King v Crown Energy Trading A.G. & Anor [2003] EWHC 163 (Comm)

Case No 2002 Folio No 603[2003] EWHC 163 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Tuesday, 11 th February 2003
Before
HIS HONOUR JUDGE CHAMBERS QC(sitting as a judge of the Queen’s Bench Division)
Between
DOUGLAS KINGClaimant(1) CROWN ENERGY TRADING A.G.Defendants(2) CROWN RESOURCES A.G.Defendant
Bernard Eder QC and James Collins (instructed by Hill Taylor Dickinson) for ClaimantJeffrey Gruder QC and David Scorey (instructed by Charles Russell) for DefendantsHearing Hearing date: 20 th December 2002
Approved JudgmentI direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic..............................HH Judge Chambers QC

HH Judge Chambers QC:

[1]The defendants seek to set aside service upon them in Zug of proceedings brought by the claimant in respect of the termination of his employment by the first defendant (“Crown Energy”). He seeks damages against that company for breach of a service agreement dated 28 November 2000. He sues the second defendant (“Crown Resources”) under a side letter of the same date as guarantor of obligations of Crown Energy and in respect of an agreement in the letter to pay a bonus and share of profits. By amendment, for which permission has been given, the claimant seeks damages against Crown Resources for wrongful inducement of breach of contract by Crown Energy. The service agreement was terminated on 24 May 2002. The claim form was issued on 20 June 2002.[2]Although, by its express terms, the service agreement conferred jurisdiction upon the English Courts and is subject to English law, it is an unfortunate feature of Article 17 of the Lugano Convention that its wording would appear to render the jurisdiction clause unenforceable by either party to the agreement, even though it was at the request of the claimant that the clause was inserted. Leading counsel for the claimant, Mr Bernard Eder QC, invites me to adopt a purposive approach to the construction of the article so as to give to the party for whose protection it must be regarded as having been provided the opportunity to waive the prohibition. Tempting as that approach may be, the view of those before me was that I should start with the first of the five issues that they had helpfully agreed and only move on if an earlier issue had been decided against the claimant. As I shall adopt the spirit of counsels’ invitation and the Article 17 issue is some way down my list, the need to address the point will not arise. I shall therefore start with my conclusion.

Conclusion

[3]My conclusion is that the claimant has shown a good arguable case to the effect that, when this action commenced, Crown Resources had its central administration and principal place of business within this jurisdiction within the meanings of respectively Article 60(1)(b) and (c) of Council Regulation (EC) No. 44/2001 (“the Regulation”) and that Crown Energy may be sued as a defendant in this action under Article 6(1) of the Lugano Convention. My reasons for these conclusions are set out in the following paragraphs. Reasons The standard of proof

