“Payments were not primarily for research but were commissions for introductions made”
“Article 6 A person domiciled in a Member State may also be sued: 1. where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims 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.”
“provided the claims 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”
“actions brought against the various defendants are related when the proceedings are instituted, that is to say where it is expedient to hear and determine them together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings. It is for the national court to verify in each individual case whether that condition is satisfied.”
“Must Article 6(1) of the EEC convention be interpreted as meaning that there must be a connection between the actions against the various defendants?”
“I very much doubt, though it is unnecessary for me to decide the point, that the use of the plural in paragraph 12 [of Kalfelis] was intended to connote different defendants in several different unconsolidated actions, since there was only one single action in being in the Kalfelis case, and paragraph 13 (not quoted above) would seem to envisage a claim by the same plaintiff, unlike the present litigation where there are a very large number of different plaintiff banks in different actions.”
“38 It is not apparent from the wording of article 6(1) that the conditions laid down for application of that provision include a requirement that the actions brought against different defendants should have identical legal bases. 39 As the court has already held, for article 6(1) of the Brussels Convention to apply, it must be ascertained whether, between various claims brought by the same plaintiff against different defendants, there is a connection of such a kind that it is expedient to determine those actions together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings: Kalfelisv Bankhaus Schröder MünchmeyerHengst & Co (Case 189/87) [1988] ECR 5565 , para 13. 40 The court has had occasion to point out that, in order that decisions may be regarded as contradictory, it is not sufficient that there be a divergence in the outcome of the dispute, but that divergence must also arise in the context of the same law and fact: Roche Nederland BVv Primus (Case C-539/03 )[2006] ECR I-6535 , para 26. 41 It is for the national court to assess whether there is a connection between the different claims brought before it, that is to say, a risk of irreconcilable judgments if those claims were determined separately and, in that regard, to take account of all the necessary factors in the case file, which may, if appropriate yet without its being necessary for the assessment, lead it to take into consideration the legal bases of the actions brought before that court.”
“31 It follows that, where infringement proceedings are brought before a number of courts in different Contracting States in respect of a European patent granted in each of those States, against defendants domiciled in those States in respect of acts allegedly committed in their territory, any divergences between the decisions given by the courts concerned would not arise in the context of the same legal situation. 32 Any diverging decisions could not, therefore, be treated as contradictory. 33 In those circumstances, even if the broadest interpretation of “irreconcilable” judgments, in the sense of contradictory, were accepted as the criterion for the existence of the connection required for the application of Art.6(1) of the Brussels Convention , it is clear that such a connection could not be established between actions for infringement of the same European patent where each action was brought against a company established in a different Contracting State in respect of acts which it had committed in that State. 34 That finding is not called into question even in the situation referred to by the national court in its second question, that is where defendant companies, which belong to the same group, have acted in an identical or similar manner in accordance with a common policy elaborated by one of them, so that the factual situation would be the same. 35 The fact remains that the legal situation would not be the same (see paras [29] and [30] of this judgment) and therefore there would be no risk, even in such a situation, of contradictory decisions.”
“In the light of the judgments of the ECJ and in particular Freeport, I consider that the court should approach the matter in the light of the policy of the Convention to produce predictable results and on the principle of the Convention that jurisdiction is generally based on the defendant's domicile. In seeing whether an exception to this general rule exists in a given case, the court must assess the connection between the claims to see whether there is a risk of irreconcilable judgments arising out separate proceedings such that there may be a divergence in the outcome where there is "the same situation in law and fact." In so doing, it is necessary for a national court to look at all the factors. Beyond this, I do not think it is desirable to go in the light of the established case law. It is not necessary to discuss or decide the precise meaning of "irreconcilable judgments" to decide this case: cf. Briggs and Rees: Civil Jurisdiction and Judgments (2009) para. 2.203) or enter into a wider debate on possible problematic results that might arise in practice (cf. Fentiman: International Commercial Litigation at para. 9.78).”
“If the proper law is Swiss law, as Glacier contended, then, as Gard accept, there is no risk of divergence, as the divergence would not arise from the application of the same law. Construction of the slip under English law would not necessarily be contradictory to or irreconcilable with a different construction under Swiss law.”
“In considering Kalfelis v Schröder it is right to have regard to the fact that the question for decision arose in a case where there was only one action and not, as here, two actions. The European Court was not therefore specifically considering the question for decision here. It was, however, considering the policy underlying Article 6.1. As Advocate General Darmon observed at page 5573 of the report of Kalfelis v Schröder, the court was asked whether Article 6.1 applies whenever the claims are similar in fact and in law or only where that course is necessary to avoid irreconcilable judgments in separate proceedings. The Advocate General said this, in paragraph 12 of his opinion at page 5575: “The prevention of the irreconcilability of decisions is the ratio legis both of Article 6(1) and of the third paragraph of Article 22. In those circumstances I cannot see any good reason for not transposing the 'purpose-related' criterion of the latter provision to cases where there are several claims.”” “The prevention of the irreconcilability of decisions is the ratio legis both of Article 6(1) and of the third paragraph of Article 22. In those circumstances I cannot see any good reason for not transposing the 'purpose-related' criterion of the latter provision to cases where there are several claims.””
