(1) Fki Engineering Ltd (2) Fki Plc v (1) Dewind Holdings Ltd (2) Dewind Gmbh
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE DAVID STEEL,Mr Justice David Steel |
| Judgment Date | 2007 |
| Neutral Citation | [2007] EWHC 72 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Year | 2007 |
| Docket Number | Case No: 2006 FOLIO NO. 680 |
| Date | 2007 |
[2007] EWHC 72 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN's BENCH DIVISION
COMMERCIAL COURT
Mr Justice David Steel
Case No: 2006 FOLIO NO. 680
Charles Samek and David Lascelles (instructed by EMW Law) for the Second Defendant
Mark Templeman QC (instructed by Davis & Co) for the Claimants
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an application by the Second Defendant, De Wind GmbH “(DWG”) for a declaration that the court has no jurisdiction in respect of the claims brought against it by the Claimants (being respectively “FKI Ltd” and “FKI plc”) and for orders setting aside service of the proceedings and dismissing the action.
The action arises out of a Share Sale Agreement dated 4 July 2005 (the “SSA”) made between FKI Ltd and the First Defendant, Dewind Holdings Ltd (“DWL”). Various claims are pursued by the Claimants:
i) FKI Ltd claims against DWL €1,649,716 pursuant to clause 8.2 of the SSA by way of an indemnity against payments made under various performance bonds and guarantees.
ii) Both Claimants claim against DWG a declaration that neither is liable to DWG in respect of claims asserted against them in draft German proceedings which had not been issued prior to the commencement of the action (the “German Proceedings”) in the sum of €57,167,751.
iii) Both Claimants claim against DWG a declaration that, in the event that either should be liable to DWG in respect of the German Proceedings, they would be entitled to repayment from DWG of any sum they might be ordered to pay.
iv) FKI Ltd claims damages from DWL pursuant to the SSA contingent on the disputed liability of the claimant to DWG in respect of the German Proceedings (certainly in so far as that liability arose from a failure to make payment of approximately €25.6million under various capital reserve agreements).
This application, being made by the Second Defendant, was accordingly directed at claims (ii) and (iii). The Claimants rely upon Article 6 (1) of Council Regulation (EC) 44/2001 as justifying jurisdiction. The Defendants challenge the legitimacy of applying Article 6.1. Further or in the alternative the Defendants contend that the German courts have exclusive jurisdiction in respect of all or some of the claims by virtue of Article 22 (2). (As regards the claims made against DWL there was no basis for any jurisdictional challenge as DWL is domiciled in England and in any event the SSA contained an English exclusive jurisdiction clause.)
DWG is a German company. It designs wind turbines. Prior to 4 July 2005 FKI Ltd was the sole owner of DWG. FKI Ltd is a wholly owned subsidiary of FKI plc. By virtue of the SSA, FKI Ltd sold its share holding in DWG to DWL. Because DWG had always been loss making, the theme of the SSA was that FKI Ltd “paid” DWL to take DWG off its hands. In return for a nominal payment, DWG was transferred to DWL together with cash reserves of €3,278,000 and net tangible assets forecast to be €27,778,000. For the purpose of assessing the net tangible asset figure, it was a pre condition to completion of the SSA that all inter group indebtedness as between DWG and all companies within the FKI Group should have been repaid.
Following completion, in the absence of agreement between the parties by way of an exchange of draft completion accounts, there was to be an expert determination pursuant to the SSA of the need or otherwise of any adjustment in the net tangible asset figure. This provision led in due course to a determination by an independent expert that FKI Ltd was obliged to pay DWL €339,000.
FKI Ltd and FKI plc had entered into a number of performance bonds and guarantees to secure bank loan facilities provided to DWG. By the terms of the SSA, DWL undertook fully to indemnify FKI Ltd against all losses incurred by the FKI Group under these performance bonds and guarantees.
Following completion, FKI Ltd duly paid €1,649,716 under a deed of guarantee in favour of Deutsche Bank to secure various guarantees provided by that bank for the benefit of DWG. Pursuant to the SSA, FKI Ltd sought reimbursement from DWL. When DWL failed to make payment, FKI Ltd served a statutory demand in June 2006.
