to Ferrero Italy, Ferrero France and Ferrero Germany to the value of at least €10,580,208.  Some of those deliveries were made using hazelnuts acquired by Baskan Gida using monies advanced by the Banks which were subject to the Banks’ security interest.

The claims are as follows:

In breach of clauses 5.4 and 12.1 of the facility agreement Baskan Gida has failed to repay the balance advanced of €22,821,566 together with interest.

Despite being given notice of assignment of the Framework Contract and notice of the Master Assignment Agreement and despite having acknowledged such notices, the Banks have received no payments from the Ferrero Companies with the exception of the €1,402,022.68 paid by Ferrero Italy in respect of the first advance made by the Banks on January 3, 2002 and US$107,985 paid by Ferrero Australasia Pty Ltd on January 18, 2002 (which payments were returned by the Banks on January 21, 2002 as they had not financed those invoices).

Each of Ferrero Italy, Ferrero Germany and Ferrero France is liable to the Banks as assignees in respect of deliveries of hazelnuts made to them made by Baskan Gida, and is also liable to the Banks as assignees in respect of deliveries of hazelnuts made to them by Aksu Gida and/or Baskan Yuksel since such deliveries were made by them as nominees or agents for Baskan Gida.

On the proper construction of the Framework Contract, Ferrero Industrial is as the centralised purchasing authority also liable in respect of any supplies made to the Ferrero Companies at its request. By virtue of the assignment of the Framework Contract and/or the separate undertakings given by it in its acknowledgements of December 6, 2001 and/or December 13, 2001, Ferrero Industrial is liable to pay to the Banks the full amount due in respect of the supplies made by Baskan Gida and/or Aksu Gida and/or Baskan Yuksel in respect of hazelnuts financed by the Banks. 

If contrary to the Banks’ primary case the supply of hazelnuts made by Aksu Gida and/or Baskan Yuksel to each of the Ferrero Companies was not made as nominees or agents for Baskan Gida, the Banks contend that, to the extent to which each of Ferrero Italy, Ferrero Germany and Ferrero France received supplies of hazelnuts from Aksu Gida and/or Baskan Yuksel that had been pledged to KBC and had been released subject to the terms of the Master Trust Receipt, they are liable to pay damages for conversion.

From about November or December 2001, Ahmet Baskan, Cevat Baskan, Ismet Baskan, Melih Baskan, Baskan Gida, Aksu Gida and/or Indo-Med and/or any two or more of them wrongfully conspired, combined together and agreed to defeat by unlawful means the rights of the Banks and other creditors of Baskan Gida.

Ferrero Industrial acting by Mr Casale participated in the unlawful means conspiracy perpetrated by the owners and shareholders of Baskan Gida, Baskan Gida, Aksu Gida and/or Indo-Med one of the purposes of which was to ensure that Baskan Gida and/or its nominees received payment for the hazelnuts even though the right to payment had been assigned to the Banks:

Mr Casale knew that the hazelnuts used to fulfil the deliveries by Baskan Gida and/or Aksu Gida as well as part of the deliveries made by Baskan Yuksel came from Warehouse 2 and were subject to the terms of the Master Trust Receipt in favour of KBC.

The knowledge of Mr Casale (which includes the knowledge of the Ferrero employees in Giresun) is to be attributed to Ferrero Industrial and thereby each of Ferrero Italy, Ferrero Germany and Ferrero France.

To the extent to which each of Ferrero Italy, Ferrero Germany and Ferrero France received hazelnuts subject to the Pledge and Master Trust Receipt, they are liable for knowing receipt of trust property.

The Banks have a proprietary claim in respect of the hazelnuts purchased by Ferrero Industrial, Ferrero Italy, Ferrero Germany and Ferrero France and/or any monies generated using those hazelnuts.

The Banks claim as damages the value of the hazelnuts subject to the Banks’ security interest which were delivered to the Ferrero Companies but in respect of which no payment has been made, in the amount of  €23,955,273.

In the course of these applications substantial evidence has been filed dealing with the substance of the fraud claims. Of course, nothing I say about this evidence is intended to constitute any factual finding or view on the merits of the case. The Banks say that they have been the victims of a fraud. Ferrero accepts that Baskan Gida participated in a fraud, but denies that Ferrero participated in the fraud, or that it is liable to the Banks.

The Banks say that the background to the fraud is that in about November 2000 Turkey suffered an economic crisis which led to interest rates being raised to over 30%. By June 2001 Baskan Gida had very high levels of debt to its Turkish bankers, particularly Yapi Kredit, of not less than TL 56.3 trillion (approximately $49 million). In order to be able to continue trading, Baskan Gida was forced to obtain further foreign currency loans from Yapi Kredit (and perhaps other Turkish Banks).

By the start of the new hazelnut season in August 2001 it became apparent that Baskan Gida was not going to be able to trade out of its difficulties, since the interest payments to the Turkish banks would absorb all their trading profits. Baskan Gida and its directors therefore decided to embark on a systematic fraud against its Turkish creditors and the Banks in order to enable it to continue trading with the Ferrero Companies through a nominee company on the basis that the nominee company would sell to Ferrero hazelnuts purchased by Baskan Gida with the Banks’ advances. The Banks, which had financed the purchase of hazelnuts, would never be repaid their advances and the nominee company would receive the benefit of the sale proceeds from the Ferrero Companies. Baskan Gida would transfer its assets to the nominee company in return for ostensible consideration to provide the semblance of a justification for the transfer.

Indo-Med produced in conjunction with Baskan Gida and Aksu Gida sham agreements intended to justify the transfers of assets that had by then taken place, and that the fraud which Indo-Med, Baskan Gida, the individual Baskan defendants and Aksu Gida perpetrated against the Banks could not have succeeded without the active and knowing involvement of the Ferrero Companies.

Ferrero denies the allegations. Mr Casale’s evidence is that he was not concerned with the payment of invoices, which is dealt with by the accounting departments of Ferrero’s operating companies in each country. By 2001 he trusted the Baskan family (and in particular Mr Melih Baskan with whom he mainly dealt), and he never had any reason to suspect the good faith of anyone within the Baskan family. There was a close working relationship between Baskan Gida and Ferrero, but it did not extend to detailed knowledge of its negotiations for further finance.

In July 2001, he was at Baskan Gida’s main plant for the purposes of assessing the crops. He was not given any details as to the amount of the proposed finance, or of the terms or security on which finance would be given, nor did he ask for any. He never had any other meeting, or telephone discussion, with the Banks until late February 2002.

He had no knowledge of the detailed provisions of the facility agreement. He did not receive the Master Assignment Agreement, nor of any of the other Security Documents. Nor was he aware of the arrangements with SGS, or even of the fact that the hazelnuts were stored at SGS, or of the procedures relating to the issuing of letters of credit. He did not concern himself with the legal effect of the documents.

Melih Baskan asked him in early December 2001 to confirm in writing Ferrero’s ability to pay into a specific account. He said that this confirmation was wanted by the Banks, in case the financing which they were discussing with the Banks was finally agreed. Mr Casale told him that it was essential that the payee account details appeared on each invoice and that Baskan Gida was responsible for indicating clearly on each invoice where Ferrero had to pay the money and to whom. The payment of invoices is a routine matter and such wording was needed so that the accounts department would automatically pay to the right account. He assumed that, if and when a financing agreement was concluded, any invoices which were to be paid to the specified accounts would contain an instruction to that effect.

He denies that he caused the operating companies to pay sums which he knew had been assigned to the Banks in respect of goods pledged to Banks. He knew nothing of the method of financing or the pledge of the hazelnuts and he assumed that the operating companies’ accounts departments were paying for all hazelnuts delivered to the operating companies in accordance with instructions on the invoices, and that appropriate instructions would appear on the invoices, as he had insisted, where payment was due to the Banks.

He denies that he co-operated in the removal of hazelnuts from Warehouse 2 which he knew had been purchased with the Banks’ funds. He knew nothing about either the arrangements for storage or their removal from storage. Ferrero was not concerned with the logistics of the storage of hazelnuts, but simply with confirmation that hazelnuts had been loaded in accordance with the relevant Ferrero operating company order. This confirmation was given by an independent company which Ferrero used for this purpose. Following this, the operating company made payment in accordance with the relevant invoice.

He did not know that Aksu Gida was a mere front for Baskan Gida and that the hazelnuts delivered by Aksu Gida and by Baskan Yuksel belonged to the Banks. On or about January 25, 2002, Mr Melih Baskan came to Alba and saw him and Mr Rosa Brunet. Mr Baskan told them that Baskan Gida was having financial problems. He said that he was not sure that Baskan Gida could continue, but if not, what he was considering was for Baskan Gida to rent its factory to a company called Aksu Gida, headed by a Mr Latif Aksu and a Mr Franko, who were both Baskan people. Other experienced Baskan personnel would also work for Aksu Gida so as to ensure satisfactory service. Mr Casale was not told, and it did not occur to him, that Aksu Gida was a front for Baskan, or that it would be supplying hazelnuts which belonged to the Banks.

In reply the Banks say that Ferrero had a permanent presence on site in Turkey, and Mr Casale had a close relationship and detailed working knowledge of Baskan Gida’s business. At the meeting on July 11, 2001 Mr Casale was informed of the general structure of the proposed facility. After the meeting, Mr Casale actively assisted Baskan Gida to obtain finance.

From early in the start of the new hazelnut season it must have become obvious to Mr Casale that Baskan Gida was failing to keep up with hazelnut deliveries. Mr Casale, whose central role was to liaise with Ferrero’s suppliers, must have discussed these difficulties with Mr Melih Baskan.

It is not credible that Mr Casale did not concern himself with the legal effect of the documents. It must have been clear to him that the acknowledgements were a key component of the loan facility.

