Stephenson Harwood LLP v Medien Patentverwaltung AG & Ors

The central question raised by this appeal is as to the correct procedure to be followed by a respondent to a stakeholder application who wishes to dispute the Court’s jurisdiction to determine issues raised in that application.

In a stakeholder application made pursuant to CPR Part 86, the stakeholder, faced with competing claims to an asset in which it claims no interest itself, applies to the Court for directions as to whom the disputed asset should be paid or transferred. The application for directions is served on the competing claimants who, after acknowledging service, must serve a witness statement on the stakeholder setting out the grounds of their claim. The Court then makes directions as to how the stakeholder application is to be resolved, including directions as to what issues should be tried and who should be claimant and defendant. The stakeholder would not normally take any further active part in the proceedings.

Under CPR Part 11, a party wishing to dispute the jurisdiction of the Court to try a claim must make an application within 14 days after acknowledging service or else be treated as having accepted that the Court has jurisdiction to try the claim. In this case, the First Respondent (“MPV”) did not make a Part 11 application in response to the claim made by the claimant stakeholder (“Stephenson Harwood”) for directions, on the basis that this claim did not raise any substantive issues. MPV wishes, however, to dispute the Court’s jurisdiction to determine the substantive issues raised by the claim of the Second Respondent (“Mr Kagan”) in the stakeholder application.

Deputy Master Bartlett held that MPV was not entitled to do so; its failure to make a Part 11 application meant that it was to be treated as having accepted the Court’s jurisdiction to determine all issues arising in the stakeholder application, including the issues raised by Mr Kagan.

On this appeal, MPV contends that the Deputy Master’s decision was based on a misreading of CPR Part 11, that MPV did not have to make a Part 11 application in order to dispute the Court’s jurisdiction to determine issues raised by Mr Kagan and that the Court should order the monies which are the subject of the stakeholder application to be paid out to it. In response, Mr Kagan contends that the Deputy Master’s interpretation of CPR Part 11 was correct, that MPV has submitted to the Court’s jurisdiction and that, even if there had been no submission, the Court would have jurisdiction to determine the issues raised by Mr Kagan in any event.

Before setting out the background to the appeal, it is necessary to record that sadly Mr Irving Kagan, who was the original Second Respondent, died on 12 January 2020. On 3 February 2020, limited letters of administration were granted by the New York Surrogate Court to Mr Kagan’s son, Mr Michael Kagan whom the Court substitutes as the Respondent to the appeal pursuant to CPR r.19.8(2)(a). In this judgment, references to Mr Kagan are to the late Mr Irving Kagan.

In 2015 MPV, a Swiss company, brought patent infringement proceedings in the High Court against various parties. Stephenson Harwood were the solicitors on the record. Mr Kagan was a US Attorney practising and residing in New York. Mr Kagan had a consultancy business called Kagan Consultants. Mr Kagan had previously worked with MPV and assisted MPV with the patent infringement proceedings.

The patent proceedings in the UK were funded by a litigation funding company which paid Stephenson Harwood's fees, the disbursements and a US$5,000 monthly fee to Kagan Consultants or Mr Kagan personally. The patent proceedings were settled, alongside concurrent German litigation, in late 2018 for a global costs-inclusive payment of US$6.5m which was to be paid to Stephenson Harwood.

In November 2018, prior to the receipt of the settlement monies, Stephenson Harwood was notified of the existence of a claim by Mr Kagan against MPV. Essentially, Mr Kagan asserted that he was entitled to a success fee for services provided in connection with the patent proceedings. The quantum of the success fee was estimated to be around US$570,000. It was further asserted by Mr Kagan that he had a proprietary claim to this sum when received by Stephenson Harwood as part of the settlement monies, preventing it from being released to MPV in Switzerland.

In response to Mr Kagan’s claim, MPV denied that it had any contractual relationship with Mr Kagan personally. It contended that its relationship was with Kagan Consulting to whom nothing further was due.

On 8 January 2019 Stephenson Harwood received a tranche of the settlement monies on behalf of MPV. In view of the competing claims made in correspondence on behalf of Mr Kagan and MPV, it decided to set aside and retain the sum of $570,000 which remains in Stephenson Harwood’s client account pending the outcome of these proceedings (“the Monies”).

