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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Actial Farmaceutica LDA v Professor De Simone & Ors  EWCA Civ 1311 (21 December 2016)
Cite as:  EWCA Civ 1311
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ON APPEAL FROM
IN THE HIGH COURT OF JUSTICE
MR ANDREW HOCHHAUSER QC SITTING AS A DEPUTY HIGH COURT JUDGE
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE CHRISTOPHER CLARKE
LORD JUSTICE FLAUX
| ACTIAL FARMACEUTICA LDA
|- and -
|(1) PROFESSOR CLAUDIO DE SIMONE
(2) MENDES SRL
(3) MS FLORENCE PRYEN
Mr Andrew Sutcliffe QC and Mr Gregory Mitchell QC (instructed by Fitz Solicitors) for the Respondent
Hearing dates: Tuesday 13 and Wednesday 14 December 2016
Crown Copyright ©
Lord Justice Flaux:
Introduction and background
"2. The Professor, an Italian professor of medicine, has devised a probiotic food product consisting of live freeze dried pure lactic acid bacteria which is called VSL#3 ("the Product"). It is said to contain eight different strains of live bacteria and have a far higher concentration of beneficial bacteria than any other such product available on the market. It is available over the counter and on prescription from the National Health Service. The Professor claims that he is the owner of valuable confidential information concerning the growth, analysis and precise mix of these eight strains.
3. Some 15 years ago the Professor entered into a joint venture agreement with Paolo and Claudio Cavazza, who were wealthy Italian businessmen. Claudio Cavazza has since died. One of the main purposes of this joint venture agreement was to exploit the Product. The Professor was responsible for its composition and the Cavazza brothers were responsible for its funding, distribution and sale. The Cavazza brothers had considerable experience in the pharmaceutical sector and were, at the material time, majority shareholders in the Sigma Tau group of research based pharmaceutical companies with over 2500 employees across the world.
4. For reasons which are not material to the present dispute, the Cavazza brothers and the Professor did not want the Product to be sold through the Sigma Tau group so they set up a new joint venture company referred to as "CD Luxembourg". It is owned by various companies which represent the interests of the Cavazza family and the Professor. The Professor's interest was originally held by a Luxembourg company referred to as "Mendes Luxembourg" but that was recently dissolved and its shares in CD Luxembourg were transferred to a company referred to as "Mendes Italy", which is another company controlled by the Professor or other members of his family. CD Luxembourg is itself the owner of three operating companies which it controls through its Italian subsidiary referred to as "CD Italy". These three subsidiaries have been referred to as "VSL", "CD India" and the claimant, Actial. They are each responsible for different territories with Actial responsible for most of Europe including the United Kingdom.
5. On 29 May 2006 the Professor and Actial entered into an agreement, referred to as the "2006 UK Know-How Agreement". Actial contends that it is clear from the terms of this agreement that it has the sole right to make and sell the Product in the UK. There can be no doubt that Actial is also the owner of the Community trade mark for VSL#3. The Professor accepts that he signed the 2006 UK Know-How Agreement but argues it was a sham and that it was never intended to have contractual effect. Be that as it may, he has not disputed that he has received substantial payments amounting to several million Euros pursuant to its provisions and similar provisions in various other agreements. For some time Actial has obtained the Product by placing purchase orders with an American manufacturer ("Danisco") which since 2011 has been owned by Dupont. Danisco makes the Product from the eight strains of bacteria and then exports it in bulk to Italy and the Netherlands for packaging. In Italy the bulk packaging is carried out by a company referred to as "SIIT" and in the Netherlands by a company referred to as "Sanico". Once packaged, the Product is supplied by Actial through its distributors across Europe.
6. In June 2006 Actial entered into an exclusive distribution agreement with an English company referred to as "Ferring UK". Under the terms of that agreement Actial agreed to sell or have sold the Product to Ferring UK and Ferring UK agreed to purchase all of its requirements of the Product [as] supplied by Actial through its distributors across Europe.
