Fr. Lürssen Werft GmbH & Co Kg v Halle

This is the hearing of the Defendant’s application under CPR Part 11 challenging the jurisdiction of this Court to hear a claim commenced in England by the Claimant in respect of sums said to be due under a Commission Agreement.

Three questions arise:

The Defendant argues that the answer to each question (applying the requisite legal test) is: no.

The Claimant is a German shipbuilding company. The Defendant is an American citizen and a resident of the State of Florida.

On 15 April 2005 the parties entered into a Vessel Construction Contract (‘VCC’) for the construction of a 20m Motor Yacht (the ‘Nemo’) for an adjustable price of Euros 48m. On the same date they entered into a similar contract for a vessel (the ‘Shark’).

It is convenient to focus on the terms of the ‘Nemo’ contract, in which the Defendant was referred to as the ‘Purchaser’ and the Claimant as ’the Builder’.

Of particular relevance in the context of the present application are Clauses 20 and 21.

On 8 May 2008 the parties entered into the Commission Agreement dated 8 May 2008. The Commission Agreement provided, amongst other matters, that if the vessel were purchased by a client introduced by the Claimant then a commission of 5% of the sale price would be payable by the Defendant to the Claimant.

The Commission Agreement’s entire terms were expressed as follows

It has been agreed between [the Claimant] and [the Defendant] that, in the event that the yacht ‘Nemo’ or ‘Shark’ is purchased by a client introduced to the yacht and the Owner, by [the Claimant] or one of its representatives, a commission of 5% of the sales price will be payable to [the Claimant] by [the Defendant] no later than 15 days from the sale becoming effective.

Nothing was said about how any dispute was to be resolved, or what system of law governed the agreement.

On 28 July 2006 the Defendant granted to the Claimant, for the week beginning on 28 July, the exclusive right to sell the ‘Nemo’ at a price of €71.5m.

In the event a deal was struck whereby the ‘Nemo’ was sold to a third-party buyer; and there were negotiations between the Claimant and the Defendant, among other matters, about who should pay for certain legal fees. In the course of this negotiation, the Claimant sent an email to the Defendant dated 9 August 2006 which it will be necessary to consider later in this judgment.

On 17 August 2006 the parties entered into an agreement to terminate the VCC for the ‘Nemo’.

The VCC of 15 April 2005 was defined as ‘the Original Contract’; and Clause 1.1 provided for the termination of the Original Contract in these terms:

[the Claimant] and [the Defendant] will, by mutual agreement, and without any further liability on either part, other than as contained in this Agreement, terminate the Original Contract with effect from the Date of completion of the closing of this Agreement as set out in Cl.3.2 below (the ‘Closing Date’)

Clause 7 dealt with Law and Arbitration

This Agreement will be construed in accordance with and be governed by English law and the provisions of Clauses 20.4, 20.5, 20.6 and 20.8 of the Original Contract shall apply to this Contract as if set out in full herein, provided that the words ‘with the amount in controversy thought to be more than €25,000’ shall be deemed to have been deleted from Clause 20.4 of the Original Contract.

In this action the Claimant claims that the vessel was, in due course, sold to a purchaser introduced by the Claimant for a price of €73m; and it makes a claim for 5% of that price: €3,650,000.

On 27 February 2009, the Claimant issued a Claim Form making a claim under the Commission Agreement for this sum.

Leave to serve the Claim Form out of the jurisdiction was granted by Blair J on the same date, on the basis that claim was made in respect of a contract which was governed by English law, within the meaning of CPR Part 6.36 and CPR PD6B 3.1(6)(c).

The application for leave to serve out was supported by a witness statement of Ms Pitroff which contended that there is a good arguable case that the Commission Agreement was governed by English law, noted the Defendant’s reliance on Clause 1.1 of the Termination Agreement to support the argument that he was under no further liability, submitted that there was a real issue to be tried between the parties and that the Claimant had a reasonable prospect of success, and asserted that there was no more convenient forum for the determination of the issues.

On 1 July 2009 the Defendant issued the present application seeking an order:

Before considering whether English law governs the relevant contract, there is the logically prior question: to what standard must the Court be satisfied?

This is common ground. The Claimant (by Mr David Lewis) accepts that in the present case the Claimant must show that it has much the better of the argument that English law governs the Commission Agreement.

In my view the concession was rightly made, in the light of a number of authoritative statements of the law: Canada Trust Co v Stolzenberg (No 2) [1998] 1 WLR 547 (CA) Waller LJ at 555, Bols Distilleries BV (trading as Bols Royal Distilleries) and another v Superior Yacht Services Ltd [2006] UKPC 45 where at [28] the Privy Council endorsed Waller LJ’s approach in the Canada Trust case, and Cherney v Deripaska (No 2) [2008] EWHC (Comm) 1530 where Christopher Clarke J considered the authorities at length [13-44].