The fact that the Baskan Gida invoices did not contain the relevant account details does not mean that the Ferrero Companies were justified in paying Baskan Gida directly. Each of the companies had all the information they needed to pay all sums due into the accounts details of which had been provided by KBC/Baskan Gida.

Once Mr Casale had confirmation from Mr Melih Baskan that the facility agreement had been signed with the Banks and that future funding was secure, he allowed Baskan Gida to issue fresh contracts in relation to orders dating back to October and November 2001 which had only been partly fulfilled so that the purchase of these remaining hazelnuts could be funded by the Banks (Contracts 5094 to 5097 dated December 19, 2001). By mid-January 2002 Mr Casale became aware from Mr Melih Baskan that Baskan Gida’s Turkish creditors (in particular Yapi Kredit) were pursuing Baskan Gida for outstanding borrowings, thus threatening once again to disrupt the Ferrero Companies’ existing orders and future supplies of hazelnuts.

In order to secure existing and future supplies until the start of the new hazelnut season in August 2002, Mr Casale therefore agreed with Mr Melih Baskan: (a) to enter into contracts with Baskan Gida between December 2001 and February 2002 to cover Ferrero’s requirements for hazelnuts for the period January to June 2002, which enabled Baskan Gida to purchase these hazelnuts with monies advanced by the Banks; (b) to backdate some of these contracts in an attempt to minimise the risk of Ferrero entities having any liability to the Banks; (c) that Aksu Gida could complete delivery of existing contracts between Baskan Gida and the Ferrero Companies; (d) to allow Ferrero Germany to issue contracts after January 25, 2002, so that these could be funded by the Banks, even though he knew by this date that Aksu Gida would complete the majority of the deliveries under these contracts.

It is inconceivable that the Ferrero representatives were not aware of SGS’s presence and role on site, particularly as they would have had to have been notified by Baskan Gida as to when the hazelnuts were being released from Warehouse 2 so that final checks could be made before the lorries left the warehouse.

Mr Casale must have known that the hazelnuts which were to be delivered under the contracts entered into by Baskan Gida and the Ferrero Companies had been purchased with the Banks’ facility. He could not have failed to realise that by allowing Aksu Gida to complete delivery of the outstanding orders from the Ferrero Companies to Baskan Gida, this would assist Baskan Gida in avoiding the claims of its creditors, including the Banks. He must have been told, by mid-January 2002 at the latest, about the plans to effect deliveries of the balance of orders placed by the Ferrero Companies via Aksu Gida.

He must have known that Aksu Gida was a front for Baskan Gida. He was told by Melih Baskan that Baskan Gida was renting its factory to Aksu Gida, which was headed by Mr Latif Aksu and Mr Franko, who were both “Baskan people”; and that “Baskan personnel would also work for Aksu Gida”. If Aksu Gida was not a mere front it is impossible to understand how Mr Casale was willing to permit some entirely unknown company to provide the Ferrero Companies with huge quantities of supplies (with total deliveries reaching almost €11m) without carrying out even the most basic of inquiries.

Indo-Med was served in England at its registered office. Ferrero Germany and Ferrero France were served abroad without permission.

On August 6, 2003 permission was granted by Master Price to serve Baskan Gida, the Baskans, Aksu Gida, Ferrero Industrial and Ferrero Italy out of the jurisdiction.

The basis of the application for permission to serve out of the jurisdiction was as follows:

Aksu Gida and Indo-Med have acknowledged service and filed defences. The Baskan defendants have not yet all been served, and those which have been served have not filed acknowledgements of service.

The Ferrero Companies acknowledged service, and indicated that they would be seeking to challenge the English court’s jurisdiction.

Applications have been made:

Conspiracy

In further support of the conspiracy claim the Banks seek to amend (1) to allege that the other Ferrero Companies were party to the conspiracy; (2) to allege that the defendants (including the Ferrero Companies) were parties to an unlawful means conspiracy to procure advances from the Banks to Baskan Gida; and (3) to add these particulars:

Deceit/negligent mis-statement

By proposed amendment the Banks rely on the letter of December 13, 2001 from Mr Casale to Mr Byles of BTM. The Banks plead that the letter was written in order to induce the Banks to enter into the loan agreement and make advances to Baskan Gida, and that in reliance upon the representations contained in it the Banks did so.

The representations contained in the letter that (i) the Ferrero Companies had experienced no significant difficulties since the Ferrero Companies had started cooperating with Baskan Gida; and that (ii) Baskan Gida was able to (and did) provide consistent shipments on a timely basis were false in that:

Alternatively, the representations were made negligently.

Ferrero

Ferrero accepts that arguably the alleged obligation to pay was to be performed in England. Therefore (but for the issues arising under Articles 23 and 27, and in relation to assignment), the English court would have jurisdiction over the Banks’ contractual claims for payment.

Ferrero Italy’s contractual claims are covered by an Italian exclusive jurisdiction clause, so that only the Italian court has jurisdiction. I deal with the arguments on this point separately below (paras 141-148).

The Italian court has jurisdiction in relation to the contractual claims because (a) in relation to Ferrero Italy’s claim for a declaration that it is not liable to the Banks as assignees of the debts owed to Baskan Gida, an assignee is bound by the Italian jurisdiction clause, which falls within Article 23 of the Judgments Regulation; (b) as to whether the Banks are entitled to sue as assignees if the notification requirement in clause 9(2) of the Framework Contract has not been complied with, the Italian court has jurisdiction by virtue of Article 5(1), because the place for performance of the notification obligation was Italy; (c) the Banks have counterclaimed and therefore waived the right to object to its jurisdiction; and (d) BTM has a representative in Italy authorised to take part in legal proceedings. The Italian court has jurisdiction in relation to the negligence and damage to reputation claims because the damage occurred in Italy.

The Italian court was first seised on January 31, 2003, and where the court of one member state is first seised, it is impermissible for the court in another member state to assume jurisdiction even if it considers that the court seised first has no jurisdiction; it must await and abide by the decision of the court which was first seised, as Article 27 requires: Overseas Union Insurance Ltd. v New Hampshire Insurance Co. [1991] ECR 1-3317.

In essence, the claims by Ferrero Italy and Ferrero Industrial against the Banks in the Italian proceedings are mirrored by the Banks’ claims against them in the English proceedings. The assignment claims in the English proceedings rely on the validity of a notice sent by Baskan Gida to (inter alios) the Ferrero Companies of the assignment of the Framework Contract, and on the validity of an acknowledgement of this notice sent by Ferrero Industrial to Baskan Gida. The assignment claims also rely on the validity of the Master Assignment Agreement, the validity of notices sent by Baskan Gida to (inter alios) Ferrero France, Ferrero Italy, and Ferrero Germany of assignments under the Master Assignment Agreement, and the validity of acknowledgements of these notices sent by each Ferrero Company to Baskan Gida.

Pre-emptive proceedings for a negative declaration in a preferred jurisdiction are entirely legitimate. The claims in Italy for negative declarations, read in conjunction with the extensive factual material pleaded, are wide enough to cover: (a) all the Banks’ claims against them as assignees and/or pursuant to the letters of acknowledgement of December 6, 17 and 19, 2001; and (b) all the Banks’ tortious claims, which are in essence that the Ferrero Companies conspired to and/or did wrongfully deprive them of the hazelnuts, and/or the money due in respect of the hazelnuts, which Baskan had contracted to sell to the Ferrero Companies.

The facts which are before the Italian court deal in substance with the whole relationship between Ferrero and the Banks, and cover the facts on which the Banks rely in bringing their claims in the English proceedings, which are all connected with the contracts between Baskan Gida and the Ferrero Companies.

Although Ferrero France and Ferrero Germany are not presently parties to the proceedings in the Alba court, they would both be prepared to undertake to become parties, so that the Banks could claim against them in the Italian court, by intervention as of right in accordance with Article 105 of the Italian Civil Procedure Code, on the grounds that their claims are sufficiently closely connected to the existing proceedings and share a sufficiently similar object; or by agreement in accordance with the private international law of Italy (Law 218 of 31 May 1995, Article 4.1).

In addition, as a matter of Italian law it is open to the Banks to bring all its claims against Ferrero Italy and Ferrero Industrial (as well as its claims against Ferrero France and Ferrero Germany) in the Italian proceedings by way of a counterclaim. It would be open to the Italian court both to reject Ferrero Italy’s and Ferrero Industrial’s claims and to award damages on the Banks’ counterclaims.

Service out of the jurisdiction of the English proceedings was irregular. The proceedings could not be served under CPR, r. 6.19(1A) because there were prior proceedings in respect of (at least) the Banks’ contractual claims, and CPR, r. 6.20 has no application.

The English court has no jurisdiction over the contractual claims against Ferrero Germany because the Ferrero Germany contracts contain a German exclusive jurisdiction clause.

The Banks’ claims as assignees against Ferrero France and (if there is no German jurisdiction agreement) Ferrero Germany are “related” to the claims in the Italian proceedings and should be stayed under Article 28.

The Banks’ claims as assignees are identical as against each of Ferrero Italy, Ferrero Germany and Ferrero France, apart from one additional issue involving Ferrero France. The Banks’ claim against Ferrero Industrial also involves common issues. It is clearly expedient to hear all the claims together to avoid the risk of inconsistent decisions.

The additional issue involving Ferrero France arises because its accountant “over-zealously” wrote on January 10, 2002 to acknowledge the fax of December 21, 2001 from Mr Lewis of KBC. Ferrero says that this makes no difference to the scope of the issues.