7. In these proceedings Actial contends that in or about June or July 2014 the Professor and Mendes Italy embarked on a dishonest scheme unlawfully to wrest control of the manufacture and distribution of the Product from the joint venture with the intention of channelling sales of the Product through a rival business. Moreover, so Actial contends, the Professor embarked on this scheme while he was still a director of Actial. More specifically, it continues, the Professor sought to cut off supplies of the Product to Actial by preventing it from obtaining supplies from Danisco, removing Actial as a designated supplier and so preventing it from fulfilling its obligations to Ferring UK under the distribution agreement.
8. There is no dispute that by the autumn of 2014 Actial was unable to make further supplies to Ferring UK and as a result Ferring UK became desperately short of stock which it had to ration. Accordingly, and in order to ensure that supplies of the Product to Ferring UK were not unduly disrupted, Actial signed a waiver letter in about November 2014, which permitted Ferring UK to obtain supplies of the Product from its associated company referred to as "Ferring Italy", which in turn obtained them from a Swiss company, referred to as "Mendes Switzerland". Actial maintains that there is compelling evidence that the Professor controls Mendes Switzerland and indeed has appointed that company as the sole authorised distributor of the Product for Europe and Asia. This is disputed by the Professor.
9. Actial maintains that this waiver letter provided it with little comfort. It says that supplies made pursuant to the waiver did not generate any income at all for Actial or its parent, CD Italy. Accordingly, it refused to countenance a second waiver and on 10 December 2014, and believing that Ferring UK was on the verge of running out of supplies again, sought urgent without notice relief, requiring the Professor to reinstate it as an authorised supplier. This application was granted by Mr Kevin Prosser QC sitting as a deputy judge in the Chancery Division and, at Actial's request, he also directed the Professor to inform Danisco that it was entitled to sell to Actial the actual bacterial strains used in the manufacture of the Product.
10. A few days later, the Professor instructed English solicitors and counsel, who wrote to the court apologising for the fact that the Professor had not complied with the mandatory injunction and explaining that to do so would result in the irretrievable loss of trade secrets.
11. On 18 December 2014 the matter came before Norris J who made an order which was designed to hold the ring until the matter could return to court to be fully argued. In broad terms, and upon Actial giving an undertaking to provide security in the sum of 400,000 Euros and not to attempt to clone, reproduce, reverse engineer or otherwise modify the finished Product supplied pursuant to Ferring UK's orders, the order required the Professor to instruct Danisco to supply to the Netherlands and Italian packaging agents (SIIT and Sanico) sufficient Product to enable Actial to fulfil orders placed by Ferring UK which were consistent with its past pattern of trading, including any reasonable growth in such trading. The Professor duly instructed Danisco in those terms and on 8 January 2015 Ferring UK placed an order with Actial for stock worth in excess of 640,000 Euros. This was satisfied by deliveries made in late March 2015.
12. Two further matters arise from the order made by Norris J which I should mention at this stage. The first is that Actial also gave an undertaking to make and serve an affidavit setting out any steps that it had taken to modify the Product. In compliance with that undertaking, an affidavit was made and served which explained that some reverse engineering had been carried out by CD Italy in June and July 2014 because of a concern that the version of the Product being sold in the market might not contain the ingredients detailed on the product packaging, and as a result of an inspection by the Italian health and safety authorities. The second is that the Professor also complained that there had been a breach of this order in that on 12 January 2015 Actial placed an order with Danisco for bulk Product with a direction that this was to be shipped to an unknown packaging agent called Nutrilinea. Actial responded to this further allegation saying this was not an additional order to the January order to which I have referred but corresponded to it, but in the light of the Professor's concerns, the bulk order to Danisco was re-issued stipulating that Danisco should send the bulk to SIIT.
