Reichhold Norway ASA v Goldman Sachs International [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Moore-Bick J. |
| Judgment Date | 25 November 1998 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 25 November 1998 |
Queen's Bench Division (Commercial Court).
Moore-Bick J.
John McCaughran (instructed by Charles Russell) for the plaintiff.
Gordon Pollock QC and David Foxton (instructed by Freshfields) for the defendant.
The following cases were referred to in the judgment:
Ashmore v Corporation of Lloyd'sWLR [1992] 1 WLR 446
Galaxy Energy (USA) Ltd v Inchcape Testing Services (UK) Ltd (unreported, 18 September 1998)
Gore v Van der LannELR [1967] 2 QB 31
Harrods (Buenos Aires) Ltd, ReELR [1992] Ch 72; [1991] BCC 249
Hedley Byrne & Co Ltd v Heller & Partners LtdELR [1964] AC 465
Snelling v John G Snelling LtdELR [1973] QB 87
Spiliada Maritime Corp v Cansulex LtdELR [1987] AC 460
Thermawear Ltd v Linton (unreported, 11 October 1995, CA)
Stay of proceedings — Arbitration — Contract — Negligent misstatement — Plaintiff sued vendor's advisor for misrepresentation after sale of company — Plaintiff commenced arbitration in Norway against vendor under sale agreement — Whether proceedings should be stayed in favour of Norwegian arbitration — Supreme Court Act 1981, s. 49(3).
This was an application by the defendant, Goldman Sachs International, for a stay of proceedings in the action until after the determination of an arbitration pending between the plaintiffs and a Norwegian company, Jotun A/S, in Norway.
The plaintiffs, “Reichhold”, purchased a company, “Polymer”, from Jotun under a sale agreement which provided that the purchaser's only remedy for any breach of warranty should be damages and contained an agreement for arbitration in Norway. Jotun retained the defendant as advisors in relation to the sale under a letter of engagement which provided for Jotun to indemnify the defendant against all claims. Jotun and Reichhold had signed an agreement before the sale relating to the disclosure of confidential information in which Reichhold agreed that Jotun and its advisors did not make any representation as to the accuracy and completeness of the material disclosed. Reichhold alleged that before the sale the defendant made various statements about the financial position of Polymer which were untrue and were negligent misstatements. Reichhold commenced proceedings for negligent misstatement against the defendant and later gave notice of arbitration against Jotun under the sale contract and nominated its arbitrator in Norway. Reichhold did not intend to pursue the arbitration proceedings pending the outcome of its action against the defendant and Jotun did not intend to take any step unless Reichhold did.
The defendant applied to stay the proceedings until after the completion of the Norwegian arbitration on the basis that Reichhold's complaint was that it had paid too much for Polymer and that its natural remedy was against Jotun under the sale agreement seeking damages for breach of warranty. The action against the defendant was more complicated since it was arguable, given the terms of the confidentiality agreement, that the defendant owed no duty to Reichhold. The plaintiff argued that it was proceeding against the defendant as of right.
Held, staying the proceedings:
1. The court had jurisdiction to stay the proceedings under s. 49(3) of the Supreme Court Act 1981. The question was whether it was right to stay the proceedings in the present case.
2. Where a plaintiff had claims against a number of different people he was entitled to choose who to sue but the court had an interest in and ability to control the plaintiff's choice of the order in which to pursue proceedings against different defendants especially when related proceedings were being or could be pursued concurrently. It was relatively easy to justify taking such steps to manage litigation where all the actions were pending before the same court but this was a case of proceedings between different parties in different forums. The court would only exercise its discretion to stay proceedings, pending the outcome of proceedings by the plaintiff against some other person in arbitration or before a foreign court, if there were very strong reasons for doing so and the resulting benefits clearly outweighed any disadvantage to the plaintiff. (Ashmore v Corporation of Lloyd'sWLR[1992] 1 WLR 446 and Thermawear Ltd v Linton (unreported, 11 October 1995, CA) considered.)
3. The confidentiality agreement, the sale agreement and the engagement letter formed a coherent arrangement under which Reichhold would have its remedy under the sale agreement for any misleading or inaccurate information but would be limited to that remedy and Jotun alone would be liable to provide it. That dispute was to be decided in arbitration. The claim against the defendant seemed a more difficult route to success than a claim for breach of warranty. The arbitration if pursued was likely to produce a result before the English proceedings and Jotun was likely to be able to meet any award. If the arbitration claim failed there would be little prospect of the proceedings succeeding. If the action proceeded the defendant was likely to seek indemnity or contribution from Jotun which could result in Jotun defending a claim under the sale agreement but not in arbitration. It was not unlikely that Jotun would then apply for and obtain a stay of the proceedings in favour of arbitration. The matter of which proceedings were commenced first was merely a factor to be taken into account in a case which fell outside the Brussels and Lugano Conventions. The fact that Reichhold had commenced proceedings as of right was also only a factor to be taken into account. (Snelling v John G Snelling LtdELR[1973] QB 87, Gore v Van der LannELR[1967] 2 QB 31 and Re Harrods (Buenos Aires) LtdELR[1992] Ch 72; [1991] BCC 249considered.)
4. In all the circumstances the right course was to stay the proceedings pending determination of the arbitration in Norway.
Moore-Bick J: I have before me an application by the defendant, Goldman Sachs International, for a stay of all further proceedings in this action until after the determination of an arbitration now pending between the plaintiffs and a Norwegian company, Jotun A/S, in Norway.
The background to this action lies in the sale by Jotun A/S (“Jotun”) of the shares in one of its subsidiaries, Jotun Polymer Holding A/S (“Polymer”), to Reichhold Chemicals Inc (“Reichhold”). Reichhold is one of the world's leading manufacturers of polymers, adhesives, plastics and related products. Polymer is a leading European producer of unsaturated polyester resins, gelcoats and other products. Reichhold wished to purchase Polymer in order to strengthen its European business, to provide it with a platform for expansion into Eastern Europe, the Middle East and to obtain access to gelcoat technology. The first plaintiff, Reichhold Norway ASA, was incorporated specifically for the purpose of owning the shares in Polymer which were transferred to it on completion of the sale, but it was Reichhold Chemicals Inc which negotiated the sale and provided the necessary funds. Reichhold Norway ASA remained a subsidiary of Reichhold Chemicals Inc. From a practical point of view, therefore, this was simply a sale by Jotun of its polymer division to Reichhold.
The original impetus for the sale came from Jotun itself. In December 1996 it engaged Goldman Sachs to act as its financial adviser in connection with the sale of its polymer division. In addition to providing Jotun with financial advice in relation to the sale its task was to generate interest among potential bidders, to act as the conduit through which information would be made available to bidders and to take an active role on behalf of Jotun in any negotiations. Goldman Sachs is a company incorporated in England with unlimited liability. It is one of a group of companies which together make up the well-known Goldman Sachs international investment banking business. Goldman Sachs does not have an office in Norway and it was no doubt for that reason that Jotun instructed the London office to handle this transaction. Goldman Sachs was appointed under an engagement letter dated 20 December 1996 which included the following provision:
“[Jotun] 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.”
As a result of receiving an initial approach from Goldman Sachs, Reichhold expressed an interest in entering into negotiations to buy Polymer for which purpose, of course, it needed to be given access to information about the company's business. For that purpose Jotun and Reichhold entered into a letter agreement dated 26 February 1997 which set out the basis on which Jotun would make confidential information (referred to in the letter as the “evaluation material”) available to Reichhold. This confidentiality letter, as it has been called, was addressed by Jotun to Reichhold and contained the following passage:
“you understand and accept that neither the Company, 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...
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