Legal database - View: Cases: Adams v Cape Industries Plc

Adams and Others v Cape Industries Plc and Anor
[1991] 1 All ER 929

(Judgment by: Slade LJ, Mustill LJ, Ralph LJ, Gibosn LJ)

Between: Adams and Others
And: Cape Industries Plc and Another

Court:

Court of Appeal (UK)

Judges: Scott J

Slade LJ
Mustill LJ
Ralph LJ
Gibson LJ

Subject References:
Conflict of Laws
Foreign debt
Action in England to recover foreign debt
Debt created by judgment in personam of foreign court of competent jurisdiction
Presence in foreign jurisdiction
Corporate defendant
English corporation trading in United States through subsidiary and independent marketing representative
Default judgment in damages suit entered against English corporation in United States
English corporation having no assets in United States
Plaintiffs seeking to enforce United States judgment against English corporation in England
Whether English corporation having presence in United States
Criteria for determining whether corporate defendant having presence in foreign jurisdiction
Foreign judgment
Enforcement
Breach of rules of natural justice
Foreign court acting in breach of natural justice
Default judgment in damages suit entered against English corporation in United States
United States judge awarding global amount for division among 205 plaintiffs
English corporation not challenging method of assessment because it did not wish to submit to jurisdiction
Whether contrary to natural justice to award global amount for division among plaintiffs instead of assessing defendants' liability to individual plaintiffs
Whether defence of breach of procedural natural justice restricted to requirements of due notice and opportunity to put a case
Whether English corporation prevented from relying on breach of natural justice because of failure to challenge award in United States court

Case References:
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Hearing date: CHANCERY DIVISION - SCOTT J - 15, 16, 17, 18, 19, 24, 25, 26, 29 FEBRUARY, 1, 2, 3, 4, 7, 8, 9, 10, 11, 14, 15, 16, 17, 18, 21, 22, 23, 24, 25 MARCH, 11, 12, 13, 14, 15, 18, 19 APRIL, 17 JUNE, 26 JULY 1988
COURT OF APPEAL, CIVIL DIVISION - SLADE, MUSTILL AND RALPH GIBSON LJJ - 5, 6, 7, 10, 11, 13, 14, 17, 18, 20, 21, 24, 25, 27, 28 APRIL, 2, 3, 24 MAY 1989
Judgment date: 27 JULY 1989

Notes

For jurisdiction of foreign courts in actions in personam, see 8 Halsbury's Laws (4th edn) paras 718-719, and for cases on the subject, see 11 Digest (Reissue) 586-588, 1368-1381.

For foreign proceedings contrary to natural justice, see 8 Halsbury's Laws (4th edn) para 729, and for cases on the subject, see 11 Digest (Reissue) 595-597, 1423-1441.

Consolidated actions

By writs and statements of claim most of which were issued on 1 August 1984 Jimmy Wayne Adams and 204 other plaintiffs, whose actions were consolidated with that of Mr Adams, sought to enforce a judgment entered in the United States District Court for the Tyler Division of the Eastern District of Texas at the suit of the plaintiffs against the defendants, Cape Industries plc and its wholly owned subsidiary, Capasco Ltd, both of which were incorporated in the United Kingdom, by which the district court awarded damages to Mr Adams of $US37,000 plus interest and varying amounts to the other plaintiffs in claims brought by the plaintiffs for damages for personal injury caused by asbestos dust. The facts are set out in the judgment.

T R A Morison QC and Charles Falconer for the plaintiffs.

Sir Godfray Le Quesne QC, Jonathan R Playford QC, Adrian Brunner and George Alliott for the defendants.

Judgment by:
Slade LJ
Mustill LJ
Ralph LJ
Gibosn LJ

Appeal and cross-appeal

The plaintiffs appealed and the defendants cross-appealed to the Court of Appeal.

27 July 1989. The following judgment was delivered.

1. INTRODUCTION

This is the judgment of the court, to which all its members have contributed, on an appeal by the plaintiffs in 205 consolidated actions. On 27 July 1988 Scott J dismissed all their claims. The trial in the court below lasted some 35 days and the argument before this court extended over some 17 days. The case raises important points of law and some substantial issues of fact.

Having reserved judgment at the end of argument on 3 May 1989, we subsequently came to the firm conclusion that the appeal must be dismissed and that in the particular circumstances of this case it was right that the parties should be informed of our decision at once, rather than having to wait for some more weeks before we were in a position to give the reasons for our decision.

On 24 May 1989 we accordingly announced that the appeal would be dismissed and that we would give the reasons for our decision in writing at a later date, at which date the order dismissing the appeal would be drawn up. This we now do.

The plaintiffs in these proceedings are persons, or the personal representatives of persons, in whose favour awards of damages were made by the judgment, dated 12 September 1983, of Judge Steger, a United States federal district court judge, in the District Court for the Eastern District of Texas (the Tyler court). The judgment was a default judgment against Cape Industries plc (Cape) and Capasco Ltd (Capasco), companies registered in England and the sole defendants in all the actions before this court. They had taken no part in the proceedings in which the judgment was made. The judgment was for the specific sums payable to individual plaintiffs set out in an appendix to the judgment: $37,000 each for 67 plaintiffs; $60,000 each for 31 plaintiffs; $85,000 each for 47 plaintiffs and $120,000 each for 61 plaintiffs. The total of the individual awards was $15,654,000 and the awards were directed to bear interest at 9% from judgment until payment.

The awards were made in respect of claims for damages for personal injuries and consequential loss allegedly suffered by each plaintiff as a result of exposure to asbestos fibres emitted from the premises of a primary asbestos insulation factory in Owentown, Smith County, Texas, which was operated from 1954 to 1962 by Unarco Industries Inc (Unarco) and from 1962 to 1972 by Pittsburgh Corning Corp (PCC). The basis of liability of Cape and Capasco was alleged to be negligent acts and omissions and breaches of implied and express warranties.

The relationship of Cape and Capasco to the emission of asbestos fibres from the Owentown factory was, in summary, that Cape owned the shares in subsidiary companies in South Africa which had mined the asbestos and in its subsidiary Capasco. Capasco was concerned in organising the sale of asbestos, mined in South Africa, throughout the world to those who wished to use it in various industrial processes. Between 1953 and 1978 when it was dissolved, another subsidiary of Cape, North American Asbestos Corp (NAAC), assisted in the marketing of asbestos of the Cape group in the United States of America. The plaintiffs' contention was that the defendants had been responsible for the supply of asbestos fibres directly or indirectly to Unarco and PCC without giving proper warning of the dangers thereof.

Summary of the proceedings in the Tyler court

Different sets of proceedings with reference to claims arising from the processing of asbestos in the Owentown factory had extended over many years. An account of what took place is necessary for a proper understanding of the course of the present proceedings. The first action was commenced in the Tyler court in January 1974 and was framed as a 'class' action in which the plaintiffs sued 'on behalf of themselves and all others similarly situated'. A second action was commenced in the same month. They were assigned to Judge Steger. Cape was one of the defendants. Capasco was added as a defendant in 1976. Egnep (Proprietary) Ltd (Egnep), a wholly-owned South African subsidiary of Cape engaged in mining asbestos, was also a defendant. All filed motions to quash service on the ground of lack of jurisdiction.

By July 1974 it was apparent that hundreds of claimants, alleging injury caused by the amosite asbestos used in the Owentown plant, were intending to pursue claims. Judge Steger in December 1974 ruled that the actions should not proceed as class actions, that they should be conducted under the Federal Rules for Complex and Multi-District litigation and that intervention in the proceedings should be allowed freely for those claimants who wished to join. In consequence a large number of claimants were added. In December 1974 a third action with reference to asbestos from the Owentown plant was commenced in the Tyler court in which the only defendant was the United States. All these proceedings together have been known as the Tyler 1 proceedings. They were separate and distinct from the proceedings in which the plaintiffs now before this court obtained their judgment in September 1983.

The motions by Cape, Capasco and Egnep to dismiss the Tyler 1 proceedings as against them on the ground of lack of jurisdiction were dismissed by Judge Steger in August 1977. That dismissal was not final and it was open to the Cape companies to take the jurisdiction point at the trial of the action. They filed answers in which they pleaded to the merits of the claim while maintaining their objection to jurisdiction.

The number of claimants in the Tyler 1 proceedings had by mid-1977 risen to more than 400 and was still increasing. Trial was set for 12 September 1977. The purpose of Judge Steger in fixing that date included that of causing the parties to consider settlement. On 12 September 1977 settlement discussions proceeded in which Judge Steger took part in a manner which would be unusual, if not impossible, in this country but which was effective and normal under the United States system of civil justice. By 28 September 1977 a settlement figure of $20m was agreed for all the claimants, who then numbered 462. On agreement of the settlement figure it was ordered that as from 28 September 1977 no further intervention in any of the Tyler 1 actions would be permitted.

The sum of $20m was provided by the defendants in agreed proportions: $5·2m by NAAC, Cape and Egnep; $1m by Unarco (who had operated the Owentown plant from 1954 to 1962); $8·05m by PCC (who had operated the plant from 1962 to 1972) and its shareholders; and $5·75m by the United States government. The settlement was recorded and approved in a final judgment in the Tyler 1 actions dated 5 May 1978. The reference to shareholders in PCC is to Pittsburgh PG Industries Inc (PPG) and to Corning Glassworks Inc, who had been joined as defendants on the basis that each had taken such part in the management decisions regarding the use of asbestos as to be liable for injuries arising from that use.

On prohibition by the order of Judge Steger of further interventions in the Tyler 1 proceedings, new actions were commenced by claimants in what have been called the Tyler 2 proceedings. There were eight separate actions. They were assigned to Judge Steger. The first was commenced on 19 April 1978 and the last on 19 November 1979. There followed intervention by a very large number of claimants. Cape, Egnep and NAAC were defendants in all the actions. Capasco was a defendant in three only. PCC, PPG, Corning Glassworks Inc and OCAW, a trade union to which some claimants had belonged, were also defendants in all actions. The United States government was a defendant in some actions and third party defendant in others.

In December 1981 Judge Steger gave directions by which each claimant was required to provide specified information with reference to his claim 'on personal knowledge and attested to under penalty of perjury'. As a result of those directions, and of the response, or lack of response, thereto, a large number of claimants had their claims summarily dismissed 'without prejudice'. The number of plaintiffs left in the Tyler 2 actions was about 206. It is to be assumed that each of those remaining claimants had responded to the order of December 1981 by alleging some physical condition that was capable of having been caused by exposure to asbestos dust and of constituting an injury.

Cape, Capasco and Egnep took the decision to play no part in any of the Tyler 2 actions. They had initially regarded the Tyler 1 actions as having little more than nuisance value. They could not understand how tortious liability to the Owentown workers could be imposed on the Cape companies merely on the ground that Cape subsidiary companies had mined the asbestos and sold it into the United States of America. They had had expectations of success on their jurisdiction objection. They had, however, succumbed to the pressure for settlement. They were unwilling to be left as the only defendants in a large and expensive jury trial. Having joined in the settlement of the Tyler 1 actions they decided, since they had no assets in the United States, to take no part in the Tyler 2 proceedings, to allow default judgments to be obtained against them and to defend any actions brought in this country for enforcement of any such judgment on the ground that, under the law of this country, the Tyler court had no jurisdiction over Cape, Capasco or Egnep with reference to the claims of the claimants.

The settlement against some defendants of the Tyler 2 proceedings

In circumstances which will be considered in more detail later in this judgment, the Tyler 2 proceedings were in February 1983 settled, as against the effective defendants other than the Cape companies, for a sum of $1·33m. The figure of $1·33m was based on an average award of $10,000 for each of 133 plaintiffs represented in the settlement negotiations. The sum of $1·33m was to be provided as to $900,000 by PCC, the firm which had operated the Owentown factory from 1962 to 1972, and by PPG, one of the corporations owning shares in PCC, as to $130,000 by Corning Glassworks Inc, the other corporation holding shares in PCC, as to $150,000 by OCAW, and $250,000 by NAAC. Such was the considered value of the claims, as it emerged from the settlement process between the judge and the parties, as against the parties which included those alleged to have had some direct concern in connection with the emission of asbestos particles at or from the Owentown factory. On payment of those sums the settling defendants were to be released from all claims by the 133 plaintiffs.

That settlement was complicated by a 'device' devised by Mr Bailey, who was the attorney negotiating the settlement on behalf of the claimants and which was intended, it was said, to give the claimants the chance of additional recovery against the United States. The form of this device, and the part which it was alleged to have played in the formulation of the terms of the default judgment against the Cape companies, was important to the allegations of fraud put forward against Mr Bailey, which, as stated below, were rejected by Scott J. It is necessary to describe what happened to render intelligible some of the matters discussed later in this judgment. The device was described by Scott J as follows (p 944, ante):

'The device was this: the settlement figure would be expressed in the intended settlement agreement not as $1·33m but instead as $6·65m, an average of $50,000 per plaintiff. The defendants would be obliged to pay only $1·33m. The balance of $5·32m ($40,000 per plaintiff) would be payable only if and to the extent that the defendants' third party claims against the United States succeeded. The prosecution of those claims in the names of the defendants was to be the responsibility of the plaintiffs' counsel, no cost in respect thereof falling on any of the defendants. The $6·65m was a figure proposed by Mr Bailey. It was not a figure which mattered at all to the defendants since their obligation to pay was limited to the $1·33m. They did not bargain about the amount. They simply agreed to Mr Bailey's proposal, which would cost them nothing. Mr Bailey told me that the figure was based on what he thought might be awarded against the United States at the suit of the settling defendants. How it could have been supposed that the liability of the United States under the third party claims could exceed the $1·33m that the settling defendants, the third party claimants, had agreed to pay the plaintiffs defeats me.'

On 2 February 1983 Judge Steger approved the settlement of the Tyler 2 proceedings as against the settling defendants, and that approval extended to the fairness and reasonableness of the settlement in the case of any minor claimants. The trial date for the outstanding Tyler 2 claims against the United States was fixed for 20 June 1983. Settlement was discussed. An agreement of compromise dated 15 June 1983 was signed. The United States government contributed nothing directly to the claimants but, in settlement of their claims against the United States, it was agreed that the United States would bear the costs of enforcement of default judgments against Cape, Capasco and Egnep in the United Kingdom or in South Africa. It is in performance of that promise that these proceedings have been pursued in this country.

The default judgment in the Tyler court, on which the present proceedings in this country are based, was, as stated above, signed on 12 September 1983. The nature of the process in which that judgment came to be signed will be examined in detail later in this judgement when the issue of natural justice is considered.

The consolidated actions in this country

There is no statutory provision for the registration in this country of the judgments of the federal or state courts of the United States of America. The plaintiffs, therefore, took proceedings in this country seeking to recover the amount of their judgments from Cape and Capasco. The writ in the lead action of Mr Jimmy Adams was issued on 1 August 1984 and claimed the amount of his separate award with interest. In law the claims of all the plaintiffs are based on the principle of common law that, subject to certain qualifications, the judgment in personam of a foreign court of competent jurisdiction may be sued on in this country as creating a debt between the parties to it.

It would have been open to the plaintiffs in the first place to sue the defendants in this country rather than the United States provided that they could have shown that the acts complained of were actionable as a tort both under English law and the law of the place or places where they were committed: see Chaplin v Boys [1969] 2 All ER 1085, [1971] AC 356. However, they chose to bring the proceedings in the United States and then to seek to enforce them in this country, where presumably the defendants are believed to have substantial assets.

The issues at the trial before Scott J and his decision

The circumstances in which our courts will recognise a foreign court as competent to give a judgment in personam capable of enforcement in this country are stated thus in Dicey and Morris on the Conflict of Laws (11th edn, 1987) vol 1, r 37, pp 436-437:

'First Case

If the judgment debtor was, at the time the proceedings were instituted, resident (or, perhaps, present) in the foreign country.

Second Case

If the judgment debtor was plaintiff in, or counterclaimed, in the proceedings in the foreign court.

Third Case

If the judgment debtor, being a defendant in the foreign court, submitted to the jurisdiction of that court by voluntarily appearing in the proceedings.

Fourth Case

If the judgment debtor, being a defendant in the original court, had before the commencement of the proceedings agreed, in respect of the subject matter of the proceedings, to submit to the jurisdiction of that court or of the courts of that country.'

At the trial the plaintiffs relied on three separate grounds for enforcement of the judgment of the Tyler court in England, namely: (i) that the defendants had voluntarily appeared in the proceedings in the Tyler court; (ii) that the defendants had, before the proceedings commenced, agreed to submit to the jurisdiction of the Tyler court; (iii) that the defendants were resident in the United States at the time of the commencement of the plaintiffs' proceedings in the Tyler court. (A fourth pleaded ground, referred to as 'comity or reciprocity', was not in the event relied on at the trial.)

Scott J concluded that the Tyler court had been competent to give a judgment against Cape and Capasco on none of the three grounds relied on (Dicey and Morris first, third and fourth cases in r 37). The plaintiffs' claim, therefore, failed for this reason, if no other.

However, the judge proceeded to consider certain additional points raised by the defendants by way of defence. The first point arose in this way. According to the case made for the plaintiffs, the presence (if any) of Cape and Capasco was in the State of Illinois where Cape's subsidiary, NAAC, had its office in Chicago from 1953 to 1978 when it was wound up, and where in the same building from 1978 onwards Continental Products Corp (CPC), also an Illinois corporation but not a subsidiary of Cape, carried out similar marketing functions in the United States for the sale of asbestos produced by Cape's South African subsidiaries. The plaintiffs did not contend that Cape or Capasco had been present in Texas. In these circumstances, the defendants contended that under English law presence in Illinois did not suffice to give the Tyler court (a federal district court sitting in Texas) jurisdiction to hear a claim in tort against the defendants governed by the law of Texas. This argument, which we will call 'the country issue', Scott J rejected. He said that, if he had felt able to conclude that Cape and Capasco were present in Illinois when the Tyler 2 actions were commenced, he would have held that to be a sufficient basis in English law for the exercise by the Tyler court of jurisdiction over them (see p 977, ante).

The defendants further contended that, even if any grounds of jurisdiction in the Tyler court had existed, yet the judgment should not be enforced because (i) the judgment had been obtained by the fraud of Mr Blake Bailey, the attorney who had represented some of the plaintiffs before Judge Steger in the proceedings on the making of the default judgment and who had drafted the terms in which the default judgment was finally expressed; and (ii) it would be contrary to the standards of natural justice required by our law, and contrary to the principles of public policy applied by our law, to enforce the judgment having regard to the circumstances in which, and the procedures by which, it came to be made. Scott J considered these issues again on the assumption that, contrary to his conclusion, the plaintiffs had made out a ground for jurisdiction in the Tyler court over Cape and Capasco. He acquitted Mr Bailey of having had any intention to deceive and of having deceived anyone with reference to the terms and form of the judgment. The allegations that the judgment had been obtained by fraud accordingly failed. However, the defendants succeeded before Scott J on the natural justice point. The judge found that the judgment was not such that it could be enforced in the courts of this country. The primary ground of that finding was that the procedure adopted in this particular case by the judge of the Tyler court offended against the principles of substantial justice contained in our law.

Scott J gave his judgment in two parts. On 11 June 1988 he announced that the claims of all the plaintiffs would be dismissed and he gave his reasons for rejecting each of the three grounds on which the plaintiffs had claimed that their judgment in the Tyler court should be enforced in this country. He also stated in summary form his reasons for rejecting the allegations of fraud against Mr Bailey and for upholding the contentions of Cape/Capasco on the natural justice issue. On 27 July 1988 he gave his full reasons with reference to the issues of fraud and natural justice. The plaintiffs have invited this court to take a different view on some parts of the facts in this case, and to apply principles of law which the judge considered to be inapplicable. Mr Morison QC, however, began his submissions by rightly acknowledging the great care expended in, and the great accuracy and clarity of, the judgment of the judge, to which we also pay tribute.

The issues on this appeal

On this appeal the plaintiffs do not seek to challenge those parts of Scott J's judgment by which he rejected their submissions based on the alleged voluntary appearance by the defendants in the Tyler court proceedings or their alleged agreement to submit to the jurisdiction of that court. The defendants do not challenge his rejection of their allegation of fraud against Mr Bailey. The plaintiffs do, however, seek to challenge those parts of his judgment by which (a) he rejected their submissions based on the alleged residence or presence of Cape and Capasco in the United States (the presence issue), and (b) he accepted the defendants' submissions based on natural justice (the natural justice issue).

As part of their answer to the plaintiffs' case on presence, the defendants have cross-appealed on what we have described as 'the country issue'.

To sum up, the three issues which have been argued on this appeal are (a) the presence issue; (b) the country issue; and (c) the natural justice issue. A decision on any one of these issues in favour of the defendants would strictly render a decision on the other two issues unnecessary. However, we think it right to deal fully with all three issues, not only out of deference to the excellent arguments which have been presented to us on both sides, but also because these issues are important and we suppose that the case could proceed to a higher court. Furthermore, at least the first two of the three issues are closely connected with one another.

II. THE PRESENCE ISSUE

[His Lordship referred to the depositions placed before Scott J and continued:]

The facts on 'presence' as found by Scott J

We will now state in summary form the facts as found by the judge on the 'presence' issue. This summary will be taken from the judgment of Scott J and, for the most part, in his words. Some comments and explanations will be added in parentheses.