13. Actial's application for interim injunctive relief came before Mr Hochhauser QC sitting as a deputy judge of the Chancery Division on the 13th, 14th and 16th January 2015. His reserved judgment was handed down on 31st March 2015. He held that the court had no jurisdiction to hear the claims as presently formulated. However, he explained that if he had found that the court did have jurisdiction he would have been willing to grant interim relief in similar terms to that granted by Norris J until trial or further order, subject to putting in place a mechanism to ensure that it would have worked more smoothly and consideration being given to whether to require further fortification of Actial's cross undertakings in damages.
14. On 20th April 2015 there was a hearing before the deputy judge to determine various consequential matters. He gave Actial permission to appeal against his ruling on jurisdiction and also gave directions in relation to a late application by Actial for further interim relief pending that appeal. This further application came on for hearing on 7th May 2015 and at its conclusion the deputy judge gave judgment and made the order [to which that appeal related].
15. In substance the deputy judge made an order requiring the Professor, within 48 hours of his solicitors receiving notice that Actial had increased the security paid into court to 500,000 Euros, to give an instruction to Danisco to supply to one of Actial's two packaging agents, namely SIIT or Sanico, sufficient bulk Product to enable Actial to fulfil an order placed by Ferring UK on 13th April 2015 for supplies of Product with a value in excess of 1.6 million Euros. Actial gave an undertaking that it would not intercept or take samples of bulk Product delivered by Danisco to its packaging agents pursuant to the order and it would not "attempt to clone, reproduce, reverse engineer or otherwise modify the finished [Product] supplied pursuant to Ferring UK's order referred to in [the body of the order]". Very shortly afterwards, the Professor applied in writing to the deputy judge for permission to appeal and for a stay of his order. Both applications were refused by the deputy judge on 14th May 2015.
16. On the same day, 14th May 2015, Actial's solicitors gave notice that the security had been increased with the result that the May order fell to be complied with by midday on 16th May 2015. Meanwhile, on 15th May 2015, the Professor's solicitors filed an appellant's notice with this court seeking permission to appeal against the May order, a stay pending determination of their application and, if permission was granted, a further stay pending the hearing of the substantive appeal. Four days later, the Professor's solicitors informed Actial's solicitors that the Professor was aware of the May order but was awaiting a decision of this court on the applications for a stay and permission to appeal. The following day, 20 May 2015, Actial issued a committal application against the Professor for failure to comply with the May order.
17. On 21st May 2015 Actial issued a further application for an order under CPR 6.15(2) deeming service of the committal application on the Professor's solicitors by email and courier as good service on the Professor himself, rather than having to serve him under the provisions of the Hague Convention. That application came before Asplin J on 8th June 2015. She granted the application, made the June order and refused the Professor's application for permission to appeal. She also adjourned the hearing of Actial's committal application to 12th June 2015 in order to give the Professor an opportunity to apply for expedition of his application to this court for a stay of the May order. Then, on 9th June 2015, the Professor's solicitors applied to this court for permission to appeal against the June order and a direction that the application for permission be determined prior to the hearing of the committal application. On 11th June 2015 Ryder LJ made an order on the papers granting a stay of the May order pending an expedited hearing of the Professor's applications for permission to appeal and a continuation of the stay until the outcome of those applications was known."
The claims of Actial
(1) Between May 2014 and August 2014 Mendes Italy sought to interpose itself between Danisco and Actial by the Mendes Offer Letter under which all supply and processing, payments and import duties were transferred from Actial to Mendes Italy. Actial contends that the purpose of this was to wrest control of the supply relationship with Danisco from Actial. At the time the Professor was still a director of Actial (indeed he remained a director until 9 September 2014), so that by this means, in breach of fiduciary duties he owed Actial as a director, he has sought unlawfully to make a profit for Mendes Italy.
(2) In about late June 2014, a new supply agreement was entered into between Danisco, VSL and the Professor expressed to be effective from 1 January 2014. Actial was excluded from the list of authorised buyers under that Agreement. The Professor's explanation is that he was concerned that Actial was seeking supplies of VSL#3 in order to clone it. Actial relies upon the fact that he was still a director when he entered into that Agreement, which was clearly contrary to Actial's interests.
