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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Knauf UK GmbH v British Gypsum Ltd & Anor [2001] EWCA Civ 1570 (24 October 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/1570.html Cite as: [2002] 1 Lloyd's Rep 199, [2001] 2 All ER (Comm) 960, [2002] ILPr 30, [2002] 1 WLR 907, [2002] 2 All ER 525, [2002] WLR 907, [2001] EWCA Civ 1570, [2002] 1 LLR 199, [2002] CLC 239

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr Justice David Steel)

		Royal Courts of Justice Strand, London, WC2A 2LL Wednesday 24th October 2001

LORD JUSTICE HENRY:

1. This is a judgment of the court prepared by Lord Justice Rix.
2. This appeal concerns two German companies, one of which wishes to conduct its litigation in England, while the other wishes to do so in Germany. Each invokes in its favour the Brussels Convention (the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, enacted into English law as Schedule 1 to the Civil Jurisdiction and Judgments Act 1982). In particular, three issues arise: (1) Can the desire to advance the date on which the English court is seised of proceedings over a foreign domiciliary of another convention state be a "good reason" for the purpose of ordering alternative service on that person under CPR Part 6.8? (2) Does an exclusive jurisdiction clause bind the parties so that article 17 of the Convention in any event mandates jurisdiction in Germany rather than England? (3) Ought the failure of the claimant in England to disclose the existence of the exclusive jurisdiction clause to the court at the time when it sought and obtained, without notice to the intended defendant, the order for alternative service on that defendant to lead in any event to the setting aside of that order?
3. The two German companies are respectively claimant and second defendant in these proceedings. The claimant is Knauf UK GmbH ("Knauf UK"), and the second defendant is Wellkisten und Papierfabriken Fritz Peters & Co KG ("Peters"). Knauf UK is a manufacturer of plasterboard. It is incorporated in Germany but its operations are based exclusively in England. It is common ground that it is domiciled in Germany. Peters is a German limited partnership, also domiciled in Germany. It manufactures lining paper which is used in the plasterboard manufacturing process. Between March 1997 and July 1998 Peters supplied Knauf UK with light grade ivory and green lining paper which Knauf UK used in the making of plasterboard. Knauf UK sold its plasterboard into the market, and it was used in the construction of homes in the north of England. In the course of construction a skim plaster finish was applied to the exposed surface of the plasterboard. This finish was supplied (in very large part) by the first defendant, British Gypsum Limited ("Gypsum"). There was at this stage no contractual relationship between Knauf UK and Gypsum.
4. In December 1997 complaints started to be received that delamination of the plaster skim coat was occurring. It was not clear what the cause of this delamination was, but it exposed Knauf UK to large claims. In order to satisfy their market, Knauf UK and Gypsum entered into an agreement under the auspices of the Gypsum Products Development Association (GPDA) whereby claims involving their products were settled on a 50/50 basis by the two of them, without prejudice to their liability as between themselves. This agreement is the only contractual relationship between Knauf UK and Gypsum.
5. As between Knauf UK and Gypsum, it is Gypsum's view that the delamination was caused by defects in the plasterboard made by Knauf UK, whether as a consequence of the lining paper supplied by Peters or otherwise. As between Knauf UK and Peters, it is Knauf UK's view that the problem was caused or at least contributed to by defects in Peters' lining paper. In June 1998 Knauf UK informed Peters of that view. On 11 November 1998 its London solicitors wrote to Peters "to notify you formally of this claim and to inform you that our clients have no alternative but to bring a claim in Court for recovery of their losses as a result of your failure to supply goods in accordance with the specification and which were in any event not suitable for the purpose". On 15 March 1999 Knauf UK's technical manager wrote directly in reply to Peters' German insurers and said that Knauf UK was prepared to seek its recovery through the German courts. On 8 April 1999 those insurers wrote to Knauf UK's German solicitors to say that "to avoid a premature court case" they would confirm that the limitation period for a claim would not end until 31 December 2000 (unless the claim were already barred). On 29 June 1999 Knauf UK's German solicitors quantified its claim in the sum of £1,140,363 so far paid to buyers in compensation, in the further sum of almost £3.7 million paid to Peters for the paper supplied, and in an unspecified amount for loss of profits arising out of reduced turnover. The solicitors cited provisions of the German Code in support of Knauf UK's claim. The letter, which was addressed to Peters' insurers, ended with a further threat of legal proceedings.
6. The matter then appears to have gone comparatively quiet. At any rate, over a year later on 5 July 2000 Peters' English solicitors, Messrs Morgan Cole, wrote to Knauf UK following a telephone conversation earlier that day to confirm that they had been instructed "to consider both liability and quantum in relation to supplies to you by Peters". The letter continued:

"You outlined the problems and the nature of the claims and I assured you that I would look into the documents which I had as soon as possible, coming back to you following your return from the Far East."

7. What was happening meanwhile between Knauf UK and Gypsum is not known, but there is evidence that shortly before the commencement of these proceedings Gypsum wrote a letter before action to Knauf UK threatening proceedings in the very near future. The letter itself is not before the court. It seems that negotiations between Knauf UK and Gypsum to avoid court proceedings had broken down. That letter caused a flurry of activity on the part of Knauf UK, who did not want to be sued in England by Gypsum and then have to carry its claim against Peters to Germany. Knauf UK therefore sought to find a way to canalise its litigation with both Gypsum and Peters in one jurisdiction, viz England.
8. Thus by 11 July 2000 a claim form had been issued against Gypsum and Peters. On 13 July Mr Christopher Harper, a partner of Gregory, Rowcliffe & Milners, made a witness statement in support of Knauf UK's application under CPR Part 6.8 for service of the claim form on Peters by an alternative method, namely by service within the jurisdiction on Peters' solicitors, Morgan Cole.
9. CPR Part 6.8(1) provides:

"Where it appears to the court that there is a good reason to authorise service by a method not permitted by these Rules, the court may make an order permitting service by an alternative method" (emphasis added).