(1): Cape until 1979 presided over a group of subsidiary companies engaged in the mining and marketing of asbestos. On 29 June 1979 their interest in asbestos ended when their subsidiary companies were sold by Cape to Transvaal Consolidated Exploration Co Ltd (TCL), a South African company.
(2): The asbestos mines were in South Africa. The mining companies were South African. The most important of them was Egnep. The shares in Egnep and the other mining companies were held by Cape Asbestos South Africa (Pty) Ltd (Casap), also a South African company. Prior to 2 December 1975 the shares in Casap were held by Cape.
(3): In 1953 Cape caused to be incorporated in Illinois the company called NAAC. (This is the company whose office in Chicago is said by the plaintiffs to have been the place of business in the USA at which, until May 1978, Cape and Capasco were present.) The shares in NAAC were held by Cape. The function of NAAC was to assist in the marketing of the asbestos in the USA on sales by Egnep or Casap to purchasers there. NAAC was the marketing agent of the Cape group in the USA.
(4): NAAC did not at any time have authority to make contracts, in particular for the sale of asbestos, which would bind Cape or any other subsidiary of Cape.
(5): On a date before 1960 Capasco, an English company, was incorporated. Its shares had at all times been held by Cape. It was responsible for the supply, marketing and sales promotion throughout the world of Cape's asbestos or asbestos products but, since in 1960 NAAC was already at work, marketing in the USA was left in the main to NAAC.
(6): In 1975 there was a change in the organisation of the Cape group. Cape International and Overseas Ltd (CIOL), an English company, was incorporated as a wholly owned subsidiary of Cape. The shares in Casap (the South African company which owned the shares in the mining subsidiaries) and the shares in NAAC (the marketing subsidiary in Illinois) were transferred to CIOL. This insertion of CIOL between Cape, on the one hand, and Casap and NAAC on the other, did not materially alter the way in which the subsidiaries carried on business and managed their affairs. The sale by Cape to TCL in June 1979 (see para 1 above) was effected by sale of the shares in CIOL.
(7): Before 1962 the Owentown factory was run by Unarco who were customers for Egnep's amosite asbestos. In 1962 PCC purchased the factory and, until 1972 when the factory was closed, purchased asbestos supplied by Egnep and used it in the factory.
(8): When the settlement of the Tyler 1 proceedings was concluded in September 1977 Cape, as stated above, decided to take no part in the Tyler 2 proceedings. The further decision was made at a board meeting of Cape in November 1977 to reorganise the group's asbestos selling arrangements in the USA which would in future be more closely controlled from South Africa, and, as part of this reorganisation, NAAC should be wound up. Part of the reason for that decision was to counter an argument that under English law Cape's interest in NAAC's business sufficed to give the Tyler court jurisdiction over Cape.
(9): Cape, however, did not intend to abandon the USA as a market for Cape's asbestos. To accompany the liquidation of NAAC, alternative marketing arrangements were made. Associated Mineral Corp (AMC), a Liechtenstein corporation, was formed, the bearer shares in which were held by Dr Ritter, a lawyer, on behalf of CIOL. All sales into the USA of Cape's asbestos were to be sales by AMC.
(10): A new marketing entity in the United States was on 12 December 1977 created, namely Continental Products Corp (CPC). CPC was not a subsidiary of Cape. The shares were held by Mr Morgan, a US citizen and resident of Illinois, who had for four years been president of NAAC. By an agency agreement in writing dated 5 June 1978 between CPC and AMC (see para (28) below), CPC were to act as agent for AMC in the USA for the purpose of the sale of asbestos. CPC would be remunerated by commission but had no authority to contract on behalf of AMC or any other Cape company. CPC was to act as a link between AMC and the US purchasers in connection with shipping arrangements, insurance etc.
(11): As from 31 January 1978 NAAC ceased to act on behalf of any of the Cape companies or to carry on any business on its own account save for the purpose of liquidating its assets. (This finding is challenged by the plaintiffs. The cessation of NAAC's business occurred, it is said, on 18 May 1978. It is to be remembered that the Tyler 2 actions were commenced on dates between 19 April 1978 and 19 November 1979. If presence of Cape/Capasco could be proved through the office and actions of NAAC but not through the office and actions of CPC under the new marketing arrangements, the point could be of importance.) NAAC executed articles of dissolution on 18 May 1978.
(12): Through the medium of AMC and with the assistance of CPC, Egnep's amosite asbestos continued to be sold into the US until the sale on 29 June 1979 to TCL by Cape of its interests in the subsidiaries: see para 1 above. (In paras (13) to (23) below we summarise the detailed findings of Scott J as to the location, control and operations of NAAC as marketing agent for the Cape group asbestos. These are to be compared with the location, control and operation of the alternative marketing arrangements provided by AMC and CPC after those arrangements came into existence on some date between 12 December 1977 when CPC was formed and 5 June 1978 when the agency agreement of that date between CPC and AMC was made. We summarise the findings of Scott J as to the location, control and operations of CPC and AMC in paras (24) to (37) below.)
(13): Mr Morgan in December 1970 had been appointed vice-president of NAAC. He was made president on 1 July 1974 and so continued until dissolution of NAAC in 1978. At all material times the vice-president of NAAC was Mr Meyer, an attorney and partner in the firm of Lord Bissell & Brook of Chicago. That firm acted for the Cape group of companies as their US attorneys. NAAC had offices on the 5th floor of 150 North Wacker Drive, Chicago. NAAC was the lessee, paid the rent, owned the office furniture and fittings and employed a staff of some four people. Mr Morgan was in charge.
(14): NAAC's dominant purpose was to assist and encourage sales in the US of asbestos mined by the Cape subsidiaries, of which one was Egnep. Contracts with US customers for the supply of asbestos were made by Egnep or Casap. The contracts tended to be long term without specification of the quantity. The US customer would, through NAAC, notify Casap or Egnep of the quantity required and the time for delivery. It was not clear to Scott J whether the information went directly from NAAC to Casap and Egnep or whether it went via Capasco. Shipping arrangements and delivery date would be arranged by Casap or Egnep and passed to the US customer through NAAC. Egnep could not always provide the full amount of asbestos ordered. If that happened NAAC would, if it could, purchase asbestos from United States government stocks in order to supply it to the US customers.
(15): NAAC thus had two main forms of business which it carried on: first, as intermediary in respect of sales by Egnep to US customers in return for commission paid by Casap; and, secondly, so as to supplement sales from Egnep, sales of asbestos to US customers in which NAAC contracted as principal both in purchasing and in selling on.
(16): In addition, NAAC also carried on business as principal on its own account in buying asbestos textiles, mainly from Japan, and selling the textiles to US customers; and, from time to time, in buying asbestos from Casap or Egnep for sale on to US customers. Further, for storing asbestos which it had purchased, whether from US government stocks or from Egnep or Casap, NAAC rented in its own name and paid for warehousing facilities.
(17): NAAC was the channel of communication between US customers, such as PCC, and Capasco or Casap. There was undoubtedly 'a sense in which NAAC was, if the Cape group of companies is viewed as a whole, part of the selling organisation of the group and Cape's agent in the US'.
(18): Directorships: prior to 11 July 1975 the board of directors of NAAC included two senior officers of Cape. Until 1974 Mr Dent, chief executive of Cape, was chairman of NAAC. In 1975, Mr Higham succeeded Mr Dent in both positions. The other Cape director of NAAC was Dr Gaze, chief scientist of the group, chairman of Capasco and an executive director of Cape. In July 1975 Mr Higham and Dr Gaze resigned from the board of NAAC. This change was, according to the deposition of Mr Morgan in the Tyler 1 proceedings, attributable to the existence of the Tyler 1 proceedings and was made 'to dissociate the parent company as fully as possible from the operating companies' but implied no 'change whatever in the method of operation or the present responsibilities of individuals concerned'.
(19): As to control over corporate activities: the corporate, as opposed to commercial, activities of NAAC were controlled by Cape. Subject to compliance with Illinois law, and to some arguments or representations from Mr Morgan, Cape directed the level of the dividend and the level of permitted borrowing. Such corporate financial control was no more and no less than was to be expected in a group of companies such as the Cape group.
(20): As to control over commercial activities: there was no evidence that Cape or Capasco exercised such control over the commercial activities of NAAC as was exercised in respect of its corporate activities. Mr Morgan was in executive control of its business. (That finding is challenged by the plaintiffs.) Dr Gaze and Mr Higham visited US customers from time to time to discuss their asbestos supply requirements and dealt with complaints. In so doing they acted as directors of Cape and Capasco and not as representatives of NAAC. The business carried on by NAAC was its own business. (That finding is also challenged.)
(21): There was no agency agreement between Cape and NAAC comparable to that which had existed at one time between Cape and Capasco under which all of Capasco's business had been carried on by Capasco as agent for Cape so that, in effect, until termination of the agreement in the mid-1970s, Capasco's business had been Cape's business. The annual accounts of NAAC were drawn on the footing that NAAC's business was its own business and there was nothing to suggest that the accounts were drawn on a false footing.
(22): NAAC had a separate identity and was not the 'alter ego' of Cape. NAAC, an Illinois corporation, carried on business in the USA, earned profits and paid US taxes thereon. NAAC's creditors and debtors were its own and not Cape's. Cape was not taxed in the UK or in the USA on NAAC's profits. The return to Cape, as NAAC's shareholders, took the form of an annual dividend passed by a resolution of NAAC's board of directors. The corporate forms applicable to NAAC as a separate legal entity were observed. NAAC had its own pension scheme for its own employees. It made its own warehousing arrangements for the storage of its own asbestos.
(23): As to place of business, neither Cape nor Capasco had an office in Illinois. The offices at 150 North Wacker Drive were NAAC's offices. (That finding is challenged.)
(24): The arrangements for the dissolution of NAAC and the formation of AMC and CPC (see paras 8 to 10 above) over the period November 1977 to February 1978 were part of one composite arrangement designed to enable Cape asbestos to continue to be sold into the USA while reducing, if not eliminating, the appearance of any involvement therein of Cape or its subsidiaries. This arrangement was associated with the decision to take no part in the Tyler 2 proceedings and to resist enforcement of any default judgments on the ground that the Tyler court had no jurisdiction over Cape or its subsidiaries other than NAAC. The defence on those lines would require the trading connection between Cape and its subsidiaries on the one hand and the United States on the other to be kept to a minimum. Hence the need to liquidate NAAC, a Cape subsidiary, and to allow at least some of NAAC's trading functions to be assumed by an Illinois corporation which was not a Cape subsidiary, ie CPC.
(25): The senior management of Cape, including Mr Penna, the Cape group solicitor, were very anxious that Cape's connections with CPC and AMC should not become publicly known. Some of the letters and memoranda had a conspiratorial flavour to them. The question, however, whether CPC's presence in Illinois can, for purposes of jurisdiction under our law, be treated as Cape's presence must be answered by considering the nature of the arrangements implemented and not the motive behind them, and the 'conspiratorial' references in the documents, although interesting, were in the judge's view not relevant to the main question.
(26): As to the formation of AMC, the cost of forming this Liechtenstein corporation, in which the bearer shares were held by Dr Ritter on behalf of CIOL, was borne within the Cape group. The intention was that all sales of Cape asbestos to US customers would be made by AMC. The exact nature of the arrangements between AMC and Egnep/Casap, whereby AMC became the owner of the asbestos so as to be able to resell it into the USA, was not disclosed in the evidence. That was not surprising since the relevant documentation had, since the sale of CIOL and Casap to TCL in 1979 been under the control of TCL but it was clear that AMC was no more than a corporate name. It was an 'invoicing company' with no employees of its own and it probably acted through employees or officers of Casap or Egnep.
(27): As to the formation of CPC (see para (10) above), the lawyers who acted in the formation of CPC, in which corporation Mr Morgan owned all the shares, were Lord Bissell and Brook, attorneys for Cape in the US. Directly or indirectly, the costs of incorporation were paid by Cape or Capasco. The shares in CPC, however, were owned independently by Mr Morgan both in equity and in law.
(28): The agency agreement of 5 June 1978 between AMC and CPC (see para 10 above): Mr Morgan was also a party to this agreement. By it AMC appointed CPC as its exclusive advice and consultancy bureau to assist the sale of its asbestos fibre in the territory of USA, Canada and Mexico for a period of 10 years from 1 February 1978 to 31 January 1988. There was a proviso for termination on 12 months' notice. The duties imposed on CPC were to carry out the appointment diligently and in particular (a) to keep AMC advised as to competitor products and market conditions, (b) to facilitate or expedite delivery of products contracted to be sold by AMC in the territory and (c) to seek out and promote prospective business on behalf of AMC and to forward to AMC requests for supplies of products provided always that supplies should only be at prices and upon terms and conditions determined by AMC. It was expressly provided that nothing in the agreement should be construed so as to give CPC any authority to accept any orders, to make any sales, or to conclude any contracts on behalf of AMC. CPC was left free to sell material and products other than asbestos fibre and to involve itself in other commercial activities. CPC was required to provide, maintain and operate at its own cost office accommodation and staff for running an efficient advice and consultancy bureau. Remuneration for CPC was to be by commission on the cost of all asbestos sales by AMC in the territory.
(29): As to the goodwill of CPC, the agency agreement provided in para 11, under the heading 'Pre-emption Rights', that in the event that Mr Morgan should desire to cease management control of CPC, or to dispose of all of his shareholding in CPC or such part as constituted majority control, or to dispose of any shares to a person, firm or company which was directly or indirectly engaged in the sale of asbestos fibre or the manufacture or sale of insulation materials, or in the event that CPC terminated this agreement for any reason or refused to agree to further renewal upon its expiry, or in the event that AMC terminated the agency agreement in the event of insolvency of either party or substantial breach of obligations, then Mr Morgan should in such event offer all shares owned by him in CPC for sale to AMC at their net book value excluding goodwill. Beneficial ownership of the name 'Continental Products Corp' was provided to belong to AMC.
(30): CPC commenced business on 1 February 1978 in order to fit in with the cesser of business of NAAC on 31 January 1978. The terms of the agency agreement were a reliable guide to the nature of the relationship between CPC and AMC and, hence, between CPC and Cape.
(31): As to CPC's place of business, CPC leased offices on the 12th floor of 150 North Wacker Drive. NAAC's offices had been on the 5th floor in the same building. Most of the furniture and fittings in NAAC's offices were removed to CPC's offices. CPC took over NAAC's telephone number.
(32): As to the cost of CPC's commencement in business, CPC had an immediate need for funds for rent, furniture, and payment of staff but commission under the agency agreement with AMC would not be payable immediately. The sum of $12,000 was paid by and on behalf of Cape to CPC to assist in meeting the cost of establishing itself. In addition a sum of $160,000 was paid to CPC on 4 January 1978 to enable CPC to set up in business and to perform the agency obligations expected of it.
(33): As to the business activities of CPC, CPC acted as an agency in connection with sales of Cape asbestos and, in addition, it traded in asbestos textiles on its own account, buying and selling as principal. Like NAAC, CPC acted as 'agent' for the purpose of facilitating the sale in the US of Cape's asbestos. In NAAC's time the seller was Egnep or Casap. The seller in CPC's time was, nominally, AMC but, in reality, still Egnep or Casap. Like NAAC, CPC had no authority to bind any Cape subsidiary to any contract.
(34): CPC's conduct of its affairs was much the same as NAAC's had been. It paid the rent for its offices and paid its employees. It received commission from AMC as well as incurring expenditure and receiving payments in connection with its independent trading activities.
(35): CPC was an independently owned company. CPC, like NAAC, carried on its own business from its own offices at 150 North Wacker Drive. (Both these findings are challenged.)
(36): On the evidence the corporate form of the Cape group was not 'form' only. Each corporate member of the Cape group had its own well-defined commercial function designed to serve the overall commercial purpose of mining and marketing asbestos.
(37): In August 1984, according to the evidence of Mr Summerfield, a solicitor acting for the plaintiffs, there was at 150 North Wacker Drive a noticeboard giving the names of both CPC and AMC as the occupants of the offices on the 12th floor. There was no evidence whether the board was there in 1979 when the sale of the subsidiaries was made by Cape to TCL (see para (1) above). There was no evidence to suggest that AMC was an occupant of the offices at the time of the commencement of the Tyler 2 actions in the period 19 April 1978 to 19 November 1979.

The plaintiffs' challenge to Scott J's finding of facts relevant to the 'presence' issue

The plaintiffs' challenge to the judgment of Scott J on the 'presence' issue is based not so much on the findings of primary fact which were made, but on his supposed failure to find all the material facts and to draw the correct inferences and conclusions which should have been drawn from such facts. In their amended notice of appeal (which we gave leave to amend at the hearing) the plaintiffs included a 'Schedule of facts which ought to have been found'. This schedule included 25 paragraphs. For convenience we will set out and deal with the issues of fact raised by this schedule in an appendix to this judgmenta, which in our view need not be reported. We observe at this point that, having been taken through the evidence relating to such of these 25 paragraphs as are disputed, we think that the majority of them (though by no means all) are in broad terms borne out by the evidence. However, we do not think that those which are substantiated add very much to the strength of the plaintiffs' case on the presence issue or that they suffice to invalidate the ultimate conclusion of the judge on that issue.

The appendix referred to is not reproduced in this report.

On the basis of the findings of fact made by Scott J and the further facts which they submit he ought to have found, the plaintiffs in their amended notice of appeal submit that he was wrong to conclude that-

'[1]

NAAC's business was its own business, not the business of Cape or of Capasco;

[2]

CPC ... was ... an independently owned company ... [which] carried on its own business;

[3]

As from 31 January 1978 NAAC ceased to act on behalf of any of the Cape companies or to carry on any business on its own account save for the purpose of liquidating its assets

[4]

Mr Morgan was in executive control of NAAC's conduct of its business.'

(See pp 966, 970, 942 and 963, ante.)

Two important inferences of fact made by the judge (numbers (1) and (2)) and two important findings of primary fact (numbers (3) and (4)) are thus challenged on this appeal. We shall consider contention (4) in the section of this judgment dealing with the 'single economic unit' argument and in the appendix. We shall consider the contention that CPC was 'not an independently owned company' in the section dealing with the 'corporate veil argument'. We shall consider contention (3) and the contentions that NAAC's business was not 'its own business' and that CPC's business was not 'its own business' in the section dealing with what we will call the 'agency' argument.

Some leading authorities relevant to the 'presence' issue

Provision has been made by statute for the enforcement in this country of the judgments of the courts of Commonwealth and foreign countries in a number of different circumstances (see, in particular, s 9 of the Administration of Justice Act 1920, s 4 of the Foreign Judgments (Reciprocal Enforcement) Act 1933 and the Civil Jurisdiction and Judgments Act 1982). However, none of these statutory provisions applies in the present case. We are concerned solely with the common law: see Dicey and Morris on the Conflict of Laws (11th edn, 1987) vol 1, r 37, p 436 (first case).

So far as appears from the many cases cited to us, neither this court nor the House of Lords has ever been called on to consider the principles which should guide an English court in deciding whether or not a foreign court was competent to assume jurisdiction over a corporation (as opposed to an individual) on a territorial basis; and we have seen only two decisions of courts of first instance in which these principles fell to be considered. We will begin by mentioning some of the leading cases relating to judgments given against individuals.

Two points at least are clear. First, at common law in this country foreign judgments are enforced, if at all, not through considerations of comity but on the basis of a principle explained thus by Parke B in Williams v Jones (1845) 13 M & W 628 at 633, 153 ER 262 at 265:

'Where a court of competent jurisdiction has adjudicated a certain sum to be due from one person to another, a legal obligation arises to pay that sum, on which an action of debt to enforce the judgment may be maintained. It is in this way that the judgments of foreign and colonial courts are supported and enforced ... '

Blackburn J stated and followed the same principle in delivering the judgment of himself and Mellor J in Godard v Gray (1870) LR 6 QB 139 at 146 and the judgment of the Court of Queen's Bench in Schibsby v Westenholz (1870) LR 6 QB 155 at 159, [1861-73] All ER Rep 988 at 991, where he said:

'It is unnecessary to repeat again what we have already said in Godard v. Gray ((1870) LR 6 QB 139). We think that, for the reasons there given, the true principle on which the judgments of foreign tribunals are enforced in England is that stated by Parke, B., in Russell v. Smyth ((1842) 9 M & W 810 at 819, 152 ER 343), and again repeated by him in Williams v. Jones ((1845) 13 M & W 628 at 633, 153 ER 262 at 264-265), that the judgment of a court of competent jurisdiction over the defendant imposes a duty or obligation on the defendant to pay the sum for which judgment is given, which the courts in this country are bound to enforce; and consequently that anything which negatives that duty, or forms a legal excuse for not performing it, is a defence to the action.'

Secondly, however, in deciding whether the foreign court was one of competent jurisdiction, our courts will apply not the law of the foreign court itself but our own rules of private international law. As Lindley MR put it in Pemberton v Hughes [1899] 1 Ch 781 at 791:

'There is no doubt that the Courts of this country will not enforce the decisions of foreign Courts which have no jurisdiction in the sense above explained-i.e., over the subject-matter or over the persons brought before them ... But the jurisdiction which alone is important in these matters is the competence of the Court in an international sense-i.e., its territorial competence over the subject-matter and over the defendant. Its competence or jurisdiction in any other sense is not regarded as material by the Courts of this country.'

Subsequent references in this section of this judgment to the competence of a foreign court are intended as references to its competence under our principles of private international law, which will by no means necessarily coincide with the rules applied by the foreign court itself as governing its own jurisdiction. As the decision in Pemberton v Hughes [1899] 1 Ch 781 shows, our courts are generally not concerned with those rules.

Under the plaintiffs' case as pleaded, the obligation of the defendants to obey the judgment of the Tyler court is said to arise because 'the defendants were resident in the United States of America at the time the plaintiffs' proceedings were commenced in the Tyler Court'. The jurisdiction of the Tyler court is thus said to be founded on territorial factors.

Nearly 120 years ago in Schibsby v Westenholz (1870) LR 6 QB 155, [1861-73] All ER Rep 988 the 'residence' of an individual in a foreign country at the time of commencement of suit was recognised by the Court of Queen's Bench as conferring jurisdiction on the court of that country to give a judgment in personam against him. In that case the court declined to enforce a judgment of a French tribunal obtained in default of appearance against defendants who at the time when the suit was brought in France were not subjects of nor resident in France. On these facts the court decided that there existed nothing in the present case imposing on the defendants any duty to obey the judgment of a French tribunal' (see LR 6 QB 155 at 163, [1861-73] All ER Rep 988 at 993). However, it regarded certain points as clear on principle (see LR 6 QB 155 at 161, [1861-73] All ER Rep 988 at 992):

'If the defendants had been at the time of the judgment subjects of the country whose judgment is sought to be enforced against them, we think that its laws would have bound them. Again, if the defendants had been at the time when the suit was commenced resident in the country, so as to have the benefit of its laws protecting them, or, as it is sometimes expressed, owing temporary allegiance to that country, we think that its laws would have bound them.'

In Rousillon v Rousillon (1880) 14 Ch D 351 at 371 Fry J, after referring to Schibsby v Westenholz (1870) LR 6 QB 155, [1861-73] All ER Rep 988 and in enumerating the cases where the courts of this country regard the judgment of a foreign court as imposing on the defendant the duty to obey it, similarly referred to one such case as being 'where he was resident in the foreign country when the action began'.

In Emanuel v Symon [1908] 1 KB 302 this court had to consider whether the fact of possessing property situate in Western Australia or the fact of entering into a contract of partnership in that country was sufficient to give a Western Australian court jurisdiction (in the private international law sense) over a British subject not resident in Western Australia at the start of the action, who had neither appeared to the process nor expressly agreed to submit to the jurisdiction of that court. This question was answered in the negative. Buckley LJ said (at 309):

'In actions in personam there are five cases in which the Courts of this country will enforce a foreign judgment: (1.) Where the defendant is a subject of the foreign country in which the judgment has been obtained; (2.) where he was resident in the foreign country when the action began; (3.) where the defendant in the character of plaintiff has selected the forum in which he is afterwards sued; (4.) where he has voluntarily appeared; and (5.) where he has contracted to submit himself to the forum in which the judgment was obtained. The question in the present case is whether there is yet another and a sixth case.'

After referring to the principles established by, inter alia, Godard v Gray (1870) LR 6 QB 139 and Schibsby v Westenholz (1870) LR 6 QB 155, [1861-73] All ER Rep 988, Buckley LJ observed (at 310):

'In other words, the Courts of this country enforce foreign judgments because those judgments impose a duty or obligation which is recognized in this country and leads to judgment here also.'

In agreement with the rest of the court, he considered that the factors relied on by the plaintiff mentioned above did not suffice to impose a duty on the defendant to obey the Western Australian judgment which should be recognised in this country.

We pause to observe that Buckley LJ's second, third, fourth and fifth cases mentioned in his statement broadly correspond with Dicey and Morris's respective four cases in Conflict of Laws (11th edn, 1987) vol 1, p 436. It is doubtful whether the first case mentioned in his statement would still be held to give rise to jurisdiction: see Dicey and Morris pp 447-448 and the cases there cited. With this point we are not concerned.

Residence will much more often than not import physical presence. On the facts of the four cases last mentioned, any distinction between residence and presence would have been irrelevant. However, the brief statements of principle contained in the judgments left at least three questions unanswered. First, does the temporary presence of a defendant in a foreign country render the court of that country competent (in the private international law sense) to assume jurisdiction over him? Secondly, what is the relevant time for the purpose of ascertaining such competence? Thirdly, what is to be regarded as the 'country' in the case of a political country, such as the United States, comprising different states which have different rules of law and legal procedure?

We will have to revert to the third question in the section of this judgment dealing with the 'country' issue; in the present section we will assume in favour of the plaintiffs that the United States, rather than the State of Texas, is to be regarded as the relevant country. As to the first and second questions, we think that the most helpful guidance is to obtained from the decision of the Privy Council in Sirdar Gurdyal Singh v Rajah of Faridkote [1894] AC 670, the decision of Lord Russell of Killowen in Carrick v Hancock (1895) 12 TLR 59 and the decision of the House of Lords in Employers' Liability Assurance Corp Ltd v Sedgwick Collins & Co Ltd [1927] AC 95, [1926] All ER Rep 388.

In Sirdar Gurdyal Singh v Rajah of Faridkote [1894] AC 670 the Privy Council on an appeal from the Chief Court of the Punjab considered the question whether the courts of British India ought to have enforced against the defendant two judgments obtained against him ex parte in the native state of Faridkote, which for this purpose fell to be regarded as foreign judgments. The defendant had ceased to reside in the state before the actions were brought, and though he had received notice of the proceedings, he had never appeared in either of them or otherwise submitted to the jurisdiction of the Faridkote court. The Privy Council held the judgments to be a nullity under international law. The Earl of Selbourne LC, delivering their opinion, said ([1894] AC 670 at 683-684):

'Under these circumstances there was, in their Lordships' opinion, nothing to take this case out of the general rule, that the plaintiff must sue in the Court to which the defendant is subject at the time of suit ("Actor sequitur forum rei"); which is rightly stated by Sir Robert Phillimore (International Law, vol 4, s 891) to "lie at the root of all international, and of most domestic, jurisprudence on this matter." All jurisdiction is properly territorial, and "extra territorium jus dicenti, impune non paretur." Territorial jurisdiction attaches (with special exceptions) upon all persons either permanently or temporarily resident within the territory while they are within it; but it does not follow them after they have withdrawn from it, and when they are living in another independent country ... no territorial legislation can give jurisdiction which any foreign Court ought to recognise against foreigners, who owe no allegiance or obedience to the Power which so legislates. In a personal action, to which none of these causes of jurisdiction apply, a decree pronounced in absentum by a foreign Court, to the jurisdiction of which the defendant has not in any way submitted himself, is by international law an absolute nullity.'

The Privy Council held (at 684) that the mere fact that the cause of action had arisen in one country did not operate to confer jurisdiction on the courts of that country over a defendant not otherwise subject to it.

