Mrs Justice Gloster, DBE:
- This is a trial of 20 preliminary issues relating to liability ("the Preliminary Issues"). The proceedings arise out of arbitration proceedings ("the Arbitration Proceedings") begun in November 1998, which are governed by the Rules of the Stockholm Chamber of Commerce, but are proceeding in England. The arbitration, which is long and complex, arises out of the sale, in April 1993, of the shares in Interlife Assurance Company Limited ("Interlife"), an insurance company, to the claimant in this action, SEB Trygg Liv Holding Aktiebolag ("SEB"), pursuant to the terms of an agreement dated 21 April 1993 ("the Interlife Sale Agreement") and a deed of indemnity of the same date ("the Interlife Deed of Indemnity"). The claimants in the Arbitration ("the Arbitration Claimants") are the, or some of the, vendors of the Interlife shares, and they claim about £2.8 million, being the balance of the purchase price, from SEB, which is the respondent in the Arbitration. SEB has also brought a counterclaim against the Arbitration Claimants for breach of warranty and for an indemnity under the Interlife Deed of Indemnity against liabilities to third parties arising out of the alleged mis-selling of pensions by Interlife. The claim is admitted by SEB and the principal issue in the Arbitration is whether the counterclaim is barred by various contractual limitations. This turns substantially on whether Interlife's agents were guilty of gross negligence.
- When the request for arbitration was made to the Stockholm Chamber of Commerce in November 1998, the statement of claim listed the fourth named Arbitration Claimant as Aachener Ruckversicherungs Gesellschaft AG ("Old Aachener Re"). Likewise, when SEB served its counterclaim in the Arbitration Proceedings on 20 April 1999, Old Aachener Re was listed as the fourth-named respondent to counterclaim. It is the status (or non-status) in the Arbitration Proceedings of that company, and its statutory universal successor, AMB Generali Holding AG ("AMB") (the Fourth Defendant in these proceedings), with which, prior to the commencement of the Arbitration Proceedings, Old Aachener Re had merged, that has given rise to the need for the determination of the Preliminary Issues. In short, AMB's contention is that it was not a party to the Arbitration Proceedings when they were begun; and that unless and until it consents to be joined as a party to that Arbitration (or "submits to the jurisdiction" of the Arbitrators), it is not subject to the jurisdiction of the Arbitrators.
Summary of the factual background
- The relevant corporate history of Old Aachener Re, which was incorporated under German law, may be summarised as follows:
21.4.93 Aachener Rückversicherungs-Gesellschaft Aktiengesellschaft ("Old Aachener Re"), Company registration number HR B137, sold its 12.65% holding in Interlife to SEB under the terms of the Interlife Sale Agreement and the Interlife Deed of Indemnity.
6.7.95 Old Aachener Re resolved to change its name from Aachener Rückversicherungs-Gesellschaft Aktiengesellschaft to AM Konzernrückversicherung Aktiengesellschaft.
7.7.95 Old Aachener Re entered into an Incorporation Agreement ("the Incorporation Agreement") with its subsidiary, Laurensberg Beteiligungs-Aktiengesellschaft ("New Aachener Re"), company registration number HR B6217, by which certain assets and liabilities were agreed to be transferred from Old Aachener Re to New Aachener Re, including its rights under the Interlife Sale Agreement and the Interlife Deed of Indemnity. The Incorporation Agreement took effect as from 1.1.95. (It is common ground that the rights transferred included the rights under the Interlife Sale Agreement and the Interlife Deed of Indemnity, but not Old Aachener Re's obligations thereunder, since those could only be assigned with the consent of all other parties to the Interlife Sale Agreement and the Interlife Deed of Indemnity and no such consent was ever asked for or obtained.)
14.7.95 New Aachener Re changed its name from Laurensberg Beteiligungs-Aktiengesellschaft to Aachener Rückversicherungs-Gesellschaft Aktiengesellschaft (ie the pre-6.7.95 name of Old Aachener Re).
14.7.95 Old Aachener Re registered its name change from Aachener Rückversicherungs-Gesellschaft Aktiengesellschaft to AM Konzernrückversicherung Aktiengesellschaft.
27.7.95 Employers Reinsurance Corporation ("ERC"), (a company in a wholly separate group from Old Aachener Re and AMB) acquired all the shares in New Aachener Re from Old Aachener Re.
11.9.96 New Aachener Re changed its name to ERC Aachener Rückversicherungs-Gesellschaft Aktiengesellschaft (also referred to as "ERC Aachener").
17.6.97 Old Aachener Re, under the name AM Konzernrückversicherung Aktiengesellschaft, merged with its parent company AMB Aachener und Münchener Beteiligungs-Aktiengesellschaft. ("AMB"), company registration number HR B 93 under the German Transformation Statute 1994. All of Old Aachener Re's assets and liabilities were transferred to AMB with effect from 1 January 1997 under the German law of universal statutory succession.
13.10.97 Old Aachener Re was dissolved and ceased to exist as a separate entity.
29.6.01 AMB registered a change of its name from Aachener und Münchener Beteiligungs-Aktiengesellschaft to AMB Generali Holding AG .
- It is common ground between the parties and their German law experts, that the merger between Old Aachener Re and AMB was a transfer, under the German Transformation Statute 1994, by universal succession, of all assets and liabilities of the transferor entity (Old Aachener Re) to the transferee entity (AMB); that such universal succession transferred all assets and obligations in one legal act, by operation of law, with the result that the transferee entity, AMB, became party to all the agreements concluded by Old Aachener Re, the transferor entity, without requiring any participation by the transferor entity's creditors or counter-parties and became responsible for all of Old Aachener Re's liabilities; that all creditors of Old Aachener Re automatically became creditors of AMB as the transferee entity; that upon the merger, Old Aachener Re ceased to exist as a separate corporate entity, without liquidation, with its shareholders ceasing to have any rights in Old Aachener Re and having, in return, corresponding rights in AMB. It was also common ground that that English law regarded all matters relating to the status of Old Aachener Re and AMB as being governed by the law of those companies' domicile and that English law would recognize the effect of universal succession: see National Bank of Greece and Athens S.A. v Metliss  AC 509; Adams v National Bank of Greece SA  AC 255; Eurosteel Ltd v Stinnes AG  1 All ER 964.
- Manches, the first defendant in these proceeding (which, by Ian Yonge, a partner, had conduct of the Arbitration Proceedings on behalf of the Arbitration Claimants until August 1999), were first instructed on behalf of the vendors of Interlife in February 1995. Manches' instructions came from a Mr Sackville and a Mr Paine, who were directors of, and minority shareholders in, Interlife, and from a Mr Alec Merrifield (the third Part 20 Defendant in these proceedings and who had been involved in the initial sale), an insurance industry professional, on behalf of the corporate shareholders, including Old Aachener Re. Mr Merrifield's contact at Old Aachener Re was a Professor Harry Hauptmann ("Professor Hauptmann"), who was a director of Old Aachener Re at that date and who had overseen the sale of Interlife on behalf of the former in 1993.
- Manches first wrote to SEB on behalf of all the vendors on 12 July 1995. Correspondence between Manches and SEB continued for several years, culminating in the commencement of the Arbitration Proceedings by Manches, on behalf, or purportedly on behalf, of the Arbitration Claimants, in November 1998. Before any arbitration claim was commenced by anyone, the 5-year limitation milestone for principal claims by SEB (21 April 1998) passed. As I have said, Old Aachener Re was listed as the fourth named claimant, as Manches had no knowledge of the merger between it and AMB, nor of the former's dissolution as a corporate entity.
- On 14 July 1995, Professor Hauptmann resigned as a director of Old Aachener Re and became on the same date a director of New Aachener Re. However he continued to be the person to whom Mr Merrifield, as the point of contact with Manches and the subsequent two firms of solicitors involved, reported in relation to the dispute and the Arbitration. I find as a fact that, so far as Mr Merrifield was concerned, he continued to think that Professor Hauptmann, who had not informed him about the merger, was acting on behalf of Old Aachener Re.
- On 11th March 1999 SEB wrote to the Arbitration Institute of Stockholm indicating that it wished to bring a counterclaim ("the Counterclaim") against the selling shareholders, under the terms of the Interlife Sale Agreement and the Interlife Deed of Indemnity for an indemnity in respect of compensation paid by SEB to policyholders to whom insurance policies had been mis-sold prior to SEB's acquisition of Interlife. On 20 April 1999 SEB served on Manches a copy of its Reply, Set Off and Counterclaim naming (inter alia) Aachener Re as respondent.
- In August 1999 Sprecher Grier Halberstam ("SGH"), the second defendant in these proceedings, took over the conduct of the Arbitration Proceedings. Its involvement ceased at the beginning of March 2000 when Matthew Clark, the solicitor at SGH who had the conduct of the case, moved to Portner & Jaskel ("P&J"), the solicitors which thereafter had conduct of the Arbitration Proceedings on behalf of the Arbitration Claimants (and the third defendant to these proceedings). During the period of SGH's involvement, the only steps taken in the Arbitration Proceedings were the service (on 22September 1999) by the Arbitration Claimants of a Response to SEB's Reply, Set Off and Counterclaim and (on 13th December 1999) by SEB of a Statement of Defence and Counterclaim (subsequently amended and re-amended by SEB.
- On 19 December 2001 SEB's solicitors, Slaughter & May ("S&M") wrote to P&J, setting out SEB's concerns about Aachener Re and seeking clarification as to whether Aachener Re existed and the entity for which P&J acted. By that date, the bulk of the hearing of the evidence on the 12 preliminary issues of liability identified by the parties in the Arbitration Proceedings had taken place (with expert evidence due to be heard in January 2002 and (in the event) written closing submissions to be served in June 2002 and oral closing submissions heard at the end of August 2002). S&M raised with P&J the fact that it had come to their notice that Old Aachener Re had been dissolved and that, if that were correct, then the Arbitration Proceedings should not have been brought and continued, nor the counterclaim defended, in Old Aachener Re's name.
- As a result, Mr Merrifield got in touch with Professor Hauptmann, who by then was no longer a director of New Aachener Re, having resigned as such on 3 September 1998. Professor Hauptmann then, in January 2002, got in touch with Mr Burkhard Schulze-Wierling, one of the in-house counsel of AMB (and the second Part 20 Defendant in these proceedings), and told him that AMB was entitled to the benefit of the claim. He asked Mr Schulze-Wierling to provide a form of authority to Mr Merrifield to enable AMB to pursue the claim and Mr Merrifield then asked him to provide a letter explaining the corporate changes.
- I shall have to deal with the chronological correspondence in greater detail in due course, but, for present purposes, it suffices to say that, P&J, having previously confirmed that there had indeed been a merger and that AMB had succeeded to Old Aachener Re's rights and liabilities, wrote on 19 March 2002 to S&M confirming that P&J were instructed to act for AMB and had been instructed to seek permission to amend the Fourth Arbitration Claimant's name, and asking for SEB's consent to such a change. SEB consented in principle and there was correspondence as to the form of the amendment, while the arbitration proceeded.
- Then, in January/February 2003, so far as SEB, at least, was concerned, there was a volte-face. On 20 January 2003 AMB wrote to Mr Clark at P&J stating that neither Old Aachener Re nor AMB had ever authorized the Arbitration Proceedings; that Professor Hauptmann had no authority to act since his resignation in 1995; that Professor Hauptmann had "entirely acted on his own"; that there were therefore "no rights and obligations of the subject matter of this arbitration to be vested in AMB …"; and that, accordingly, AMB was not prepared to provide P&J with instructions to effect the amendments to the pleadings, substituting the name of AMB as the Fourth Claimant in place of Old Aachener Re. On 30 January 2003 P&J served a Notice of Ceasing to Act for the Fourth Claimant in the Arbitration Proceedings on the stated ground that they no longer had instructions to act on behalf of the Fourth Claimant either as Claimant or as Respondent to the Counterclaim. On 11 February 2003 S&M wrote to the Tribunal, with a copy to Mr Schulze-Wierling at AMB, setting out the history of its correspondence with P&J and seeking an order for the amendment of the statement of case to show AMB as the Fourth Claimant. On 19 February 2003, AMB wrote to the Tribunal, with a copy to S&M, in response to S&M's letter to the Tribunal, asserting that neither it, nor Old Aachener Re, was or had ever been a party to the Arbitration Proceedings and that P&J had never been authorised to act for it or for Old Aachener Re, as the latter "had been non-existent at the time when the proceedings were initiated". AMB, in effect, also denied that the previous solicitors, who had acted for the Arbitration Claimants, namely Manches and SGH, had ever been authorised to act on behalf of Old Aachener Re or AMB.
- SEB issued proceedings against the solicitors for damages for breach of warranty of authority on 9 April 2003. On 6 June 2003 SEB issued an arbitration claim against AMB to determine the substantive jurisdiction of the tribunal over AMB in the Arbitration Proceedings. On 31 October 2003 these two claims were consolidated by order of LangleyJ On 19 August 2003 SEB requested a further arbitration against AMB, without prejudice to its contentions as to AMB's status as a party to the existing Arbitration Proceedings.
- In the consolidated proceedings SEB claims in substance the following relief:
i) against AMB, a declaration that AMB is a party to and will be bound by any award made by the arbitral tribunal on SEB's Counterclaim in the Arbitration Proceedings; and
ii) against each of Manches, SGH and P&J, damages and interest for breach of warranty of authority, in particular an indemnity in respect of "the difference between the value of [SEB's] claims as may be found to have been lost against Aachener Re/AMB in the Arbitration Proceedings by reason of the breaches of warranty of authority less such recoveries as may be made against AMB in further proceedings after deduction of the Claimant's expenditure in making such recoveries".
- Professor Hauptmann might have been able to contribute much to the Court's understanding of these events. Despite his involvement since 1998 in the lead up to, and in, the Arbitration Proceedings there is an issue on the evidence as to the extent to which (if at all) he revealed the existence of them to AMB before January 2002, when the issue was raised by SEB. But on 10 February 2002 Professor Hauptmann died.
- The outcome of these proceedings depends in large measure on whether AMB's assertions, as summarised above, are correct.
The Preliminary Issues
- The Preliminary Issues, as formulated by the parties in an agreed consolidated list, pursuant to the order of Langley J dated 31 October 2003 and the proper law by which it is agreed that such issues are to be determined, are as follows:
(1) As a matter of German law, did the Incorporation Agreement dated 7 July 1995 transfer the rights under the Interlife Sale Agreement from Old Aachener Re to New Aachener Re?
(It is common ground between the parties that, as a matter of German law, the rights under the Interlife Sale Agreement were transferred to New Aachener Re by the Incorporation Agreement. Accordingly, no issue remains for decision under this head).
(2) As a matter of German law, did AMB in 1997 succeed to the obligations of Old Aachener Re under the Interlife Sale Agreement and the Interlife Deed of Indemnity following the merger of Old Aachener Re with AMB?
(It is common ground between the parties that, as a matter of German law, AMB did succeed to those obligations. Accordingly, no issue remains for decision under this head).
(3) Was SEB unaware that Old Aachener Re was incorrectly named in the Arbitration Proceedings prior to raising its concerns in that regard by letter dated 19 December 2001?
(There is a dispute as to the relevance of this issue. It is clear that SEB had concerns at some point before it wrote the letter about the merger and the status Old Aachener Re as an Arbitration Claimant. When those concerns first arose is unclear and SEB does not waive privilege as to S&M's investigations of the position. SEB contends the issue is irrelevant).
(4) Prior to 18 January 2002, did Mr Merrifield and/or Professor Hauptmann have authority to instruct Manches, SGH and/or P&J on behalf of Old Aachener Re, New Aachener Re and/or AMB in relation to the Arbitration Proceedings? In particular:
a) Was Mr Merrifield and/or Professor Hauptmann authorised to act on behalf of Old Aachener Re prior to its merger with AMB and, if either or both of them, then in each case (i) what was the scope of his authority and (ii) did his authority come to an end at or prior to the merger between AMB and Old Aachener Re?
b) Was Mr Merrifield and/or Professor Hauptmann authorised to instruct Manches and/or SGH to commence the Arbitration Proceedings in the name of "Aachener Re" and, if either or both of them, then in each case (i) by whom was he authorised to give those instructions (ii) when was he authorised to give those instructions and (iii) on behalf of whom?
c) Was Mr Merrifield and/or Professor Hauptmann authorised to give instructions to Manches and/or SGH and/or P&J between the commencement of the Arbitration Proceedings and 18 January 2002 and, if either or both of them, then in each case (i) by whom was he authorised to give those instructions (ii) when was he authorised to give those instructions and (iii) on behalf of whom?
(It is common ground that Mr Merrifield's authority has to be determined in accordance with English law, that Professor Hauptmann's actual authority has to be determined in accordance with German law, and that Professor Hauptmann's ostensible authority has to be determined in accordance with English law).
(4A) On their true construction do Section 12.01 of the Interlife Sale Agreement and Section 5.01 of the Interlife Deed of Indemnity provide that a document initiating arbitration of a claim or counterclaim could effectively be served on AMB by effecting service of the same on Mr Merrifield or solicitors instructed by him?
(It is common ground that this issue has to be determined in accordance with English law).
(4B) Was the effect of SEB's letter dated 11 March 1999 to the Arbitration Institute of the Stockholm Chamber of Commerce and/or SEB's service on Manches of its Reply Set Off and Counterclaim in the Arbitration Proceedings, that SEB thereby validly claimed arbitration of the Counterclaim against AMB?
(It is common ground that this issue has to be determined in accordance with English law).
(5) What was the scope of the authority given by AMB to Mr Merrifield on 18 January 2002 and/or 31 January 2002? In particular:
a) Was Mr Merrifield authorised to instruct solicitors on behalf of AMB in the Arbitration Proceedings?
b) Was Mr Merrifield authorised to ratify, adopt or approve the actions of Manches, SGH and P&J in the Arbitration Proceedings?
(It is common ground that this issue has to be determined in accordance with English law).
(6) At the material times, did AMB have sufficient knowledge of the material facts to have enabled it to ratify Mr Merrifield's instructions to the solicitor defendants in the Arbitration Proceedings?
(It is common ground that this issue has to be determined in accordance with English law).
(7) Was the authority of Mr Merrifield effectively withdrawn by AMB on 10 April 2002?
(It is common ground that this issue has to be determined in accordance with English law).
(8) Did Mr Merrifield in fact instruct P&J in the Arbitration Proceedings on behalf of AMB in the period when he was authorised by AMB?
(It is common ground that this issue has to be determined in accordance with English law).
(9) Did Mr Merrifield in fact ratify, approve or adopt the actions of Manches, SGH and/or P&J in the Arbitration Proceedings in the period when he was authorised by AMB?
(It is common ground that this issue has to be determined in accordance with English law).
(9A) Did Mr Merrifield give any warranty of authority to P&J that he acted on behalf of Aachener Re and/or AMB?
(It is common ground that this issue has to be determined in accordance with English law).
(9B) If the answer to issue xii) is "yes", was Mr Merrifield in breach of that warranty?
(It is common ground that this issue has to be determined in accordance with English law).