10. That application came before Aikens J without notice on 14 July 2000. Mr Harper's witness statement put forward the following account of the "good reason" which Knauf UK was presenting to the court in support of its application. Knauf UK feared imminent suit by Gypsum. It therefore wished to ensure that it could bring both Gypsum and Peters into one set of proceedings. There was no difficulty in serving Gypsum in England. Nor was there any difficulty in bringing Peters within the English jurisdiction, because Knauf UK could rely on article 6(1) of the Brussels Convention (which enables a person domiciled in a contracting state to be sued in the courts for the place where any one of a number of defendants is domiciled). Therefore Gypsum's domicile in England would give jurisdiction over Peters in England. The difficulty was in obtaining priority for Knauf UK's suit against Peters in England over any suit brought by Peters against Knauf UK in Germany. Since Knauf UK was a German company, Peters could serve German proceedings against Knauf UK in Germany as easily as Knauf UK could serve English proceedings on Gypsum in England. However, in the absence of an order for alternative service on Morgan Cole in England, Knauf UK would have to serve the English proceedings on Peters in Germany by a method allowed under either the Hague Service Convention 1969 or the 1928 bilateral treaty between the United Kingdom and Germany (the Convention regarding Legal Proceedings in Civil and Commercial Matters, the "Bilateral Convention"). Service under the Hague Convention would take up to three months. In the meantime, any service of the claim form on Gypsum would probably result in news of the claim leaking to Peters in Germany. If Peters were tipped off about Knauf UK's English claim before it had been served with the claim form in Germany, then it would seek to obtain priority in Germany by commencing German proceedings and serving them on Knauf UK in Germany. Article 21 of the Brussels Convention assured priority for the first set of proceedings involving the same cause of action and between the same parties to come before the court, which then became the court "first seised". That would occur upon service of the defendant. The only way therefore to ensure that Peters was served for the purpose of the English proceedings before Knauf UK was served by Peters for the purpose of proceedings in Germany was to serve Peters before it could find out anything about the action, and before Gypsum could sue Knauf UK in England. That could be achieved by serving Peters' English solicitors, Morgan Cole. Albeit those solicitors had not been authorised to accept service, they had been instructed to investigate the claim and would certainly give notice of the proceedings to Peters. Therefore the court should make an order for service on Morgan Cole by an alternative method. Knauf UK also offered to effect service on Peters in Germany under the Hague Convention and to send a copy of the claim form to Peters at its address in Germany. Mr Harper's witness statement concluded as follows:

"26. In summary, therefore, the only effect of the present order sought will be to advance the date upon which Peters are served with the Claim Form and, as a result, the date upon which this Court is "seised" with these proceedings for the purpose of Article 21 of the Brussels Convention. This is an appropriate and legitimate course for Knauf UK to take so as to prevent Peters from seeking to take advantage of the three month delay in service of process in Germany and thereby depriving Knauf UK from their right (pursuant to Article 6(1) of the Brussels Convention) to bring their claim against Peters before this Court. Moreover, by permitting Knauf UK to take this course, this Court will ensure that all of the disputes between all of the parties concerned (Knauf UK, British Gypsum and Peters) are determined by the same court, in the same set of proceedings, and will avoid the risk of separate concurrent proceedings with the consequent danger of inconsistent judgments on the same issues."

11. Aikens J acceded to the application. He made the following order:

"(1) The Second Defendant will be deemed to have been personally served with the Claim Form in this action by serving the said Claim Form on Messrs Morgan Cole of Suffolk House, George Street, Croydon, Surrey CR0 1PE.

PROVIDED THAT:

(a) The Second Defendant is also served with the Claim Form in accordance with the Hague Service Convention.

(b) A copy of the Claim Form is also sent by post to the Second Defendant at Industriestrasse 5, 47447 Moers, Germany.

(2) The documents will be deemed to have been personally served on the Second Defendant one day after they are served upon Messrs Morgan Cole at the address specified at (1) above."

12. In the event Peters was deemed to have been served within a matter of days. Gypsum was served by post on 19 July. On the same day the claim papers were lodged with the foreign process section of the High Court for service under the Hague Convention, and a copy of the claim form was posted to Peters in Germany.
13. At about the same time as these events were occurring, a Mr Ingenillem of Knauf UK's German parent (Gebruder Knauf Westdeutsche Gipswerke, or "Knauf Germany") made a courtesy telephone call to Mr Volkmar Peters, one of Peters' principals, in which he informed him of what was happening, and why. Mr Peters recorded this information in an internal note of 20 July. Mr Peters wrote –

"This is an unfortunate escalation of the whole situation which has to be taken very seriously. The legal dispute which will then be determined in accordance with anglo-saxon law ["angelsächsischen Recht"] would also be against us because the plaster produced by [Gypsum] did not adhere to our products."

14. In the event, Peters did what Knauf UK anticipated it would do on hearing of the English proceedings, namely it commenced its own proceedings in Germany. It sued both Knauf Germany and Knauf UK. Its complaint is dated 18 August 2000. It seeks negative declarations of non-liability. It alleges that its supply contracts were with the parent, Knauf Germany, not with the subsidiary Knauf UK. These proceedings were served on Knauf Germany on 5 September, and on Knauf UK on 18 September 2000.
15. It was only after service of Peters' German proceedings on Knauf UK that the latter's English proceedings were served on Peters under the Hague Convention, on 5 October 2000. But for errors committed by the foreign process section of the High Court, service under the Hague Convention would have been effected somewhat earlier. If Knauf UK had simply gone ahead and served Peters under the Hague Convention without warning them in advance that it was doing so, and if such service had been effected without error, it is perfectly feasible that Knauf UK's service would have been well in advance of service of any proceedings brought by Peters.
16. As it is, Gypsum in England has brought Part 20 proceedings against Peters, and Peters has sought to bring proceedings for negative declaratory relief against Gypsum in Germany.

