Newtherapeutics Ltd v Katz
| Jurisdiction | England & Wales |
| Year | 1990 |
| Date | 1990 |
| Court | Chancery Division |
Practice - Writ - Service out of jurisdiction - Application to set aside - English company directors domiciled in France and America - Company claiming that directors' actions at meeting in France ultra vires - Whether English or French courts having exclusive jurisdiction over proceedings - Whether proceedings having “as their object” validity of directors' decisions - Whether American director in breach of contract -
The management, control and business of an English registered company were conducted exclusively outside the United Kingdom, mainly in France. Its directors at the material times were the first defendant, who was domiciled in the United States of America, the second defendant, who was domiciled in France, neither of whom were shareholders in the company, and V., who was a shareholder. The company's main income producing asset at the material time was a contract made with a French pharmaceutical company (“Debat”) under which the company was to proceed with the clinical experimentation needed in order to develop one of its products, in return for very substantial payments. Disagreements arose between those in charge of the company's affairs, and on 18 March 1988 the second defendant resigned as director and executed an agreement with the company, whereby the company waived all claims against him in respect of any act on his part as a director or in any other capacity. The first defendant, who had been asked to resign, was removed from office at an extraordinary general meeting of the company held at Amsterdam on 21 March 1988. The company issued a writ, dated 31 March 1989, with a statement of claim, in which it was alleged, inter alia, that the defendants, by accepting appointment as directors, agreed to exercise the utmost good faith and loyalty and trust to the company in the performance of their duties but that at a meeting in Paris on 24 February 1988 with representatives from Debat the defendants, in breach of those duties, signed certain documents although no board meeting had been called for that purpose at which the validity and contents of the documents could have been discussed, and failed to heed the protests of the third director, V. The statement of claim alleged breaches of duty by the directors, but there was no plea of any breach of any other contractual relationship between the company and the defendants. The particulars of given breaches of duty fell into two classes, first that the variation documents were signed in the absence of a board meeting and that it was beyond the powers of the directors to sign them, and secondly that the transaction was so detrimental that no reasonable directors could properly have entered into it. The company applied to the master for leave, under R.S.C., Ord. 11, to serve the writ on the defendants out of the jurisdiction. Leave was granted to serve the writ on the first defendant in New York but in relation to the second defendant the master concluded that no leave was necessary because the question of service was governed by the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters as set out in Schedule 1 to the Civil Jurisdiction and Judgments Act 1982.F1
On the defendants' applications for a declaration that the court lacked jurisdiction in respect of the subject matter of the claim or the relief sought and for an order discharging the master's order granting leave to serve out of the jurisdiction on the first defendant:—
Held, (1) that article 2 of the Convention required that the second defendant be sued in France unless the English court had exclusive jurisdiction under article 16(2); that in article 16(2) the phrase “proceedings which have as their object the validity of … the decisions of … organs … of companies” referred to the subject matter of the proceedings, and that the phrase as a whole was to be construed as giving exclusive jurisdiction where the proceedings had as their object the validity of the decisions of the organs of a company; that, although article 16(2) did not include proceedings that concerned the reasonableness of a director's actions, the company's claim was principally concerned not with reasonableness but with the validity or otherwise of the directors' exercise of their powers and that, accordingly, the proceedings came within article 16(2) and the court had exclusive jurisdiction in the matter; but that, since the company had waived all its claims against the second defendant, the action was bound to fail against him and, therefore, the service of the writ on him would be set aside (post, pp. 1195D, E–F, 1196F–G, 1197C–D, 1199F–1200C, G–H, 1202D).
(2) That a claim against a director of a company based merely upon the fact of his appointment in the absence of a specific contract of employment did not fall within the ambit of R.S.C., Ord. 11, r. 1(d); that when upon seeking leave to serve the writ on the first defendant, the plaintiff had failed to make full and frank disclosure of the existence of the waiver agreement of 18 March 1988; and that, accordingly, service of the writ as against him would likewise be set aside. (post, pp. 1202H–1203A, 1206H–1207A, B–E, 1209B–E)
The following cases are referred to in the judgment:
Beattie v. Beattie (E. & F.) Ltd. [
Bowling v. Cox [
Electric Furnace Co. v. Selas Corporation of America [
Leicester Club & County Race Course Co., In re, Ex parte Cannon (
New British Iron Co, In re, Ex parte Beckwith [
Read v. Astoria Garage (Streatham) Ltd. [
Sanders v. Van der Putte (Case 73/77) [
Siskina (Owners of Cargo Lately Laden on Board) v. Distos Compania Naviera S.A. [
The following additional cases were cited in argument:
Barron v. Potter [
Behbehani v. Salem (Note) [
Brink's Mat Ltd. v. Elcombe [
Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) [
Spiliada Maritime Corporation v. Cansulex Ltd. [
Tesco Supermarkets Ltd. v. Nattrass [
Summonses
By a writ and statement of claim dated 31 March 1989, the plaintiff, Newtherapeutics Ltd., alleged, inter alia, that the defendants, Dr. Lewis Katz, and Dr. Jean-Pierre Lablanchy, who at the material time were directors of the company, had, in breach of the duties of fidelity and good faith which they owed to the company, signed documents, purporting thereby to sign on behalf of the company, although no board meeting had been called at which the validity and contents of the documents could have been discussed, were thereby acting ultra vires their powers as directors, and that the plaintiff had in consequence suffered loss and damage, and the plaintiff therefore claimed damages, and interest thereon at 15 per cent. per annum, pursuant to section 35A of the
By a summons dated 18 May 1989 the defendants applied for an order pursuant to R.S.C., Ord. 12, r. 8 setting aside service of the writ and for a declaration that in the circumstances of the case the court had no jurisdiction over the defendants in respect of the subject matter of the claim or the relief or remedy as sought or at all, alternatively for an order under the inherent jurisdiction of the court that all further proceedings in the action be stayed, and that the costs of the application be paid by the plaintiff, such costs to be taxed if not agreed. By a further summons dated 19 May 1989, the first defendant applied for an order pursuant to R.S.C., Ord. 12, r. 8, discharging the order giving leave to serve the writ on that defendant out of the jurisdiction.
The facts are stated in the judgment.
Paul Norris for the plaintiff.
Marion Smith for the defendants.
5 March. KNOX J. read the following judgment. The plaintiff in this action, Newtherapeutics Ltd., is an English registered company incorporated on 20 October 1986, originally called Saddlemoor Ltd. It changed its name to the present one on 5 January 1987. It is engaged in the development of medicines particularly in the field of immuno-biology. It was involved in the development of an immuno-modulator for the treatment of AIDS and that is referred to in many of the documents as “the product.” It had an exclusive licence for the development and exploitation of the product.
The management and control of the plaintiff (“the company”) and its business were conducted exclusively out of the United Kingdom, particularly in France but at times elsewhere in numerous places. Its main income-producing asset, in the past at least, has been a contract with a French entity, Laboratoires Debat (“Debat”), a large French pharmaceutical company. Under this contract (“the Debat contract”), the company was to proceed with the clinical experimentation needed to develop and perfect the product, and Debat was to make payments to finance this process. In return, Debat was to have options for exclusive marketing and distribution rights in certain defined territories. The precise terms of these options and the rights they secured are not material for present purposes, but it is material to say that substantial sums were involved. FF6.5m. were paid initially and a further FF19m. were payable if certain options were exercised by Debat. The original directors of the company...
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