KMG International NV (a company incorporated under the laws of the Netherlands) v Melanie Anne Chen
| Jurisdiction | England & Wales |
| Judge | Christopher Hancock |
| Judgment Date | 13 September 2019 |
| Neutral Citation | [2019] EWHC 2389 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2017-000753 |
| Date | 13 September 2019 |
[2019] EWHC 2389 (Comm)
Christopher Hancock QC (sitting as a Judge of the High Court)
Case No: CL-2017-000753
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice Strand, London, WC2A 2LL
Alain Choo Choy QC, Anna Dilnot and Sophie Weber (instructed by PCB Litigation LLP) for the Claimant
Jonathan Crow QC and Jamie Holmes (instructed by Fox Williams LLP) for the Defendants
Hearing date: 29 th July 2019
Approved Judgment
Christopher Hancock QC:
Introduction.
In this matter the Defendants seek to strike out the claim, or, alternatively, summary judgment on that claim. For its part, the Claimant, by a summary judgment application dated 23 July 2019, sought summary judgment against the Defendants on the three issues which were the subject of the Defendants' strike out application in the event the latter was decided against the Defendants.
The facts.
For the purposes of this application, I can deal briefly with the facts. (1) On 30 April 2016, the Claimant (“KMG”) obtained an arbitration award for US$200m against a company called DP Holding SA (“DPH”). DPH was the holding company of a diverse group of companies.
(2) The claim in these proceedings is made in tort, and is based on a breach of duties allegedly owed as a matter of Dutch or alternatively English law. The wrongful acts of the Defendants are said to have resulted in a diminution of the assets of DPH, since it is asserted that the Defendants caused the DP Group to part with a valuable asset, namely the shares in a German company, which company was part of the DP Group. It is asserted that the purpose of the transfer was to disable DPH from satisfying the arbitration award.
(3) KMG contends that, under Article 4(1) of the Rome II Regulation (hereinafter “ Rome II”), the claim is governed by Dutch law, and that there is a claim under Article 6.162 of the Dutch Civil Code.
(4) Alternatively, KMG makes a claim in English law.
Accordingly, to quote the Defendants' skeleton, the essential facts for present purposes — in which the parties agree that I must assume the facts are as pleaded by KMG — are simply that:
(1) KMG is bringing this claim in its capacity as a creditor of DPH by virtue of the Award;
(2) The wrong that was allegedly done by the Defendants under Dutch law was done to NIBV, which was a sub-sub-subsidiary of DPH.
Adjournment of the application in relation to the English law claim.
At the beginning of the hearing, I adjourned consideration of the English law claims. That was because the principal question in issue between the parties, namely whether the Claimant's claims put forward as a matter of English law were untenable on the basis of the law as it now stood by reason of the principle of reflective loss (“the RL rule”), was currently the subject matter of an appeal to the Supreme Court which had been heard in May 2019. My reasons for this decision, which was essentially a question of case management, were set out in my earlier judgment.
However, that left the question of whether the claims put forward as a matter of Dutch law were also untenable by reason of the principles of English law dealing with reflective loss. I concluded that it would be useful to determine these matters, and accordingly heard argument on the issues which arose in this regard. This judgment deals with those issues.
The appropriate standard.
Although I was not addressed to any degree on the appropriate standard, I take the standard for summary judgment to be that set out by Lewison J (as he then was) in EasyAir Ltd (trading as Openair) v Opal Telecom Limited [2009] EWHC 339 (Ch) at [15], a case that has been approved in a number of authorities, including AC Ward Ltd v. Catlin (Five) Ltd [2009] EWCA Civ 1098; [2010] Lloyd's Rep IR 301 at [24]; and Global Asset Capital Inc v Aabar Block and others [2017] EWCA Civ 37.
As regards the test for a strike out, this requires me to assume that the pleaded facts are correct, and then to ask, if those facts were made out at trial, whether the claim would nevertheless fail.
In this case, Mr Choo Choy very fairly accepted that if the points of law which were argued in front of me were correct, so that the RL rule applied even to the Dutch law claims, his client could not succeed on the basis of the current state of English law. Accordingly, since these were points of pure law, I did not understand there to be any dispute that a determination in favour of the Defendants would result in the claim being dismissed.
The issues.
I can summarise the Defendants' arguments under this heading very briefly. They argued that the English law rules as to reflective loss barred the Claimant's claims, even under Dutch law, because:
(1) The RL rule was a rule of procedure and not substance and was accordingly governed by the lex fori and not the lex causae;
(2) The RL rule was a mandatory overriding rule of English law within the meaning of Article 16 of Rome II;
(3) Any derogation from the RL rule would be manifestly incompatible with English public policy within the meaning of Article 26 of Rome II.
I deal in this judgment with each argument in turn. However, before doing so, I will set out the leading authorities relating to the RL rule in English law.
The rule against reflective loss.
I start with the decision of the Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204. In that case, a personal action was brought by shareholders in a company, on the basis that by reason of wrongful acts on the part of the defendants, the value of their shareholding had been diminished. This claim was said by the Court of Appeal to be misconceived, in the following well known passage, found at pages 222G to 223E:
“In our judgment the personal claim is misconceived. It is of course correct, as the judge found and Mr. Bartlett did not dispute, that he and Mr. Laughton, in advising the shareholders to support the resolution approving the agreement, owed the shareholders a duty to give such advice in good faith and not fraudulently. It is also correct that if directors convene a meeting on the basis of a fraudulent circular, a shareholder will have a right of action to recover any loss which he has been personally caused in consequence of the fraudulent circular; this might include the expense of attending the meeting. But what he cannot do is to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a “loss” is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only “loss” is through the company, in the diminution in the value of the net assets of the company, in which he has (say) a 3 per cent. shareholding. The plaintiff's shares are merely a right of participation in the company on the terms of the articles of association. The shares themselves, his right of participation, are not directly affected by the wrongdoing. The plaintiff still holds all the shares as his own absolutely unencumbered property. The deceit practised upon the plaintiff does not affect the shares; it merely enables the defendant to rob the company. A simple illustration will prove the logic of this approach. Suppose that the sole asset of a company is a cash box containing £100,000. The company has an issued share capital of 100 shares, of which 99 are held by the plaintiff. The plaintiff holds the key of the cash box. The defendant by a fraudulent misrepresentation persuades the plaintiff to part with the key. The defendant then robs the company of all its money. The effect of the fraud and the subsequent robbery, assuming that the defendant successfully flees with his plunder, is (i) to denude the company of all its assets; and (ii) to reduce the sale value of the plaintiff's shares from a figure approaching £100,000 to nil. There are two wrongs, the deceit practised on the plaintiff and the robbery of the company. But the deceit on the plaintiff causes the plaintiff no loss which is separate and distinct from the loss to the company. The deceit was merely a step in the robbery. The plaintiff obviously cannot recover personally some £100,000 damages in addition to the £100,000 damages recoverable by the company.”
The rule was then the subject matter of consideration by the House of Lords in Johnson v Gore-Wood (No 1) [2002] 2 AC 1.
Lord Bingham set out the following propositions in his speech in that case, at pages 35E to 36A:
“(1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder's shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company's assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs, has declined or failed to make good that loss …
“(2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding …
“(3) Where a company suffers...
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