(10) Did AMB directly authorise P&J to act on its behalf in the Arbitration Proceedings in the course of the conversation between Mr Schulze-Wierling and Mr Clark on 6 March 2002 and if so what was the extent of such authority?
(It is common ground that this issue has to be determined in accordance with English law as to Mr Schulze-Wierling's ostensible authority and as to the existence of a contract of retainer, and in accordance with German law, as to Mr Schulze-Wierling's actual authority to bind AMB.)
(11) Did AMB directly authorise P&J to act on its behalf in the Arbitration Proceedings by its letter dated 22 March 2002 and if so what was the extent of such authority?
(It is common ground that this issue has to be determined in accordance with English law as to the existence of a contract of retainer, and in accordance with German law, as to Mr Schulze-Wierling's actual authority to bind AMB.)
(11A) Did Mr Schulze-Wierling give any warranty of authority to P&J that he acted on behalf of AMB?
(It is common ground that this issue has to be determined in accordance with English law)
(11B) If the answer to issue 11A is "yes", was Mr Schulze-Wierling in breach of that warranty?
(It is common ground that this issue has to be determined in accordance with German law as to actual authority and English law as to ostensible authority.)
(12) If P&J were authorised by the letter dated 22 March 2002 for the limited purpose of changing the name of the Fourth Claimant from Old Aachener Re to AMB:
(a) Was the effect of such authorisation to authorise P&J to confirm that it had been and/or should be treated as having been a party to the Arbitration Proceedings from the outset?
(b) Was it possible for P&J to act on AMB's behalf for the limited purpose of changing the name of the Fourth Claimant?
(It is common ground that these issues have to be determined in accordance with English law.)
(13) As a matter of German law, was Mr Schulze-Wierling authorised to instruct solicitors on behalf of AMB acting alone or was he only authorised to instruct solicitors if such authority was given by him along with a director or other prokurist of AMB?
(It is common ground that this issue has to be determined in accordance with German law as to actual authority and English law as to ostensible authority.)
(13A) If Mr Schulze-Wierling was not ordinarily authorised to instruct solicitors in relation to the Arbitration Proceedings acting alone, as a matter of German law, would he become so authorised in the event that the consent of a fellow prokurist or a director of AMB was obtained to his acting alone? If so, did Dr Dagerförde or Dr Becker give such consent to Mr Schulze-Wierling?
(It is common ground that this issue has to be determined in accordance with German law.)
(14) If Mr Schulze-Wierling was not authorised alone to instruct solicitors on behalf of AMB, did he nevertheless have apparent authority so to act such that AMB is bound by his actions in instructing solicitors and/or Mr Merrifield (if he gave such instructions)?
(It is common ground that this issue has to be determined in accordance with English law).
(15) Did AMB have sufficient knowledge of the material circumstances to enable it to ratify P&J's conduct of the Arbitration Proceedings?
(It is common ground that this issue has to be determined in accordance w with English law).
(16) If P&J were authorised to act on behalf of AMB to any extent, did P&J act pursuant to that authority so as to confirm that the Fourth Claimant was AMB and/or to ratify, adopt or approve the actions of the solicitor defendants in the Arbitration Proceedings?
(It is common ground that this issue has to be determined in accordance with English law).
(17) By its conduct in failing to tell the tribunal or the other parties to the Arbitration Proceedings and/or P& that P&J was acting without instructions in the period prior to 30 January 2003 despite its knowledge that this was the case, did AMB ratify adopt or approve the actions of Manches, SGH and/or P&J in the Arbitration Proceedings and/or is AMB now estopped as against SEB from denying that:
(a) it was or is to be treated as having been a party to the Arbitration Proceedings from the outset until 30 January 2003, and/or
(b) that P&J was authorised to represent it in the proceedings from 18 January 2002 to 30 January 2003?
(It is common ground that these issues have to be determined in accordance with English law).
(18) Has AMB lost the right to object to the substantive jurisdiction over it of the Tribunal in the Arbitration Proceedings?
(It is common ground that this issue has to be determined in accordance with English law).
(19) If Manches, SGH, P&J or any of them acted in breach of their warranties of authority with regard to Old Aachener Re/AMB is AMB nevertheless bound by any award which may be made against it in the Arbitration Proceedings and are the rights and/or liabilities under the Interlife Deed of Indemnity and the Purchase Agreement vested in AMB?(It is common ground that that this issue has to be determined in accordance with German law as to the position between AMB and New Aachener Re and in accordance with English law as to the transferability of rights and obligations.)
(20) If Manches, SGH and/or P&J acted in breach of their warranties of authority and if AMB is not bound by any award in the Arbitration Proceedings, would SEB have ensured that AMB was joined to the Arbitration Proceedings but for the said breaches?
- It was agreed that the following issues did not form part of the preliminary issues which I had to decide.
(21) If AMB will not be bound by any award in the Arbitration Proceedings what loss and damage has SEB suffered:
a) What additional expenses has SEB suffered as a result of the breaches of warranty of authority?
b) What claims by SEB against AMB: (i) have now become statute barred; or (ii) cannot be recovered and in either case:
i) What is the lost value of such claims by SEB against AMB in respect of such claims as have become statute barred or cannot now be recovered?
ii) What loss and damage has or will SEB suffer in respect of the additional expense of pursuing such claims as it may still have against AMB?
- Subsequently, in the course of trial, it was agreed as between SEB and P&J that I should not determine the question whether there was any warranty of authority given by P&J to SEB in the period between January 2001 and 18 March 2002. That was because it was revealed in the oral evidence that S&M were in fact aware from January 2001 that no company bearing the name of the fourth named Arbitration Claimant existed.
- The formulation of the Preliminary Issues has proved, as is often the case, to have been somewhat unnecessarily over-elaborate and complex. In fact, the critical preliminary issues were argued before me in a different, more compact, fashion. In this judgment I propose to deal with them in a similar manner to the way in which they were argued in front of me, although I shall give them my own designation. The order itself, when drawn up, can, if necessary, formally set out my answers to the composite list of Preliminary Issues as reflected in this judgment.
Issue A - Were the Arbitration Proceedings (a) purportedly started on behalf of AMB or (b) a nullity?
- I agree with the submission of Mr Nicholas Strauss QC, on behalf of SEB, that perhaps the easiest approach to the determination of the relevant issues is first of all to decide what would have been the position, on the assumption that the proceedings had been started with the actual or ostensible authority of AMB, but had been brought in the "wrong" name, that is to say in the name of Old Aachener Re and not AMB as its statutory successor. I then go on to consider whether there was in fact a want of authority in what was done, and whether it was cured in some way.
- The issue here (on the above-stated assumption) is whether the Arbitration Proceedings were (a) purportedly started on behalf of AMB or (b) a nullity. AMB, represented by Mr Robert Miles QC properly abandoned the argument that the proceedings were brought on behalf of New Aachener Re. In the absence of any notice of the assignment, New Aachener Re would have had no right to give a notice of arbitration and not even the Arbritration Claimants' solicitors, who initiated the proceedings, were aware of the assignment. It also appears that Professor Hauptmann was under the impression that the rights to the claim remained in Old Aachener Re, contrary to what is agreed to be the correct position under German law on the true construction of the terms of the Incorporation Agreement.
- The question which arises under this head is, simply stated, what was the identity of the corporate entity which Manches, the solicitors then acting, intended should be a claimant in the arbitration proceedings? Did Manches simply get the name wrong, because they did not know about the merger, or Old Aachener Re's dissolution, or could it be said that their mistake was not merely the use of a wrong name, or a "misnomer", but evinced a more fundamental error, that is to say an intention to bring the proceedings by a wrong claimant, which was no longer in existence. If the case was one of mere "misnomer", then the authorities show that the position can be corrected be simply amending the name of the party to the proceedings, which are nonetheless validly constituted; on the other hand, if the intention was in fact to bring the proceedings on behalf of a wrong party, then the proceedings are indeed a nullity.
- Thus where proceedings are begun in the name of a non-existent company, they are a nullity and the defect cannot be cured by amending to substitute another company (ie a different legal entity) as claimant: Lazard Brothers v Midland Bank Ltd  AC 289 (HL). However, the rule is different if the case is one of misnomer. In cases of misnomer, even where the name on the record refers to an entity which no longer exists, the court can correct the record and the proceedings are correctly constituted ab initio: The Sardinia Sulcis  1 Lloyds Rep 201, 205 (CA)
- The cases show that the identity of the party intended to be a claimant in an arbitration is to be determined objectively in accordance with the ordinary principles for the construction of a contract, by reference to the notice of arbitration and the surrounding circumstances; see Unisys International Services Limited v Eastern Counties Newspapers Limited  1 Lloyd's Reports 538 at 550-1 and 558-62 per Ralph Gibson LJ
- Also relevant to this issue is the decision of the Court of Appeal in The Sardinia Sulcis and "Al Tawwab"  1 Lloyd's Reports 201. In that case the error arose from the solicitors' ignorance of the fact that, prior to the issue of proceedings, the plaintiff had ceased to exist as a result of a merger with its parent. The main claim was not brought by arbitration, but in court proceedings which were governed by R.S.C. Order 20 Rule 5 which provided:
"(2) Where an application to the Court for leave to make the amendment mentioned in paragraph (3) … is made after any relevant period of limitation apparent at the date of issue of the writ has expired, the Court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks it just to do so …
"(1) an amendment to correct the name of a party may be allowed under paragraph (2) notwithstanding that it is alleged that the effect of the amendment will be to substitute a new party if the Court is satisfied that the mistake sought to be corrected was a genuine mistake and was not misleading or such as to cause any reasonable doubt as to the identity of the party intending to sue, or, as the case may be, intended to be sued."
- In court proceedings the title of the action defines the parties, so that the rule is needed to enable the action to be properly constituted where there is an error. Lloyd LJ (with whom Sir George Waller on this point agreed) rejected the argument that there was no need to correct the name because the action had been brought in the name of the owners of the 'Sardinia Sulcis' and the only thing in the writ which indicated who the owners were was the address given; see at 204-5. The Court of Appeal then held that it was permissible to correct the name of the party by substituting the name of the Italian parent company, which had succeeded to the rights of the named owners before the issue of the writ. Having at 206-207 cited the passage from the judgment of Griffiths LJ in Evans Construction Co Ltd v Charrington & Co Ltd  1 Q.B. 810 at 825:
"The identity of the person intended to be sued is of course vital. But in this case I have no doubt the identity of the person intended to be sued was the current landlord, Bass. The wording of the rule makes it clear that it is not the identity of the person sued that is crucial, but the identity of the person intended to be sued, which is a very different matter." (My emphasis.)
and also a passage from the judgment of Russell LJ in Thistle Hotels Ltd v Sir Robert McAlpine & Sons Limited CA 6 April 1989:
"But in my view, simply to point out that the two parties, the one that has been substituted and the other, have separate legal identities is by no means the end of the matter. The rule recognises by its terms that when the application is made it will necessarily often involve the substitution of a new legal entity. What it must not do is to substitute the identity of a party intending to sue. I do not think that what has happened here does involve the substitution of another party intending to sue. The party intending to sue has remained the same but there has been attached to that party a different name".
Lloyd LJ continued at 207:
"The 'identity of the person intending to sue' is a concept which is not all that easy to grasp, and can be difficult to apply to the circumstances of a particular case, as is shown by the fact that in two of the cases to which I have referred there has been a dissenting judgment.
In one sense a plaintiff always intends to sue the person who is liable for the wrong which he has suffered. But the test cannot be as wide as that. Otherwise there could never be any doubt as to the person intended to be sued, and leave to amend would always be given. So there must be some narrower test. In Mitchell v Harris Engineering the identity of the person intended to be sued was the plaintiff's employers. In Evans v Charrington it was the current landlord. In Thistle Hotels v McAlpine the identity of the person intending to sue was the proprietor of the hotel. In Joanna Borchard it was the cargo-owner or consignee. In all these cases it was possible to identify the intending plaintiff or intended defendant by reference to a description which was more or less specific to the particular case. Thus if, in the case of an intended defendant, the plaintiff gets the right description but the wrong name, there is unlikely to be any doubt as to the identity of the person intended to be sued. But if he gets the wrong description, it will be otherwise. The point can be illustrated by the facts of Rodriguez v R J Parker. In that case the identity of the intended defendant was the driver of a particular car. It was held that there was a mistake as to name. But if the plaintiffs had sued the driver of a different car, there would have been a mistake as to identity. He would have got the wrong decision.
Returning to the facts of the present case, there could be no reasonable doubt as to the identity of the person intending to sue, namely, the person to whom the rights of ownership were vested at the date when the writ was issued. That was, as Mr Connolly says in his affidavit, the whole point of the exercise on which Messrs. Richards Butler had embarked, as the defendants well knew. The description of the intending plaintiffs was clear enough. It follows that Mr Pertwee's mistake was a mistake as to name, and not a mistake as to identity …"
- Mr Strauss submitted that the reason why The Sardinia Sulcis is applicable, (and, he submitted, conclusive) authority in the present case is that the issue in an application under Order 20 Rule 5 is the same as the issue of construction which arises in the context of an arbitration. The issue in an Order 20 Rule 5 case was whether the party whose name was to be substituted was, beyond reasonable doubt, the person who had intended to sue at the outset. The test is whether the writ identifies, by description (such as landlord, cargo-owner, driver of a named vehicle) the person whose name is sought to be substituted. That is done by looking at the terms of the writ and the background to the litigation.
- Mr Strauss also submitted that the position in an arbitration case is different, in that there is no requirement for a formal title at all. Arbitrations may be commenced on behalf of parties who are described e.g. "cargo interests under B/L no…". However, where there is a named claimant but there is a mistake, the issue which arises is substantially the same, what is the identity of the person intending to sue? The question is who, on the proper construction of the notice of arbitration, was intended to be the claimant. Not surprisingly, despite the different origins of the two concepts (in the one case the principles of contractual construction, and in the other the wording of the rule of court) they are indistinguishable from each other and the result will be the same whether one is dealing with arbitration or litigation (subject to the difference in the standard of proof). The result of The Sardinia Sulcis would have been exactly the same if it had been an arbitration: it would have been held that, on the proper construction of the notice of arbitration, having regard to the relevant factual background, the intended claimant was the owner of the vessel at the time.
- Whilst I do not consider that The Sardinia Sulcis can be regarded as "conclusive" authority in the present case, since, necessarily, the factual background is relevant, I accept that is applicable helpful authority for the reasons stated by Mr Strauss, which I have summarised above.
- I also derive assistance from the decision of Longmore J in Eurosteel Ltd v Stinnes AG  1 All ER 964 at 969, although it is not directly in point, since in that case the merger, the resultant dissolution of the claimant, Bayerischer Lloyd, and the universal succession had taken place after the reference to arbitration. The argument was that, once the transferor company, Bayerischer Lloyd, had been dissolved, the arbitration lapsed because there could no longer be any valid arbitration when one of the two parties had ceased to exist; that English law required notice of any assignment to be given to both Eurosteel (the respondent to the arbitration proceedings) and the arbitrators; that Stinnes, as statutory universal successor/transferee of Bayerischer Lloyd could not give notice of the transfer before the transfer occurred, because it was not then the assignee of Bayerischer Lloyd's rights nor could it give notice after the transfer because, the arbitration having lapsed, there was no reference in which notice could be given. In rejecting this argument, Longmore J said at p969
"English law is, in my judgement, not so impotent, at least in cases of universal succession. The whole point of universal succession is that the successor is treated as the same person as the person to whom he succeeds. The law of the forum in which the universal successor seeks to gather in his assets may or may not require him to give formal notice of his existence before award or judgment will be given but the idea that any pending arbitration (or, indeed action) begun by his predecessor must, of necessity, come to an end would mean that his succession was particular not universal and would be contrary to the terms of s20 of the German Transformation Law."
- Earlier he had found (as is agreed to be the case here), that the German Law of Transformation did not require notice to the arbitrator or the other party to be given, before the transfer of the right to arbitrate was transferred under the universal statutory succession, or that, if he were wrong in that conclusion, such notice was a mere procedural formality, which did not affect the substance of the transfer.
- Thus it can be seen that continental process of universal succession is recognised by the English Courts as being a special case, distinct from the dissolution of an English company and from the assignment of rights, so far as the correct constitution of an arbitration is concerned. Thus, whereas if a company, during the course of an arbitration, assigns away its rights and is dissolved, the arbitration ipso facto lapses because one of the parties has ceased to exist (Baytur SA v Finagro Holding SA  QB 610 (CA)), where a party has ceased to exist by reason of universal succession the arbitration does not lapse and the tribunal is entitled to continue with the reference: Eurosteel Ltd. v Stinnes AG supra.
- Mr Robert Miles QC on behalf of AMB submitted that the present case was very different from Unisys and The Sardinia Sulcis and that I could derive no assistance from them. He submitted that the present case is the converse from those cases: both those who acted for the claimants and those who acted for the defendants thought that Old Aachener Re still existed and both intended to refer to that entity by using the name "Aachener Re" in the proceedings. If they had been asked which entity was intended to be referred to, they would both have said "the entity which was the vendor", ie Old Aachener Re. The fact that, unbeknownst to the solicitors involved on each side, that company had ceased to exist does not mean that they did not intend to refer to it when using its name. Mr Miles submitted that SEB's argument that the reference to "Aachener Re" must have meant AMB, because Old Aachener Re did not exist and it would be absurd for anyone to bring proceedings in the name of a non-existent company, is fallacious, because it presupposes that the relevant persons knew that Old Aachener Re did not exist, which, on the evidence, neither Manches nor Mr Merrifield did. He also submitted that the question of construction of the notice to arbitrate cannot sensibly be divorced from the question of actual authority to bring the proceedings. He relied on the fact that, in Unisys (page 561, 1st col), Ralph Gibson LJ had pointed out there was no question of the solicitors who had brought the notice to arbitrate into existence, and responded to it, not having authority to act on behalf of the buyer and the seller respectively and that their object was to refer the disputes between their principals to arbitration. Here, Mr Miles submitted, that if, in 1998, no one involved had actual authority to bring the proceedings on behalf of AMB, it was unrealistic to say that, as a matter of construction, the proceedings were purportedly brought on behalf of AMB (rather than Old Aachener Re). If no one involved had that authority, he contended that it was far-fetched to suggest that that they had the intention of brining the proceedings for AMB. Hence, he submitted, that this question cannot be divorced from the question whether Professor Hauptmann had actual authority.
- I reject Mr Miles' submissions. Mr Miles' submission that Unisys is distinguishable on the facts, since the error was due to a change of name, not a merger, (a correct point so far as it goes), does not change the substance of the matter. The essential similarities between the cases are that in both (a) the solicitors who initiated the proceedings were ignorant of a corporate change which had the effect of altering the name of one of the parties in the arbitration agreement and to the underlying contract giving rise to the dispute; (b) as a result the arbitration proceedings were brought in the name of a company other than the company which was, at the time of the reference to arbitration, the relevant party to the contract of sale; and (c) it was clear to the parties at the time that the arbitration proceedings were intended to be brought on behalf of the company which was a party to the relevant sale agreement at the date of the reference to arbitration. Here, in my judgment, the identity of the intended fourth claimant in the arbitration proceedings was clearly, so far as Manches and Mr Merrifield were concerned, the company (other than the other listed corporate claimants) that, at the date of the institution of the Arbitration Proceedings, was a party to the Interlife Sale Agreement and the arbitration agreement therein and had Old Aachener Re's rights thereunder. And the fact of the matter indubitably was that, as a matter of German law (being the relevant law affecting corporate status), as at that date that corporate entity was AMB, irrespective of the fact that neither Manches nor Mr Merrifield had been informed about the merger or dissolution.
