Home Information Cases 1) Crucial Music Corporation v Klondyke Management AG (2007)

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1) Crucial Music Corporation v Klondyke Management AG (2007)

Summary

Under the Lugano Convention Art.5(1), once there was found to exist a relevant "obligation" having contractual effect on which a party was entitled to rely and for breach of which he was entitled to claim relief in contract, the place of performance of the obligation was the place where either, if it was executory, the obligation was to be performed; if it was negative, the obligation was to be honoured; if it was a warranty to an existing condition or state of affairs, the condition or state of affairs was required by the contract to exist.

Facts

The appellant German and Swiss companies (K) appealed against a decision of a master to refuse their applications to set aside service on them outside the jurisdiction of proceedings brought by the first respondent (C) and the second respondent (R) claiming damages for breach of contract and misrepresentation, or to grant a declaration that the court had no jurisdiction to hear the claims. By an agreement executed in London, C had agreed to acquire a catalogue of musical sound recordings, associated intellectual property and various trade marks and licences from the administrative receivers of a United Kingdom music company (P). Neither the administrative receivers nor P gave any warranties in relation to the property sold under the agreement. However, K provided a number of warranties to the vendors and C, including warranties as to the fact that the authorisation contracts for the recordings were valid, that there were no collateral agreements relating to the rights of the music performers that were capable of being detrimental, and that various licence agreements were valid. Thereafter, R took an assignment of the benefit of the agreement. R subsequently discovered the alleged existence of agreements or licences whose existence constituted a breach of the warranties and had the effect of reducing the commercial value of the catalogue. C and R commenced proceedings in England and served their claim on K outside the jurisdiction. The master held that (i) the obligation under the warranties came into effect on the making of the agreement in London and that therefore London was the place of performance of the warranties; (ii) that the loss by reason of misrepresentation having been made occurred when C and R paid money and entered into the agreement, which they did in London. K contended that (1) as regards the contractual claim, their warranties were statements and promises as to a state of affairs existing at the time when the parties entered into the agreement, and that those statements or promises did not impose any contractual obligation capable of "performance", so that England was not and could not be the place of performance of the obligation in question for the purposes of the Lugano Convention 1988 art.5(1); (2) as regards the claim in tort, the harmful event did not occur within the jurisdiction as the agreement was not signed in England, and that the damage consisted of damage to worldwide intellectual property rights so that England could not be the place where the harmful event occurred for the purposes of Art.5(3) of the Convention.

Held

(1) Under Art.5(1) of the Convention, the position was that once there was found to exist a relevant "obligation", having contractual effect on which a claimant was entitled to rely and for breach of which he was entitled to claim relief in contract, the place of performance of the obligation in question was the place where (a) if it was executory, the obligation was to be performed; (b) if it was negative, the obligation was to be honoured; (c) if it was a warranty to an existing condition or state of affairs, the condition or state of affairs was required by the contract to exist. In the instant case the essence of the contract was the transfer of intellectual property rights owned by an English company and lodged as security with an English bank, and the essence of the warranty was that the rights being transferred by assignment on completion were characterised by a specified level of licensing but not more, that there was at least a good arguable case that compliance with the warranty was required at the time and place where the transfer of the assets was effected, namely London, Viskase Ltd v Paul Kiefel GmbH (1999) 1 WLR 1305 and A De Bloos SPRL v Bouyer SA (C-14/76) (1976) ECR 1497 considered. Accordingly, the master was right to conclude that London was the place of performance of the obligation. (2) The alleged misrepresentations were not the impairment of, damage to, or diminution in the value of the transferred intellectual property rights, but that the respondents had been induced to enter into the agreement and, on completion, to take a transfer of the catalogue, and that it was their entry into the agreement that caused them to suffer and constituted their loss. If that allegation was made out, the misrepresentations caused the respondents to suffer loss and damage at the time they entered into the obligation to take the transfer of the property at the agreed price, which presumably was greater than the price that would have been agreed had the respondents known the true facts. Therefore, the master was entitled to conclude that the harmful event was the respondents' entry into the agreement, which occurred in England. (3) The terms of the Convention and the Civil Jurisdiction and Judgments Regulations 2007, which applied respectively to service on the Swiss companies and the German companies, did not differ in their relevant application so that it was appropriate to determine the matter by considering the Convention only.

Appeal dismissed

Chancery Division
Bernard Livesey QC
Judgment date
25 July 2007
References

​LTL 6/8/2007 

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