The Contracts (Applicable Law) Act 1990 gives effect to the Rome Convention on the Law Applicable to Contractual Obligations. Article 3.1 of the Rome Convention provides,

A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract

In the absence of a choice of law under Article 3 the law governing a contract is determined in accordance with Article 4 of the Rome Convention.

It is common ground in the present case that if Article 3 does not apply then the Defendant’s application must succeed, since Article 4.1 provides that the contract ‘shall be governed by the law of the country with which it is most closely connected’, and Mr Lewis accepts that it would be difficult to argue that the Commission Agreement is closely connected with England and Wales, if the parties did not choose English law as the governing law.

In the present case there is no ‘expressed’ choice of law; and so the question for the Court is: whether it is satisfied that the Claimant has much the better of the argument that the parties demonstrated, by the terms of the contract or the circumstances of the case, a choice of English law as the governing law of the contract with reasonable certainty.

Section 3(3)(a) of the Contracts (Applicable Law) Act 1990 states that the Report on the Rome Convention by Professor Mario Giuliano and Professor Paul Lagarde, reproduced in the Official Journal of the Communities of 31 October 1980 [O.J.1980 No.C282/1.] may be considered in ascertaining the meaning or effect of any provision of the Rome Convention.

Paragraph 3.3 of the Guiliano-Lagarde Report (under the heading Article 3) is in the following terms:

The parties’ choice must be express or be demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. This interpretation, which emerges from the second sentence of Article 3 (1), has an important consequence.

The choice of law by the parties will often be express but the Convention recognises the possibility that the Court may, in the light of all the facts, find that the parties have made a real choice of law although this is not expressly stated in the contract. For example, the contract may be in a standard form which is known to be governed by a particular system of law even though there is no express statement to this effect, such as a Lloyd's policy of marine insurance. In other cases a previous course of dealing between the parties under contracts containing an express choice of law may leave the court in no doubt that the contract in question is to be governed by the law previously chosen where the choice of law clause has been omitted in circumstances which do not indicate a deliberate change of policy by the parties. In some cases the choice of a particular forum may show in no uncertain manner that the parties intend the contract to be governed by the law of that forum, but this must always be subject to the other terms of the contract and all the circumstances of the case. Similarly references in a contract to specific Articles of the French Civil Code may leave the court in no doubt that the parties have deliberately chosen French law, although there is no expressly stated choice of law. Other matters that may impel the court to the conclusion that a real choice of law has been made might include an express choice of law in related transactions between the same parties, or the choice of a place where disputes are to be settled by arbitration in circumstances indicating that the arbitrator should apply the law of that place.

This Article does not permit the court to infer a choice of law that the parties might have made where they had no clear intention of making a choice. Such a situation is governed by Article 4.

This passage emphasises that the Court should look to see whether there is a real, albeit implicit, choice of law which is demonstrated with reasonable certainty by all the circumstances of the case.

For the Defendant, Mr Andrew Thomas submitted that there were a number of factors which indicated that there had been no real choice of English law in the Commission Agreement.

For the Claimant, Mr Lewis submitted:

I have considered all these submissions when coming to my conclusion.

A number of cases were cited by the parties as providing guidance on the proper resolution of this issue: Egon Oldendorff v. Libera Corp [1996] 1 Lloyd’s Rep, 380 at 387, ISS Machinery Services Ltd v. Aeolian Shipping SA. (The ‘Aeolian’) [2001] 2 Lloyd’s Rep 641 at §16 and American Motorists Insurance Co (Amico) v. Cellstar Corp [2003] EWCA Civ 206.

A number of broad principles are clear:

Applying these principles to the standard required I have concluded that a choice of English Law has been clearly demonstrated from the circumstances. The VCCs made a clear and express choice of English Law; and that choice was not simply an incident of the choice of arbitration to settle disputes. The VCCs were plainly closely related to the Commission Agreement: they entirely governed the parties’ prior commercial relationship and their performance formed the factual background to the relationship created by the Commission Agreement. The Commission Agreement was, to use the expression in the passage of Dicey at §32-093 which I have previously cited, at the very least an ‘associated or succeeding contract’.

For these reasons I answer the question posed in the first issue: yes.