In Carrick v Hancock (1895) 12 TLR 59 the principle of territorial dominion was again referred to. In that case an action was brought on a monetary judgment obtained in Sweden by an Englishman domiciled in Sweden against a defendant who resided and carried on business at Newcastle. The writ was served on the defendant during a short visit he was paying to Sweden and he duly appeared to answer it. Though he did not himself remain in Sweden, he was represented throughout the subsequent proceedings. He put in a defence and counterclaim and on three separate occasions appealed to the Court of Appeal at Gota. It may be that in those circumstances, notwithstanding his protestations that he had 'only appeared under pressure, duress and compulsion of law', the English court could properly have enforced the foreign judgment on the ground that the defendant had submitted to the jurisdiction of the Swedish court. However, Lord Russell of Killowen did not decide the case in favour of the plaintiff on that ground. After reviewing the facts and arguments, he is reported as saying (at 60):

'... that the jurisdiction of a Court was based upon the principle of territorial dominion, and that all persons within any territorial dominion owe their allegiance to its sovereign power and obedience to all its laws and to the lawful jurisdiction of its Courts. In his opinion that duty of allegiance was correlative to the protection given by a State to any person within its territory. This relationship and its inherent rights depended upon the fact of the person being within its territory. It seemed to him that the question of the time the person was actually in the territory was wholly immaterial. This being so it was quite clear that under the facts of this case it was properly and lawfully initiated, and all its subsequent proceedings were lawful and valid, and that the Swedish Courts had ample jurisdiction to enforce the plaintiff's claim against the defendant.'

In Employers' Liability Assurance Corp Ltd v Sedgwick Collins & Co Ltd [1927] AC 95 at 114-115, [1926] All ER Rep 388 at 398 Lord Parmoor said:

'My Lords, in the case of actions in personam, in which a writ has been regularly served on foreigners or foreign corporations, when present in this country, and a judgment has been obtained, it seems to be clear, as a general rule, that, under the obligations of that branch of international law, which governs the application of foreign judgments, other countries, whose Governments have been recognized de jure and de facto by the Government of this country, will accept the jurisdiction of the Courts of this country, and regard their judgments as valid. In the case of such actions, it may also be stated negatively that, where a writ cannot be served on a defendant foreigner, or foreign corporation, when in this country, and no submission to jurisdiction is proved, any consequent judgment has no validity in any other country, on the ground that the courts of this country have no jurisdiction under international law over the person of an absent foreign defendant. In other words, the right to serve a writ, in an action in personam, on a foreign defendant, only becomes effective, as a source of jurisdiction, to be recognized in other countries when, at the date of service, such defendant is within the territorial jurisdiction of the English Courts.'

Lord Parmoor was in terms referring to the recognition by foreign countries of judgments given by our courts, but he was speaking generally in terms of private international law and would presumably have regarded the same principles as applicable (mutatis mutandis) in a case where our courts were asked to enforce a foreign judgment.

From the three last-mentioned authorities read together, the following principles can, in our judgment, be extracted. First, in determining the jurisdiction of the foreign court in such cases, our court is directing its mind to the competence or otherwise of the foreign court 'to summon the defendants before it and to decide such matters as it has decided': see Pemberton v Hughes [1899] 1 Ch 781 at 782 per Lindley MR. Secondly, in the absence of any form of submission to the foreign court, such competence depends on the physical presence of the defendant in the country concerned at the time of suit. (We leave open the question whether residence without presence will suffice.) From the last sentence of the dictum of Lord Parmoor cited above, and from a dictum of Collins MR in Dunlop Pneumatic Tyre Co Ltd v AG für Motor und Motorfahrzeugbau vorm Cudell & Co [1902] 1 KB 342 at 346, [1900-3] All ER Rep 195 at 197 it would appear that the date of service of process rather than the date of issue of proceedings is to be treated as 'the time of suit' for these purposes. But nothing turns on this point in the present case and we express no final view on it. Thirdly, we accept the submission of Sir Godfray Le Quesne QC (not accepted by Mr Morison) that the temporary presence of a defendant in the foreign country will suffice provided at least that it is voluntary (ie not induced by compulsion, fraud or duress). Some further support for this submission is to be found in dicta of Parke B in General Steam Navigation Co v Guillou (1843) 11 M & W 877, 152 ER 1061.

The decision in Carrick v Hancock has been the subject of criticism in Cheshire and North's Private International Law (11th edn, 1987) p 342, and in Dicey and Morris on the Conflict of Laws (11th edn, 1987) vol 1, r 37, pp 439-440, where it is said:

It may be doubted, however, whether casual presence, as distinct from residence, is a desirable basis of jurisdiction if the parties are strangers and the cause of action arose outside the country concerned. For the court is not likely to be the forum conveniens, in the sense of the appropriate court most adequately equipped to deal with the facts or the law. Moreover, the English case referred to above is open to the comment that the jurisdiction of the foreign court might just as well have been based on the defendant's submission as on his presence.

Our own courts regard the temporary presence of a foreigner in England at the time of service of process as justifying the assumption of jurisdiction over him: see Colt Industries Inc v Sarlie [1966] 1 All ER 673, [1966] 1 WLR 440 and Maharanee of Baroda v Wildenstein [1972] 2 All ER 689, [1972] 2 QB 283. However, Cheshire and North comment (at 342):

'... any analogy based on the jurisdiction of the English courts is not particularly convincing, since the rules on jurisdiction are operated in conjunction with a discretion to stay the proceedings, and the exercise of the discretion is likely to be an issue when jurisdiction is founded on mere presence.'

We see the force of these points. They highlight the possible desirability of a further extension of reciprocal arrangements for the enforcement (or non-enforcement) of foreign judgments by convention. Nevertheless, while the use of the particular phrase 'temporary allegiance' may be a misleading one in this context, we would, on the basis of the authorities referred to above, regard the source of the territorial jurisdiction of the court of a foreign country to summon a defendant to appear before it as being his obligation for the time being to abide by its laws and accept the jurisdiction of its courts while present in its territory. So long as he remains physically present in that country, he has the benefit of its laws, and must take the rough with the smooth, by accepting his amenability to the process of its courts. In the absence of authority compelling a contrary conclusion, we would conclude that the voluntary presence of an individual in a foreign country, whether permanent or temporary and whether or not accompanied by residence, is sufficient to give the courts of that country territorial jurisdiction over him under our rules of private international law.

In the forefront of his argument on this issue, Mr Morison submitted that the essential feature of this country's rules relating to the enforcement of foreign judgments is 'curial allegiance', which arises 'where there is sufficient connection between the debtor and the rendering court at the date of suit so as to make it "just" to enforce a judgment of that court'. The relevance of residence or presence, in his submission, is that it provides the requisite connection. This, in our judgment, is not quite the correct way to look at the matter. While residence or presence will ex hypothesi give rise to a connection, it is the residence or presence, not the connection as such, which gives rise to the jurisdiction of the court. The question whether residence or presence existed at the time of suit is determined by our courts not by reference to concepts of justice or by the exercise of judicial discretion; it is a question of fact which has to be decided with the help of the guidance given by the authorities.

However, none of the authorities so far referred to was concerned with the question of enforcement of a foreign judgment against a corporate body. The residence or presence of a corporation is a difficult concept. A corporation is a legal person but it has no corporeal existence. It can own property. It can by its agents perform acts. It is clear that if an English corporation owns a place of business in a foreign state from which it carries on its business that English corporation is, under our law, present in that state for the purposes of in personam jurisdiction. Those clear circumstances, however, may be varied in many different ways. The corporation may not own the place of business but have only the use of it or part of it. It may, instead of carrying on its business by its own servants, cause its business to be done by an agent, or through an agent, in the foreign state. The question will then arise whether the commercial acts done are, for the purposes of our law, to be regarded as done within the jurisdiction of the foreign state (a) by the agent in the course of the agent's business or (b) by the corporation itself. Further, and this is of central importance in this case, if the English corporation causes to be formed under the law of the foreign state a separate but wholly-owned corporation to carry out the business or commercial acts which it requires to be done, are those acts within the jurisdiction of the foreign state to be regarded, for the purposes of enforcement of a judgment of the courts of that state, as the acts of the English corporation within that jurisdiction merely by reason that it owns all the shares of its foreign corporation; and, if not, what degree of power of control, or of exercise of control, and/or what other factors will suffice, in our law, to cause the English corporation to be held to be 'present' within the jurisdiction of the foreign state?

The earliest case cited to us in which this court had to consider the concept of residence or presence of a corporation in the context of a claim to enforce a foreign judgment was Littauer Glove Corp v F W Millington (1920) Ltd (1928) 44 TLR 746. In that case the plaintiffs were manufacturers in the State of New York. The defendant company, which conducted the business of clothiers' merchants, had its principal place of business in Manchester. It bought from manufacturers in various parts of the world and sold to wholesalers. On 17 March 1922 its managing director, Mr Millington, arrived in New York on a business visit with a view to seeing samples and making purchases. He stayed in a New York hotel for four or five nights, where he did some business for his company. Thereafter he visited various other states where he also did business. On 1 April the plaintiffs took out a summons against the defendant company. On 3 April Mr Millington returned to New York. On that date, while he was in the sales office in New York of Union Mills Corp, the defendant's principal United States suppliers, he was served with process in the action. He entered no appearance, took no steps in the proceedings and did not submit to the jurisdiction of the American court. On 4 April he sailed for England. The plaintiffs, having in due course obtained judgment against the defendant company in default of appearance in New York, sought to enforce the judgment against it in England. The defendant contended that (under the rules of private international law) the New York court had no jurisdiction to make the order against it. Many authorities were cited to Salter J. From the report of the argument, it appears to have been common ground that the question turned on the 'residence' or otherwise of the defendant company in the State of New York on 1 April 1922 when the proceedings were instituted. Salter J identified the question for his decision as being whether on 1 April 1922 'the defendant company were resident in the State of New York so as to have the benefit and be under the protection of the laws of that State'. The plaintiffs' counsel had contended that it was not necessary for them to show that the defendant company was carrying on business at a fixed place. In his submission, it was resident in New York because it carried on business there: 'the company is resident by its travellers and would be subject to process of the country in which they happened to be'. Salter J rejected this contention, and is reported as saying (at 747):

'What was meant by saying that a business corporation was resident in a foreign jurisdiction for that purpose? That depended on whether, on the day in question, it was carrying on business in the foreign State so that it could fairly and properly be said to be then resident in that State. If the defendant company were resident in the State of New York on April 1, 1922, where in that State were they resident? [Counsel for the plaintiffs] said that they were resident in Broadway, New York, but there must be some place of residence on which one could put a finger. There was no suggestion that the name of the defendant company was in any way displayed at the address in Broadway, or that any letter-paper of the company was used there, or that any business was done there except what the company did with firms in other parts of the United States. If the defendant company were resident in Broadway, it would follow that they were resident wherever Mr. Millington did business. He was, however, nothing more than a commercial traveller on that tour. If the company had 40 or 50 travellers ranging all over the world, was it to be said that the company were resident wherever the travellers put up at an hotel and took orders? He (his Lordship) did not rely on the expression "fixed place", but on what was the fair meaning of "residence". The inference which he drew from the cases cited was that there must be some carrying on of business at a definite and, to some reasonable extent, permanent place. There was no residence within the jurisdiction on the part of the defendant company, and the action on that point must fail.'

Thus, the effect of Salter J's decision was that if a foreign judgment is to be enforced in this country against a corporation, it must be shown that at the relevant time (a) the corporation was carrying on business, and (b) it was doing so at a definite and 'to some reasonable extent permanent place'. This test is significantly different from that applicable in the case of judgments against individuals. The Littauer case does not bind this court, but we see no reason to doubt the correctness of this test so far as it goes. It seems to us consistent with authority and to represent a commonsense approach to the question of 'presence' in the case of a corporation. The difficulty may be to determine whether it can properly be said in any given case that the corporation is itself carrying on business in the country concerned.

The other, and most recent, leading case relating to the enforcement of foreign judgments against corporations is Vogel v R & A Kohnstamm Ltd [1971] 2 All ER 1428, [1973] QB 133. There the defendants were a company registered in England. They sold leather skins to the plaintiffs through a Mr Kornbluth who had an office in Tel Aviv. The defendants had no office of their own in Israel. All the material correspondence was conducted with them in England. The contract of sale was not made in Israel. The court in Israel gave judgment for the plaintiff on a claim for breach of contract and the plaintiff sought to enforce it in England. Ashworth J dismissed the plaintiff's claim. In his judgment he described the functions of Mr Kornbluth vis-à-vis the defendants thus ([1971] 2 All ER 1428 at 1431, [1973] QB 133 at 136):

'Mr Kornbluth's role was that of a person seeking customers who would buy the defendants' goods. For this purpose he was provided with samples for which he paid, and having found a potential customer he would act as a go-between between that person and the defendants. Correspondence would pass between the defendants and Mr Kornbluth regarding a proposed order and Mr Kornbluth would be in communication with the customer. If as a result a contract was made it would be made between the defendants and the customer and at no time had Mr Kornbluth any authority to make a contract on behalf of the defendants ... in order to succeed the plaintiff here has to persuade me either that the defendants were resident in Israel through Mr Kornbluth as their agent or that they were carrying on business through him in such a way as to give rise to an implied agreement on their part to submit to the jurisdiction of Israeli courts.'

With reference to the first of these two points, the judge observed ([1971] 2 All ER 1428 at 1435, [1973] QB 133 at 141):

'As has been said, in many cases residence is a question of fact and when one is dealing with human beings normally one can approach the matter on the footing that residence involves physical residence by the person in question. I keep open the possibility that even in regard to such a person he may be constructively resident in another country although his physical presence is elsewhere. But in the case of a corporation there is broadly speaking no question of physical residence. A corporation or company, if resident in another country, is resident there by way of agents.'

He recognised that the Littauer case was distinguishable on the grounds that 'the person by whom the defendant company was said to have residence in the United States was not a person with any fixed or reasonably permanent place' (see [1971] 2 All ER 1428 at 1431, [1973] QB 133 at 141). However, Ashworth J pointed out that the defendants in the case before him had no office of their own in Israel ([1971] 2 All ER 1428 at 1436, [1973] QB 133 at 142). He continued:

'All the material correspondence was conducted with them in England and their connection with the State of Israel was limited, in my view, to their dealings through Mr Kornbluth ... In examining how far the presence of a representative or agent will, so to speak impinge on the absent company so as to render that absent company subject to the relevant jurisdiction I find help to be obtained from cases in which the converse situation has been considered; namely, where the English courts have been invited to allow process to issue to foreign companies on the footing that such foreign companies are "here".'

He expressed his ultimate conclusion thus ([1971] 2 All ER 1428 at 1437, [1973] QB 133 at 143):

'... I have asked myself anxiously in this case in any real sense of the word can the defendants be said to have been there in Israel? and all that emerges from this case is that there was a man called Kornbluth who sought customers for them, transmitted correspondence to them and received it from them, but had no authority whatever to bind the defendants in any shape or form. I have come to the conclusion really without any hesitation that the defendants were not resident in Israel at any material time.'

On this appeal, in accordance with the approach of the courts in the Littauer and Vogel cases, it has been common ground that the Tyler court was competent to exercise jurisdiction over Cape and Capasco, if at all, only if they could properly be said to be resident or present in the United States at the relevant time. (In view of their contentions on the 'country' issue, the defendants do not accept that the Tyler court would have been competent, even if the latter condition had been fulfilled.) The words 'resident' or 'present' or equivalent phrases have been used interchangeably in argument, just as they have been used in the cases; we see no objection to this terminology if it is understood that in the case of a corporation the concept of 'residence' or 'presence' in any particular place must be no less of a legal fiction than the existence of the corporation itself. The argument has centred on the features which this concept embodies in the case of a corporation.

In considering these features, Salter J in the Littauer case and Ashworth J in the Vogel case clearly attached great weight to a long line of cases where the English court has considered whether it should allow process to issue to foreign companies as being amenable to its jurisdiction. We will call this line 'the Okura line of cases', because a leading example is the decision of this court in Okura & Co Ltd v Forsbacka Jernverks AB [1914] 1 KB 715.

The origin of this line requires some brief explanation. After it had been decided in Newby v Von Oppen and Colts' Patent Firearms Manufacturing Co (1872) LR 7 QB 293 that in appropriate circumstances a foreign corporation was capable of being sued in this country, our courts in a number of cases had to consider (a) whether on the facts the foreign corporate defendant was amenable to the jurisdiction of the English court, and (b) if so, whether it had been properly served with the process. Most of these cases were concerned with the old RSC 1883 Ord 9, r 8, which provided:

'In the absence of any statutory provision regulating service of process, every writ of summons issued against a corporation aggregate may be served on the mayor or other head officer, or on the town clerk, treasurer or secretary of such corporation ... '

The rule contained no such expressions as 'reside' or 'carry on business'. However, as Ackner LJ pointed out in South India Shipping Corp Ltd v Export-Import Bank of Korea [1985] 2 All ER 219 at 222, [1985] 1 WLR 585 at 589:

'Those expressions were used as convenient tests, to ascertain whether the corporation had a sufficient "presence" within the jurisdiction, since "generally" courts exercised jurisdiction only over persons who "are within the territorial limits of their jurisdiction ... " Apart from statute "a court has no power to exercise jurisdiction over anyone beyond its limits": see Re Busfield, Whaley v Busfield (1886) 32 Ch D 123 at 131 per Cotton LJ, quoted by Lord Scarman in his speech in Bethlehem Steel Corp v Universal Gas and Oil Co Inc (1978) Times, 3 August, a decision of the House of Lords.'

Phrases referring to residence or presence within the jurisdiction, or equivalent phrases, have been used by way of shorthand reference to the condition (or one of the conditions) which a foreign corporation has to satisfy if it is to be amenable to the jurisdiction of the English court. And indeed they have been used more or less interchangeably by the courts. One typical example is the phraseology used by the Earl of Halsbury LC in Cie Generale Transatlantique v Thomas Law & Co [1899] AC 431 at 433:

'It appears to me that as a consequence of these facts the appellants are resident here in the only sense in which a corporation can be resident-to use the phrase which [counsel for the appellant] has so constantly referred to, they are "here"; and, if they are here, they may be served.'

Perhaps the most helpful guidance in determining whether a foreign corporation is 'here' so as to be amenable to the jurisdiction of our courts is the following passage from the judgment of Buckley LJ in the Okura case [1914] 1 KB 715 at 718-719:

'The point to be considered is, do the facts shew that this corporation is carrying on its business in this country? In determining that question, three matters have to be considered. First, the acts relied on as shewing that the corporation is carrying on business in this country have continued for a sufficiently substantial period of time. That is the case here. Next, it is essential that these acts should have been done at some fixed place of business. If the acts relied on in this case amount to a carrying on of a business, there is no doubt that those acts were done at a fixed place of business. The third essential, and one which it is always more difficult to satisfy, is that the corporation must be "here" by a person who carries on business for the corporation in this country. It is not enough to shew that the corporation has an agent here; he must be an agent who does the corporation's business for the corporation in this country. This involves the still more difficult question, what is meant exactly by the expression "doing business"?'

It is clear that (special statutory provision apart) a minimum requirement which must be satisfied if a foreign trading corporation is to be amenable at common law to service within the jurisdiction is that it must carry on business at a place within the jurisdiction: see The Theodohos [1977] 2 Lloyd's Rep 428 at 430 per Brandon J.

(All the authorities cited to us have been directed, and all the statements later in this judgment will be directed, to trading corporations. In the case of non-trading corporations, the same principles would presumably apply, with the substitution of references to the carrying on of the corporation's corporate activities for references to the carrying on of business.)

The court will not find much difficulty in holding that a foreign corporation is present in this country if it has a fixed place of business of its own here (whether as owner, lessee or licensee) and for more than a minimal period of time has carried on its own business from such premises by its servants or agents. Typical examples of such cases (which we will call 'branch office cases') which have been cited to us are: (1) Newby v Von Oppen and Colts' Patent Firearms Manufacturing Co (1872) LR 7 QB 293, (2) Haggin v Comptoir d'Escompte de Paris (1889) 23 QBD 519, (3) Cie Generale Transatlantique v Thomas Law & Co [1899] AC 431, HL; affg sub nom La Bourgogne [1899] P 1, (4) Dunlop Pneumatic Tyre Co Ltd v AG für Motor und Motorfahrzeugbau vorm Cudell & Co [1902] 1 KB 342, [1900-3] All ER Rep 195.

However, the cases also show that it may be permissible to treat a foreign corporation as resident in this country so as to be amenable to the jurisdiction of our court even if it has no fixed place of business here of its own, provided that an agent acting on its behalf carries on its business (as opposed to his own business) from some fixed place of business in this country. Typical examples of such cases are the following.

(1): Saccharin Corp Ltd v Chemische Fabik von Heyden AG [1911] 2 KB 516 where the agent, Blasius, occupied and paid rent for offices in London, and in the words of Fletcher Moulton LJ (at 524):; 'He carries on business at a fixed place in London as sole agent for the defendants in the United Kingdom, though it is true that he is also agent for another firm. He has power to enter into contracts of sale for the defendants.'
(2): Thames and Mersey Marine Insurance Co v Societa di Navigazione a Vapore del Lloyd Austriaco (1914) 111 LT 97 at 98, [1914-15] All ER Rep 1104 at 1105, where Buckley LJ began his judgment with the following statement of principle:; 'If contracts have been habitually made for a reasonably substantial period of time at a fixed place of business within the jurisdiction by a firm or a person there, without referring each time to the foreign corporation for instructions, and with the result that the foreign corporation has become bound to another party, then the foreign corporation for the present purpose carries on business at that place.'

The ultimate problem in such cases may lie in determining whether the business carried on by the agent on behalf of the principal should properly be regarded on the one hand as his own business or on the other hand as the business of the foreign corporation. This must necessitate an investigation both of the activities of the agent and of the relationship between him and the corporation.

In a few of the Okura line of cases which have been cited to us, the court has had to consider the question whether a foreign corporation was carrying on business in this country in a context other than that of the old RSC Ord 9, r 8, but nevertheless the like investigation was necessary. In Grant v Anderson & Co [1892] 1 QB 108 the context was the old Ord 48A, r 1, which provided that any two or more persons claiming or being liable as co-partners 'and carrying on business within the jurisdiction' might 'sue or be sued in the name of the respective firms ... ' The defendants, who were a Scottish firm of manufacturers carrying on business in Glasgow, employed an agent in London to obtain orders for them in London. He occupied an office in London, the rent of which he paid himself, and received a commission if, but only if he got an order which the firm accepted. In rejecting the contention that the firm carried on business in London, the Court of Appeal attached great weight to the fact that, in the words of Lord Esher MR (at 116): 'When he gets an order, he has no power himself to accept it'. As he put it (at 117): 'One might as well say that the defendants carry on business in any place through which their goods pass while being sent to their customers.'

Sfeir & Co v National Insurance Co of New Zealand Ltd [1964] 1 Lloyd's Rep 330 concerned a claim covered by s 9(2) of the Administration of Justice Act 1920, of which para (b) precluded the registration of a judgment under the section if the judgment debtor-

'being a person who was neither carrying on business nor ordinarily resident within the jurisdiction of the original court did not voluntarily appear or otherwise submit or agree to submit to the jurisdiction of the court.'

The first question Mocatta J had to determine was whether the defendants at any material time carried on business in Ghana. If they did so, this could only have been through a Ghanaian company called Glyndova. He expressed his conclusion on this point (at 339):

'In my judgment, [counsel for the defendants] was right in submitting that the decision of the Court at the end of the day after considering the guidance contained in the authorities and their application to the facts of a particular case is one of impression. The conclusion I have reached is that the limited authority possessed by Glyndova to bind the defendants by settlements of claims arising in Ghana under the defendants' policies issued elsewhere, even when coupled with the other matters relied upon which l have recited, did not amount to a carrying on of business by the defendants in Ghana. The business carried on in Ghana by Glyndova was their own and not that of the defendants.'

At least in cases other than branch office cases it is obvious that the activities of the agent by whom the foreign corporation is said to be present in this country and the extent of the authority of that agent will be of particular importance in determining whether or not the corporation is amenable to our courts' jurisdiction. Counsel on both sides have referred us to numerous examples from the Okura line of cases in which a number of different aphorisms have been used to express the relevant test. Buckley LJ 'who made this subject particularly his own' (see The Lalandia [1933] P 56 at 62, [1932] All ER Rep 391 at 396 per Langton J) himself used a variety of expressions to state it on the facts of particular cases. In the Thames and Mersey case (1914) 111 LT 97 at 98-99,[1914-15] All ER Rep 1104 at 106 he stated it thus:

'Does the agent in carrying on the foreign corporation's business make a contract for the foreign corporation, or does the agent, in carrying on the agent's own business, sell a contract with the foreign corporation? In the former case, the corporation is and in the latter it is not carrying on business at that place.'

In the Okura case itself, Buckley LJ summarised his reasons for concluding that the defendant corporation was not present in this country as follows ([1914] 1 KB 715 at 721):

'In my opinion the defendants are not "here" by an alter ego who does business for them here, or who is competent to bind them in any way. They are not doing business here by a person but through a person.'

At the trial of the present case a number of decisions from the Okura line of authorities were cited to Scott J. He said that counsel before him had treated the statements of principle to be found in the authorities as applicable equally to both classes of case. While expressing 'a little unease' in this context (See p 960, ante) he therefore assumed that the statements of principle applied equally to both classes of case.

