Knauf UK GmbH v British Gypsum Ltd and another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE HENRY,Lord Justice Rix |
| Judgment Date | 24 October 2001 |
| Neutral Citation | [2001] EWCA Civ 1570 |
| Docket Number | Case No: A3/2001/0798 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 October 2001 |
[2001] EWCA Civ 1570
Lord Justice Henry
Lord Justice Robert Walker and
Lord Justice Rix
Case No: A3/2001/0798
IN THE SUPREME COURT OF JUDICATURE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr Justice David Steel)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Alexander Layton QC and Sara Masters (instructed by Gregory, Rowlcliffe & Milners for the Claimant/Respondent)
Howard Palmer QC and Timothy Otty (instructed by Fishburn Morgan Cole for the 2 nd Defendant/Appellant)
This is a judgment of the court prepared by Lord Justice Rix.
This appeal concerns two German companies, one of which wishes to conduct its litigation in England, while the other wishes to do so in Germany. Each invokes in its favour the Brussels Convention (the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, enacted into English law as Schedule 1 to the Civil Jurisdiction and Judgments Act 1982). In particular, three issues arise: (1) Can the desire to advance the date on which the English court is seised of proceedings over a foreign domiciliary of another convention state be a "good reason" for the purpose of ordering alternative service on that person under CPR Part 6.8? (2) Does an exclusive jurisdiction clause bind the parties so that article 17 of the Convention in any event mandates jurisdiction in Germany rather than England? (3) Ought the failure of the claimant in England to disclose the existence of the exclusive jurisdiction clause to the court at the time when it sought and obtained, without notice to the intended defendant, the order for alternative service on that defendant to lead in any event to the setting aside of that order?
The two German companies are respectively claimant and second defendant in these proceedings. The claimant is Knauf UK GmbH ("Knauf UK"), and the second defendant is Wellkisten und Papierfabriken Fritz Peters & Co KG ("Peters"). Knauf UK is a manufacturer of plasterboard. It is incorporated in Germany but its operations are based exclusively in England. It is common ground that it is domiciled in Germany. Peters is a German limited partnership, also domiciled in Germany. It manufactures lining paper which is used in the plasterboard manufacturing process. Between March 1997 and July 1998 Peters supplied Knauf UK with light grade ivory and green lining paper which Knauf UK used in the making of plasterboard. Knauf UK sold its plasterboard into the market, and it was used in the construction of homes in the north of England. In the course of construction a skim plaster finish was applied to the exposed surface of the plasterboard. This finish was supplied (in very large part) by the first defendant, British Gypsum Limited ("Gypsum"). There was at this stage no contractual relationship between Knauf UK and Gypsum.
In December 1997 complaints started to be received that delamination of the plaster skim coat was occurring. It was not clear what the cause of this delamination was, but it exposed Knauf UK to large claims. In order to satisfy their market, Knauf UK and Gypsum entered into an agreement under the auspices of the Gypsum Products Development Association (GPDA) whereby claims involving their products were settled on a 50/50 basis by the two of them, without prejudice to their liability as between themselves. This agreement is the only contractual relationship between Knauf UK and Gypsum.
As between Knauf UK and Gypsum, it is Gypsum's view that the delamination was caused by defects in the plasterboard made by Knauf UK, whether as a consequence of the lining paper supplied by Peters or otherwise. As between Knauf UK and Peters, it is Knauf UK's view that the problem was caused or at least contributed to by defects in Peters' lining paper. In June 1998 Knauf UK informed Peters of that view. On 11 November 1998 its London solicitors wrote to Peters "to notify you formally of this claim and to inform you that our clients have no alternative but to bring a claim in Court for recovery of their losses as a result of your failure to supply goods in accordance with the specification and which were in any event not suitable for the purpose". On 15 March 1999 Knauf UK's technical manager wrote directly in reply to Peters' German insurers and said that Knauf UK was prepared to seek its recovery through the German courts. On 8 April 1999 those insurers wrote to Knauf UK's German solicitors to say that "to avoid a premature court case" they would confirm that the limitation period for a claim would not end until 31 December 2000 (unless the claim were already barred). On 29 June 1999 Knauf UK's German solicitors quantified its claim in the sum of £1,140,363 so far paid to buyers in compensation, in the further sum of almost £3.7 million paid to Peters for the paper supplied, and in an unspecified amount for loss of profits arising out of reduced turnover. The solicitors cited provisions of the German Code in support of Knauf UK's claim. The letter, which was addressed to Peters' insurers, ended with a further threat of legal proceedings.
