Jurisdiction

Conflict of laws - Challenge to jurisdiction

Polymer Vision R & D Ltd and others v Van Dooren: Queen's Bench Division, Commercial Court: 17 November 2011

The first and second claimants were two companies, R&D and Templeco. The third claimant was an individual (SF) who controlled the two companies. The defendant was a Dutch bankruptcy trustee of an English registered company company, PVL, which had its place of business in the Netherlands.

An ‘Intra-Group Asset Transfer Agreement‘ and related share sale agreement took place between PVL and the claimants in June 2009, shortly before the defendant became administrator. Under that agreement, PVL’s intellectual property rights were vested in R&D for a consideration of £3m paid for by a transfer of shares in R&D to PVL. PVL then sold the R&D shares to Templeco in exchange for SF waiving £3.1m of his loans to PVL. The defendant maintained that the intra-group asset transfer agreement was a disposal of assets in fraud of creditors. The claimants denied that it was.

At that point, a supervisory judge was appointed and the defendant made a declaration pursuant to Dutch law that the intra group transfer was void. On 27 July 2009, a settlement agreement was made between the parties to facilitate the sale by the defendant of the disputed intellectual property rights. The claimants maintained that, in a letter sent before the settlement and which had induced the settlement, the defendant had agreed that PVL’s indebtedness to SF was at least €3m.

On 4 March 2011, the claimants issued proceedings in the English court seeking damages for misrepresentation and/or breach of contract. They served the defendant at his professional address in the Netherlands without seeking permission to serve out on the ground that Civil Procedure Rule 6.33(1) applied because the defendant was domiciled in a member state. The defendant filed an acknowledgment of service on 6 April, but failed to challenge jurisdiction within 28 days, as required under CPR 58.7(2). The claimants served their particulars of claim on 25 May. In due course, the defendant sought to challenge the jurisdiction of the court and applied for an extension of time to do so, and, if that was granted, submitted that the proceedings should be stayed or dismissed.

His primary ground was that the relevant European legislation was not Council Regulation (EC) 44/2001 (on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters) (the Judgments Regulation) which replicated an identical provision in the Brussels Convention, on which the claimants relied, but Council Regulation (EC) 1346/2000 (on insolvency proceedings) (the Insolvency regulation). That regulation accorded jurisdiction to the law of the state in which the bankruptcy proceedings were opened, in the instant case, the Netherlands.

The main issues in the case were: (i) whether the defendant should be permitted to challenge the jurisdiction even though he was out of time; (ii) whether the bankruptcy exception in article 1.2(b) of the Judgments Regulation applied so as to exclude the application of that regulation; and (iii) if the bankruptcy exception applied, whether the proceedings should be stayed or dismissed on the basis of forum non conveniens. The resolution of the first issue depended on whether there was substance in the challenge that the proceedings did not fall within the Judgments Regulation because they were excluded by article 1.2(b) which provided that the Judgments Regulation was not to apply to bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings.

Consideration was given to the case of Gourdain (Liquidator of Soc. Fromme France Manutention) v Nadler [1979] ECR 733 (Gourdain) which stated to the effect that if decisions relating to bankruptcy and winding-up were to be excluded from the scope of the Brussels Convention (the convention) they had to derive directly from the bankruptcy. In relation to (ii) the claimants submitted, inter alia, that the claims in the proceedings were independant claims under the general law and that the derivation in Gourdain referred to juridical derivation and not factual derivation which was ascertained by focusing on the pleaded claim and not the facts. In relation to (iii) the claimants contended that notwithstanding that the applicable law of the settlement agreement and any collateral contract was Dutch law, England was the appropriate forum as, inter alia, the characteristic place of performance of the contract according to that applicable Dutch law was England. The application would be allowed.

