Secret Hotels 2 Ltd v EA Traveller Ltd

Where proceedings in different Member States arise from the same contractual relationship, claims may involve the same cause of action if each claim necessarily requires the court to determine the net balance due between the parties. An equitable set-off forming an integral part of the claimant’s account or damages claim is not merely a defence for the purposes of Article 27. The court first seised must stay later proceedings where Article 27 applies. Alternatively, Article 28 permits a stay where related actions are so closely connected that hearing them separately risks irreconcilable judgments. The court should give effect to the Regulations’ purpose of avoiding parallel proceedings and duplicated adjudication.

Med, an English company, appealed against Master Moncaster’s order staying its English proceedings under Article 27 of the Council Regulation (EC) no 44/2001. Med sought an account from EA Traveller Ltd, its Cypriot agent, under an agreement governed by English law. Traveller had begun earlier proceedings in Cyprus claiming damages for alleged breaches of the same agreement.

The Master held that the claims involved the same cause of action because each party’s claim could be set off against the other, and ordered a stay. The central issues on appeal were whether an equitable set-off should be considered under Article 27 and, alternatively, whether the proceedings were related and sufficiently connected for a discretionary stay under Article 28.

1. Appeal dismissed. The English proceedings remained stayed.
2. Both parties’ claims required determination of the net amount due under the same contractual relationship. Med’s claim for an account necessarily required consideration of liabilities owed to Traveller. Traveller’s damages claim necessarily required credit for monies held on Med’s behalf. The claims were therefore sufficiently connected and formed the same cause of action for Article 27 purposes.
3. The court distinguished the unilateral statutory set-off considered in Gantner Electronic v Basch (Case C-111/01). That decision was confined to the form of set-off arising under Netherlands and Austrian law and did not apply to the equitable set-off arising here. If it were interpreted more broadly, the judge would decline to follow it.
4. Article 27 required the English court, as the court second seised, to stay its proceedings once the Cypriot court’s jurisdiction was established.
5. Alternatively, the proceedings were related under Article 28. They arose from the same agreement, involved substantial duplication of evidence and legal issues, and were so closely connected that hearing them separately created a risk of irreconcilable judgments. The discretion under Article 28 would therefore unhesitatingly have been exercised to stay the English proceedings.

1. High Court (Chancery Division): appeal from the decision of Master Moncaster dated 9 February 2010 dismissed; stay maintained under Article 27, alternatively granted under Article 28 of the Council Regulation (EC) no 44/2001.