Introduction
[1] The pursuers are a Spanish company who carry on business as
shipbuilders. The defenders are a firm of Scottish solicitors. Clients of
the defenders, James Duthie & Partners ("Duthies"), entered into a
contract with the pursuers in terms of which the pursuers were to build
for them a fishing vessel, the MV S., in return for payment of a price by
instalments. The vessel was built. The present dispute arises out of an
ancillary arrangement by which funds representing an unpaid balance
of the price, withheld by Duthies on the contention that the pursuers'
work on the vessel was in certain respects incomplete and defective,
were placed on deposit in the joint names of the pursuers' solicitors, D.
W. S. ("DWS") and the defenders as Duthies' solicitors. In this action the
pursuers allege that events have occurred which oblige the defenders to
procure the release of the deposited funds to the pursuers. They seek an
order on the defenders to take such steps as may be required to effect
release of the funds, in particular by consenting in writing to such release.
[2] An issue has arisen as to whether this Court has jurisdiction to
entertain this action. The pursuers aver, and the defenders admit, that
the defenders are domiciled in Scotland and on that account subject
in general to the jurisdiction of this Court. The defenders, however,
contend that the arrangement about the deposited funds forms part of
the shipbuilding contract, and that by virtue of a provision of that contract
there has been prorogation of the exclusive jurisdiction of the High Court
of Justice in London. The defenders' first plea-in-law is to the effect that
on that account the jurisdiction of this Court has been excluded, and the
action should therefore be dismissed. The pursuers' first plea-in-law is to
the effect that the defenders' averments are irrelevant, and they contend
in particular that the averments in support of the plea of no jurisdiction
are irrelevant, and that that plea should therefore be repelled. The action
was appointed to debate on the issue of jurisdiction.
The shipbuilding contract
[3] The terms of the contract between the pursuers and Duthies for the
construction of the fishing vessel, so far as material for present purposes,
are to be found in a document entitled "First Addendum to Shipbuilding
Contract" dated 9 October 1997 (No. 6/1 of process, "the shipbuilding
contract"), which bears to vary the terms of an earlier contract entered
into on 7 November 1995. Article 7, paragraph 1 of the contract provided
that the purchase price of the vessel was to be 1,371,000,000 Spanish
pesetas. Article 7, paragraph 3 set out the seven instalments in which the
price was to be paid. All the instalments except the last one were to be
made by drawing against an irrevocable letter of credit.
[4] Article 15(a) of the shipbuilding contract provided as follows:
"Law of the Contract
The terms and conditions of this Contract and any disputes arising out of
or in connection therewith shall be governed exclusively by the High Court
of Justice in London according to English Law, to the exclusion of the laws
and courts of any other country."
[5] Article 19, which was headed "Interpretation", contained inter alia the
following provision:
"Any further agreement or addenda signed by both parties to this
Contract shall be deemed and considered as embodied in the Contract and
shall become an integral part of this Contract."
The security deposit
[6] When the seventh and last instalment of the price of the vessel
fell due for payment, Duthies were unable to make payment of it. In
security for the outstanding payment they granted in the pursuers' favour
mortgages over the vessel and another vessel. However, Duthies made
warranty claims against the pursuers under the shipbuilding contract,
alleging that certain work on the vessel was unfinished, missing or
defective. In February 2001 arrangements were made for a payment
of 117,100,000 pesetas to be made towards the final instalment of
137,100,000 pesetas, and in exchange the mortgages were discharged.
The balance of 30,000,000 pesetas which remained unpaid was to be
put on deposit in what was described as an "escrow account" to await
determination of Duthies' warranty claims, and was referred to as the
"security deposit". The details of arrangements for resolution of the
dispute over the warranty claims and for the handling of the security
deposit were contained in two letters sent by DWS to the defenders on 15
February 2001 and endorsed by the defenders.
[7] The first of these letters (No. 6/3 of process) was concerned with the
dispute resolution procedure to be followed in relation to the warranty
claims. In effect it substituted a different one for the one contained in the
shipbuilding contract. The letter began: "This letter is to record in writing
the dispute resolution procedure that the parties will follow to settle the
warranty claims...". In summary, the arrangements included provision for
the holding of two meetings, in accordance with a specified timetable, for
the purpose of discussion of settlement of the dispute. In the event that
agreement was not reached after the second meeting, there was to be
arbitration before a single arbitrator appointed (failing agreement) by the
President of the London Maritime Arbitrators Association. If by a specified
date agreement to settle had not been reached and the whole security
deposit had not been released, the pursuers were to be entitled to serve
notice on Duthies to join in appointing an arbitrator. Within fourteen days
thereafter, Duthies were to send a statement of claim to the pursuers and
their solicitors. Clause 7 of the letter then provided:
"If James Duthie & Partners fails to send the Statement of Claim and all
such copies to A. Z. SA with a full copy to Messrs D. W. S. within 14 days
after service of the notice given by A. Z. SA under point 6 above, the
Security Deposit with all interest accrued mentioned in the exchange of
said letters between D. W. S. and Ma. dated of even date with this letter
will belong to A. Z. SA who will be entitled to payment forthwith."