Further correspondence ensued in the course of which both MPV and Mr Kagan demanded that Stephenson Harwood pay the Monies to them and threatened legal action if their demands were not met. In these circumstances, Stephenson Harwood decided to make a stakeholder application to the court for directions.

The Part 8 Claim Form was issued on 30 January 2019 with Stephenson Harwood named as claimant and MPV and Mr Kagan as respondents. The details of the claim were set out in the Claim Form as follows:

“The Claimant seeks relief by way of a stakeholder claim under CPR 86.2 for directions as to the payment of monies currently held in the Claimant’s client account (in the sum of US$570,000) for provision to be made for the

Claimant’s costs and for such other relief as the court thinks fit to grant.”

In the supporting witness statement, Richard Gywnne, a partner in Stephenson Harwood, set out the background and confirmed that Stephenson Harwood claimed no interest in the Monies, did not collude with any of the parties and was willing to pay the Monies into court or dispose of them as the Court directed.

On 14 February 2019 MPV and Mr Kagan filed acknowledgements of service. MPV’s solicitors completed the acknowledgment of service form by ticking the box in Section B indicating that MPV intended to contest the claim and added the following details of the remedy they were seeking:

“The First Defendant claims that the monies currently held in the

Claimant’s client account in the sum of US$570,000 should immediately be paid to the First Defendant together with accrued interest”.

MPV’s solicitors did not tick the box in Section C to indicate that MPV intended to dispute the Court’s jurisdiction. Under Section E they stated that it had been agreed by Mr Kagan and MPV that they would exchange written evidence by 27 February 2019.

On 27 February 2019 the parties exchanged witness statements. MPV served a statement from Gerhard Lehmann, MPV’s chief executive officer, in support of its claim that the Monies should be immediately released to MPV together with accrued interest. Mr Lehmann addressed the facts surrounding Mr Kagan’s claim to a success fee, which he denied. He stated that he did not believe that the English court was the appropriate forum to determine the terms of the agreement between MPV and Mr Kagan or to determine what was agreed at a mediation which had taken place between the parties and that it should not try to do so in the stakeholder application. He confirmed that MPV had sufficient assets to pay any judgment obtained by Mr Kagan in the “the appropriate jurisdiction, which is likely to be a Court outside of the UK.” He concluded by asking the court to make an order that Stephenson Harwood pay the Monies to MPV forthwith together with accrued interest.

This witness statement was the first occasion on which MPV had indicated that it might dispute the jurisdiction of the English court to resolve issues raised in the stakeholder application. The witness statement did not specify where the alternative appropriate jurisdiction might be.

By a letter dated 21 March 2019 to Mr Kagan’s solicitors, MPV’s solicitors said: “we do not consider it appropriate for the Master to determine the underlying claim pursued by Mr Kagan by way of a trial within the stakeholder claim. This is not the jurisdiction in which to determine the claim.” By a letter dated 28 March 2019, Mr Kagan’s solicitors asked MPV’s solicitors to say what the correct jurisdiction would be for Mr Kagan’s contractual claim as they had refused to do so on the telephone. In a letter the following day, MPV’s solicitors said that Mr Kagan was claiming the Monies on the basis of the disputed terms of his retainer and that this dispute could not be determined in England and must be determined in Switzerland. On 1 April 2019 MPV’s solicitors wrote to the court to say that MPV would seek to treat the forthcoming hearing as a disposal hearing and ask for the immediate release of the Monies.

On 3 April 2019 MPV served a second witness statement from Mr Lehman rebutting points in Mr Kagan’s first witness statement concerning the arrangements for payment of his fees.

At the hearing before the Deputy Master on 6 June 2019, it was argued on behalf of MPV that the Court had no jurisdiction to try the merits of the claim between itself and Mr Kagan, alternatively that it should not exercise that jurisdiction as a matter of discretion and it should either order the money to be paid or it should retain the money for a limited period in order to give Mr Kagan an opportunity to commence a claim in whatever jurisdiction he considered proper to recover the money. It was argued on behalf of Mr Kagan that, as MPV had not challenged jurisdiction in accordance with the provisions of CPR Part 11, it was now not open to it to do so and alternatively that MPV had by its conduct waived any objections to jurisdiction.