(3) At a shareholders' meeting of CD Italy, the parent company of Actial, on 5 June 2014, the Professor decided not to accept reappointment as a director. At 1pm on 9 June 2014, all five of CD Italy's employees resigned without notice and left the premises. The new board of directors hired an IT consultant to investigate what had happened. He found that there were no databases of electronic mail on the computers and fake files had been created on 9 June 2014 to overwrite existing files, evidently to effect a "secure wipe" of the computers. He concluded from what he found that there had been a deliberate act of destruction and the computers had been wiped simultaneously. Actial's case is that the mass resignation and deletion of databases were orchestrated by the Professor, who disputes this.
(4) On 9 August 2014, Mendes Italy sent a further letter to Actial referring to Actial having accepted the terms of the Mendes Offer Letter and stating that Actial owed Mendes Italy some €278,000 for various purchase orders and that there were new payment terms. These were unilaterally imposed and required invoices to be settled on receipt, rather than, as previously, within 45 days of customs clearance. It stated that, in the event of non-payment, goods would no longer be available to Actial.
(5) On 17 September 2014, Actial made that payment by wire transfer and then wrote rejecting the new payment terms. Mendes Italy returned the payment in full on 29 September 2014. Actial contends that this was all a sham engineered by the Professor and Mendes Italy with a view to cutting off all supplies to Actial. That was reinforced by discovery of a letter to Ferring SpA in Italy in which Mendes Italy said it intended to cease manufacturing the Product and Mendes Switzerland had taken over this activity instead.
(6) When Actial approached Danisco with a view to reopening its original supply lines, it was met with the objection that after the execution of the 2014 Danisco Agreement, Actial was no longer an authorised distributor.
The new evidence
The applicable legal principles
"Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of the Member State."
"A person domiciled in a Member State may, in another Member State, be sued:
1 (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question:
3 In matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur".
"30. Certain key features appear from these authorities. First, the Regulation is to be given a community, not a national, construction.
31. Second, the ECJ has, for obvious reasons, resolutely set itself against any interpretation of the Regulation which would mean that a claimant would, in practice, always be able to sue in tort in the courts of its own domicile and thus determine the competent court by his choice of domicile. In one sense a corporation may be said to suffer a loss wherever it keeps its accounts, for that is where its loss is ultimately felt. Where claimant and defendant are domiciled in two different States, the adoption of such an approach would lead to a result the exact opposite of that provided for by the basic rule in Article 2 which is that a defendant is to be sued in the courts of his domicile, not that of the claimant.
32. Third, where harm might be regarded as happening in two different States the search is not for one or more States in which damage has been suffered but, if possible, for the State in which "the harm" has occurred, sometimes referred to as the jurisdictionally significant harm. As Popplewell J put it at  (5) (b):
"The search will be for the element of damage which is closest in causal proximity to the harmful event. This is because it is this causal connection which justifies attribution of jurisdiction to the courts of the place where damage occurs: see the Bier case  QB 708 at - and the Dumez France case  ECR I-49 at )."
33. Fourth, the Article 5 exception is designed to cover cases where there is a particularly close connecting factor between the dispute and courts other than those of the State of the defendant's domicile, which "justifies the attribution of jurisdiction to those courts for reasons relating to the sound administration of justice and the efficacious conduct of the proceedings": see the Bier case  QB 708, ; the Dumez France case ECR I-49, ; Shevill v Press Alliance SA  2 AC 18, ; the Marinari case  QB 217,  and Kronhofer v Maier  All ER (EC) 939, . That is the reason for the exception. It does not mean that the application of Article 5 involves any form of forum conveniens test.
34. Fifth, one of the aims of the Convention is that there should be foreseeability and certainty as to the State where jurisdiction may lie: see the Réunion Européene case  QB 690, ; Kronhofer v Maier, ."
