Evans L.J.
Three issues arise on this appeal from the judgment of Mance J. in
the Commercial Court on 30 July 1996. He dismissed the defendants'
application to set aside the proceedings, made under Order 12 Rule 8,
on the ground of want of jurisdiction in the Court. The defendants appeal
against that ruling on two grounds, one of which was not raised before
the judge. They also apply to have the issue of jurisdiction referred for a
preliminary ruling by the European Court.
The issue decided by the judge arises under Article 5(1) of the Lugano
Convention (Schedule 3C to the Civil Jurisdiction and Judgments Act
1982). This provides an exception to the general rule that parties who
are domiciled in a Contracting State shall be sued in the court of that
State (Article 2(1)). Article 5(1) reads in part as follows, and 5(3) can
conveniently be quoted also:-
„„5. A person domiciled in a Contracting State may, in another Contracting
State, be sued:
(1) in matters relating to a contract in the courts for the place of
performance of the obligation in question …
(3) in matters relating to tort, delict or quasi-delict, in the courts for the
place where the harmful event occurred.“
The defendants are an insurance company domiciled in Sweden. They
say that pursuant to Article 2 they should be sued in Sweden. The
plaintiffs, who are Lloyd's underwriters and other re-insurers of the
defendants, say that Article 5(1) applies. They bring proceedings here,
they submit, in „a matter relating to a contract“ and that London was
„the place of performance of the obligation in question“. Mance J. upheld
the plaintiffs' contention. The defendants conceded before him that the
first requirement of Art.5(1) was satisfied: that the plaintiffs do sue „in a
matter relating to contract“. He was called on to decide only whether „the
obligation in question“ brought the proceedings within Article 5(1). If it
did, then it is also conceded that the place of performance was in London.
The defendants reserved the right to withdraw the first concession on
appeal, and they have done so. They submit, therefore, that the plaintiffs
must bring their claim within both of the Article 5(1) requirements.
The contracts in question are contracts of reinsurance which were made
on different dates during the period from November 1993 until February
1994 covering risks attaching on or after 1st January 1994 (in one case
1st January 1995). The plaintiffs claim declarations that they are entitled
to cancel and avoid the Contracts on grounds of „misrepresentation of
and/or failure to disclose and/or non-disclosure of” material facts. There is
also a claim for breach of warranty, but this is not relied upon nor relevant
for the purposes of the appeal.
The alleged misrepresentations and non-disclosures of material facts
are categorised in English law as breaches of the duty of good faith
which insureds and re-insureds owe to insurers and reinsurers during the
negotiation of contracts and in certain respects after the contracts are
concluded. One question which arises is whether this duty of good faith
should properly be regarded as a contractual obligation, or whether it
arises on other, more general and non-contractual grounds. The leading
authorities include Merchant and Manufacturers Ins. C. v. Hunt [1941]
1 K.B. 295; Banque Keyser Ullmann S.A. v. Skandia (U.K.) Ins. Co. Ltd.
[1990] 1 Q.B. 665 (C.A.) and [1991] 2 A.C. 249; The Good Luck [1989]
2 Ll.R 238. The issue is discussed in Lord Mustill's speech in Pan Atlantic
Ins. Co. Ltd. v. Pine Top Ins. Co. Ltd [1995] 1 A.C. 501 and 543-4. If not
contractual, the obligation arises from „the jurisdiction originally exercised
by the Courts of Equity to prevent imposition“ (per Luxmoore L.J. [1941]
1 K.B. at 318).
Mance J. said this:-
„In considering whether the matter is one ‘relating to a contract’ within
Article 5(1), it seems to me that such questions can largely be ignored,
as being of no more than historical and domestic interest. I will however
proceed on the basis that the duty of good faith exist, as Mr Ashe
submitted, as a matter of general law outside the contract” (p 8).
I agree with the judge's view, but like him I will assume that the duty
of good faith, which is broken by a misrepresentation or non-disclosure
of material fact in the course of making a contract of insurance or re-
insurance, should not be categorised as an obligation which is created by
or arises under a contract. The question remains, however, whether an
action in which a breach of the duty during pre-contract negotiations is
alleged is nevertheless „a matter relating to contract“ for the purposes of
Art. 5(1).