The court’s discretion to grant a stay should be exercised:

The English court has no jurisdiction over the Banks’ tortious claims. As regards the conversion claim, the pledged hazelnuts were released in Turkey and delivered to Ferrero in Turkey, alternatively in Italy, France and Germany, and no harmful event for the purposes of Article 5(3) occurred in England. Article 6(1) is inapplicable, because the link with the conspiracy claim against Indo-Med, the only defendant domiciled here, is at best tenuous; judgments against Indo-Med and in favour of Ferrero, or vice versa, would not be irreconcilable.

So also the alleged conspiracy is based on the deliveries of hazelnuts in Turkey and on the meeting in Italy at which Ferrero agreed that it would buy hazelnuts from Aksu Gida, and no harmful event occurred in England. Article 6(1) is inapplicable because the connection with the case against Indo-Med is equally tenuous and there is no risk of irreconcilable judgments.

The knowing receipt of trust property and tracing claims are founded on the receipt by the Ferrero Companies of hazelnuts and there is no harmful event in England, nor are the claims linked with the claim against Indo-Med.

If the Italian proceedings cover only the contractual claims, then the tortious claims against all the Ferrero Companies are related to the contractual claims. The contractual claims depend substantially, and the tortious claims entirely, on Mr Casale’s credibility, and any decision in favour of Ferrero in Italy on the contractual claims would be difficult if not impossible to reconcile with a finding against Ferrero on the main allegations in the tortious claims. The discretionary elements also point in favour of a stay. In addition, the tortious claims are, factually and legally, far more complex, and this requires case management which would be impossible or much more difficult if there is simultaneous litigation in two or more jurisdictions.

The Banks

The Italian proceedings were issued in an attempt to prevent the English courts from exercising jurisdiction. Since the Banks are not domiciled in Italy for the purposes of the Judgments Regulation and since there is no question of the place of performance of any relevant obligation being in Italy, the Italian court has no jurisdiction.

There is nothing in the claims against the Banks that negligent banking has caused Ferrero Industrial and Ferrero Italy loss, and that, by making a demand on forged acknowledgements, the Banks have damaged Ferrero’s reputation in Italy. The Banks were at all times advised by a leading firm of solicitors, Lovells, who drafted all the relevant agreements and who liaised with White & Case in London, lawyers for Baskan Gida. The claim that the Banks were negligent in failing to ensure that the debtors, Ferrero Italy and Ferrero Industrial, had full notice of the assignments is fanciful. The result of the assumed negligence is on their case that they are under no liability to the Banks. As no payment has been made by them, no loss can have been sustained.

The claim that by making a demand which the Banks knew to be false, the Banks have damaged Ferrero’s reputation in Italy is without merit. The letters made a claim under the earlier acknowledgements of December 6 and 17, 2001, the authenticity of which is not disputed. These letters were not sent to anyone other than the Ferrero Companies. There therefore can be no question of damage to the reputation of Ferrero Industrial or Ferrero Italy. The only reference in the letters of demand to the alleged forgeries is a short sentence on the second page of the letter written to Ferrero Italy (but not Ferrero Industrial) which states that: “We believe that a notice in similar terms to the one sent to Ferrero Industrial may have been sent to Ferrero S.p.A on 19 December 2001 and acknowledged shortly afterwards”. The use of the words “believe” and “may” demonstrates that the Banks were not asserting a positive case against Ferrero Italy in respect of this acknowledgement, and the proposition that the Banks based their demand on forged documents is unsustainable. In any event, it is clear from the face of the allegedly forged assignments that they were in fact faxed by Ferrero Industrial or Ferrero Italy. In the absence of any explanation to the contrary, the obvious inference to be drawn is that any forgery emanated from Ferrero Industrial or Ferrero Italy.

The assignment claims in the Italian proceedings are narrow. What is claimed is that the acknowledgements purportedly signed by the Ferrero Companies dated December 19, 2001 are forgeries. Whilst there is some reference to the acknowledgements dated December 6, 2001 given by Ferrero Italy and Ferrero Industrial, the actual overlap between the two sets of proceedings is limited to the validity of the acknowledgement purportedly signed by Ferrero Italy on December 19, 2001 and to the liability of Ferrero Industrial under the acknowledgement dated December 17, 2001.

It is not disputed by the Banks that the signature on the December 19, 2001 acknowledgement appears to have been copied from the earlier December 6, 2001 acknowledgement. Neither Ferrero Industrial nor Ferrero Italy deny that acknowledgements were sent by them on December 6, 2001 whereby they undertook to pay sums due under the sales contracts dated after December 10, 2001 to accounts at KBC in London; and that Ferrero Industrial further acknowledged assignment of the rights under the Framework Contract in a document dated December 17, 2001 and faxed to Baskan Gida and KBC on December 13, 2001.

As regards the assignment claims made by the Banks against Ferrero Industrial and Ferrero Italy it is accepted that, to the extent to which they are based on the acknowledgements which are said to have been forged, the Italian and English proceedings would involve the same cause of action for the purposes of Article 27. But the Banks are willing to withdraw their claims based on the December 19, 2001 acknowledgements. To the extent to which the claims are based on the earlier acknowledgements, it is accepted that the English and Italian proceedings are related actions within the meaning of Article 28. But as regards Ferrero France and Ferrero Germany there is no possibility of irreconcilable decisions since the assignment claims against Ferrero France and Ferrero Germany are governed by the law of France and Germany respectively, whereas the assignment claims against Ferrero Industrial and Ferrero Italy are governed by Italian law: clause 8 of the Framework Contract.

The claims brought by the Banks against Ferrero Industrial and Ferrero Italy for conspiracy, conversion, knowing receipt and in tracing, and the claims brought by Ferrero Industrial and Ferrero Italy, are not within Article 27 because neither involve the same cause nor the same objet. The English court has jurisdiction over the conspiracy claims against Ferrero Industrial, Ferrero Italy, Ferrero Germany and Ferrero France under Article 6(1) because Indo-Med is domiciled in England.

The factual issues raised in the claim against Indo-Med cannot be divorced from the factual issues raised in the claims against the Ferrero Companies. The circumstances in which the hazelnuts belonging to the Banks were transferred by Baskan Gida to Aksu Gida (which by then was apparently owned by Indo-Med) prior to being supplied to Ferrero is critical to both the claim in conspiracy against Indo-Med and the claims against the Ferrero Companies. It was a single conspiracy, and it would be unworkable to bring proceedings against co-conspirators in different jurisdictions. Once those claims are in England, all the other tort claims will follow because they depend on the knowledge of Mr Casale.

For the purposes of Article 5(3) the harmful event plainly occurred in England, because the damage resulting from the wrongs was the failure to pay the Banks in England.

The Italian proceedings are not “related actions” for the purpose of Article 28 so far as the Banks’ claims against the Ferrero Companies for conversion, knowing receipt and in tracing are concerned. Those claims are entirely distinct from any claims made by Ferrero Industrial and Ferrero Italy in the Alba proceedings. They are claims for damages for tortious or quasi-tortious conduct; the claims made by Ferrero Industrial and Ferrero Italy are for declarations that they are not liable to the Banks in contract. There is no risk of irreconcilability.

The entire legal and factual basis of the declarations sought by Ferrero Industrial and Ferrero Italy is founded upon the question of contractual liability under the Acknowledgements or Master Assignment. They are founded upon the construction of the various agreements and upon narrow questions of fact. No finding by the Italian court on these questions (assuming that the Italian court does not decline jurisdiction) could have any bearing on the tortious or proprietary liability of the Ferrero Companies asserted in the English proceedings.

On the basis of the facts pleaded any Italian court could only find that, as regards any potential liability on the part of Ferrero Industrial and Ferrero Italy, they were not liable to the Banks as assignees. It could not declare that they were not liable to the Banks on all possible juridical bases and in respect of any conduct by the Italian Ferrero Companies.

Even if any of the claims can be characterised as “related actions” for the purpose of Article 28 the discretion to stay the proceedings should not be exercised, for the following reasons:

The Italian jurisdiction clauses

Ferrero relies, in respect of the assignment claims, on the purchase orders issued by Ferrero Italy which (it says) contained a clause providing that jurisdiction lay with the courts in Alba:

“L’evasione della vostra Ordinazione comporta l’accettazione integrale di tutte le condizioni qui riportate. Per qualsiasi contestazione sorta in dipendenza della stessa, entrambe le parti eleggono come Foro competente quello di Alba, esclusa qualsiasi deroga anche se contemplate dalla legge”. (“Completion of our order implies full acceptance of all terms and conditions stated herein. Any dispute arising from this order shall be submitted to the Court of Alba, unless otherwise required by law.”)

Under Italian law a party to a contract can invoke a jurisdiction clause as against an assignee. Ferrero Italy’s case is that the jurisdiction clause applies and that the assignment is invalid because clause 9(2) of the Framework Contract was not complied with.

There was a consistent course of dealing between Baskan Gida and Ferrero Italy from at least September 1998, in which Ferrero Italy submitted purchase orders which contained the jurisdiction clause. Following this, Baskan Gida would in general issue confirmations of contract.

Ferrero Italy always sent the original of each purchase order by post, and sometimes also sent its purchase orders to Baskan Gida by fax. Baskan Gida’s receipt of Ferrero Italy’s orders is to be inferred from the fact that the confirmations on which the Banks rely bear the Ferrero Italy purchase order numbers.

Whether the relevant contracts were subject to the jurisdiction clause is a matter which will have to be decided by the Italian court, as the court first seised of the claims made against Ferrero Italy and Ferrero Industrial.

There is no evidence that the purchase orders were ever sent to Baskan Gida. Even if they were sent, the purchase orders themselves have no contractual force – they are no more than offers by Ferrero Italy to purchase a certain quantity hazelnuts from Baskan Gida. The “confirmations of contracts” in fact are stated to be “contracts” on the face of the documents. They are signed by both Baskan Gida and by Mr Casale and Mr Rosa Brunet on behalf of Ferrero Italy which suggests that the documents were treated as contracts rather than as “confirmations of contract”. It was against these contracts which the Banks lent and they had no knowledge of the purchase orders.