“30 It is true that the point now taken did not arise in that case. But it seems to me that if, as the Advocate General said, in my opinion correctly, the ratio legis is the prevention of irreconcilable judgments, the appellants' submissions, if correct, would be contrary to that ratio legis and should therefore be rejected. That is so, to my mind, however narrowly Article 6.1 is construed. 31 Thus, if the construction preferred by the judge is adopted there is, in the words of paragraph 8 of the European Court's judgment, no possibility of the very existence of the principles enshrined in Article 2 being called into question. As to paragraph 9, there is no suggestion here that the action against CCUK was brought with the sole object of ousting the jurisdiction of the courts in Greece. The judge's construction is consistent with the positive principles stated in paragraphs 9 and 11-13 of the judgment. This conclusion seems to me to be consistent with that of this court in Gascoine v Pyrah [1994] 1 L Pr 82, which was also a decision under Article 6.1 of the Brussels Convention and which expressly followed Kalfelis v Schröder.”
“i) The test now contained in Art. 6(1) of the Regulation, codifies the effect of the earlier decision of the Court of Justice of the European Communities ("the European Court") on the Brussels Convention in Kalfelis v Schroeder, Muenchmeyer, Hengst & Co. [1988] ECR 5565, at p.5584 (para. 12), namely: whether there is such a connection between the claims at the time when they are instituted that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings ("the Kalfelis test"). The risk of irreconcilability may arise from potential conflicting findings of fact or from potential conflicting decisions on questions of law: Gascoine v Pyrah [1994] I.L. Pr. 82, at 93. While Art. 6(1) constitutes an exception to the general rule contained in Art. 2 (that the defendant's domicile governs jurisdiction) and must not be abused, it does not follow that Art. 6(1) is so subservient to Art. 2 that it could only be invoked in special circumstances: Gascoine v Pyrah, at 94. ii) In applying the Kalfelis test, a "broad commonsense approach" is to be adopted and an "over sophisticated analysis" is to be avoided: Casio v Sayo[2001] I.L.Pr. 43 , at paras. [32] – [37], together with the authorities there cited. In my judgment, this decision of the Court of Appeal furnishes the approach to Art. 6(1) to be followed, certainly in this country and it would not be right to be deterred from it by observations of the European Court, in Reunion Europeenne SA v Spliethoff's Bevrachtingskantoor BV[1998] ECR I-6511 , esp. at I-6549, para. 50. In Reunion, the European Court appeared to favour a rigid test – so much so, that the mere fact that one claim was in contract whereas the other was in tort meant that the two could not be sufficiently connected for the purposes of Art. 6(1). It is, however, at once to be noted that on the facts of the case such observations were obiter, not least because (it would appear) no defendant was being sued in the courts of his domicile. Further, the Court of Appeal in Casio (at para. 33) treated the observations in Reunion as doing no more than applying the principles of Kalfelis to the facts before it; nothing in the judgment in Reunion "cuts down, qualifies or explains" what was said in Kalfelis. Still further, in Watson v First Choice Holidays[2001] 2 Lloyd's Rep 339 , the Court of Appeal plainly doubted the reasoning in Reunion, remarking (with respect, persuasively) that, but for the observations in Reunion, it would have held that the fact that one claim was based in contract and the other in tort was, at most, only one factor to be considered in deciding whether the connection between the claims was sufficient for the purposes of Art. 6(1); in the event, the Court of Appeal in Watson, to which unfortunately Casio was not cited, went on to order a reference to the European Court, on the basis that Reunion could not be ignored – but the reference was withdrawn when the case settled. Nor do any textbook commentaries shown to me lend any support to Reunion. In Layton & Mercer, European Civil Practice (2nd ed.), there is a reference to the suggestion that the full implications of Reunion may not have been considered by the European Court. Robustly, Briggs & Rees, Civil Jurisdiction and Judgments (3rd ed.) (hereafter, "Briggs") describes the observations in Reunion as "extraordinary and…simply wrong". In the circumstances, it is unnecessary and would be inappropriate for me to say more; it suffices, as already indicated, that I simply follow the approach laid down in Casio.”