Although the defendants conceded before him that this requirement was
satisfied, the judge gave reasons of his own why he considered that the
concession was rightly made. He held -
„The matter is on any objective appreciation intimately concerned with
and closely related to the contracts which (it is not in dispute) were here
actually made between the defendants as insurers and the plaintiffs as
reinsurers“.
He emphasised the fact that the relief claimed by the plaintiffs in the
action is a declaration of their right to avoid the contracts. The reality is
that “without the making of the contract, the matter would never come
before a court at all”. Whilst the duty can be described on a “pre-contract”
obligation, nevertheless the duty has to be performed “when entering into
an insurance contract”. The action is based on the premise that contracts
were made (p 9).
I would endorse the judge's reasoning, although as will appear below
I prefer not to divide the question whether Article 5(1) applies into
two separate sub-issues. Considering the phrase “matter relating to a
contract” alone, it seems to me that an action claiming to avoid insurance
or re-insurance contracts on grounds of misrepresentation or non-
disclosure cannot sensibly be regarded as being outside its scope. The
duty of good faith may have equitable origins, and it certainly does
not arise under the terms of the contract, if one is concluded (cf. ss.
18 and 19 of the MARINE INSURANCE ACT 1906), but nevertheless it
is meaningless to talk of the duty except by reference to a particular
contract. There is no duty of disclosure to insurers generally but only a
particular insurer with whom a contract is negotiated. What is „material“
cannot be determined except by reference to the contract which is
negotiated and in due course concluded. The inescapable conclusion,
in my judgment, is that an action claiming avoidance on these grounds
is a “matter relating to a contract” for the purposes of Article 5(1). The
judgement of Rix J. in Trade Indemnity p.l.c. v. Fors. Njord [1995] 1 All
E.R. 796 is to the like effect.
“Obligation in question”
In the Trade Indemnity case, Rix J. held that this requirement of Article
5(1) was not satisfied in circumstances identical with the present case.
Mance J. reached the contrary conclusion. His scholarly judgment takes
full account of Rix J.'s reasoning and of a number of authorities, both of
this court and of the European Court. I would hold that he was correct in
this respect also.
Mr Ashe Q.C. for the appellants (defendants) submits that the “obligation
in question” for the purposes of article 5(1) must be a contractual
obligation, although this includes not only obligations created by the
terms of the contract, which on any view are “contractual obligations”,
but also claims which arise as the result of a contract being declared void
(Kleinwort Benson v. Glasgow C.C. [1996] Q.B. 678, which concerned
restitutionary claims and not pre-contractual obligations) and claims
concerned with the existence of a contract (Boss Group Ltd. v. Boss
France S.A. [1995] 1 W.L.R. 351). Neither of those causes is comparable,
he submits, with the present, where it is assumed that the “obligation in
question” arose separately and distinctly from the contract, as a matter of
equity.
In my judgment, the reference in Article 5(1) to “the obligation in
question” ought not to be considered in isolation from the remaining
words in the sub-Article, any more than that article 5 should be
interpreted without regard to the fact that it creates a special exception
to the general rule of domiciliary jurisdiction in Article 2 (Kalfelis v.
Bankhouse Schroder, Munchmeyer & Co. [1988] ECR 5565 at 5585,
para. 19). In particular, “the obligation in question” refers back to the
requirement that the proceedings shall be “in matters relating to a
contract”. Since any proceedings of this sort will be to enforce or claim
relief in respect of an obligation owed by the defendants to the claimant
(or possibly vice versa if the claim, is for a declaration of non-liability),
it follows that the proceedings themselves will identify “the obligation
in question”. If the proceedings are not brought to enforce a contract
or to obtain recompense for its breach (cf. Boss Group v. Boss Group
S.A. per Saville L.J. (at 356), but nevertheless they are in a “matter
related to contract”, then in my view the obligation in respect of which
relief is claimed is the obligation whose place of performance has to be
determined for the purposes of applying Article 5(1). Authority for this
view is found in Ets. de Bloos s.p.r. v. Sol. en Commandité par actions
Bouyer [1976] ECR 1497 at 1508-9 and Shenavai v. Kreischer [1987] ECR
239 at 255-6.
