DHL GBS (UK) Ltd v Fallimento Finmatica SPA

On this application the court is again concerned with questions arising under Chapter III of Council Regulation (EC) 44/2001, usually referred to as “the Judgments Regulation”. Chapter III deals with the recognition and enforcement of judgments given by a court of a Member State. There also arises yet again a question which has for long occupied courts and commentators alike – what is the precise ambit of Article 1.2(d) of the Judgments Regulation which provides that “The Regulation shall not apply to … arbitration”.

The Appellant is an English company. The Respondent is an Italian company now in receivership in Italy. For convenience I shall refer to them as “DHL” and “Finmatica” respectively.

DHL and Finmatica entered into a “Global Framework Software License, (sic) Integration, Services and Maintenance and Support Agreement” (the “GFA”) dated 28 August 2003. The purpose of the GFA was to “customise, acquire, implement and deploy” a software product called FINeTMS, which needed to be configured and integrated with other software systems to meet DHL’s business requirements and specifications. Finmatica also contracted to provide ongoing support for the software. The software was described as “offering a full set of functionality in all areas of the process chain in ground, air, rail and sea transport”.

The GFA contained an English choice of law clause (clause 22c) and a London arbitration clause (clause 22e). The arbitration clause provided:

“All disputes other than disputes in respect of which injunctive relief is sought … arising in and about this Agreement and the parties’ respective rights and obligations hereunder are to be referred to arbitration in London on the terms and conditions set out in this clause 22e.”

Finmatica in the person of its Bankruptcy Receiver brought a claim against DHL before the Court of Brescia, Italy, in respect of unpaid invoices for services said to have been rendered under the GFA. DHL did not participate in the litigation in Italy. By a judgment dated 20 March 2008 the Court of Brescia ruled that DHL had been regularly served with proceedings and proceeded in its absence to determine that the sums claimed were due. In the course of so doing the court determined that it had jurisdiction to entertain the claim. The court first held that, as a result of the combined effect of Council Regulation No. 1346/2000 on Insolvency Proceedings, a domestic Italian Bankruptcy Law (Article 83 bis of the Italian Law on Insolvency Proceedings, as modified by D. Lgs. January 9, 2006, No. 5) and a “consolidated trend” to be found in decisions of the Italian courts, it had jurisdiction to hear the case. Next, the court held that by reason of Article 4.2(e) of the same Council Regulation on Insolvency Proceedings the question whether Finmatica’s Bankruptcy Receiver was bound by the arbitration clause in Finmatica’s contract with DHL was governed by Italian law. Finally the court then held that as a matter of Italian law the Bankruptcy Receiver was not so bound. The court proceeded to determine the merits of the dispute. Judgment was given to Finmatica against DHL for the principal sum claimed, together with interest and costs, in the total sum of about €1.3 million.

Finmatica applied to the English Court for registration of the judgment under the provisions of the Judgments Regulation. In the usual way the application was made without notice to DHL – see CPR 74.3(2)(b). By an Order made on 30 September 2008 and sealed on 9 October 2008 Master Fontaine directed that the judgment of the Court of Brescia should be registered in the High Court so as to be enforceable as a judgment of this court. Pursuant to CPR 74.8 and 74.9 the Order recited that DHL had one month after service upon it of the order within which to appeal as of right against the grant of registration, and that execution on the judgment would not issue until after the expiry of that period or, in the event of an appeal being brought, after determination of the appeal.

On 18 November 2008 DHL filed an Appellant’s Notice seeking the setting aside of the registration of the judgment. The Grounds of Appeal are:

“(i)

The Judgment is outside the scope of the [Judgments] Regulation because it falls within the exception for arbitration in Article 1(2)(d), in that it was obtained in breach of a binding arbitration agreement; alternatively

(ii)

It would be manifestly contrary to the public policy of England and Wales to register the Judgment, within the meaning of Article 34(1) of the [Judgments] Regulation, because it was obtained in breach of an arbitration agreement which either (a) was binding on the parties under the applicable law or (b) would have been binding on the parties in English law.”

In the further alternative, by its Grounds of Appeal the Appellant invites this Court, pursuant to Article 46(1) of the Judgments Regulation and/or pursuant to the Court’s inherent jurisdiction, to stay the recognition proceedings alternatively enforcement of the judgment pending the final disposal of the Appellant’s appeal against the judgment in Italy. The Grounds of Appeal further recite that the Appellant is also seeking such a stay from the Italian courts. Apparently DHL’s application to the Court of Appeal of Brescia in that regard will be considered at a hearing on 4 March 2009.