Reasons

[4]The parties are agreed that for the claimant to succeed in establishing jurisdiction, he must show a good arguable case that domicile is established under Article 60 in respect of one or both of the defendants and that, if domicile is established against only one of the defendants, that the other can be made subject to the jurisdiction by a relevant article of the Lugano Convention. They agree that the standard of proof comes between that of a serious issue to be tried and success on a balance of probabilities. They also agree that the standard is a flexible one. However leading counsel for the defendants, Mr Jeffrey Gruder QC, relies upon a passage by Waller LJ in the Court of Appeal in Canada Trust Co v Stolzenberg (No.2) [1998] 1 WLR 547 where at p555 F-G he said:
“…… It is also right to remember that the “good arguable case” test, although obviously applicable to the ex parte stage, becomes of most significance at the inter partes stage where two arguments are being weighed in the interlocutory context which, as I have stressed, must not become a “trial”. “Good arguable case” reflects in that context that one side has a much better argument on the material available. … …”
[5]In Carnoustie Universal v International Transport Workers Federation [2002] EWHC 1624 (Comm) at paragraph 47, Mr Richard Siberry QC, sitting as a Deputy High Court Judge, said when dealing with Articles 17 and 21 of the Brussels Convention, “… I have approached these issues on the basis that, in this context, “good arguable case” requires the Claimants to demonstrate that they have much the better of the argument on the material available”.[6]I regret that I have difficulty in understanding precisely what is meant by the two passages. I certainly do not understand the words of Waller LJ to mean that, where there is a hearing between the parties, the court must make what is, in effect, a decision on a balance of probabilities on the evidence before it. (In any event, the words “much the better” carry with them the implication that one is concerned with more than a bare ascendancy: the superiority must be emphatic.) While agreeing with the judgment of Waller LJ, Nourse LJ at p572 H summarised the position as follows:
“…… the authorities disclose no confusion at all in rejecting the notion that the balance of probabilities, the standard appropriate to a trial, is applicable to a preliminary question of domicile such as that which has arisen in this case. The balance of probabilities having been firmly rejected, the authorities establish that “good arguable case” is the standard of proof to be applied …”
[7]In his careful and detailed judgment in Stolzenberg, Waller LJ placed considerable reliance upon the decision of the House of Lords in Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438. That case was concerned with service out of the jurisdiction where leave was required and set out what is now the governing test. That test involves the use of the standard of “a good arguable case” in deciding whether a case comes within one of those categories upon which leave (now permission) to serve out of the jurisdiction may be founded. Waller LJ considered that the test is to be regarded as flexible because of the different situations in which it would be applied. In some cases the issue would be revisited for determination at trial but not in others. However, I do not understand him to have confined the passage with which I am concerned to any particular situation. Furthermore, I do not understand him to have been confining its ambit to a ‘Convention case’ as against a ‘permission case’. That being so, it seems to me that all the words mean is that, when the argument and analysis consequent upon an inter partes hearing are over, there must clearly remain a case which has that degree of cogency necessary to make it a good arguable case. The application of the test The law

The application of the test

[8]In the absence of direct authority upon the meaning of Article 60, whether by decision or commentary, the defendants place considerable reliance upon The Rewia [1991] 2 Lloyd’s Rep 325. In that case what the Court of Appeal considered was the meaning of the term “the principal place of business” of a corporation. The decision is usefully summarised in the passage from the second finding in the headnote which reads:
“the principal place of business was not necessarily the place where most of the business was carried out; there was nothing uncommercial or inapposite about the conclusion that the principal place of business was in Hamburg of a company registered in Liberia owning a ship, the earnings of which would ultimately be remitted to Germany, and about which most important decisions would be taken in Germany; although in practice Turbata had a free hand in the day to day management of the vessel from Hong Kong all that they did was subject to the control of the directors in Hamburg; that was the centre from which instructions were given when necessary and ultimate control exercised; the reference to “principal place” did not require identification of a particular building…”
[9]At page 334 Leggatt LJ put the matter more shortly:
“… the plaintiffs argue that “principal” means “main”
. I disagree: in my view it means, in this context as well as generally, “chief” or “most important”. The principal place of business is not necessarily the place where most of the business is carried out”.[10]I think it important to remember that the judgment in The Rewia was delivered against the need both to construe a single isolated term and upon the basis of cases that were themselves concerned with such a term. As would be expected, the consideration of what constituted “business” included management, control and regulation of the affairs of those corporations that were being considered. Two of those words find their place in s42(6) of the Civil Jurisdiction and Judgments Act, 1982 which provides that:
“(6) ……. A corporation has its seat in a state other than the United Kingdom if and only if - … or (b) its central management and control is exercised in that state.”
[11]It seems to me to be obvious, both as a matter of law and commercial practice, that the conduct of business will involve management and control, but how does this fit in with the dichotomy between administration and business to be found in Article 60?[12]Administration is clearly an aspect of the conduct of business. That aspect has something of the “back office” about it. Boards decide upon policy and important aspects of its implementation. Employees sell, supply and produce. Administration ensures that all runs smoothly: money is got in, debts are paid, leases and transport are arranged, personnel are looked after. But what of central administration?[13]In a small organisation there may be a considerable blurring of functions because the same person will often discharge a variety of roles. The larger the organisation, the easier it should be to discern a division of responsibilities. The location of the company secretary’s office in a major organisation might provide a good clue: a clue which seems to be absent in the present case. However, without attempting to be exhaustively precise, I think that in this case a simple listing of those with important responsibilities in Crown Resources will be enough to show where the central administration is to be found. It also seems to me that the same approach shows where one may find the company’s principal place of business.[14]Despite their disjunctive appearance in Article 60, I think that there can be a considerable overlap between what constitutes the central administration of a company and the carrying on of its principal business. The Rewia remains an essential tool in deciding what constitutes the latter.