“[43] In a judgment which I gave in the case of Barclays Bank v. the Glasgow City Council, I concluded that this was the correct construction of the Article, though nothing turned on that in the eventual outcome of the case on Article 6(1) because I also concluded there was no risk in the interest rate swaps case of such inconsistent findings of fact. That part of my judgment has been upheld by the Court of Appeal in a judgment which is yet an unreported but delivered on 19 May, 1993. [44] There is, therefore, in my judgment clear authority in the Court of Appeal that potential conflicting findings of fact are just as relevant for Article 6(1) purposes as potential conflicting findings of law. [45] Indeed, I would add two comments on that which seem to me apposite. First, the risk of conflict in conclusions of law may be a serious matter; if they involve a point of European law they may eventually be reconciled on appeal to the European Court of Justice. Conflicting findings of fact, on the other hand, are virtually impossible to reconcile if different judges in different jurisdictions within the EEC, hearing and seeing different witnesses, reach different conclusions which have hinged on an assessment of the reliability of individual witnesses; and of course the problem may be compounded in cases where there are different procedures in the different national courts in the way in which they hear the evidence and assess it. Moreover, different findings of fact also frequently lead to different conclusions of law. [46] For all these reasons it seems to me that the cases against the two defendants here are so closely interwoven, and the telephone conversation in question is so central to the determination, not only of the second defendant's liability but also of the first defendant's liability, that the risk of inconsistent findings is to be taken particularly seriously. [47] In my judgment, therefore, this is a case where Article 6(1) applies and to use the words of the European Court of Justice in the Kalfelis case: The Plaintiff has in my judgment succeeded in verifying the conditions laid down in Article 6.”
“34. So the language of Article 22 is almost identical to the language used by the ECJ in Kalfelis to which I have referred. Such an approach had been described as "the most logical" by the Advocate General in that case who "did not see any good reason for not transporting the purpose related criterion of Article 22 to cases where there are several claims" (paragraphs 11 and 12). I think it is an inescapable conclusion that this is what the ECJ intended. Mr Doctor's detailed analysis of the facts in Kalfelis did not I think in any way undermine this conclusion. One has of course to bear in mind that Article 22 does not itself confer jurisdiction, whereas Article 6 (which does) has to be interpreted restrictively. Nevertheless, I see no reason why the test of irreconcilability should not be broadly the same under each Article. If the ECJ had not intended this to be so, I think they would have made this clear in Kalfelis itself or in the more recent cases in which they have had to consider Article 6(1). They have not done so. 35. Sarrio, relied on by the judge, was an Article 22 case. The facts do not matter. In rejecting the view that Article 22 was only concerned with conflicting judgments about the primary facts necessary to establish the cause of action, Lord Saville, with whom all other members of the House agreed, said (at page 41): "For these reasons I am of the view that there should be a broad common sense approach to the question whether the actions in question are related, bearing in mind the objective of the Article, applying the simple wide test set out in Article 22 and refraining from an over-sophisticated analysis of the matter." This judgment makes it clear that the court is not merely concerned with the risks of conflicting decisions giving rise to mutually exclusive legal consequences. It also makes it clear that the court will be concerned with the risks of conflicting decisions on questions of fact as well as law. This Court so held in Gascoigne where Hirst LJ at paragraph 45 said: "Conflicting findings of fact, on the other hand, are virtually impossible to reconcile if different judges in different jurisdictions within the EEC, hearing and seeing different witnesses, reach different conclusions which have hinged on an assessment of the reliability of individual witnesses; and of course the problem may be compounded in cases where there are different procedures in the different national courts in the way in which they hear the evidence and assess it. Moreover, different findings of fact also frequently lead to different conclusions of law." 36. It seems to me that the judge's approach in this case was entirely consistent with the approach which I have considered above. He did not, as Mr Doctor suggests, simply identify a common question of fact or law and say that Article 6(1) applied. He considered the importance of what he described as the "upstream facts or legal issues" in terms of the end result and decided that if different courts reached different conclusions as to the propriety of Tsuru's conduct in particular, there was a real risk that for this reason different courts could reach different conclusions as to the liability of Kaiser and Patel. I think the judge's reasoning about this cannot be faulted. If so, applying the broad common sense approach advocated by Lord Saville, his decision that Article 6(1) applied to the claim against Kaiser was entirely justified. I should add that the judge could also have considered the downstream events to which I have briefly referred, where it is alleged that Kaiser and Patel (through Crane) were directly involved with one another in the movement and dissipation of the money.”