The contracts refer to the purchase order numbers but do not contain any jurisdiction clause. The contracts are free-standing documents and are not merely confirmations of prior contracts. This is clearly demonstrated (apart from the use of the word contract) by the fact that the purchase orders require delivery in the month of the order whereas the supposedly corresponding contract places a different delivery obligation upon Baskan Gida.

Any contracts which post-dated the Framework Contract would have been entered into subject to its terms. The Framework Contract does not have a jurisdiction clause in it. Clause 8 of the Framework Contract deals only with the governing law.

German Jurisdiction

Each purchase order issued by Ferrero Germany contained a set of general terms and conditions on the reverse. These were written in German. Clause 12 states:

“Applicable law and court of jurisdiction. This contract shall be governed solely by German law. The court of jurisdiction for all disputes shall be Frankfurt am Main.”

Under German law, a party to a contract can invoke a jurisdiction clause as against an assignee.

A representative of Baskan Gida negotiated with Mr Casale regarding the proposed terms of an order by Ferrero Germany, and Baskan Gida submitted a confirmation to Mr Casale signed on behalf of Baskan Gida, which Mr Casale transmitted to Ferrero Germany. Ferrero Germany then drew up a purchase order in accordance with the terms negotiated, which was signed on behalf of Ferrero Germany. Ferrero Germany then sent its purchase order to Baskan Gida by fax, and the original was also sent by post. Baskan Gida would then, in the ordinary course of its business, proceed to make deliveries in accordance with the agreement.

Every time Ferrero Germany posted its purchase orders to Baskan Gida, a carbon copy was posted affixed behind its original counterpart. The exhibited carbon copy bears a carbon copy of signatures on behalf of Ferrero Germany, and in the bottom right corner it bears an original signature in blue ink and a stamp in both orange and blue ink on behalf of Baskan Gida. It was not uncommon for Baskan Gida to return the carbon copies in this way, and equally that the absence of this was not uncommon either. Delivery of hazelnuts in accordance with the contracts between Ferrero Germany and Baskan Gida was unaffected by the return or otherwise of a carbon copy of the relevant purchase order.

Ferrero Germany does not have in its control the originals of the purchase orders exhibited in the evidence. The general terms and conditions exhibited are identical to the ones which appear on the reverse of all the original purchase orders exhibited.

Orders were placed by Ferrero Germany and Ferrero Industrial had no power to compel Ferrero Germany. Mr Casale was not authorised to, and did not, conclude contracts on behalf of Ferrero Germany.

Despite an alleged consistent course of dealings between Baskan Gida and Ferrero Germany which lasted for nearly 10 years, Ferrero Germany has not produced a single example of a purchase order to Baskan Gida which has the jurisdiction clause attached.

It is clear from the purchase orders which were exhibited that only the front page of the purchase order was faxed to Baskan Gida. If there was a back page with the terms and conditions attached, this was apparently not faxed.

What happened in practice was that the terms of the particular order were agreed orally between Mr Casale (acting on behalf of Ferrero Germany) and Baskan Gida. Baskan Gida then sent a signed written contract to Mr Casale who forwarded it to Ferrero Germany who then signed it and presumably sent it back by fax to both Baskan Gida and Mr Casale. It therefore appears that Ferrero Germany, acting by Mr Casale, entered into an oral contract confirmed by Baskan Gida in writing. Alternatively, the contract was concluded when it was faxed by Baskan Gida to Mr Casale or when it was signed by Ferrero Germany and returned by fax to Baskan Gida. Accordingly, the jurisdiction clause allegedly contained in the purchase order generated by Ferrero Germany was not incorporated in the contract.

Amendments: Conspiracy claim

Ferrero opposes the proposed amendment that there was an unlawful means conspiracy to procure the advances on the basis that the English court would have no jurisdiction over the amended claim. As regards the additional particulars, Ferrero says that some of them (in paras 91.8, 91.9 and 91.11) should not be allowed because they are too vague, and make no sense. Nor have the facts and matters relied on in support of the allegation of fraud been clearly pleaded, as is necessary in a fraud case.

Article 6(1) does not apply to give the English court jurisdiction because there is no link between the conspiracy involving Indo-Med and that involving the Ferrero Companies. This claim has no connection with the events involving Indo-Med and brings no risk of irreconcilable judgments. There is no need to hear the tort claims against the Ferrero Companies at the same time as those against Indo-Med and the Turkish defendants, because Ferrero does not dispute the allegations against the other defendants (so there is no need for the two sets of tort claims to be tried together); and the other defendants do not appear to be of any substance. Ferrero (in response to the Banks’ argument) says that it is not admitting the matters in issue between the Banks and the other defendants. But there is no need to try the claims together because there is no issue between the Banks and Ferrero as to the allegations against the other defendants.

Article 5(3) does not apply because the “harmful event” did not occur within the jurisdiction. The damage occurred in Turkey. The damage pleaded is payment of the advances, which took place in Turkey, where BTM's letters of credit were negotiated by Akbank, a Turkish bank. The advances were made when Akbank paid Baskan Gida and the Banks thereby incurred a liability to repay Akbank in Turkey; and the actual repayment of Akbank took place in Turkey where the payment was received. The event which gave rise to the damage is probably the alleged agreement between Mr Casale and one or more of the Baskan family (which must have been made in either Turkey or Italy). Ferrero disputes the alternative submission that the damage consisted of entry into the facility agreement. This is not the Banks’ pleaded case. Accordingly, the court has no jurisdiction over this tort claim.

Article 6(1) applies. The claims in conspiracy against Indo-Med and the Ferrero Companies are linked. It is alleged that Ferrero, through Mr Casale, knew that the hazelnut deliveries by Aksu Gida would be made using hazelnuts acquired by Baskan Gida with monies advanced by the Banks. The Banks will have to prove that, in fact, the hazelnuts delivered by Aksu Gida were acquired by Baskan Gida with monies advanced by the Banks. This is an issue in the claim against Indo-Med.

Ferrero’s point that it does not dispute the allegations against the other defendants is purely a strategic stance by Ferrero from which it could resile afterwards if it suited it. These allegations are key building blocks in the claim against the Ferrero Companies and Indo-Med requires these allegations to be proved.

If Ferrero's suggestion (made at the hearing of the applications) that the other defendants do not seem to be of any substance had been properly foreshadowed, the Banks could have put in proper evidence to rebut it. The reality is that Aksu Gida and Indo-Med have put in substantial defences. Indo-Med has served further information and given disclosure. Both companies have instructed a well-known firm of solicitors, Masons. Aksu Gida has substantial assets in Turkey, and Indo-Med had a turnover of $16.4 million in 2001 and is part of a larger group.

Article 5(3) applies because the damage occurred in England. The fact that the advances were negotiated by Akbank as the Turkish Local Bank cannot alter the reality of the position, which is that monies held by the Banks in England were paid out (albeit to Akbank) as a result of the conspiracy. The advances would not have been made but for the conspiracy, and the Banks' monies would have remained in England. The loss sustained by the Banks was the reimbursement of Akbank.

Alternatively, the damage consisted of the Banks' initial entry into the facility agreement, which was made in England, is governed by English law, and gives jurisdiction to the English courts.

Amendments : fraudulent/negligent mis-statement

Although Ferrero had originally consented to this proposed amendment (on the basis that it was subject to its applications to set aside service), the court must decline jurisdiction over this claim. The letter from Mr Casale was sent from Italy, and the funds were advanced in Turkey. Consequently England was neither the place of the act which caused the damage (Domicrest v Swiss Bank Corp [1999] QB 548, at 568) nor the place of the damage. In the light of Domicrest v Swiss Bank Corp it is not open to the Banks to say that the English court has jurisdiction because it was in England that the letter was received and acted upon. If the cause of action were complete only when the document was received by the recipient, and that this was therefore the place where the harmful event occurs, it would mean that in almost all cases the claimant would be allowed to sue in his own jurisdiction.

The amendment should not be allowed as it is misconceived. The Banks are alleging that the letter falsely stated not only that goods were always supplied on a “timely basis” but also that there had been “no significant difficulties” when in fact Baskan Gida was in financial difficulties. The latter appears to be the main thrust of the Banks’ arguments but the letter refers only to difficulties in the contractual relationship between Baskan Gida and Ferrero. There is a bare allegation that Ferrero knew of Baskan Gida’s financial difficulties but no particulars of knowledge are given, as is necessary in a fraud case. It is ridiculous to suppose that Mr Casale (an employee of Ferrero concerned with the price and quality of hazelnuts) should have informed the Banks of Baskan's financial difficulties. The Banks had been investigating Baskan Gida for several months.

Accordingly, if the court finds it does have jurisdiction in respect of these paragraphs, Ferrero will ask for them to be struck out.

The court has jurisdiction: (a) the place where the harmful event occurred for the purpose of Article 5(3) in that it was in England that the facility agreement was entered into and it was from England that the Banks’ funds were advanced: Domicrest v Swiss Bank Corp [1999] QB 548, at 568, or alternatively (on the basis that Domicrest was wrongly decided) in that it was in England that the letter was received and acted upon; and (b) in any event the Banks could rely upon Article 6(1).

Article 6(1) will apply as key questions of fact will overlap with the claim against Indo-Med in England, in particular the extent to which Baskan Gida was experiencing financial difficulties in the latter part of 2001, including the role of Indo-Med's cash payments in the period from July to November 2001

The Banks do allege particulars of knowledge. They allege that Mr Casale knew the specific facts pleaded, and how he came to know such facts is an evidential question, although the evidence to date adduced shows his close working relationship with Baskan Gida, from which it must have been clear that it could not afford to make further purchases; and that Ferrero and in particular Mr Casale must have known of and been concerned about the difficulties.