- Moreover, contrary to Mr Miles' submissions that Unisys, and by implication the Sardinia Sulcis as well, are distinguishable because in those cases the court took into account the fact that the solicitors were authorised, whereas, in the present case, Professor Hauptmann may not have been authorised to instruct the solicitors to bring the proceedings on behalf of AMB, I conclude that that is not a valid distinction either. Obviously, if, as a matter of fact, Professor Hauptmann was not actually or ostensibly authorised to instruct Manches, via Mr Merrifield, to begin the Arbitration Proceedings, then they were begun without authority and are, in that sense, and for that reason (subject to issues of subsequent ratification), a nullity. Likewise, the facts relating to Professor Hauptmann's want of authority, if indeed he had not been authorised to give instructions for the issue of proceedings, might have been relevant to his intentions as to the identity of the party which was claimant in the proceedings, if such facts indicated a lack of the requisite intention to start the proceedings on behalf of the correct party. But these are factual matters, which are not in my judgment grounds per se for distinguishing the cases.
- It is to the facts surrounding the initiation of the Arbitration Proceedings that I now turn. It is clear, in my judgment, that, objectively viewed, they clearly support the contention that the mistake was one of misnomer, and not as to the identity of the party which was bringing the claim. The relevant facts can be summarised as follows:
i) The agreements between the sellers of the shares, including Old Aachener Re and the buyers, in which they agree to submit their disputes to arbitration show that the parties to any arbitration were to be the sellers and the buyers.
ii) The correspondence giving rise to the dispute, confirming that it should be arbitrated, and the initiating documents comprising the letter to the Institute dated 9 November 1998 and the attached Statement of Claim clearly identified the Arbitration Claimants as the sellers of the shares. In other words, there is no error of description, since by the time that proceedings were instituted, AMB had succeeded to all the rights of Old Aachener Re and was indeed party to the Interlife Sale Agreement.
iii) There is some evidence of what Professor Hauptmann intended as to which company should be the claimant. Mr Merrifield said in his witness statement that the decision was taken in 1997 (probably before the merger) to institute proceedings when the 5 year period expired for SEB's claims under the warranty, which was in April 1998. Mr Merrifield wrote to Professor Hauptmann on 8 July 1998, enclosing a five page opinion from Manches dated 20 March 1998, and telling him that the arbitration was to proceed. It appears that, at this stage, Professor Hauptmann simply "forgot to mention the corporate changes" to Mr Merrifield. This is borne out by later documents and conversations. His instantaneous reaction to Mr Merrifield, when the issue about the merger was raised out of the blue on the telephone in early January 2002 CHECK [B9/154 para. 69] was to say that, whilst there had been no changes, Old Aachener Re owned "the Interlife exercise"; his handwritten note to Mr Merrifield, (which appears at page 436 of the Core Bundle), shows that Professor Hauptmann told him that he, Professor Hauptmann, saw Interlife as a "Participation in Companies", which remained with Old Aachener Re, notwithstanding the sale to New Aachener Re and that, after the merger, AMB was "the legal successor of (Old Aachener Re) with respect to ownership in Interlife". On about 16 January 2002, Professor Hauptmann had a telephone conversation with Mr Schulze-Wierling in which the former explained that Old Aachener Re was entitled to the benefit of the claim and explaining his mistakes. According to Mr Schulze-Wierling's evidence, Professor Hauptmann explained that he had forgotten to tell AMB that he was beginning the proceedings and he had forgotten to tell the other parties of the corporate changes.
- Thus, contrary to Mr Miles' submission, I do not find that it is "impossible to explain" why the proceedings were brought in the name of "a non-existent" company. As explained by Professor Hauptmann himself, the simple reason was that he failed to respond to Mr Merrifield's letter dated 8 July 1998; he should have written back to Mr Merrifield to tell him of the corporate changes. In my judgment it is perhaps not surprising that he did not do so. Professor Hauptmann was clearly a busy man; Old Aachener Re/AMB's percentage share of the total claim of £2,800,000 was, on any basis, a relatively small amount of money. Irrespective of the issue of Professor Hauptmann's authority, by July 1998 he was no longer a director of Old Aachener Re and was about to resign as a director of New Aachener Re. It is perhaps not surprising that he did not feel it necessary to devote the time to explaining the detail of the matter, which on one view was a mere formality of nomenclature, given the effect of universal statutory succession consequent upon Old Aachener Re's merger with AMB.
- Accordingly, in my judgment this is a misnomer case. These proceedings are not a nullity on the mere grounds of Old Aachener Re's non- existence as a corporate entity. They have in fact been brought, and have throughout been continued, purportedly on behalf of AMB, notwithstanding that Old Aachener Re's name has remained listed as the 4 Arbitration Claimant and that neither Manches, nor the subsequent firms of solicitors, nor Mr Merrifield were aware of its merger with AMB and subsequent dissolution. This has the consequences that, if and to the extent that this has been done without AMB's authority, the proceedings are capable of ratification; and, if they were authorized or have subsequently been ratified (because of some initial want of authority), there is no need for any further submission to the jurisdiction of the Tribunal. Of course, if they were not authorized by AMB, nor have been ratified, then, subject to the issue of SEB's counterclaim, and whether or not it has been effectively served on AMB, AMB is not in fact a party to the Arbitration Proceedings, irrespective of my decision on the misnomer issue.
- Accordingly, it is to the issue of authority that I now turn.
Issue B – If the Arbitration Proceedings were purportedly brought on behalf of AMB, were they started with AMB's authority?
- There are three possible "routes" which were identified in the course of argument as leading to the conclusion that AMB duly authorised Manches to institute the Arbitration Proceedings. These were as follows:
i) Mr Merrifield's power of attorney dated 16 April 1993;
ii) the continuity of Manches' pre-July 1995 retainer;
iii) (a) the actual authority alternatively (b) the ostensible authority of Professor Hauptmann/Mr Merrifield to give instructions to commence and continue the Arbitration Proceedings.
Mr Merrifield's power of attorney dated 16 April 1993
- By a Power of Attorney dated 16 April 1993, Old Aachener Re authorised Mr Merrifield to act for it in relation to sale and disposal of Interlife shares. The Power was signed by Professor Hauptmann and Mr Franz Schmitz, then a director of Old Aachener Re and subsequently a colleague of Mr Schulze-Wierling in AMB. Its terms provided:
"Old Aachener Re 'does hereby appoint [Mr Merrifield] with full power and authority to represent and bind [Old Aachener Re] … concerning the sale and disposal under any terms and conditions by the Company of 329,719 shares of the capital stock of INTERLIFE ASSURANCE COMPANY LIMITED … acting and signing any relevant document in the name and on behalf of the Company."
This Power was authorised by a resolution of Old Aachener Re in the following terms:
"The Old Aachener Re board of Directors authorized Professor Hauptmann to implement the conclusion [of the Contract of Sale re Interlife]. In this connection [Mr Merrifield] … was given power of attorney to sign the documents of sale."
- It is a question of construction whether the power of attorney dated 16 April 1993 conferred authority upon Mr Merrifield to commence or defend the Arbitration Proceedings. AMB submits that it did not authorise him to do so and that it must be construed narrowly (see Bowstead, 3-010.) and consistently with the Old Aachener resolution which authorised Mr Schmitz and Professor Hauptmann to deliver the power of attorney to Mr Merrifield. AMB also relies on the fact, to the extent that it is relevant, that it was the evidence of all the relevant witnesses that Mr Merrifield did not instruct Mr Yonge or Mr Clark to act for Old Aachener Re in reliance on the power of attorney.
- In my judgment the Power of Attorney did not on its true construction authorise Mr Merrifield to commence or defend the Arbitration Proceedings, but was limited to completing the Interlife Sale Agreement and I accept Mr Miles' submission in this respect. If it had in fact so authorized Mr Merrifield, I do not consider that the fact that neither Mr Merrifield, nor Mr Yonge nor (as I find) Mr Clark thought that Mr Merrifield was giving them instructions pursuant to the power of attorney would have been determinative of his actual authority, but this issue does not arise, give my view on the construction of the document.
The continuity of Manches' pre-July 1995 retainer
- This argument assumes that neither Mr Merrifield nor Professor Hauptmann had actual or ostensible authority to give instructions to commence or continue proceedings in 1998. The submission on behalf of the Solicitor Defendants and Mr Merrifield is that Professor Hauptmann, while still a director of Old Aachener Re, authorised Manches to commence proceedings when he gave initial instructions to them through Mr Merrifield in February 1995 to assert the sellers' claim for the unpaid consideration. Although there is no documentary evidence that Professor Hauptmann was aware that Manches had been instructed prior to his resignation as a director of Old Aachener Re, Mr Merrifield said in his oral evidence, and I find as a fact, that he took instructions from Professor Hauptmann when he instructed Manches in February 1995. Indeed it was accepted by AMB that Professor Hauptmann had actual authority on behalf of Old Aachener Re to instruct Manches, through Mr Merrifield, to act on its behalf in the dispute and that he did so.
- However, although this evidence is relevant to the next critical issue of actual or ostensible authority, in my judgment the original retainer per se to pursue the claim in correspondence did not authorise Manches to commence the Arbitration Proceedings without further instructions from Mr Merrifield, with authority from the company, whether actual or ostensible. Mr Yonge conceded in his oral evidence that it was not within the scope of his original instructions to commence the Arbitration Proceedings without further authority. I therefore accept the submissions of AMB that it does not follow from the mere fact that Manches had been retained with Old Aachener Re's authority in 1995 that they had a continuing retainer to issue the Arbitration Proceedings. Manches' instructions up to July 1995 were limited to considering the agreements and the correspondence and writing a forceful and detailed letter to SEB. As AMB submitted, Manches required further instructions before they commenced the arbitration proceedings in November 1998.
- The question whether Manches were properly authorised to bring the proceedings in 1998 depends on the questions of actual and ostensible authority, which I turn to below.
The actual authority, alternatively the ostensible authority, of Professor Hauptmann/Mr Merrifield to give instructions to commence and continue the Arbitration Proceedings.
Summary of facts relevant to authority
- I now summarise the facts, which are relevant to the issues of actual and ostensible authority, as I find them. My findings are based on the evidence of the witnesses and the inferences, which can properly be drawn from the contemporaneous documents.
- As I have already mentioned, the sale of Old Aachener Re's participation in Interlife to SEB was dealt with on behalf of Old Aachener Re by Mr Merrifield, who had received his instructions to deal with the sale on behalf of Old Aachener Re from a director of Old Aachener Re, Professor Hauptmann. Until July 1995 Professor Hauptmann was generally in charge of the "life" side of Old Aachener Re's business of which Interlife had formed a part.
- I should say at the outset that, having heard him give his evidence, I found Mr Merrifield to be an honest and credible witness and reject the criticisms made of him by Mr Miles. He was not someone who would have concerned himself with the minutiae of corporate changes. I fully accept his explanation that he relied entirely on Professor Hauptmann in whom he clearly reposed considerable trust. I reject AMB's invitation to find that Mr Merrifield was not telling the truth, that he was evasive, and that he knew of the corporate changes. His task was to deal with administration of the claim on behalf of the corporate shareholders: if he knew of the corporate changes, he had no possible reason not to pass on the information on to the solicitors. Nor am I prepared to impute any dishonest or improper motive to Professor Hauptmann's failure to tell Mr Merrifield of the corporate changes. The evidence revealed that Professor Hauptmann was generally held in the highest regard as a man of integrity and was completely honest and straightforward in his dealings. He was a man of excellent and untarnished reputation and an extremely busy man. The claim was, on any basis, a small one and it is highly likely that he simply did not concentrate very closely on it or on the progress of the arbitration. Until 2002, when the matter was raised with him directly, he clearly never turned his mind to whether it mattered that the proceedings had been brought in the name of Old Aachener Re.
- Likewise, I should say that, in my judgment, the fact that Mr Schmitz, an ex-director of Old Aachener Re (who had been involved in the drafting of the Incorporation Agreement in relation to "demarcation" questions, who retired after the merger in 1997, but remains as a consultant to AMB to this date, who was a colleague of Mr Wierling in AMB and had an office in its building, and who was involved in discussions in 2002) did not give evidence is highly significant. I accept Mr Strauss' submission that one can infer from his absence as a witness, that he would not have been able to give any evidence which would be capable of supporting a conclusion that, on the balance of probabilities, Professor Hauptmann was not actually authorised to deal with the dispute after July 1995. Whether this is because Mr Schmitz does not remember what he himself might have agreed to, or because he cannot say whether others might have reached such an agreement, is irrelevant.
- Following completion of the sale of Interlife in 1993, Mr Merrifield was given the responsibility on behalf of the corporate vendors (except Trygg Hansa) for pursuing the further consideration payable under the Interlife Sale Agreement. Professor Hauptmann was told this, and agreed to it and was kept in the picture periodically by Mr Merrifield. It is common ground that, at least until his resignation as a director of Old Aachener Re in June 1995, the sale of Interlife, and the subsequent dealings with the performance of the sale contract, fell within the remit of Professor Hauptmann, who had actual authority to give instructions to Mr Merrifield to take steps on behalf of Old Aachener Re to enforce performance of the Interlife Sale Agreement.
- In February 1995 Mr Merrifield retained Mr Yonge of Manches to act on behalf of Old Aachener Re to recover the balance of the purchase price and to rebut the allegations of breach of warranty. This retainer was given with the full knowledge and approval of Professor Hauptmann, as well as a Mr Contominas on behalf of the other shareholders. It is common ground that Professor Hauptmann had authority to do so.
- All of Mr Yonge's instructions with regard to the dispute, so far as they concerned Old Aachener Re, came from Mr Merrifield, and throughout the period of his retainer Mr Yonge remained unaware of any of the corporate changes in 1995 and 1997 which affected Old Aachener Re. The evidence shows that between July 1995 and the commencement of proceedings in November 1998, copies of letters, reports and other communications were sent to Professor Hauptmann by Mr Merrifield on eleven occasions. Mr Merrifield instructed Manches in about spring 1997, (ie before the merger between Old Aachener Re and AMB in June 1997, which was completed in October 1997), that in the event that SEB continued to refuse to pay the balance of the purchase price, then proceedings would be issued for the recovery of the monies. Mr Merrifield's recollection was that by the first quarter of 1997 he had received instructions from Mr Contominas and Professor Hauptmann as regards the course of action to take and that they had agreed that they wanted to arbitrate, if necessary. It is relevant to note that under clause 1(3) of the Merger Agreement, the acts and dealings of Old Aachener Re were deemed to be undertaken on behalf of AMB from 1 January 1997, effectively until the merger in 1997.
- I conclude on the evidence that the instruction to Manches to start arbitration proceedings was given with the full knowledge and approval of Professor Hauptmann. I reject AMB's assertion that Professor Hauptmann was not consulted before proceedings were initiated. I accept Mr Merrifield's oral evidence to the effect that Professor Hauptmann was involved in the decision to approach Mr Yonge. Mr Miles' cross-examination did not undermine what Mr Merrifield had said in this respect. Moreover Mr Merrifield's reports to Professor Hauptmann prior to the commencement of proceedings, both of which refer to the contemplated legal proceedings are entirely consistent with such instructions having been given. In the last written communication to Professor Hauptmann before the issue, on 11th July 1998, Mr Merrifield sent Professor Hauptmann a copy of an opinion from Manches together with an earlier (redacted) note he had sent to Manches, stating in effect that on the advice of counsel no proceedings had been issued until after the five year period for notification had expired, but it had now been "agreed by all parties" that the dispute would be arbitrated in London. The reference to arbitration having been agreed "by all parties" is to the exchange of letters between Manches and Lagerlöf & Leman (lawyers then acting for SEB) in which Manches asked whether SEB would be prepared to accept normal court proceedings, and Lagerlöf & Leman said that it would insist on arbitration in accordance with the rules of the Institute.
- Mr Merrifield's evidence is to the effect that he, Mr Merrifield, made administrative decisions, such as agreeing the amount of solicitors' costs, but that key decisions such as the commencement of proceedings were taken by the shareholders, including Professor Hauptmann. Apart from sending various letters and other documents to Professor Hauptmann, Mr Merrifield occasionally telephoned him to keep him informed about the current position. Mr Yonge confirmed that Mr Merrifield had told him that he had been in touch with Professor Hauptmann. It is thus clear that Professor Hauptmann's involvement continued and that, where necessary, he gave instructions to Manches through Mr Merrifield until the proceedings were commenced in November 1998. He continued to be involved for the remaining nine months of the Manches period. The instruction given by Mr Merrifield to Manches to commence proceedings for the recovery of the balance of the purchase price was not withdrawn by Professor Hauptmann or anyone else following the merger between in 1997.
- The Arbitration was commenced by delivery to the Arbitration Institute of the Stockholm Chamber of Commerce of a Statement of Claim and supporting documentation on or about 9 November 1998. On 11 March 1999 SEB wrote to the Arbitration Institute indicating that it intended to counterclaim in the arbitration. Mr Merrifield sent this letter to Professor Hauptmann (and the other vendors) on 27 April 1999. On 20 April 1999 SEB delivered to the Arbitration Institute, and to Manches, a copy of its Reply, Set Off and Counterclaim. This document was passed to Mr Merrifield by (at the latest) 26 April 1999 (when it was discussed with him at a meeting with Manches). On or about 26 May 1999 it was sent by Mr Merrifield to Professor Hauptmann. The covering letter asked him to "think about the issues alleged and to note down action/matters that may be of assistance to our legal advisor and Counsel". Professor Hauptmann clearly read and understood the nature of the counterclaim. He contacted former directors of Interlife expressing his concern that if the case went against the Fourth Claimant it might affect his directorships. It must have been obvious to Professor Hauptmann that there was likely to be a counterclaim, even before proceedings were issued. Professor Hauptmann had been forwarded copies of letters from SEB making detailed allegations of pensions mis-selling by Interlife. He had known and been party to the adoption of a litigation strategy of waiting until April/May 1998 before commencing proceedings. He had been provided with a five page Counsel's opinion to the same effect. Though the advice has not been produced, it must obviously have considered the nature of the likely counterclaims and what should be done about them.