Facts

[15]The “Executive Summary” of the brochure for the London Office of Crown Resources (“the London brochure”) reads as follows:
“Crown Resources A.G., Zug (‘Crown’) is a subsidiary of CTF Holdings Ltd, the parent company of privately owned Alfa Group Consortium. With effect from 1st July 2000, Crown has taken over business previously conducted by its subsidiary Crown Trade & Finance Ltd., Gibraltar (‘CTF’) and CTF’s service company Crown Commodities Ltd., London (together ‘the Crown Trading Group’).”
[16]The first four paragraphs of the brochure read:
“Crown, together with its branches and affiliates is the international commodity trading arm of the Alfa Group (their sister company Alpha Eco undertakes commodities trading within Russia). Crown conducts the business through 3 locations: Crown’s Head Office in Zug and branches in London and Gibraltar. The London branch is a service agent for the Zug Head Office and the Gibraltar Branch. The London office has currently over 70 employees. In February this year a representative office was established in Singapore and later on in Caracas, Venezuela. Crown’s offices in Zug, Gibraltar, Singapore, Caracas and Moscow employ a further 40 people. On 1st July 2000 Crown was capitalised at US$ 70 million … For the financial year-end 1999, Crown’s turnover was approximately US$ 3 billion. Crown’s main business is buying crude oil and products from Russia and other major producing countries and selling them to the oil majors and other international state and private buyers. Crown purchasers approximately 10% of Russia’s crude and oil products exports. In March 1998 Alpha Group, together with US-based Access/Renova, acquired a majority shareholding in Tyumen Oil Company (‘TNK’)- Russia’s third largest oil producer, which also has a crude oil refining facility at Ryazan. At the end of 1999, the Alfa Group and its partner increased its stake in TNK to 99.9%.”
[17]In a general commercial sense Crown Resources can be said to be international with a Russian background. Despite other interests, its core activity is trading on a large scale in oil and oil products.[18]The claimant is an oil trader. He was one of a team of traders that Crown Resources put together to strengthen its trading activities. The team operated from Zug which is the statutory seat of the two defendants. Several directors of Crown Resources are also based in Zug. They are Jost Villiger, Rudolf Schnider and Max Meier. It is Mr Villiger who has given evidence for the defendants. That evidence is to the effect that it is the presence of the Crown Resources in Zug that constitutes its heart and brain while London occupies a large but subordinate role. The claimant’s evidence is that these two organs are to be found in London.[19]The function of Crown Energy was to employ the claimant and others in the trading team to which I have referred. The company is owned by Crown Resources. Just as I think it right to adopt a realistic approach to the functions of those Crown Resources personnel who are located in London, so I think that for practical purposes one should regard the trading team as part of the Crown Resources business even though employed by another company.[20]A certain amount of time was spent on arguing about who met where and what they decided when they did meet. I am not sure how far this gets one. Even if there was an obligation for certain people to meet in a certain place in order to comply with certain technicalities, I do not think that this is what the present exercise is about. The technical aspect of Article 60 is the determination of the statutory seat in the event that jurisdiction can be established under sub-paragraph (a). The other two categories are concerned with substance and not form. That is the clear implication to be drawn from the cases referred to in The Rewia as well as the judgment itself.[21]In contrast with the rather modest premises that it occupied in Zug, Crown Resources occupied and continues to occupy 14,000 square feet of office space in London’s West End. I reject the suggestion that this is merely to have a showcase in an important commercial centre.[22]I find that there is a good arguable case to the effect that, when these proceedings were issued, there were housed within the London Office the following personnel of Crown Resources:
“The Chairman The Chief Executive Officer The Chief Financial Officer The Chief Operating Officer The Head of Risk Department The Head of Finance The Head of Structured Finance The Head of Business Development The Head of Legal The Head of Human Resources”
The Chief Executive Officer The Chief Financial Officer The Chief Operating Officer The Head of Risk Department The Head of Finance The Head of Structured Finance The Head of Business Development The Head of Legal The Head of Human Resources”