Applicable legal principles

Service out of the jurisdiction in a case which the court has power to determine under the Civil Jurisdiction and Judgments Act 1982 (defendants domiciled in Denmark, Norway, Switzerland and Iceland) or the Judgments Regulation (defendants domiciled in the EC Member States other than Denmark) is governed by CPR, r. 6.19(1) and (1A) respectively. Service under CPR, r. 6.19(1A) may be effected without the permission of the court:

“where each claim included in the claim form made against the defendant is a claim which the court has power to determine under the Judgments Regulation and (a) no proceedings between the parties concerning the same claim are pending in the courts of … any other Regulation State and (b) … the defendant is domiciled … in any Regulation State …”

These proceedings are civil or commercial matters within the meaning of the Judgments Regulation, and each of the Ferrero Companies is domiciled in a Regulation State. 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. It follows that, if the defendant is domiciled in a Regulation State, permission cannot be sought or obtained under CPR, r. 6.20, which is the successor to Order 11, r 1, and which does not apply to defendants domiciled in Regulation States.

In principle the appropriate standard which the claimant must satisfy to establish the jurisdiction of the English court is a good arguable case: Canada Trust Co v Stolzenberg (No.2) [1998] 1 WLR 547, 553 to 559, approved [2002] 1 AC 1 at 13, per Lord Steyn.

A person domiciled in a Regulation State may be sued in another Regulation State in matters relating to contract, in the courts for the place of performance of the obligation in question: Article 5(1)(a).

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: Article 5(3).

“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.

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 [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 [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. Although the European Court more frequently refers to the “place of the event giving rise” to the damage, in paragraph 25 and in the operative part of the ruling it refers to the place of the event which “gives rise to” and “is at the origin 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.

In Case C-68/93 Shevill v Presse Alliance SA [1995] ECR I-415 an allegedly defamatory article was published in the French newspaper France-Soir (published by Presse Alliance SA, a French company), which was mainly distributed in France, and which had a very small circulation (about 230) in the United Kingdom. The defamatory material concerned alleged money laundering through one of Chequepoint’s bureaux de change in Paris, at which Miss Shevill worked. Presse Alliance SA argued in England that France was the place where the harmful event occurred for the purposes of Article 5(3). Applying the Bier and Dumez France rulings, the European Court ruled that in the case of a libel by a newspaper article distributed in several states, the place of the event giving rise to the damage, within the meaning of the prior judgments, could only be the place where the publisher of the newspaper was established, since that was the place where the harmful event originated and from which the libel was issued and put into circulation. The court of the place where the publisher was established therefore had jurisdiction, and that forum would also generally coincide with the court of the domicile under Article 2. The court where the damage occurred (i.e. the place where the event giving rise to the damage produced its harmful effects on the victim) would also have jurisdiction, and that place was the place where the publication was distributed, when the victim was known in those places. The Court followed the opinions of Advocates General Darmon and Leger, who had treated the contrast as being between the place of publication or printing on the one hand, and distribution or communication on the other.

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 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.

Rix J said (at pp 564-5, 567-8):

“It must therefore be a matter of concern that a rule in relation to negligent mis-statement which emphasises where the mis-statement is received and acted upon, or where the economic loss is finally felt, is a rule which over-favours the plaintiff’s jurisdiction, contrary to the essential structure of the Convention as expressed in article 2, and contrary to the warnings expressed by the European Court … .

… it seems to me that the place where the harmful event giving rise to the damage occurs in a case of negligent mis-statement is, by analogy with the tort of defamation, where the mis-statement originates. It is there that the negligence, even if not every element of the tort, is likely to take place; and for that and other reasons the place from which the mis-statement is put into circulation is as good a place in which to found jurisdiction as the place where the mis-statement is acted on, even if receipt and reliance are essential parts of the tort. For these purposes it seems to me that there is no difference between a written document and an oral or other instantaneous communication sufficient to distinguish between such cases. Although it may be argued that in the case of instantaneous communications and perhaps especially in the case of telephone conversations the mis-statement occurs as much where it is heard as where it is spoken, nevertheless it remains true as it seems to me that it is the representor’s negligent speech rather than the hearer’s receipt of it which best identifies the harmful event which sets the tort in motion. To prefer receipt and reliance as epitomising the harmful event giving rise to the damage in the case of negligent mis-statement is, I think, to ignore the fact that the plaintiff also has the option of suing in the courts of the place where the damage occurs – which is quite likely to be at the place of receipt and reliance.

As for the place where the damage itself occurs, that may, of course, be elsewhere than the place of the event giving rise to the damage and, as I have already suggested, is quite likely to be where the mis-statement is heard and relied on, but in this case I do not think that it was in England. In my judgment … the damage occurred in Switzerland and Italy, where the goods were released without prior payment.”

In so deciding, Rix J did not follow the decision of Steyn J in Minster Investments Ltd v Hyundai Precision & Industry Co Ltd [1988] 2 Lloyd’s Rep 621, in which Steyn J held that the decisive connecting factor was not necessarily the one which was first in time. The essence of the cause of action was a negligent mis-statement, or negligent advice, and reliance on it, and not the historical carelessness which led to the mis-statement or the wrong advice.

Domicrest was applied by Mr Kenneth Rokison QC sitting as a deputy judge in Alfred Dunhill Ltd v Diffusion Internationale [2002] 1 All ER (Comm) 950 (negligent misrepresentation), and also (as regards fraudulent misrepresentation) approved obiter by the Court of Appeal in ABCI v Banque Franco-Tunisienne [2003] 2 Lloyd’s Rep 146 at 160, per Mance LJ. If it were necessary to reconsider the decision the starting point would be consideration of the scope of the decision in Shevill (where printing and initial, and main, publication took place in France) and what application it might have to claims for fraudulent and negligent misrepresentation.

In Raiffeisen Zentral Bank v Tranos [2001] IL Pr 85 the claimant Austrian bank extended credit to the defendant, who was domiciled in Greece, via its London branch. The initial request for credit, involving alleged misrepresentation, was made in Greece to an employee of the bank. For the purposes of determining where the damage occurred, it was held that the damage occurred in London, where the credit facility was arranged, rather than in Greece or Austria where the representation was received and given approval for further action.

By Article 6(1) a person domiciled in a Regulation State may be sued “where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings”. The criterion that the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings is a codification of the formula in Case 189/87 Kalfelis v Bankhaus Schroeder Münchmeyer Hengst & Co. [1988] E.C.R. 5565, para 11.

A broad approach to the determination of the risk of irreconcilable decisions (including inconsistent findings of fact), rather than one based on close analysis of the respective claims, is appropriate: Watson v First Choice Holidays [2001] EWCA Civ 972, [2001] 2 Lloyd’s Rep 339, 342 (applying the approach in Sarrio SA v Kuwait Investment Authority [1999] 1 AC 32, para 19, a case on what is now Article 28); Gascoine v Pyrah [1994] IL Pr 84, at paras 42-45 (CA).

By Article 6(3) a person domiciled in a Regulation State may be sued on a counterclaim arising from the same contract or facts on which the original claim was based, in the court in which the original claim is pending. In Canada Maritime Ltd v Oerlikon Aerospace Inc (unreported, 1997) Tuckey J indicated (obiter) that Article 6(3) permitted the joining of additional parties by counterclaim, but in a decision on what is now Article 12(2), a provision which relates to insurance and is similar in effect to Article 6(3), the House of Lords held that it does not provide for jurisdiction over an additional party joined by counterclaim: Jordan Grand Prix Ltd v Baltic Insurance Group [1999] 2 AC 127.

By 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 jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either:

(a)

in writing or evidenced in writing; or

(b)

be in a form which accords with practices which the parties have established between themselves; or

(c)

in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.”

The formal requirements of Article 23 are to be strictly construed because their purpose is to ensure that the parties have consented to a jurisdiction agreement derogating from the ordinary jurisdictional rules and that their consent is clearly and precisely demonstrated: Case 26/76 Salotti v RÜWA [1976] ECR 1831; Case 71/83 The Tilly Russ [1984] ECR 2417; Case 221/84 Berghoefer GmbH v ASA SA [1985] ECR 2699; Case C-106/95 Mainschiffahrts-Genossenschaft eG v Les Gravières Rhénanes SARL [1997] ECR I-911; Case C-159/97 Soc Trasporti Castelletti Spedizioni Internazionali SA v Hugo Trumpy SpA [1999] ECR I-1597. An assignee of a contract may be bound by a jurisdiction clause contained in it: Case 201/82 Gerling v Treasury Administration [1983] ECR 2503. Whether a dispute falls within the scope of a jurisdiction agreement is a question of interpretation to be decided by the national court: Case C-214/89 Powell Duffryn plc v Petereit [1992] ECR I-1745; Case C-269/95 Benincasa v Dentalkit Srl [1997] ECR I-3767.

The first question under Article 23 is whether there has been agreement or consensus and the second question is whether the formal requirements have been fulfilled: Dresser UK Ltd v Falcongate Freight Management Ltd [1991] 2 Lloyds Rep 557, at 561. Whether there has been a sufficient consensus so as to satisfy Article 23 is predominantly a question of fact for the court seised and it is to be answered without recourse to rules of national law: IP Metal v Ruote [1993] 2 Lloyds Rep 60, affd [1994] 2 Lloyd’s Rep 560, applied in Credit Suisse Financial Products v Soc. Gen d’Entreprises [1997] CLC 168 at 170; AIG Europe (UK) Ltd v The Ethniki [2002] 2 All ER 566 at 576.