- When Mr Yonge retired from Manches, in August 1999, Mr Yonge introduced Mr Clark to Mr Merrifield as a potential replacement solicitor for the Arbitration Claimants. Mr Clark was a partner at SGH recommended to Mr Yonge by Joshua Swirsky, Junior Counsel for the Arbitration Claimants. Mr Yonge sent Mr Clark an exploratory fax on 22 July 1999. Mr Yonge's successor at Manches made various inquiries of Mr Merrifield, noting that he appeared from the earlier correspondence to be the conduit for all of the Arbitration Claimants and seeking his confirmation that this was still the case. However, a meeting occurred on 2 August 1999 involving Mr Yonge, Mr Clark and Mr Merrifield in the light of which Mr Merrifield confirmed that the case was to move from Manches to Mr Clark at SGH and so informed Manches. Mr Merrifield confirmed by copy to Mr Clark that the decision was that of all the Vendors whom Mr Merrifield represented "and these are all except Trygg Hansa" and that Mr Clark should treat the copy letter as authority to contact Manches to secure all documentation on the matter so far. Mr Merrifield also confirmed that Mr Clark was to use Mr Young as a source of information regarding the situation). On 9 August 1999, Mr Merrifield reported to Professor Hauptmann and Mr Contominas that the transfer to SGH had been effected and that SEB had filed a counterclaim for gross negligence. Mr Clark on behalf of SGH served notice of change of solicitors on behalf of all the Claimants and Respondents to Counterclaim on 17 August 1999 and himself wrote Professor Hauptmann at an address given to Mr Clark by Mr Merrifield, namely the address of AMB - "ERC Aachener" Maria Theresa Strasse 35 Munich. Mr Clark said specifically
"I write to advise that I have received instructions (from Alec Merrifield) to act on behalf of your company in respect of the Arbitration Proceedings."
and enclosed a copy of the Notice of Change of Solicitors and a Schedule of Issues setting out some of the matters which had to be resolved.
- When Mr Clark moved from SGH to P&J in March 2000, Professor Hauptmann was so informed in writing by Mr Merrifield and matters simply continued as before, with Mr Merrifield keeping Professor Hauptmann informed by fax, letter or telephone communication to the latter's address at ERC New Aachener.
- So far as the German side of the story was concerned, upon the hiving down to New Aachener Re of the non-group business of Old Aachener Re, and the sale of New Aachener Re out of the AMB Group in June 1995, there was the need to decide in relation to particular parts of the business whether they remained with Old Aachener Re, or whether they were to pass to New Aachener Re. The rights under the Interlife Agreement were not dealt with as part of these commercial discussions between Old Aachener Re and ERC. The Interlife agreement and the associated dispute did not feature in annex 3 to the Stock Sale and Transfer Agreement, and (wrongly, as it transpired) was not identified as passing to ERC. Mr Schulze-Wierling said that, following completion of the transactions, there were many discussions between Professor Hauptmann and Mr Schmitz, an ex-director of Old Aachener Re, who had been involved in the drafting of the Incorporation Agreement about "demarcation" questions. I conclude that the probability is that the conduct of the Interlife dispute was discussed between Professor Hauptmann and Mr Schmitz. I have already pointed out that Mr Schmitz was not called as a witness by AMB, although it appears from Herbert Smith's letter dated 25 June 2004 that he was in a position to provide information to AMB and, no doubt, could have been so called.
- The only steps taken by Old Aachener Re to inform those with whom it had had dealings of the relevant corporate changes were
i) a "mailshot" exercise organised by the underwriting department – there is no evidence to suggest that this would have included a letter to Mr Merrifield;
ii) making contact with those whose dealings might be affected by the changes. This exercise did not extend to SEB, Mr Merrifield or Manches; and
iii) notification by an entry in the Commercial Register in Aachen. This, I find as a fact, based on the evidence of Mr Merrifield, Mr Yonge and Mr Clark, did not come to Mr Merrifield's, or the solicitors', attention.
- Both the sale of the business of Old Aachener Re to ERC and the merger of ERC with Francona were widely publicised in the financial press. However, unless the specific consequences in relation to the fate of the Interlife claim, and the dissolution of Old Aachener as a corporate entity had been specifically brought to Mr Merrifield's attention, (which I find they were not), I do not consider that mere knowledge of the sale of the business of Old Aachener Re and the merger of ERC with Francona would have brought home to him the potential consequences for Old Aachener as an Arbitration Claimant. Nor do I consider, in the circumstances, that the fact that Mr Merrifield was writing to Professor Hauptmann at "ERC Aachener" at its Munich address, in any way suggests that he must have known of the corporate changes.
- At all times up to Professor Hauptmann's death in February 2002, Mr Merrifield believed that Professor Hauptmann was fully involved handling the matter on behalf of Old Aachener Re. Moreover Professor Hauptmann's own note to Mr Merrifield dated 7 January 2002 and his conversations with Mr Merrifield and Mr Schulze-Wierling suggest that he certainly believed that, at all material times after July 1995, all rights arising in respect of the Interlife Agreements remained with Old Aachener Re, and (accordingly) that he was acting on behalf of Old Aachener Re in giving directions and receiving information as to the assertion of claims against SEB and the initiation of the arbitration proceedings.
- The minutes of the meetings of Old Aachener Re, between July 1995 and 1997 when it ceased to exist, have been checked and there is no mention of Interlife at all or any authorisation of Professor Hauptmann to conduct arbitration proceedings on its behalf. However the minutes before 5 July 1995 (when Professor Hauptmann signed his letter of resignation as a director, to take effect on 14 July 1995, before the transfer of the business by means of the Incorporation Agreement on 7 July 1995) have not been located or checked. It is therefore perfectly possible that there was such a resolution authorising Professor Hauptmann before that date.
- However, when, in January 2002, Mr Merrifield first raised with Professor Hauptmann S & M's suggestion that Old Aachener Re had ceased to exist, Professor Hauptmann was adamant that they were mistaken. He said that all that had happened was that there had been some corporate restructuring and name changes, but it was possible to trace through the continuing existence of Old Aachener Re. When Professor Hauptmann first made contact on the telephone with Mr Schulze -Wierling, (who knew and respected Professor Hauptmann) on 16 January 2002, the former stated that the proceeds of the sale of Interlife belonged to AMB as successor to Old Aachener Re, and not to ERC. Mr Schulze-Wierling's note of the call included the following:
"Arbitration proceedings in London since a few years ago, decision immediately imminent (final hearing)"
"A few 100,000 DM are too much for AMB to give up."
"forgot to inform AMB"
"Interlife not transferred to ERC, as sold prior to contract with ERC and not mentioned therein (Professor H checked this) - going to send documents"
"Details from Eric Merrifield (?), at the time charged with sale"
"Fax re:legal successorship and the future pursuance of rights through Merrifield to M."
- As a result of his conversation with Professor Hauptmann, Mr Schulze-Wierling knew that the arbitration had been commenced in the name "Aachener Re", ie the name of the old company which did not exist. Mr Schulze-Wierling expressed no surprise to hear that Professor Hauptmann had been acting in the matter. He certainly did not question his authority or ask for the return of the files back or anything of that sort. Moreover he accepted in evidence that he, as former in house counsel of Old Aachener Re, would not have expected to have been kept informed of matters being dealt with by Professor Hauptmann on that company's behalf after June 1995.
- On 16 January 2002 Mr Merrifield faxed Professor Hauptmann seeking confirmation in writing that:
"… AMB are the beneficial owners of the funds from the sale of the Aachener shares in Interlife to SE Banken of Sweden"
"Confirmation from AMB that [Mr Merrifield] continues to represent and act on behalf of their interests in securing the balance of proceeds of the sale to SE Banken and the satisfactory conclusion of this matter."
- On 17 January 2002 Professor Hauptmann forwarded a copy of this fax to Mr Schulze-Wierling. On the same date, Mr Schulze-Wierling sent two faxes to Professor Hauptmann enclosing a draft and a subsequent amended draft of the requested letter confirming the corporate position and authority of Mr Merrifield, having by then (or subsequently) discussed the matter with his colleagues at AMB, Mr Schmitz and Mr Brockhoff, a lawyer in AMB's legal department, and a Mr Beissel, another colleague of Mr Wierling, for almost a day on 17 and /or possibly 18 January 2002. On 18 January 2002, the confirmation letter, in its final form, signed by Mr Schulze-Wierling and Mr Brockhoff was sent to Mr Merrifield by Mr Schulze-Wierling, with a copy to Professor Hauptmann. It read as follows:
"This is to confirm that AMB Generali Holding AG (formerly named AMB Aachener und Munchener Beteiligungs-Aktiengesellschaft) is the beneficial owner of the funds from the sale of the shares of its former subsidiary Aachener Ruckversicherungs-Aktiengesellschaft (Aachen Re) in Interlife to SE Banken of Sweden.
Our company is the legal successor of Aachen Re (in 1995 renamed … (AMR)) following the merger of AMR and AMB on 13 October 1997 with the effect that all of AMR's assets and liabilities, rights and obligations have been transferred to AMB retroactively as from 1 January 1997.
This is to further confirm that you represent us and act on behalf of our company's interests in claiming and securing the payment to us of the balance of the proceeds of the sale to SE Banken and the satisfactory conclusion of this matter."
- On 31 January 2002 Mr Schulze-Wierling wrote to Mr Merrifield in the following terms, providing more detailed information about the corporate changes:
"The following declaration is made in my capacity as a German lawyer and in house counsel (Syndikus) of AMB Generali … in order to protect AMB Generali's interests in the subject matter proceedings by answering the questions recently raised with regard to the status of AMB Generali in the proceedings.
AMB Generali as the legal successor of Aachen Re (later AMR), as will be shown further below, is identical with the Fourth Claimant and is thus asking the Tribunal for permission to amend the Fourth Claimant's name.
In summary, as shown above, I reiterate that AMB Generali is the beneficial owner of the funds from the sale of the shares held by its former subsidiary Aachen Re in Interlife to SEB. Due to the merger of AMR (formerly: Aachen Re) with AMB (later: AMB Generali) the name of the Fourth Claimant ie Aachen Re, must be changed to 'AMB Generali Holding AG'. AMB Generali continues to bring the claim of its former subsidiary Aachen Re against SEB in its own name to claim the payment of the outstanding purchase price from the sale of Interlife to SEB."
The letter concluded by saying:
"I trust that the above declaration regarding the status of the companies concerned will help you to bring this matter to a satisfactory conclusion for AMB … I would appreciate receiving any documents and material information in your possession concerning this claim and the counter-claim and being kept informed about further developments of the case".
- For present purposes what is notable is that it does not seem to have occurred to any of Mr Schulze-Wierling, Mr Schmitz, Mr Beissel and Mr Brockhoff, when they spent about a day agonising about whether to write the letter of 18 January, or when they wrote the letter of 30 January 2002 that the Interlife matter was nothing to do with Professor Hauptmann and that he should not have been dealing with it. They did not - as might have been expected, if they doubted his authority - contact Professor Hauptmann, ask him to explain why he had been dealing with the matter and ask him to send back the file. On the contrary, Mr Schulze-Wierling said in evidence that Mr Schmitz (who had been involved back in 1995 to 1997) was "clear that the matter fell within the responsibility of Professor Hauptmann" and that "it was a matter for Professor Hauptmann". Moreover, at no time prior to his death 10 February 2002, did anyone at AMB apparently question or raise with Professor Hauptmann the question of his past authority (or want of authority) to act on behalf of AMB. Nor is there any record of such concerns being raised within AMB during this period, despite the fact that on 6 February 2002 Mr Schulze-Wierling wrote to his superiors, Dr Becker (CFO), with a copy to Dr Dageförde (General Counsel of AMB) explaining what he had been told by Professor Hauptmann about the claim and attaching copies of the letters of 18 and 31 January, in the following terms:
"Professor Hauptmann failed to draw the litigants' attention to Aachener Ruck's corporate changes since 1995, in particular to AMB's succession-in-law. This failure is supposed to have threatened - officially by excluding Aachener Ruck from the proceedings- to destroy the favourable prospect of enforcing the claim. That is why Professor Hauptmann has asked that Mr Merrifield be supplied in the near future - for the court hearing - with the declarations necessary for changing the names of the parties and that he be authorised to continue in AMB's name with the claim for the purchase price."
This request was granted by letters of 18 and 31.01.2002 to help preserve our rights. … Mr Merrifield has been called on to advise us in full on the details of the proceedings so that the future course can be controlled from this end."
- It is common ground that the question of Professor Hauptmann's actual authority must be determined in accordance with German law. Mr Miles' submission is that Professor Hauptmann had no actual (including no implied) authority and that Professor Hauptmann simply did not direct his mind to the question of the effect of the corporate changes until specifically asked to address the issue in January 2002. At that point, submits Mr Miles, he considered the issue (possibly for the first time) and concluded that the rights and liabilities had remained with Old Aachener Re. He then took steps to communicate with AMB. Mr Miles also invited the Court to accept Mr Schulze-Wierling's evidence that AMB was not aware of the proceedings at any stage prior to that date and to draw the obvious inference that Professor Hauptmann realised that he had no authority to bind AMB when he first involved Mr Schulze-Wierling in the proceedings. He further submitted that while it is possible that Professor Hauptmann felt able to manage a minor dispute in correspondence in 1995 on behalf of Old Aachener Re and, in particular, to authorise the writing of the letter dated 12 July 1995, there was no suggestion at that stage that it would result in substantial legal proceedings. He, submitted Mr Miles, (like any other director or gesamtprokurist) would have required express authority to authorise the commencement of legal proceedings and it would have been natural for him to approach Old Aachener Re or (by this time) AMB and to ask for that authority even if there had been some "informal arrangement" of the kind suggested by SEB. Mr Miles further submitted (1) that, under English law, a director has no implied or usual authority to authorise legal proceedings and one would expect to see a resolution of the Old Aachener Re board of directors authorising litigation of this kind and that (2) there is no expert evidence suggesting the position is any different under German law.
- I reject these submissions, both as to the law and as to the facts, largely for the reasons submitted by Mr Strauss. Mr Miles' submissions as to the law can be tested this way. Suppose that there had been no corporate changes, and Professor Hauptmann had simply continued to be a director of Old Aachener Re, in charge of the life reinsurance business. Suppose that the correspondence had progressed more quickly, and within a couple of months the buyers had decided that they wished to issue proceedings. Mr Miles' submission is that, in these circumstances, Professor Hauptmann would have had to obtain a further resolution signed by the holders of two joint Prokura. In my judgment, this would have been surprising. The proposition that, where an officer of the company of whatever kind has authority to instruct outside counsel - whether that authority is express or implied - he must obtain a separate authority with two signatures hardly accords with any of the evidence in this case as to what happens in practice either in England or in Germany. So far as England is concerned, none of this would have happened if any of the three firms of solicitors involved had required a corporate resolution signed by two persons. As to Germany, the evidence of Dr Wilske and Professor Habersack suggests strongly that it happens infrequently.
- The evidence does not reveal the nature of the authority given to Professor Hauptmann pursuant to which he instructed outside counsel, Manches & Co, in early 1995. There may have been a formal resolution. There may have been a decision by Professor Hauptmann, agreed to by another holder of a Prokura. Professor Hauptmann may have relied upon his implied actual authority as a director and/or as the second senior person in charge of the department. Nor does the evidence reveal what was the scope of the authority: it may or may not have expressly covered the commencement of proceedings.
- As to Mr Miles' submission that (1) a director of an English company has no implied or usual authority to authorise legal proceedings, it is correct to say that a director, qua director, has relatively narrow implied or usual authority. However, it is important not to confine questions of usual authority to the office held by a director. A director will also ordinarily hold an executive position, and it is that which will carry with it a more extensive usual authority associated with his executive position and functions; see generally, Gore-Browne on Companies Vol. 1, 5.3.2; Hely-Hutchinson v Brayhead  1 QB 549, at 586-7 per Lord Wilberforce. The decision in Daimler Company v Continental Tyre Company  2 AC 307 at 322-3, 325-6 and 336-7 is authority for the following propositions:
i) normally the power to institute proceedings is vested in the board by reason of the articles of association;
ii) the board may delegate this power to, for example, the secretary, or any other person;
iii) it is suggested at p.336 that normally (but not inevitably) the delegation should be by resolution of the board, but this is a matter for the articles; and
iv) a company may be estopped from denying that a particular person has power to institute proceedings if they have held him out as possessing that power.
- I turn next to Mr Miles' submission that "there is no [expert German] evidence suggesting the position is any different under German law"; (his asserted English law position being that a director has no implied or usual authority to authorise legal proceedings and one would expect to see a resolution of the Old Aachener Re board of directors authorising litigation of this kind). It is true that the evidence was directed specifically at the position of in-house counsel, but I accept Mr Strauss' submission that the principle must apply equally to a person in the position of Professor Hauptmann, who was a director and second in charge of the life reinsurance department. AMB had not previously suggested that there was any issue as to the scope of Professor Hauptmann's authority, so the point was not directly addressed in the expert evidence.
- The general principle, as stated in paragraph 2(a) of the Joint Memorandum of the three Experts, is as follows:
"Assigning to someone tasks which require special authority if they are to be duly performed means at the same time that said person has technically been granted the corresponding authority".
Or, as Mr Miles put to Dr Wilske "where someone is appointed to a particular task, they are treated in German law as having the implied authority to do what is necessary to carry out that task?" Dr Wilske confirmed that this was correct. The effect of the evidence is that the operation of this principle gives in-house counsel the authority to instruct outside counsel. Dr Wilske's view was that whether Old Aachener Re board authorization was required was very much a matter for the internal policy of individual companies: in a really big case (three digit millions in euros), there would normally be a Old Aachener Re board decision, which would be conveyed to the in-house counsel by a telephone call from a Old Aachener Re board member. There was no evidence to suggest that, once in-house counsel had authority to instruct outside counsel, he needed a separate and additional authority to instruct outside counsel to commence legal proceedings.
- In November 1998, this was still not a very large case. The claim was £2.8m and the latest estimate of the counterclaim was that SEB had increased its reserve to £5.5m in July 1997. AMB's share was 12.65%. It is true that there was no direct evidence relating to the implied authority of a senior member of the life reinsurance department. But Professor Hauptmann had been in charge of the Interlife investment from the outset in 1985 and it is common ground that he had been handling the dispute. Mr Schulze-Wierling said in evidence that he did not find it surprising that Professor Hauptmann had been dealing with it and had not even told him - the head of the legal department - about it. Nor do I accept AMB's suggestion that Professor Hauptmann's statement in his telephone call on 16 January 2002 that he had "forgotten to tell AMB", was an acceptance that he had told them nothing since 1995. The probability is that it was agreed that Professor Hauptmann should carry on handling the matter in 1995, and that everybody knew what was happening until the old management retired at the time of the merger in 1997. When AMB took over a few months after the universal succession, nobody was left who had been involved since Mr Schmitz had retired. It is probable that all this statement meant was that Professor Hauptmann had forgotten to tell the new team who then took over.
