FKI Engineering Ltd and Another v De Wind Holdings Ltd and Another

JurisdictionEngland & Wales
JudgeLord Justice Tuckey,Lord Justice Toulson,Sir John Chadwick
Judgment Date28 February 2008
Neutral Citation[2008] EWCA Civ 316
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A3/2007/0523
Date28 February 2008

[2008] EWCA Civ 316





Royal Courts of Justice

Strand, London, WC2A 2LL


Lord Justice Tuckey

Lord Justice Toulson and

Sir John Chadwick

Case No: A3/2007/0523

Fki Engineering Ltd & Anr
De Wind Holdings Ltd & Anr

Mr C Samek and Mr D Lascelles (instructed by Messrs Borneo Linnells) appeared on behalf of the Appellant.

Mr M Templeman QC (instructed by Messrs Davis & Co) appeared on behalf of the Respondent.

Lord Justice Tuckey

This is another jurisdiction dispute. The main question is whether Article 6 of the Judgments Regulation 44/2001 permits the appellant, De Wind GMBH, a German company (DWG) to be sued here because the claim against it is so closely connected with the claim against its English parent company De Wind Holdings Limited (DWL) that it is expedient to hear and determine the claims together to avoid the risk of irreconcilable judgments resulting from separate proceedings. David Steel J held that it did but gave DWG permission to appeal. DWG contends that the judge's decision was wrong because the claim against it was not closely connected with the claim against DWL and because DWL's claim does not pass the merits threshold.


DWG designs and manufactures wind turbines. Before 4 July 2005 it was wholly owned by the first claimant, part of an engineering group whose parent was the second claimant. Nothing turns on the separate identities of the claimant companies, whom I shall simply call FKI. DWG has always been loss-making. To maintain its solvency FKI had among other things entered into a series of capital reserve agreements (CRAs) with DWG under which it agreed to make a number of substantial payments.


By an agreement made between FKI and DWL dated 4 July 2005 FKI agreed to sell its entire interest in DWG to DWL on terms which reflected the fact that DWG was loss-making. Completion of the sale and purchase of the shares was conditional upon DWG having €3,278,000 of cash in its bank accounts and upon repayment of all intra-group indebtedness. Net tangible assets of DWG were forecast to be €27,778,000. After completion a balance sheet was to be agreed or settled by expert determination and payment was to be made of any difference between the forecast and actual values of the net tangible assets. DWL also agreed to indemnify FKI against any liabilities which it incurred under a number of identified performance bonds and guarantees which DWG's bankers had given on its behalf.


Following completion of the sale the parties failed to agree a completion balance statement. The dispute was resolved by expert determination which required FKI to pay DWL €339,000. By this time, however, FKI had paid €1,649,716 to DWG's bankers in respect of payments which had been made under the performance bonds and guarantees to which I have referred. FKI sought repayment of this amount from DWL under the indemnity and, when it failed to pay, issued a statutory demand. This resulted in correspondence between solicitors, in the course of which DWL's solicitors indicated that DWG had claims against FKI which would be pursued in Germany. In due course FKI were sent a copy of draft proceedings, prepared by German lawyers, which formulated these claims. Those proceedings were issued in Germany on 20 July 2006, but these English proceedings had been started a fortnight earlier.


In the English proceedings the first claim against DWL was for the €1,649,716 plus interest under the indemnity. Nothing turns upon this claim, for which the English court obviously has jurisdiction.


It is FKI's second claim against DWL which it relies on as what has been called “the anchor claim” for its claim against DWG. This, so far as it is relevant, is a claim for damages for breach of contract. The claim against DWG is for declarations that FKI is not liable upon the claims made in the German proceedings.


FKI's second claim against DWL, described in its Particulars of Claim as a “contingent claim”, is made on the premise, which is denied, that it is liable for the claims made in the German proceedings. The Particulars of Claim set out the nature of the two claims made in the German proceedings: the first, a claim for payment of €25.6 million, allegedly still due under the CRAs; the second is a claim for repayment of €32.56 million allegedly paid by DWG to FKI in breach of German company law. The pleading then explains why FKI says that it is not liable for either claim. It had paid the amounts due under the CRAs in full, in cash or by crediting DWG's loan accounts on dates and amounts which are particularised. Its defence to the company law claim does not matter for present purposes. These particulars led to the claim for the negative declaration against DWG. Paragraph 39 of the pleading then says that if, contrary to its case, FKI was liable to DWG as alleged, amounts due under loans made by FKI to DWG would be revived so as to extinguish any such liability.


The so-called contingent claim followed, insofar as it is material, in paragraphs 42 to 4Here FKI relied on a term of the share sale agreement, which at paragraph 8 of part 2 of Schedule 7 said:

“The buyer shall provide the Seller with such access to the…accounts, working papers and other financial information of the Buyer as is reasonably necessary for the purposes of this Agreement.”

The purposes of the agreement included the preparation of the completion balance statement which was to include the amount of DWG's net tangible assets so as to determine what adjustment to the consideration for the transaction needed to be made.


Paragraphs 47 and 48 allege:

“In breach of its obligations under paragraph 8 of Part 2 of Schedule 7 to the Share Sale Agreement [DWL] failed to provide to [FKI] financial information reasonably necessary for the purposes of the Agreement, namely that [DWL] and [DWG] were in the process of preparing a claim against [FKI] (which, on the hypothesis of [FKI]'s contingent claim against [DWL] was valid) for €57,167,751 and/or that [DWG] was entitled to payment of that sum from [FKI].

In consequence of [DWL]'s breach of its obligations under paragraph 8 of Part 2 of Schedule 7 of the Share Sale Agreement, the Completion Net Tangible Assets of [DWG] were under-stated by €57,167,751 in the Draft Completion Balance Sheet and in the Completion Balance Sheet as determined by [the expert], and [FKI] has suffered loss and damage in that sum.”

At the end of the pleading the claim for damages for breach of contract against DWL is made “pursuant to paragraph 48”.


The €57 million figure is the total of both claims made in the German proceedings. At the hearing before the judge FKI conceded that it could not recover the amount of the claim for breach of German company law (€32.6 million) on the basis pleaded in paragraphs 47 and 48 because this amount could not have been included in DWG's net tangible assets even if FKI had known about the claim. I shall have to return to the reason for this later.


So much for the facts. The objects of the Judgments Regulation are well known. Preamble 11 says that:

“The rules of jurisdiction must be highly predictable and founded on the principle that jurisdiction is generally based on the defendant's domicile and jurisdiction must always be available on this ground save in a few well-defined situations in which the subject matter of the litigation or the autonomy of the parties warrants a different linking factor.”

Article 6 contains a number of those exceptions. Article 6(1) provides:

“A person domiciled in a member state may also be sued…where he is one of a number of defendants, in the courts for the place where any one 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.”


Mr Samek for DWG made a number of submissions about the meaning and effect of Article 6(1) which I must deal with at the outset. First he says that a claim for the purposes of Article 6(1) must be one which can properly be brought in the domestic court. As a general proposition, I would accept this, although Mr Samek referred us to a recent decision of the ECJ in Reisch Montage AG v Kiesel Baumaschinen Handels GMbH ( Case C-103/05), which casts some doubt upon this proposition. In that case proceedings had been brought by the creditor of a bankrupt in the court of his domicile and, relying on Article 6(1), his guarantor domiciled in another member state. The claim against the bankrupt was time-barred but the ECJ held that nevertheless the claim against the guarantor could proceed under Article 6 (1) which was not affected by a procedural bar contained in a national provision.


Leading on from his first submission Mr...

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