Having made this assumption, he extracted the following propositions from the Okura line of cases:

'[1]: The cases establish that jurisdiction on the territorial basis may be taken by an English court over a foreign company if the foreign company has business premises in England from which or at which its business is carried on ...
[2]: There are, however, cases where residence or presence of a foreign company in England has been held established notwithstanding that the foreign company did not itself own or lease any business premises in England. A feature of these cases has been that the foreign company had a resident English agent who had authority to contract on behalf of and thereby to bind the principal. In those circumstances the presence or residence in England of the agent has been treated as the presence or residence of the foreign company, the principal ...
[3]: ... trading in a country is insufficient, by the standards of English law, to entitle the courts of the country to take in personam jurisdiction over the trader: see Littauer Glove Corp v F W Millington (1920) Ltd (1928) 44 TLR 746. The trading must be reinforced by some residential feature, be it a branch office or a resident agent with power to contract.'

(See pp 957-958 and 964, ante.)

These conclusions as to the law were of critical importance because the judge later found as facts that the 150 North Wacker Drive offices were NAAC's offices and that NAAC had no authority to contract on behalf of Cape or Capasco or any other company in the Cape group (see p 966, ante). He also found as facts that 'CPC, like NAAC, had no authority to bind Egnep, Casap or any other of the Cape subsidiaries to any contract' and the offices at 150 North Wacker Drive were CPC's 'own offices' (see p 970, ante).

Mr Morison did not challenge these particular findings of fact. However, he submitted that Scott J erred in law in holding that, in cases other than branch office cases, 'the trading must be reinforced by ... a resident agent with power to contract'. This conclusion, he pointed out, was based primarily on the judge's analysis of the Okura line of cases. However, this line of cases, in Mr Morison's submission, while of some relevance and interest, does not provide the correct yardstick to be applied in the present context. Contrary to the suggestion made by Ashworth J in the Vogel case [1971] 2 All ER 1428, [1973] QB 133, he said, those authorities do not represent the situation truly converse to the enforcement of a foreign judgment; the true converse would be a foreign court applying its own conflict rules, adjudicating on the enforcement of an English judgment. Comity, as Blackburn J pointed out in Schibsby v Westenholz (1870) LR 6 QB 155 at 159, [1861-73] All ER Rep 988 at 991, is not the basis on which our courts enforce foreign judgments. Furthermore, the circumstances in which an English court will assume jurisdiction over a foreign corporation are closely bound up with our own rules of procedure which are derived largely from statute or statutory instrument and will be amended from time to time.

Pausing at this point, we would not go so far as to say that in every case one can determine whether a foreign court was competent at common law on territorial grounds to give a judgment against a corporation merely by ascertaining whether in like circumstances, and mutatis mutandis, our courts would have assumed jurisdiction over a foreign corporation. Nevertheless, enough has been said to demonstrate that in each case the same broad question falls to be answered by the court under our own common law: 'Was the corporation present in the relevant jurisdiction at the relevant time?' In our judgment Scott J was fully entitled to derive guidance from the Okura line of cases in deciding whether Cape and Capasco were resident in the United States at the relevant time.

Mr Morison went on to submit that in any event the Okura line of cases does not establish a universal rule that in cases where the foreign corporation has no fixed place of business of its own 'the trading must be reinforced by ... a resident agent with power to contract'. There are, it is true, many dicta which suggest that the existence of power in the agent to bind his principal to contracts, without reference back to the principal, is an important indication that the principal himself is carrying on business by the agent. However, it has apparently never been held that this is an essential feature of 'presence' in cases where the corporation has no branch office in this country. Many of the reported cases were concerned with selling agencies, particularly in the shipping field, which were usually not exclusive to the principal concerned. It is therefore hardly surprising, submitted Mr Morison, that the courts concentrated on the question of authority to contract, because the agency was in a real sense carrying on its own agency business. In the present case it is not alleged that NAAC or CPC had power to enter into sales contracts on behalf of Cape or Capasco. However, it is said, they were carrying out a recognised business activity for the exclusive benefit of Cape and Capasco, that is to say, the function of marketing agents. The question whether NAAC or CPC were properly to be described as doing their own business or that of their principals was not to be determined by asking whether or not they had authority to contract, but by asking whether they had authority to market and were carrying out this function. Mr Morison invited us to follow the general approach adopted by the court in two Canadian cases, Miller v BC Turf Ltd (1969) 8 DLR (3d) 383 and Moore v Mercator Enterprises Ltd (1978) 90 DLR (3d) 590.

We would agree with Mr Morison that the existence of a power in the resident agent to bind the foreign corporation to contracts can be neither an exclusive nor conclusive test of the residence of the corporation itself. As he pointed out, there are many cases in which the corporation has been held not to be carrying on business at the agency notwithstanding the existence of authority of this kind: see eg The Princesse Clementine [1897] P 18, The Lalandia [1933] P 56, [1932] All ER Rep 391 and The Holstein [1936] 2 All ER 1660. Conversely, we can conceive hypothetical cases in which it might be absurd to regard the test as conclusive. If in any given case all other factors indicate that the business carried on by the representative of a corporation in a particular country was clearly the business of the corporation (rather than that of its representative), it could make no difference that the corporation required him to take its instructions before he actually concluded contracts on its behalf; the existence of such a requirement would not by itself prevent the corporation from being present in the country concerned and thus from being amenable to the jurisdiction of its courts.

Nevertheless, it is a striking fact that with one possible exception (The World Harmony [1965] 2 All ER 139, [1967] P 341) in none of the many reported English decisions cited to us has it been held that a corporation has been resident in this country unless either (a) it has a fixed place of business of its own in this country from which it has carried on business through servants or agents, or (b) it has had a representative here who has had the power to bind it by contract and who has carried on business at or from a fixed place of business in this country.

We do not find this surprising as a matter of principle. Indubitably a corporation can carry on business in a foreign country by means of an agent. 'It may be stated as a general proposition that whatever a person has power to do himself he may do by means of an agent': see 1 Halsbury's Laws (4th edn) para 703. However, though the terms 'agency' and 'agent' have in popular use a number of different meanings-

'in law the word "agency" is used to connote the relation[ship] which exists where one person has an authority or capacity to create legal relations between a person occupying the position of principal and third parties ...'

(See 1 Halsbury's Laws (4th edn) para 701.)

Where the representative of an overseas corporation has general authority to create contractual relations between the corporation and third parties and exercises this authority, there may be little difficulty in applying the maxim 'qui facit per alium facit per se'. Where no such authority exists, there may be much greater difficulty. We were not persuaded by Mr Morison's submission, based primarily on a dictum of Verchere J in Miller v BC Turf Ltd (1969) 8 DLR (3d) 383 at 386 that the capacity (or possible capacity) of NAAC or CPC to render Cape/Capasco vicariously liable for negligence (and thereby to create relations in tort between them and third parties) is of any weight in deciding whether Cape/Capasco were present in the United States. The mere authority given by Cape/Capasco to NAAC or CPC to convey a message to a third party could render Cape/Capasco potentially liable in tort to a third party if that message was carelessly transmitted. The existence of such potential liability would go no way towards establishing the presence of Cape/Capasco in the United States.

General principles derived from the authorities relating to the 'presence' issue

In relation to trading corporations, we derive the three following propositions from consideration of the many authorities cited to us relating to the 'presence' of an overseas corporation.

(1): The English court will be likely to treat a trading corporation incorporated under the law of one country (an overseas corporation) as present within the jurisdiction of the courts of another country only if either (i) it has established and maintained at its own expense (whether as owner or lessee) a fixed place of business of its own in the other country and for more than a minimal period of time has carried on its own business at or from such premises by its servants or agents (a 'branch office' case), or (ii) a representative of the overseas corporation has for more than a minimal period of time been carrying on the overseas corporation's business in the other country at or from some fixed place of business.
(2): In either of these two cases presence can only be established if it can fairly be said that the overseas corporation's business (whether or not together with the representative's own business) has been transacted at or from the fixed place of business. In the first case, this condition is likely to present few problems. In the second, the question whether the representative has been carrying on the overseas corporation's business or has been doing no more than carry on his own business will necessitate an investigation of the functions which he has been performing and all aspects of the relationship between him and the overseas corporation.
(3): In particular, but without prejudice to the generality of the foregoing, the following questions are likely to be relevant on such investigation: (a) whether or not the fixed place of business from which the representative operates was originally acquired for the purpose of enabling him to act on behalf of the overseas corporation; (b) whether the overseas corporation has directly reimbursed him for (i) the cost of his accommodation at the fixed place of business, and (ii) the cost of his staff; (c) what other contributions (if any) the overseas corporation makes to the financing of the business carried on by the representative; (d) whether the representative is remunerated by reference to transactions (eg by commission) or by fixed regular payments or in some other way; (e) what degree of control the overseas corporation exercises over the running of the business conducted by the representative; (f) whether the representative reserves (i) part of his accommodation, or (ii) part of his staff for conducting business related to the overseas corporation; (g) whether the representative displays the overseas corporation's name at his premises or on his stationery, and if so, whether he does so in such a way as to indicate that he is a representative of the overseas corporation; (h) what business (if any) the representative transacts as principal exclusively on his own behalf; (i) whether the representative makes contracts with customers or other third parties in the name of the overseas corporation, or otherwise in such manner as to bind it; (j) if so, whether the representative requires specific authority in advance before binding the overseas corporation to contractual obligations.

This list of questions is not exhaustive, and the answer to none of them is necessarily conclusive. If the judge (see p 964 h j) was intending to say that in any case, other than a branch office case, the presence of the overseas company can never be established unless the representative has authority to contract on behalf of and bind the principal, we would regard this proposition as too widely stated. We accept Mr Morison's submission to this effect. Every case of this character is likely to involve 'a nice examination of all the facts, and inferences must be drawn from a number of facts adjusted together and contrasted': La Bourgogne [1899] P 1 at 18 per Collins LJ.

Nevertheless, we agree with the general principle stated thus by Pearson J in Jabbour v Custodian of Absentee's Property of State of Israel [1954] 1 All ER 145 at 152, [1954] 1 WLR 139 at 146:

'A corporation resides in a country if it carries on business there at a fixed place of business, and, in the case of an agency, the principal test to be applied in determining whether the corporation is carrying on business at the agency is to ascertain whether the agent has authority to enter into contracts on behalf of the corporation without submitting them to the corporation for approval.'

On the authorities, the presence or absence of such authority is clearly regarded as being of great importance one way or the other. a fortiori the fact that a representative, whether with or without prior approval, never makes contracts in the name of the overseas corporation or otherwise in such manner as to bind it must be a powerful factor pointing against the presence of the overseas corporation.

The plaintiffs' submissions on the 'presence' issue

Ordinarily the three propositions set out above will fall to be applied in the same way whether or not the representative is an individual or itself a corporate body. However, the present case has the peculiar feature that one of the representatives in the United States whose acts are relied on as the carrying on of business by Cape, was itself a subsidiary of Cape, a feature which has not been present in any of the directly relevant authorities cited to us. We will make some further observations on the legal relevance (if any) of this feature when we come to consider the second of the main submissions of Mr Morison on the presence issue.

These three main submissions were substantially as follows.

(1): Cape and Capasco were present and carrying on business in the United States, namely marketing and selling the Cape group's asbestos, through NAAC until May 1978, and through CPC (or AMC) until June 1979 from a place of business in Illinois because NAAC and CPC were the agents of Cape. (We will call this 'the agency argument'.)
(2): Cape/Capasco and NAAC constituted a single commercial unit and for jurisdictional purposes, NAAC's presence in Illinois therefore sufficed to constitute the presence of Cape/Capasco. Likewise, Cape/Capasco and CPC, which performed the same functions as those previously carried on by NAAC, constituted a single economic unit, and CPC's presence in Illinois sufficed to constitute the presence of Cape/Capasco. (We will call this 'the single economic unit argument'.)
(3): In relation to CPC/AMC, the corporate veil should be lifted so that CPC's and AMC's presence in the United States should be treated as the presence of Cape/Capasco. (We will call this argument, which does not extend to NAAC, 'the corporate veil' argument.)

We find it convenient to deal with the second and third of these arguments before coming to the first.

The 'single economic unit' argument

There is no general principle that all companies in a group of companies are to be regarded as one. On the contrary, the fundamental principle is that 'each company in a group of companies (a relatively modern concept) is a separate legal entity possessed of separate legal rights and liabilities': The Albazero [1975] 3 All ER 21 at 28, [1977] AC 774 at 807 per Roskill LJ.

It is thus indisputable that each of Cape, Capasco, NAAC and CPC were in law separate legal entities. Mr Morison did not go so far as to submit that the very fact of the parent-subsidiary relationship existing between Cape and NAAC rendered Cape or Capasco present in Illinois. Nevertheless, he submitted that the court will, in appropriate circumstances, ignore the distinction in law between members of a group of companies treating them as one, and that broadly speaking, it will do so whenever it considers that justice so demands. In support of this submission, he referred us to a number of authorities.

In The Roberta (1937) 58 Ll L Rep 159 agents acting on behalf of the Dordtsche Co had signed bills of lading. It was conceded at the trial that in so doing the agents had made Walford Lines Ltd, the parent company of Dordtsche Co, responsible for the bills of lading. Langton J, who described the concession as properly made, said (at 169):

'The Dordtsche Company are a separate entity from Walford Lines, Ltd., in name alone, and probably for the purposes of taxation. Walford Lines, Ltd., own all the issued shares of the Dordtsche Company, and in fact supply two out of the three directors.'

In Harold Holdsworth & Co (Wakefield) Ltd v Caddies [1955] 1 All ER 725, [1955] WLR 352 the question arose whether the respondent company, which had entered into a service agreement with Mr Caddies under which he was appointed managing director of the company, was entitled to require him to devote his whole time to duties in relation to subsidiaries of the company. It was argued that the subsidiary companies were separate legal entities each under the control of its own board of directors, that in law the board of the appellant company could not assign any duties to anyone in relation to the management of the subsidiary companies, and that therefore the agreement could not be construed as entitling them to assign any such duties to Mr Caddies. Lord Reid, in agreement with the majority, rejected this argument, saying ([1955] 1 All ER 725 at 738, [1955] 1 WLR 352 at 367):

'My Lords, in my judgment, this is too technical an argument. This is an agreement in re mercatoria, and it must be construed in the light of the facts and realities of the situation.'

In Scottish Co-op Wholesale Society Ltd v Meyer [1958] 3 All ER 66, [1959] AC 324 the respondent based his complaint on s 210 of the Companies Act 1948, which provided:

(1): Any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself) ... may make an application to the court by petition for an order under this section ...

The appellant society had formed a subsidiary company, of which the respondent was a member. It was submitted on behalf of the society that even if it had acted in an oppressive manner, yet it had not conducted the affairs of the company in an oppressive manner within the meaning of the section. The House of Lords unanimously rejected this submission. Viscount Simonds said ([1958] 3 All ER 66 at 71, [1959] AC 324 at 342):

'My Lords, it may be that the acts of the society of which complaint is made could not be regarded as conduct of the affairs of the company if the society and the company were bodies wholly independent of each other, competitors in the rayon market, and using against each other such methods of trade warfare as custom permitted. But this is to pursue a false analogy. It is not possible to separate the transactions of the society from those of the company. Every step taken by the latter was determined by the policy of the former.'

A little later Viscount Simonds expressly approved words which had been used by the Lord President (Cooper) on the first hearing of the case (1954 SC 381 at 391):

'In my view, the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view.'

(See [1958] 3 All ER 66 at 71, [1959] AC 324 at 343.)

In DHN Food Distributors Ltd v Tower Hamlets London Borough [1976] 3 All ER 462, [1976] 1 WLR 852 a group of three companies, 'DHN', 'Bronze' and 'Transport', all in voluntary liquidation at the relevant time, were seeking compensation under the Land Compensation Act 1961 following a compulsory purchase made by the respondent council. DHN held all the shares in Bronze and Transport. The business of the group was owned by DHN. The land was owned by Bronze. The vehicles were owned by Transport. The Lands Tribunal held that DHN were licensees of Bronze and had no claim to compensation for disturbance beyond that which could be allowed under s 20 of the Compulsory Purchase Act 1965, which was negligible. This court allowed DHN's appeal on three separate grounds. We are concerned with only one of them, which Lord Denning MR explained as follows ([1976] 3 All ER 462 at 467, [1976] 1 WLR 852 at 860):

'Third, lifting the corporate veil. A further very interesting point was raised by counsel for the claimants on company law. We all know that in many respects a group of companies are treated together for the purpose of general accounts, balance sheet and profit and loss account. They are treated as one concern. Professor Gower in his book on company law (Principles of Modern Company Law (3rd edn, 1969) p 216) says: "there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group". This is especially the case when a parent company owns all the shares of the subsidiaries, so much so that it can control every movement of the subsidiaries. These subsidiaries are bound hand and foot to the parent company and must do just what the parent company says. A striking instance is the decision of the House of Lords in Harold Holdsworth & Co (Wakefield) Ltd v Caddies ([1955] 1 All ER 725, [1955] 1 WLR 352). So here. This group is virtually the same as a partnership in which all the three companies are partners. They should not be treated separately so as to be defeated on a technical point. They should not be deprived of the compensation which should justly be payable for disturbance. The three companies should, for present purposes, be treated as one, and the parent company, DHN, should be treated as that one. So that DHN are entitled to claim compensation accordingly. It was not necessary for them to go through a conveyancing device to get it.'

Goff LJ said ([1976] 3 All ER 462 at 468, [1976] 1 WLR 852 at 861):

'I would not at this juncture accept that in every case where one has a group of companies one is entitled to pierce the veil, but in this case the two subsidiaries were both wholly owned; further, they had no separate business operations whatsoever; thirdly, in my judgment, the nature of the question involved is highly relevant, namely whether the owners of this business have been disturbed in their possession and enjoyment of it.'

In Revlon Inc v Cripps & Lee Ltd [1980] FSR 85 the question (among many other questions) arose as to whether the goods in question were 'connected in the course of trade with the proprietor ... of the trade mark' within the meaning of s 4(3) of the Trade Marks Act 1938. The proprietor of the trade mark was Revlon Suisse SA, a subsidiary of Revlon Inc. Buckley LJ, in the course of deciding that the goods were connected in the course of trade with Revlon Suisse SA, said (at 105):

'Since, however, all the relevant companies are wholly owned subsidiaries of Revlon, it is undoubted that the mark is, albeit remotely, an asset of Revlon and its exploitation is for the ultimate benefit of no one but Revlon. It therefore seems to me to be realistic and wholly justifiable to regard Suisse as holding the mark at the disposal of Revlon and for Revlon's benefit. The mark is an asset of the Revlon Group of companies regarded as a whole, which all belongs to Revlon. This view does not, in my opinion, constitute what is sometimes called "piercing the corporate veil"; it recognises the legal and factual position resulting from the mutual relationship of the various companies.'

Principally, in reliance on those authorities and the case next to be mentioned, Mr Morison submitted that in deciding whether a company had rendered itself subject to the jurisdiction of a foreign court it is entirely reasonable to approach the question by reference to 'commercial reality'. The risk of litigation in a foreign court, in his submission, is part of the price which those who conduct extensive business activities within the territorial jurisdiction of that court properly have to pay. He invited us to follow the approach of Mr Advocate General Warner in Istituto Chemioterapico Italiano SpA and Commercial Solvents Corp v EC Commission Joined Cases 6 and 7/73 [1974] ECR 223 at 263 when considering whether a parent company and subsidiary were separate 'undertakings' within the meaning of arts 85 and 86 of the EEC Treaty. He said:

'One starts to my mind from this, that neither Article 85 nor Article 86 anywhere refers to "persons". In both Articles the relevant prohibitions are directed to "undertakings", a much wider and looser concept. This indeed is what one would expect, because it would be inappropriate to apply rigidly in the sphere of competition law the doctrine referred to by English lawyers as that of Salomon v A Salomon & Co Ltd ([1897] AC 22, [1895-9] All ER Rep 33)-i.e. the doctrine that every company is a separate legal person that cannot be identified with its members. Basically that doctrine exists in order to preserve the principle of limited liability. It is concerned with the rights of creditors in the context of company law. It has been applied, with more or less happy results, in other spheres, such as those of conveyancing, of contracts and of liability for tort. But to export it blindly into branches of the law where it has little relevance, could, in my opinion, serve only to divorce the law from reality. Suppose, my Lords, that CSC had traded in Italy through a branch office. There could have been no doubt then that it was amenable to the jurisdiction of the Commission and of this Court. Could it have made any difference if CSC has chosen to trade in Italy through a wholly owned subsidiary? The difference would have been one only of legal form, not of reality. Why then should it make any difference that it chose to trade in Italy through a subsidiary that it controlled by a 51% majority rather than by a 100% majority? What matters in this field, in my view, is control.'

Mr Advocate General Warner said (at 264):

'1. that there is a presumption that a subsidiary will act in accordance with the wishes of its parent because according to common experience subsidiaries generally do so act; 2. that, unless that presumption is rebutted, it is proper for the parent and the subsidiary to be treated as a single undertaking for the purposes of Articles 5 and 86 of the EEC Treaty.'

We have some sympathy with the submissions of Mr Morison in this context. To the layman at least the distinction between the case where a company itself trades in a foreign country and the case where it trades in a foreign country through a subsidiary, whose activities it has full power to control, may seem a slender one. Mr Morison referred us to Bulova Watch Co Inc v K Hattori & Co Ltd (1981) 508 F Supp 1322, where the United States District Court held that it had jurisdiction over a Japanese corporation, which was expanding into a new market by setting up subsidiaries and dealing with competition, both on the theory that the corporation was 'doing business' in New York and under the New York 'long arm statute'. In the course of his judgment, Weinstein CJ said (at 1342):

'these subsidiaries almost by definition are doing for their parent what their parent would otherwise have to do on its own.'

It is not surprising that in many cases such as Harold Holdsworth & Co (Wakefield) Ltd v Caddies [1955] 1 All ER 725, [1955] 1 WLR 352, Scottish Co-op Wholesale Society Ltd v Meyer [1958] 3 All ER 66, [1959] AC 324, Revlon Inc v Cripps and Lee Ltd [1980] FSR 85 and Istitutio Chemioterapico Italiano SpA and Commercial Solvents Corp v EC Commission Joined Cases 6 and 7/73 [1974] ECR 223 the wording of a particular statute or contract has been held to justify the treatment of parent and subsidiary as one unit, at least for some purposes. The relevant parts of the judgments in DHN Food Distributors Ltd v Tower Hamlets London Borough [1976] 3 All ER 462, [1976] 1 WLR 852 must, we think, likewise be regarded as decisions on the relevant statutory provisions for compensation, even though these parts were somewhat broadly expressed, and the correctness of the decision was doubted by the House of Lords in Woolfson v Strathclyde Regional Council 1978 SLT 159 in a passage which will be quoted below.

Mr Morison described the theme of all these cases as being that where legal technicalities would produce injustice in cases involving members of a group of companies, such technicalities should not be allowed to prevail. We do not think that the cases relied on go nearly so far as this. As Sir Godfray Le Quesne submitted, save in cases which turn on the wording of particular statutes or contracts, the court is not free to disregard the principle of Salomon v A Salomon & Co Ltd [1897] AC 22, [1895-9] All ER Rep 33 merely because it considers that justice so requires. Our law, for better or worse, recognises the creation of subsidiary companies, which though in one sense the creatures of their parent companies, will nevertheless under the general law fall to be treated as separate legal entities with all the rights and liabilities which would normally attach to separate legal entities.

In deciding whether a company is present in a foreign country by a subsidiary, which is itself present in that country, the court is entitled, indeed bound, to investigate the relationship between the parent and the subsidiary. In particular, that relationship may be relevant in determining whether the subsidiary was acting as the parent's agent and, if so, on what terms. In Firestone Tyre and Rubber Co Ltd v Lewellin (Inspector of Taxes) [1957] 1 All ER 561, [1957] 1 WLR 464 (which was referred to by Scott J) the House of Lords upheld an assessment to tax on the footing that, on the facts, the business both of the parent and subsidiary were carried on by the subsidiary as agent for the parent. However, there is no presumption of any such agency. There is no presumption that the subsidiary is the parent company's alter ego. Scott J refused an invitation to infer that there existed an agency agreement between Cape and NAAC comparable to that which had previously existed between Cape and Capasco (see p 971, ante) and that refusal is not challenged on this appeal. If a company chooses to arrange the affairs of its group in such a way that the business carried on in a particular foreign country is the business of its subsidiary and not its own, it is, in our judgment, entitled to do so. Neither in this class of case nor in any other class of case is it open to this court to disregard the principle of Salomon v A Salomon & Co Ltd merely because it considers it just so to do.