- It is, in my judgment, a fair inference that responsibility for pursuing performance of the Interlife Sale Agreement and in particular for recovering the balance of the purchase monies was specifically assigned to Professor Hauptmann after the corporate restructuring in July 1995, and that he retained express authority to deal with that matter at all times up until his death. Other possibilities, either that he was acting dishonestly or that he was acting on behalf of New Aachener Re, can be dismissed on the basis of the direct evidence which I have summarised above. The only other possibility, namely that he was mistaken in believing that he had the authority of Old Aachener Re, is inherently unlikely, since:
i) Professor Hauptmann was aware that he had become a director of New Aachener Re, and ceased to be a director of Old Aachener Re;
ii) He believed (on this hypothesis) that the outcome of the dispute would affect Old Aachener Re and not New Aachener Re;
iii) He knew that the outcome of the dispute would be likely to be either a payment to Old Aachener Re, or a payment by Old Aachener Re: the outcome would not be neutral so far as that company was concerned;
iv) He knew that after completion of the 1995 transactions he was the only person left from Old Aachener Re who would have the knowledge and experience to deal with the detailed "life department" issues raised by the Counterclaim;
v) Since he was in regular contact with Herr Schmitz over continuing business and demarcation issues, there would have been every opportunity to consult and confirm his authority with a director of Old Aachener Re, and no reason not to;
vi) As an experienced life insurance man and director, he would have been aware of the importance of ensuring decisions were taken with authority from the appropriate source;
vii) Whilst it is plausible that, having once obtained authority, he would not have continually referred back to obtain fresh authority to act, it is implausible that if he had not obtained authority at the outset, he would not have wanted to do so as the matter dragged on and developed into an arbitration involving both a defence and counterclaim.
- Moreover I agree with the submissions made by Mr Fenwick QC, counsel for Manches, that the Court should be ready to draw an inference which is adverse to AMB's position because AMB is the party best placed to have led evidence as the true position by producing the relevant documentary material and witnesses. As I have already said above, Mr Schmitz, the former director of Old Aachener Re in the period after 1995 until the merger, has not been called although he is plainly still available. No inquiries have been made to locate Professor Hauptmann's papers. Apart from the position as to Old Aachener Re's board minutes (which I have referred to above) no papers from Old Aachener Re have been produced
- Accordingly, I conclude, that, on the balance of probabilities:-
i) Up to July 1995, Professor Hauptmann was entrusted in his capacity as a director and second in charge of the life reinsurance department with the task of dealing with this small scale dispute.
ii) It is to be inferred from all the circumstances that he had express actual authority to instruct Manches up to that date. If I am wrong about that, in any event, in that capacity he had implied authority to do what was necessary for the performance of the task referred to in (1) above, including instructing outside counsel.
iii) He would in 1995, whilst still a director, have needed no further authority to commence proceedings (i) because the dispute was on a small scale and (ii) because, in any event, once an executive is dealing with a legal dispute and has authority to instruct outside counsel, no additional authority is needed to instruct outside counsel to commence litigation.
iv) From the circumstances, I infer that from July 1995, when he ceased to be a director of Old Aachener Re, he nonetheless continued to have actual authority to continue to handle the dispute. I conclude that the way in which he behaved, the fact that demarcation of responsibilities was discussed between him and Mr Schmitz and the reaction of those within AMB in January 2002, none of whom questioned Professor Hauptmann's authority when the matter first arose, all lead to the inference that he was authorised to keep his function of handling the Interlife dispute after 14 July 1995, notwithstanding he was no longer a director.
v) If I am right about that, then he, in my judgment, also retained, as incidental to that function, the implied actual authority to instruct English solicitors to commence proceedings. By the time proceedings were started in November 1998, they were still on a relatively modest scale: AMB's share of the claim was £400,000 and of the estimated counterclaim about £¾ million. Indeed, irrespective of the question of implied actual authority, it is also highly likely on the balance of probabilities (and I so find) that he was given express authority to instruct Manches to bring proceedings, although this is more likely to have been oral and informal, rather than by way of a formal Old Aachener Re board resolution.
- In the light of my decision on actual authority, it is not strictly necessary for me to decide the issue of ostensible authority. But because this matter may go further, and out of deference to counsel's submissions, it is clearly appropriate that I should determine this issue also. I do so on the basis that I am wrong in my previous finding that Professor Hauptmann had actual (whether express or implied) authority to instruct Manches, via Mr Merrifield, in 1998 to issue the Arbitration Proceedings in 1998, or, in other words, that I am wrong in concluding he had been given actual authority after his resignation to continue to act for Old Aachener Re and subsequently AMB. The issue is whether, on that assumption, in all the circumstances, AMB nonetheless held him out as having ostensible authority to do so. It is common ground that the issue of ostensible authority of Professor Hauptmann and Mr Merrifield has to be determined in accordance with English law.
- The legal principles relating to ostensible authority were largely common ground between the parties. The elements of ostensible authority were set out authoritatively by Diplock LJ in Freeman & Lockyer v Buckhurst Park Properties  2 QB 480 at page 503 and 505/6. At 505/6 he said this:
"If the foregoing analysis of the relevant law is correct, it can be summarised by stating four conditions which must be fulfilled to entitle a contractor to enforce against a company a contract entered into on behalf of the company by an agent who had no actual authority to do so. It must be shown:
(1) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made by the contractor;
(2) that such representation was made by a person or persons who had "actual" authority to manage the business of the company either generally or in respect of those matters to which the contract relates;
(3) that he (the contractor) was induced by such representation to enter the contract, that is, that he in fact relied upon it; and
(4) that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent"
- As this shows, ostensible authority requires holding out by the principal. In the case of a company, holding out is generally by appointing a person particular office or by arming him with the badges of authority (notepaper, business cards etc), knowing that he is purporting to represent the company. But all these involve the company permitting the agent to purport to act on its behalf. As Diplock LJ said in Freeman & Lockyer at page 503:
"The representation which creates the "apparent" authority may take a variety of forms of which the commonest is representation by conduct, that is by permitting the agent to act in some way in the conduct of the principal's business with other persons"
- It was also common ground that, as a general rule, the putative agent cannot clothe himself with ostensible authority. SEB accepted that it does not rely on any of the exceptions to that rule. SEB, however, relies on the rule that an agent whose actual authority has been revoked will continue to have ostensible authority as regards a third party who has previously dealt with him and who has not had notice of the revocation. In support of that proposition, SEB relies on Article 123 in Bowstead & Reynolds on Agency, 17th Edition, and the Canadian case of Rockland Industries Ltd v Amerada Minerals Corp. of Canada  2 SCR 2, which approved the article. It states that:
"Where a principal, by words or conduct, represents or permits it to be represented that an agent is authorised to act on his behalf, he is bound by the acts of the agent, notwithstanding the termination of authority (unless perhaps by the death or insolvency of the principal), to the same extent as he would have been if the authority had not been terminated, with respect to any third party dealing with the agent on the faith of such representation, without notice of the termination of his authority".
- Hence, if the elements of ostensible authority are made out, the third party may rely on it despite the revocation of the actual authority of the agent. In Rockland the Supreme Court of Canada expressly rejected an argument that it is necessary to look at the time of the transaction in question to determine whether there was an operative representation of authority and took the view that a usual authority may be deemed to continue, unless there is notice that it does not. However Mr Strauss accepted that the facts in Rockland were different as there the employee, who was originally held out to have authority to negotiate, remained an employee at all times, and there was merely an internal limit subsequently placed upon his authority to conclude the transaction, which is a straight application of the rule in Royal British Bank v Turquand (1856) 6 E & B 327, Exch Ch. The commentary in Bowstead makes it clear that the question of the extent to which ostensible authority continues after termination of authority has not been worked out in the cases. The older cases are not helpful, and I was not supplied with any up to date authority in point.
- Mr Miles submitted that in German law, as in English law, compliance with the statutory obligation to notify termination of the director's office in the relevant registry is notice to all the world and that, thereafter, the company cannot be treated as holding out the former director as its agent. I disagree both as to German Law and as to English law. Professor Wilske's evidence (the German law expert called on behalf of SEB), and the only expert who addressed the question, did not express such an opinion. His view (see paragraphs 6 to 9 of his second Supplemental Report) was that, although as a general principle, a third party should make inquiries of the Commercial register if it wants to rely on certain facts, under particular circumstances, such as where parties were in a continuous business relationship, German courts impose a duty upon companies to notify their partners about such changes. His view was that it might constitute an abuse of legal rights, in certain circumstances, for one party to rely on section 15 of the German Civil Code. Section 15 provides as follows:
"(1) As long as a fact requiring registration in the Commercial Register is not registered and published, knowledge thereof cannot be asserted against a third party by the one to whom the entry pertains, unless the third party knew of such fact.
(2) Where the fact is published, it may be asserted against a third party. This does not apply to legal transactions effected within fifteen days following publication where the third party proves he neither knew or should have known of such fact."
Professor Wilske said as follows:
"However, the German Supreme Court in Civil Matters (Bundesgerichtshof of BGH) has eroded this principle [this is a reference to the principle, that a third party should generally make inquiries of the Commercial register] and has repeatedly stated that reliance on section 15(2) of the German Commercial Code might constitute an abuse of legal rights under certain circumstances. In particular, when parties are in a regular business relationship, the BGH did not expect the respective other party to continuously double-check with the Commercial register but imposed a duty on a party which registered certain amendments in the Commercial register to also notify its business partner about such changes in circumstances. This applies, in particular, to the transformation of a partnership with unlimited liability into a legal entity with legal liability. I attach a supporting BGH decision….
If, from the perspective of Mr Merrifield, nothing changed in the way Professor Hauptmann presented himself (ie if he acted like a director and Mr Merrifield had no reason to double-check whether there had been a change in his authority) then, in my judgment, under such circumstances it would amount to an abuse of rights if AMB were simply to point to Section 15(2) of the German Commercial Code and expect Mr Merrifield regularly to review the Commercial Register so as to verify whether the business partner still had authority to do what he had continually been doing. Accordingly, the consequence of (1) Professor Hauptmann continuing to act as if he still had authority, (2) Mr Merrifield having no reason to question the authority of Professor Hauptmann and (3) Old Aachener Re/AMB not informing Mr Merrifield about the resignation of Professor Hauptmann, would create an apparent authority. I have not found any case law directly covering such a scenario.
- It is of course for me to decide, taking account, where relevant, of the German law as to the effects of registration and English law as to ostensible authority, whether in the factual circumstances of this case, Professor Hauptmann had ostensible authority, notwithstanding the termination of his directorship. So far as German law is concerned, it is clear that section 15 does not, on its true construction, predicate that a third party is deemed to have constructive knowledge of a registered transaction; the words are "may be asserted", not "must". That is recognized in the authority referred to and reflected in Professor Wilske's opinion, which shows that in an appropriate case the company is not entitled to assert.
- So far as English law is concerned, the position is very similar, which is not perhaps surprising since section 42 of the Companies Act 1985 was enacted to implement the requirements of the First EEC Company Directive 68/151/EEC. Section 42 provides as follows:
"(1) A company is not entitled to rely against other persons on the happening of any of the following events –
(a) the making of a winding-up order in respect of the company, or the appointment of a liquidator in a voluntary winding-up of the company, or
(b) any alteration of the company's memorandum of articles, or
(c) any change among the company's directors, or
(d) (as regards service of any document on the company) any change in the situation of the company's registered office,
if the event has not been officially notified at the material time and is not shown by the company to have been known at the time to the person concerned, or if the material time fell on or before the 15th day after the date of official notification (or, where the 15th day is a non-business day, on or before the next day that was not) and it is shown that the person concerned was unavoidably prevented from knowing of the event at that time.
In subsection (1), 'official notification' and 'officially notified' have the meanings given by section 711(2) (registrar of companies to give public notice of the issue or receipt by him of certain documents)."
- However, although the section precludes a company from relying against others on the happening of any of the specified events, if they have not been officially notified, the converse does not apply; see Buckley on the Companies Act 1985, paragraph [42.4] and Official Custodian for Charities v Parway Estates Development Ltd  Ch 151, (a case which was not cited to me in argument). In the latter case Dillon LJ said as follows at pages 162-3, in relation to section 9(3) and (4) of the European Communities Act 1972 (the statutory precursor of section 42):
"The question then is whether, even so, it is implicit in section 9 (4), or necessary in order to give effect to section 9 (4), that, after an official notification of an event has become fully effective, all persons must be treated as having constructive notice of that event. Three matters can be urged in support of the argument, viz.: (i) if an event has not been officially notified a company can still rely on it against a person who has actual knowledge of it, and so official notification is in a sense treated as the counterpart of actual knowledge, in enabling the company to rely on the event; (ii) during the period of grace before the official notification has become fully effective, the person concerned can prevent the company relying on the event by showing he was unavoidably prevented from knowing of the event, absence of the event being treated in the period of grace as countervailing the official notification: and (iii) it is difficult to think of the circumstances in which a company will wish to rely as against a third party on the happening of the event of its own liquidation and in which the real issue will not be the third party's knowledge of that event rather than the happening of the event itself.
This question whether official notification of a relevant event constitutes notice of that event to all the world, is an important question. If indeed the notification does constitute notice at all, the very many landlords who are not in the habit of studying the London Gazette regularly of effecting regular searches of the files of their company tenants in the Companies registry will be at risk of inadvertently waiving the forfeiture of leases by accepting rent after the company tenants went into liquidation.
The deputy judge, after considering the wording of section 9(4) and views expressed in Palmer's Company Law 23rd ed., vol. 1, pp. 184, 185 – 186, concluded that subsection (4) did not impute knowledge to anyone. It was essentially negative in its impact. It provided that a company cannot rely upon a relevant event if it is not in the Gazette but it did not make the positive counter proposition that a company can rely upon that event – sc. it can rely upon everyone having notice of that event – merely because it is in the Gazette. I agree with the deputy judge's analysis of the subsection and with his conclusion.
I would add two further comments. In the first place, I do not think that the link, such that it is, in section 9(4), between official notification of a relevant event, and actual knowledge of the event if it has not been officially notified, requires that official notification should be treated as importing notice of the event to everyone. The object of the legislation is that persons dealing with a company should be officially given an opportunity to finding out important information concerning the company vis-à-vis those who have actual knowledge of the relevant event. Hence the qualification of the restriction imposed by the subsection of the company. It is not necessary to treat official notification as the equivalent of actual knowledge in all circumstances.
In the second place, among the events, other than liquidation and the appointment of a liquidator, listed in section 9(4) as events on which a company cannot rely in the absence of official notification are making of any alteration in the memorandum of association of the company, including, of course, its object clause, and the making of any change among the company's directors. But it is plain to my mind from section (9)1 that a person dealing in good faith with a company is not to be treated as having constructive notice (as under the previous ultra vires doctrine of English law) of the terms of the company's objects clause, whether in its original form or as from time to time altered, and is not to be treated as having constructive notice of the composition from time to time of the Old Aachener Re board of directors of the company. The tenor of the section is thus against imputing constructive notice of the relevant events to persons dealing with a company, while ensuring that they have an opportunity to find information about those events."
(I should record that Mr Strauss additionally relied upon section 711A(1) of the Companies Act, but this has not yet been brought into force.)
- In my judgment, SEB's submissions and those of the Solicitor Defendants are to be preferred on this issue, to those of AMB. It is clear on the evidence (and indeed was implicitly accepted by AMB) that, prior to his resignation in July 1995, Professor Hauptmann was held out as having authority to tell Mr Merrifield to instruct Manches to claim the unpaid purchase price and resolve the dispute with SEB, and to communicate with Mr Merrifield for the purpose of progressing the disputed claim. To that extent, he was authorised by Old Aachener Re to hold himself out as having the authority, which he was in fact given. That was a representation made by Old Aachener Re, not only to Mr Merrifield but also to Manches, and the consequences of, and the obligations flowing from, that representation are binding on AMB. This again brings one back to the question, whether (prior to his resignation) such admitted actual authority did or did not extend to the commencement of proceedings. I have already held that it did.
- The facts are, as I have already stated, that Professor Hauptmann remained continuously involved with this matter from about February 1995, when he was party to the decision to instruct Mr Yonge, until his death on 10 February 2002. Accordingly, I accept Mr Strauss' submission that the position is that, in relation to a specific matter, Professor Hauptmann was held out to Mr Merrifield to have authority to give him instructions to be passed on to the solicitors handling the dispute. Nobody gave Mr Merrifield notice, at the time of Professor Hauptmann's resignation, either of the resignation or of the termination of his authority. Professor Hauptmann went on dealing with this specific matter, and the information as to the 'chain of command' was passed on to SGH and P&J. It also follows that, since Mr Yonge of Manches was, in August 1999, still proceeding on the basis that instructions were given by Professor Hauptmann through Mr Merrifield, he had actual authority so inform a new firm of solicitors to whom he was handing over the papers; therefore Mr Clark was entitled, on behalf of SGH and subsequently on behalf of P&J, to rely on Mr Merrifield's authority. Thus In my judgment, on the particular facts, Professor Hauptmann had continuing ostensible authority, even if he was not actually authorised.
- Mr Miles submitted that there was no "one continuous process at all". First, he pointed to a gap in the chronology between 21 March 1997 and 8 July 1998 during which Mr Merrifield had no contact with Professor Hauptmann. This is easily explicable. The Arbitration Claimants decided in 1997 on counsel's advice to wait until April 1998, when the 5 year notification period would have expired, before issuing proceedings. The second point was that Mr Merrifield must have known of the corporate changes because he was writing to Professor Hauptmann at ERC Aachener in Munich. I have already rejected this argument and held that Mr Merrifield was not aware of the corporate changes. I can see that the principle expounded in Article 123 of Bowstead might very well not apply if, for example, Professor Hauptmann had sought, after 1995, to instruct a firm with which he had dealt before 1995 in a new matter, or even if he had sought to instruct Manches in a new matter. But here there was, as I have found a continuous process, and chain of command, both before and after his resignation.
- Professor Hauptmann's ability to give instructions on behalf of Old Aachener Re can be traced to the failure, at the time of the split in the company's business in July 1995, to notify all the persons with whom Old Aachener Re had dealt of the changes. Mr Schulze-Wierling described in his evidence the substantial exercise undertaken of identifying and writing to clients, but no effort appears to have been made to identify any other categories of persons with whom the company had dealt, and to whom similar information should have been given. In my judgment, it would be wholly wrong, in circumstances where (on the assumption that Professor Hauptmann no longer had actual authority to instruct Mr Merrifield) no-one at Old Aachener Re or AMB had taken the simple step of informing Mr Merrifield that he no longer represented the company, for the consequences of, or the risks inherent in, that administrative oversight to be visited upon Mr Merrifield or any of the solicitor defendants.
- Accordingly, it follows that since, in my judgment, Professor Hauptmann had ostensible authority to instruct Manches via Mr Merrifield to commence the Arbitration Proceedings, and to continue to defend them, they were authorised.
Issue C - If the proceedings were purportedly started on behalf of AMB but without its authority, whether AMB has subsequently ratified the proceedings
- The issue of ratification only arises if my decision on authority is wrong. It was common ground that, if I decided the first issue adversely to SEB (that is to say that the Arbitration Proceedings had not been purportedly started on behalf of AMB, but were a nullity), then this issue did not arise.