In his ex tempore judgment the Deputy Master held that CPR Part 11 applied to the stakeholder application and that, as MPV had failed to make a Part 11 application disputing the Court’s jurisdiction, it was to treated as having accepted that the Court had jurisdiction to try Mr Kagan’s claim.

The Deputy Master made directions requiring Mr Kagan to file and serve Points of Claim setting out his case to the beneficial entitlement to the Monies and for MPV to serve Points of Defence. On 15 July 2019 Mr Kagan served Points of Claim. The proceedings were then stayed pending the outcome of this appeal, for which permission was granted by Morgan J.

A stakeholder is a person under a liability in respect of a debt, money, goods or chattels and competing claims are expected to be made against that person in respect of that debt, money, or those goods or chattels by two or more persons (CPR Part 86 r.1).

The stakeholder may apply to the court for directions as to whom the stakeholder should pay a debt or money or give any goods or chattels (CPR r.86.1(1) and (2)).

Within 14 days of being served with the claim form, a respondent must file and serve on the stakeholder and the respondents an acknowledgment of service stating whether the respondent contests the claim and, if the respondent seeks a different remedy from that set out in the claim form, what that remedy is (CPR r.8.3). The acknowledgement of service form (N9) directs the respondents to tick the appropriate box indicating whether they intend to defend the claim or contest jurisdiction.

A respondent must also, within 14 days of being served with the claim form, file and serve on the stakeholder a witness statement specifying any money and describing any goods and chattels claimed and setting out the grounds upon which such claim is based; CPR r.8.5 (3) and (4) and CPR r.86.2(6)).

On the hearing of a stakeholder application, the court may, amongst other things, order that an issue between the parties be stated and tried and may direct which of the parties is to be claimant and which defendant and give all necessary directions for trial (CPR r.86.4).

The procedure for disputing the court’s jurisdiction is to be found in CPR Part 11 which includes the following provisions:

Counsel for MPV submitted, in summary, as follows:

Counsel for Mr Kagan submitted, in summary, as follows:

The main issues raised by these contentions are as follows:

As noted above, CPR Part 11 requires a defendant who wishes to dispute the court’s jurisdiction to “try the claim” to apply to the court within 14 days of filing its acknowledgment of service.

There is not usually any difficulty in identifying the scope of the “claim” referred to in CPR r.11.1, namely the claim for relief set out in the claim form. In the context of a stakeholder application brought under Part 8, the position is less straightforward. A stakeholder application (or an application of interpleader relief, as it was called before the introduction of CPR Part 86)) is the means by which a court compels competing claimants to the subject matter of the application to put forward their claims and have them adjudicated on, thereby enabling the stakeholder to drop out of the picture.

In Glencore International A.V. v Shell International Trading Ltd [1999] 2 Lloyd’s Rep 692 Rix J described the claim for interpleader relief as follows:

“It follows that the claim for interpleader relief (1) is an application to be released from proceedings, not a claim for any substantive right; (2) is conditional on at least the threat of adverse claims to the same subjectmatter; (3) is further conditional on the applicant disclaiming any interest in that subject-matter; (4) typically results in the release of that applicant from any pending proceedings and (5) leads to the stating of an issue or issues between the claimants themselves (hence ‘interpleader’).”

Tomlinson J in Cool Carriers AB and another v HSBC Bank USA and others [2001] 2 Lloyd’s Rep. 22 described the claim as follows:

“…a claim to interpleader relief invokes two or more claims brought against the interpleading party. The decision made on an application by the interpleader is not the determination of the interpleader's substantive rights but, assuming interpleader relief is granted, the giving of procedural relief.”

MPV contends that CPR Part 11 does not apply to a stakeholder’s application for directions because the application is not a claim for substantive relief; MPV contends that the Court obviously has jurisdiction to give appropriate directions as permitted by CPR r.86.3 so that any application under CPR Part 11 would be futile. MPV further contends that CPR Part 11 is not applicable to claims brought by respondents within the stakeholder application because the respondents’ claims have not been formally identified at the time when the claim form is served on the respondents and an acknowledgement of service required.

In my view, MPV’s submission that the Court necessarily has jurisdiction to determine a stakeholder’s application for directions, so that there is no point in disputing that jurisdiction, is misconceived. Although the stakeholder is claiming procedural relief in the form of directions rather than asserting a substantive right, a stakeholder application is nevertheless an in personam claim affecting the rights of the respondents. For example, if a respondent fails to respond to the application, the Court may summarily determine that the asset which is the subject matter of the application should be transferred to another respondent.