The contrary view, which was adopted in Trade Indemnity by Rix J.,
is that the obligation in question must be a contractual obligation (in
the wider sense referred to above) for Article 5(1) to apply. The Jenard
Report on the Brussels Convention states that the wording of Article 5(1)
represented a compromise between those States whose national law
applied the law of the place of performance to contractual disputes and
others who favour the law of the place where the contract was made. To
bring within its scope claims for breach of duty during the pre-contract
negotiations would be to admit the lex loci contractus where it was meant
to be excluded, by the back door.
In my judgment, this consideration is outweighed by (1) the drafting
factor: if it was intended that “obligation” should be limited to “contractual
obligation”, then the draftsman could have said so (Cf. Roch L.J. in
Kleinwort Benson v. Glasgow C.C. at 694); and (2) the underlying
object of Article 5, not limited to Article 5(1), which is to recognise that
in certain limited categories of case it is likely to be more convenient
and effective if proceedings are brought, not where the defendant is
domiciled, but in another state where performance was called for (Article
5(1)) or where “the harmful event” occurred (Article 5(3)). The same
practical considerations suggest that the courts best placed to hear
a “matter related to contract” but which involves either the question
whether a contract was concluded (Boss Group) or alleged breaches of
duty during pre-contract negotiations (this case) is the court of the place
where the negotiations were conducted. This does not conflict, in my
judgment, with the choice of the courts of the place of performance in
those cases where a failure of performance is alleged. This is borne out by
the decision of the European Court in Custom Made Commercial v. Stawa
Metallbau [1994] ECR 1-2913 to which Mance J. referred.
It is well established that article 5 should be interpreted by reference to
the objects of the Convention rather than to concepts of national law,
which may vary from one member state to another. For example, the
right to avoid a contract of insurance or re-insurance, which is assumed
for present purposes to arise under rules of equity distinct from the
contractual obligations themselves, could equally well be formulated (and
perhaps they should be) in terms of „contractual obligations“ in the strict
sense. SECTIONS 18 and 19 of the MARINE INSURANCE ACT 1906 come
close to doing so.
The Court of Appeal's recent judgment in Source Ltd. v. TUV Rheinhold
Holdings (18 March 1997) suggests that Article 5(1) rather than Article
5(3) applies when there is a contract-related claim in tort.
In the present case, it is unnecessary to consider whether the plaintiffs
(respondents) would be entitled to rely on article 5(3), if the proceedings
were outside the scope of article 5(1). In my judgment, the judge was
correct: they are within its scope.
Article 11
The appellants raised before us a new contention regarding the scope of
Article 5. They refer to Article 11 -
“... an insurer may bring proceedings only in the courts of the Contracting
State in which the defendant is domiciled, irrespective of whether he is
the policy-holder, the insured or a beneficiary”.
Article 11 appear in SECTION 3 of the Convention, headed “Jurisdiction in
matters relating to insurance”.
The point is a short one. Do “insurer” and “insured” in Article 11 include
re-insurers and re-insured, or is the Article limited to direct insurance?
The appellants seek leave to amend their Notice of Appeal in order to
raise this further point. The respondents submit that leave should be
refused. In Trade Indemnity the point was raised but then abandoned
by the defendant (see 804b). Rix J. nevertheless held that it was
unmeritorious and that the concession was rightly made (see 805a). It
seems, therefore, that the appellants' failure to raise it before Mance J.
was the result of a considered decision, rather than inadvertence.
Professor Schlosser in his Report on the 1978 Accession Convention to the
Brussels Convention stated -
“Reinsurance contracts cannot be equated with insurance contracts.
Accordingly, Articles 7 to 12 do not apply to reinsurance contracts” (para.
151).
The respondents submit that Britain's accession to the Brussels
Convention was negotiated on this basis, though it is not referred to in the
Reports either of Jenard or Moller (ref. Civil Jurisdiction and Judgments
Act 1982 section 3B). They further submit that Articles 7-12 make special
provision for insurance contracts because of the likely inequality of
bargaining power and because insureds can be regarded as consumers
in need of protection. These considerations do not apply to re-insurance
contracts. They are „wholesale“ rather than retail.
The issue was raised in Overseas Union Ins. Ltd. v. New Hampshire
[1992] Q.B. 434 but not ruled on by the European Court or by the
Advocate General.