“the court should approach the matter in the light of the policy of the Convention to produce predictable results and on the principle of the Convention that jurisdiction is generally based on the defendant's domicile”
“there is between the claimant and the defendant a real issue which it is reasonable for the court to try”
“On the other hand, Article 6(1) of the regulation concerns a different case. First of all, it seeks to avoid the risk of irreconcilable judgments by courts or tribunals before they can actually occur. Secondly, it is not a matter only of inconsistencies between two judgments between the same parties, but of potential inconsistencies between two judgments, one of which is given between the applicant and the defendant in the anchor claim and another is given between the applicant and another defendant. Article 6(1) of the regulation gives the applicant the opportunity, in cases where the claims are closely connected, to have both claims decided by the same court in order to avoid the risk of such inconsistencies between the judgments, which may result from the fact that two different courts rule on the claims.”
“Although there are the differences to which I have referred in the legal bases of the defences raised by Advent Syndicate 780 and Gard arising out of what happened during the placement, the legal basis is in other respects the same and governed by English law. What is more important is that the determination of these issues arises out of the same factual situation. In placements of insurances and reinsurances with different underwriters, an assessment of what actually happened is part of a continuum, as the brokers use the same file and the same basic materials in each placement (as appears to be the case in the placement under consideration). Although what was said or written to each participant may of course differ (as it may well do in this case), it would be wrong to categorise those differences as giving rise to a different factual situation, given the way such placements are made. It is invariably the case that a court hears disputes as to what happened on placements with different underwriters in the same trial, as the court reaches its conclusion as to what happened by its assessment of all the evidence in relation to the placements.”
“Taking into account the factors that I have set out, it is my view that, as the participation of Advent Syndicate 780 and Glacier in the excess of loss reinsurance are governed by English law and are on the same terms and part of the same placement, there would be a risk of irreconcilable judgments if the primary issue, namely the construction of the excess of loss reinsurance, was decided by different courts. The same is also true of the secondary issue, the defences raised by Advent Syndicate 780 and Glacier arising out of what happened during the placement, as the basis of these defences is governed by the same law and arises out of what is a continuum of factual events.”
“For the purposes of Article 22 of the Brussels Convention as amended: (c) If proceedings are brought in one Contracting State in respect of a claim by one group of cargo owners against a shipowner for damage to their portion of a bulk cargo carried under specified contracts of carriage and if separate proceedings are brought in another Contracting State against the same shipowner based on essentially similar issues of fact and law but by a different cargo owner for damage to its portion of the same bulk cargo carried under separate contracts of carriage on the same terms, do these proceedings, if heard and determined separately, involve the risk of giving rise to legal consequences which are mutually exclusive or are they otherwise related actions for the purposes of Article 22?”
“Consequently the answer to the fourth question is that, on a proper construction ofArticle 22 of the Convention , it is sufficient, in order to establish the necessary relationship between, on the one hand, an action brought in a Contracting State by one group of cargo owners against a shipowner seeking damages for harm caused to part of the cargo carried in bulk under separate but identical contracts, and, on the other, an action in damages brought in another Contracting State against the same shipowner by the owners of another part of the cargo shipped under the same conditions and under contracts which are separate from but identical to those between the first group and the shipowner, that separate trial and judgment would involve the risk of conflicting decisions, without necessarily involving the risk of giving rise to mutually exclusive legal consequences.”
“iii) As to the strength of the case against the "anchor" defendant, there was no dispute of the need for the Claimants to establish a "good arguable case" as to the facts essential for establishing jurisdiction ("jurisdictional facts"). In general, Mr. Smouha accepted that, as to the merits of each claim, it was for the Claimants to establish that there was at least a serious issue to be tried (as in the old RSC O.11, authoritatively established by Seaconsar v Bank Markazi[1994] 1 AC 438 and as in the presentCPR 6.20 ). However, with regard to the merits of the claim against the anchor defendant, Mr. Smouha submitted that this was a matter of jurisdictional fact; accordingly, the Claimants needed to establish a good arguable case on the merits against the anchor defendant. By contrast, Mr. Englehart submitted that all that was necessary for the assertion of jurisdiction against foreign defendants under Art. 6(1) was a real or serious issue to be tried against the anchor defendant. In the view which I take of the matter (see below), it is strictly unnecessary to resolve this difference. But my strong inclination is to prefer Mr. Englehart's submission, for the reasons which follow. First, it is plain that the domicile of the anchor defendant is a matter of jurisdictional fact; so, the Claimants must here establish with regard to the relevant anchor defendant at least a good arguable case that that defendant is domiciled in England: see: Canada Trust v Stolzenberg (No. 2)[2002] 1 AC 1 , at p.13. Secondly, I am minded to accept that the existence of at least a serious or real issue to be tried against the anchor defendant constitutes jurisdictional fact in the context of Art. 6(1) – if the claim against the anchor defendant is entirely spurious, the Kalfelis test either does not arise or cannot be satisfied: Briggs, at para. 2.165. But, thirdly, it does not at all follow that the Claimant needs to establish anything more than a serious or real issue to be tried on the merits against the anchor defendant in order to invoke jurisdiction against other defendants under Art. 6(1). The matter may be simply tested; provided there is a real issue to be tried between claimant and anchor defendant, those proceedings (at least ordinarily) cannot be struck out in this country and will continue; if so, then the Kalfelis test is capable of being satisfied; whether, in any given case, it will be satisfied on all the facts is, of course, another matter. Insofar as the contrary was suggested, nothing in Canada Trust v Stolzenberg (No. 2) suggests otherwise. See too, The Rewia [1991] 2 Lloyd's Rep. 325, at 329.”