Law on ratification
- The relevant law relating to ratification was largely common ground, although there was some disagreement about the fine detail. The principles may be summarised as follows.
i) It is common ground that the question whether AMB ratified the conduct of the solicitor defendants in the Arbitration Proceedings is governed by English law; see also Presentaciones Musicales SA v Secunda and Another  Ch. 271 at 283H per Roch LJ
ii) Where an act is done purportedly in the name or on behalf of another person but without his authority, that person may, by ratifying it, make it as valid and effectual as if it had been done with his authority, whether the person who did the act was exceeding his authority or had no authority at all. Ratification is equivalent to antecedent authority; Bowstead and Reynolds on Agency 17th edition ("Bowstead") para. 2-047-8, Halsbury's Laws vol. 2(1) para. 96 and Koenigsblatt v Sweet  Ch. 314 at 325. As Bowstead states at para. 2-093
"The effect of ratification is to invest the person on whose behalf the act ratified was done, the person who did the act, and third parties, with the same rights, duties, immunities and liabilities in all respects as if the act had been done with the previous authority of the person on whose behalf it was done; subject to the agent's liability to the third party for any loss caused by his breach of the warranty of authority, and to his principal for loss caused by his breach of duty except in so far as this has been waived as between them."
iii) Ratification requires an unequivocal act. Thus although ratification may be express or may be inferred from conduct, the conduct amounting to ratification must amount to "clear evidence that [the principal] adopts or recognises such act or transaction in whole or in part"; see Bowstead para. 2.070 and 2.072-3.
iv) Ratification is a unilateral act of will. There is no need for ratification to be communicated to the agent or anyone else. As was said by Rowlatt J in Harrison & Crossfield Ltd v London and North-Western Railway Co  2 KB 755 at 758:-
"Now, ratification does not rest on estoppel. It need not be communicated to the party alleging it. Ratification is a unilateral act of the will, namely, the approval after the event of the assumption of an authority which did not exist at the time. It may be expressed in words or implied from or involved in acts. It is implied from or involved in acts when you cannot logically analyse the act without imputing such approval to the party, whether his mind in fact approved or disapproved or wholly disregarded the question."
v) Silence or acquiescence may also amount to ratification, depending on the surrounding circumstances. The principle is stated in Halsbury vol. 2(1) para. 95:
"Although ratification must be clear and must bear distinct reference to the facts of the particular case, it need not necessarily be proved by positive acts of adoption. In certain cases it is sufficient evidence of ratification that the intended principal, having all material facts brought to his knowledge and knowing that he is being regarded as having accepted the position of principal, takes no steps to disown that character within a reasonable time, or adopts no means of asserting his rights at the earliest time possible."
This statement was approved by Waller J in Suncorp v Milano  2 Lloyd's Reports 225 at 234 to 235. His judgment contains a closely reasoned analysis of the correct scope of ratification by silence or acquiescence, which represents the current state of the law on ratification by conduct, silence or acquiescence. After noting that the formulation in Halsbury's Laws (quoted above) came very close to estoppel, Waller J confirmed that it was, nevertheless, properly regarded as ratification and stated further:
"It seems to me that it should not be open to a principal, who to the outside world by his conduct, or that of his duly authorized agents, appears to have adopted a transaction to be able to prove subjectively that in fact he had not, any more than such a principal would be able to prove subjectively that he did not intend to adopt a transaction when he does an act eg accepts the payment of money, which objectively adopts the transaction."
Thus whether there has been ratification by silence or acquiescence depends on the objective character of the principal's conduct as it appears to the outside world, ie how it would have appeared to a reasonable person in the shoes of the third party with whom the unauthorised agent dealt. The principal cannot defeat the inference of ratification by stating that, contrary to appearances, he did not intend to adopt the transaction.
vi) Reservations about the adopted transaction, which are inconsistent with adoption, but which are not communicated to the third party contracting with the unauthorised agent, will not prevent an inference of ratification where that is the objective appearance to the outside world of the principal's conduct. As Waller J said in Suncorp,
"A time must come when whatever reservations a principal is making internally, it is just too late to take issue as to the extent of an agent's authority. It is not an estoppel case, but where it is known to the principal that the other contracting party is acting on the basis and incurring expenditure on the basis that the extent of the principal's authority is as being stated by the agent, and he does nothing to correct that impression, ratification will be inferred. This is just such a case."
vii) What might otherwise be regarded as an act of ratification may be vitiated by want of knowledge if the ratifier did not have full knowledge of all the material circumstances in which the act was done. This was the area of greatest dispute between counsel as to what might be regarded as material. As far as knowledge is concerned the requirement is stated by Waller J as follows:
"In order that a person may be held to have ratified an act done without his authority, it is necessary that at the time of the ratification, he should have full knowledge of all the material circumstances in which the act was done, unless he intended to ratify and take the risk whatever the circumstances may have been. (See Bowstead art. 16, p.64) The commentary makes clear however that this principle, designed to protect the principal from being held too readily to have ratified acts of his agent, is less strict in a contractual context than it is in a tort context."
viii) Just as a principal may authorise an agent to perform an act, so a principal may authorise an agent to ratify, on his behalf, an earlier unauthorised act: Bowstead 2-077. The agent may bind the principal as regards the ratification by (i) express authority, (ii) actual implied authority, or (iii) apparent authority.
ix) The authorities identify a number of relevant factors in considering whether conduct amounts to ratification:
a) Adoption of part of the transaction amounts to adoption of the whole of the transaction: a principal cannot approbate and reprobate. Thus, in Suncorp, Waller J stated that acceptance of liability under the contract for any amount, would constitute ratification of the whole.
b) Once a transaction has been adopted, the ratifying principal cannot change his mind and resile from the ratification; Bowstead para. 2-093.
c) Ratification by conduct or silence will be more readily inferred where there is a pre-existing relationship of agent and principal, because a principal who authorises an agent (to any extent) puts himself on risk as to that agent's acts and will be bound by them: Bowstead paras. 2-074, 2-100.
d) The principal will not be permitted to wait to see whether the transaction is advantageous to him before deciding whether to approve it.
e) Lapse of time is relevant to whether ratification should be inferred. The longer the principal stands by and does nothing, while action is taken by the contracting third party (and others) under a false impression as to the agent's authority, the more compelling the inference of ratification becomes, irrespective of whether the principal came under any positive duty to speak; see Suncorp paragraph .
Facts relevant to ratification
- I now summarise the evidence, as I find it, which is relevant to whether or not ratification occurred. (I include references to the core bundle documents and the transcripts of evidence in certain instances.) I have received detailed submission as to creditability of the witnesses which I have carefully considered. However most of the issues in this case depend upon an objective view of the correspondence and other documents in the case. In so far as it is relevant, I found neither Mr Schulze-Wierling nor Mr Clark to be entirely satisfactory witnesses. Mr Schulze-Wierling's recollection appeared at times to be coloured by his desire to uphold AMB's position in these proceedings and Mr Clark had no satisfactory explanation as to why he had continued to act after 9 May 2002 when it was clear to him that there was uncertainty as to the extent of his retainer.
- When Professor Hauptmann first made contact with Mr Schulze-Wierling, he stated that the proceeds of the sale of Interlife belonged to AMB as successor to Old Aachener Re, and not to ERC: CB/E2/462; Day 7 153/18-154/5. Mr Schulze-Wierling continued to believe at all material times prior to the institution of these proceedings that that was indeed the position and the benefit of the claim was vested in Old Aachener Re. As a result of his conversation with Professor Hauptmann, Mr Schulze-Wierling knew that the arbitration had been commenced in the name "Aachener Re", ie the name of the old company which did not exist: Day 4 76/12-14.
- On 18 January 2002, as I have already mentioned, AMB sent a letter, signed by Mr Schulze-Wierling and Brockhoff in the following terms:
"This is to confirm that AMB Generali Holding AG (formerly named AMB Aachener und Munchener Beteiligungs-Aktiengesellschaft) is the beneficial owner of the funds from the sale of the shares of its former subsidiary Aachener Ruckversicherungs-Aktiengesellschaft (Aachen Re) in Interlife to SE Banken of Sweden
Our company is the legal successor of Aachen Re (in 1995 renamed … (AMR)) following the merger of AMR and AMB on 13 October 1997 with the effect that all of AMR's assets and liabilities, rights and obligations have been transferred to AMB retroactively as from 1 January 1997.
This is to further confirm that you represent us and act on behalf of our company's interests in claiming and securing the payment to us of the balance of the proceeds of the sale to SE Banken and the satisfactory conclusion of this matter."
- The purpose of writing the declaration of 18 January 2002 was to enable Mr Merrifield to collect payment of any sum awarded to AMB by the Tribunal: Day 4 77/21-23. This necessarily entailed accepting that the Tribunal would make its award on the basis of the evidence and arguments which had been submitted to it, and Mr Schulze-Wierling understood this: Day 4 78/20-25, 80/3-81/3.
- By the time when Mr Schulze-Wierling wrote his letter of 31 January 2002 [CB/E2/485-487], he had spoken to Mr Merrifield on three occasions and was aware of the existence of the Counterclaim; and that the critical question was whether SEB could prove "gross negligence" against Interlife: Day 4 41/3-44/8; he also knew from his conversation with Professor Hauptmann that the arbitration had been going on for several years: CB/E/462; Day 4 43/10-23.
- An Advice of Michael Driscoll QC (counsel acting for the Arbitration Claimants) was sent to Mr Schulze-Wierling by Mr Merrifield on or about 21 January 2002. Paragraph 7 of that Advice said
"We also need whoever has the benefit of the claim to be certain that it fully understands its legal position; we do not want it to be exposed to liabilities unnecessarily. It must take its own legal advice in our opinion".
- Following receipt of that Advice, Mr Schulze-Wierling was aware that solicitors were acting for the Fourth Claimant in the arbitration; and that they faced a costs risk if the position of the Fourth Claimant was not regularised. He also knew that AMB was being advised to take independent legal advice on the position: Day 4 92/7-93/13, 94/12-96/7.
- On 1 February 2002, Mr Merrifield sent directly to Mr Schulze-Wierling a package of documentation concerned with the arbitration, including the Defence and Counterclaim [CB/E2/497-498]. Mr Schulze-Wierling did not read this documentation: he was unable to give a satisfactory reason for not having done so.
- Mr Schulze-Wierling's letters of 18 January 2002 and 31 January 2002 were discussed with his superior, Dr Dageförde (head of legal department); and copied to Dr Becker, the chief financial officer and a director of AMB. Neither suggested that the letters had been written without the authority of AMB: Day 4 125/5-127/1.
- On 6 March 2002 Mr Schulze-Wierling spoke with Mr Clark of P&J on the telephone. There is a dispute about what was said in this conversation in particular as to whether AMB gave or confirmed a mandate to P&J in the course of the conversation. In so far as it is relevant I prefer the evidence of Mr Clark, whose account is supported not only by his contemporaneous attendance note, but also by his subsequent letter and the surrounding circumstances. Mr Schulze-Wierling's evidence was also contradictory in various respects. CB/E2/558; Day 4 135/7-136/4. The note records:
"5. I advised that the final hearing was now due to take place in August 2002 at which the parties would give their final oral submissions on the issues that the Tribunal had to make decisions on. I advised that written submissions had to be submitted to the Tribunal by 1 June 2002.
6. Burkhard confirmed that Portner and Jaskel will continue to act on AMB's behalf and that Alec Merrifield would continue to receive instructions from AMB in relation to the Arbitration Proceedings."
8. Burkhard said that he had received a significant amount of documentation from Alec Merrifield but he had not yet read through all of them. Burkhard said that as far as AMB was concerned the most important question was the quantification of the claim and the Counterclaim. Burkhard also said that he wanted to know the prospects of the claim being successfully pursued and the Counterclaim being successfully defended. Burkhard asked me to prepare a summary of what the claim was about and give some indication as to the prospects of success.
11. Burkhard said that it was now important to ensure that the name of the Fourth Claimant was changed based on the fact that AMB had purchased and taken on all of the liabilities of the Aachner [sic] company and therefore could not now jump boat."
- I find as a fact that during the course of this conversation Mr Schulze-Wierling instructed him to go ahead and get the name of the Fourth Claimant in the Arbitration changed to AMB. As I have mentioned, this was consistent with what had happened previously and the surrounding circumstances. By 6 March 2002, Mr Schulze-Wierling had already stated in his letters of authorisation to Mr Merrifield dated 18 and 31 January 2002, that the name of the fourth Claimant "must" be changed to AMB, that AMB was identical with the fourth Claimant and that AMB "continues to bring the claim of its former subsidiary Aachen Re". These letters evidenced a strategy of unreserved commitment to the Arbitration Proceedings. Mr Schulze-Wierling's further instruction to P&J to act on 6 March 2002 is entirely consistent with that strategy. Moreover on 6 February 2002, Mr Schulze-Wierling had already stated to his colleagues, Drs. Dageförde and Becker, that AMB was participating in the Arbitration Proceedings and referred to AMB's desire to control the future course of the proceedings [CB 498d]. Mr Schulze-Wierling accepted in evidence that he considered AMB to be "inevitably involved" in the Arbitration Proceedings [6/62/13-16]. Nothing happened between 6 February 2002 and 6 March 2002 to alter Mr Schulze-Wierling's strategy. Although there was a clear change of strategy around 21 March 2002 following Dr Dageförde's suggestion that enforcement might be resisted in the event of an adverse award, Mr Schulze-Wierling's strategy as of 6 March 2002 was still that of unreserved commitment. I also find that Mr Schulze-Wierling had (at least) implied actual authority to give this instruction to P&J and, on the balance of probabilities, express actual authority to do so from his colleagues. Day 5 148/3-21.
- These instructions were confirmed in P&J's letter dated 19 March 2002 to Mr Schulze-Wierling. [CB/E2/583] which was in the following terms:
"I write to confirm your instructions that we should now file an application with the Tribunal to amend the name of the Fourth Claimant to AMB Generali Holding AG. I am writing to SE Banken's solicitors today to advise them that the application is to be made shortly".
On the same date P&J wrote to S&M saying:
"We confirm that we are instructed by AMB Generali Holding AG in respect of these proceedings. We have received instructions to seek permission to amend the Fourth Claimants name and we will shortly be making this Application."
- An advice from junior counsel (Joshua Swirsky) as to the issues arising in the arbitration and the prospects of success was sent to Mr Schulze-Wierling under cover of P&J's letter dated 14 March 2002 [CB/E2/569-578]. That Advice inter alia made clear that there was no dispute in relation to the claim, and that if the Arbitration Claimants succeeded on the issues of gross negligence and the construction of the exclusion clauses, then the claim was (depending on the number of sample cases said to be mis-sold) more than likely to exceed the counterclaim. However counsel emphasized that, as there had been no arguments or evidence on quantum, it was unrealistic to place a value on the counterclaim. He ended by saying that a more definitive indication on the prospects would be possible by July 2002.
- Following receipt of that advice, around 21 March 2002, Mr Schulze-Wierling discussed the matter with Dr Becker, and Dr Dageförde. Mr Schulze-Wierling's memorandum of that date states that the arbitration proceedings
"give rise to very substantial financial risks. It is therefore our pressing strategy to exercise influence over the proceedings of which we have only recently been informed over the advisers who are unknown to us".
- Mr Schulze-Wierling, together with Dr Dageförde, decided that they would adopt a course whereby AMB would allow the name of the Fourth Claimant to be changed to enable it to collect any award in its favour, but in the event that an adverse award was made it would attempt to resist enforcement on the basis that AMB had not been served with the proceedings. They kept this strategy to themselves: Day 5 8/4-10/21, 12/9-14/5, 87, 136/5-9.
- AMB's letter dated 22 March 2002 [CB/E2/587-588] reflected this strategy. It stated
"While I am content with your intention to have the name of the Fourth Claimant amended to AMB… I am more than discontented with the total extent of the arbitration proceedings which had been commenced and conducted without our knowledge.
I have to inform you that AMB Generali Holding AG, the legal successor of Aachen Re, learnt from your Advice for the first time about the enormous financial risks inherent in this dispute. There are indeed matters which I would like to discuss with you at this stage.
First of all, I would like to stress that we have not yet instructed you to represent our company in the arbitration proceedings.
Secondly, I would like to put the emphasis on the fact that we herewith expressly preserve our right to have the arbitration proceedings conducted otherwise if we do not receive satisfactory answers to our queries below. Only upon evaluation of the information provided by you we shall think about appointing you as our attorney in this case."
The letter also raised other complaints and asked for further information. It was not frank in that it did not inform P&J that AMB had decided not to do more than agree to the change of name until after the award had been rendered: Day 5 16/13-18/1, 22/13-21. But the letter clearly confirmed AMB's previous specific instructions to "change the name" in the Arbitration to AMB. Mr Clark confirmed his instructions in his letter of 25 March 2002. He said
"The current position is that my firm was always instructed by Aachener Re and it remains instructed by its successor, AMB…in order to maintain full representation of the shareholder Claimants we remain instructed unless your company decides to instruct another firm of lawyers…In the above circumstances unless we receive your instructions to the contrary, we will continue with the proposed application to amend the name of the Fourth Claimant…".
- On 10 April 2002 Mr Schulze-Wierling wrote to P&J [CB E3/610-611]. He stated
"Again, until today there is no mandate between AMB and your firm.
Under the given circumstances AMB would like to come to the understanding with you that until further notice any necessary instructions will be given to you on a case-by-case-basis upon evaluation of the complete information of the underlying facts."
In this regard, please let us know if you need from us specific instructions to file an application for the fourth Claimant's change of name."
- In my judgment this last statement appeared to confirm its intention to proceed to change the Fourth Claimant's name. Certainly he did not give any instructions to the contrary. Mr Schulze-Wierling appears to have envisaged that P&J was retained to protect AMB's interests, but under instructions that it should seek specific instructions before taking any step in the arbitration: Day 5 45/24-48/19. Mr Schulze-Wierling was however clear that he wanted the Counterclaim to be defended: Day 6 30/23-32/10. P&J wrote to AMB on 16 April 2002. In this letter they said
As far as your instructions are concerned, I confirm your instructions to proceed to have the Fourth Claimant's name changed in the Arbitration Proceedings. I have asked Slaughter and May (Solicitors for SE Banken) to deal with the change of name by consent and I will advise you when I receive their response.
… I look forward to establishing a strong working relationship with you and to continue representing your company. I am not sure what you mean in your fax as to my firm being instructed on a 'case by case' basis. Do you mean "stage by stage" basis?"
