Reichhold Norway ASA and Another v Goldman Sachs International (A Firm)

JurisdictionEngland & Wales
JudgeThe LORD CHIEF JUSTICE,LORD JUSTICE OTTON,LORD JUSTICE ROBERT WALKER
Judgment Date28 June 1999
Judgment citation (vLex)[1999] EWCA Civ J0628-4
Docket NumberQBCMI 1999/0081/3
CourtCourt of Appeal (Civil Division)
Date28 June 1999
Between:
(1) Reichhold Norway Asa
(2) Reichhold Chemicals Inc
Claimants/Appellants
and
Goldman Sachs International
Defendant/Respondent

[1999] EWCA Civ J0628-4

Before:

The Lord Chief Justice of England and Wales

(Lord Bingham of Cornhill)

Lord Justice Otton

and

Lord Justice Robert Walker

QBCMI 1999/0081/3

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

(MR JUSTICE MOORE-BICK)

Royal Courts of Justice

The Strand

London

MR CHRISTOPHER CARR QC and MR JOHN McCAUGHRAN (instructed by Messrs Charles Russell, London EC4A 1RS) appeared on behalf of THE APPELLANT

MR GORDON POLLOCK QC and MR DAVID FOXTON (instructed by Messrs Freshfields, London EC4Y 1HS) appeared on behalf of THE RESPONDENT

1

Monday 28 June 1999

The LORD CHIEF JUSTICE
2

On 25 November 1998 Moore-Bick J sitting in the Commercial Court ordered, on the application of the defendants in these proceedings, Goldman Sachs International, that all further proceedings in the action should be stayed under the inherent jurisdiction of the court preserved by section 49(3) of the Supreme Court Act 1981 pending the final determination of the arbitration proceedings commenced by the plaintiffs in these proceedings, Reichhold Norway ASA and Reichhold Chemicals Incorporated, against Jotun AS in Norway on 17 September 1998. Reichhold appeal against that order which Goldman Sachs seek to uphold.

3

Before the judge the issues between the parties were whether on the facts the judge had jurisdiction to stay the proceedings as he did and, if he did, whether he could properly exercise his discretion so as to make such an order. On appeal the central issue is whether the order which the judge made was one which he could properly and lawfully make.

4

The facts are summarised in the judgment and may for present purposes be briefly stated. Towards the end of 1996 Jotun AS wished to explore the possibility of selling one of its subsidiary companies named Jotun Polymer Holding AS. It engaged Goldman Sachs to act on its behalf to investigate the commercial possibilities of sale, to arouse interest among potential bidders, to handle the negotiations and to give financial advice. This engagement was the subject of an agreement made between Jotun AS and Goldman Sachs on 20 December 1996, which contained an indemnity clause in these terms:

"The Company [Jotun AS] also will indemnify and hold Goldman Sachs harmless against any losses, claims, damages or liabilities to any person arising out of or in connection with the engagement or any matter referred to in the attached letter or this Annex A, except to the extent that any such loss, claim, damage or liability results from the gross negligence or bad faith in performing the services that are the subject of the attached letter or this Annex A of Goldman Sachs or any of its affiliates to which it may delegate any of its functions hereunder."

5

Reichhold Chemicals became interested in exploring the possibility of purchase and entered into negotiations. For that purpose, understandably, Reichhold needed access to detailed information about the business of Polymer, such information being known between the parties as the evaluation material (so-called no doubt because it assisted Reichhold to evaluate the benefits of the purchase and to value the business).

6

There was accordingly a confidentiality agreement entered into between Jotun AS and Reichhold Chemicals which contained a term to this effect. It was addressed to Reichhold and read:

"…. you understand and accept that neither the Company [Jotun AS], nor any of its respective directors, officers, employees, agents, representatives and advisors have made or make any representation or warranty expressed or implied as to the accuracy or completeness of the Evaluation Material. You agree that none of them shall have any liability to you or any of your representatives or advisors resulting from the use of the Evaluation Material."

7

Negotiations and investigations were entered into and a draft sale agreement was exchanged containing a number of warranties concerning the usual operation of the business, the absence of material adverse change since the date of the last accounts, the absence of any material reduction in the assets or increase in the liabilities and so on.