That letter was signed by DWS. A copy of it was endorsed by the
defenders in the following terms:
"On behalf of and as instructed by James Duthie & Partners we
acknowledge receipt of the letter of which the foregoing is a copy and
agree to the terms and conditions contained in it."
That acceptance was signed by the defenders.
[8] The second letter of 15 February 2001 (No. 6/4 of process) set out
a detailed narrative of the background. Recital C contained the following
passage:
"... the balance due of Ptas. 30,000,000 (which together with all interest
accrued less any Bank charges or costs is referred to as 'the Security
Deposit') has been or is about to be paid by the Owners [i.e. Duthies] into
an Account in the name of D. W. S. for behoof of Z. and Ma. for behoof of
the Owners ('the Escrow Account')".
After the narrative, the letter continued:
"Therefor (sic) Z. and the Owners have instructed their Solicitors to
exchange letters to confirm the terms upon which the Security Deposit is
to be held and released.
On behalf of and as instructed by our clients, A. Z. SA we hereby confirm
the following terms and conditions on which the Security Deposit will be
held and released:-
...
3. If the Owners do not send a complete Statement of Claim accompanied
by copies of all relevant documents to Z. with a full copy to D. W. S.
within 14 days after the date of service of said notice the Security Deposit
with all interest accrued thereon shall forthwith belong to and be released
to Z..
...
5. D. W. S. and Ma. by accepting the terms of this letter on their clients'
behalf undertake to take such steps as may be required to effect the
release of the Security Deposit in accordance with the terms of this letter
notwithstanding any instructions to the contrary received from their
respective clients. The Security Deposit shall be held in trust for the
purpose of effecting payment in accordance with the terms of this letter
and the owners and Z. divest themselves of any power to intromit with
the Security Deposit otherwise."
That letter too was signed by DWS. On a copy of it the defenders
endorsed an acknowledgement in the following terms:
"On behalf of and as instructed by James Duthie & Partners we hereby
acknowledge receipt of the letter of which the foregoing is a copy and
agree to the terms contained in it."
That acknowledgement was signed by the defenders.
[9] The pursuers aver that on 4 December 2001 they gave written notice
to appoint an arbitrator. They aver that Duthies did not serve a statement
of claim within fourteen days thereafter. They therefore assert that in
terms of Clause 7 of the first letter of 15 February 2001 and Clause 3 of
the second letter of the same date the security deposit belongs to them
and they are entitled to release of it. They assert further that by Clause 5
of the second letter the defenders are obliged to take the steps necessary
to procure the release of the security deposit.
The jurisdiction issue
[10] The claim which the pursuers advance in this action proceeds on
the basis of the proposition that by virtue of DWS's second letter of 15
February 2001 and the defenders' acceptance thereof the defenders
undertook a contractual, or alternatively unilateral, obligation to the
pursuers to release the security deposit in the events which have
happened. The defenders' position on the merits of the action is that they
dispute that that letter, properly construed, had that effect. They take,
however, the preliminary objection that the pursuers' claim, advanced on
the basis of an obligation undertaken by the defenders personally in terms
of that letter and acceptance, is not one which this Court has jurisdiction
to entertain. In support of their plea of no jurisdiction they rely on two
considerations, namely (1) that any such obligation undertaken by the
defenders was undertaken as part of "a further agreement or [addendum]
signed by both parties to [the shipbuilding] Contract", and therefore
"shall be deemed and considered as embodied in the Contract and shall
become an integral part of this Contract", all in accordance with Article
19 of the shipbuilding contract; and (2) that the present dispute is
therefore a "dispute arising out of or in connection with" the shipbuilding
contract, and is therefore subject to the prorogation of the exclusive
jurisdiction of the English High Court in accordance with Article 15(a)
of the shipbuilding contract. The pursuers, on the other hand, contend
that the obligation undertaken by the defenders was independent of the
shipbuilding contract, and not rendered part of it by Article 19, and that
the prorogation of the exclusive jurisdiction of the High Court is therefore
inapplicable.
The pursuers' submissions
[11] Mr Clark, for the pursuers, accepted that if Article 15(a) of the
shipbuilding contract fell to be applied to the obligation undertaken by
the defenders in terms of Clause 5 of the second letter of 15 February
2001, its terms were sufficient to prorogate the exclusive jurisdiction
of the High Court, and thus to exclude the jurisdiction of this Court. He
submitted first, however, that Article 19 of the shipbuilding contract did
not have the effect of making the obligation undertaken by the defenders
an integral part of that contract. Moreover, he submitted secondly that
it was necessary, if a prorogation clause was to be given effect, for the
court to be satisfied that consensus between the parties to the litigation
to exclude the jurisdiction of the courts of the defenders' domicile was
clearly and precisely demonstrated; and that in this case that test was not
satisfied.