Like Rix J. in Trade Indemnity, I would hold that the appellants’ contention
is unsound and that the view expressed by Professor Schlosser should be
adopted by these Courts. Re-insurance and insurance are conceptually
distinct, not least as regards subject-matter and the respective definitions
of risk. This leads to difficulties in applying the wording of Articles 7-12
to re-insurance in certain respects. In addition, there are the general
considerations regarding consumer protection and the negotiation of the
United Kingdom accession, which have been referred to above.
Therefore, whilst giving the appellants leave formally to amend the Notice
of Appeal, this further ground of appeal in my judgment fails also.
Reference to the European Court
By a Notice of Motion dated 11 April 1997 the appellants seek an Order
that the European Court be requested to give a preliminary ruling whether
they should be sued in the Courts of Sweden or the Courts of the United
Kingdom, “such ruling to be given pursuant to the Protocol of 1977 to the
[Brussels Convention]”.
This is a surprising application, because at the relevant time Sweden and
the United Kingdom were parties to the Lugano Convention, but not to
the Brussels Convention, and the European Court has no jurisdiction in
relation to the former Convention.
Mr Ashe Q.C. however has deployed arguments which are considered in
the judgment of Schiemann L.J. I agree with his judgment and that this
application should be refused.
Hobhouse L.J.
I agree that the application to refer should be refused for the reasons
to be given by Schiemann L.J. and the appeal should dismissed for the
reasons given by Evans L.J.
Schiemann L.J.:-
As to the substance of the submissions made before us I have nothing to
add to the judgment of Evans, L.J.. There remains however a request by
the appellants that we ask the European Court of Justice („the ECJ”) for
a ruling on a point of law relevant to the issues which have been debated
before us.
Those issues relate to the proper interpretation of the Lugano Convention.
That Convention has no provision for the making of references to the
ECJ. Protocol No. 2 of the Lugano Convention however makes any rulings
of the ECJ on the Brussels Convention highly relevant to any decision
as to the interpretation of the corresponding provisions of the Lugano
Convention.
The 1971 Protocol to the Brussels Convention grants the ECJ jurisdiction
to give rulings on the interpretation of (1) the Brussels Convention and
(2) various Treaties of Accession to the Brussels Convention. The Treaty
of Rome by Article 177 gives the ECJ jurisdiction to give rulings on the
Treaty of Rome. Mr Ashe Q.C. submits that this court should, by using one
of two routes, – the 1971 Protocol to the Brussels Convention or Article
177 of the Treaty of Rome – ask the ECJ to give a ruling on the Brussels
Convention so that in due course this court, furnished with such a ruling,
can interpret the Lugano Convention in the light of it. In my judgment
neither of these two routes is open to the court. I can give my reasons
shortly.
The 1971 Protocol to the Brussels Convention
The original parties to the Brussels Convention were the original
members of the European Communities. By now, the UK is a member
of the Communities and a party to the Brussels Convention. As is
common ground, however, Sweden, although a member of the European
Communities, is not yet a party to the Brussels Convention. The reason
for that is that, although Sweden has signed the Swedish Accession
Convention (which provides for the accession of Sweden to the Brussels
Convention), the Swedish Accession Convention is not yet in force. It
follows that Sweden is not a Contracting State for the purposes of the
Brussels Convention and that the ECJ has as yet no jurisdiction pursuant
to the 1971 protocol to the Brussels Convention to give a ruling as to the
interpretation of the Swedish Accession Convention.
The first question which the Appellants seek to refer to the ECJ is thus
defined by them:-
“May the Court of Justice interpret the provisions of the Brussels
Convention as amended by the Accession Convention of 29.11.1996
before the Accession Convention, according to its terms, comes into
force?”
The question, demonstrates the flaw in the Applicants’ argument. The
Brussels Convention is not amended before the Accession Convention
comes into force. The answer to that question as posed is manifestly in
the negative. I regard that proposition acte clair.
Article 177 of the Treaty of Rome
Article 177 of the Treaty provides, so far as presently relevant, -
„The Court of Justice shall have jurisdiction to give preliminary rulings
concerning:
(a) the interpretation of this Treaty;
(b).................................
(c).................................