“In my judgment these cases establish the following relevant principles of law: first, that the plaintiff was at law a different legal person from the subscribing oil company shareholders and was not their agent: see the Salomon case [1897] A.C. 22, per Lord Macnaghten at p. 51. Secondly, that the oil companies as shareholders were not liable to anyone except to the extent and the manner provided by theCompanies Act 1948 : see the same case at the same page. Thirdly, that when the oil companies acting together required the plaintiff's directors to make decisions or approve what had already been done, what they did or approved became the plaintiff's acts and were binding on it: see by way of example Attorney-General for Canada v. Standard Trust Co. of New York[1911] AC 498 ; In re Express Engineering Works Ltd.[1920] 1 Ch 466 and In re Horsley & Weight Ltd.[1982] Ch 442 . When approving whatever their nominee directors had done, the oil companies were not, as the plaintiff submitted, relinquishing any causes of action which the plaintiff might have had against its directors. When the oil companies, as shareholders, approved what the plaintiff's directors had done there was no cause of action because at that time there was no damage. What the oil companies were doing was adopting the directors' acts and as shareholders, in agreement with each other, making those acts the plaintiff's acts. It follows, so it seems to me, that the plaintiff cannot now complain about what in law were its own acts.”
“The heart of the matter is therefore that certain commercial decisions which were not ultra vires the plaintiff were made honestly, not merely by the directors but by all the shareholders of the plaintiff at a time when the plaintiff was solvent. I do not see how there can be any complaint of that. An individual trader who is solvent is free to make stupid, but honest commercial decisions in the conduct of his own business. He owes no duty of care to future creditors. The same applies to a partnership of individuals. A company, as it seems to me, likewise owes no duty of care to future creditors. The directors indeed stand in a fiduciary relationship to the company, as they are appointed to manage the affairs of the company and they owe fiduciary duties to the company though not to the creditors, present or future, or to individual shareholders. The duties owed by a director include a duty of care, as was recognised by Romer J. in In re City Equitable Fire Insurance Co. Ltd.[1925] Ch 407 , 426-429, though as he pointed out the nature and extent of the duty may depend on the nature of the business of the company and on the particular knowledge and experience of the individual director. The shareholders, however, owe no such duty to the company. Indeed, so long as the company is solvent the shareholders are in substance the company.”
“There remains the question whether the grant of the pension was in the circumstances a misfeasance committed by the two directors who procured the grant and by the respondent, the director who accepted the grant. If the company had been doubtfully solvent at the date of the grant to the knowledge of the directors, the grant would have been both a misfeasance and a fraud on the creditors for which the directors would remain liable. But the good faith of the directors is not impugned. In the absence of fraud there could still have been negligence on the part of the directors. If the company could not afford to spend£10,000 on the grant of a pension, having regard to problems of cash-flow and profitability, it was negligent of the directors to pay out£10,000 for the benefit of the respondent at that juncture. There could have been gross negligence, amounting to misfeasance. If the company could not afford to pay out£10,000 and was doubtfully solvent so that the expenditure threatened the continued existence of the company, the directors ought to have known the facts and ought at any rate to have postponed the grant of the pension until the financial position of the company was assured. The findings of the judge are sufficient to support the suspicion that the company could not afford to pay out£10,000 for the benefit of the respondent, but this suspicion is largely based on hindsight. The accounts show that business was expanding, that there were no discernible cash-flow problems and that past profits were sufficient to absorb half of the payment for the pension, leaving the other half to be absorbed in the future. There seemed to be every indication that with the profits anticipated, and the possibility of reducing directors' salaries if necessary, the remainder of the payment for the pension could be absorbed by the company. In these circumstances it is difficult to convict the directors of negligence. It is impossible to convict them of gross negligence amounting to misfeasance because the allegation was never clearly levied, the directors were not even accused by the liquidator and did not give evidence, and the judge therefore made no sufficient finding. I would dismiss the appeal on the grounds that the payment was intra vires the company and on the grounds that misfeasance by the directors was not proved. If, however, there had been evidence and a finding of misfeasance and it appeared that the payment of£10,000 in the event reduced the fund available for creditors by that sum, or by a substantial proportion of that sum, I am not satisfied that the directors convicted of such misfeasance, albeit with no fraudulent intent or action, could excuse themselves because two of them held all the issued shares in the company and as shareholders ratified their own gross negligence as directors which inflicted loss on creditors. I should be sorry to find the scope of section 333 so restricted and need not do so on this occasion.”