Peters' application to attack service and jurisdiction

17. On 15 September 2000 Peters brought an application designed to set aside the alternative service which Aikens J had ordered and to challenge English jurisdiction. It relied on four separate points. It said first, that there was no good reason to order service by an alternative method; secondly, that Knauf UK had failed to give full and frank disclosure to the court when requesting the special order as to service; thirdly, that the court should stay the proceedings against it or decline jurisdiction pursuant to articles 21 and/or 22 of the Convention; and fourthly, that any contracts between Knauf UK and Peters were governed by an exclusive jurisdiction clause in favour of the courts of Germany within the meaning of article 17.
18. It was common ground that if service were to be set aside either on the ground that there was no good reason for it, or because of non-disclosure, then the English action should be stayed under article 21. Three grounds of non-disclosure were argued, but the only one which has been raised again in this court is Knauf UK's failure to disclose to Aikens J the presence of an exclusive jurisdiction clause in Peters' standard terms and conditions. The logic of the application was that, even if service on Peters survived, jurisdiction should be declined in favour of the German courts under article 17.

The Brussels Convention

19. The relevant terms of the Brussels Convention are as follows:

"Article 2

Subject to the provisions of this Convention, persons domiciled in a Contracting State shall, whatever their nationality, be sued in the courts of that State…

"Article 6

A person domiciled in a Contracting State may also be sued –

1. Where he is one of a number of defendants, in the courts for the place where any one of them is domiciled.

2. As a third party in an action on a warranty or guarantee or in any other third party proceedings, in the court seised of the original proceedings, unless these were instituted solely with the object of removing him from the jurisdiction of the court which would be competent in his case…

"Article 17

If the parties, one or more of whom is domiciled in a Contracting State, have agreed that a court or the courts of a Contracting State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have exclusive jurisdiction. Such an agreement conferring jurisdiction shall be either –

(a) in writing or evidenced in writing, or

(b) in a form which accords with practices which the parties have established between themselves…

"Article 21

Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Contracting States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established.

Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court.

"Article 22

Where related actions are brought in the courts of different Contracting States, any court other than the court first seised may, while the actions are pending at first instance, stay its proceedings.

A court other than the court first seised may also, on the application of one of the parties, decline jurisdiction if the law of that court permits the consolidation of related actions and the court first seised has jurisdiction over both actions.

For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings."

The exclusive jurisdiction clause and German law

20. Peters' primary case is that it has no contractual relations with Knauf UK, only with its parent, Knauf Germany. If, however, there is any contractual relationship directly with Knauf UK, its alternative case is that it is governed by standard conditions which include an exclusive jurisdiction clause in the following terms:

"For all our business and rights and duties flowing from this contract as well as delivery and payment the place of performance is Gelsenkirchen. The court of Krefeld shall have exclusive jurisdiction in all these cases on the condition that nevertheless we are entitled to invoke any other court which may have legal jurisdiction: this rule as to jurisdiction applies also to claims on cheques. In our relationship with our client German law is to be applied."

21. In the court below David Steel J found the following facts in connection with Peters' alternative case. During an earlier period between 1989 and 1993 when Peters supplied lining paper to Knauf UK, it was standard procedure for all order confirmations sent by Peters to Knauf UK to be on a printed form whose box headings were in both German and English, and in the body of which was to be found (in typescript) this notation (as translated from the German): "We thank you for your order which we will carry out in accordance with our trading conditions to be found overleaf." Those conditions were to be found in small print, in German, and began with a clause in these terms:

"1. For all business transactions between ourselves and our clients the following terms shall apply. The content of the contract should be determined exclusively by our written confirmation of order and our terms and conditions [of] contract…Contracts between us and our clients shall only come into existence through our confirmation of orders. Clients' terms and conditions shall not apply even if we have not repudiated them."

22. From 1993 to 1996 Knauf UK sourced their lining paper elsewhere and there was no trade whatsoever between Peters and Knauf UK. Trade between the two companies only restarted following a letter from Peters dated 21 May 1996 which drew attention to what was claimed to be a reduction in paper weight and invited Knauf UK to try out samples. In due course this approach led to a resumption of business. Peters now had a confirmation of order in a new format. The body of the confirmation filled up in typescript was now almost entirely in English. It no longer contained the typed in reference to the conditions on the reverse. Instead it merely stated, in English: "Thank you for your order, which we are pleased to accept." The reverse continued to contain terms and conditions printed in German, including the clause 1 and the jurisdiction clause cited above.
23. The judge also made findings about German law. It was common ground between the parties that, at any rate for present purposes, any contracts between Peters and Knauf UK were governed by German law. The judge, who was provided with expert reports on German law, found that the critical issue under that law narrowed to one of fact, namely whether German was one of the languages of the relevant contracts. On that issue he concluded that English was the only language of the contract. He said (at paras 44/45 of his judgment):

"Following a break of several years, Peters opened negotiations with a view to seeking orders for a new brand of paper. The negotiations were conducted entirely in English. Furthermore, in stark contrast to the position prior to 1993, the order confirmations were expressed in English without any cross reference to the German conditions of contract. It is true that there were a few German words used on the form but in the overall context they were de minimis.

"I conclude, therefore, that as a matter of German law the clauses were not incorporated."

There has been no appeal from that conclusion.