Where such a question is raised before any court or tribunal of a Member
State, that court or tribunal may, if it considers that a decision on the
question is necessary to enable it to give judgment, request the Court of
Justice to give a ruling thereon.“
This court’s jurisdiction to refer pursuant to Article 177 only arises in
relation to preliminary rulings concerning the EC Treaty. Article 177 does
not give jurisdiction to refer questions relating to the Brussels Convention
or the Lugano Convention.
Recognising this problem, Mr Ashe QC constructed an argument to the
effect that what he was really seeking from the ECJ was a ruling as to
obligations under the Treaty of Rome. He sought a reference to the ECJ
relying on Articles 5, 6 and 220 of the EC Treaty, Article 4 of the Swedish
Accession Convention and Article 63 of the Brussels Convention. They
read as follows:-
Article 5- “Member States shall take all appropriate measures, whether
general or particular, to ensure fulfilment of the obligations arising out
of this Treaty or resulting from action taken by the Institutions of the
Community. They shall facilitate the achievement of the Community's
tasks.
They shall abstain from any measure which could jeopardize the
attainment of the objectives of this Treaty.”
Article 6- “1. Member States shall, in close co-operation with the
institutions of the Community, co-ordinate their respective economic
policies to the extent necessary to attain the objectives of this Treaty.
2. The Institutions of the Community shall take care not to prejudice the
internal and external financial stability of the Member States.
Article 220- “Member States shall, so far as is necessary, enter into
negotiations with each other with a view to securing for the benefit of
their Nationals:
-..................
-..................
-..................
- the simplification of the formalities governing the reciprocal recognition
and enforcement of judgments of courts or tribunals and of arbitration
awards”
Article 63 of the Brussels Convention provides:-
“The contracting States recognise that any State which becomes a
member of the EEC shall be required to accept this Convention as a
basis for the negotiations between the contracting States and that State
necessary to ensure the implementation of the last paragraph of Article
220 of the Treaty establishing the EEC.
The necessary adjustments may be the subject of a special convention
between the contracting States of the one part and the new Member
States of the other part.”
Article 4 of the Accession Convention, to put matters shortly, inserts
Sweden into the list of parties to the Brussels Convention.
In essence the submission of Mr Ashe is that it is arguable under the EC
Treaty that the Brussels Convention should be treated by this Court as
though it had been amended by the Accession Convention. He submits
that, since Sweden becoming a party to the Brussels Convention is in
effect part of the parcel of obligations which Sweden and the existing
Member States undertook on Sweden becoming a member of the
Community the court should operate on the basis that Sweden had
already become a party to the Brussels Convention. He seeks to equate
the position arising under an unimplemented Directive with that arising
under a Treaty which has not yet come into force. He submits that if that
argument be correct, then it would be arguable that the question which
has arisen under the Lugano Convention should be regarded as having
arisen under the Brussels Convention and therefore be a matter which,
pursuant to the Protocol to the Brussels Convention, is suitable for a
reference to the ECJ.
Conclusion
It is accepted that this court under its national law in the circumstances
of the present case only has jurisdiction to refer a question the ECJ if it
empowered so to do under Article 177 of the EC Treaty. For my part I
can see no question under the EC Treaty arising under any of the Articles
relied on and regard the matter as acte clair. No breach of any of the
obligations set out in Articles 5,6,or 220 is even arguably alleged, let
alone clearly alleged. I can not see that it is arguable that any question
relating to the interpretation of the EC Treaty has been raised before
this court; still less do I consider that a decision on that question is
necessary for this court to give judgment on the issues under the Lugano
Convention which do require resolution. In those circumstances the
preconditions in Article 177 for making a reference to the ECJ have, I
consider, not been fulfilled and I would refuse to make a reference.
ORDER: Appeal dismissed; leave to amend notice of appeal granted;
application for a reference to the European Court refused; respondent
to have costs of proceedings before the Court of Appeal, to include
the application for a reference – costs to be taxed and paid forthwith;
respondent also to have costs incurred below in relation to the issue
which gave rise to the appeal – likewise to be taxed and paid forthwith;
application for leave to appeal to the House of Lords refused, but time
for petitioning the House of Lords to be extended to three months
from today, although liberty to apply should House of Lords’ decision in
Kleinwort Benson v Glasgow CC still not be known within three months.