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:

whether the Claimant has demonstrated a good arguable case that the agreement is governed by English law;

whether there is a serious issue to be tried; and

whether England is the forum conveniens?

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

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:

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:

Declaring that the Court has no jurisdiction, or alternatively should not exercise its jurisdiction,

setting aside the order of Blair J of 27 February 2009 giving permission to serve the Claim Form out of the jurisdiction,

for costs to be paid by the Claimant.

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,

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:

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.

Although the VCCs contained a choice of English law, this choice was made in the context of a nuanced Dispute Resolution procedure which involves choosing LMAA arbitration over litigation. It was a choice which reflected the marine construction nature of the VCCs. Maritime practice or law was of little, if any, relevance to the operation of the Commission Agreement. It did not follow from the fact that the parties had expressly selected English law (in conjunction with arbitration under the LMAA Rules) to apply to the two VCCs that they intended English law to apply to a one-off commission arrangement, any more than they did to their commercial dealings generally.

The existence of the Commission Agreement did not depend on the VCCs; it depended on the existence of the vessels. The terms under which the vessels were built, the specifications, manufacture and purchase provisions in relation to those vessels were irrelevant to the proper operation of the Commission Agreement. Since there was no reason to think that a dispute between the parties in relation to the Commission Agreement (in which no reference is made to the VCCs) would involve any issues relating to those contracts, there was no reason to presume that the parties would have chosen the same jurisdiction and governing law to apply to the issues which arose under the Commission Agreement. Furthermore, and related to this point, since the Claimant’s claim in the English Court is based on the premise that the arbitration provisions in the VCC did not extend to the Commission Agreement, the Claimant could not argue that the Commission Agreement was a mere variation of, or annex to, the VCC.

Neither of the parties had particular links to England, nor is there any link between England and the performance of either party’s obligations under the Commission Agreement. The Claimant is a German Company and the Defendant is a citizen of the USA. It follows that whatever the performance which is characteristic of the Commission Agreement (which is relevant to the test under Article 4.2) the law of the country which was most closely connected to the Commission Agreement was not English law. Furthermore, the Commission Agreement was signed in Germany during a business trip by the Defendant.

For the Claimant, Mr Lewis submitted:

The express choice of English law in the related and preceding contracts: the two VCCs (and, to a lesser extent, the Arbitration Clause in which the arbitrators would apply English Law) were of decisive effect. The Commission Agreement was entered into against the commercial background of two contracts which the parties had agreed that English Law should govern. The Claimant would come to hear of any interest in the vessels from potential third party buyers because it was building the vessels. Importantly, the Claimant would know the stage the building had reached (a highly material matter to any purchaser), on account of its performance of the VCCs.

He accepted that the Commission Agreement was a free-standing contract; but submitted that the factual context was the existence and performance of the VCCs. He relied on a passage in Dicey, Morris & Collins on The Conflict of Laws (16th ED.) at §32-093 which emphasised the importance of a course of commercial dealing.

As a back-up point he relied on the fact that English Law had been agreed as the Governing Law of the Termination Agreement, while recognising the difficulty, as a matter of English law, that the Termination Agreement came some 3 months after the Commission Agreement.

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.

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]

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.

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

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:

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.

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.