The judgment of David Steel J

24. Peters' application came before David Steel J. On the four issues before him, his conclusions were as follows.
25. First, he found that there was good reason for making the order for alternative service. He reasoned that matter as follows. The discretion under CPR Part 6.8 was unfettered save for the need for "good reason"; there was no need for the applicant to establish that it was impracticable to serve the proceedings in the prescribed manner. In the circumstances, the best prospect for ensuring that all issues arising from the failure of the plasterboard in use were decided in one jurisdiction was Knauf UK's action in England. With that in mind, it was not illegitimate to seek to forestall any attempt by Peters to take advantage of the disparity in periods needed to accomplish service and thus introduce the complication of a second forum first seised of only part of the dispute. He continued (at para 32 of his judgment):

"To the contrary, in my judgment there were good reasons for authorising the alternative method:-

(i) Knauf UK was not in a position to ensure that proceedings against both [Gypsum] and Peters were successfully instituted in Germany. The overwhelming probability was that [Gypsum] would commence proceedings first in England.

(ii) Once proceedings were instituted against [Gypsum] Knauf UK could pray in aid Article 6 of the Convention to override Article 2.

(iii) Whilst it is true that the risk of proceedings in Germany could not be (and indeed has not been) eliminated, the proceedings instituted by Peters would necessarily be in the form of an application for a negative declaration itself susceptible to an application for a stay under Article 22."

26. Finally, he rejected the submission that the period needed to effect service under the Hague Convention constituted a substantive safeguard to Peters' right to be sued in Germany. He regarded the disparities between the jurisdictions as regards the time needed to effect service as "purely technical in nature".
27. As for non-disclosure, he regarded Knauf UK's failure to disclose the exclusive jurisdiction clause as "potentially material" (at para 35), but ultimately concluded that it was immaterial in the light of his separate decision that there was no good arguable case that the clause had been properly agreed for the purposes of article 17 (para 52).
28. As for the argument in relation to article 17, he held that German law was irrelevant since the test of agreement of a jurisdiction clause under article 17 was autonomous law which displaced national law; that the standard of proof was that of a good arguable case, not that of the balance of probabilities; that there was no good arguable case that the clause had been agreed in writing or evidenced in writing for the purposes of article 17(a); and that there was also no good arguable case that good faith prevented Knauf UK from denying the applicability of the clause for the purposes of article 17(b). Peters' case on article 17 therefore failed (see paras 41/52).
29. In the circumstances, there was no question of staying Knauf UK's claim against Peters or of declining jurisdiction for it.
30. The judge gave permission to appeal, although his reasons indicated that he regarded the first issue ("good reason") as essentially one of discretion.

Good reason

31. The first and most important issue reargued in this court is whether there was good reason within CPR Part 6.8. If there was not, it was common ground that the action against Peters in England should be stayed. That would make the other issues moot. It would still be relevant, even if unnecessary, to determine the issue of non-disclosure. But in our judgment it would not be right to determine the third issue relating to article 17: for if the court first seised (as between Peters and Knauf UK) is the German court, it would be for that court to determine the article 17 point, if necessary. It is not as though article 17 is being relied on to maintain the jurisdiction of the English court, but the reverse. It would, it seems, only be necessary to determine the article 17 point if there was an application to the German court to stay its proceedings under article 22 on the basis that ultimately the court first seised of any of the related actions was the English court, by reason of its earliest service on Gypsum.
32. On behalf of Peters, Mr Howard Palmer QC submitted that the judge had erred. It was only if there was "good reason" that the court had a discretion to exercise under the rule. However wide the ambit of "good reason" or of that discretion, it needed to be remembered that the historical background of a rule for alternative service lay in RSC Order 65, rule 4 ("Substituted service") and its test of impracticability. The modern rule remained to deal with cases where there was some unexpected impediment or difficulty in effecting service by the primary method contemplated by the Rules. There was no such impediment or difficulty in the present case. On the contrary, the primary method of service of a German company in Germany was regulated by the Hague Convention and the Bilateral Convention. The requirements of these Conventions should not be lightly evaded by an order for service within the jurisdiction. Moreover, although there might be jurisdiction over Peters under article 6(1) of the Brussels Convention, the primary rule of that Convention was article 2, namely that persons should be sued in the country of their domicile. Where there were proceedings in more than one country, the Convention had devised its own principles, set out in articles 21 and 22, for resolving the issue of lis alibi pendens. It was a mere stratagem to use the domestic rule relating to alternative service to seek to undermine the operation of those principles, which reflected the Convention's desire for clear and certain tests to operate in this field. Such tests were distinct from the common law's approach by way of discretionary rules and the doctrine of forum non conveniens.
33. On behalf of Knauf UK, on the other hand, Mr Alexander Layton QC submitted that the reasons put forward in Mr Harper's witness statement were indeed good reasons, and that the judge was right to recognise them as such. CPR Part 6.8 was a new departure, there was no restriction on what could be considered a good reason for the purposes of that rule, and the test of impracticability had been left behind. It was mere technicality that produced the situation where it was quicker to serve a home defendant than a defendant abroad. In the interests of achieving a single jurisdiction where all parties could litigate together the court was entitled to ensure a level playing field as to the technique of service. In that way the peculiar imbalance in the procedures for service here and abroad was avoided. That was not a stratagem designed to undermine the policy of the Brussels Convention, but a means for achieving that policy, spoken to in article 22, of bringing related actions into a single forum. In any event, service was one thing and jurisdiction another. The rule that an English court was seised not on issue of the claim form but only on service was a domestic rule, not an autonomous rule of the Convention. It was because of that rule that in a deserving case, such as this, English law could find an alternative method of service to ensure that the Convention's policy of canalising related actions into a single jurisdiction could be achieved. Article 2 was not the primary rule of jurisdiction under the Convention, for that rule was "subject to the provisions of this Convention" and thus subject to article 6(1), which, where as here it applied, was mandatory.
34. The resolution of these competing submissions requires consideration of the policies and purposes of the rules relating to service and to the founding of jurisdiction.