I have reached this conclusion before considering a further point which, in my judgment, reinforces the impression that there was a clear, albeit implicit, choice of English Law as the governing law of the Commission Agreement. Although the Termination Agreement was made after the Commission Agreement, again the parties expressly chose English Law as the Governing Law. It was a relatively short agreement (just over 3 pages and 8 paragraphs); but the choice of law was clear and unequivocal. I do not overlook Mr Thomas’s point that this would have been the natural choice of law since it was bringing to an end agreements which were expressly governed by English law; but it seems to me that it throws significant light on what the parties would have agreed if they had turned their mind to what law should govern the relationship established by the very short Commission Agreement. Since neither side anticipated a breach it seems highly unlikely that they would have agreed German Law or the Law of the State of Florida. In my judgment they would inevitably have chosen English law, as they chose it to govern their other contractual relationships.

In Dicey, Morris & Collins at §32-059, the editors express cautious support for the proposition that the courts may consider subsequent conduct.

The Rome Convention does not deal expressly with the question. The Giuliano-Lagarde Report recognises that a choice of law may be inferred ‘in the light of all the facts’, and that in order to determine the country with which the contract is most closely connected ‘it is also possible to take into account factors which supervened after the conclusion of the contract.’ The English view that subsequent conduct cannot be taken into account in construing a contract is not shared by other countries, and it would not be in keeping with the spirit of the Rome Convention to apply it so as to defeat the intentions of the parties. It is suggested, with some hesitation, that the English court should be entitled to take subsequent conduct into account, at least to the extent that it sheds light on the intention of the parties (or on the country with which the contract is most closely connected) at the time the contract was concluded.

See also §32-091.

As Dicey, Morris & Collins notes, consideration of subsequent conduct to construe an earlier transaction runs counter to principles of English law; but it seems to me (albeit with some diffidence in view of the cautious expression of opinion in Dicey, Morris and Collins) that it is legitimate to consider the terms of a later contract between the parties as part of the ‘circumstances of the case’ under Article 3.1.

CPR 6.37(1)(b) requires that a claimant adduce evidence stating that he believes his claim has ‘a reasonable prospect of success’. The Court of Appeal has made clear that this threshold is the same as if the claimant were resisting an application by the Defendant for summary judgment, i.e. ‘the claimant has no real prospect of succeeding on the claim’ (CPR 24.2), see Carvill America Inc v CamperDown U.K. LtD [2005] EWCA 645.

For the Defendant Mr Thomas submitted that there are a number of issues to be tried. His purpose was both to identify the issues relevant to the argument on forum conveniens and to argue that the Claimant had no real prospect of succeeding on the claim. This approach follows the guidance given by Clarke LJ in Limit (No.3) Ltd v. PDV Insurance Co [2005] EWCA Civ 383 at [72]

It is to my mind important that, in general, where a Defendant wishes to set aside an order for permission to serve out of the jurisdiction on the basis that the action involves or may involve issues which it would be appropriate should be tried in a court or courts outside the jurisdiction, it is incumbent upon him, so far as possible to identify the issues concerned and to state as clearly as possible how they arise or may arise in the proceedings. That is so even though, on such an application, the burden of proving that England is the more appropriate forum for the trial of the action is on the claimant.

Mr Thomas identifies three issues: (a) whether the Claimant is estopped from claiming or waived the right to claim the commission, (b) whether the Termination Agreement discharged the obligation to pay commission, (c) whether the Claimant is entitled to commission under the Commission Contract as a matter of construction?

The estoppel/waiver argument is based on part of an email sent to the Defendant at 14.59 on 9 August 2006 by Mr Schmidt of the Claimant.

On our part as I have told you before, we do not benefit from this sale at all. Indeed, in order to maintain our relationship with the New Buyer as customer of the Yard in another transaction, we have agreed with you, on the basis that the sale to the New Buyer goes ahead, to give up a valid claim for in excess of €800,000

Mr Thomas submitted that there was a clear representation that the Claimants were not benefiting from the sale which forms the basis of the claim

In my view consideration of the prior exchange demonstrates at least that it is arguable that this exchange was in the context of who should pay the legal fees incurred by the Defendant in the sale to the ‘New Buyer’. It is at least arguable that the Claimant was saying no more than that it was not benefiting from a sale to which it was not a party. To suggest, as Mr Thomas did, that the Defendant would be entitled to Part 24 judgment on this issue is to overstate the strength of the Defendant’s case to a considerable degree: not least because the Defendant’s argument on reliance is, at the moment, exiguous.

The argument on the Termination Agreement is based on clause 1.1

[The Claimant] and [the Defendant] will, by mutual agreement, and without any further liability on either part, other than as contained in this Agreement, terminate the Original Contract with effect from the Date of completion of the closing of this Agreement as set out in Clause 3.1 below.