In correspondence DWL pressed for withdrawal of the statutory demand and in doing so asserted that one of the defences to the claim was a cross-claim which it threatened to pursue in the German courts. These claims fell into two categories: (i) claims alleging that FKI Ltd and/or FKI plc failed to pay sums due to DWG under various Capital Reserve Agreements (“CRAs”) and (ii) claims alleging that payments made by DWG to FKI plc by virtue of a cash pooling arrangement within the FKI Group were in breach of the CRAs and of statutory provisions of German company law.
Background
The background was as follows. DWG had maintained a capital reserve account at Deutsche Bank to hold monies paid in by shareholders over and above the stated capital of the company. At various stages between June 2004 and July 2005, FKI Ltd entered into five CRAs with DWG. These provided for FKI Ltd to make “non repayable voluntary payments as a contribution to the capital reserves” of DWG, the purpose being to maintain the latter's solvency.
The individual CRAs were dated 15 June 2004, 14 April 2005, 8 June 2005, 16 June 2005 and 1 July 2005 and were in respect of the following sums €30 million, €10million, €500,000, €30,771,000 and €96,662.89. Whilst payment for the third, fourth and fifth agreements were paid in full, DWG contended that only €15 million was paid in regard to the first agreement and none of the second.
The Claimants' position was that payment of any balance had been effected by setting the monies off against existing liabilities of DWG. In response DWG's case was that such setting off was not permissible both by virtue of the express terms of the CRAs and by virtue of German company law. DWG also asserted that both in breach of the CRAs and in breach of German company law some €31.6 million furnished under the CRAs was paid out again into the FKI Group cash pooling system.
The thrust of the threatened proceedings in Germany as regards claims relating to the capital reserves was spelt out in a draft complaint sent on behalf of DWG to the Claimants' solicitors under cover of a letter dated 29 June 2006. The terms of the draft complaint led the Claimants to suggest that it had no bearing on the indemnity claim. That approach was described by DWG in their response as “a matter for you”.
The present action was commenced on 6 July 2006. The German proceedings were commenced by DWG on 20 July 2006.
Contentions on jurisdiction
As already indicated the Claimants contend that this court has jurisdiction to entertain these claims against DWG, albeit that DWG is domiciled in Germany, by virtue of Article 6 (1) of the Judgments Regulation:—
“A person domiciled in a member state may be also sued … where he is one of a number of defendants, in the courts for the place where anyone 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 basis of this submission, on which it is accepted the Claimants have the burden of establishing a good arguable case that the presumption in Article 2 (2) should be displaced, is twofold:
i) since at the time the proceedings were issued DWL asserted that the claims later advanced in the German proceedings constituted a defence to the indemnity claim, there was a clear risk of irreconcilable judgments if they were also pursued separately in Germany: and
ii) since the “contingent” claim against DWL required this court to determine the validity of all or some of the claims that had later been brought in the German proceedings, there was again a clear risk of irreconcilable judgments.
Thus, it was submitted by the Claimants that the claims were “so closely connected that it was expedient to hear and determine them together”.
The threshold point taken by DWG (albeit taken at a remarkably late stage) was that the claims advanced by them in Germany, or at least part of them, were “principally concerned with, and have as their subject matter, the validity of decisions of the managing director of DWG and of DWG's shareholder FKI Ltd”. Accordingly, it was submitted such claims had to be advanced in Germany by virtue of Article 22 (2) of the Regulation:—
“The following court shall have exclusive jurisdiction, regardless of domicile … in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or of the validity of the decisions of their organs, the courts of the member state in which the company, legal person or association has it seat. In order to determine that seat, the court shall apply its rules of private international law”.
Running in parallel with this submission on the part of DWG was the mirror image submission on the part of the Claimants that the self same claims as pursued in Germany were justiciable under the terms of the Judgments Regulation only in this court being the court of the defendants' (in the German proceedings) domicile.
Article 22(2)
The structure of the claims in the German proceedings is canvassed in the draft complaint sent to...
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