On 20 November 2008 DHL lodged an appeal at the Court of Appeal of Brescia.

As I understand it the appeal against the Order of Master Fontaine was due to be heard in January 2009. However on 2 December 2008 DHL issued an application seeking a stay of its own appeal pending the resolution by the Court of Appeal of Brescia of the appeal to that court. That application came before me on 4 February 2009. In the course of the hearing and with the consent of the parties I transferred the English appeal and this application to the Commercial Court.

On the morning of the hearing before me Counsel discovered that on Tuesday 10 February 2009 the European Court of Justice was expected to deliver its judgment in Allianz SPA and others v. West Tankers Inc, “The Front Comor”, Case C-185/07, c.f. 2007 1 Lloyd’s Reports 391 where the decision of the House of Lords in the same case is reported. Since the judgment of the European Court of Justice was recognised on both sides to be potentially relevant to the proper disposal of this application, it was agreed that I should defer giving judgment on this application until after publication of the judgment in Luxembourg. I gave to the parties the opportunity to make further written submissions in the light of the judgment of the European Court.

For DHL Mr Mark Vinall submits that in order to resolve this English appeal the English court will have to reach its own conclusion on the question whether, as a matter of Italian law, the arbitration clause is binding on the Bankruptcy Receiver of Finmatica in proceedings against DHL wherein he is the claimant claiming sums due under a contract which provides for the resolution of disputes in London arbitration. That same question is raised by DHL’s appeal to the Brescia Court of Appeal. Mr Vinall submits that whilst the English court will have to form its own view on this matter, nonetheless if the Court of Appeal in Brescia expresses a reasoned view thereon that is likely to be of great assistance to the parties and to the English court. If the English appeal is heard before the Italian appeal, the court will have to grapple with an issue of Italian law with the aid of expensive and time-consuming expert evidence. Mr Vinall also points out that if DHL is successful in its appeal in Italy, the English proceedings will fall away. The converse is not true – if the English appeal proceeds and is successful, DHL will still be faced with the proceedings in Italy.

It is common ground that the Court of Appeal of Brescia is likely to deliver its judgment between two and three years from now. The appeal to this court could be accommodated within the next few months. It is also common ground that the Court of Appeal of Brescia may not in fact deal with the relevant issue of Italian law. DHL’s Italian lawyer says only that the Court of Appeal of Brescia “may express a view on this topic”, although “it is not obliged to deal with the issue”. DHL’s first point in the Italian appeal is that Regulation No. 1346/2000 and the other sources of law considered by the Brescia Court do not confer jurisdiction upon the Italian court in respect of the claim brought by Finmatica’s Bankruptcy Receiver and that the court should rather have asked itself whether it was given jurisdiction by either Article 2 or Article 5 of the Judgments Regulation. Since DHL is domiciled in the UK, Article 2 would manifestly not invest the Italian court with jurisdiction. As to Article 5, DHL says that the contract was a contract for the provision of services whereunder the services were to be provided in England and/or perhaps France but not in Italy, so that Article 5 likewise does not confer jurisdiction upon the Italian court. If the Court of Appeal of Brescia resolves this issue in favour of DHL, then both the Italian and the English proceedings will of course fall away. But as I understand it if DHL loses on this point in its Italian appeal the Court of Appeal of Brescia may decline to deal with the question whether the arbitration clause binds the Bankruptcy Receiver since that point was not contested in the lower court. Presumably the same may in fact be true of the anterior point as to the derivation of jurisdiction and possibly that is how the advice of DHL’s Italian lawyer should be understood.

Mr Adam Cloherty for Finmatica submits that this court has no power to stay the appeal against registration. He refers me to Articles 37, 43, 45 and 46 of the Judgments Regulation which, so far as relevant, provide:

“Article 37

1.

A court of a Member State in which recognition is sought of a judgment given in another Member State may stay the proceedings if an ordinary appeal against the judgment has been lodged.

2.

A court of a Member State in which recognition is sought of a judgment given in Ireland or the United Kingdom may stay the proceedings if enforcement is suspended in the State of origin, by reason of an appeal.

…

Article 43

1.

The decision on the application for a declaration of enforceability may be appealed against by either party.

2.

…

3.

The appeal shall be dealt with in accordance with the rules governing procedure in contradictory matters.

4.

…

5.

an appeal against the declaration of enforceability is to be lodged within one month of service thereof. If the party against whom enforcement is sought is domiciled in a Member State other than that in which the declaration of enforceability was given, the time for appealing shall be two months and shall run from the date of service, either on him in person or at his residence. No extension of time may be granted on account of distance.