The question of the standard of proof required when a defendant seeks to rely on a foreign jurisdiction agreement in a case where, apart from the alleged jurisdiction agreement, the English court would undoubtedly have jurisdiction under the Judgments Regulation, is not finally settled. Where a claimant seeks to establish the jurisdiction of the English court, it is settled that the claimant must show a good arguable case. The good arguable case test is not capable of very precise definition, but reflects the idea that the claimant must properly satisfy the court that it is right for the court to take jurisdiction. It suggests that one side has the better argument on the material available. The court has to be satisfied or as satisfied as it can be, having regard to the limitations which an interlocutory process imposes, that factors exist which allow the court to take jurisdiction. Where the jurisdictional issue (in that case domicile) is one which will not arise at the trial, it is natural that particular scrutiny of the material available takes place in the context of the limitations applied to an interlocutory process. “Good arguable case” is a concept with some degree of flexibility depending on the issue. See Canada Trust Co v Stolzenberg (No.2) [1998] 1 WLR 547, 553 to 559, approved [2002] 1 AC 1 at 13, per Lord Steyn.

That decision does not deal with the burden or standard, when the defendant claims that the English court (which would otherwise have jurisdiction) has no jurisdiction by virtue of a foreign jurisdiction clause. In Knauf UK GmbH v British Gypsum Ltd [2002] 1 WLR 907 (CA) David Steel J had held that the burden on good arguable case in relation to an alleged German jurisdiction clause lay on the defendants. The Court of Appeal did not find it necessary to decide on the claimants’ argument that the good arguable case test was too low a threshold where a litigant sought to use what is now Article 23 to derogate from a jurisdiction otherwise established under the Brussels Convention, but the point was not necessary to decide: see page 925. See also Carnoustie Universal SA v ITWF [2003] I.L.Pr 82, at 102. This question was not developed in argument before me, but subsequently I put it to the parties that unless there were a submission to the contrary (which there was not) I would proceed on the basis that the standard is good arguable case in the sense of which side has the better of the argument, and that the burden (on which I consider that David Steel J’s approach is right) would only matter if the argument were evenly balanced.

By Article 27:

“1.

Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established.

2.

Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court.”

Where the court of one Judgments Regulation state is first seised, the court second seised may, if it does not decline jurisdiction, only stay the proceedings and may not examine the jurisdiction of the court first seised: Case C-351/89 Overseas Union Insurance Ltd. v New Hampshire Insurance Co. [1991] ECR 1-3317; Case C-116/02 Gasser v MISAT srl [2004] 1 Lloyd’s Rep 222; Haji-Ioannou v Frangos [1999] 2 Lloyd’s Rep 337, at 351.

It was held in Case 144/86 Gubisch v Palumbo [1987] ECR 4861 that what is now Article 27 applies where the proceedings in the court first seised are for rescission or discharge of the contract, or for a declaration that the claimant in those proceedings is not liable under the contract, and the proceedings in the court second seised are for damages by the party which is the defendant in the proceedings for a negative declaration. The European Court held that the German version did not expressly distinguish between “object” and “cause of action” (“la même objet et la même cause”). The proceedings were based on the same “cause of action,” i.e. the same contractual relationship, and had the same subject matter when the first action sought to enforce the contract and the second action sought its rescission or discharge: “The question whether the contract is binding therefore lies at the heart of the two actions”: para 16.

The reasoning was developed in another case involving a pre-emptive action for a negative declaration, Case C-406/92 The Tatry [1994] ECR I-5439, paras 37 to 44, where the European Court ruled that the “cause of action” comprised the facts and the rule of law relied on as the basis of the action, and the “object of the action” meant the end the action had in view. The cause of action was the same because the actions were brought on separate but identical contracts, concerning the same cargo and damaged in the same circumstances. The object of the action was the same because the issue of liability was central to both actions, and the fact that one party’s pleadings were in negative terms, and those of the other were in positive terms, did not make the object of the dispute different. See also Haji-Ioannou v Frangos [1999] 2 Lloyd’s Rep 337, at 351. The approach of the European Court to actions for negative declarations combined with the rigid rules of lis alibi pendens in Article 27 has encouraged forum shopping by the use of actions for negative declarations: see Dicey and Morris, Conflict of Laws, 13^th ed, paras 12-033 et seq; Collins, Essays in International Litigation and the Conflict of Laws (1994), p.274.

By Article 28:

“1.

Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings.

2.

Where these actions are pending at first instance, any court other than the court first seised may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions in question and its law permits the consolidation thereof.

3.

For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.”

The purpose of Article 28 is to avoid the risk of conflicting judgments and to facilitate the proper administration of justice in the Community; the term “irreconcilable” is not to be given the narrow interpretation which it has in what is now Article 34(3) on recognition and enforcement of judgments. Article 28 is intended to improve co-ordination of the exercise of judicial functions within the Community and to avoid conflicting and contradictory decisions, without necessarily involving the risk of giving rise to mutually exclusive legal consequences and even where the separate enforcement of each of them was not precluded: Case C-406/92 The Tatry [1994] ECR I-5439, paras 54 to 57. That decision was applied in Sarrio SA v Kuwait Investment Authority [1999] 1 AC 32 Lord Saville said (at 41):

“I am of the view that there should be a broad commonsense approach to the question whether the actions in question are related, bearing in mind the objective of the article, applying the simple wide test set out in article 22 and refraining from an over-sophisticated analysis of the matter.”

Application of Article 27 to the claims against Ferrero Industrial and Ferrero Italy

The only relevant parties for the purposes of the application under Article 27 are the Banks and Ferrero Industrial and Ferrero Italy. Ferrero accepts that arguably the alleged obligation to pay was to be performed in England. Therefore (but for the issues arising under Articles 23 and 27, and in relation to assignment), the English court would have jurisdiction over the Banks’ contractual claims for payment against the Ferrero Companies.

The Italian court was the court first seised. Whether the Italian court has jurisdiction is therefore a matter for the Italian court: Case C-351/89 Overseas Union Insurance Ltd. v New Hampshire Insurance Co. [1991] ECR 1-3317; Case C-116/02 Gasser v MISAT srl [2004] 1 Lloyd’s Rep 222; Haji-Ioannou v Frangos [1999] 2 Lloyd’s Rep 337, at 351. Cf. Case C-159/02 Turner v Grovit, April 27, 2004. Consequently, I indicated that I did not wish counsel for the Banks to develop his arguments on the jurisdiction of the Italian court. But it is plain that there are some serious jurisdictional issues for the Court of Cassation when it comes to hear the jurisdictional objections. In particular (a) as regards the Italian jurisdiction clauses, it is clearly strongly arguable that what Ferrero describes as “confirmations” of the purchase orders are to be free-standing contracts which do not have any jurisdiction clause; (b) there will a serious question as to whether the issue on the notification requirement in clause 9(2) of the Framework Contract can give the Italian court jurisdiction under Article 5(1); (c) the suggestion that the Banks have counterclaimed and therefore waived the right to object to the jurisdiction of the Italian court does not appear (in the absence of any apparent counterclaim) to have any factual foundation; and (d) the argument that the Italian court has jurisdiction because there is a person in Italy who is authorised by BTM to take part in legal proceedings seems to have a weak factual basis, since it is based on the presence of a representative of a BTM subsidiary, and not of a branch.

In my judgment the contractual claims against Ferrero Industrial and Ferrero Italy in England involve substantially the same cause of action as the claims for negative declarations in Italy.

In England the Banks plead the acknowledgements by Ferrero Italy, Ferrero France and Ferrero Germany (which were of the Master Assignment Agreement), and the acknowledgement by Ferrero Industrial of the assignment of the Framework Contract. They say that the effect of the acknowledgements was that all sums due in respect of Baskan Gida deliveries made after December 10, 2001 should have been paid to KBC’s London branch. The Banks plead that the Ferrero Industrial acknowledgement of December 17, 2001 was given on behalf of each of the Ferrero Companies.

The claim is that, despite having been given notice of assignment of the Framework Contract and of the Master Assignment Agreement, and despite having acknowledged such notices, the Banks were not paid most of the sums due from (among others) Ferrero Italy, which is liable to the Banks as assignees in respect of deliveries made by Baskan Gida (and also by Aksu Gida and/or Baskan Yuksel as nominees or agents). Ferrero Industrial is alleged to be liable in respect of supplies made at its request as centralised purchasing authority, and also by virtue of the assignment of the Framework Contract and by virtue of its undertakings. It is also separately alleged that the Ferrero Companies are liable on a demand made by the Banks as assignees of the Framework Contract.

In the Italian proceedings Ferrero Industrial and Ferrero Italy claim that (a) the Banks made unlawful demands for payment against Ferrero Italy and Ferrero Industrial; (b) the acknowledgements dated December 19, 2001 were known by the Banks to be forgeries; (c) the Master Assignment Agreement cannot be asserted against them, because Baskan Gida failed to give written notice countersigned by the Banks pursuant to clause 9(2) of the Framework Contract, and the failure to comply with clause 9(2) was not remedied by the letters sent on December 6 and December 13, 2001; (d) the December 6 and 17, 2001 acknowledgements could not be relied upon because the assignment had not then taken place when they were executed (the December 17 acknowledgement having been executed on December 13, 2001); (e) the Ferrero Industrial acknowledgement dated December 17, 2001 could not commit Ferrero Industrial (which had never entered into any supply contract) to make any payments and it was given in its own name, and not on behalf of any group company; (f) for these reasons, and once the forgeries are set aside, there is no basis for the Banks’ claim that Ferrero Industrial and Ferrero Italy are under any obligation to make payments.

