#5055 - Sarrio Sa V. Kuwait Investment Authority - Conflict of Laws BCL

Sarrio SA v. Kuwait Investment Authority

Facts

My Lords, the respondent plaintiff is a Spanish company carrying on the business of manufacturing and marketing cardboard in Spain. In February 1991 it agreed to sell its special paper business (including certain factory premises) to a company called Torraspapel S.A. This company was a subsidiary of Grupo Torras S.A. as were two other companies called respectively Prima Immobiliara S.A. and Ebro Agricolas S.A. All these four companies were also Spanish.

Under the agreements for this sale (to which Grupo Torras was a party as well as Torraspapel) part of the consideration consisted of a payment of ptas. 36,600m. into a bank account, out of which the plaintiff would immediately use ptas. 29,600m. to acquire shares in Torraspapel, Ebro and Prima. However the plaintiff was given a put option (which it later exercised) to require Grupo Torras to buy from it the shares in Torraspapel and to pay for them in three instalments spread over the following three years.

In December 1992 Grupo Torras went into "suspension de pagos" (a form of insolvency procedure) leaving substantial amounts unpaid under the exercised put option. Two months later the plaintiff started proceedings in Spain against the appellant defendant and others in which it claimed that the defendant (a Kuwaiti legal entity) was liable for these amounts. The claim is based upon allegations that the defendant (who was indirectly the majority shareholder in Grupo Torras) was the "decision centre" of this company, that there was a "confusion of assets" between them, and that the defendant under-capitalised this company and wrongfully abused its legal entity, causing damage to its creditors.

While these Spanish proceedings were pending the plaintiff also started English proceedings against the defendant, claiming damages for negligent misrepresentations alleged to have been made on its behalf to the plaintiff during the course of these negotiations, which the plaintiff contends induced it to enter into the sale. In essence the plaintiff alleges that in those negotiations the defendant misstated the value and prospects of Prima and also falsely asserted that its clear policy was to stand behind its investments and provide funding where necessary.

Holding

In his judgment in the Court of Appeal, Evans L.J. held:

“the issues of fact or law which have to be decided in order that the court can reach its judgment in the particular case. These can be described as 'primary' issues and they are limited to those facts which are necessary to establish a cause of action. . . . The court's decisions on these primary issues represent the process of 'reasoning' upon which its judgment is based, but they do not include, in my view, other issues of fact which the court may or may not decide and which are not essential to its conclusion in this way.”

On this basis Evans L.J. concluded that the primary issues of fact in the English proceedings were distinct from any raised in the Spanish proceedings and that accordingly there was no risk of irreconcilable judgments.

I cannot accept that article 22 should be interpreted or applied in this way.

In the first place, I can find nothing in the opinion of the Advocate General or the judgment of the European Court in The Maciej Rataj which lends support to the suggestion that a distinction should be drawn between those facts necessary to establish a cause of action and other facts and matters on which conflicting decisions might arise. On the contrary it seems to me that the case leads to the opposite conclusion.

Both the Advocate General and the European Court were at pains to emphasise that the objective of article 22 is to improve co-ordination of the exercise of judicial functions within the Community and to avoid conflicting and contradictory decisions, thus facilitating the proper administration of...