KMG INTERNATIONAL NV –v- MELANIE ANNE CHEN & ANOR  EWHC 2389 (Comm)
PCB acted for KMG International NV (“KMG”) in a successful challenge to an application to strike out its claim against the former director of DP Holding SA (“DPH”), a public limited company incorporated in Switzerland and a BVI company under the former director’s control.
KMG’s claim is made in tort and based on breach of duties allegedly owed as a matter of Dutch or, alternatively, English law. The claim is connected to the enforcement of an arbitration award for US$200million obtained by KMG against DPH, which is the holding company of a diverse group of companies, “the DP Group”. KMG alleges the former director with the assistance of the BVI company wrongfully removed and dissipated a valuable asset, namely shares in a German subsidiary company, within the DP Group to frustrate the enforcement of the arbitration award.
The claim involves issues of reflective loss, i.e. whether a claimant is entitled to claim loss which is not personal but reflective of the loss of another party. The most common example being a shareholder seeking to recover the loss for damage suffered to the value of its shares because of damage suffered by the company.
The English law claim is stayed currently pending the decision of the Supreme Court appeal in Marex Financial Limited v Carlos Sevilleja Garcia EWCA Civ 1468.
The rule against reflective loss is not recognised under Dutch law. However, in seeking to strike out the Dutch law part of KMG’s claim, the Defendants sought to argue that the rule against reflective loss should apply and is a bar to the Dutch law claims on three grounds:
- It is rule of procedure rather than substance so governed by the lex foriand not the lex causae and is excluded by virtue of Article 1(3) of the Rome II Regulation on the law applicable to non-contractual claims (“Rome II”) and is not a rule of law that falls within Article 15 of Rome II;
- It is a mandatory overriding rule of English law within the meaning of Article 16 of Rome II; or
- It is a rule of English public policy within the meaning of Article 26 of Rome II.
In what is thought to be the first judgment dealing with the interaction of Rome II with the rule against reflective loss in England, the Judge, Mr Christopher Hancock QC (sitting as a Judge of the High Court) dismissed the Defendants’ arguments.
He concluded that the rule is clearly one that affects the substantive rights and remedies of a claimant. It is a substantive rule that has to do with the kinds of damage that is recoverable and falls within Article 15 and is not excluded by Article 1(3). It is not a rule that could be regarded as crucial to safeguarding English public interests to make it mandatory so as to override rules of Dutch law. Further, it could not be construed as a rule of public policy to the extent that it would breach a claimant’s fundamental rights, such as those guaranteed by the European Court of Human Rights.