In support of the single commercial unit argument, Mr Morison made a number of factual submissions to the following effect: the purpose of NAAC's creation was that it might act as a medium through which goods of the Cape group might be sold. The purpose of the liquidation of NAAC was likewise to protect Cape. Any major policy decisions concerning NAAC were taken by Cape. Cape's control over NAAC did not depend on corporate form. It exercised the same degree of control both before and after the removal of the Cape directors from the NAAC board. The functions of NAAC's directors were formal only. Dr Gaze effectively controlled its activities. Cape represented NAAC to its customers as its office in the United States. In broad terms, it was submitted, Cape ran a single integrated mining division with little regard to corporate formalities as between members of the group in the way in which it carried on its business.

The plaintiffs further submitted in their notice of appeal that NAAC 'did not deal, and was not permitted to deal with Egnep or Casap, but had to go through Cape or Capasco'. It seems clear that NAAC, as principal, made direct purchases of raw asbestos from Egnep. On the balance of probabilities, we accept the plaintiffs' submission that it made similar direct purchases from Casap. In referring to the absence of dealing with Egnep or Casap, the plaintiffs were, we understand, intending to submit that as a matter of group policy, which Cape could and did enforce by its power of control over the boards of Egnep, Capasco and NAAC, the transmission of information and orders to or from customers had to be effected and was effected by NAAC through Capasco. We accept that submission. We also accept that the matters referred to in this paragraph lend some broad support to the submission that Cape ran a single integrated mining division with little regard to corporate formalities as between members of the group. However, there has been no challenge to the judge's finding that the corporate forms applicable to NAAC as a separate legal entity were observed.

As to the plaintiffs' other factual submissions in this context we will deal with the purpose of NAAC's creation and existence in considering the 'agency' argument. As to the relationship between Cape and NAAC, it is of the very nature of a parent company-subsidiary relationship that the parent company is in a position, if it wishes, to exercise overall control over the general policy of the subsidiary. The plaintiffs, however, submitted that Cape's control extended to the day-to-day running of NAAC. They challenged the finding of fact made by Scott J that 'Mr Morgan was in executive control of NAAC's conduct of its business'. We explore further the facts relative to this finding and to the extent of Cape's control over NAAC's activities in the appendix to this judgmentb. Our conclusion, shortly stated, is that the finding was justified by the evidence. A degree of overall supervision, and to some extent control, was exercised by Cape over NAAC as is common in the case of any parent-subsidiary relationship, to a large extent through Dr Gaze. In particular, Cape would indicate to NAAC the maximum level of expenditure which it should incur and would supervise the level of expenses incurred by Mr Morgan. Mr Morgan knew that he had to defer in carrying out the business activities of NAAC to the policy requirements of Cape as the controlling shareholders of NAAC. Within these policy limits, such as Cape's requirement that NAAC's orders for asbestos for sale by NAAC in the United States be placed through Capasco on behalf of Egnep and Casap, the day-to-day running of NAAC was left to him. There is no challenge to the judge's findings that (a) the corporate financial control exercised by Cape over NAAC in respect of the level of dividends and the level of permitted borrowing was no more and no less than was to be expected in a group of companies such as the Cape group (see pp 962-963, ante), (b) the annual accounts of NAAC were drawn on the footing that NAAC's business was its own business and there was nothing to suggest that the accounts were drawn on a false footing (see p 971, ante).

The appendix referred to is not reproduced in this report.

In the light of the set-up and operations of the Cape group and of the relationship between Cape/Capasco and NAAC we see the attraction of the approach adopted by Lord Denning MR in the DHN case [1976] 3 All ER 462 at 467, [1976] 1 WLR 852 at 860 which Mr Morison urged us to adopt:

'This group is virtually the same as a partnership in which all the three partners are companies.'

In our judgment, however, we have no discretion to reject the distinction between the members of the group as a technical point. We agree with Scott J that the observations of Robert Goff LJ in Bank of Tokyo Ltd v Karoon [1986] 3 All ER 468 at 486, [1987] AC 45 at 64 are apposite:

'Counsel suggested beguilingly that it would be technical for us to distinguish between parent and subsidiary company in this context; economically, he said, they were one. But we are concerned not with economics but with law. The distinction between the two is, in law, fundamental and cannot here be bridged.'

As to CPC, in Mr Morison's submission, the replacement of NAAC by CPC was simply a substitute arrangement. The creation of CPC was effected and paid for by Cape so that it could perform the same functions on behalf of Cape as NAAC had previously performed. CPC, on behalf of AMC (and thus Cape) made payment arrangements with third parties and received moneys for AMC (Cape). While Mr Morgan held all the shares in CPC for his own benefit, the rights of pre-emption reserved to AMC by the agency agreement of 5 June 1978 left him with little substantial financial interest in CPC's business, save for the office furniture and a right to an account which would be of little value; effectively, it was submitted, CPC's business was owned by AMC (Cape).

Our reasons for rejecting the 'single economic unit' argument in relation to NAAC apply a fortiori in relation to CPC, because CPC was not Cape's subsidiary and its shares were held by Mr Morgan for his own benefit. We give our reasons in the next section of this judgment for agreeing with the judge that CPC was an independently owned company.

The 'corporate veil' point

Quite apart from cases where statute or contract permits a broad interpretation to be given to references to members of a group of companies, there is one well-recognised exception to the rule prohibiting the piercing of 'the corporate veil'. Lord Keith referred to this principle in Woolfson v Strathclyde Regional Council 1978 SLT 159 in the course of a speech with which Lord Wilberforce, Lord Fraser and Lord Russell agreed. With reference to the DHN decision, he said (at 161):

'I have some doubts whether in this respect the Court of Appeal properly applied the principle that it is appropriate to pierce the corporate veil only where special circumstances exist indicating that it is a mere façade concealing the true facts.'

The only allegation of a façade in the plaintiffs' pleadings was that the formation and use of CPC and AMC in the 'alternative marketing arrangements of 1978 were a device or sham or cloak for grave impropriety on the part of Cape or Capasco, namely to ostensibly remove their assets from the United States to avoid liability for asbestos claims whilst at the same time continuing to trade in asbestos there'. In their notice of appeal (in para 2(b)) the plaintiffs referred to their contention made at the trial that CPC 'was set up to replace NAAC in such a way as to disguise the defendants' continued involvement in the marketing of the group's asbestos in the United States'.

Scott J more or less accepted this contention. He found as a fact that-

'the arrangements made regarding NAAC, AMC and CPC were part of one composite arrangement designed to enable Cape asbestos to continue to be sold into the United States while reducing, if not eliminating, the appearance of any involvement therein of Cape or its subsidiaries.'

(See p 966, ante.)

However, he went on to say (p 967, ante):

'But the question whether CPC's presence in Illinois can, for jurisdiction purposes, be treated as Cape's presence must, in my view, be answered by considering the nature of the arrangements that were implemented, not the motive behind them. The documentary evidence I have seen has made clear that the senior management of Cape, including Mr Penna, were very anxious that Cape's connections with CPC and with AMC should not become publicly known. Some of the letters and memoranda have a somewhat conspiratorial flavour to them. But this too, although interesting to notice, is not, in my opinion, relevant to the main question.'

If and so far as the judge intended to say that the motive behind the new arrangements was irrelevant as a matter of law, we would respectfully differ from him. In our judgment, as Mr Morison submitted, whenever a device or sham or cloak is alleged in cases such as this, the motive of the alleged perpetrator must be legally relevant, and indeed this no doubt is the reason why the question of motive was examined extensively at the trial. The decision in Jones v Lipman [1962] 1 All ER 442, [1962] 1 WLR 832 referred to below was one case where the proven motive of the individual defendant clearly had a significant effect on the decision of Russell J.

The judge's finding of fact quoted above as to the motives of Cape behind the new arrangements is accepted (no doubt welcomed) by the plaintiffs, so far as it goes. They submit, rightly in our judgment, that any such motives are relevant to the 'corporate veil' point. They further submit that the judge (a) erred in concluding that CPC was an 'independently owned company' and (b) failed to make a number of findings of fact which are relevant in the context of the 'corporate veil' point.

Mr Morison has taken us through the arrangements which led to the extinction of NAAC and the emergence of AMC and CPC with care and in considerable detail. The additional facts which the plaintiffs say the judge ought to have found, and which are set out in the appendix to this judgmentc, all relate to these arrangements. It is true that, as the judge said, some of the letters and memoranda have a 'somewhat conspiratorial flavour to them'. Since, contrary to the judge's view, we think motive is relevant in this context, we have thought it right to investigate these contentions in some detail in the appendix.

The appendix referred to is not reproduced in this report.

On analysis, much of the new material does little more than amply support the judge's finding quoted above as to the purpose of the composite arrangement. In this court Mr Morison made it clear that the plaintiffs were not alleging any unlawful purpose or impropriety on the part of Cape in the sense of any intention to deceive or to do any unlawful act, either in Illinois or in this country. It was, however, asserted for the plaintiffs that AMC and CPC together constituted a façade which concealed the real activities of Cape. We understand that to mean that the purpose of Cape was to conceal, so far as it lawfully could, having regard to the requirements of the law in Illinois and this country, any connection of Cape with AMC or CPC.

Before expressing our own views as to Cape's purpose, we will state our conclusions as to Mr Morgan's position. It is, in our judgment, right to infer, substantially as submitted by Mr Morison, that the assistance derived from the presence of Mr Morgan in Illinois, undertaking the task through CPC of marketing agent for the Cape subsidiaries in the United States, was regarded as being at least of great importance to the general purposes of the Cape group, and possibly essential for those purposes, because, if it was not so regarded, there is no apparent reason why Cape should assume the cost and such risk as might have arisen from setting up CPC. Sir Godfray Le Quesne, however, was in our view plainly right in submitting that the agreement of Mr Morgan was required for the creation of the alternative marketing arrangements by means of a new independent Illinois company and that his agreement, when given, was real. Cape had obligations of a moral nature to Mr Morgan and to the long serving staff of NAAC. Cape also, for its own purposes, wanted Mr Morgan and Mrs Holtze to continue with the work previously done by them for NAAC. If Mr Morgan decided to take on the task of providing services to the subsidiaries of the Cape group through CPC, on the terms available to him as owner of the shares in CPC, Cape would get the benefit of his knowledge and experience as the person in charge of CPC. Nothing in the material to which our attention was drawn under these headings, however, causes us to doubt the correctness of Scott J's conclusion that the shares in CPC belonged both at law and in equity to Mr Morgan. It is clear that Cape intended CPC to be in reality Mr Morgan's company because that was part of their purpose. Such as it was, and dependent for almost all of its business on the Cape subsidiaries, CPC was Mr Morgan's company. We therefore reject the challenge to the judge's finding that CPC was an independently owned company.

As to Cape's purpose in making the arrangements for the liquidation of NAAC and the creation of AMC and CPC, we think that the extracts from the evidence set out in the appendix to this judgmentd sufficiently reveal both the substance of what the officers of Cape were doing and what they were trying to achieve. The allegation of impropriety was, in our view, rightly abandoned. The inference which we draw from all the evidence was that Cape's intention was to enable sales of asbestos from the South African subsidiaries to continue to be made in the United States while (a) reducing the appearance of any involvement therein of Cape or its subsidiaries, and (b) reducing by any lawful means available to it the risk of any subsidiary or of Cape as parent company being held liable for United States taxation or subject to the jurisdiction of the United States courts, whether state or federal, and the risk of any default judgment by such a court being held to be enforceable in this country. Inference (a) was also made by the judge. Inference (b) is our own addition.

The appendix referred to is not reproduced in this report.

The question of law which we now have to consider is whether the arrangements regarding NAAC, AMC and CPC made by Cape with the intentions which we have inferred constituted a façade such as to justify the lifting of the corporate veil so as that CPC's and AMC's presence in the United States should be treated as the presence of Cape/Capasco for this reason if no other.

In Merchandise Transport Ltd v British Transport Commission [1961] 3 All ER 495 at 518, [1962] 2 QB 173 at 206-207 Danckwerts LJ referred to certain authorities as showing that-

'where the character of a company, or the nature of the persons who control it, is a relevant feature the court will go behind the mere status of the company as a legal entity, and will consider who are the persons as shareholders or even as agents who direct and control the activities of a company which is incapable of doing anything without human assistance.'

The correctness of this statement has not been disputed, but it does not assist in determining whether 'the character of a company or the nature of the persons who control it' will be relevant in the present case.

Rather greater assistance on this point is to be found in Jones v Lipman [1962] 1 All ER 442, [1962] 1 WLR 832. In that case the first defendant had agreed to sell to the plaintiffs some land. Pending completion the first defendant sold and transferred the land to the defendant company. The evidence showed that this company was at all material times under the complete control of the first defendant. It also showed that the acquisition by him of the company and the transfer of the land to the company had been carried through solely for the purpose of defeating the plaintiff's right to specific performance. Russell J made an order for specific performance against both defendants. He held that specific performance cannot be resisted by a vendor who, by his absolute ownership and control of a limited company in which the property is vested, is in a position to cause the contract to be completed. As to the defendant company, he described it as being 'the creature of the first defendant, a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity': see [1962] 1 All ER 442 at 445, [1962] 1 WLR 832 at 836. Following Jones v Lipman, we agree with Mr Morison that, contrary to the judge's view, where a façade is alleged, the motive of the perpetrator may be highly material.

Other cases were cited to us in which the court, on interlocutory applications, has to a greater or lesser extent been prepared to look behind the corporate veil and have regard to the persons ultimately interested in a company under a group's company structure. For example, it did so in exercising its Mareva jurisdiction in X Bank Ltd v G [1985] LS Gaz R 2016 and in considering stays of execution in Canada Enterprises Corp Ltd v MacNab Distilleries Ltd (1976) [1987] 1 WLR 813 and Burnet v Francis Industries plc [1987] 2 All ER 323, [1987] 1 WLR 802. The two last-mentioned decisions contain no statement of relevant principle and the report of X Bank Ltd v G is so brief that we think it would not be safe to rely on it for present purposes.

We were referred to certain broad dicta of Lord Denning MR in Wallersteiner v Moir [1974] 3 All ER 217 at 238, [1974] 1 WLR 991 at 1013, and in Littlewoods Mail Order Store Ltd v McGregor [1969] 3 All ER 855 at 860, [1969] 1 WLR 1241 at 1254. In both these cases he expressed his willingness to pull aside the corporate veil, saying in the latter:

'I decline to treat the [subsidiary] as a separate and independent entity ... The courts can and often do draw aside the veil. They can, and often do, pull off the mask. They look to see what really lies behind. The legislature has shown the way with group accounts and the rest. And the courts should follow suit. I think that we should look at the Fork company and see it as it really is-the wholly-owned subsidiary of the taxpayers. It is the creature, the puppet, of the taxpayers in point of fact; and it should be so regarded in point of law.' (Lord Denning MR's emphasis.)

However, in Wallersteiner v Moir [1974] 3 All ER 217 at 250, 254, [1974] 1 WLR 991 at 1027, 1032 Buckley and Scarman LJJ respectively expressly declined to tear away the corporate veil. In Littlewoods Mail Order Store Ltd v McGregor [1969] 3 All ER 855 at 861, [1969] 1 WLR 1241 at 1255 Sachs LJ expressly dissociated himself from the suggestion that the subsidiary was not a separate legal entity and Karminski LJ refrained from associating himself with it. We therefore think that the plaintiffs can derive little support from those dicta of Lord Denning MR.

From the authorities cited to us we are left with rather sparse guidance as to the principles which should guide the court in determining whether or not the arrangements of a corporate group involve a façade within the meaning of that word as used by the House of Lords in Woolfson v Strathclyde Regional Council 1978 SLT 159. We will not attempt a comprehensive definition of those principles.

Our conclusions are these. In our judgment, the interposition of AMC between Cape and CPC was clearly a façade in the relevant sense. Scott J said it seemed clear that AMC was 'no more than a corporate name' and that he would expect to find, if all the relevant documents were available, that 'AMC acted through employees or officers of either Casap or Egnep' (see p 967, ante). He rejected Mr Morgan's evidence that he understood AMC to be an independent South African trading company, and was satisfied that he knew very well that it was a 'creature of Cape' (see p 969, ante). 'The seller in CPC's time was, nominally, AMC but, in reality, still, I think, Egnep or Casap' (see p 970, ante). In our judgment, however, the revelation of AMC as the creature of Cape does not suffice to enable the plaintiffs to show the presence of Cape/Capasco in the United States, since, on the judge's undisputed findings, AMC was not in reality carrying on any business in the United States.

The relationship between Cape/Capasco and CPC is the crucial factor, since CPC was undoubtedly carrying on business in the United States. We have already indicated our acceptance of the judge's findings that CPC was a company independently owned by Mr Morgan and that the shares therein belonged to him in law and in equity. These findings by themselves make it very difficult to contend that the operation of CPC involved a façade which entitles the court to pierce the corporate veil between CPC and Cape/Capasco and treat them all as one. Is the legal position altered by the facts that Cape's intention, in making the relevant arrangements (as we infer), was to enable sales of asbestos from the South African subsidiaries to be made while (a) reducing if not eliminating the appearance of any involvement therein of Cape or its subsidiaries, and (b) reducing by any lawful means available to it the risk of any subsidiary or of Cape as a parent company being held liable for United States taxation or subject to the jurisdiction of the United States courts and the risk of any default judgment by such a court being held to be enforceable in this country?

We think not. Mr Morison submitted that the court will lift the corporate veil where a defendant by the device of a corporate structure attempts to evade (i) limitations imposed on his conduct by law, (ii) such rights of relief against him as third parties already possess and (iii) such rights of relief as third parties may in the future acquire. Assuming that the first and second of these three conditions will suffice in law to justify such a course, neither of them apply in the present case. It is not suggested that the arrangements involved any actual or potential illegality or were intended to deprive anyone of their existing rights. Whether or not such a course deserves moral approval, there was nothing illegal as such in Cape arranging its affairs (whether by the use of subsidiaries or otherwise) so as to attract the minimum publicity to its involvement in the sale of Cape asbestos in the United States. As to condition (iii), we do not accept as a matter of law that the court is entitled to lift the corporate veil as against a defendant company which is the member of a corporate group merely because the corporate structure has been used so as to ensure that the legal liability (if any) in respect of particular future activities of the group (and correspondingly the risk of enforcement of that liability) will fall on another member of the group rather than the defendant company. Whether or not this is desirable, the right to use a corporate structure in this manner is inherent in our corporate law. Mr Morison urged on us that the purpose of the operation was in substance that Cape would have the practical benefit of the group's asbestos trade in the United States without the risks of tortious liability. This may be so. However, in our judgment, Cape was in law entitled to organise the group's affairs in that manner and (save in the case of AMC to which special considerations apply) to expect that the court would apply the principle of Salomon v A Salomon & Co Ltd [1897] AC 22 [1895-9] All ER Rep 33 in the ordinary way.

The plaintiffs submitted (in para 7 of their notice of appeal) that the motive of the defendants in setting up the arrangements regarding NAAC, AMC and CPC as revealed in the documents evidence were 'consistent only with an acceptance by Cape that they were present in the United States through NAAC and CPC'. We think there is no substance in this point. These arrangements at most indicated an apprehension on the part of the defendants that they might be held to be so present and a desire that they should not be. They involved no admission or acceptance of such presence.

We reject the 'corporate veil' argument.

The 'agency' argument in relation to NAAC

We now proceed to consider the agency argument in relation to NAAC on the footing, which we consider to be the correct one, that NAAC must for all relevant purposes be regarded as a legal entity separate from Cape/Capasco. In an earlier section of this judgment we summarised three propositions which we derived from the authorities relating to the 'presence' of an overseas corporation. There we stated that, save in a 'branch office' case (which the instant case is not), the English court will be likely to treat an overseas trading corporation as present within the jurisdiction of the courts of another country only if a representative of the overseas corporation has for more than a minimal period of time been carrying on the overseas corporation's business in the other country at or from some fixed place of business. In the present case NAAC, as representative of Cape/Capasco, unquestionably carried on business at a fixed place of business in the United States, 150 North Wacker Drive, for a substantial period of time. So no difficulty arises on that score. The crucial question is whether it can fairly be said that Cape's business has been transacted by NAAC at or from 150 North Wacker Drive. The judge's answer to it was that 'NAAC's business was its own business, not the business of Cape or of Capasco' (see p 966, ante). The plaintiffs challenge the correctness of this answer to the question.

This question, as we said earlier, will necessitate an investigation of the functions which NAAC performed and all aspects of the relationship between it and Cape.

The factual material which we have principally in mind in considering whether Cape's business was being transacted at or from 150 North Wacker Drive is to be found in the section of this judgment headed 'The facts on "presence" as found by Scott J' (see pp 993-998, ante), and in the appendix to this judgmente. We summarise below what we consider the most material facts in context, having regard to the list of potentially relevant factors set out in an earlier section of our judgment.

The appendix referred to is not reproduced in this report.

We accept that the intention of Cape in procuring the incorporation of NAAC in the State of Illinois was that NAAC should assist in the marketing of asbestos in the United States upon sales by Egnep or Casap to purchasers in the United States and that it was to be the marketing agent of the Cape group in the United States. Nevertheless, in our judgment, it is indisputable that at the very least a substantial part of the business carried on by NAAC at all material times was in every sense its own business. In these contexts we draw attention in particular to the following facts.

(1)

Though we were referred to no evidence relating to the original acquisition by NAAC of its premises at 150 North Wacker Drive, we know that NAAC itself was the lessee of the premises and paid the rent for them. Furthermore, it owned the office furniture and employed there its own staff of four persons for whom it ran its own pension scheme.

(2)

From time to time it conducted the following activities as principal on its own account:

(a): it bought asbestos from United States government stocks or from Egnep or Casap and sold it to United States customers, such purchases representing about 25% of NAAC's business in terms of tonnage;
(b): it imported asbestos goods from Japan and sold them to United States customers.

(While we accept that the purchase by NAAC of asbestos goods was subordinate to its business with or for Cape's subsidiaries, we do not accept the plaintiffs' submission that such sales were trivial, having regard to the turnover of NAAC.)

(3)

For storing the asbestos which it had purchased from US government stocks or Egnep or Casap, NAAC rented in its own name and paid for warehousing facilities.

(4)

NAAC earned profits and paid United States taxes thereon.

(5)

NAAC's creditors and debtors were its own (not those of Cape).

(6)

The return to Cape as NAAC's shareholder took the form of an annual dividend passed by a resolution of NAAC's board of directors.

(7)

In other respects also the corporate forms applicable to NAAC as a separate entity were observed.

In the face of these facts, now unchallenged, it is in our judgment clear beyond argument that NAAC was carrying on business of its own. The only question is whether, in performing the functions which it performed on behalf of Cape/Capasco, it was carrying on its own business or their business. What, then, were these functions? As we see the position from the findings of the judge and the evidence put before us, its functions were to assist in the marketing of asbestos in the United States upon sales by Egnep or Casap and generally to assist and encourage sales in the United States of asbestos of the Cape group. It acted as the channel of communication between Cape/Capasco and United States customers, such as PCC. It organised and arranged the performance of contracts between United States customers and Egnep. It had a co-ordinating role, particularly in arranging delivery. The United States customer would specify to NAAC from time to time the quantity of asbestos which it wished to purchase and the time when it desired delivery to be made. This information would be conveyed through NAAC to Casap and Egnep. Shipping arrangements and delivery dates would be arranged by Casap or Egnep and communicated to the United States customers via NAAC. NAAC would receive documents and pass them on to the customers. It also received requests and complaints which it would normally pass on to Capasco. Generally it assisted in 'nursing' the group's customers for asbestos and ensuring that they were satisfied. For its services NAAC was remunerated by way of a commission paid to it by Casap on sales effected by Egnep or Casap. There was no evidence that NAAC reserved any part of its office premises or any part of its staff exclusively for performing its agency functions.

Our further findings as to the functions which NAAC performed and as to its relationship between NAAC and Cape are to be found set out in the appendixf. We bear in mind particularly the submissions that (i) when corresponding with United States customers, Cape referred to NAAC as 'our Chicago office' and NAAC referred to Cape and Capasco as 'our London office'; (ii) NAAC held itself out to a large United States customer as being part of the Cape selling organisation; and (iii) NAAC was treated by the major customer 'as the channel between them and Cape and Capasco'. However, in the appendix we give our reasons for concluding that the matters shown in the evidence considered under this heading do not by themselves show anything inconsistent with the findings of Scott J as to NAAC's role and functions.

The appendix referred to is not reproduced in this report.