Service in English law

35. Service in English law is now governed by CPR Part 6. Section I of that Part is headed "General Rules about Service", and those rules apply in all circumstances save where another enactment, rule or practice direction or a court order provides otherwise (rule 6.1). Section II is headed "Special Provisions about Service of the Claim Form", and Section III is headed "Special Provisions about Service out of the Jurisdiction".
36. The most basic rule is that service may be effected by any of the methods identified in rule 6.2, which includes both personal service and first class post. Rule 6.2(2) makes it clear that any such method applies equally to companies. The permission of postal service is a departure from the traditional rule, which had required personal service. Turning to service out of the jurisdiction, I can confine our comments to the case, such as that in the present claim against Peters governed by the 1982 Act, where permission is not required (rule 6.19). Rule 6.24, headed "Method of service – general provisions", states that where a claim form is to be served out of the jurisdiction "it may be served by any method – (a) permitted by the law of the country in which it is to be served" or provided for by rule 6.25. Rule 6.25 (headed "Service through foreign governments, judicial authorities and British Consular authorities") provides for service under the Hague Convention, and also provides that where a claim form is to be served on a defendant in any country which is a party to a "Civil Procedure Convention" providing for service in that country, it "may be served" through the judicial authorities of that country or through the British Consular authority in that country. "Civil Procedure Convention" is defined in rule 6.18(e) as meaning the Brussels and Lugano Conventions and any other conventions entered into by the United Kingdom regarding service outside the jurisdiction. The Brussels Convention itself has no provisions regarding service (but article IV of its Annexed Protocol does: see below). Rule 6.25 appears to be permissive, not mandatory, although of course, where any convention is utilised to effect service, its provisions will need to be complied with.
37. Although it was common ground between the parties that, as a matter of English law, it was not permitted to serve Peters outside the jurisdiction by post in the absence of an order for alternative service, we are not sure why that is said to be so. There is a general rule that permits service by first class post as an alternative to personal service, and we are not sure why that is said not to apply to service on Peters in this case.
38. It was also common ground before David Steel J below that amendments to the CPR regime had, perhaps inadvertently, eliminated the provision permitting an order for alternative (or substituted) service out of the jurisdiction. The judge commented (at para 28 of his judgment): "I am not convinced that it is material to the present dispute but I would not wish to be thought as concurring with that view". We would echo that sentiment.
39. The question then is whether the Hague Convention or the Bilateral Convention, or German law, prevents such postal service being effected in Germany.

The Hague Convention

40. Article 10 of the Hague Convention provides as follows:

"Provided the State of destination does not object, the present Convention shall not interfere with –

(a) the freedom to send judicial documents, by postal channels, directly to persons abroad…"

41. Article 25 provides:

"…the present Convention shall not derogate from Conventions containing provisions on the matters governed by this Convention to which the contracting States are, or shall become, Parties."

42. Nevertheless the skeleton argument of Peters put before David Steel J asserted (citing Layton & O'Malley, European Civil Practice, 1989, at 109 fn 23) that Germany has objected to postal service for the purposes of article 10. That appears to be common ground.

The Bilateral Convention

43. Article 6 provides as follows:

"Documents may also be transmitted by post in case where this method of transmission is permitted by the law of the country from which the document emanates."

44. As stated above, we do not see why English law, relevant as the "law of the country from which the document emanates" does not permit service by post abroad. If it does, then we do not see why article 6 of the Bilateral Convention does not permit service by post on a defendant in Germany. However, it is common ground that Peters cannot be served by post in Germany.

The Protocol to the Brussels Convention

45. Article IV provides:

"Judicial and extrajudicial documents drawn up in one Contracting State which have to be served on persons in another Contracting State shall be transmitted in accordance with the procedures laid down in the conventions and agreements concluded between the Contracting States.

"Unless the State in which service is to take place objects by declaration to the Secretary-General of the Council of the European Communities, such documents may also be sent by the appropriate public officers of the State in which the document has been drawn up directly to the appropriate public officers of the State in which the addressee is to be found. In this case the officer of the State of origin shall send a copy of the document to the officer of the State applied to who is competent to forward it to the addressee. The document shall be forwarded in the manner specified by the law of the State applied to. The forwarding shall be recorded by a certificate sent directly to the officer of the State of origin."

That appears to take matters no further. In any event there were no submissions with relation to the Protocol. But we note that Germany has apparently declared its objection under the second paragraph of Article IV (see Layton & O'Malley at 109, fn 22).

The rule as to service

46. The long and short of all this is that, whether it is due to a rule of English law or to a rule of German law (that as we say is opaque), it is common ground that it is not permissible under either the Hague Convention or the Bilateral Convention to effect postal service upon Peters from England to Germany. It follows that Knauf UK accepts that without an order for service within England by an alternative method, viz upon Messrs Morgan Cole, Peters could not have been served save by methods which would have involved delay. Indeed, Knauf UK asserts and relies upon such delay as a critical part of its "good reason".
47. It was argued by Peters before the judge that the Hague Convention and the Bilateral Convention were a "mandatory and exhaustive code of the proper means of service on German domiciled defendants", which therefore excluded alternative service in England. The judge did not accept that submission, pointing out that those Conventions were simply not concerned with service within the English jurisdiction. Peters did not repeat that submission on its appeal. Nevertheless, it follows in our judgment that to use rule 6.8 as a means for turning the flank of those Conventions, when it is common ground that they do not permit service by a direct and speedy method such as post, is to subvert the Conventions which govern the service rule as between claimants in England and defendants in Germany. It may be necessary to make exceptional orders for service by an alternative method where there is "good reason": but a consideration of what is common ground as to the primary method for service of English process in Germany suggests that a mere desire for speed is unlikely to amount to good reason, for else, since claimants nearly always desire speed, the alternative method would become the primary way.

