Proceedings Did Not Lapse Due to Merger and Dissolution of Original Party - International Law Office

International Law Office

Arbitration - United Kingdom

Proceedings Did Not Lapse Due to Merger and Dissolution of Original Party

September 28 2000

Background
Decision
Comment


Background

In Eurosteel Ltd v Stinnes AG (Com Ct, [1999] All ER (D) 1394), a German company, Bayerischer Lloyd AG (BL), entered into a contract of affreightment as owner with Eurosteel Ltd as charterers in 1992. BL instituted arbitration proceedings in relation to a claim for dead freight. In 1994 both parties appointed their arbitrators. In 1996 BL merged with another German company, Stinnes AG, and was subsequently dissolved when the merger took effect. The merger was duly registered under German law, but no notice of the merger was given to Eurosteel or to the arbitral tribunal. When Stinnes requested a hearing date from the arbitrators in 1999, Eurosteel responded that the claim should be dismissed for want of prosecution as the original claimant BL no longer existed and the proceedings had lapsed as a result. Further submissions by the parties followed, in which the claimant's solicitors indicated that Stinnes had succeeded to BL's rights and obligations, and named the claimant as Stinnes/BL. Eurosteel applied to the court for a decision as to whether the arbitration had come to an end or lapsed in 1996 upon the merger and dissolution of BL, and whether the tribunal had jurisdiction to determine the claim.

Decision

The court dismissed the claim and decided that the arbitration proceedings commenced by BL did not lapse upon the merger and the dissolution of BL. The tribunal was entitled to continue with the reference. Any question of the status of the two merged German corporate entities had to be determined by reference to German law. Expert evidence on German law showed that Stinnes was the 'universal successor' of BL. Thus, once the merger was entered in the trade register, the rights, assets and liabilities of BL, including the contract to arbitrate, were automatically transferred to Stinnes without the requirement of notice to third parties. English law would recognize that BL's rights and obligations now vested in Stinnes.

However, English procedural law required notice of the transfer to be given to the arbitrators and the other party for Stinnes to be able to continue the existing arbitration proceedings. In this case, notice had been given after the merger. The court referred the issue of whether the notice was given in reasonable time or if the claim should be dismissed for want of prosecution to the arbitral tribunal.

Comment

The issue in this case arose because pursuant to the German law concept of universal succession, BL's rights were transferred automatically upon registration of the merger, whereas English law would have required notice of assignment to be given to Eurosteel and the arbitrators. The court rightly separated the question of the status of the merged German company and its rights and obligations, which were governed by substantive German law as the law of the place of incorporation, and the question of what requirements had to be fulfilled under English law as the procedural law of the arbitration for the existing arbitration proceedings to be continued by BL's successor in interest.


For further information on this topic please contact Neil Aitken, Charles Spragge or Gregor Kleinknecht at CMS Cameron McKenna by telephone (+44 20 7367 3000) or by fax (+44 20 7367 2000) or by e-mail (nca@cmck.com, chs@cmck.com or gk@cmck.com).
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