There is no doubt that the services rendered by NAAC in acting as intermediary in respect of contracts between the United States customers and Egnep or Casap were active and important services which were of great assistance to Cape/Capasco in arranging the sales of their group's asbestos in the United States. Nevertheless, for all the closeness of the relationship between Cape/Capasco and NAAC, strictly defined limits were imposed on the functions which NAAC were authorised to carry out or did carry out as their representative. First, NAAC had no general authority to bind Cape/Capasco to any contractual obligation. Second, as Mr Morison expressly accepted, there is no evidence that NAAC, whether with or without prior authority from Cape/Capasco, ever effected any transaction in such manner that Cape/Capasco thereby became subject to contractual obligations to any person. This significant factor renders the arguments in favour of 'presence', at least in some respects, even less strong than they were in cases such as The Lalandia [1933] P 56, [1932] All ER Rep 391 and The Holstein [1936] All ER 1660 where the argument failed. Having regard to the legal principles stated earlier in this judgment, and looking at the facts of the case overall, our conclusion is that the judge was right to hold that the business carried on by NAAC was exclusively its own business, not the business of Cape or Capasco, and that Cape and Capasco were not present within the United States through NAAC at any material time. We see no sufficient grounds for disturbing this finding of fact.

Under this section of our judgment we should mention one further point. The plaintiffs challenged the judge's finding that as from 31 January 1978, NAAC ceased to act on behalf of any of the Cape companies or to carry on any business on its own account save for the purpose of liquidating its assets. The object of the challenge was to refute the suggestion that Cape could not be regarded as present in the United States through NAAC during the period between 31 January 1978 and NAAC's formal dissolution on 19 May 1978. (They accepted that after 19 May Cape could not be said to be present in the United States, by or through NAAC.) The plaintiffs regard this point as having potential legal relevance, since two of the eight actions which comprise Tyler 2 were begun before 18 May 1978. In the appendix we give our reasons for rejecting the challenge to the judge's finding of factg.

The appendix referred to is not reproduced in this report.

The agency argument in relation to CPC

We now consider whether Cape/Capasco were present in the United States by or through CPC. In dealing with the 'corporate veil' point we have stated our inferences as to Cape's purpose in making the arrangements for the liquidation of NAAC and the creation of AMC and CPC. Part of the very purpose of these arrangements was to enable sales of asbestos from the Cape group to continue to be made in the United States while creating a greater distance both in appearance and reality between Cape and the company (CPC) which was intended to carry out the functions on its behalf in the United States which had previously been carried out by NAAC. Having dealt with the 'corporate veil' point, we agree with the following passage in Scott J's judgment (see pp 969-970, ante):

'I do not think, on analysis, that the plaintiffs' case is any stronger than their case regarding NAAC. If anything, I think the case is weaker. NAAC was at least a wholly-owned subsidiary. CPC, even if incorporated and launched with Cape money, was, on my reading of the facts, an independently owned company. Like NAAC, CPC acted as agent for the purpose of facilitating the sale in the United States of Cape's asbestos. The seller of the asbestos in NAAC's time was Egnep or Casap. The seller in CPC's time was, nominally, AMC but, in reality, still, I think, Egnep or Casap. CPC, like NAAC, had no authority to bind Egnep, Casap or any other of the Cape subsidiaries to any contract. CPC, like NAAC, carried on its own business from its own offices at 150 North Wacker Drive. The provision by Cape of the $160,000 as a starting-up fund does not make the offices Cape's offices or the business Cape's business.'

The interposition of AMC in the new arrangements made in 1978 cannot one way or the other affect the question whether Cape/Capasco were present in the United States thereafter. For all relevant purposes, as we have already indicated, we are prepared to treat Cape and AMC as one. The functions performed by CPC and its relationship with Cape through AMC are the relevant considerations for present purposes. Since Mr Morgan held all the shares in CPC, beneficially Cape had no control as a shareholder over the activities of CPC similar to the control which it had exercised over NAAC. Mr Morison did not dispute the judge's finding that the terms of the agency agreement of 5 June 1978 were a reliable guide to the nature of the relationship between CPC and AMC and hence between CPC and Cape. Under the terms of this agreement, CPC were left free to sell materials and products other than asbestos fibre and to involve itself in other commercial activities. It is clear that it did so. While there is no evidence that it followed NAAC in buying raw asbestos from Egnep or Casap or the United States government, it undoubtedly bought and sold manufactured textiles on its own behalf as principal.

It is thus quite plain that at least a substantial part of CPC's business was in every sense its own business. As with NAAC, the only question is whether, in performing the functions which it performed on behalf of Cape/Capasco, it was carrying on its own business or their business. As the terms of the agency agreement show, these functions were very similar to those which had been performed by NAAC. The services rendered by CPC to Cape/Capasco were similarly active and important. Again, however, strictly defined limits were imposed on the functions which CPC was authorised to carry out or did carry out as the representative of Cape/Capasco (through AMC). CPC had no authority to bind AMC or Cape or Capasco to any contractual obligation. Again too, there is no evidence that CPC, whether with or without prior authority from any of those three companies, ever carried out any transaction in such manner as to subject any of them to contractual obligations to any person. In the light of the legal principles stated above and of the facts of the case looked at as a whole, we see no sufficient grounds for disturbing the judge's finding that the business carried on by CPC was exclusively its own business and that Cape and Capasco were not present within the United States through CPC (or AMC) at any material time.

Under this heading, we refer to one further matter. The plaintiffs, on the evidence of Mr Summerfield (that in August 1984 AMC's name was given as one of the occupants of the offices on the 12th floor at 150 North Wacker Drive) invited us to infer that AMC had their plate up on those offices in 1978-79. Scott J declined to draw any such inference. In our judgment, he was right to do so for the reasons given in the next section of this judgment dealing with burden of proof and under item (25) in the appendix h.

The appendix referred to is not reproduced in this report.

The onus of proof

The plaintiffs submitted to Scott J that the onus was on Cape to establish that it was not resident in the United States and that he should hold that the defendants had failed to discharge that onus. He rejected that argument saying (see p 970, ante):

'The plaintiffs sue Cape on a judgment given by a United States court. The judgment is an apparently regular one. Cape disputes jurisdiction on the ground that it is a foreign company with no place of business in the United States. The plaintiffs' answer is to assert that the presence in the United States of NAAC and CPC is to be treated as Cape's presence. But each of NAAC and CPC is in law an individual legal persona. A contention that the presence in the United States of either is to be treated as the presence of Cape requires, in my opinion, he who so contends to establish facts sufficient to support the contention. This, in my judgment, the plaintiffs have failed to do.'

Mr Morison submitted that the judge misdirected himself as to the burden of proof. A foreign judgment, in his submission, prima facie gives rise to a legal obligation on the part of the defendant to obey the judgment and is thus prima facie enforceable in England. In support of this submission he invoked Dicey and Morris on the Conflict of Laws (11th edn, 1987) vol 1, r 43, p 465, where it is said:

'... the statement of claim in an action upon such a judgment need not specifically assert that the foreign court was competent in terms either of the relevant foreign law or of the English rules of the conflict of laws, though it is usual to insert an allegation of this sort.'

We agree that generally no specific assertion need be made that the foreign court was competent in terms of the foreign law, not because of any question of burden of proof, but because such assertion is irrelevant. As is stated in Dicey and Morris, vol 1, r 43, pp 464-465, a foreign judgment cannot, in general, be impeached on the ground that the court which gave it was not competent to do so according to the law of the foreign country concerned.

However, as all the authorities show, it is only the judgment of a foreign court recognised as competent by English law which will give rise to an obligation on the part of the defendant to obey it. As a matter of principle it seems to us that in the first place the onus must fall on the plaintiff seeking to enforce the judgment of a foreign court to prove the competence (in this sense) of such court to assume jurisdiction over him. None of the authorities cited to us establish the contrary.

No doubt, in any case, the evidentiary burden may shift at the trial. However, we agree with the judge that the presence of AMC's name on a notice board at the office at 150 North Wacker Drive in 1984 did not give rise to any presumption that it had been there in 1979.

More generally we should state that if, contrary to our view, the onus fell on the defendants to disprove the competence of the Tyler court to give judgment against it, they have discharged that onus by showing that they were not 'present' in any part of the United States, at the time of commencement of the various suits between April 1978 and November 1979.

This conclusion as to the 'presence' issue means that this appeal must fail on this account if no other. However, for reasons already stated, and in case our conclusion on the 'presence' issue is wrong, we think it right to proceed to consider the 'country' issue and the 'natural justice' issue. (As to the latter issue, there is no dispute that the onus of proof falls on the defendants.)

III. THE COUNTRY ISSUE

Thus far we have been considering the criteria for ascertaining whether a defendant was present in a particular place, and whether on the facts of this case the criteria were satisfied by Cape and Capasco. For this purpose, it was unnecessary to decide how to identify the place in the United States at which the defendant must have been present, when the action commenced, in order to make the judgment enforceable against him here, since if Cape and Capasco were not present in Chicago, they were not present anywhere else in the United States. If however, the conclusion expressed in the preceding section of this judgment were to be incorrect, so that the companies were present in Chicago, Illinois, it would become necessary to decide whether that presence was sufficient to render enforceable in the United Kingdom the judgment given by the district court in Tyler, Texas.

This question may conveniently be labelled the 'country' issue, echoing the language of Schibsby v Westenholz (1870) LR 6 QB 155, [1961-73] All ER Rep 988 and several of the later cases. We should, however, observe that this terminology must be used with caution, lest it beg the very question under consideration, and lead the reader to assume that the political entity provides the geographical test. This point was not in issue in any of the cases from which we have already quoted, and no assumption as to the relevant principle can be drawn from the language in which the courts chose to express their opinions on the question of 'presence'.

It is convenient to begin by summarising the evidence placed before us, concerning the organisation of the federal courts, their jurisdiction and the law which they enforce.

The organisation of the federal courts is laid down by 28 USC Pt I. These courts exist in three tiers. First, there is the Supreme Court of the United States. This court has various jurisdictions. In particular, it is the final court of recourse from decisions of Federal Courts of Appeals (§ 1254) and from the highest court of each state (§ 1257). The second tier comprises the Courts of Appeals. The United States is divided into 13 judicial circuits each extending to a number of states or to the District of Columbia (§ 41). In each circuit there is a Court of Appeals, known as 'the United States Court of Appeals for the circuit' (§ 43(a)) and consisting of the circuit judges of the circuit (§ 43(b)). The circuit judges are appointed by the President, by and with the advice and consent of the Senate, in numbers which vary from circuit to circuit (§ 44(a)). They hold office during good behaviour (§ 44(b)) and are required to reside on the circuit (§ 44(c)).

The third tier consists of the district courts. Each state is divided into judicial districts. In each judicial district there is a district court known as 'the United States District Court for the District' (§ 132(a)). Each district court consists of the district judge or judges 'for the district' (§ 132(b)). Each district judge is required to reside in the district for which he is appointed (§ 134(b)). Texas has four districts, each of which is sub-divided into seven divisions. The Tyler Division, which comprises ten counties, is a division of the Eastern Division of Texas. The court for the Tyler Division is held at Tyler (§ 124). Like the judges of the Courts of Appeals the judges of the district courts are appointed by the President, hold office during good behaviour and receive salaries fixed by federal legislation.

When a claimant seeks to invoke the jurisdiction of one of these district courts it may be necessary to consider three questions: (i) whether there is a sufficient geographical relationship between the parties, or the subject-matter, and the individual district court where the action is to be commenced ('venue'); (ii) whether the subject-matter of the action is such that a district court is entitled to hear it ('subject-matter jurisdiction'); (iii) whether the defendant is amenable to service of the process of the district court ('personal jurisdiction').

As regards venue, the following provisions of 28 USC are most immediately relevant. (1) A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in the judicial district where all plaintiffs or all defendants reside, or in which the claim arose 28 USC § 1391(a)). (2) A civil action wherein jurisdiction is not founded solely On diversity of citizenship may be brought only in the judicial district where all defendants reside, or in which the claim arose except as otherwise provided by law (§ 1391(b)). (3) An alien may be sued in any district (§ 1391(d)).

It may be noted that venue is defined, not by reference to the state, or to the judicial division, but to the judicial district. So that the venue here was the Eastern District of Texas.

Notwithstanding that venue is properly found in the district court where the action has been commenced, a district court has power under 28 USC § 1404 to transfer the action to any other district or division, for the convenience of parties and witnesses in the interest of justice. The right of transfer is not however unlimited, since an action may be transferred only to a district or division where it might have been brought. In addition, an action may by consent be transferred from one division to another within the same district, or to another place within the same division.

There is also provision in § 1407 for the transfer of actions pending in different districts to any one district for co-ordinated or consolidated pretrial proceedings. Such a transfer is made and administered by a panel on multi-district litigation, drawn from the federal bench at large. On the conclusion of the pretrial proceedings each action is remitted to the district from which it was transferred.

The original subject matter jurisdiction of the district courts is defined by 28 USC § § 1330-1366. In some instances the jurisdiction is exclusive, in others it is shared with other tribunals. We need not list all the instances in which the courts have jurisdiction. For present purposes it is sufficient to say that the district courts have jurisdiction over (i) all civil actions where the matter exceeds the sum or value of $10,000, and is between citizens of different states (§ 1332(a)(1)); (2) all civil actions where the matter exceeds that sum between citizens of a state and citizens or subjects of a foreign state (§ 1332(a)(2)); (3) all civil actions or claims against the United States for money damages for personal injury or death caused by the negligent or wrongful act or omission of any employee of the government under circumstances where the United States, if a private person would be liable to the claimant in accordance with the law of the place where the act or omission occurred (§ 1346(b)).

There is no room for doubt that the Tyler court had subject matter jurisdiction over the Tyler 2 actions under all three heads.

Venue and subject matter are not the only considerations relevant to the assertion of jurisdiction. Service of summons is the procedure whereby a court having venue and jurisdiction of the subject matter of the suit asserts jurisdiction over the person of the party served: see Mississippi Publishing Corp v Murphree (1946) 326 US 438 at 444-445, cited in Omni Capital International Ltd v Rudolf Wolff & Co Ltd (1987) 484 US 97 at 104.

The provisions governing amenability to service and modes of service are distributed between the Federal Rules of Civil Procedure and the civil procedure legislation and practice of the forum state. Under r 4(f) all process other than a subpoena may be served anywhere within the territorial limits of the state in which the district court is held, and when authorised by statute or by the rules, beyond the territorial limits of that state. Where the party to be served is not an 'inhabitant of or found within the state in which the district court is held', service may be made in accordance with a statute of the United States or order of court made thereunder: see r 4(e). Where there is no such statute or order of court, the service must be effected under the circumstances and in the manner prescribed in any statute or rule of court of the state in which the district court is held r 4(e). In fact Congress and the federal rule-making bodies have abstained from making any provision for 'long arm' jurisdiction, whereby personal jurisdiction is exercised by the district court outside the boundaries of the state. In the Omni Capital International case the Supreme Court firmly repudiated any notion that the federal courts had a common law jurisdiction to create a rule authorising nationwide service of process on non-resident defendants. Absent specific statutory authorisation, each district court contemplating service of process on an absent defendant must have recourse to the 'long arm' statute of the state in which it sits.

Thus far, we have considered questions relating to actions commenced in the district court. 28 USC also makes provisions for the assumption by the district court of jurisdiction over actions commenced elsewhere. A civil action brought in a state court of which the district courts have original jurisdiction, may be removed by the defendant or defendants to the district court for the district or division where the action is pending (§ 1441(a)). If the action concerns a federal question, removal is as of right. Otherwise, the case is removable only if none of the defendants is a citizen of the state where the action is brought (§ 1441(b)).

It may be noted that removal is to the 'district and division' embracing the place where the action is pending. Thus, if the present action had been commenced in a court of the State of Texas seated in one of the counties representing the geographical extent of the Tyler Division, the action would have been removable, not to a district court anywhere in Texas, or to a court anywhere in the Eastern District, but only to the Tyler Division.

On removal, the Federal Rules of Civil Procedure apply to the procedures after removal. It appears that in general the action continues after removal, without the need to be entirely recommenced (r 81(c)).

Finally, we turn to the question of enforcement. Where execution is sought within the state where the district court sits, that court once again borrows its procedure from the practice and procedure of the state court: r 69 of the Rules of Civil Procedure.

Where execution is sought out of state, the position differs as between state and district courts. There is no doubt that one state court is entirely foreign to another, in the sense that the judgments of one create the basis of a cause of action in another, in the same way as a cause of action is created in England by the judgment of a court overseas; unless the enforcing state has adopted the uniform code relating to the enforcement of the judgments of sister states, in which case the mechanism is less cumbersome. The judgment of a district court is more compelling. Under 28 USC § 1963, a judgment in an action for the recovery of money entered in a district court may be registered in any other district by filing a certified copy of the judgment, in which event it has the same effect as a judgment of the district court of the district where registered and may be enforced accordingly. Proceedings to judgment in one district are not however completely assimilated to proceedings in another, as they would if judgment were given in (say) London and enforcement were sought in Manchester. If the defendant comes into the proceedings in the rendering court and unsuccessfully objects to the jurisdiction the objection cannot be repeated in the court where enforcement is sought. On the other hand, if the defendant abstains from any participation in the action and judgment is given in default, he may challenge the judgment in the receiving court by means of collateral proceedings raising procedural objections.

In addition to the procedural rules thus far summarised, it is necessary to say something about the substantive law which the federal courts must apply when sitting in diversity. So far as concerns matters of substance, as distinct from pure procedure, it is now clear that the district court must apply the law of the forum state, subject to any countervailing federal policy. Until Erie Railroad Co v Tompkins (1938) 304 US 64 it had for many years been conceived that there was 'a transcendental body of law outside of any particular State but obligatory within it unless and until changed by statute', so that state court decisions were not the law 'but merely someone's opinion-to be sure an opinion to be respected-concerning the content of this all-pervading law' (see Guaranty Trust Co v York (1945) 326 US 99). In the Erie case this notion of a federal common law was decisively repudiated. The precise basis of the decision is a matter of controversy. Undoubtedly, it involved an element of judicial policy, the intent being (in the words of the Supreme Court in the Guaranty Trust case (at 319)) 'to ensure that, in all cases where a federal court is exercising jurisdiction solely because of the diversity of citizenship of the parties, the outcome of the litigation in the federal court should be substantially the same, so far as legal rules determine the outcome of litigation, as it would be if tried in the State Court'. It may be that this motive did no more than reinforce a much more fundamental constitutional decision concerning the extent of the powers of a federal judicial organ, delegated to it by the Constitution, to create rights conflicting with those existing under the laws of individual states. The Erie case certainly reads like a case on constitutional law, but the reasoning of the court on this aspect of the decision has been called in question, and it seems that there is a controversy here which has yet to be resolved.

We need not trouble with this for present purposes, since it is now clearly established that the district court sitting in diversity must apply the law of the forum state, whether declared by the state's legislature or by its highest court. If we correctly understand the evidence, when so acting the district court does not apply a body of federal law, into which is read the local law of the particular state in which the court is sitting. Instead, it directly applies the law of the state in precisely the same way as would a state court hearing the same matter.

The substantive law of the forum state which the district court is obliged to apply when sitting in diversity includes the choice of law rules of that state. Ideally, if the choice of law rules of the various states were homogeneous, the same state substantive law would apply, no matter what court was first seised of the matter. So also if the state's laws were themselves homogeneous. But they are not. It follows that, although it should make no difference to the outcome whether, within a given state, the action is tried by a state court or by the district court, it may make a difference in which state the action is commenced.

What do these various detailed rules add up to, in terms of the present issue? It is hard for an English lawyer to make a general appreciation of the American system. In part, because the real similarities between the jurisprudence and modes of process prevailing in different parts of the common law world tend to mask the fact that the American system is much more complex than anything which exists here: so that the ideas of 'the country' (in the legal sense) and 'the local court', which work well enough when referred to a unitary judicial structure like that of England and Wales, are too broad to be applied without qualification to the state of affairs in the United States. In part also, because the system appears to involve a devolution of powers in the fields of law-making and law-enforcement by the individual states to the federal organs of government; a further devolution to the Supreme Court and the rule-making agencies; and a voluntary borrowing in some degree from the states of their individual substantive laws and jurisdictional rules. This is a subtle process, hard to grasp simply by reading the evidence and the written sources which the parties have naturally had to select from a large bulk, the more so since, even on the materials which we have seen, it is evident that the constitutional mechanisms are neither static nor straightforward enough to be stated without controversy even by the American courts and jurists themselves.

Nevertheless, hazardous as the task may be of catching the essence of the American judicial system, it is one which we are bound to attempt. As it seems to us, the spectrum of possible judicial regimes may have at one extreme, a mosaic of individual courts, local in jurisdictions and jurisprudence, each 'foreign' to the other; and at the other extreme, a truly national court, in which the courts and judges, although perhaps localised for administrative convenience, nevertheless are the courts and judges of the whole country, indistinguishable parts of an integrated structure, applying an integrated national law. Considered in isolation, the legal systems of England and Wales, Scotland and Northern Ireland lie close to the latter end of the system, since they comprise courts of unlimited jurisdiction applying a homogeneous law. Nevertheless, they are not at the furthest extreme, since none of them has a jurisdiction coextensive with the dominion of the sovereign power by which they are established. The United Kingdom is not a legal and judicial unit.

If one sets out to measure the institutions of the United States against this scale, it seems quite clear that there exists within each state a juridical entity which is almost as close to one extremity of the spectrum as it is possible to be, whilst still being part of a single political design. The state courts are not perfectly autonomous, being subject to an appeal to the Supreme Court of the United States, and the law which they apply is in the course of harmonisation through the voluntary adoption of model codes. Nevertheless, the state courts are local courts in the fullest sense, created and empowered by the government of the state. They apply the local law, created by the state legislature and by the superior courts of the state. Their judges are local judges, selected and maintained in office by methods peculiar to each state, and having no powers outside the boundaries of the state, except through the exercise of the 'exorbitant' long arm powers of service which every national court claims to exercise. The judgment of each such court is, vis à vis the courts of other states, a foreign judgment. It is recognised as creating an enforceable obligation, but not one which is self-executing in the sense that a judgment in one part of England and Wales is directly enforceable in another.

Turning to the federal system, the evidence suggests that, if Congress had thought it appropriate to create a unitary federal court comprising a fully collegiate bench of judges, having nationwide jurisdiction, constrained by no limitations on venue or on the amenability to service of persons anywhere within the territory of the United States, it would have had constitutional power to do so. It also appears, and here we venture on more treacherous ground, that at least within certain limits the Congress could have empowered these courts to administer a truly nationwide law. In fact, whatever the federal organisers might constitutionally have been able to do, they have plainly gone nowhere near so far. Instead, the federal judicial function has been dispersed amongst a series of geographical district courts, with locally stationed judges of local limited jurisdiction. Subject of course to very important exceptions, these judges apply the local law, and they borrow their modes of asserting an extraterritorial jurisdiction from the local law. They are not courts foreign to each other, in the sense that the state courts are, but their judgments do not commend automatic recognition in other parts of the nation.

Against this background we may now trace the reasoning by which the judge arrived at his conclusion that, if Cape and Capasco had been present in Illinois when the Tyler 2 actions were commenced, this would have been a sufficient basis in English law for the exercise by the Tyler court of jurisdiction over them. He began by citing a passage from Dicey and Morris on the Conflict of Laws (11th edn, 1987) vol 1, pp 26-27, which we may usefully repeat:

'Meaning of "country". This word has from long usage become almost a term of art among English-speaking writers on the conflict of laws, and it is vitally important to appreciate exactly what it means. It was defined by Dicey as "the whole of a territory subject under one sovereign to one body of law". He suggested that a better expression might be "law district": but his phrase has never found much favour with English-speaking writers, who prefer the more familiar word "country". England, Scotland, Northern Ireland, the Isle of Man, Jersey, Guernsey, Alderney, Sark, each British colony, each of the American and the Australian states and each of the Canadian provinces is a seperate country in the sense of the conflict of laws, though not one of them is a State known to public international law ... A State may or may not coincide with a country in the sense of the conflict of laws. Unitary States like Sweden, the Netherlands and New Zealand, where the law is the same throughout the State, are "countries" in this sense. But composite States like the United Kingdom, the United States, Australia and Canada are not.'

The judge differed from this opinion. He did not accept that for some private international purposes the United States might not be a 'country'; and he went on to develop an analysis of the position which would exist if the district court were sitting in a 'federal question' matter such as an antitrust damages suit. In the result, the judge concluded that the 'court would be a United States court applying United States law', that it would command the obedience of a resident anywhere in the United States and that the sovereign from which the district court derived its jurisdiction was the United States. The judge continued this line by stating that, if Congress had chosen to establish a federal district court at Washington DC with in personam jurisdiction in respect of antitrust cases, 'the "country" of the court would unarguably be the United States as a whole'.

Thus far, as the judge acknowledged, the discussion had been hypothetical, since the Tyler court was sitting in diversity, not in a federal question case. Nevertheless, the judge attached great weight to the rebuttal of what he saw as the main plank of the defendants' case, namely that the United States could not be a 'country' for private international law purposes. Having concluded that it could, he went on to consider and reject the argument which he attributed to the defendants, namely that the district court when sitting in diversity was part of the system for the administration of justice in the state in which it sat.