The Brussels Convention and the rule of jurisdiction

48. Where jurisdiction, as distinct from service, is concerned, there is, generally speaking, no need to distinguish between an English rule and a German rule since, in a case such as this, jurisdiction is governed by the Brussels Convention. (We say "generally speaking", because there are areas in which domestic rules are allowed to play a subsidiary role within the context of the Convention's autonomous doctrines.)
49. The basic and primary rule is that a defendant should be sued in the courts of his domicile (article 2). It is not merely that a claimant is entitled to sue his defendant where he is domiciled: the defendant is entitled to be sued there. It is true, as Mr Layton submits, that article 2 is expressed to be subject to the other provisions of the Convention, but that does not stop article 2 expressing the Convention's basic philosophy. Thus article 2 falls within section 1 of the Convention, headed "General provisions", whereas section 2 is headed "Special jurisdiction". In other words such special rules are exceptions to the general rule. This distinction is recognised in the jurisprudence: see Kleinwort Benson Ltd v. Glasgow City Council [1999] 1 AC 153 per Lord Goff of Chieveley at 163H/164B.
50. Since it is possible for the identical causes or related actions to be commenced in more than one jurisdiction, the Convention contains its own rules to deal with such situations. Those rules are contained in section 8, headed "Lis pendens – related actions" and include articles 21 and 22. Those articles have been described by both Bingham LJ and Lord Steyn as "tie-break rules" (Dresser UK Ltd v. Falcongate Freight Management Ltd [1992] QB 502 at 514 and Canada Trust Co v. Stolzenberg (No 2) [2000] 3 WLR 1376 at 1379E).
51. Article 21, which concerns proceedings involving the same cause of actions and the same parties (as here Knauf UK's English claim against Peters and Peters' action in Germany for a negative declaration of non-liability) is a precise rule which depends on strict chronological precedence. As Steyn LJ put it in The Sargasso [1994] 3 All ER 180 at 184 –

"The analysis of the problem must start with the language of art 21. The 1968 convention does not contain the traditional English discretionary principle of lis alibi pendens. As between the courts of two contracting states having jurisdiction under the scheme of the convention, a rule dependent on strict chronological priority was adopted. Commentators have variously described the rule as rigid, mechanical and crude. So it is. On the other hand, the framers of the convention wanted to avoid the uncertainties and disputes inherent in a discretionary principle of lis alibi pendens. Their preference was for what Bingham LJ in Dresser UK Ltd v Falcongate Freight Management Ltd, The Duke of Yare [1992] 2 All ER 450 at 460, [1992] QB 502 at 514 described as a simple 'tie-break rule'. In other words the framers of the convention put their faith in the simplicity, certainty and predictability of a rule of chronological priority. That principle in their view best served the objective of avoiding as far as possible inconsistent judgments, and the non-recognition of a judgment on the ground that it is irreconcilable with the judgment of the court of another contracting state. It promoted the free circulation of readily enforceable judgments."

52. Mr Layton submits that in Zelger v. Salinitri, Case 129/83 [1984] ECR 2397 the European Court of Justice did not adopt an autonomous rule as to when national courts became seised for the purpose of articles 21/22, and that the adoption of a "date of service" rule for seisin in England was a matter of English law. The suggestion was that what English law had adopted for the purpose of the Convention it could feel free to affect by other procedural rules, such as rule 6.8's doctrine of service by an alternative method. However, we do not accept that submission, which does scant justice to the policy of the Convention, the significance of the decision in Zelger v. Salinitri, or to the considerations which led English law to adopt the date of service rule. As to Zelger v. Salinitri, we would refer to Lord Hoffmann's speech in Canada Trust v. Stolzenberg at 1390/3 and in particular to the passage at 1391B/1392A. Lord Hoffmann there points out that the domestic rule had to reflect the policy of the Convention in finding a rule that "had to be fixed and ascertainable, not discretionary as under the common law forum non conveniens doctrine"; and also that it should not be a rule which limited the rights of the defence. As to the considerations which led English law to adopt the date of service rule, they are spelled out by Bingham LJ in Dresser at 523A/C and by Steyn LJ in The Sargasso at 188, for instance where the latter said –

"On the other hand in Zelger v Salinitri…the European Court did emphasise the importance of certainty in national procedural laws. And it seems to me that a 'date of service' rule will be readily comprehensible not only in England but also in other contracting states…

"And it is in the interests of the proper working of the convention that the provisions of the national systems should be simple and readily comprehensible. In the continental contracting states there is no problem: a simple solution of the date of service of the writ applies…For my part I prefer the simple solution of saying that an English court only becomes definitively seised on service of the writ."

53. Peter Gibson LJ (at 189h) cited with approval a comment by Adrian Briggs in [1992] LMCLQ 150 at 53 –

"Far better a clear and workable rule than an opaque, if doctrinally purer, rule. Especially when the rule is being considered for the benefit of foreign, as much as for English, courts."