8

On 5 June 1997, as it appears, a report was forwarded by Polymer to its parent, Jotun, indicating a significant decrease in profitability for the year 1997 as compared with 1996. On the following day, 6 June, a memorandum was addressed by Goldman Sachs to Reichhold in the course of which it was said:

"Management does not currently foresee any reason to adjust the budget for 1997."

9

On 11 July 1997 an agreement was made for the sale of the shares. The agreement is a very lengthy document. It contained warranties to very much the same effect as in the draft agreement. It provided in clause 5.3 that the buyer's only remedy for any breach of warranty or of any provision of the agreement should be damages and that there should be no right to rescission. It contained in clause 5.4.1 an agreement between the seller and the buyer that the seller should pay to the buyer on demand the amount necessary to put the buyer into the position in which it would have been if the warranties in the agreement had been true and accurate in all respects.

10

Clause 6.5 contained a provision that claims should be unenforceable unless pursued within nine months of notification of the relevant claim.

11

Clause 17 contained a Norwegian law clause and a provision that any difference or disagreement between the parties should be resolved by arbitration in Oslo.

12

The agreement was duly completed in September 1997 and the shares were transferred into the name of Reichhold Norway AS, although nothing turns on any distinction between the two plaintiffs.

13

On 22 December 1997 Reichhold gave notice to Jotun of a possible claim under the sale agreement. That notification was followed in March by a letter before action addressed to Goldman Sachs. On 30 March 1998 the writ was issued in these proceedings by the plaintiffs against the defendants. It is enough to say that the claim made in the writ was a Hedley Byrne claim based on the Goldman Sachs memorandum of 6 June, to which I have already referred. The damage claimed by the plaintiffs was some US $40m.

14

On 19 May 1998 Goldman Sachs issued this summons seeking a stay of the proceedings. Later, on 17 September 1998 Reichhold began arbitration proceedings against Jotun under the arbitration clause in the agreement, this action, it would seem, being prompted by the time provision in the sale agreement. At the end of October the suggestion was made by lawyers acting for Reichhold that the arbitration proceedings should be treated as dormant, with no steps being taken to complete the establishment of the tribunal and with each party waiving any relevant time limit, but to that invitation lawyers acting for Jotun gave a non-committal reply.

15

Evidence was filed relating to the Goldman Sachs summons to stay the proceedings and the matter came in due course before the judge.

16

At page 6 of his judgment the judge gave a summary of the argument addressed by Mr Pollock QC on behalf of Goldman Sachs. He drew attention to these points: First, since the substance of Reichhold's complaint was that it had paid too much for Polymer, the natural and most efficient way of pursuing a remedy was by arbitration against Jotun in Norway under the sale agreement seeking damages. Second, it was suggested that that was a relatively straightforward claim in legal terms and any difficulty about the quantum of damage would be inevitable wherever the claim was pursued. Third, it was suggested that the proceedings in the arbitration could be expected to reach a conclusion quickly and relatively cheaply. Fourth, it was urged that Reichhold could expect to recover in full against Jotun in the arbitration if it had a good claim, and there was no reason to think that Jotun would be unable to honour any award. By that route it was urged, fifth, that Reichhold could expect to obtain justice in a speedy and efficient manner. By contrast, sixth, the present action against Goldman Sachs was more complex, more difficult as a matter of law and was inconsistent with the method contemplated by all parties for resolving disputes of this kind. In those circumstances Mr Pollock argued that the court could and should stay all further proceedings in the action until the completion of arbitration proceedings in Norway.

17

In the judge's assessment Mr Pollock's argument rested essentially on three propositions: first, that a plaintiff was no longer entitled to exercise unfettered control over the conduct of proceedings, even when they had been commenced in this country as of right; secondly, that the court should take an active role in managing proceedings before it in order to ensure that justice was achieved as between the parties, while at the same time safeguarding the interests of other litigants; and thirdly, that when considering how justice could best be done between the parties, the court should view the matter objectively in order to assess how that might be achieved at least inconvenience and expense to all involved.

18

The judge then turned to consider the counter-arguments addressed by Mr McCaughran on behalf of Reichhold. The judge recorded his primary submission as being that a plaintiff with a genuine claim against a defendant within the jurisdiction (not being a claim liable to be stuck out as in any way abusive) had an absolute right to bring proceedings against the defendant here. That, it was submitted, was so regardless...

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