…

Article 45

1.

The court with which an appeal is lodged under Article 43 or Article 44 shall refuse or revoke a declaration of enforceability only on one of the grounds specified in articles 34 and 35. It shall give its decision without delay.

2.

Under no circumstances may the foreign judgment be reviewed as to its substance.

Article 46

1.

The court with which an appeal is lodged under Article 43 or Article 44 may, on the application of the party against whom enforcement is sought, stay the proceedings if an ordinary appeal has been lodged against the judgment in the Member State of origin or if the time for such an appeal has not yet expired; in the latter case, the court may specify the time within which such an appeal is to be lodged.

2.

Where the judgment was given in Ireland or the United Kingdom, any form of appeal available in the Member State of origin shall be treated as an ordinary appeal for the purposes of paragraph 1.

3.

The court may also make enforcement conditional on the provision of such security as it shall determine.”

Mr Cloherty submits that both Articles 37 and 46.1 provide only for a stay of enforcement rather than for a stay of an appeal against registration. He further submits that the present is an appeal lodged pursuant to Article 43 so that, whatever be the precise effect of Article 37, the procedure is now governed by Articles 45 and 46. Article 46, he suggests, provides for a stay of enforcement rather than a stay of the appeal against recognition – the decision on that appeal must by reason of Article 45.1 be given without delay. Mr Cloherty also submits that I was wrong in Banco Nacional de Comercio Exterior SNC v Empresa de Telecomunicaciones de Cuba SA [2007] EWHC 2322 (Comm) to assume, apparently without argument or discussion of the point, that the court has a power to stay an appeal of this nature. In that case a stay was in fact refused.

Mr Cloherty further submits however that, in the event that the court does enjoy the power to stay an appeal of this nature, the only relevant consideration is whether the judgment debtor faces the likelihood of prejudice in the event of a successful appeal in Italy following unconditional enforcement in this jurisdiction. That question does not, submits Mr Cloherty, here arise because if the English appeal is allowed to proceed without a stay being imposed thereon, Finmatica will give an undertaking not to enforce the judgment until after the Italian appeal has been resolved, subject only to a liberty to apply in the event of unforeseen circumstances such as, for example, DHL becoming insolvent. If however this court does impose a stay on the appeal, then Finmatica would be likely to seek security from DHL pursuant to CPR 74.9(3) which provides:

“Nothing in this rule prevents the court from making orders to preserve the property of the judgment debtor pending final determination of any issue relating to the enforcement of the judgment.”

Mr Cloherty pointed out that once an appeal such as this is underway there is an automatic stay of enforcement under CPR 74.9(1)(b). He suggested that if the English court were routinely to stay appeals against registration orders, thereby indefinitely extending the automatic stay on enforcement imposed by CPR 74.9(1)(b), this would be subversive of the general principle that Community judgments are enforceable before all avenues of appeal have been exhausted to which reference was made in paragraph 10 of the judgment in the Banco Comercio case, relying in turn upon the decision of the European Court of Justice in van Dalfsen v. van Loon [1991] ECR 1 – 4743.

Furthermore Mr Cloherty also pointed out that it is DHL’s argument on this appeal that it would be manifestly contrary to English public policy to register the Italian judgment even if the Court of Appeal of Brescia (or indeed the Italian Court of Cassation) determines that as a matter of Italian law the arbitration clause is not binding on Finmatica’s Bankruptcy Receiver and even if this court should conclude that that was a correct application of Italian law. Bearing in mind that DHL is an English company and it is in this jurisdiction that most of its assets can be expected to be found, Mr Cloherty submits that Finmatica has a genuine interest in knowing as soon as possible whether the English court will accede to this submission. If the English court so decides, Finmatica would need to consider whether the expense of defending DHL’s appeal in Brescia is justified. That appeal, he reminded me, extends not only to the issues to which I have already referred, but also calls for a re-examination of the merits of the substantive claim.

Mr Cloherty submits that the real question in dispute on this appeal is in any event not a question to which Italian law is relevant. That is the question whether this court should deny recognition to the judgment of the Brescia court on the short ground that it is outside the scope of the Judgments Regulation because it falls within the exception for arbitration in Article 1.2(d) thereof. It is DHL’s case that the Brescia judgment does fall within the exception “in that it was obtained in breach of a binding arbitration agreement”.