“The ratification by the shareholders was effective unless the decision of the directors was proved to have been misfeasance on their part. Their good faith was not questioned. The evidence gives rise to suspicion that at the time of the decision by the directors and of the purported ratification the company was not in a position to pay£10,000 to the respondent. But that evidence fell far short of proof that the directors should at the time have appreciated that the payment was likely to cause loss to creditors. On these facts it is unnecessary to decide whether, had misfeasance by the directors been proved, it was open to them in their capacity as shareholders to ratify their own negligence and so to prejudice the claims of creditors. It would surprise me to find that the law is to be so understood.”
“In Nicholson v Permakraft (NZ) Ltd[1985] 1 NZLR 242 , 250 Cooke J, with whom the other members of the Court of Appeal in New Zealand agreed, considered that where the transaction in question was likely to cause loss to creditors or threaten the continued existence of the company then the unanimous assent of the shareholders is not enough to justify a breach of duty to the creditors. In such a case “Concurrence by the shareholders prevents any complaint by them, but compounds rather than excuses the breach as against the creditors.” 52. In Kinsela v Russell Kinsela (1986) 4 NSWLR 722 the Court of Appeal for New South Wales approved and applied that dictum. At p. 732 Street CJ said “It is in my view legally logical and acceptable to recognise that, where directors are involved in a breach of their duty to the company affecting the interests of shareholders, then shareholders can either authorise that breach or ratify it in retrospect. Where, however the interests at risk are those of creditors I see no reason in law or logic to recognise that the shareholders can authorise the breach. Once it is accepted, as in my view it must be, that the directors’ duty to a company as a whole extends in an insolvency context to not prejudicing the interests of creditors...the shareholders do not have the power or authority to absolve the directors from that breach.”
“In a solvent company the proprietary interests of the shareholders entitle them as a general body to be regarded as the company when questions of the duty of directors arise. If, as a general body, they authorise or ratify a particular action of the directors, there can be no challenge to the validity of what the directors have done. But where a company is insolvent the interests of the creditors intrude. They become prospectively entitled, through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company's assets. It is in a practical sense their assets and not the shareholders' assets that, through the medium of the company, are under the management of the directors pending either liquidation, return to solvency, or the imposition of some alternative administration.”
“But subsequent decisions show that there are exceptions to such a principle. First, the transaction must be bona fide or honest. This, in my view, is demonstrated by the qualification of Viscount Haldane in A-G for Canada v Standard Trust[1911] AC 498 , 505 that “the case was not...a cloak under which a conspiracy to defraud was concealed”, by Younger LJ in Re: Express Engineering Works[1920] 1 Ch 466 , 471 that “no fraud is alleged in respect of this transaction”, and by Lawton LJ in Multinational Gas v Multinational Services[1983] Ch 258 , 268 that the members must act in good faith. Thus, in Re Duomatic[1969] 2 Ch 365 , 372 Buckley J cited with approval the view of Astbury J in Parker and Cooper Ltd v Reading[1926] Ch 975 , 984 that the transaction must be both intra vires and honest. 51. The second exception, which may be merely an exemplification of the first, is that the transaction so authorised must not be likely to jeopardise the company’s solvency or cause loss to its creditors.”
“If Yasaiwa establishes the allegations made in its Particulars of Claim it will show that the sale of the Argyll shares was not effected for the purposes or benefit of Yasaiwa but was a dishonest misapplication for the benefit of Peter Hills and Richard Hills. In that event it will come within the first exception. Further, notwithstanding the ingenious arguments of Counsel for the Hills regarding the suggested limitation to the application of what may be called the Kinsela principle, it will also, at least arguably, come within the second. 56. The reality of the matter is, assuming that Yasaiwa proves its case, that Peter Hills, through nominee and alternate directors, misapplied the assets of Yasaiwa otherwise than in good faith. His then transient capacity as the only member, pending completion of the sale of the shares in Yasaiwa to Bowthorpe, could not authorise such a transaction, not least because it prejudiced creditors of Yasaiwa.”
“The only persons beneficially interested in the company were the four members of the syndicate. The law gave them the complete control of its action. Under that control the company gave effect to the policy of the only persons who had any beneficial interest in its capital. The case is not one in which the apparent procedure can be said to have been unreal, or to have been a cloak under which a conspiracy to defraud was concealed. Under these circumstances, their Lordships are of opinion that the company, notwithstanding that no general meeting, apart from the meeting of directors, appears to have been held for the purpose, was completely bound by the transactions sought to be impeached, and that the appellant, who has certainly no title higher than that of the company against the assets of which he claims, is bound likewise.”