Again it seems to me to be at least arguable that this clause, which makes no reference to the Commission Agreement, was doing no more than bringing to an end the VCC, which was defined as the ‘Original Agreement’ in the preamble.

The construction argument is founded on the words ‘is purchased by a client introduced to the yacht and its owner by [the Claimant]’ in the Commission Agreement. Mr Thomas’s Skeleton Argument claims:

In fact, no introduction resulting in the purchase of either yacht from [the Defendant] ever took place … Instead, [the Defendant] was bought out of the Nemo Contract and a sale was then effected between [the Claimant] and the third-party client Nemo Shipping Limited.

Again, it is clearly at least properly arguable that commission was still payable in circumstances where the Defendant was bought out of the VCC at a profit to him and a new sale was then effected to a third-party; on the basis that the vessel was purchased by a client of the Claimant introduced to the Yacht and to the Defendant by the Claimant.

I have therefore concluded that there are three serious issues to be tried, as identified above.

Again, a number of cases were cited, although the principles to be applied are now well-established.

In the present case Mr Thomas points out that neither of the parties is English, and submits that, although the Defendant should have been sued in Florida, Germany is the more natural forum for the dispute than England. The Defendant has only ever visited England once in his life and there is no link between England and the performance of either party’s obligations under the Commission Agreement, which was signed in Germany. He submitted that none of the likely witnesses is based in London and none of the relevant documentation is likely to be located within the jurisdiction. If, as intended, the Defendant argues that German law governs the Commission Agreement then it may be necessary to adduce expert evidence. In addition the disclosure obligations are more extensive in this jurisdiction than they are in Germany; and there are also likely to be additional costs of translating documents from German which would not arise if the case were heard in Germany. Finally he drew attention to the Defendant’s conditional undertaking to submit to the non-exclusive jurisdiction of the German Courts if he failed in all his other arguments at this stage.

Mr Lewis submitted that the English Court was clearly the most appropriate forum in which to determine the issues which are very likely to be governed by English law. All of the identified issues, except possibly the Defendant’s factual evidence on reliance on the first issue, were issues of English Law. None of the factors relied on by the Defendant pointed unequivocally to either Florida or German; and there was no significant difficulty in relation to either translation or disclosure in the light of the identified issues.

I have taken these submissions into account.

In my judgment the English Court is very clearly the most convenient court for the determination of the issues arising under a contract clearly governed by English Law. On the evidence presently available the factual issues, and thus the need to call oral evidence, are confined to the first issue. The legal issues are also very likely to be determined in accordance with English law; and are, in any event, unlikely to give rise to any extensive disclosure. It is likely that the first issue will involve the application of English Law principles which are not entirely straightforward, as the argument on this hearing has demonstrated; and it would plainly be sensible for this issue to be determined by a court which is experienced in dealing with such issues. The parties communicated in English and so any need for translation will not be significant. I take into account that neither of the parties is English and both are being brought to a foreign court; on the other hand they were both content to settle their disputes by arbitration under LMAA rules, and therefore England was a place where they must be taken to have foreseen disputes might be determined, with such inconvenience of travelling as there might be.

I should add that I have also considered the comparative convenience of a hearing in Germany and Florida; and have concluded that neither would be a convenient place for the resolution of this dispute. Germany would be an equally exceptional jurisdiction so far as the Defendant is concerned; and would require proof of English law; and no factor points to Florida as a convenient forum other than the Defendant’s residence there.

Finally, I must consider the Defendant’s offer to submit to German jurisdiction. This is contained in §37(b) of Mr Thomas’s skeleton argument.

[The Defendant] is prepared to give a conditional undertaking to submit to the non-exclusive jurisdiction of the German courts in relation to this dispute. Given that [the Defendant] is a citizen of the USA, for obvious reasons he would prefer the dispute to be determined there. Therefore, [the Defendant’s] undertaking is conditional upon the Court finding against [the Defendant] in respect of his submissions that the English Courts do not have, or should not exercise, jurisdiction because (a) there is not a good arguable case that the Commission Agreement is governed by English law, (b) England is not a clearly more appropriate forum than Maryland or Florida, (c) the claim has no reasonable prospects of success.

In my view little weight should be attached to this offer. It comes very late and gives every appearance of being motivated more by tactical considerations than an intent efficiently to resolve the issues between the parties; and is, in any event, closely hedged with conditions.

In these circumstances I answer the question in the third issue: yes.

Accordingly the Defendant’s application is refused.