Conflict of laws - Jurisdiction - Stay of proceedings

Striborg Ltd v (1) FKI Engineering Ltd (2) FKI Ltd: CA (Civ Div): (Lord Justices Mummery, Rix, Wilson): 25 May 2011

The appellant (S) appealed against a decision ([2010] EWHC 1160 (Comm)) refusing its application to stay proceedings brought by the respondents (F).

F had previously owned a German company (G) which later sold its assets to S by a sales and transfer contract.

G subsequently entered into insolvency procedures in Germany, leaving F, its former owners, as principal creditors.

F alleged that S had stripped G of its assets, leaving only debts and they took an assignment from G’s German insolvency administrator of all claims by G against S. S then brought proceedings in Germany for a declaration of non-liability to F.

There was an express exclusion from the German proceedings of any potential purchase price claims under the sales and transfer contract.

F, as assignees of G, commenced English proceedings against S seeking the unpaid purchase price under that contract.

S then added an allegation to the German proceedings to the effect that the assignment to F was invalid under German law.

S had applied for a stay of the English proceedings pursuant to Regulation 44/2001 article 28 on the ground that, because there were related proceedings in Germany, the German court was the court first seised.

F contended that the court had no jurisdiction to order a stay under article 28 since S had introduced a new issue into the German proceedings after the English action had begun, and only then had the actions become related.

The judge found that where a first action, which was not related to a second action when the second action was instituted, was subsequently altered or amended, the court of the second action was the court first seised for the purposes of article 8.

S contended that there was no such rule or principle and that the judge’s reasoning was contrary to the language and purpose of article 28.

It submitted that article 28 was concerned with being deemed to be seised of actions rather than of issues and that the judge had erred in focusing on the particular issue, which rendered the actions related, and when that issue was introduced so that he had, consequently, wrongly held that the court first seised within the meaning of article 28 was the one in which that issue was first introduced.

Held: (1) (Per Lord Justice Mummery) The first step for a court considering an application for a stay under article 28 was to decide which courts of two member states were deemed to be seised of an action, not seised of a particular issue in an action.

In the instant case, the German court was deemed to be seised of the German action and the English court deemed to be seised of the English action.

The second step was chronology: the court had to determine the date when the courts of each member state were deemed to be seised of the action instituted in them.

The third step was competitive: the German courts were deemed to be seised of the German action four months before the English courts were seised of the English action.

Purely in terms of chronology, therefore, the German court was first seised. The fourth step was comparative.

The English courts, as the courts not first seised, had to compare the proceedings in the two member states to see whether they were related: if they were not related actions, the question of a stay did not arise as there was no risk of irreconcilable judgments.

In the instant case, the actions were related at the time of the issue and hearing of the application.

There was, therefore, a risk of irreconcilable judgments if the English courts decided that the assignment agreement was valid and the German courts decided that it was void (or vice versa).

There was, therefore, a discretion in the English courts to stay the English action.

The fifth and final step was whether the discretion should be exercised to grant a stay: that discretion should have been exercised by the judge, so that the English action was stayed until the German courts decided whether the assignment agreement was valid or void.

The English action had, accordingly, to be stayed by the English court since it was not the court first seised (see paragraphs 39-44, 52, 54 of judgment).

(2) (Per Lord Justice Rix) It was only when there were related and pending actions in separate member states that article 28 came into issue.

Once there were at least two actions pending in different member states, then it was possible to ask whether they were related and also which of the courts was first seised.

The correct question was not which of the two courts was the first to be seised of an action which at the time of its seisin was a related action, but which of the two courts was the first to achieve seisin of one or other of those actions (paragraphs 118-120).

(3) (Per Lord Justice Wilson) The only difference to be detected in the judgments of Lord Justices Mummery and Rix was that, whereas the former preferred to ask which court was first seised of a pending action before asking whether the actions were related, the latter preferred to ask the questions in the reverse order.

There was no reason why the order mattered, but the position of Lord Justice Rix seemed to reflect the terminology of article 28 (paragraph 133).

Appeal allowed.

Barry Isaacs QC (instructed by Olswang) for the appellant; Mark Templeman QC, Emily Wood (instructed by Davis & Co) for the respondent.