The “cause of action” in both England and Italy is the same, because the facts and the rule of law relied on as the basis of the action are substantially the same. There are obvious differences in formulation, and differences of detail, but it is plain that both actions are about the liability of the Ferrero Industrial and Ferrero Italy to pay the Banks as a result of the assignments and undertakings. In the equivalent of the prayer in the Italian proceedings Ferrero Industrial and Ferrero Italy invite the court to state and declare that the Master Assignment Agreement cannot be asserted against Ferrero Italy and Ferrero Industrial due to non-compliance with clause 9(2) of the Framework Contract, and to state and declare that Ferrero Italy owes nothing to Baskan Gida or the Banks for whatever reason with respect to contracts 5093 to 5097, and that Ferrero Industrial owes nothing to Baskan Gida or the Banks for any reason connected with the contracts for the sale of hazelnuts between Baskan Gida and Ferrero Italy, Ferrero Germany and Ferrero France. This is the mirror image of that part of the Banks’ assignment claim in the English proceedings which relies on notice of assignment of the Framework Contract, notice of the Master Assignment Agreement, and the undertakings of December 6 and 17, 2001.

The “object of the action” (the end the action has in view) in both jurisdictions is essentially the same, even though the claim in Italy is for a negative declaration. Both actions are about the liability of Ferrero Industrial and Ferrero Italy on the contracts, the assignments, and the undertakings.

Consequently, the English action against Ferrero Industrial and Ferrero Italy should be stayed under Article 27(1) until the decision of the Court of Cassation on the jurisdictional objections by the Banks.

But I do not consider that there is any basis for the argument that the tortious claims are within Article 27. No such claims had been asserted when the Italian proceedings were commenced. The Italian proceedings were clearly a pre-emptive strike to anticipate the Banks’ contractual claims. It is true that the claim for a negative declaration is a claim that Ferrero Industrial and Ferrero Italy owe nothing “for whatever reason” with respect to the contracts with Baskan Gida for the sale of hazelnuts, and that Ferrero’s Italian lawyer, Mr Benessia, has expressed the view that in Italian law this is effective to deal not only with contractual claims, but any other ground, including any alleged tort. But both Mr Benessia and the Banks’ lawyer, Professor Canale, agree that the answer to the question of what claims are included depends on the intention of the parties, and I am satisfied that Professor Canale’s approach leads to the correct conclusion that such claims were not envisaged, notwithstanding that it may be that the background and facts in the English tortious claims are common to the limited tortious claims made by Ferrero Industrial and Ferrero Italy against the Banks in the Italian proceedings.

Validity of service on Ferrero Italy and Ferrero Industrial

Service out of the jurisdiction without the permission of the court in cases covered by the Judgments Regulation is governed by CPR, r. 6.19(1A). One of the conditions is that, in relation to each claim included in the claim form, there should be no proceedings between the parties concerning the same claim in another Regulation State.

If I am right on Article 27, then the Banks have not complied with CPR, r. 6.19(1A). CPR, r. 6.20 has, in my judgment, no application to cases which are within the Judgments Regulation, and permission to serve Ferrero Industrial and Ferrero Italy should not have been sought or granted. But I do not consider that non-compliance with CPR, r. 6.19(1A) in relation to one cause of action among several should have the effect that service of the proceedings should necessarily be set aside. That would be an absurd and inconvenient result, and in my judgment, if the court has jurisdiction on other causes of action the defect should be cured under CPR, r. 3.10, which gives the court power to rectify matters where there has been an error of procedure. Ferrero would not have suffered any prejudice as a result, and justice would be done if service were to stand in respect of those causes of action in respect of which the court has jurisdiction.

Jurisdiction of the English court in relation to the tortious and quasi-tortious claims and the proposed amendments

Ferrero does not dispute the allegation that there was a fraud. It says that it reached the conclusion after extensive investigations that Baskan Gida acted fraudulently in relation to the sales of hazelnuts. Ferrero says that it was not a party to the fraud, but it does not say for the purposes of these applications that the fraud claim against it is unarguable on the merits. In the course of argument neither party dissented from my observation that a group of Ferrero’s size and standing would have had no motive for participating in the fraud, and that the only reasonable explanation for any participation would have been corruption on the part of one or more of its employees. The credibility of Mr Casale will therefore be a substantial element in any trial.

In my judgment there is a good arguable case that the English court has jurisdiction in relation to the tortious claims (other than the claims arising from the letter of December 13, 2001, with which I deal below) by virtue of Article 6(1).

The Banks have claims in conspiracy against Indo-Med and Aksu Gida. Indo-Med is domiciled in England, and Aksu Gida has submitted to the jurisdiction. Therefore there will be a trial in England against those companies (and perhaps also against Baskan Gida and the individual Baskans).

I accept the argument for the Banks that the claims are connected for the purposes of Article 6(1) because the allegation is that that the Ferrero Companies were party to the same conspiracy as Indo-Med. A central issue in the unamended conspiracy claim against Indo-Med and the Ferrero Companies would be their knowledge of, or participation, in a single conspiracy by which Aksu Gida was used to defeat the rights of the Banks. Since the essence of the conspiracy was to avoid payment being made to the Banks, on the Banks’ case the participation of each was essential. It is true, as Ferrero says, that judgments finding Indo-Med liable for conspiracy but finding the Ferrero Companies not liable (or vice versa) would not necessarily be irreconcilable, but there is a risk (the word in Article 6(1)) that they would be irreconcilable. It is also true that Ferrero did not necessarily know of Indo-Med’s existence (and vice versa), but this is a matter for determination at trial, and not a factor which removes the risk of irreconcilability. Nor does it matter that Ferrero may accept (or may not dispute) that there was a conspiracy between the Baskans, Aksu Gida and Indo-Med, since the conspiracy claims against them are being contested by Indo-Med.

Nor is there any reason to believe that Indo-Med has been sued merely to assume jurisdiction over the Ferrero Companies. The accounts in evidence (to December 31, 2001) show losses of $181,000 on a turnover of about $16 million and assets of about $1.4 million. Ferrero said in argument (but not in evidence) that Indo-Med (among the other defendants) did not appear to be of any substance. I accept the Banks’ argument that on the evidence before the court Indo-Med is a genuine defendant in relation to which there is a substantial argument that it participated in the fraud.

The only other possible head of jurisdiction is Article 5(3). As regards the claims for conversion and knowing receipt/constructive trust, there is no basis for saying that either the event which gave rise to the damage (the act of conversion and receipt of the property) or the place where the damage occurred (the loss of security) took place in England. The pledged hazelnuts were released in Turkey and delivered to the relevant Ferrero Companies in Turkey, or in Italy, France and Germany.

As for conspiracy, the unamended Particulars rely essentially on acts which took place in Turkey, but the conspiracy alleged against Ferrero Industrial is to ensure that Baskan Gida received payment even though the right to payment had been assigned to the Banks. If Article 6(1) had not been available as a head of jurisdiction I would have held that those parts of the claim which alleged a conspiracy to defeat the right of the Banks to payment would have been within the jurisdiction of the English court on the basis that the Banks suffered damage in England by not receiving payment.

I will allow the amendments to the conspiracy claim alleging a conspiracy to procure advances from the Banks. Ferrero objects to paragraphs 91.8 (that the Ferrero Companies agreed in the latter part of 2001 to change the trading arrangements with Baskan Gida relating to delivery and payment), 91.9 (that the Ferrero Companies entered into new contracts with Baskan Gida in respect of outstanding orders to enable Baskan Gida to obtain funding from the Banks), and 91.11 (that the Ferrero Companies entered into contracts with Baskan Gida which gave false delivery dates in the knowledge that they would be used to raise financing from the Banks). The objection is that (a) the allegations are too vague; (b) they have no substance because in the absence of a clear and particularised claim of fraud, it would not matter if trading arrangements were changed or new contracts were entered into. In my judgment, the proposed amendments raise matters which are arguable, and will not cause prejudice to Ferrero, and they ought to be allowed so that the real dispute between the parties can be adjudicated upon. I accept that the references to new trading arrangements and new contracts would in the normal case be too vague, but full details are given in the third witness statement of Mr Head, the Banks’ solicitor, and I will order that the additional details be given by way of additional information. Objection is also made to paragraph 91.13 (that Ferrero in the letter of December 13, 2001, misled the Banks by stating that they had not encountered any difficulties with Baskan Gida and had received deliveries from Baskan Gida on a timely basis). The objection is the same as that to the deceit/negligent misrepresentation amendments with which I deal below (para 222). I will allow the amendment.

As regards jurisdiction, the claims would be within Article 6(1), and also within Article 5(3). As regards Article 6(1), the same considerations as applied to the unamended conspiracy claim (to defeat the rights of the Banks) apply to the amended conspiracy claim (to procure the advances). I do not accept the argument for Ferrero that any damage occurred in Turkey, where Baskan Gida drew on the letter of credit. The reality of the position is that money held by the Banks in England was paid out as a result of the conspiracy. The facility agreement reflected the reality of the position when it provided in clause 5.4 that a drawing under the letter of credit was deemed to be an advance by the Banks. The advances would not have been made but for the conspiracy, and the immediate loss sustained by the Banks was the reimbursement of Akbank. That loss occurs where the money is paid out, or where the Banks do not receive the payments under the assignments, in each case being London.

I will allow the amendments to plead deceit and negligent misrepresentation. Ferrero objects on the basis that (a) the letter of December 13, 2001 is not dealing with Baskan Gida’s financial position, but solely with its supplies to Ferrero; (b) Ferrero’s alleged knowledge of Baskan Gida’s financial position is inadequately particularised; (c) the suggestion that Mr Casale should have informed the Banks, who had been investigating its financial affairs for months is absurd. I am satisfied that the amendments should be allowed. It is plainly arguable that the letter of December 13, 2001 from Mr Casale to Mr Byles of BTM was written in order to induce the Banks to enter into the facility agreement; and it is also arguable that it in fact was false in that Baskan Gida had been unable to meet orders placed by the Ferrero Companies in a timely or consistent fashion, and that there had occurred substantial delays between the placing of an order by a Ferrero Company and the delivery of hazelnuts to that Company by Baskan Gida, and Baskan Gida had been unable to make delivery at all in respect of some orders. I do not consider that the allegations which flow from the alleged mis-statements are inadequately particularised or are capable of being struck out.

