#4998 - Metall Und Rushtoff V. Donaldson Lufkin - Conflict of Laws BCL

Metal Und Rushtoff v. Donaldson Lufkin

Facts

M. & R. are a company incorporated under the laws of the Canton of Zug in Switzerland where the company carries on business. At the material time M. & R. were buyers and sellers of physical aluminium. As part of their ordinary business M. & R. also traded in aluminium with dealers on the London Metal Exchange. M. & R. are a subsidiary of Associated Metals & Minerals Corporation ("A.S.O.M.A."), a New York corporation carrying on business there.

For purposes of their dealings on the London Metal Exchange, M. & R. employed a number of ring-dealing members of the Exchange dealers. One of these was an English company which then had a different name but which the parties have for convenience called "A.M.L." We shall continue to use that name.

At all times material to these actions A.M.L. were a subsidiary of A.C.L.I. (the second defendants) and A.C.L.I. were a subsidiary of D.L.J. (the first defendants). A.C.L.I. and D.L.J. are both Delaware corporations and had their principal office at 140, Broadway in the City of New York.

In the first action M. & R. were the plaintiffs and A.M.L. (not a party to the present action) were the defendants. A.M.L. met only a small fraction of the large judgment given against them. On M. & R.'s petition an order was made that A.M.L. be wound up. It is in those circumstances that M. & R. now seek to recover the balance outstanding from D.L.J. (which has become the subsidiary of another large American company) and A.C.L.I. They wish to prosecute this action, like the first, in London.

Circumstances giving rise to the present proceedings: M. & R.'s chief aluminium trader at the relevant time was a Mr. Glaser, whose duty was to trade in the name and for the benefit of M. & R. In fraud of M. & R., however, he embarked on a course of trading on his own account through a number of what were called "miscellaneous accounts," these being accounts in the names of companies or establishments in Liechtenstein, Zurich, West Germany and Guernsey. From an early stage, as Hobhouse J. found, senior officers of A.M.L. knew of and connived at Mr. Glaser's fraud on M. & R., his employers, well-knowing that these accounts were nothing to do with M. & R. Mr. Glaser's intention was that the trades conducted through the miscellaneous accounts should be profitable and that he should keep the profit for himself instead of passing it on to M. & R. Trades which proved unprofitable would be allocated to M. & R. Unfortunately for him (and A.M.L. and M. & R.), the price of aluminium, which had been fairly stable for the first 11 months of 1982, rose sharply at the beginning of 1983 with the result that Mr. Glaser's transactions on the miscellaneous accounts led to large losses. Mr. Glaser fraudulently transferred funds from M. & R. into the miscellaneous accounts.

A.M.L.'s response was to treat the miscellaneous accounts as sub-accounts of M. & R. for which M. & R. was responsible; to treat M. & R. as being in default. All this was done, as Hobhouse J. held, in bad faith, because A.M.L. knew that the miscellaneous accounts were not the responsibility of M. & R., so that M. & R. were creditors of A.M.L. not debtors.

Holding

Basic Tests for Service Outside Jurisdiction

Ord. 11, r. 4(2) provides that leave to serve a defendant out of the jurisdiction shall not be granted "unless it shall be made sufficiently to appear to the court that the case is a proper one for service out of the jurisdiction" under the Order. This imposes a three-fold burden on a plaintiff seeking leave. First he must show that the claim he wishes to pursue is a good arguable claim on the merits. While the court cannot at this stage determine whether the plaintiff, if given leave, will succeed, it must be satisfied that the plaintiff has a good chance of doing so. Secondly, the plaintiff must show a strong probability that the claim falls within the letter and the spirit of the sub-head or sub-heads of Ord. 11, r. 1(1) relied upon. It is, furthermore, an established principle that a foreigner resident abroad will not lightly be subjected to what is, to him, a foreign jurisdiction. Thirdly, the plaintiff must persuade the court that England is the forum in which the case can most suitably be tried in the interests of all the parties and for the ends of justice.