“The submission in relation to the defendants was as follows. No allegation had been made that the plaintiff's directors had acted ultra vires or in bad faith. What was alleged was that when making the decisions which were alleged to have caused the plaintiff loss and giving instructions to Services to put them into effect they had acted in accordance with the directions and behest of the three oil companies. These oil companies were the only shareholders. All the acts complained of became the plaintiff's acts. The plaintiff, although it had a separate existence from its oil company shareholders, existed for the benefit of those shareholders, who, provided they acted intra vires and in good faith, could manage the plaintiff's affairs as they wished. If they wanted to take business risks through the plaintiff which no prudent businessman would take they could lawfully do so. Just as an individual can act like a fool provided he keeps within the law so could the plaintiff, but in its case it was for the shareholders to decide whether the plaintiff should act foolishly. As shareholders they owed no duty to those with whom the plaintiff did business. It was for such persons to assess the hazards of doing business with them. It follows, so it was submitted, that the plaintiff as a matter of law, cannot now complain about what it did at its shareholders' behest.”
“In my judgment, the transactions were not bona fide in the interests of the company, and were in any event likely to jeopardise AWCI's solvency, or if such was a fait accompli , to cause loss to the creditors: see also Underwood v. Bank of Liverpool[1924] 1KB 775 .”
“It was submitted that, notwithstanding the liability of Mr and Mrs Cox as directors and Mrs Cox as constructive trustee, to make good to the Company the excess salary payments to Mrs Cox as a consequence of the Company's contravention of section 151 , it is open to the Company, if it so wishes, to release them from liability. I was referred to passages in Chapter 17 of Gore-Browne on Companies (45th ed.) and to the judgment of Sir Andrew Morritt V-C in Bowthorpe Holdings Ltd, v. Hills[2003] 1 BCLC 226 , especially at 241–2 and Buckley (op. cit.) at paragraph 151.32. I accept that it is open to a company, by its shareholders acting unanimously, to release a director from liability for breach of duty, provided that the release does not jeopardise the solvency of the company or cause loss to creditors and that there is no sufficient public policy objection to the [grant] of such release.”
“It may be that the powers of the court are wider, and certainly discretion is more readily exercised, if a plaintiff's claim is what is called a tracing claim. For my part, I think that the true distinction lies between a proprietary claim on the one hand, and a claim which seeks only a money judgment on the other. A proprietary claim is one by which the plaintiff seeks the return of chattels or land which are his property, or claims that a specified debt is owed by a third party to him and not to the defendant. Thus far there is no difficulty. A plaintiff who seeks to enforce a claim of that kind will more readily be afforded interim remedies, in order to preserve the asset which he is seeking to recover, than one who merely seeks a judgment for debt or damages.”
“The purpose of such an injunction is to improve the chances of the court being able to do justice after a determination of the merits at the trial. At the interlocutory stage, the court must therefore assess whether granting or withholding an injunction is more likely to produce a just result. As the House of Lords pointed out in American Cyanamid Co v Ethicon Ltd[1975] AC 396 , that means that if damages will be an adequate remedy for the plaintiff, there are no grounds for interference with the defendant's freedom of action by the grant of an injunction. Likewise, if there is a serious issue to be tried and the plaintiff could be prejudiced by the acts or omissions of the defendant pending trial and the cross-undertaking in damages would provide the defendant with an adequate remedy if it turns out that his freedom of action should not have been restrained, then an injunction should ordinarily be granted. 17 In practice, however, it is often hard to tell whether either damages or the cross-undertaking will be an adequate remedy and the court has to engage in trying to predict whether granting or withholding an injunction is more or less likely to cause irremediable prejudice (and to what extent) if it turns out that the injunction should not have been granted or withheld, as the case may be. The basic principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other. This is an assessment in which, as Lord Diplock said in the AmericanCyanamid case[1975] AC 396 , 408: “It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them.”” “It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them.””