The Banks have a good arguable case that the English court has jurisdiction under Article 5(3) because the damage occurred in England: it is pleaded that in reliance on the representations the Banks entered into the facility agreement and made the advances. It was in England where the facility agreement was entered into and from where in commercial terms the advances were made, and from where the Banks’ resources were diminished by their reimbursement of Akbank. It is not therefore necessary to decide whether the decision in Domicrest applies equally to fraudulent misrepresentation, or whether it was rightly decided.

Application of Article 28 to the contractual claims

As I have said, by Article 28, where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings. Actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.

The question whether the English proceedings (or any part of them) should be stayed pursuant to Article 28 in relation to the contractual claims may arise (a) if I am wrong in my conclusion that Article 27 applies to the contractual claims against Ferrero Industrial and Ferrero Italy; (b) in any event, in relation to the contractual claims against Ferrero France; (c) in relation to the contractual claims against Ferrero Germany, if the English court has jurisdiction notwithstanding the allegation that the Ferrero Germany contracts contain a Frankfurt jurisdiction agreement.

The first question is whether the relevant actions are related. First, there can be no doubt that if the contractual claims against Ferrero Industrial and Ferrero Italy were not within Article 27, then they would be related actions for the purpose of Article 28, and it would be difficult to see any reason why the discretion to stay the proceedings under Article 28 until the Italian court has ruled on jurisdiction should not be exercised. Second, I am satisfied that the contractual claims against Ferrero Germany and Ferrero France would be related to the contractual claims against Ferrero Industrial and Ferrero Italy. The Banks’ claims as assignees are identical as against each of Ferrero Italy, Ferrero Germany and Ferrero France, except that as regards Ferrero France the Banks also rely on the acknowledgement by Ferrero France on January 10, 2002 of KBC’s letter of December 21, 2001.

I do not consider that it makes any difference that the Banks are willing to withdraw their claims based on the December 19, 2001 acknowledgements. The effect of the December 6, 8 and 13 acknowledgements would remain as issues in both sets of proceedings. Nor does it make a difference that some aspects of the assignment claims against Ferrero France and Ferrero Germany may be governed by the law of France and Germany respectively, whereas the assignment claims against Ferrero Industrial and Ferrero Italy may be governed by Italian law. There is no reason at this stage to believe that there is any relevant difference between the potentially governing laws, or that any such difference might be central to the case.

I take into account the following factors in the exercise of the discretion under Article 28 in relation to the contractual claims: (a) the Italian proceedings were launched pre-emptively for tactical reasons; (b) since the Italian court was first seised, only the English court has jurisdiction to stay under Article 28, and the Italian proceedings are bound to continue at least until the Court of Cassation has ruled on jurisdiction; (c) it would be anomalous for actions involving the same or similar issues against different members of the same group to proceed simultaneously in two different jurisdictions with a clear risk of inconsistent outcomes, irrespective of the difficult question of whether a decision in Italy might give rise to some form of estoppel in England; (d) the merits of the case will not be reached in Italy until the Court of Cassation has ruled on jurisdiction, and the evidence is that the jurisdictional issue will not decided in Italy for about one year at least; (e) some of the delay is attributable to the Banks not having taken action earlier in the Court of Cassation; (f) there are clearly serious objections to the jurisdiction of the Italian court both in relation to BTM and to KBC, but it is not for the English court to determine them; (g) Ferrero France and Ferrero Germany are not parties to the Italian action, but the evidence is that they may apply to be joined or to intervene. Taking all these matters into account, I am satisfied that the contractual claims against Ferrero Germany and Ferrero France should be stayed under Article 28 until the outcome of the jurisdictional objection in the Court of Cassation.

The alleged exclusive jurisdiction clauses

If I am right in my conclusion that Article 27 applies to the claims against Ferrero Italy, then it would not only be unnecessary to decide whether there was an effective Italian jurisdiction clause, but it would also be wrong for the English court to decide what was a matter for the Italian court.

If I were wrong in that conclusion, then it would be appropriate and necessary for the English court to take a view on whether there was an effective jurisdiction agreement covering those contractual claims which were the subject of the Italian proceedings: if there were such an agreement, the Italian court would have exclusive jurisdiction in relation to the contractual claims against Ferrero Italy.

Article 27 does not apply to the Banks’ contractual claims as assignees against Ferrero Germany, because Ferrero Germany was not a claimant in the Italian proceedings. Consequently, only Article 28 can apply to those claims, but if there is an effective German jurisdiction agreement, the German courts would have exclusive jurisdiction.

The documentary evidence in relation to Ferrero Italy consists of:

All of the contract/confirmation documents are Baskan Gida headed documents and are signed on behalf of (or envisage signature on behalf of) Ferrero Italy and Baskan Gida. The September/October documents are unsigned, but all of the December documents are signed by both parties, and are headed with Baskan Gida’s contract number, and (in the case of all of the December documents) with Ferrero’s order number.

If it had been necessary to decide, on the material before me, which side had the better of the argument on the Italian jurisdiction clause (which, on the basis of my conclusion on Article 27, is a matter for the Italian court) I would have decided (given the emphasis placed by the European Court on the importance of establishing consensus between the parties) that, in the light of the Framework Contract and the contract/confirmations, which contain no jurisdiction clause, the Banks have the better of the argument, and that the jurisdiction of the English court is not excluded. But if I am right on Article 27, it is not necessary for me to decide that question, and I am sure that the Italian court, when it comes to consider it, will take its own view.

Ferrero Germany originally conceded in its application that the English court had jurisdiction over the contractual claims, but now relies on a course of dealing in which (it says) purchase orders were sent by Ferrero Germany to Baskan Gida, which contained on their face a reference to the terms and conditions on the back, and those terms and conditions provided for the jurisdiction of the Frankfurt courts.

There is no document in relation to the contracts involved in these proceedings available to either of the parties which contains a German jurisdiction clause. Ferrero has copies of the front of the purchase order, but says that the originals (containing the jurisdiction clause on the back) were sent to Baskan Gida.

Ferrero’s evidence of the course of dealing is that: (a) a representative of Baskan Gida negotiated with Mr Casale regarding the proposed terms of an order by Ferrero Germany, following which a document was drawn up with the heading (e.g.) Contract 5072 which was signed on behalf of Baskan Gida, and then transmitted by Mr Casale to Ferrero Germany for signature, usually by Mr Bolowich; and (b) subsequently Ferrero Germany sent the purchase order. The purchase orders contain a reference to the printed conditions on the back.

The contracts/confirmations are signed on behalf of Ferrero Germany and (in most cases) Baskan Gida. None of them contains a jurisdiction clause. As with Ferrero Italy, there are contracts/confirmations in relation to some of the orders which bear a date considerably later than the original purchase order. Thus there are Baskan Gida contracts 5072 dated September 21, 2001 and 5076 dated October 8, 2001, followed by purchase orders dated respectively September 24, 2001 and October 11, 2001, and then further contracts/confirmations dated January 28, 2002 (which have different contract numbers, but contain Ferrero Germany’s purchase order numbers).

Reliance by Ferrero on the German jurisdiction clause came very late in the day and the Banks were not in a position adequately to answer it. If I am right in my conclusion that the contractual claim against Ferrero Germany should be stayed under Article 28, then the question of the effect of the jurisdiction clause will only be of practical importance if (a) the Italian court decides that it has no jurisdiction over the contractual claims against the Banks; and (b) Ferrero takes the view (which would have no commercial sense) that the contractual claim against Ferrero Germany should proceed in Germany, while the contractual claims against the other Ferrero Companies, and all of the tortious claims, proceed in England. But my conclusion on the jurisdiction clause would be the same as that in relation to Ferrero Italy: the combined effect of the Framework Contract and the contract/confirmation documents is that the jurisdiction clause in the purchase orders was not incorporated.

Application of Article 28 to the tortious and quasi-tortious claims

I have already given my reasons for concluding that the Italian proceedings do not cover the Banks’ tortious and quasi-tortious claims against Ferrero Italy and Ferrero Industrial.

Nor do I consider that the contractual claims in Italy and the tortious and quasi-tortious claims against Ferrero Industrial and Ferrero Italy in England are “related actions.” The contractual and tortious claims do not raise any common issues, and there are no grounds for suggesting that they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments. It follows also that the Italian proceedings are not “related actions” so far as the Banks’ claims against Ferrero Germany and Ferrero France for conversion, knowing receipt and in tracing are concerned.

Even if they were related actions, since the proceedings against (in particular) Indo-Med would be on foot in England, it would be plainly more appropriate for the claims against the Ferrero Companies to continue in these proceedings than to await the outcome of the jurisdictional issues in Italy, and (if the Court of Cassation finds in favour of jurisdiction) the outcome of the Italian proceedings on the merits.

Overall conclusions

Consequently:

To split the actions in this way is by no means satisfactory, but I am satisfied that the decisions of the European Court on actions for negative declarations in the present context dictate this result. If the Court of Cassation decides that the Alba court has no jurisdiction, then effective case management may result in the totality of the dispute being decided in England within a reasonable timeframe.

As is by no means uncommon in applications of this type, the evidence was very voluminous, and the submissions were far-ranging, and I should gratefully record the assistance I received from Mr Nicholas Strauss QC, for Ferrero, and Mr John Wardell QC, for the Banks.

If the form of the order cannot be agreed, I will hear argument.