The Head of Legal

[23]I accept that both the Chairman and the Chief Executive Officer would have travelled and note that the London brochure states that the Chief Executive Officer (Mr Spitz) is based in Switzerland. (Mr Spitz is no longer with the company although I understand that his departure was after the start of these proceedings.) However I also note that his personal assistant appears to have had her office in London. I have seen nothing to suggest that either Mr Spitz or his personal assistant occupied any particular office space in Zug.[24]Apart from what is said by Mr Villiger, there is nothing in the evidence to suggest that any of the several directors based in Zug, occupied positions that are potentially determinative of these proceedings. It is not entirely apparent what Mr Villiger’s function is and was. He calls himself Head of Administration but is referred to as “Manager, Zug” in a memorandum dated 19 December 2001, which was sent to the claimant by several senior executives of Crown Resources. The impression that I have is that Mr Villiger looked after the Zug end of the operation in a way that can be fairly described as administrative. However to suggest that he was in any way central to the administration of Crown Resources would be misleading.[25]The two committees that were at the heart of the operations of Crown Resources were the Management Committee and the Risk Management Committee.[26]The Risk Management Committee is described in the London brochure as follows:
“RISK MANAGEMENT All aspects of risk and risk management in Crown come under the responsibility of the risk committee. This committee is made up of the Chief Executive Officer (Elliot Spitz), the Chief Financial Officer (Vladimir Plouzhnikov) and the Chief Operating Officer (Christopher Sayer). Other departmental managers are co-opted onto the committee when the specific issues under discussion relate to their activities. Overall, Crown has a risk averse stance in terms of position and credit risk.”
[27]I have seen nothing to suggest that the committee was situated anywhere other than London.[28]Although the claimant, as Head of Energy Trading, had once been upon it; at the time of service the Management Committee (which had full authority to direct the Energy Division) appears to have consisted of:
“The Chairman The Chief Executive Officer (Chairman of the Committee) The Chief Operations Officer (Secretary of the Committee) The Chief Finance Officer Jost Villiger The Head of Energy (Ian Kilpatrick)”
The Chief Executive Officer The Chief Operations Officer The Chief Finance Officer Jost Villiger

The Head of Energy

[29]The sense of the mix of the committee is that the directing elements of Crown Resources were working with the chief income producers of whom the head was Mr Kilpatrick based in Zug. There can be no doubt where the power lay. Conclusion[30]I find that when this action was started, the central administration of Crown Resources was in London.[31]Despite the fact the main income of Crown Resources may well have been derived from the traders in Zug, the application of the criteria to be derived from The Rewia leads me to the conclusion that there is a good arguable case to the effect that its principal place of business is and was in London.[32]Either of the above findings is sufficient to establish jurisdiction against Crown Resources in England.

Crown Energy

[33]Crown Energy is a Swiss company whose purpose was to employ people in Switzerland. It may well have been directed from London where its guiding personnel are probably to be found; but I do not know enough about the position to persuade me to make a finding under Article 60 when I do not have to do so. I think it clear that Crown Energy comes within Article 6(1) of the Lugano Convention.[34]Article 6(1) reads:
“A person domiciled in a Contracting State may also be sued- 1. Where he is one of a number of defendants, in the courts of the place where any one of them is domiciled.”
[35]The application of the provision is governed by the decision of the European Court of Justice in Kalfelis v Schroeder[1988] ECR 5565. Paragraph 12 of the judgment states:
“The rule laid down in Article 6(1) therefore applies where the actions brought against the various defendants are related when the proceedings are instituted, that is to say where it is expedient to here and determine them together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings. …”
[36]Although it is a case under article 22 of the Brussels Convention, it seems to me that where a case meets the criteria set out in Sarrio SA v Kuwait Investment Authority [1999] 1 AC 32 it must also justify the exercise of the discretion under Article 6(1). Under Article 22 the question is whether “the actions are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings”. The answer is to be determined in a broad common sense manner bearing in mind the object of the article and the width of its terms.[37]I think it axiomatic that the exercise of deciding whether Crown Resources is liable to the claimant will involve travelling much the same road as must be followed in order to see whether Crown Energy is liable under the service agreement. It is entirely desirable that the two cases be heard together. Overall

Conclusion

[38]The applications are dismissed.

Cited in 5 later judgments