Crucial Music Corporation & Anor v Klondyke Management AG & Ors

For jurisdiction under Article 5(1), a contractual warranty concerning an existing state of affairs can have a place of performance even though it requires no further positive act. The court must identify that place from the contract, read as a whole, and from the place where compliance with the warranty is required. For a warranty concerning intellectual property transferred by assignment on completion, there was a good arguable case that compliance was required at the place of completion. Under Article 5(3), misrepresentation damage occurs when the claimant is induced to enter the transaction and assume the relevant financial obligation, rather than wherever intangible rights happen to subsist. The appeal was dismissed.

The claimants sued for damages for breach of contractual warranties and misrepresentation concerning a catalogue of musical sound recordings and associated intellectual property. Several defendants domiciled in Switzerland and Germany challenged service out of the jurisdiction under the Lugano Convention and the Judgments Regulation.

The Master held that the warranties had a place of performance in London and that loss from the alleged misrepresentation occurred when the claimants entered the agreement and paid money in London. The defendants appealed, arguing that warranties about an existing state of affairs had no place of performance and that damage to worldwide intellectual property rights occurred wherever those rights subsisted.

1. Appeal dismissed. The Master had correctly refused to set aside service. The appeal proceeded by way of review under Part 52.11, although the issues were pure questions of law.

2. For Article 5(1), the relevant obligation is the contractual obligation forming the basis of the proceedings, not the later obligation to pay damages. Once a contractual obligation is established, its place of performance depends on its character: an executory obligation is performed where it is to be performed; a negative obligation where it is to be honoured; and a warranty of an existing condition or state of affairs where that condition or state of affairs is required by the contract to exist.

3. The place must first be identified from the express terms of the contract. If they do not specify it, the contract as a whole must be examined for indications of where compliance with the warranty is required. A pure warranty is not incapable of having a place of performance merely because it requires no positive act. In the present case, the transfer of the intellectual property by assignment occurred on completion in London. There was therefore at least a good arguable case that compliance with the warranties was required in London.

4. For Article 5(3), the claim for damages for misrepresentation was a tort claim for jurisdictional purposes. The alleged misrepresentations induced the claimants to enter the agreement and assume the obligation to pay the agreed price. They did not themselves impair or devalue the intellectual property rights. The relevant loss therefore occurred when the transaction was entered into and the assets were taken, in London, rather than in every country where the rights subsisted.

5. The Master’s conclusions on both jurisdictional bases were correct, and the defendants failed on both limbs of the appeal. The appeal was dismissed with costs.

• High Court (Chancery Division): appeal from Master Moncaster’s decision of 14 March 2007 dismissing the defendants’ applications to set aside service. Appeal dismissed with costs.