- In his prior draft of the letter, Mr Clark had actually asked for written confirmation of AMB's authority to apply for the change of name, by reason of AMB's determination of Mr Merrifield's retainer and had also stated that the Tribunal needed to be told if his retainer was limited. I do not accept AMB's submission that the draft indicated that Mr Clark knew that he needed additional express instructions before proceeding with the application for the change of name; he was entitled to assume that he had already received them and to respond to the question in AMB's letter to the effect that he did not need any such instructions. The last letter from AMB to P&J in 2002 is that dated 26 April 2002 [CB/E3/617]. This did not withdraw the instruction to change the name of the Fourth Claimant. Nor did it comment in any way on Mr Clark's statement that he had confirmed AMB's instructions to proceed to have the Fourth Claimant's name changed in the Arbitration Proceedings. Whatever Mr Schulze-Wierling's views or irritation about Mr Clark trying to "pull AMB into a client relationship", in my judgment it was clearly incumbent upon Mr Schulze-Wierling upon receipt of the letter of 16 April to make it clear (if indeed it were the case) that AMB did not agree to the change of name, that AMB had no instructions to apply for it and that AMB had no intention of instructing P&J. Thereafter, in P&J's letter dated 9 May 2002, he informed AMB that he was waiting to hear from S&M in relation to their consent to the change of name. He also said that
"…what does require clarification…is whether or not my first does have a mandate to represent AMB in the arbitration proceedings between now and the final hearing in August. It is not possible to limit my firm's mandate to just the change of name … look forward to receiving your confirmation that my firm is instructed up to and including the hearing on August… your company can then review the mandate after the hearing in August".
- I regard this letter as an inappropriate attempt on Mr Clark's part to press for instructions. But, be that as it may, although AMB was perfectly entitled not to participate in the proceedings or instruct anybody to represent them, it was not entitled to deceive the other parties to the Arbitration or the Tribunal. As Mr Schulze-Wierling recognized [Day 5/54-5], his instructions to change the name remained extant in May 2002, and he was clearly told that Mr Clark was pursuing them. This involved the other parties to the arbitration and the Tribunal being told that AMB wished to be treated as a party to the proceedings. If he had not wanted the application made, he should have said so clearly. I do not accept the suggestion that AMB did not realize that this would involve adoption of the proceedings. This is inherently implausible and wholly inconsistent with AMB's objectives as set out in the letters of 18 and 31 January 2002. By this stage Dr Dagerförde was fully involved, and he had copies of the letters. But in May 2002, Mr Schulze-Wierling and Dr Dageförde decide not to reply to any of P&J's correspondence and to await the outcome of the award.
- On 14 May 2002 S&M wrote to P&J confirming SEB's consent to the name change in the following terms:
We confirm we are willing in principle to consent to the proposed change of name of the Fourth Claimant, from Aachener Ruckversicherungs Gesellschaft to AMB Generali Holding AG, subject to our having the opportunity to review your suggested amendments to the Statements of Case in draft."
- Thereafter in the period May 2002 to 20 January 2003 AMB failed to react to any of P&J's subsequent letters, some of which informed AMB about the state of the proceedings, others of which sought instructions in relation to the wording of the amendment to give effect to the change of name. In particular, on 5 July 2002 P&J wrote to Mr Schultze-Wierling enclosing written submissions "on behalf of all the Claimants" and confirmed that leading and junior counsel would "be attending the hearing (on behalf of all the Claimants) commencing on 27 August 2002 at which final oral Submissions will be made". The letter ended "should you wish to discuss any of the above or raise any questions in relation to the enclosed Written Submissions I look forward to hearing from you." Likewise, on 7 August 2002, Mr Clark wrote to Mr Schulze-Wierling enclosing copies of further submissions and saying:
"I note that I have not received a response to my fax dated 9 May 2002 (copy attached). In the absence of your reply (to the earlier letter) I shall surmise that you are content to be represented by my firm at the hearing in August".
- On 20 January 2003 AMB wrote to Mr Clark denying Professor Hauptmann's authority and refusing to agree to the amendment in relation to the change of name in the following terms. Thereafter, as I have already said, on 30 January 2003 P&J served notice of ceasing to act and on 19 February 2003 AMB wrote to the Tribunal with copies to S&M, in the following terms:
"While it is correct that AMB is the legal successor of 'Aachener Ruckversicherungs-Gesellschaft Aktiengesellschaft' ('Aachen Re') neither Aachen Re nor AMB have authorized the proceedings. Aachen Re had long ceased to exist, ie in 1995, before the Arbitration Proceedings commenced in 1998. It was not before the year 2002, ie 4 years later, that we first became aware of proceedings in England in which Aachen Re was a named party. When we were first approached by P&J in February 2002 we clarified that we were the legal successor of Aachen Re. At the same time we made it clear to P&J that we would not instruct them in respect of these proceedings which had been commenced and conducted without our knowledge. Our position was since then constantly repeated to P&J which eventually and consequently led to their 'Notice of Ceasing to Act for the Fourth Claimant' dated 30 January 2003. We regret that the Tribunal has apparently not been informed of our situation earlier. It is maintained now as before that Portner and Jaskel was not vested with any power to represent AMB. Consequently, they could not oblige AMB with regard to this Arbitration. The same holds true as regards Aachen Re. Portner and Jaskel has not been instructed by Aachen Re to act on their behalf as this company was non-existent at the time when the proceedings were initiated. AMB invites the Tribunal to dismiss the Fourth Claimant from the proceedings."
The acts of ratification relied on
- The acts relied upon by SEB and the Solicitor Defendants as constituting ratification are the following:
i) Express ratification by AMB directly, by letters dated 18 January, 31 January and 22 March 2002 [CB/472, 485-7 587]. It is submitted that each of these amounted to ratification irrespective of communication to SEB.
ii) Express ratification by Mr Merrifield on behalf of AMB, by instructing P&J to act on the letters of 18 and 31 January.
iii) Express ratification by P&J on behalf of AMB, by their letters of 20 February and 19 March 2002 [CB2/508, 584].
iv) Express ratification by P&J, by its conducting the arbitration on behalf of AMB between 19 March 2002 and 30 January 2003, within their actual or ostensible authority.
v) Ratification by AMB directly, implied from silence or acquiescence in P&J's conduct, of which it was fully aware.
AMB's defence to the claim of ratification
- In order to resist the ratification claim (the burden of proof of which is on AMB and the Solicitor Defendants) AMB must, in my judgment, succeed in one or more of the following arguments:
i) that the alleged acts of ratification did not amount to such;
ii) that P&J had no actual or ostensible authority to do those acts; or
iii) that at the time of the last act for which P&J did have actual or ostensible authority, AMB still lacked the requisite knowledge of material circumstances, so that the ratification was ineffective
- In my judgement, subject to the question of knowledge, and without overburdening an already long judgment with a detailed analysis of precisely when, and by what act, ratification took place, AMB's acts as defined above clearly amounted to ratification of the proceedings. I conclude that, subject to the question of knowledge, in 2002, AMB by Mr Schulze-Wierling, ratified Manches' actions by confirming that steps should be taken to change the name of the Fourth Claimant on the record to AMB. This ratification was effective to authorise retrospectively all acts done by Manches including the submission to the Tribunal of the dispute concerning the balance of the purchase price and the service of the Counterclaim. I find as a fact that on 6 March 2002, Mr Schulze-Wierling gave specific instructions to Mr Clark to proceed to "change the name" in the Arbitration to AMB and that those specific instructions were effectively repeated in the subsequent letters in March and April 2002. I also find that those instructions were authorised or adopted by the Joint Prokura holder, Dr Dageförde, so as to bind AMB as a matter of German law. This was part of the strategy to take the plums in the arbitration without (if possible) the duff.
- Moreover, in my judgment, on any view, given that P&J was actually authorised to write the letter of 19 March 2002 to S&M, with copies to the Tribunal, at least to the extent that it referred to acting for AMB with respect to the change of name, this by itself was sufficient to give P&J ostensible authority to represent AMB in the arbitration proceedings, and SEB never had notice of whatever internal limitations there may have been on P&J's authority. Indeed Mr Schulze-Wierling accepted in evidence that P&J were the channel of communication for the name change.
- Although P&J had actual authority to act generally from 6 to 22 March, AMB's letter of 22 March 2002, although unclear and ambiguous in some respects, should have made it clear to Mr Clark that, whatever the position before, he was not authorised to represent, or to continue to represent, AMB in the substantive Arbitration Proceedings, other than under a limited retainer, for the purposes of applying for a change of name. But what is critical for present purposes is that P&J's authority with respect to the change of name was never revoked so that (for example) its letters of 9 May and 23 August to S&M were written with AMB's actual authority. Such letters were of course of great importance, since they clearly implied to the other parties, consistently with the letter of 19 March 2002 that AMB wished to participate in the proceedings and regarded itself as Old Aachener Re's successor. I conclude therefore that, subject to the question of knowledge, the acts of ratification identified under heads 1 to 3 above are made out.
- P&J continued to purport to represent AMB throughout 2002, until early 2003. Although, as I have held, it did not have actual authority to do so, since its instructions were limited to applying for a change of name, and it should so have informed the Tribunal and the other parties, nonetheless, since SEB had no knowledge of the limitation on its authority, SEB was entitled to assume in the circumstances that P&J was in fact authorised to act. As from 5 July 2002, at the latest, AMB had the clearest possible notice that P&J was exceeding its authority. P&J had expressly invited them to object and AMB hardly had to lift a finger to stop such activity. It was no answer for Mr Schulze-Wierling simply to explain that his reason for not intervening was his anger and irritation with Mr Clark. The former knew that other parties and the Tribunal were involved and that representations were being made to the effect that the proceedings were being conducted on AMB's behalf. In my judgment, the only possible motive for AMB's failure to write at an earlier stage was that it wished to preserve its ability to collect an award if favourable, and to resist enforcement if not.
- Accordingly I hold that P&J had ostensible authority until 2003 to represent AMB in the proceedings and therefore its acts of ratification continued, covered by its ostensible authority; this is the ratification identified under head 4 above. I also hold that AMB directly ratified the proceedings, by its acquiescence in P&J's partially unauthorised conduct, of which it was fully aware, and its silence, ie its failure to communicate the position to the Tribunal and the other parties.
- Therefore, AMB has to show that its lack of knowledge of material matters continued throughout the year.
AMB's alleged lack of knowledge of material circumstances
- Mr Miles identified AMB's lack of knowledge, which he contended was a bar to ratification, as being lack of knowledge of material circumstances, namely the following matters:
i) AMB's lack of beneficial entitlement to the claim;
ii) the existence and size of the counterclaim;
iii) the strength of the claim;
iv) the timing and finality of the hearing;
v) the option to become a party;
vi) conflict of interest between P&J and AMB in relation to costs.
Mr Miles made detailed submissions both orally and in writing, as to why such alleged absence of knowledge operated to defeat ratification.
- However, largely for the reasons set out in SEB's submissions, I reject Mr Miles' arguments as to heads (iii) to (vi). Either such matters were not in the circumstances material, and, or alternatively, Mr Schulze-Wierling was sufficiently informed about such matters by the time P&J sent out the letter of 19 March 2002 to S&M. As to the existence and size of the counterclaim (head (ii)), which was obviously a material circumstance, I do not accept that Mr Schulze-Wierling was unaware of the counterclaim on 18 January 2002. His evidence as to what he took on board in his conversation with Professor Hauptmann was unsatisfactory. In any event, the existence of a counterclaim was known on 21 January, and I accept Mr Merrifield's evidence that Mr Schulze-Wierling did not then ask for it to be sent. The fact that Mr Merrifield told Mr Schulze -Wierling that AMB was likely to recover something, was not misleading. It represented Mr Merrifield's view and Mr Schulze-Wierling, as a lawyer, was well able to appreciate the potential adverse significance of such a counterclaim. In any event a copy of the counterclaim was sent to him on 1 February, and I find it difficult to accept Mr Schulze-Wierling's evidence that he did not have knowledge of its contents or appreciate its significance until some time after 14 March. In my judgement, from 6 February, at the latest, AMB had the relevant knowledge or took the risk that it was acting without having fully informed itself of all material matters. In any event, by the time P&J's critical letter of 19 March 2002 was written to S&M, Mr Schulze-Wierling had received Mr Swirsky's advice, had discussed the matter with his colleagues at AMB, and clearly was aware of the potentially significant downside of the counterclaim. Accordingly, I reject AMB's argument in relation to knowledge of the counterclaim.
- As to Mr Schulze-Wierling's lack of knowledge of the beneficial entitlement to the claim, there was a disagreement between counsel as to the law relating to the type of knowledge that was relevant for the purposes of the principle. Mr Strauss submitted that, in considering what amounts to a lack of knowledge for the purpose of this rule, one should have regard to the purpose of the rule, namely to prevent ratification from taking place too easily; that in this context, lack of knowledge must mean an absence of information, not a failure to take on board information which is specifically provided to enable the principal to evaluate the particular situation. He relied on Bowstead at article 16, which refers at footnote 11 to the comment on the U.S. Restatement that knowledge could be inferred "when he has such information that a person of ordinary intelligence would infer from the existence of facts and questions"; and Powell on Agency, 2nd ed. 1961, which, with reference to the same paragraph of the Restatement states that "it is possible that he may even be presumed to know facts which an ordinary person would have discovered, at any rate if the third party seeks to impose liability on him.". He further relied on Powell v Smith 14 Equity 85 as authority for the proposition that the ratification is effective, notwithstanding a mistake as to the construction of the agreement which as being ratified. He submitted that Savery v King (1856) 5 HL Cases 627, relied upon by Mr Miles, was a wholly different case and distinguishable. He submitted that the beneficial entitlement to the claim was not unknown in the relevant sense; that in the course of being asked to ratify by Professor Hauptmann, Mr Schulze-Wierling was directed to the relevant information, (the Incorporation Agreement) which was an agreement to which AMB was a party, and in the drafting of which he himself had been concerned; but he made an elementary mistake and misconstrued the agreement. He submitted that to hold that this renders ratification ineffective would not serve the purpose of the rule, namely to prevent ratification from taking place too easily; on the contrary, it would render ratification ineffective in entirely inappropriate circumstances, namely where the principal is directed to the relevant information but fails to understand it.
- Mr Miles, on the other hand, submitted that the relevant knowledge was the actual knowledge of the alleged ratifier. It is not enough to show that a person had the means of knowledge or that they failed to make proper inquiries. He said that SEB's submissions that Mr Schulze-Wierling was to blame for his own ignorance miss the point; the test is knowledge, not negligence - even gross negligence. He further submitted that it is not surprising that ratification requires "full knowledge of all the material circumstances", since ratification is binding on the principal even without communication with the third party or any detriment to the third party, so it is natural that the law places the standard at this level. As to the reference to the test being "less strict" in contract cases, he submitted this can only mean that the court is entitled to take a less strict view of what constitutes all the material circumstances; it cannot involve a different approach to whether or not there was knowledge, which is simply a question of fact. The doctrine of ratification is sui generis, it is not a branch of contract law and it does not require any communication at all by the party ratifying. Contract cases are different because they involve the objective ascertainment of intention and it is natural in that context that some mistakes should be judged by reference to objective criteria. He relied on Savery v King (1856) 5 HL Cases 627 to support the proposition that a party will not be held to have ratified a transaction if he was ignorant of his rights or of the legal effect of a document. He also sought to rely on some comments of Lord Scott concerning "blind eye" knowledge in Manifest Shipping Co Ltd v Uni-Polaris Shipping Co Ltd,  1 AC 469
- Speaking for myself, I do not regard a debate about the vexed question of whether knowledge should be subjective or objective, and if the latter, how such "objective" knowledge should be defined in the context of ratification, as of assistance to my resolution of this issue. Nor do I find dicta relating to "blind eye" knowledge, in very different contexts, as helpful. Certainly, the dichotomy between the two types of knowledge, and how they should be articulated, has led to fierce debate, both academic and judicial, in other spheres, most notably in relation to constructive trusts and accessory liability, as well as in the criminal law. In my judgment, whether someone has "full knowledge of all the material circumstances" (to use Waller J's words) for the purposes of ratification, is essentially a fact specific inquiry, which is necessarily dependent upon the particular circumstances of any case. Sometimes it may be appropriate to have regard only to a person's actual knowledge; sometimes it may be appropriate to consider what could, or should, have been known to him. Nor do I find either Powell v Smith or Savery v King of much assistance. The former was not a ratification case, but rather a case where, unknown to third party, the principal's authorised agent had a restriction on the extent of his authority; the facts in the latter case were very different from the present, because the young son, who was the alleged ratifier, had been kept unaware, at the time of the alleged ratification, of the invalidity of the first and colourable transaction, through the conduct of his solicitor and father, who were the beneficiaries of the first transaction.
- In my judgment, Mr Schulze-Wierling's lack of knowledge of the true effect of the Incorporation Agreement is not a bar to ratification. His lack of knowledge cannot in any way be laid at the door of P&J or AMB. He was involved in its drafting and if neither he, nor anyone at AMB realized its true construction and effect, then AMB has to take the responsibility for that. AMB had the means of ascertaining what rights, if any, it had under the Agreement, and if he failed to do so, at a time when consideration urgently needed to be given as to what steps had to be taken by AMB in relation to the Arbitration Proceedings, then in my view AMB should be regarded as having taken the risk that it was proceeding without a full comprehension of its position. Parties are normally deemed to know what the legal effect is of contracts to which they are subject, and absence a claim for rectification, or rescission or similar relief, they are not entitled to contend that they were mistaken as to its effect; Powell v Smith is at least authority for that proposition. Moreover, certainly, in the absence of any notice of assignment, AMB remained the legal party entitled to bring the claim, and thus there was no mistake in that respect, whatever the position about the beneficial entitlement to the claim. Furthermore, AMB remained subject to the liabilities in relation to the counterclaim, which, as I have found, at the material times it appreciated.
- Accordingly, I conclude that the proceedings were indeed ratified.
Issue D - If the proceedings were not purportedly started on behalf of AMB, whether AMB, acting through its agents, has subsequently submitted to the jurisdiction of the arbitral tribunal.
- It is common ground that, if the proceedings were a nullity, ratification is not possible, and that, in that event, the issue as to whether there was a submission to the jurisdiction of the Arbitration by AMB arises. It is also common ground that if the proceedings were started on behalf of AMB but without its authority, ratification is possible, and there would be no need for any further submission to the jurisdiction, although that might be an alternative way of putting SEB's case. In view of my decision on the nullity, authority and ratification issues, the issue of submission to the jurisdiction does not arise for determination. Because of the possible implications of a decision on such an issue to arbitration proceedings, I am reluctant in the circumstances to decide it on a hypothetical basis, since it would involve a decision based on hypothetical factual and legal propositions (contrary to my conclusions in this judgment) in relation (a) to AMB's status as successor and the validity of the proceedings, (b) as to whether the proceedings were originally brought with authority and, possibly, (c) P&J's actual or ostensible authority in 2002 to 2003. If this matter goes further, the Court of Appeal will be in just as good a position as I am to decide, effectively on the correspondence and as a matter of law, (and with or without the benefit of my findings of fact) what will be the remaining issue, namely whether, before the amendment to change the name to AMB had been actually made, there was a submission to the jurisdiction of the arbitration by AMB.
Issue E - If the proceedings were not started by AMB or were started without its authority, whether it was made a party to the arbitration by the service of the counterclaim.
- Again, in the light of my findings on the other issues, this issue is academic. I shall however state briefly my reasons for concluding that, on the stated hypothesis, AMB was not made a party to the arbitration by the service of the counterclaim by the Arbitration Institute, or by S&M, on behalf of SEB, on Manches, and the subsequent provision by Manches to Mr Merrifield of a copy of the counterclaim.