"35. None of these cases concerned a situation in which what was complained of was that a tortfeasor had been induced not to do something. Such a situation arose in Dolphin Maritime & Aviation Services Ltd v Sveriges Angfartygs Assurans Forening (The Swedish Club)  EWHC 716 (Comm);  1 CLC 460. In that case the defendant P & I Club was alleged to have procured a breach of Dolphin's agreement with cargo underwriters, for whom Dolphin was acting, that any payment by the Club would be made in London. The court held that the place where the damage occurred or where the event giving rise to the damage caused injury was England where Dolphin did not receive the money which, if the contract had been performed, it should have received.
36. In the course of my judgment I said this:
"56. Accordingly there is, as it seems to me, a well arguable case that, under the terms and conditions, the underwriters were bound to procure that the sums recovered directly from the Club were paid in the first instance to Dolphin. ……
57. In those circumstances, the arguments on behalf of Dolphin are, in my judgment, to be preferred. Dolphin's essential complaint is that it suffered harm because it did not receive the $8.5 million into its bank account which it should have done because, despite knowledge that this would involve a breach of the underwriters' contract with Dolphin, the Club paid it to their accounts in Turkey. I recognise that the matter must be looked at through European spectacles. But there is nothing insular in recognising that the contract (which is governed and must be interpreted by English law) calls in terms for 'Recoveries and quasi-Recoveries (i.e. sums which would otherwise comprise 'Recoveries') to be received direct by Dolphin and that the complaint in tort is that the Club wrongfully brought about a breach of that obligation.
58. When, in those circumstances, I ask myself 'where the damage to the direct victim occurred' (see the opinion of Advocate General Darmon in the Dumez France case, ) or 'where the event giving rise to the damage, and entailing tortious liability, directly produced its harmful effects upon the person who is the immediate victim of that event' (see the judgment in the Dumez France case, ) or 'where the event giving rise to the damage caused injury' (see the opinion of Advocate General Cosmas in the Réunion Européene case, ), the answer appears to me that it is in this country, where Dolphin did not receive the money which, if the contract had been performed, it should have received.
59. Further, if I ask myself what would have been the position if the tort complained of had not taken place, the answer is that payment would have been made to Dolphin in England: and the essence of Dolphin's complaint is that that did not occur. Mr Thomas submitted that an inquiry as to what would have happened if the tort was not committed was no guide to the question - where did the damage occur? If there was no tort, there would have been no damage. In some cases, e.g. in cases of damage to goods or persons, the question may have no great utility. But in others where the claimant has failed to obtain some property or money which he would otherwise have received the answer to the question may be a guide to identifying where the harm in the particular case occurred.
60. I do not ignore the danger of conflating the place where the damage occurred with the place where the loss was suffered. There is, however, a difference between a case in which the claimant complains that he has lost his money or goods (as in the Domicrest case or Sunderland Marine Mutual Insurance Co. Ltd v Wiseman (The Seaward Quest)  2 Lloyd's Rep 308) and a case in which the claimant complains that he has not received a sum which he should have received. In the former case the harm may be regarded as occurring in the place where the goods were lost (Domicrest) or the place from or to which the moneys were paid (The Seaward Quest), although the loss may be said to have been suffered in the claimant's domicile. In the latter case the harm lies in the non-receipt of the money at the place where it ought to have been received, and the damage to him is likely to have occurred in the place where he should have received it. That place may well be the place of his domicile and, therefore, also the place where he has suffered loss. An analogy may be drawn with the non-delivery of cargo at the destination port: see the Réunion Européene case.
61. There is, in my view, nothing inconsistent with the scheme of the Regulation in that result. In those circumstances the place where the benefit should have been received provides a sufficiently 'close connecting factor with the courts of a Member State other than that in which the defendant is domiciled which satisfies the need for certainty and justifies the attribution of jurisdiction to those courts for reasons relating to the sound administration of justice', particularly where, as here, the contract between Dolphin and the Club was subject to English law and arbitration, and where Dolphin was a provider of services in England (as well as elsewhere).