Issues of jurisdiction and enforcement of judgments between the UK and Switzerland are governed by the 2007 Lugano Convention (“the Convention”). By instituting proceedings against MPV, Stephenson Harwood is, in the terminology of the Convention, “suing” MPV; see Canada Trust v Stolzenberg [2002] AC 1. As MPV is being sued in a state other than the one in which it is domiciled (Switzerland), it would be necessary for Stephenson Harwood, in order to establish jurisdiction, to show a good arguable case that one of the special rules of jurisdiction in the Convention applied and that there was a serious issue of fact or law to be tried.

The need for a stakeholder to establish that a jurisdictional gateway applies to its claim is highlighted in the Schlosser report on the UK’s accession to the Brussels Convention. This report has special status in the interpretation of the Brussels and Lugano Conventions (see paragraph 11.012 of Dicey, Morris & Collins on the Conflict of Laws (15^th Edition)). In relation to Article 3 of the Brussels Convention which is in materially the same terms as Article 3 of the Lugano Convention and which provides that rules enabling jurisdiction to be founded on the presence within the United Kingdom of property belonging to the defendant are not applicable to person domiciled in a Contracting State, Professor Schlosser said as follows:

“Interpleader actions (England and Wales) … are no longer permissible in the United Kingdom in respect of persons domiciled in another Member State of the Community, in so far as the international jurisdiction of the English or Scottish courts does not result from other provisions of the 1968 Convention. This applies for example, to actions brought by an auctioneer to establish whether ownership of an article sent to him for disposal belongs to his customer or a third party claiming the article.”

It follows that it is open to a respondent to a stakeholder application, who is domiciled in a Convention State outside England and Wales, to challenge the jurisdiction of the Court to determine the application. In the event of a challenge, the stakeholder claimant would need to show a good arguable case that one of special rules of jurisdiction applied and that there was a serious issue of fact or law to be tried.

Where, as the present case, the stakeholder application is made under CPR Part 8, the procedural mechanism for challenging the Court’s jurisdiction is CPR Part 11. The wording of Part 11 is apt to apply to the stakeholder application, being the claim which

Nor do I accept MPV’s contention that a claim by a respondent to the subject matter of the stakeholder application (in this case, Mr Kagan) constitutes a claim which is separate for jurisdictional purposes from the stakeholder application, entitling MPV to dispute the Court’s jurisdiction to determine issues raised by Mr Kagan, even though it did not dispute the Court’s jurisdiction to determine the stakeholder application. The dichotomy which MPV seeks to establish between the stakeholder application and Mr Kagan’s claim is, in my view, unfounded. Mr Kagan’s claim is part and parcel of the stakeholder application, not a fresh action. In making a claim to the Monies, Mr Kagan is not, for the purposes of the Convention, suing MPV.

The fact that MPV did not know, within 14 days of filing its Acknowledgement of Service, what grounds were being put forward by Mr Kagan in in support of his claim to the Monies would prima facie not be relevant to its decision whether or not to dispute the Court’s jurisdiction to determine the stakeholder application. But if it were relevant, MPV could have applied for an extension of time for making its Part 11 application, prospectively or, as in Sawyer v Atari [2005] EWHC 2351, retrospectively.

In short, I agree with the Deputy Master’s conclusion that, as MPV did not make a Part 11 application disputing the Court’s jurisdiction within 14 days after filing its acknowledgment of service (or at all), MPV is to be treated, pursuant to CPR r.11(5), as having accepted that the court has jurisdiction to determine the stakeholder application, including the making of any directions and the determination of any issues arising in the stakeholder application as to whether MPV or Mr Kagan is entitled to the Monies.

If, contrary to my conclusion above, MPV is not to be treated as having submitted to the jurisdiction of the Court to determine the issues raised by Mr Kagan by reason of its failure to make a Part 11 application, it would be necessary to consider whether MPV has submitted to the jurisdiction by its conduct in any event.