(1) The starting point in determining what proceedings were excluded from article 1.2(b) of the Judgments Regulation was the decision in Gourdain where the European Court of Justice had stated that 'it is necessary if decisions relating to bankruptcy and winding-up are to be excluded from the scope of the convention, that they must derive directly from the bankruptcy or winding-up, and be so closely connected with the proceedings for the liquidation des biens or the reglement judicire'. It was therefore necessary to ascertain whether the legal foundation of an application was based on the law relating to bankruptcy and winding-up as interpreted for the purpose of the convention. It was clear that the fact that a claim factually depended on the bankruptcy did not in itself suffice to bring it within article 1.2(b).

However, even though a factual derivation was not sufficient in all cases it did not mean that it never sufficed and that a direct juridical derivation was necessary. It was the closeness of the link, in the sense of the Gourdain case-law, between a court action and the insolvency proceedings that was decisive for the purposes of deciding whether the exclusion in art 1.2(b) of the Judgments Regulation was applicable. A key factor in concluding that there was a link between a court and insolvency proceedings was the extent of the liquidator's powers (see [47], [55], [58], [64], [66], [67] of the judgment)

In the instant case, the proceedings were excluded from the ambit of the Judgments Regulation by article 1.2(b). All that the defendant had done as PVL's trustee in bankruptcy had been subject to the supervision of the supervisory judge. Further, the underlying transactions about which the claimants had brought their claims were negotiations and a settlement between them and the defendant acting as the trustee of PVL’s bankruptcy. The dispute concerned the insolvency process/procedures. The aim of the defendant’s declaration was to preserve the rights of the general body of creditors over PVL’s assets.

The post-insolvency declaration that the 'Intra-Group Asset Transfer Arrangement/hive-down' was void as a fraudulent transaction undoubtedly qualified under the Gourdain formulation. On the evidence, the negotiations and the settlement did also. The settlement was the direct consequence of the exercise by the defendant of power he had under Dutch law in relation to the conduct of PVL’s insolvency proceedings. To regard the statements made in negotiations to settle a dispute about the way to conduct the insolvency process in the future and the resulting agreements as directly derived from and closely connected with the insolvency proceedings and thus within the Gourdain formulation was not to give article 1.2(b) of the Judgments Regulation and the Insolvency Regulation too broad an interpretation (see [68]-[71], [80] of the judgment).

Gourdain v Nadler: 133/78 [1979] 3 CMLR 180 applied; SCT Industri AB i Likvidation v Alpenblume AB: C-111/08 [2009] All ER (D) 47 (Jul) applied; Seagon v Deko Marty Belgium NV: C-339/07 [2009] All ER (D) 112 (Feb) considered; German Graphics Graphische Maschinen GmbH v Schee: C-292/08 [2009] All ER (D) 75 (Sep) considered; Bowles (decd), Re; Hayward v Jackson [2003] 2 All ER 387 considered; Byers v Yacht Bull Corp [2010] All ER (D) 217 (Feb) considered.

(2) A proper case in which to exercise the court's discretion in which to (extend time was one where the administration of justice would not be affected by granting an extension, whereas a failure to do so might involve a case being heard in England which might otherwise not have been. If when the merits of the challenge to jurisdiction were considered it could be seen that there was no prejudice to the claimant, that was a proper case for granting the extension (see [79] of the judgment). Applying established law, in all the circumstances the delay was such that there was a strong case for an extension of time (see [77] of the judgment). Sawyer v Atari Interactive Inc [2007] All ER (D) 36 (Mar) applied; Texan Management Ltd v Pacific Electric Wire & Cable Company Ltd [2009] UKPC 46 considered.

(3) In the instant case, the claimants' submissions in relation to the appropriate forum for the proceedings would be rejected. First, it had already been decided that the instant claims satisfied the Gourdain formulation. Secondly, a Dutch court would be better placed to apply Dutch law, which was the applicable law of the contracts and the transactions between the parties (see [90] of the judgment).

Charles Samek QC and Charlotte Davies (instructed by Withers LLP) for the claimants; Stephen Davies QC (instructed by Brown Rudnick LLP) for the defendant.