The judge then stated his own view as to the basis on which the English court recognises the judgment of a foreign court (see p 977, ante):

'... the territorial basis of jurisdiction is dependent on and cannot, in my opinion, be divorced from the sovereignty of the "country" that has established the court in question. It is, I think, recognition of the sovereignty of a foreign country that leads to the recognition of the entitlement of its courts to take jurisdiction over persons resident in its sovereign territory.'

Founding on this principle, the judge concluded (see p 977, ante):

'As a matter of principle, in my view, if a United States court exercises jurisdiction over a person resident in the United States, it is exercising powers inherent in the sovereignty which adheres to the United States. As a matter of principle, too, in my view, English law should recognise the legitimacy of that exercise of jurisdiction. It follows that I agree with Mr Morison that the answer to the question which I must answer does not lie in investigating the function discharged by the court but lies in investigating the source of the authority of the court. Whatever the function of a federal district court in a diversity case, the source of its authority is to be found in the sovereign power which established it. For those reasons I conclude that the exercise of jurisdiction by a federal district court over a person resident in the United States is, by the standards of English law, a legitimate and not an excessive exercise of jurisdiction.'

Any attempt to weigh up the soundness of this or any other account of the rules governing the recognition of foreign judgments should, as it seems to us, begin with an exploration of the reasons why such judgments are recognised at all. Unfortunately, the cases give virtually no guidance on this essential question. Underlying it all must be some notion of comity, but this cannot be comity on an individual nation-to-nation basis, for our courts have never thought it necessary to investigate what reciprocal rights of enforcement are conceded by the foreign country, or to limit their exercise of jurisdiction to that which they would recognise in others. The most one can say is that the duty of positive law first identified in Schibsby v Westenholz must stem from an acknowledgment that the society of nations will work better if some foreign judgments are taken to create rights which supersede the underlying cause of action, and which may be directly enforced in countries where the defendant or his assets are to be found. But this tells one nothing of practical value about how to identify the foreign judgments which have this effect.

One possibility is to explain the principle in terms of allegiance. This idea, of which traces are found in the earliest cases, may have provided at least a moral underpinning for the concept that a foreigner who has chosen to establish himself within the territory of a sovereign owes to him, in exchange for an obligation to ensure the stranger's personal safety and well-being, a personal duty to pay the sovereign due respect, an obligation which involves an obligation to respect the sovereign's law as enforced by his courts. This concept may have served well enough in the case of an individual established in long-term residence, but the idea that the Dunlop company, a foreign company of manufacturers, present in the United Kingdom for a few days only through having set up a stall at an exhibition, thereby incurred a duty of fealty to the King-Emperor is surely fanciful.

Nor in our judgment can this concept be made to seem more persuasive by re-writing it in modern terminology. A foreigner who is physically present in a country does thereby acquire rights and duties expressed in terms of the local law, although not necessarily the same as those which apply to the local citizens; but these are not rights and duties which in any sensible way can be described as arising reciprocally with the sovereign. The foreigner does not owe duties to the Queen, or to the United States of America. Rather, by making himself present he contracts-in to a network of obligations, created by the local law and by the local courts.

This is not to say that sovereignty is immaterial to the present problem, in the sense that an identification of the source from which the local laws and the agencies which enforce them derive their powers must be part at least of the task of delineating the obligations, stemming from the judgments of those agencies, which a foreign court ought to regard as binding. Thus, we entirely accept the conclusion, flowing from the judge's premise, that if we had here been concerned with the enforcement of a judgment given by a state court in Texas, we should have been obliged to have regard to the territory of Texas alone, so that if the judgment now in suit had been given (say) by a Texas Supreme Court sitting in Austin, it would not (on the hypothesis of Cape and Capasco's presence in Illinois) have been enforceable. For neither the states outside Texas, nor the federal organs established by or on the authority of the Constitution, played any part in giving the State of Texas the right and power to establish its own courts of local jurisdiction. But the converse need not be true. Merely to identify X as the ultimate law-giver and creator of the agencies through which those laws are enforced, and then move on to the proposition that a judgment given anywhere in the territory governed by X against someone present anywhere else in those territories should be enforced by foreign courts, seems a large step. Even today, Scotland and England are not the same jurisdictions, and if one looks to the past, it is hard indeed to acknowledge that in imperial times, all persons present in one part of the Empire could properly be regarded as present everywhere else in the Empire, notwithstanding the immense variety of laws, courts and constitutional systems which then prevailed, simply because as the ultimate source of power there was to be found a single sovereign.

Another aspect of this idea is to be found in the functional test propounded by the judge. We take this to invoke an enquiry as to the task which the Tyler court was performing, a local or a national task. We would not dissent from this approach, but we would venture to ask whether the judge was not approaching it solely in terms of constitutional theory. Because the Congress could have created a single 'Federal Court' of which every court and every judge was a manifestation, it is assumed that this is what has really happened, notwithstanding the cession of a state contribution in the sphere of substantive law and personal amenability to service. On the evidence, we cannot accept that this hypothesis is made out, any more than it is possible to say that the Queen in Parliament has chosen, whatever powers may exist in reserve, actually to give England and Scotland a unified judicial system applying a unified law.

It is convenient to mention at this stage three suggested anomalies, relied on as pointing to one answer rather than another. The first is that the need for the Tyler court in this case to have recourse to the Texan 'long arm' statute in order to entertain the suit demonstrates that the overseas defendants were not within the 'country'. We do not think that this helps. The use of the 'long arm' statute shows no more than we already know, namely that the direct personal jurisdiction of a district court is not for American purposes recognised as extending beyond the boundaries of the state within which that particular court happens to sit. The same can be said of another apparent anomaly on which stress was laid, namely that, if the plaintiffs' submissions are correct, a judgment which would be unenforceable in some other state such as Illinois might nevertheless be effective to give recourse against the defendants' assets in England. We do not regard this as a surprising result, or one which points to any particular solution of the present problem, for if (contrary to the defendants' contentions) the whole of the United States is to be regarded as the territory within which the district court had jurisdiction, the infraction of what must on this view be regarded as an internal procedural rule is not something of which the English court should take account.

The third suggested anomaly is this. On the judge's own analysis, the jurisdiction of the Texas state court, as recognised by the English court, would not extend beyond the Texan borders. Thus if the judge's view is right, the enforceability of the judgment in a case such as this would depend on whether the action was removed by the defendants into the district court: and this notwithstanding that the courts would sit in the same place and apply the same law. This is certainly a striking result, but it must we believe follow from any tenable view of the law. As we understand the arguments, Sir Godfray Le Quesne would have been disposed to accept that if there were a single federal court of unitary jurisdiction, applying a single law, a defendant could be present anywhere in the United States and still have the judgment enforceable against him: and we should ourselves be of this opinion. All this shows, however, is that a person may be present in two different 'countries' at the same time. This is a good reason for discarding the word 'country' as a useful test, and discarding with it the simple and attractive argument that the United States is a country, the Tyler court was a court of that country, the defendants were present in the United States, and hence they must necessarily have been within the jurisdiction of the country for the purpose of enforcement in England. Further than this, the argument does not run.

If these ideas are rejected as inconclusive, where should we look for the test? To our minds, the only way to find an answer is to consider why a person who goes abroad thereby incurs a duty to abide in England by a foreign judgment. The only reason that we can see is that by going to a foreign place he invests himself by tacit consent with the rights and obligations stemming from the local laws as administered by the local court: those laws including, of course, the local rules on the conflict of laws.

Thus far we have experienced no great difficulty. What has raised very real problems is to apply the principle just suggested to the facts of the present case. It may be helpful to summarise the way in which the respective arguments might run.

For the defendants, one might begin with the example of a foreigner who has set himself up in Scotland. Such a person could properly be regarded as having done so, and having been allowed to do so, on terms that his rights and duties were to be governed by the laws of Scotland. But not by English law, or by decisions of the English courts, even though the latter might without procedural impropriety purport to exercise a jurisdiction over him. Equally, an Englishman who has gone to live in France and engaged in transactions there, might find himself sued on those transactions in Texas. Any resulting judgment would be unenforceable here, not because the Texas court had broken its own rules, or indeed had broken any rules of international comity, but simply because the Englishman had done nothing to bring himself into a relationship with the court in Texas and the law which it administered.

Now if these examples are sound, they may be transformed into something nearer the present case. If the Englishman had established himself in Chicago, would he be treated as having put himself into a relationship with the state court in Austin, Texas? Surely not, the defendants could argue. The fact that Chicago is in the United States does not make Texas any the less a foreign court for a resident in Illinois than if Chicago were in France; and the fact that the long arm of the Texas court does not have to reach out to another continent should not make any difference. This would be so, the defendants could argue, even if the laws of Illinois and Texas were identical in the minutest respect; and on the evidence before us it seems that this is not so.

Let us now make the one alteration necessary to bring the example home to the present case: namely by assuming the court in Texas to be a federal district court of the Tyler division of the Eastern District of the State of Texas. This is not a state court, but (so the defendants can argue) a local court in a real sense, administering local law. The juridical identity of the Tyler court might have been different if those invested with constitutional powers had chosen to exercise them differently, but we must take the facts as they are. On these facts, the defendants can submit, there was no sufficient connection between the defendants, resident as for present purposes we assume they were in Chicago, and the federal court in Tyler, to justify the inference that by establishing their residence there they had consented to the administration of Texan laws as administered by the Tyler court. For the plaintiffs, two preliminary points may be made. In the first place, the decision to join Cape as defendant in the proceedings in the Tyler court, as contrasted with the institution of separate proceedings against Cape in a federal court in Illinois, was no doubt influenced by the wish to rely on the arguments about submission and consent, based on Cape's participation in the Tyler 1 proceedings (which arguments were rejected by Scott J and not renewed in this court). But the joining of Cape in the proceedings in the Tyler court had, as we understand it, no other element of forum shopping about it: no advantage was gained, or present to be gained, as to the substantive law which would be applicable in proceedings in the Tyler court as compared with that applicable in a federal court sitting in Illinois. The joining of Cape in the Tyler court proceedings was, in short, a normal and appropriate course of proceeding viewed solely from the point of view of United States law, whether federal or state law. If a default judgment obtained in such circumstances is not enforceable according to our law it is because the relevant rule of our law requires our courts thus to discriminate between a judgment given in default by a federal district court sitting in Illinois and a default judgment given by a federal district court sitting in Texas.

Second, it is true that the definition of facts, which justified the taking by the Tyler court of in personam jurisdiction over any person or corporation throughout the United States, which is said to constitute legitimate jurisdiction for the purposes of our private international law, would also justify the taking of jurisdiction over any person or corporation outside the territories of the United States, which, as is common ground, would not be regarded as a legitimate jurisdiction for our private international law. Nevertheless, there seems no doubt that Congress has established a system of federal courts of which each one has jurisdiction, in the terms defined by the various 'long arm' statutes of the forum states (where no specific federal statute provides otherwise), to exercise in personam jurisdiction over any person or corporation present in any state of the Union.

More detailed arguments available in support of the plaintiffs' proposition may be summarised as follows.

(i): The concept of 'contracting in' by presence means that, in the unitary state, the foreign resident is put in the same position, whether the visitor be an individual or a corporation, as any other person or corporation within that state so far as concerns obligations enforceable by in personam judgments (ie not including matters dependent on domicile as opposed to mere presence).
(ii): Our law sets no standard with which the network of local law is required to comply other than that of natural justice and public policy. Within those limits, the foreign law, substantive and procedural, may be harsh, antiquated and unskillfully operated by the foreign court but the foreign resident must put up with the consequences.
(iii): Our law, faced with a federal system of two networks of local laws as administered by two sets of local courts, should, if it is to be consistent, favour that course which will leave the resident visitor in Illinois subject to the two local networks, both state and federal, to the same extent as any other resident of Illinois so far as concerns the validity of judgments rendered in the courts of either system, unless there is some clear reason to do otherwise.
(iv): The limitations of the federal judicial system as it has in fact been established, which cause the present system to fall short of a fully realised national judicial system, arise from the history and political principles which produced them. In other words, a national judicial system has been devised and established in terms in accordance with the political and social views of the peoples of the states which form the Union. The checks and limitations are available for the protection and convenience of the foreign resident as much as for the resident citizen.
(v): In particular, the decision that federal courts shall apply the law of the forum state does not necessarily alter the fact that the federal court, in so doing, is doing what it is commanded to do by federal law. Equally, the fact that choice of law rules are not the same in all of the states, does not necessarily alter the fact that the Supreme Court or Congress, as the effective authority under the Constitution, has directed or caused federal courts to continue to apply local choice of law rules as the law to be applied to cases in the national courts.
(vi): Finally, if in personam jurisdiction is given by United States law to federal courts to be exercised, within the circumstances stated, over any person or corporation present within the territories of the United States, the effectiveness of that jurisdiction for the purposes of our private international law, is not necessarily reduced by the fact that the jurisdiction is expressed in terms of and limited to the 'long arm' jurisdiction statutes of the forum state. There is no reason to regard the in personam jurisdiction of the federal court of any federal state as necessarily impaired, or as relegated to a local status within one state of the Union, because the federal authorities have seen fit so to express and limit that jurisdiction.

We have set out the facts and arguments on the country issue at some considerable length, notwithstanding that our conclusion on the presence issue is sufficient to dispose of the appeal, because they serve to illuminate a question of general importance which may well arise for decision in the future. In the event, as we have said, it is unnecessary to express a final decision on the country issue and in all the circumstances we think it better not to do so. All we should say is that we all incline to favour, albeit with varying degrees of doubt, the view that if the plaintiffs had not failed at the first hurdle, they would on the country issue have been entitled to succeed.

IV. THE 'NATURAL JUSTICE' ISSUE

The assumptions on which we consider this defence are that our decision on the presence issue is wrong and that the assumed presence of Cape/Capasco in Illinois at the commencement of the Tyler 2 proceedings rendered them subject to the jurisdiction of the Tyler court in those proceedings for the purpose of our law of enforcement of foreign judgments.

The conclusion of Scott J on the issue of natural justice was expressed thus (see p 985, ante): 'There was, in short, in my opinion, no judicial assessment of damages. In my judgment, the procedure adopted by Judge Steger offended against English principles of substantial justice. The defendants were entitled to a judicial assessment of their liability. They did not have one. The award of damages was arbitrary in amount, not based on evidence and not related to the individual entitlements of the plaintiffs. Many of the features of the procedure to which I have drawn attention might, taken singly, have been insufficient to meet the yardstick of substantial injustice. Taken together, the criterion is, in my judgment, satisfied.'

The facts relevant to the defence of breach of natural justice were stated in detail by Scott J and no issue of primary fact has been raised by either side.

[His Lordship referred to the facts concerning the procedure which led to the default judgment of 12 September 1983, and continued:] In all the circumstances the default judgment served on Cape/Capasco did not accurately describe the nature of the court hearing that led to the judgment because: (a) there was no evidence, in the strict sense, that the court received; (b) counsel put no arguments to the court; (c) the court had not and could not have 'reviewed the medical records as to each plaintiff'; (d) the court had no material before it from which a determination of proximate cause could have been made; (e) the court had no material before it from which an assessment of the 'necessary medical treatment; pain and anguish; and physical disability' of the individual plaintiffs could have been made; and (f) the implied representation that there had been a hearing at which damages were assessed was false.

The circumstances in which the judgment was obtained justified three conclusions. (a) No judicial hearing, worthy of the name, at which quantum of damages was assessed, took place. (b) The attribution of specific damages to the individual plaintiffs was not the result of a judicial assessment of the individual entitlements of the respective plaintiffs. (c) The total sum of damages awarded was based on the judge's opinion as to what would represent an appropriate average award.

The procedure leading to the damages award of 12 September 1983 was not in accordance with the federal rules.

The law applied by Scott J

In the view of Scott J the fundamental criterion for the success of a natural justice objection to the enforcement of a foreign judgment was to be found in the judgment of Lindley MR in Pemberton v Hughes [1899] 1 Ch 781 at 790 where he said: 'If a judgment is pronounced by a foreign Court over persons within its jurisdiction and in a matter with which it is competent to deal, English Courts never investigate the propriety of the proceedings in the foreign Court, unless they offend against English views of substantial justice. Where no substantial justice, according to English notions, is offended, all that English Courts look to is the finality of the judgment and the jurisdiction of the Court, in this sense and to this extent-namely, its competence to entertain the sort of case which it did deal with, and its competence to require the defendant to appear before it. If the Court had jurisdiction in this sense and to this extent, the Courts of this country never inquire whether the jurisdiction has been properly or improperly exercised, provided always that no substantial injustice, according to English notions, has been committed.'

Thus in the opinion of Scott J if the natural justice objection were to succeed, the proceedings in the foreign court must 'offend against English views of substantial justice' (see p 982, ante). With reference to that broad criterion he considered the procedure which led to the default judgment of 12 September 1983. The route which led him to his conclusion on this issue was very briefly as follows. (i) Cape/Capasco were in default and had forfeited any entitlement to a hearing save on the issue of damages. There was no injustice in that (see p 983, ante). (ii) Cape/Capasco were given sufficient notice of the application for the default judgment but the application for relief of which notice was given was for a judicial assessment of damages at a judicial hearing (see p 984, ante). (iii) The effect of the notice given to Cape/Capasco could not be divorced from the context of the federal rules for default judgments. Having regard to that context a defendant in default in an action for unliquidated damages in the Tyler court was entitled to expect that his liability to the plaintiff would be assessed by the judge in the light of evidence which the judge had considered and which, in the judge's opinion, justified the award which was made (see p 984, ante). (iv) 'The requirements of substantial justice in a particular case cannot ... be divorced from the legitimate expectation of both the plaintiff and the defendant in the context of the procedural rules applicable to the case' (see p 984, ante). (v) Since there was no judicial assessment of the damages the proceedings offended our principles of substantial justice (see p 985, ante). (vi) The fact that the default judgment might have been set aside on application to the judge, or on appeal, because of the breaches of local rules of procedure, did not as a matter of principle make the judgment enforceable notwithstanding the breach of natural justice (see p 985, ante).

Principles not in issue on this appeal: some general observations

In the context of the natural justice issue certain principles are common ground and appear to us to be indisputable. The first is that, on proof of private international law jurisdiction in the Tyler court, Cape/Capasco would have come under an obligation to obey that judgment unless they should be able to impeach it on the ground of fraud, or breach of natural justice, or breach of the requirements of public policy. For the proof of these grounds of defence, all are to be judged in the courts of this country according to the law in force in England and Wales and to the principles of that law. Further, whether any alleged breach of natural justice based on procedural irregularity is such as to render the foreign judgment unenforceable, the courts of this country must have regard to fundamental principles of justice and not to the letter of the rules which, either in our system, or in the relevant foreign system, are designed to give effect to those principles.

The basis of the obligation, which our law would enforce against Cape/Capasco on proof of jurisdiction in the Tyler court, is that, because Cape/Capasco were present within the territorial jurisdiction of that court at the date of service of the proceedings, the command contained in the document or process served on them is regarded by our law as validly and effectively made. It would regard Cape/Capasco as obliged to make such answer as they could put forward against the claims of the plaintiffs, and to make it in the Tyler court. If they chose not to make any answer, they would not be permitted to dispute in our courts the judgment of the Tyler court on the merits. Subject to the defences of fraud, breach of natural justice, and public policy, Cape/Capasco would be liable on the judgment.

It is clear that a corporate defendant, and those called on to advise it, may thus be placed in great difficulty by the working of our rules of private international law. The directors of a defendant corporation may reasonably believe, on competent advice, that the corporation was not, at the date of service of the proceedings present within the jurisdiction of the foreign court. If they are right, they can safely ignore the proceedings so far as concerns the assets of the corporation within the jurisdiction of our courts. If they are wrong, and the judgments of Scott J and of this court show that the question may be of considerable complexity, they may be sued in this country on a judgment which cannot be questioned as to the merits and substance of the decision on which the judgment is based. In particular, with reference to the quantum of a judgment, whether for damages for tort or for breach of contract, the corporate defendant is placed in difficulty. Not infrequently plaintiffs who are claiming damages exaggerate their injuries and their losses. When the defendant does not appear, and no evidence is presented to answer the plaintiff's case, the court, which has the task of assessing damages, can normally do no more than consider the evidence put before it and base the assessment upon that evidence. In adversarial systems, the court cannot normally do more in investigation of the claims, or call for further evidence, and it is under no obligation to do so. In particular, according to our law, a defendant corporation which denies that it is subject to the jurisdiction of the foreign court, could not effectively continue to dispute that jurisdiction while taking part in the assessment of a damages claim because, if it did so take part, it would thereby normally submit to the jurisdiction of the foreign court and render itself liable to be sued in this country on that judgment. In the result, if the corporation is to be able effectively to maintain its contention that it was not subject to the jurisdiction of the foreign court, it must leave the plaintiff there to present a wholly uncontested claim (as the defendants did in the present case). It will have no defence to an action on the ensuing judgment, if it is held by the courts of this jurisdiction to have been in fact subject to the jurisdiction of the foreign court, unless it can rely on fraud, breach of natural justice or public policy.

The plaintiff, too, in such a case may face the risk of an unjust result. The defendant may have no answer on the merits to the plaintiff's claim, and the judgment as entered in default may be in amount wholly in accordance with substantial justice. Yet if, through no personal fault of the plaintiff, the defendant can point to a sufficient breach of our principles of natural justice simply in the procedure by which the judgment was obtained, the plaintiff can recover nothing on the judgment. He may, if the procedure of the foreign court permits him to do so, start again at some point in the existing proceedings and continue in a way which avoids the procedural defect. If the wrong is actionable in this country, and the claim is not statute-barred here, he could sue here. What he cannot do is to enforce the foreign judgment here to the extent that it is unobjectionable and claim the assistance of our courts as to the rest, unless, perhaps, some part of the judgment is clearly severable and unaffected by the defect in procedure. Thus, in these proceedings, on the assumption that Cape/Capasco were present within the jurisdiction of the Tyler court, it would not be open to this court to enter judgment for the plaintiffs for damages to be assessed under the procedures of our court, although such an order would, if the plaintiffs cannot effectively start again in the Tyler court, get closer to substantial justice than dismissal of their claims. Nor was it suggested that this court could direct that judgment be entered for the plaintiffs on liability, with a direction that the plaintiffs be at liberty to apply to enter judgment for such amount as may hereafter be assessed by the Tyler court. These are partial or alternative remedies which could only be provided by the terms of a statute, presumably to be based on a treaty or convention. The position therefore is that, if through the adoption of the procedure by which Judge Steger directed judgment to be entered for these 205 plaintiffs, there occurred a denial of the requirements of substantial justice, the plaintiffs would fail entirely although (as we assume for present purposes) Cape/Capasco were properly subject to the jurisdiction of the Tyler court. If, on the other hand, there was no such denial according to the established principles of our law, then Cape/Capasco (on the same assumption) would be held liable for the full amount of the judgment notwithstanding the forceful objections of Cape/Capasco to the manner in which the Tyler court left so much of the assessment of the plaintiffs' claims to counsel acting for those plaintiffs.

The plaintiffs' submissions on natural justice

The submissions of Mr Falconer for the plaintiffs may be summarised as follows.

1.: The natural justice defence has been limited by authority binding on this court to lack of notice and denial of proper opportunity to be heard: see Jacobson v Frachon (1928) 138 LT 386. The underlying basis or reason for this limitation is that our law requires only that the judgment debtor be afforded by the foreign court a fair trial or the opportunity for a fair trial if the defendant chooses to take it. If the defendant is shown to have been deprived irremediably of a fair trial then the judgment is unenforceable here.
2.: The defendant will be held to have been irremediably deprived of a fair trial by reason of defective procedure in two cases: (i) if the rules of procedure of the foreign court are themselves by our standards unfair, because, in that case, there can be no prospect of the foreign court correcting what has been done under its rules; and, (ii) if the rules of procedure of the foreign court are by our standards fair, and the defective procedure was caused by departure from those rules, but it is impossible or impracticable for the defect to have been corrected within the foreign system, eg because the defendant only learnt of the judgment too late to advance an effective appeal or procedure for setting the judgment aside.
3.: If the procedural defect was reasonably capable of remedy within the procedure of the foreign court, whether by application to set aside the judgment, or by appeal, the defendant is not released from the obligation to obey the judgment by reason of the procedural defect because, being subject to the jurisdiction of the foreign court, he may properly be required to have resort to the remedies provided by the foreign system.
4.: The basis and substance of those submissions for the plaintiffs were said to be in accordance with justice, with practicality and with the principles of our law in that: (i) our law recognises that all courts make procedural mistakes: the fact that a mistake is made, for which the foreign court's procedure provides a remedy, should not release the defendant who chose not to avail himself of the remedy; (ii) the argument is based on the connection between the foreign court and the defendant created by the voluntary act of the defendant in being present within the foreign jurisdiction, or by submission thereto etc; (iii) it is desirable that our courts should not be required to act as a court of error for the examination and assessment of procedural defects within the foreign system for which that system provides an effective remedy; (iv) the submissions provide a framework of reasonable certainty and clarity for the decision of pleas of breach of natural justice. By contrast, the 'broad criterion' applied by the judge, is too wide and too uncertain a test.
5.: The reliance placed by Scott J on 'legitimate expectation' was unjustified. There had been no actual expectation on the part of Cape/Capasco nor any reliance on any expected form of procedure. Nothing to that effect had been pleaded or proved. This concept of legitimate expectation amounted, it was said, to no more than the assertion that a defendant is entitled to expect that, in the conduct of the proceedings in the foreign court, that court will correctly apply its own procedure and that, if it does not, a sufficient breach of natural justice is demonstrated. (We will refer to the submissions summarised in this paragraph as 'the legitimate expectation point'.)
6.: On the evidence and on the findings of Scott J the procedural rules applicable in the Tyler court were fair and just. The defendants could have applied to set aside the judgment on the grounds that the procedure for the assessment of damages was irregular under the relevant rules and such application would have been allowed if made in due time. Further, an appeal to the circuit court was open to Cape/Capasco. Since they took no steps to correct the procedural defect, and the consequences of it, they cannot rely on it as a defence in these proceedings.