The European Court of Justice has now given its judgment in “The Front Comor”. Without wishing to prejudge issues which arise on DHL’s appeal on which I have not heard argument, it is obvious that the decision of the European Court has made DHL’s task more difficult. Even on the basis of existing English authority, such as the judgment of Aikens J (as he then was) in The Ivan Zagubanski [2002] 1 Lloyd’s Reports 106 and the decision of the House of Lords in The Front Comor, [2007] 1 Lloyd’s Reports 391, DHL would in my judgment have struggled to show that the action in Brescia had as its subject matter arbitration. The European Court has now approved academic commentary to the effect that “the verification as an incidental question of the validity of an arbitration agreement which is cited by a litigant in order to contest the jurisdiction of the court before which he is being sued pursuant to the Brussels Convention, must be considered as falling within its scope”. It will I think be difficult for DHL to maintain its argument that the judgment of the Brescia court should be regarded as falling outwith the scope of the Judgments Regulation.

The judgment of the European Court has however also undermined DHL’s second ground of appeal. In holding that, in that case, it was exclusively for the court in Siracusa to rule on the applicability of the arbitration agreement to the dispute before it and to rule on its own jurisdiction, the court added “in no case is a court of one Member State in a better position to determine whether the court of another Member State has jurisdiction”. This reflects Article 35 of the Judgments Regulation, which provides:

“Article 35

1.

Moreover, a judgment shall not be recognised if it conflicts with sections 3, 4 or 6 of Chapter II, or in a case provided for in Article 72.

2.

In its examination of the grounds of jurisdiction referred to in the foregoing paragraph, the court or authority applied to shall be bound by the findings of fact on which the court of the Member State of origin based its jurisdiction.

3.

Subject to the paragraph 1, the jurisdiction of the court of the Member State of origin may not be reviewed. The test of public policy referred to in point 1 of Article 34 may not be applied to the rules relating to jurisdiction.”

It follows from this provision that a decision of a court of a Member State as to the applicability of an exclusive jurisdiction agreement must not be reviewed. This may have implications for the court’s approach to the review of a decision of the court of a member state on the applicability of an arbitration agreement. Furthermore, both Articles 36 and 45.2 of the Judgments Regulation provide that a/the foreign judgment may not be reviewed as to its substance. The effect of these provisions is discussed at paragraph 10 of the judgment in the Banco Comercio case to which I have already referred.

With these considerations in mind, I see little scope in the context of DHL’s English appeal for examination of the question whether the Italian court has correctly applied its own law either so far as concerns its own jurisdiction or in determining that the Bankruptcy Receiver is not bound by the arbitration clause in the agreement on which he sues.

In my judgment there is force in Mr Cloherty’s submission that Finmatica should be allowed to know sooner rather than later whether the English court will afford recognition to a judgment of a court of a Member State obtained in breach of an arbitration provision. That formulation of itself of course begs a question. The point was discussed by Waller J in Phillip Alexander Securities and Futures Limited v. Bamberger and others [1997] I.L. Pr 73 at page 101, paragraph 114 of the judgment. Consideration may have to be given to the effect of section 32 of the Civil Jurisdiction and Judgments Act 1982. Moreover I see no reason why, at any rate in the first instance, the court should need to reach its own conclusion on matters of Italian law, whether relating to the extent to which the Italian Bankruptcy Court enjoyed jurisdiction notwithstanding that the Judgments Regulation would or might not so have ascribed jurisdiction, or relating to the question whether the Bankruptcy Receiver was bound by the arbitration agreement contained in the contract on which he sued. In my judgment this question can be addressed firstly on the assumption that the Italian court was correct in its conclusions of Italian law. It may be that the answer given on this assumption will either obviate the necessity for or preclude further enquiry. To the extent that it does not, the court can then consider to what extent it is permitted to examine the substance of the conclusions of the Italian court as to its own jurisdiction and the non-applicability of the arbitration agreement. If the point arises, the court can consider whether the ambit of English public policy on these matters is or is not informed by the court’s conclusion as to the correctness or otherwise of the Italian court’s application of Italian law. In the event that the court’s own conclusion as to the correctness of the Italian court’s application of Italian law is held to be a permissible and relevant consideration, the court will be able to given further directions as to how and when the content of Italian law is to be determined.

For these reasons I conclude that, on the assumption that the court enjoys a discretion to stay DHL’s appeal against the registration order, it would be inappropriate so to do. I need not therefore decide whether the court in fact has such a discretionary power. I will hear counsel on the directions, if any, which ought now to be made to facilitate expeditious disposal of the appeal.