“unless … giving notice would enable the defendant to take steps to defeat the purpose of the injunction (as in the case of a Mareva or Anton Piller order)”
“Up to now, therefore, Mr. Lembergs may have felt secure, in the absence of any proceedings against him in England, when such were being pursued against Mr. Stepanovs, and although alerted to the matters covered by the evidence of Messrs. Meroni, Kveps, Pedera and Stepanovs, there is nothing like the commencement of proceedings to bring home to an individual the risk of a judgment against him and the consequent potential loss of assets. It could be said that, in every case where there is a letter before action, the defendant is alerted to the possibility of a claim and the need for dissipation of assets if the defendant is minded so to do in order to make himself judgment-proof. However, time and again the courts have granted freezing orders on commencement of proceedings following exchanges of correspondence where the merits of the claim have been fully debated and the defendant thereby undoubtedly alerted. 29. In my judgment it is no answer for a defendant to come to the court to say that his horse may have bolted before the gate is shut and then to put that forward as a reason for not shutting the gate. That would be to pray in aid his own efforts to make himself judgment proof - if that, indeed, is what has occurred - and to avoid the effect of any court order which the court might make. If he can show that there is no risk of dissipation on other grounds, that is one thing. If he can show that the claimants do not consider that there is such a risk by virtue of the delay in seeking the order, that again is a relevant factor. However, if the court is satisfied about those matters in favour of the claimant, there is no reason why the court should not shut the gate, however late the application, in the hope, if not the expectation, that some horses may still be in the field or, at the worst, a miniature pony.”
“(i) there is a real risk that a judgment or award will go unsatisfied, in the sense of a real risk that, unless restrained by injunction, the defendant will dissipate or dispose of his assets other than in the ordinary course of business: The Niedersachsen[1983] 2 Lloyd’s Rep 600 per Mustill J as interpreted by Christopher Clarke J in TTMI v ASM Shipping[2006] 1 Lloyd’s Rep 401 at 406 (paragraphs 24-27) or (ii) that unless the defendant is restrained by injunction, assets are likely to be dealt with in such a way as to make enforcement of any award or judgment more difficult, unless those dealings can be justified for normal and proper business purposes: Stronghold Insurance v Overseas Union [1996] LRLR 13 at 18-19 per Potter J and Motorola Credit Corporation v Uzan (No 2)[2004] 1 WLR 113 at 153 (paragraphs 142-146) where the Court of Appeal was applying the same principle in the context of disclosure of assets by the defendant.”
“It seems to me that when the court considers whether there is a good arguable case it is at that stage that it considers whether the likelihood of a judgment in favour of the plaintiff is sufficient to justify the grant of Mareva relief. If it is so satisfied, the question then arises:-if such a judgment is given, what is the risk that there will be no assets there to satisfy it? If the judgment in question being considered is a judgment in which allegations of fraud are made, then it seems to me that it is open to the court to conclude from that fact alone that there is sufficient risk of dissipation of assets to justify the grant of relief. For myself it does not seem to me that there would be any prospect of persuading this court that the learned Judge had erred in principle in so concluding.”
“Mr Etherton also criticised the judge for failing, as he put it, properly to address himself to the question whether there was a real risk of dissipation of assets, and simply concluded that such a risk existed because this was a fraud case. In this context Mr Etherton pointed out that Mr Dawson had lived and worked as an investment adviser in Switzerland for a long time and that his assets included a very valuable house in Geneva, so that it was hardly likely that he would set about making them judgment proof. Mr Etherton also drew attention to the fact that the litigation had begun years ago and long before Mr Dawson was joined to it, yet there was no suggestion that he has yet made any attempt to dissipate assets. These are certainly points that can be made on behalf of Mr Dawson, but again I am not persuaded that the judge simply failed to take them into account. What is clear from the judgment is that the judge took the view that there was a good arguable case that Mr Dawson was knowingly implicated in the fraud; and that the nature of the allegations was such that there was a strong fear of dissipation. Since it is part of Mr Dawson's own case that he was expert in the sort of intricate, sophisticated and international financial transactions which feature in this case, and since the plaintiffs had established a good arguable case that Mr Dawson had used his expertise for dishonest purposes, I am not in the least surprised that the judge reached the conclusion he did. In short I remain wholly unpersuaded that the judge so erred in his assessment of the risk of dissipation that it would be right for this court to interfere.”
“The relevance of that passage, of course, is to the submission made by Mr Lord, on behalf of the claimants on this application, that I should infer from the apparent dishonesty of Mrs Chelton, together with the recent change of circumstances, a real likelihood and risk of dissipation. I have no difficulty in accepting the general principle, emphasised by Peter Gibson LJ, that a mere unfocused finding of dishonesty is not, in itself, sufficient to ground an application for a freezing order. It is necessary to have regard to the particular respondents to the application and to ask oneself whether, in the light of the dishonest conduct which is asserted against them, there is a real risk of dissipation. As Peter Gibson LJ made clear in the passage I have already quoted, the court has to scrutinise with care whether what is alleged to have been dishonesty justifies the inference. That is not, therefore, a judgment to the effect that a finding of dishonesty (or, in this case, an allegation of dishonesty) is insufficient to found the necessary inference. It is merely a welcome reminder that in order to draw that inference it is necessary to have regard to the particular allegations of dishonesty and to consider them with some care.”