54. In these circumstances we do not think that it is open, save perhaps in very special circumstances which we do not presently have in mind, for English law to arrogate to itself a discretionary approach, under the rubric of "good reason", to advance the normal date at which the English court would be seised for the purpose of articles 21 and 22. Although the principle of date of service would have been nominally preserved through the device of the alternative method of service, it would have been abandoned in essence: and not for the sake of service (as under the old RSC O.65, r.4, because normal service had been found impracticable) but for the sake of arriving at a state of being first seised in order to oust the jurisdiction of a competing forum, in other words for the sake of jurisdiction.
55. Where it is only the same parties and the same cause of action which are concerned (as in article 21), the matter is simpler than in the case of related actions involving different parties or different causes of action. Nevertheless, the principle of the Convention approach remains the same. It recognises in its own language the desirability of hearing related actions together in one jurisdiction "to avoid the risk of irreconcilable judgments resulting from separate proceedings". Again, however, it does not adopt the common law approach of forum non conveniens (although an element of discretion is apparent in the "may" which appears in both the first and second paragraphs of the article): instead it proceeds on the basis that the jurisdiction of the court first seised will be preserved, whereas the court "other than the court first seised" may stay its proceedings or decline jurisdiction.
56. How the regime of articles 21 and 22 works in any situation may be hard to foresee, and it may well be said in complaint that its and the Convention's rigid rules have the ability of bifurcating litigation which should all be heard in a single forum. Nevertheless, those are the rules which bind the contracting states. In the present case, Mr Layton submits that even if, as between Knauf UK and Peters, the German court turns out to be the court first seised (because the order of Aikens J for alternative service has to be set aside), nevertheless ultimately the court first seised of any of the related actions is the English court, because service on Gypsum takes priority over every other claim. He therefore contemplates an application to the German court to stay the proceedings before it in favour of the English court. That remains to be seen.
57. It is possible therefore that a form of canalisation of this transnational litigation will be achieved, perhaps however only after a series of further disputed applications. It is also possible that, at any rate in the eyes of English lawyers familiar with the doctrine of forum non conveniens, the position achieved by Aikens J is the simplest way of achieving litigation in a single forum: although Knauf Germany is not at present a party in England. Be that as it may, it seems to us that the "good reason" which appealed to Aikens J and again to David Steel J sits uneasily with the principles of the Brussels Convention (and of the service Conventions).
58. In the light of these considerations we would seek to sum up the issue of whether or not there was good reason in this case under rule 6.8 as follows. The application to Aikens J was put specifically on the basis that it was the best, perhaps the only means of bringing all parties into a single forum. An unusual form of service was requested, not for the sake of effecting service (for instance because of some difficulty about that), but for the sake of establishing jurisdiction over a foreign party (Peters) which was prima facie entitled to be sued in the courts of its domicile. The conventions controlling service between the United Kingdom and Germany were therefore being bypassed not in the interest of effecting service by some alternative method where the agreed method was not possible, but for the sake of establishing jurisdiction in England. Although the means used for effecting jurisdiction in England purported to find justification in the Brussels Convention's rule of strict chronological precedence and in its interest in seeing all related actions tried together, in truth such means subverted the principles of that Convention: for precedence was achieved only by taking an a priori view of where it was convenient for the litigation to be conducted. Moreover that view was taken in the absence of the defendant, who, because it was served before it even had a chance to address the court on the manner of its service, had the question of chronological precedence decided in its absence (otherwise than in the normal way mandated by the service conventions in force between the states concerned). The court's rationale for taking such action was a view as to where the litigation could best be canalised; whereas the Convention dictates other rules for deciding such questions. The devices sought were not therefore a means of finding a level playing field, but were designed to subvert the agreed principles by which the United Kingdom and Germany regulated service of process and jurisdiction.
59. In our judgment there cannot be a good reason for ordering service in England by an alternative method on a foreign defendant when such an order subverts, and is designed to subvert, in the absence of any difficulty about effecting service, the principles on which service and jurisdiction are regulated by agreement between the United Kingdom and its convention partners. This is not a matter of mere discretion, but of principle.
60. We would therefore allow the appeal against the judgment and order of David Steel J and set aside the order for service by an alternative method made by Aikens J.

Article 17

61. In the circumstances we do not think that it is appropriate to form a decided view on the questions which arise under article 17 of the Brussels Convention. In any event, it would not be possible to do so without reconvening a further hearing, since the court was unable in the time available to hear Mr Layton on Knauf UK's respondent's notice. That raised two interesting submissions which were decided against Knauf UK by the judge: that the standard of proof is not that of a good arguable case, but that of the balance of probabilities, and that the question of the agreement or not of an exclusive jurisdiction clause does not depend only on the autonomous test of article 17 but also on the national law of the parties' contract. Mr Layton wished to argue that, despite what was said in Canada Trust v. Stolzenberg, the good arguable case test is inappropriate where a litigant seeks to use article 17 to derogate from a jurisdiction otherwise established under the Convention; and that, despite the opinion of Advocate General Lenz in Custom Made Commercial Ltd v. Stawa Metallbau GmbH, Case C-288/92 [1994] ECR I –2913 at 2948, a jurisdiction agreement cannot be proved unless it is valid by its proper law as well as by the autonomous test of article 17. Those arguments must therefore await another day.