The relevant principles are, in summary, as follows:

In the present case, MPV completed the acknowledgment of service form indicating that it intended to contest Stephenson Harwood’s claim, did not tick the box saying that it intended to dispute jurisdiction and set out its own claim for payment of the Monies which it intended to pursue in the stakeholder application and stating its intention to exchange evidence. It then served and filed two witness statements in support of that claim addressing the merits and rebutting Mr Kagan’s claim. MPV continues to maintain its claim for payment of the Monies on this appeal.

MPV’s case that it has not submitted to the jurisdiction depends on the Court accepting the premise that it is open to MPV to distinguish for jurisdictional purpose between Stephenson Harwood’s claim (in relation to which MPV has raised no jurisdictional dispute) and Mr Kagan’s claim made as part of the stakeholder proceedings (in relation to which MPV does dispute jurisdiction). It is on this basis that MPV simultaneously asks the Court to order payment of the Monies to itself, as a disposal of the stakeholder application, while disputing the jurisdiction of the Court to determine Mr Kagan’s claim to the Monies.

In my judgment, this is not a tenable positon for MPV to adopt. As pointed out above in relation to the first issue, Mr Kagan’s claim is part and parcel of the stakeholder application. It is not open to MPV to submit to the Court’s jurisdiction in relation to the stakeholder application, seeking a direction that the Monies be paid out to it, while disputing the Court’s jurisdiction to determine the issues raised by Mr Kagan. I agree with the submission made on behalf of Mr Kagan that a party which invokes the Court’s jurisdiction cannot adopt an inconsistent attitude with regard to a claim made against it in the same proceedings. As observed by Rix LJ in Glencore International AG v Exter Shipping Ltd [2003] EWCA Civ 528 by reference to a foreign claimant in this jurisdiction:

“He cannot say: "I came here only for the purpose of my claim. I am not willing to accept this jurisdiction for the purpose of my defendant's counterclaim."

In my judgment, MPV entered an appearance for the purposes of Article 24 of the Convention when it served its first witness statement asking the Court to pay the Monies to it pursuant to its powers in the stakeholder application and addressing the merits of Mr Kagan’s claim, notwithstanding that in the witness statement it took issue with the Court’s jurisdiction to determine issues raised by Mr Kagan. Treating the service of the first witness statement as the entering of an appearance in the context of the stakeholder application does not impair the operation of the Convention as MPV could have made clear that it disputed the jurisdiction of the Court to make any directions in the stakeholder application but it did not do so.

I therefore consider that if, contrary to my conclusion that MPV’s failure to make a Part 11 application means that it is to be treated as having accepted the Court’s jurisdiction to determine the issues raised by Mr Kagan in the stakeholder application, MPV submitted to the jurisdiction by its conduct.

It was contended on behalf of Mr Kagan that, even if MPV has not submitted to the Court’s jurisdiction by reason of its failure to make a Part 11 application or by reason of its conduct, the Court has jurisdiction pursuant to the Convention to determine Mr Kagan’s claim to the Monies in any event.

Both parties approached this by reference to the jurisdictional gateways provided for in the Convention that would be available to Mr Kagan as claimant against MPV as defendant. As discussed above, however, the party which has brought the proceedings against MPV is Stephenson Harwood as stakeholder. The claim made by Mr Kagan in response to the stakeholder application was a claim to the Monies, directed at Stephenson Harwood as stakeholder. It was not a claim against MPV as defendant. The status of a respondent as either claimant or defendant in the stakeholder application depends on the discretionary directions made in the course of the application.

It follows that the question whether, absent MPV’s submission, the Court has jurisdiction to determine the issues in the stakeholder application would depend on whether one or more of the jurisdictional gateways in the Convention are applicable to Stephenson Harwood’s claim as stakeholder, as confirmed by the extract from the Schlosser report cited above.

Because of the basis on which MPV disputed jurisdiction, the application of jurisdictional gateways to the stakeholder claim was not explored in the evidence or at the hearing before the Deputy Master or on this appeal. I am not in a position to decide whether jurisdiction could have been established and it is not necessary for me to do so. I would only observe that, had the Court’s jurisdiction been successfully disputed, this would have been an unsatisfactory outcome in as much as Stephenson Harwood would have remained in possession of the Monies in which it claims no interest and facing the competing, unresolved claims of the respondents. As it is, those claims can now be satisfactorily adjudicated upon by this Court.

Given my conclusions on the first and second issues, there are no grounds for interfering with the directions for trial made by the Deputy Master.

The appeal is dismissed.