The matter then appears to have gone comparatively quiet. At any rate, over a year later on 5 July 2000 Peters' English solicitors, Messrs Morgan Cole, wrote to Knauf UK following a telephone conversation earlier that day to confirm that they had been instructed "to consider both liability and quantum in relation to supplies to you by Peters". The letter continued:
"You outlined the problems and the nature of the claims and I assured you that I would look into the documents which I had as soon as possible, coming back to you following your return from the Far East."
What was happening meanwhile between Knauf UK and Gypsum is not known, but there is evidence that shortly before the commencement of these proceedings Gypsum wrote a letter before action to Knauf UK threatening proceedings in the very near future. The letter itself is not before the court. It seems that negotiations between Knauf UK and Gypsum to avoid court proceedings had broken down. That letter caused a flurry of activity on the part of Knauf UK, who did not want to be sued in England by Gypsum and then have to carry its claim against Peters to Germany. Knauf UK therefore sought to find a way to canalise its litigation with both Gypsum and Peters in one jurisdiction, viz England.
Thus by 11 July 2000 a claim form had been issued against Gypsum and Peters. On 13 July Mr Christopher Harper, a partner of Gregory, Rowcliffe & Milners, made a witness statement in support of Knauf UK's application under CPR Part 6.8 for service of the claim form on Peters by an alternative method, namely by service within the jurisdiction on Peters' solicitors, Morgan Cole.
CPR Part 6.8(1) provides:
"Where it appears to the court that there is a good reason to authorise service by a method not permitted by these Rules, the court may make an order permitting service by an alternative method" (emphasis added).
That application came before Aikens J without notice on 14 July 2000. Mr Harper's witness statement put forward the following account of the "good reason" which Knauf UK was presenting to the court in support of its application. Knauf UK feared imminent suit by Gypsum. It therefore wished to ensure that it could bring both Gypsum and Peters into one set of proceedings. There was no difficulty in serving Gypsum in England. Nor was there any difficulty in bringing Peters within the English jurisdiction, because Knauf UK could rely on article 6(1) of the Brussels Convention (which enables a person domiciled in a contracting state to be sued in the courts for the place where any one of a number of defendants is domiciled). Therefore Gypsum's domicile in England would give jurisdiction over Peters in England. The difficulty was in obtaining priority for Knauf UK's suit against Peters in England over any suit brought by Peters against Knauf UK in Germany. Since Knauf UK was a German company, Peters could serve German proceedings against Knauf UK in Germany as easily as Knauf UK could serve English proceedings on Gypsum in England. However, in the absence of an order for alternative service on Morgan Cole in England, Knauf UK would have to serve the English proceedings on Peters in Germany by a method allowed under either the Hague Service Convention 1969 or the 1928 bilateral treaty between the United Kingdom and Germany (the Convention regarding Legal Proceedings in Civil and Commercial Matters, the "Bilateral Convention"). Service under the Hague Convention would take up to three months. In the meantime, any service of the claim form on Gypsum would probably result in news of the claim leaking to Peters in Germany. If Peters were tipped off about Knauf UK's English claim before it had been served with the claim form in Germany, then it would seek to obtain priority in Germany by commencing German proceedings and serving them on Knauf UK in Germany. Article 21 of the Brussels Convention assured priority for the first set of proceedings involving the same cause of action and between the same parties to come before the court, which then became the court "first seised". That would occur upon service of the defendant. The only way therefore to ensure that Peters was served for the purpose of the English proceedings before Knauf UK was served by Peters for the purpose of...
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