62. Accordingly, Dolphin's tortious claims fall, in my judgment, within Article 5(3) of the Regulation. Whilst the argument centred round the claim for inducing breach of contract, I did not understand it to be suggested that, if the inducement claim fell within that Article the claim in conspiracy might not."
37. Both parties accept that Dolphin was correctly decided. The judge regarded it as supporting his conclusion. Mr Thomas de la Mare QC for AMTF submits that he was entirely right to do so. Mr Hugh Mercer QC for MMGR submits that the decision in Dolphin was correct on its facts but that in the present case the facts require the opposite conclusion."
The judge's decision on article 5(3)
"113. On the analysis of the authorities, I have reached the conclusion that Actial have failed to satisfy me to the requisite standard that this court has jurisdiction in relation to Actial's claims in tort by reason of Article 5(3). I do so for the following reasons:
(1) In cases of economic loss, the search is for the place where the harmful event directly had its effect on the immediate victim, Actial, and where the original damage is manifested (Dumez at -);
(2) The damage occurs where direct harmful consequences are suffered, not at the place where indirect or remote damage occurs or consequential financial loss is felt which has arisen out of the event which has already caused initial and actual damage elsewhere (Marinari at -).
(3) One should, insofar as it is possible, identify, a single place for the occurrence of damage, and one which has closest proximity to the harmful event (Bier at -), Dumez ;
(4) I accept Mr Mitchell's submission that here the original damage caused by the alleged conspiracy and wrongful interference with contractual relations is the non-delivery either by Mendes Italy or by Danisco on the Professor's instructions of the supplies of the Product in bulk to Actial's packing agents, namely either SIIT in Italy or Sanico in the Netherlands, for onward distribution to all Actial's distributors in every country in which they supply the Product. Posing the question 'What would have happened if the alleged tort had not been committed?', the answer is that SIIT and/or Sanico would have received the Product in the usual way for onward transmission, once packaged, to Actial's distributors at the instruction of Actial;
(5) The resultant indirect damage is the inability of Actial to supply Ferring UK, its English distributor, but that is one stage removed. The fact that the UK is Actial's largest market for the Product it supplies does not, it seems to me, answer the question 'Where did the original damage occur?'
(6) The fact that the material agreements may have Delaware, Italian or Portuguese choice of law clauses is irrelevant to the correct question to be answered. Insofar as Mr Mitchell relies on the fact that Italy was the place of the alleged unlawful activities, or the choice of the Court of Rome as the appropriate venue in the 2006 Know-How Agreement, I do not regard these as significant considerations.
(7) Whilst I accept that Shevill is authority for the proposition that one can rely upon Article 5(3) to bring a claim limited to damage sustained in a particular jurisdiction, and indeed I was initially attracted to this approach in order to accede to Mr Wardell's submission, it seems to me that Shevill does not in any way displace the need to search for the location of the original damage, as opposed to damage consequential to the initial damage. Embarking on that exercise, I find that the initial damage did not occur in this jurisdiction, but when there was a cessation of supplies of the Product in bulk to the packaging agents in Italy or the Netherlands."
"…where a claimant alleges that a defendant has unlawfully prevented the conclusion of a contract between the claimant and a third party, damage occurs where the contract would have been concluded."
The Submissions of the Professor and Mendes Italy
Analysis and conclusions in relation to article 5(3)
"That place meets the requirements of foreseeability and certainty imposed by the Convention and displays a particularly close connecting factor with the dispute in the main proceedings, so that the attribution of jurisdiction to the courts for that place is justified by reason relating to the sound administration of justice and the efficacious conduct of proceedings."
The Article 5(1) point
"It is unnecessary to decide the issue for the purpose of disposing of the appeal. In general, it is unwise to deliver judgments on points that do not have to be decided. There is no point in cluttering up the law reports with obiter dicta, which could, in some cases, embarrass a court having to decide the issue later on."
Christopher Clarke LJ