The defendants' submissions on natural justice

To these submissions Mr Playford QC for Cape/Capasco replied by contending that Scott J was right in his conclusion for the reasons which he gave. Further, if it should appear to this court that the defendants could not impeach the judgment on the ground of a procedural defect which was capable of remedy within the system of the federal courts, then it was said that the defendants did not know in time of the procedural defects and could not reasonably be required or expected to have sought such remedy there.

The decision in Jacobson v Frachon

A number of decisions were cited to us in the context of the natural justice issue. However, the most important of them was Jacobson v Frachon (1928) 138 LT 386 because it was said on behalf of the plaintiffs to establish legal principles which are binding on this court and render the natural justice defence unsustainable on the present facts by limiting that defence to lack of notice and denial of proper opportunity to be heard. Furthermore, it was common ground that this is the only case in which the Court of Appeal has considered points relevant to the questions raised in this case under the heading of the natural justice issue.

In Jacobson v Frachon this court applied rigorously the principle that our courts will not impeach the judgment of a foreign court having competent jurisdiction on its merits. However, the crucial passage in that case particularly relied on by Mr Falconer was a statement of Atkin LJ, who, after referring to the judgment of Lindley MR in Pemberton v Hughes [1899] 1 Ch 781, said that a judgment could be impeached 'if the proceedings, the method by which the court comes to a final decision are contrary to English views of substantial justice', (see 138 LT 386 at 392) and continued:

'The Master of the Rolls seems to prefer, and I can quite understand the use of the expression, "contrary to the principles of natural justice"; the principles it is not always easy to define or to invite everybody to agree about, whereas with our own principles of justice we are familiar. Those principles seem to me to involve this, first of all that the court being a court of competent jurisdiction, has given notice to the litigant that they are about to proceed to determine the rights between him and the other litigant; the other is that having given him that notice, it does afford him an opportunity of substantially presenting his case before the court. Both those considerations appear to be essential if they are to be in accordance with natural justice.' (Our emphasis.)

We have had the benefit of very careful and detailed analyses in argument of the judgments in Jacobson v Frachon. We intend no disrespect to such arguments if we do not prolong an already very long judgment (in which we have already decided that the defendants succeed on the presence issue) by recapitulating these analyses. We will summarise our conclusions in relation to Jacobson v Frachon as follows.

(1): Atkin LJ in his judgment was not attempting to make an exclusive or comprehensive statement of the circumstances in which our courts will treat the procedure adopted by a foreign court in reaching its decision as offending against the principles of natural justice.
(2): Lord Hanworth MR was clearly of the view (at 390), which we share, that the requirements of due notice and proper opportunity to be heard will, in the majority of cases which can be expected to arise, sufficiently comprise the concept of natural justice in a procedural context, but he prudently qualified his statement by saying that they 'almost, if not entirely' comprise it.
(3): We therefore reject the contention that the decision of this court in Jacobson v Frachon restricted the defence of breach of procedural natural justice to the requirements of due notice and opportunity to put a case. Scott J was entitled, in our view, to direct himself by reference to the test stated by Lindley MR in Pemberton v Hughes and to consider whether the procedural defect alleged by Cape was such as to constitute a breach of an English court's views of substantial justice. The point was not concluded against the defendants merely because they had been given proper notice of the application for default judgment and would, if they had attended, have been allowed full opportunity to put their case.
(4): However, this court in Jacobson v Frachon was not required to consider the relevance (if any) of any remedy which might have been available to Jacobson under the French legal system (whether by way of appeal or by application for the judgment to be set aside) if the hearing in the French court had itself constituted a breach of natural justice.

'No judicial assessment of damages'

The next question is whether, as Scott J considered, the 'method by which the Tyler court came to its final decision', to use Atkin LJ's words, was contrary to our views of substantial justice on the grounds that there had been no judicial assessment of damages.

We have found this to be a matter of difficulty. We have, although well aware of its limited nature, some general knowledge of the working of the system of civil justice in the federal courts of the United States; and we are aware that it is a system which has been developed by judges of great distinction and learning, and subjected to continuous and searching examination and comment both by the legal profession and by academic lawyers of similar distinction and learning. Scott J expressed his view that the system of civil justice evidenced by the federal rules and explained by the witnesses was an unimpeachable system of justice within one of the great common law jurisdictions of the world and was plainly in accordance with the requirements of natural justice. We make the same respectful acknowledgment. But, as Scott J pointed out, the defendants made no criticism of that system of justice. Their complaint was that, at the invitation of the plaintiffs' counsel, Judge Steger did not proceed in accordance with it.

We recognise, further, that the federal courts have been required to determine, and to develop methods for the effective control and management of, civil litigation in product liability cases in which large numbers of plaintiffs have made claims against numerous defendants arising out of similar classes of injury and having broadly similar consequences but with differing degrees of severity. We have had some experience in this country of such litigation but in smaller volume. Our own procedures have to an extent been modified to deal with the preparation and settlement of such cases but we have not, to the same extent, developed the techniques of a class action or the role of the judge in procuring settlements. We are aware that our present system has been subjected to criticism in having failed, as it has been said, to respond sufficiently to the requirements of such litigation.

The circumstances of 206 plaintiffs making claims based on a common cause of injury were, as it seems to us, directly relevant to the method of decision adopted by Judge Steger without objection by the plaintiffs' counsel. The purpose was, as we infer, to avoid the private costs and public expenditure of court time which would have been necessary if there had been either individual judicial assessments or judicial assessment by reference to groups based upon evidence directed to the individual cases. The method was adopted for proper purposes. We accept, as submitted by Mr Falconer that Judge Steger had knowledge and experience of Mr Bailey and the other counsel and that Judge Steger must have reposed trust in those counsel to act properly in the matters left by the judge to them. Mr Falconer submitted that there was nothing inherently objectionable, according to our standards of substantial justice, in a court leaving to the plaintiffs' lawyers the fixing of figures for individual plaintiffs after the court has indicated an average basis of award for all plaintiffs.

In reply to that contention Mr Playford pointed out that the indication by Judge Steger of an average basis of award for all plaintiffs was based on nothing in the way of evidence as to the fair sums due for compensation for any of them. It may be that an average figure for settlement of such claims was known by the judge to be $75,000 but that provided no basis for a holding that the condition of these 206 plaintiffs was such as to justify a total award of $15·65m or any other total award. If the judge had had before him, and had considered, evidence, perhaps from one expert, to the effect that, by reference to the listed apparent injuries suffered by the plaintiffs, they properly belonged in certain categories of gravity of injury, and if he had, by reference thereto, estimated a figure for general damages for each category, and, then, by reference to the numbers of plaintiffs in each category calculated a total award which would be fair to the defendants, we could see no valid objection, which the defendants could have put forward, if the judge had then left it to plaintiffs' counsel to allocate precise sums within the total award to individual plaintiffs. But we agree with the submission of Mr Playford that that was not what happened. The defect in the procedure adopted was, as Scott J found, that the total award was not in any real sense based on an objective assessment by the judge on evidence as to the condition of these plaintiffs.

It seems to us that, in truth, Judge Steger was applying to the process of assessment of damages in default, when only the plaintiffs were represented before him, the process and technique appropriate to a settlement negotiated between both the plaintiffs and defendants with the intervention of the judge. If we understand the position properly, the only basis on which Judge Steger, as the judge responsible for assessment of the damages, could assert, without knowledge of the evidence relating to the 206 plaintiffs, that $120,000 average, $24·72m total, was too high a figure, and that $75,000 average, $15·65m total, was a proper figure, was that, if the defendants had been present and taking part, they would in probability have refused to settle for $24·72m, so as to avoid the risk of having to pay more after individual assessment, but would, in probability, have agreed to pay $15·65m so as to avoid that risk. If that was the basis of his decision, there is nothing to show that he was in fact wrong on the hypothesis on which he acted and nothing to show that he was right; but, as Scott J observed, while damages calculated on an average-per-plaintiff basis may make very good sense for the purposes of a settlement, because defendants are not concerned with how the total will be divided up, a judicial award so calculated is the antithesis of an award based on the individual entitlement of the respective plaintiffs (see p 985, ante).

Mr Playford referred us to authority in order to demonstrate what he said should be regarded as the essential requirements of a court 'acting judicially', and, in support of the proposition that it is part of the requirements of natural justice that the judgment of a foreign court, which is rendered for enforcement, be reached by that court 'acting judicially'. He referred in particular to Local Government Board v Arlidge [1915] AC 120 esp at 132, 138, 142, 148, [1914-15] All ER Rep 1 ex p at 6, 9-10, 14-15, 12 per Viscount Haldane LC, Lord Shaw, Lord Parmoor and Lord Moulton. That case was concerned with the validity of a closing order under s 17 of the Housing, Town Planning, etc Act 1909 and with the procedure on appeal to the Local Government Board. An example of the statements relied on is that of Lord Parmoor ([1915] AC 120 at 142, [1914-15] All ER Rep 1 at 14-15):

'Whether the order of the Local Government Board is to be regarded as of an administrative or of a quasi-judicial character appears to me not to be of much importance, since, if the order is one which affects the rights and property of the respondent, the respondent is entitled to have the matter determined in a judicial spirit, in accordance with the principles of substantial justice.'

In our view, no significant assistance is to be derived from this case, or other decisions on the requirements of natural justice in administrative law cases, where the requirements of substantial fairness depend on the subject matter and the context. It is sufficient, in our view, to derive the requirements of natural justice for the purposes of enforcement of a foreign judgment and the special defence thereto of breach of natural justice from the principles stated in Pemberton v Hughes and relied on by Scott J, namely: did the proceedings in this foreign court offend against our views of substantial justice?

The notion of substantial justice must be governed in a particular case by the nature of the proceedings under consideration. The purpose of an in personam monetary judgment is that the power of the state through the process of execution will take the defendant's assets in payment of the judgment. In cases of debt and in many cases of contract the amount due will have been fixed by the acts of the parties and in such cases a default judgment will not be defective for want of judicial assessment. When the claim is for unliquidated damages for a tortious wrong, such as personal injury, both our system and the federal system of the United States require, if there is no agreement between the parties, judicial assessment. That means that the extent of the defendant's obligation is to be assessed objectively by the independent judge on proof by the plaintiff of the relevant facts. Our notions of substantial justice include, in our judgment, the requirement that in such a case the amount of compensation should not be fixed subjectively by or on behalf of the plaintiff.

We do not find it necessary to decide whether, if the local rules provide for service by the plaintiff of notice of a specific sum claimed for damages, a default judgment may be entered for such a sum without proof of judicial assessment and without there being breach of any requirement of natural justice. Scott J thought that there could be no objection to such procedure and we think that in most cases that would be right. The matter does not arise for decision in this case and we express no concluded view. We would, however, not exclude the possibility of a defence being upheld if the facts justified the conclusion that, making due allowance for different levels of awards and of substantive law, the amount of the actual award was irrational.

Mr Falconer relied on Scott J's finding that there would be no breach of natural justice in proceedings for a default judgment for unliquidated damages if judgment were entered for the specific sum claimed by the plaintiff. It was submitted that such a claim had in effect been made by the 205 plaintiffs in these proceedings because their pleading placed a limit on the damages claimed in the sum of $100m. We see no force in that point. The maximum of $100m would, as we understand it, prevent the court from entering judgment for any larger sum but there is nothing to show that the limit was intended to mean, or would be understood by any person familiar with procedure in the federal courts as meaning, that the $100m represented a sum which the plaintiffs asserted to be the total of their estimated claims and for which the court would be empowered to give judgment without proof of the amount of injury and loss suffered.

The 'legitimate expectation' point

At first sight there appeared to us to be some force in Mr Falconer's criticism of counsel of the relevance of this concept in this case. It was accepted by Mr Playford that reliance by the defendants had not been pleaded or proved with reference to any subjective expectation on their part that the assessment of damages on the application for the default judgment would proceed according to any particular method. We would also accept that the adoption of a particular method of assessment of damages by the foreign court, would not per se amount to an effective defence to a breach of natural justice under our law, merely because it was shown that, by reference to the procedural rules of the foreign court, the defendant might (on an objective basis) reasonably have expected that a different method would be used. So to hold would be to introduce, under the concept of reasonable expectation, a rule that breach by the foreign court of its own rules of procedure renders the foreign judgment unenforceable as offending our concepts of substantial justice. It is clear law that mere procedural irregularity, on the part of the foreign court and according to its own rules, is not such a ground of defence. Pemberton v Hughes [1899] 1 Ch 781 itself was an example of mere procedural irregularity.

In our view, however, Scott J did not so regard or use the point of reasonable expectation. He made reference to it in dealing with the question whether what had happened amounted to a breach of the requirements of substantial justice, and after reference to the fact that the rules of a court might, in his view, without offending those requirements, provide for the giving of notice of the plaintiffs' estimate of the recoverable damages and the entry of a default judgment for that amount in the absence of opposition on the part of the defendant. The question was to be decided, in the view of Scott J, by reference to the context in which the alleged procedural defect had occurred. He was, in our view, not in error in this regard. The fact was that the system of legal procedure in which Judge Steger had signed the default judgment had not contained any provision for converting an unliquidated damages claim to a potentially fixed sum for the entry of a default judgment. His reference to the fact that the defendant in a default action was entitled to expect that his liability to the plaintiff would be assessed by the judge on the evidence was not a reference to actual expectation on the part of these defendants but to the requirements of natural justice against the background of a system which contains no such provision.

We therefore conclude that the defendants have demonstrated, as Scott J held, that the method by which Judge Steger came to a decision as to the amount of the default judgment was by itself contrary to the requirements of substantial justice contained in our law. If that fact is regarded as a sufficient and conclusive description of the proceedings of the Tyler court then, according to the judgment of Atkin LJ in Jacobson v Frachon, that finding would serve to invalidate the judgment. But, as noted above, the Court of Appeal in Jacobson v Frachon was not required to consider whether, as Mr Falconer submits, an opportunity to correct such a defect, provided by the foreign system of procedure, may either cause such a defect to cease to be in our law an effective breach of natural justice or, if there is any difference, cause the defendant to be unable to rely on it for purposes of impeaching the judgment.

Requirement of use of remedy in foreign court

Mr Playford submitted that proof of this defect in the proceedings of the Tyler court is a conclusive defence for the defendants, and he submitted that it is just that it should be so. It is not exorbitant, he said, to require that a default judgment, designed and intended for enforcement in this country, should comply with so basic a principle as that the amount of a judgment for personal injuries be fixed in substance by the court on the evidence and not in substance by the plaintiff. No authority establishes, he said, the requirement of use by a defendant of any local remedy.

We accept that no authority binding this court has been cited to us establishing the proposition for which Mr Falconer has contended. It is at least clear that our law does not oblige a defendant who can show that a foreign judgment has been obtained by fraud to have used any available remedy in the foreign court with reference to that fraud if he is successfully to impeach that judgment in our courts: see Abouloff v Oppenheimer & Co (1882) 10 QBD 295, [1881-5] All ER Rep 307 and Jet Holdings Inc v Patel [1989] 2 All ER 648, [1990] 1 QB 335. The position may well be the same in cases where there has been a breach of natural justice of the two primary kinds considered by Atkin LJ in Jacobson v Frachon, namely absence of notice of the proceedings or failure to afford the defendant an opportunity of substantially presenting his case.

In this judgment, however, we are dealing with a case where, although there was in our view a departure from the basic principles of natural justice in the assessment of the amount of a default judgment, nevertheless (a) the error which led to this departure was an honest error on the part of all concerned; (b) the defendants had proper notice of the proceedings and could have presented their case on its merits if they had chosen to do so, but chose not to do so; (c) the procedural rules applicable in the Tyler court were themselves fair and just; (d) the defendants had the right to apply to set aside the judgment on the grounds that the procedure for the assessment of damages was irregular under the relevant rules and such application would presumably have been allowed if made in due time.

Against this background, we are not persuaded that possession of and failure to exercise this right by the defendants can be disregarded as being wholly irrelevant in determining whether the proceedings in the Tyler court, which we think must be viewed as a whole, offend against English views of substantial justice, within the principles stated by Lindley MR in Pemberton v Hughes [1899] 1 Ch 781, as the plaintiffs would submit.

It is well established that a defendant, shown to have been subject to the jurisdiction of a foreign court, cannot seek to persuade our court to examine the correctness of the judgment whether on the facts, or as to the application by the foreign court of its own law or, when relevant, of the law of this country. A foreign judgment is not impeachable merely because it is 'manifestly wrong: see Godard v Gray (1870) LR 6 QB 139, Castrique v Imrie (1870) LR 4 HL 414, [1861-73] All ER Rep 508 and Robinson v Fenner [1913] 3 KB 835 at 842. In any such case it could be said that there has been a breach of natural justice, but it is not a type of breach which our courts will consider relevant. In effect, their attitude is that the only way in which the defendant can seek to correct an error of substance made by the foreign court is by using such means for correction of error as may be provided under the foreign system.

This being the position where there has been an error of substance, it would, in our judgment, be anomalous if our courts were obliged wholly to disregard the existence of a perfectly good remedy under a foreign system of procedure in considering whether the defective operation of that procedure has led to a breach of natural justice. And, indeed, from some of the cases on procedural defects, support can be derived from the proposition that, at least with reference to defects known to the defendant before judgment, the defendant can be required to have made use of any remedy available in the foreign court: see, for example, Reynolds v Fenton (1846) 16 LJCP 15 and Crawley v Isaacs (1867) 16 LT 529 esp at 531 where Bramwell B said (obiter):

'If the proceedings be in accordance with the practice of the foreign court, but that practice is not in accordance with natural justice, this court will not allow itself to be concluded by them, but on the other hand, if the procedure be in accordance with natural justice, the foreign court itself will interfere to prevent the plaintiff taking advantage of the judgment irregularly and improperly obtained.'

Mr Falconer relied strongly not only on that passage but on dicta of Fry J in Rousillon v Rousillon (1880) 14 Ch D 351 at 370 and of Bray J in Jeannot v Fuerst (1990) 100 LT 816 at 818.

Since the ultimate question is whether there has been proof of substantial injustice caused by the proceedings, it would, in our opinion, be unrealistic in fact and incorrect in principle to ignore entirely the possibility of the correction of error within the procedure of a foreign court which itself provides fair procedural rules and a fair opportunity for remedy. The court must, in our judgment, have regard to the availability of a remedy in deciding whether in the circumstances of any particular case substantial injustice has been proved. However, the relevance of the existence of the remedy and the weight to be attached to it must depend on factors which include the nature of the procedural defect itself, the point in the proceedings at which it occurred and the knowledge and means of knowledge of the defendants of the defect and the reasonableness in the circumstances of requiring or expecting that they made use of the remedy in all the particular circumstances.

We return then to the circumstances of this case, of which the most relevant seem to us to be the following. First, the defendants who, for present purposes, we assume were subject to the jurisdiction of the Tyler court, were duly served with the proceedings; they chose to take no part in them; they were given notice of the application for the default judgment; they chose not to attend the hearing of that application; and they were thereafter served with the default judgment.

Second, on service of the judgment, the defendants knew the amount of the award to each plaintiff. It seems that they could have obtained access to the medical records as to each plaintiff referred to in the judgment, and advice as to the question whether, on such material, the awards appeared excessive according to the law in force in the Tyler court.

Third, by not attending the application for the default judgment, the defendants deprived themselves of information as to what occurred before the court. If they had attended before Judge Steger, the nature of the proceedings would have been largely apparent. The proceedings took place in public before the judge, and, at least so far as concerned the facts that there was no evidence received by the judge in court on the hearing and no arguments presented to the court, the defendants would have discovered those facts.

Fourth, it would have been open to them to apply for the judgment to be set aside if they had formed an intention to contest the amount of the awards. It seems to us to be probable at least that, since the method of assessment adopted by Judge Steger was contrary to the federal rules, an application of this nature made promptly to the Tyler court would have succeeded.

Fifth, however, the defendants, when the judgment was served on them, could not and did not know the method by which damages had been assessed from anything stated in the judgment. The recitals in the judgment were, as Scott J held, false and misleading: there had been no hearing at which damages had been assessed. The facts as to what happened in the Tyler court became known to the defendants at the latest when evidence was given in the proceedings before Scott J. There was, as we understand it, no evidence from the defendants directed to the question when they first had knowledge of the method adopted by Judge Steger for assessing damages. There is, however, nothing to indicate that they were aware of the method adopted at any time before the date when, after claims were made on them in this country on the basis of the default judgment, the circumstances in which the judgment was made were investigated for the purposes of these proceedings.

Conclusion on the natural justice issue

Giving full force to all these facts, we find it impossible to say that, because the defendants did not apply to set the default judgment aside, they could not rely on the substantial injustice in the proceedings constituted by the failure of the court to assess the damages judicially on the evidence. They did not wish to dispute the amount of the damages award by presenting a case to the Tyler court. We cannot have regard, as an excuse available to them, to the reason why they chose not to appear, namely their unwillingness to submit to the jurisdiction of the Tyler court. However, it cannot, in our view, be required of them that they should have applied to the Tyler court to contest the amount of damages awarded when they were necessarily content to leave the amount of the damages to be assessed by the court. The only complaint which the defendants could thereafter make would be as to procedural irregularity. As to that, as we have stated, they had at the time of service of the judgment no knowledge. The defendants were not told before the application for the default judgment that plaintiffs' counsel intended to invite Judge Steger to accept the view of plaintiffs' counsel as to the total value of the claim, based on an average of $120,000 per plaintiff, and that the plaintiffs would accept in substitution for the assessment of the damages by the judge, such counter-proposal based upon an average sum per plaintiff as the judge might be minded to make, from his general knowledge of the proceedings and of the settlement in the Tyler 2 proceedings to that date and from his knowledge of national average settlement figures in asbestosis cases.

The fact that information as to the procedural defect would probably have emerged if Cape had made an application to set the default judgment aside on other grounds seems to us to be of no relevance. Cape are not to be treated as having information which they did not have because, if they had made an application which they had no reason to make, they could have obtained that information.

A harsh but accurate summary of what happened is, in our judgment, that those acting for the plaintiffs failed to give prior notice to the defendants of the unusual course which they intended to pursue; they chose not to try to prevent Judge Steger from adopting that method of assessment; and they drew up and served a form of judgment which did not reveal what had taken place. That was all done in good faith. There was no dishonest purpose. But the effect on the defendants was, in our view, that they had at no material time knowledge of any basis for seeking relief from the Tyler court in respect of the defect which Scott J rightly held to have been demonstrated by them to have occurred in the proceedings in the Tyler court.

The only basis for attributing to the defendants constructive knowledge of the defect, on which they could reasonably be required to have used any available remedy in the Tyler court, would be that a defendant who has been given notice of the proceedings will be fixed with knowledge of everything which he would have learnt if he had attended those proceedings. That, in our judgment, is not an acceptable basis for considering proof of procedural injustice. Plaintiffs can, we think, fairly be left to avoid such procedural errors as will prevent enforcement of a judgment in this country.

Accordingly, on the natural justice issue, although for somewhat different reasons, we would uphold the decision of Scott J.

V. CONCLUSION

In the result, while we have some doubts as to whether the judge reached the right conclusion on the country issue, we are satisfied that he reached the right conclusions on the presence issue and the natural justice issue. He was accordingly right, in our judgment, to dismiss the plaintiffs' claims and this appeal likewise must be dismissed.

Finally, we acknowledge our debt to all counsel on both sides for the great assistance which they have given us in this interesting but exceptionally difficult case.

Appeal dismissed. Leave to appeal to the House of Lords refused.

24 October. The Appeal Committee of the House of Lords (Lord Keith of Kinkel, Lord Griffiths and Lord Ackner) refused leave to appeal.

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