- SEB and the Solicitor Defendants contend that SEB's Reply Set-Off and Counterclaim in the Arbitration Proceedings effectively commenced arbitration of the counterclaim against AMB, for the following reasons:-
i) The Interlife Sale Agreement and Interlife Deed of Indemnity contained arbitration clauses. Clause 12.01 of the Interlife Sale Agreement provided for notices to Aachener Re "required or permitted to be given hereunder" to be in writing and delivered to Mr Merrifield at a specified address.
ii) Clause 12.02 provided that the Interlife Sale Agreement was binding on, and would inure to the benefit of Aachener Re's successors (ie AMB). Therefore written notice to Mr Merrifield in accordance with Clause 12.01 was notice to AMB.
iii) A notice commencing arbitration is clearly a notice or other communication which was permitted to be given pursuant to the arbitration clause of the Interlife Sale Agreement, thus fulfilling the "hereunder" requirement.
iv) The notice was required to be sent to Mr Merrifield. Both the initial response letter from SEB to the Arbitration Institute and SEB's Reply, Set-Off and Counterclaim were sent to Mr Merrifield by Manches, having first been sent to Manches by S&M and by the Institute. It is submitted that notice of the counterclaim was therefore served in accordance with Clause 12.01.
v) The Counterclaim was sent to the Institute and Manches on 20 April 1999. In the context, including the letter of 11 March 1999 from SEB to the Institute forwarded to Manches on 23 March 1999. This cannot have been understood as anything other than a claim against the Sellers of the shares, other than Trygg Hansa. As regards Old Aachener Re's interest as Seller, this had been absorbed into AMB by universal succession. Notice of the counterclaim was given to Mr Merrifield at latest by being sent to him on 21 April 1999 by Manches.
vi) Mr Merrifield had authority to receive notice of arbitration under clause 12.01 of the Interlife Sale Agreement, alternatively the Institute had authority to receive notice under the Arbitration Rules. In either event, the arbitration against AMB was validly commenced by service of the Counterclaim.
- In my judgment the short fallacy in these submissions is that SEB never served the Counterclaim on Mr Merrifield pursuant to the Interlife Sale Agreement or pursuant to the Interlife Indemnity, in his capacity as the representative of Old Aachener Re and its successors in title. Nor did the Institute, pursuant to its rules. The relevant documents were only ever served on Manches, who, on this hypothesis, were unauthorized to act and were a stranger to AMB. The fact that Manches subsequently sent a copy to Mr Merrifield cannot avail SEB in its contention that it joined AMB to the Arbitration by serving its counterclaim.
- However (and although this is not a relevant issue under this head), for the reasons set out in relation to Issue A, the Counterclaim was not a nullity, because the intended respondent was AMB, as successor to the obligations of Old Aachener Re.
Issue F - If AMB is not otherwise a party, whether it is estopped from denying that it is party.
- This issue is also academic in the light of my decisions on earlier issues. However in my judgment, largely for the same reasons as those I have set out relating to ratification by acquiescence, AMB is estopped from denying that it is a party to the Arbitration Proceedings because of its conduct during 2002 and early 2003 which I have already described. I accept Mr Strauss' submissions that AMB had a clear duty to make its position clear because:
i) AMB knew that SEB considered AMB to be a party, based on what P&J had said to AMB. Even if AMB did not know, a reasonable person in the position of AMB would have known that SEB considered AMB to be a party.
ii) AMB had allowed or encouraged SEB's belief in the facts represented, by first stating to P&J that it was identical with Old Aachener Re and authorising P&J to represent that it was instructed to apply to change name.
iii) AMB wanted SEB to persist in its mistake so that AMB could preserve the benefit of the award if it was successful and resist enforcement if it was unsuccessful. That is a relevant consideration in relation to whether AMB acted honestly and responsibly.
iv) A reasonable man would expect AMB, acting honestly and responsibly, to make their position clear to SEB at the earliest opportunity. Therefore, applying the true test of unconscionability, there was a duty to speak up and correct the impression.
- I also find that SEB suffered real detriment. Mr Gray of S&M gave evidence which I accept that, had the lack of authority been revealed in April 2002, there were the good reasons why AMB would have been well advised to participate in the arbitration at that stage, with the opportunity of a period to catch up, rather than face a new arbitration in which they would struggle to find evidence to rebut SEB's counterclaim. At that stage no closing submissions had been prepared or given. On the evidence, AMB was likely to have followed that advice. Even if it had not done so, SEB would have been able to have started a new arbitration against AMB in 2002, rather than in late 2003, with the possibility of both arbitrations being heard together.
- My answers to the remaining issues are largely dependent upon the decisions, that I have already reached on the preceding issues. I answer them as follows:
Issue i): First, did Mr Merrifield give any warranty of authority to P&J that he acted on behalf of Aachener Re and/or AMB? Yes, he clearly did. I reject his argument that he was no more than a conduit for passing information. Like any other agent he warranted his authority to act on behalf of his principal.
Issue ii): if the answer to the previous issue is "yes", was Mr Merrifield in breach of that warranty? In my judgment, no, not on the basis of my findings as to authority.
Issue iii): has AMB lost the right to object to the substantive jurisdiction over it of the Tribunal in the Arbitration Proceedings? Yes.
Issue iv): did Manches, SGH, P&J or any of them act in breach of their warranties of authority with regard to Old Aachener Re/AMB? If they, or any of them, did, is AMB nevertheless bound by any award which may be made against it in the Arbitration Proceedings and are the rights and/or liabilities under the Interlife Deed of Indemnity and the Interlife Sale Agreement vested in AMB?
- The first question of Issue vi) raises a first, discrete point as to whether, albeit that I have held that the Solicitor Defendants were actually authorised to act until 22 March 2002, they were nonetheless in breach of a more limited warranty, namely that the fourth Claimant in the Arbitration Proceedings existed and bore the name of Old Aachener Re. In my judgment the case of Nelson v Nelson  1 WLR 233 (CA) clearly supports the common sense proposition that, if a solicitor starts proceedings on behalf of a named party, then, irrespective of the issue of authority, he warrants that such claimant bears that name and is in existence. In that case, at page 235, MacCowan LJ accepted the submission of counsel for the solicitors that
"a solicitor who lends his name to the commencement of proceedings is saying (1) that he has a client, (2) that the client bears the name of the party to the proceedings and (3) that lient has authorised the proceedings".
Likewise, at page 237, Peter Gibson J said:
"Prima facie his authority is to bring proceedings in the name of the client and I do not see that he warrants more than that he has a retainer from the client who exists and has authorised the proceedings and against whom a costs order can be made. He does not warrant that the client has a good cause of action, or that that the client is solvent."
The fact that, in Nelson, the issue about name or existence was strictly obiter, because what was in point there was whether the solicitor had given any warranty as to the title of his client, an undischarged bankrupt, to sue, does not detract from the assistance that I derive from this authority. Indeed, even in the absence of Nelson, I would reach the same conclusion. Accordingly, in my judgment, the Solicitor Defendants were in breach of this particular warranty, for the respective periods during which they acted. Whether, in the light of my conclusion as to authority, SEB will be able to show that it has in fact suffered any loss, as a result of this particular breach of warranty by any one of the three firms, is another matter, but that is not something which has been raised as a preliminary issue and, accordingly, is not something which I have to decide nor, indeed, can possibly decide on the evidence currently before me. If SEB wishes to pursue this matter further, it will need to apply for further directions as to the resolution of the matter. (I should mention that this point was not addressed in my initial judgment handed down on 29 October 2004, but was, at the request of SEB, after oral submission had been made on the point at the hearing on that date, addressed in my revised judgment provided to the parties on 22 November 2004.)
- The first question of the fourth remaining issue also raises a second point as to whether, albeit that I have found that the Solicitor Defendants were authorised to act respectively up until 22 March 2002, whether nonetheless P&J was in breach of its warranty of authority thereafter. (This point does not arise in relation to Manches and SGH). In my judgment, from the date of AMB's letter of 22 March 2002, which should have made it clear to Mr Clark that, whatever the position before, he was no longer authorised to represent AMB in the substantive Arbitration Proceedings, other than under a limited retainer, for the purposes of applying for a change of name, P&J was in breach of its warranty of authority that it was fully instructed on behalf of AMB to represent it in the proceedings. In my judgment, in the circumstances, it was incumbent upon P&J to inform parties to the proceedings that it only had a limited retainer to act for the purposes of applying for a change of name. Again, whether, in the circumstances, SEB has any claim for damages against P&J in respect of this particular breach, is not a Preliminary Issue and thus not a matter that I have to decide.
- But AMB is nevertheless bound by any award which may be made against it in the Arbitration Proceedings. The liabilities under the Interlife Deed of Indemnity and the Interlife Sale Agreement are vested in AMB. As agreed between the parties, as a matter of German law, on the construction of the Incorporation Agreement the rights thereunder are beneficially vested in New Aachener Re, although (again, as agreed between the parties), the legal right to the claim remains vested in AMB.
- If Manches, SGH and/or P&J acted in breach of their warranties of authority and, if AMB is not bound by any award in the Arbitration Proceedings, would SEB have ensured that AMB was joined to the Arbitration Proceedings but for the said breaches?
This does not arise in the light of my decisions on earlier issues.
- I should like to thank all counsel for their extremely helpful and comprehensive submissions which were invaluable in a case of this nature. The fact that I have not rehearsed all the finer points of the arguments does not mean that I have not been greatly assisted by them in coming to my conclusions.
Supplemental judgment dealing with matters arising subsequent to delivery of judgment on 29 October 2004
- This supplemental judgment deals (1) with the question of costs, (2) with AMB's application for permission to appeal and (3) the Solicitor Defendants' application for permission to appeal my decision as to the breach of warranty as to name and that part of my judgment which limits the costs that the Solicitor Defendants can recover as against AMB. After the initial handing down of my judgment on 28 October 2004, oral submissions were made as to the costs of the proceedings. Written submissions were made by various parties early in November 2004 relating to applications for permission to appeal. A revised judgment was provided to the parties in draft on 22 November 2004 (whilst I was out of London on circuit) dealing with the breach of warranty as to name, costs and permission to appeal. In the period 26 November to 9 December 2004, further written submissions were made on behalf of the Solicitor Defendants inviting me to reconsider that part of my revised judgment where I ordered that the Solicitor Defendants should only be awarded 50% of their costs as against AMB. In addition, further submissions were made on behalf of AMB, to the effect that if (contrary to its primary submission) I were to reconsider the costs order in relation to the Solicitor Defendants, I should limit the percentage that AMB had to pay to 33%. Submissions were also made seeking permission to appeal the costs order if, after reconsideration, I were not to alter it in the Solicitor Defendants' favour. I indicated that I would reconsider the ruling on costs in relation to the Solicitor Defendants in the light of the further submissions that I had received.
- SEB submits that it had no alternative but to bring proceedings against AMB and the Solicitor Defendants and that the issues in the action needed to be the subject of one judicial decision binding on all parties. Accordingly, SEB submits
i) that AMB should pay the costs of the action (including the costs which SEB has incurred as against the Solicitor Defendants);
ii) that, because of my holding that the Solicitor Defendants were in breach of the limited warranty, namely that the fourth claimant in the Arbitration Proceedings existed and bore the name of Old Aachener Re, SEB is also entitled to its costs (including the costs of SEB's claim against AMB) against the Solicitor Defendants; this order, submits SEB, is important, in case AMB successfully resists enforcement of any award as to costs in Germany;
iii) that otherwise there should be no order for costs as between SEB and Manches/SGH, but that SEB is entitled to its costs as against P&J; SEB also submits that any costs order to which any of the solicitor Defendants are entitled should be made against AMB alone (ie a Sanderson order).
- The Solicitor Defendants generally submit that there is no reason whatsoever for them to pay any of SEB's costs; that, on the contrary, SEB should pay their costs, and should recover them, if SEB is entitled to do so, from AMB; and that, in any event, because they made offers of settlement, and/or Part 36 offers which SEB have failed to beat, SEB must pay the costs from the date of the relevant payment.
- AMB submits that, whilst it accepts that it should pay SEB's costs, having lost as against it, it should not have to pay either directly or indirectly, any of the solicitors' costs, because it was unnecessary and disproportionate to join them; Mr Miles QC submits, in effect, that, if sensible case management procedures had been adopted, arrangements could have been made for them to have produced disclosure of any necessary documents, to have given any relevant oral evidence, and for them to have been bound by the result. He says that, in any event, it was excessive for them to have been represented at trial by three separate firms of solicitors and three separate sets of leading and junior counsel, and thus, if AMB were to have to pay the costs of the Solicitor Defendants, it should be limited to one set.
- I accept SEB's submission that it had no alternative but to bring proceedings against AMB and the Solicitor Defendants and that the issues in the action needed to be the subject of one judicial decision binding on all parties. I see the force of Mr Miles' submission that the parties could perhaps, possibly, have reached some sensible arrangement whereby the Solicitor Defendants agreed to be bound by the result of SEB's proceedings, and not to have taken part in them, whilst, at the same time, providing relevant disclosure and evidence. But the fact is that this did not happen; AMB denied that it had conferred authority upon the Solicitors and battle was joined. Although they had a common interest with SEB in establishing that AMB had indeed authorised or ratified the proceedings, the Solicitor Defendants, as a group, were nonetheless in a different position from SEB, given their liability for breach of warranty, if the case were decided in AMB's favour. Thus, despite my initial attraction to Mr Miles' submission on this aspect, I have come to the conclusion that, since AMB lost on the critical issues of authority and ratification, it should directly bear the costs of the Solicitor Defendants. In particular, I do not have the material before me to decide, where, if anywhere, the fault lay for the fact that some sort of arrangement was not put in place or whether, indeed, such an arrangement would have been feasible.
- I also reject SEB's submission that it is also entitled to its costs (including the costs of SEB's claim against AMB) against the Solicitor Defendants, because of my holding that the Solicitor Defendants were in breach of the limited warranty as to the name and existence of the fourth claimant in the Arbitration Proceedings. Given that the Solicitor Defendants have succeeded on the critical issues of authority and ratification (as against SEB and AMB), it would be wholly disproportionate for them to have pay SEB's costs of the whole proceedings, simply on the grounds that I have held that they were in breach of the limited warranty as to the name and existence of Old Aachener Re. In my judgment, SEB's submission that, because AMB may successfully resist enforcement of any award as to costs in Germany, SEB should be entitled to its costs now as against the Solicitor Defendants is ill-founded. If that event occurs, then, if SEB can show (as to which I say nothing) that the limited breach of warranty was causative of its ability to recover costs against AMB, then, subject to any other defences available to the Solicitor Defendants, SEB will be able to claim such costs in the action as damages for breach of the limited warranty. That, in my view, is the logical way of proceeding, rather than making any award of costs at this stage.
- Nor do I see any justification for making any separate or distinct order for costs, as against P&J, either at the suit of AMB or of SEB. If AMB has grounds for complaint in relation to P&J continuing to act after 22 March 2002, as though it was fully retained by AMB, as opposed to the limited basis upon which it was actually instructed, then that is a matter which AMB will need to pursue separately in the main action or otherwise.
- I reject the Solicitor Defendants' submissions that they should have their costs as against SEB, on the grounds that they made offers of settlement, and/or Part 36 offers which SEB has failed to beat. Upon the evidence which I have been shown (and I have not been shown it all) none of the offers were so clear cut that they amounted to an out and out acceptance of liability if the breach of warranty of authority issue were decided against them; moreover, at this stage of the proceedings, it is unclear what, if any, loss SEB has suffered as a result of the breach of the limited warranty. Moreover, and in any event, given my conclusion that the Solicitor Defendants were in breach of their warranty as to name, and must, in my judgment, bear some responsibility for the fact that appropriate formal procedures were not invoked at the inception of their respective retainers to ensure that they had a written confirmation of their instructions to act from the correctly named corporate entity which was retaining them, I consider that the appropriate course is for them to have to recover their costs directly as against AMB.
- However, I am concerned that no attempt seems to have been made to limit the representation of the Solicitor Defendants at trial to one firm of solicitors and one set of counsel, or at least, with merely junior counsel, if necessary, representing the separate interests of the three different firms. Although I received assistance by way of submission and otherwise from all three sets of counsel, and although, in theory at least, there was a conflict between the three firms by virtue of the different dates at which they had been retained, and the different periods when they had acted, that conflict was more apparent than real; in the event the Solicitor Defendants presented a united front at trial and no cut-throat defence was seriously advanced or indeed advanced at all. Nor do I see that P&J's conduct after 22 March 2002 in any way justified three different teams acting for the three firms at trial. Despite their subsequent written submissions, no, or no adequate explanation has been forthcoming from the Solicitor Defendants as to why they did not take the step of instructing one team of solicitors and counsel, if not from the start, at least from an early stage when it must have been obvious that, in relation to the Preliminary Issues, there was no real conflict between them that prevented a unified team. In my judgment, having carefully considered the further written submissions on this point, I remain of the view that the justice of the case is best reflected in an order that, subject to one point, AMB pays only 50% of the costs of each of the Solicitor Defendants of and incidental to the Preliminary Issues, which, for the avoidance of doubt, includes not merely the trial before me, but the costs of and incidental to the Preliminary Issues as a whole . That may be a somewhat rough and ready approach, but it reflects my view that, whatever may have been the justification at an early stage of the proceedings for separate representation, serious consideration should have been given to an arrangement which limited, in whole or in part, representation at trial to one legal team. The one point where I consider it appropriate that AMB should pay 100% of the costs, and not merely 50%, is in relation to the costs of the German Expert, where all three firms sensibly instructed the same expert, to provide one report.
- There will be no separate order in respect of Mr Schulze Wierling's costs, since he was represented by AMB's legal team and, indeed, none was asked for. So far as Mr Merrifield is concerned, P&J, who joined him as a Part 20 Defendant, must pay his costs. I do not consider that it was proportionate to have joined Mr Merrifield, an individual, as a defendant; none of the other firms did so, and sensible arrangements should have been put in place to obviate the need for him to have been joined as a party (even if the potential of a future claim against him was preserved), whilst ensuring his presence as a witness. Accordingly, P&J are not entitled to recover those costs from AMB.
Permission to appeal
AMB's application for permission to appeal
- There was no dispute that the relevant test is set out in CPR 52.3 (6), namely whether AMB has a real prospect of succeeding on appeal. I have carefully considered the written and oral submissions made by all parties on this issue. Although the misnomer issue raised an interesting question of law on the particular facts of this case, given my decision on actual authority, the legal principles as to misnomer are clear and there is in my view, no reasonable prospect of success on appeal. My decision on the factual issues of authority and ratification were at least in part based upon my views of the oral evidence given by the witnesses, although also dependent upon inferences to be drawn from contemporaneous documents. Given the clear conclusions that I have reached on those issues, it would be wrong for me to grant permission to appeal. Accordingly, permission is refused.
The Solicitor Defendants' application for permission to appeal
- I refuse the Solicitor Defendants' permission to appeal under both heads. In my judgment the law is clear on the breach of warranty point and my decision which limits the costs that the Solicitor Defendants can recover as against AMB is essentially one within my discretion, having heard how the arguments were developed at trial.