Non-disclosure

62. Finally, there is the issue of non-disclosure, which is a free-standing ground on which Peters seeks to have the order of Aikens J set aside.
63. Mr Palmer submits that, having found the possible existence of an exclusive jurisdiction clause which, if valid, would have bound Knauf UK to proceed against Peters in Germany in any event, to be "potentially material", the judge erred in concluding that it was not material just because, on the merits of the issue as to its effectiveness, he had decided that it did not bind the parties. On that basis the question of non-disclosure would always be decided on the merits of any issue and never on the failure to disclose. Since the clause, if it did bind the parties, would have had an overriding effect, its disclosure must have entered into the balance of the decision which Aikens J had been called upon to make.
64. Mr Layton, however, submitted that the clause was not material at all. There was not even a good arguable case that it had been agreed. In any event it could not enter into any exercise of discretion which Aikens J had to perform, since, if effective, it was mandatory and overriding. In that respect nothing done by Aikens J could affect Peters' right to avail itself of the clause, if effective. It was always open to Peters to raise the matter of the clause and seek to establish it. The present case was unlike other examples of judicial intervention which were invoked without notice: such as a freezing order which could affect a litigant's property or liberties, or an application for permission to serve out of the jurisdiction where ex hypothesi the defendant was only within the court's reach if the order was made.
65. The leading cases remain Brink's Mat Ltd v. Elcombe [1988] 1 WLR 1350 and Behbehani v. Salem [1989] 1 WLR 723. Those authorities in this court bring their reminder of the essential principles: that there is a "golden rule" that an applicant for relief without notice must disclose to the court all matters relevant to the exercise of the court's discretion; that failure to observe this rule entitles the court to discharge the order obtained even if the circumstances would otherwise justify the grant of such relief; that a due sense of proportion must be maintained between the desiderata of marking the court's displeasure at the non-disclosure and doing justice between the litigants; that for these purposes the degree of any culpability on the part of the applicant or of any prejudice on the part of the respondent are relevant to the reviewing court's discretion; and that a balance must be maintained between undermining "the heavy duty of candour and care" which falls on applicants and promoting a "tabula in naufragio" to save respondents who lack substantial merits.
66. In these circumstances, of particular relevance is the explanation given to the court of the non-disclosure complained of. What explanation did Knauf UK give in the present case? In essence none, other than that the presence of the exclusive jurisdiction clause among the rest of Peters' terms and conditions was irrelevant as a matter both of German and of Convention law. Thus it was not suggested that the presence of the clause was unknown, or overlooked. On the contrary, Mr Harper, in his second witness statement, once the non-disclosure had been challenged, took his stand on the submission that "the relevance of these matters depends on the exercise being undertaken by Mr Justice Aikens being jurisdictional in nature, rather than being concerned with the fair and balanced application of the rules relating to service".
67. We therefore infer that the existence of the clause was known about and that there was a deliberate decision not to disclose it, on the basis that it was irrelevant.
68. Peters has not appealed David Steel J's conclusions that Peters' terms and conditions were not incorporated into the parties' contracts (if any) as a matter of German law. David Steel J has also held that the same was true as a matter of the autonomous rules of article 17. The latter point is still in issue, but will not be decided in this court. Therefore we are prepared to assume that David Steel J was right. Nevertheless, it is not true that such considerations were irrelevant on the ground that Aikens J was concerned only with matters of service and not with matters of jurisdiction. On that point David Steel J was against Knauf UK ("potentially material"), and in our judgment correctly so. The whole point of the application to Aikens J to order service by an alternative method was in order to steal a march on anticipated German proceedings so as to achieve a firm jurisdictional foundation for Knauf UK's proceedings in England and to render them immune from jurisdictional attack under the "tie-break rules" of the Convention. A submission to the contrary is in our judgment misconceived.
69. What is more, although it is true that the article 17 point remains as an overriding point (at any rate in England, on the basis that article 17 overrides article 21, see Continental Bank NA v. Aeakos SA [1994] 1 WLR 588, a controversial point in the jurisprudence of the Convention), in Germany our understanding is that the view would be that article 21 overrides article 17. Thus, if the English court were to become the court first seised, then the validity of the article 17 point would be debated in England rather than in Germany. That demonstrates what is true even irrespective of any argument about article 17, and that is that the order for which Aikens J was requested is self-fulfilling: if it is made, it achieves that chronological priority which assures jurisdiction in England rather than in Germany: whereas the question whether such an order should be made at all is the very matter in issue.
70. It seems to us that when a court is being asked to make an exceptional order, in the exercise of its discretion, for the making of which a "good reason" must be found, and that order is designed to affect and does affect the jurisdiction or potential jurisdiction of the English court in respect of foreign parties, it is absolutely necessary to bring to the court's attention the possible existence of an exclusive jurisdiction clause in favour of a foreign jurisdiction. Nothing else would vindicate that "heavy duty of candour and care" which is required. Moreover, it is impossible to say that knowledge of the clause's existence would not have affected Aikens J's decision. If it did not, it would be because the court was willing to act with its eyes open to the potential dispute between the parties as to the effect of the clause. But knowledge of the clause, albeit accompanied by all or some of the arguments for disputing its applicability, may well have led a court to decide that Knauf UK must take its chances in the ordinary course of things, rather than to make an exceptional order in its favour.
71. In truth, the clause was not a wooden plank grasped in desperation by a drowning litigant nor was Peters shipwrecked (cf "si tabulam de naufragio stultus arripuerit", Cicero, Off 3, 23). The ultimate merits of the litigation are wholly unknown. There is a dispute about where the litigation should take place. There is an exclusive jurisdiction clause which points towards Germany. There is a valid dispute as to its applicability. In such circumstances the English court should not be asked to act as it were blindfolded. In our judgment this is one of those cases where, unless the "golden rule" is to fall into disrespect, a failure to disclose should be met by the sanction of the court. We would therefore have set aside the order of Aikens J even if we had concluded that there was good reason for his order.
Order: Appeal allowed. We are going to give what will be a provisional order as to costs, which will stand as our final order if the matter does not go further; but, if the matter does go further, the question of costs will be considered anew at the end of the proceedings as a whole. The order that we make at this stage provisionally is that the appellants should have the costs of the appeal (that is all the costs of the appeal) but, as to the costs below, the appellants should have the costs other than the costs of the article 17 issue. Those costs should lie as they did below, in favour of the respondents. If in the light of that order any repayment of costs made below is necessary, then it should be paid with interest at the judgment rate from the date of payment until the date of the hearing. Those costs are to be subject to detailed assessment. Within two weeks from today counsel are to inform the court of the issues to be argued and a time estimate for the hearing of those issues. The first skeleton to be delivered 14 days thereafter; the second skeleton to be delivered not later than the end of November. A date for the hearing to be fixed before Christmas. (Order does not form part of the approved judgment)