Metall Und Rushtoff V. Donaldson Lufkin Notes

Metal Und Rushtoff v. Donaldson Lufkin

Facts

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

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

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

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

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

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

Holding

Basic Tests for Service Outside Jurisdiction

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

Causes of action relied upon

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

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

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

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

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

Judge’s Exercise of Discretion was flawed

The judge's consideration of the appropriate forum inevitably proceeded upon the basis of the conclusion which he had already reached, namely, that M. & R. had...

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