Causes of action relied upon

The statement of claim in this action is framed in a number of different ways, but Mr. Waller for the plaintiffs accepted that, at least for the purposes of this application, some of them added nothing to the principal claims, and the argument on both sides concentrated on the following heads of claim: (1) Conspiracy. (2) Inducing breach of contract. (3) Abuse of the process of the court. (4) Accounting as constructive trustees. (5) Procuring breaches of trust. I deal with each in turn.

The court went on to examine if the claimant had a “good arguable case” on merits in respect of each of these claims. For example, in respect of “breach of contract” it was held:

“In my view there is a good arguable case on the facts. Indeed, it would seem to be an overwhelming case against A.C.L.I. and, for the same reasons as I have set out under the previous heading, a good arguable case against D.L.J.”

On the basis that there was a “good arguable case” that the cause of action in respect of the torts relied on was satisfied, the court concluded:

“I am, therefore, satisfied that the plaintiffs' two available causes of action, for conspiracy and procuring breaches of contract, together with the remedy they seek, fall within the letter of Order 11. I turn finally to the issues related to the appropriate forum.”

Judge’s Exercise of Discretion was flawed

The judge's consideration of the appropriate forum inevitably proceeded upon the basis of the conclusion which he had already reached, namely, that M. & R. had available to it two causes of action, namely, conspiracy and inducement of breach of contract, and that these causes of action fell within both the spirit and the letter of R.S.C., Ord. 11, r. 1(1)(f).

In our judgment, the premise upon which the judge thus proceeded was in part incorrect. For the reasons already stated, M. & R. did not have a cause of action in conspiracy. The only cause of action available to it was that founded on inducement of breach of contract. The judge, having proceeded on a partially incorrect premise, the exercise of his discretion must be regarded as technically flawed. The discretion, therefore, falls to be exercised by this court anew.

Natural Forum - First Limb of Spiliada: Leaving conspiracy out of account, we have already given reasons for our conclusion that the substance of the tort of inducement of breach of contract was committed in London. Despite the vigorous arguments of the defendants to the contrary, we think the judge was right to regard this as a "London tort." In considering the question of discretion, we therefore start from the presumption that it is just and reasonable that the defendants should answer the plaintiffs' claim based on this tort in the courts of this country.

Other Factors: First, as the judge said, while M. & R.'s headquarters and place of business are in Switzerland, the location and place of business of the holding company D.L.J. is New York and "so far as A.C.L.I. still has a presence (it appears now to be a non-trading shell company) that too is New York." As he rightly held, this factor tells wholly in favour of a New York court as the appropriate forum.

Availability of Witnesses: Next, as the evidence sworn on their behalf demonstrates, the defendants attribute great weight to the fact that a number of important witnesses are no longer employed by either of them and could not be compelled by subpoena to attend a trial in England. These witnesses include Mr. Castle, who was the president and chief operating officer of D.L.J. from 23 July 1979 to 31 December 1984, and a director of A.C.L.I. from 3 February 1982 to 3 September 1986. They also include Mr. Rodriguez, a former employee of D.L.J., and Messrs. Howard, Oddy and Huber, former officers of A.C.L.I. Mr. Castle has stated in an affidavit that his business commitments will make it difficult for him to spend any length of time in London in connection with this case. Substantial issues in these proceedings concern matters which took place in New York between 18 and 25 February 1983. These witnesses are resident in New York and the five identified are not compellable in English proceedings. Moreover, the financial position of A.S.O.M.A. at this time is a relevant issue and this is a matter involving witnesses and documents in New York. In M. & R.'s evidence it was pointed out that some witnesses who might be required by one side or the other were resident in England (in particular Mr. Carlyon and Mr. Grazebrook who had been employed by A.M.L. were either resident in England or elsewhere than U.S.A.) and that the expert witnesses who could testify with regard to procedures and requirements of the London Metal Exchange were also resident in the United Kingdom.

Nevertheless, we think there is some force in the submission of the defendants that the...