[12] Mr Clark submitted that the defenders were not parties to the
shipbuilding contract, and could not be made parties to it by operation
of Article 19 of it. The only parties to the shipbuilding contract were, as
its terms made plain, the pursuers and Duthies. Article 19 contemplated
further agreements between the two original parties. Although the
article does not expressly say so, Mr Clark accepted that it must be
construed as applying only to further agreements varying, amending,
supplementing or otherwise relating to the shipbuilding contract. Article
19 would not embody into the shipbuilding contract a wholly separate
agreement dealing with unrelated subject matter, merely because that
"further agreement" was "signed by both parties to [the shipbuilding]
Contract". On the other hand, there was nothing in the article to suggest
that it was contemplated that a "further agreement" or "addendum"
might, so long as it was signed by both parties to the shipbuilding
contract, introduce additional parties to that contract and confer rights
or impose obligations on them which would then fall to be treated as
embodied into the shipbuilding contract. Turning to the two letters of
15 February 2001, Mr Clark accepted that it might well be that the first
one (No. 6/3 of process) was a "further agreement" or addendum to
the shipbuilding contract, which consequently was embodied into it and
became an integral part of it by virtue of Article 19. That letter was
concerned principally with the substitution of a different dispute resolution
procedure in place of the one provided for in the shipbuilding contract as
concluded on 9 October 1997. It did not bear to confer rights or impose
obligations on any party other than the two parties to the shipbuilding
contract. The second letter (No. 6/4 of process) was, however, in a
different position. It too, albeit somewhat repetitively (compare clause
7 of the first letter with clause 3 of the second), bore to regulate the
rights and obligations of the parties to the shipbuilding contract. But it
plainly went beyond that. The first sentence of Clause 5 plainly sought
to impose obligations on DWS and the defenders: "D. W. S. and Ma. by
accepting the terms of this letter on their clients' behalf undertake to
take such steps as may be required to effect the release of the Security
Deposit in accordance with the terms of this letter notwithstanding any
instructions to the contrary received from their respective clients". That
was something separate from the agreement between the pursuers
and Duthies constituted by the shipbuilding contract. It involved the
undertaking of personal obligations by DWS and the defenders. But that
was clearly severable from the modification of the rights and liabilities of
the parties to the shipbuilding contract inter se; it did not mean that the
defenders became parties to the shipbuilding contract. If that analysis of
the second letter of 15 February 2001 was correct, it followed that the
obligations thereby imposed on the defenders did not become an integral
part of the shipbuilding contract. The prorogation clause therefore had
no application to the obligations incumbent on the defenders personally.
The averments in support of the plea of no jurisdiction were therefore
irrelevant, and that plea should be repelled.
[13] The second branch of Mr Clark's argument was founded on
the jurisprudence of the European Court of Justice in relation to the
prorogation provisions of the Brussels Convention. Since this case was
concerned with the allocation of jurisdiction between the courts of
Scotland and England, and the conditions specified in section 16(1) of the
Civil Jurisdiction and Judgments Act 1982 ("the 1982 Act") were satisfied,
the relevant provisions of Schedule 4 to the 1982 Act were applicable.
Since this action was signeted on 1 May 2002, the relevant version of
Schedule 4 was the one substituted by paragraph 4 of Schedule 2 to
the Civil Jurisdiction and Judgments Order 2001 (SI 2001, No. 3929).
Paragraph 12(1) of the amended Schedule 4 provides:
"If the parties have agreed that a court or the courts of a part of the
United Kingdom are to have jurisdiction to settle any disputes which
have arisen or which may arise in connection with a particular legal
relationship, and, apart from this Schedule, the agreement would be
effective to confer jurisdiction under the law of that part, that court or
those courts shall have jurisdiction."
In terms of section 16(3)(a), however, of the 1982 Act regard required
to be had to Convention jurisprudence. The relevant provision of the
Brussels Convention was Article 17 (now superseded by Article 23 of
Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction
and the recognition and enforcement of judgments in civil and commercial
matters). Mr Clark therefore cited a number of decisions of the European
Court of Justice concerned with Article 17.
[14] The starting point of this aspect of Mr Clark's submissions was
Estasis Salotti v RÜWA Case 24/76 [1976] ECR 1831. That case was
concerned with a prorogation clause contained in printed general
conditions of contract. The Court, at paragraph 7, after quoting from
Article 17, said:
"The way in which that provision is to be applied must be interpreted in
the light of the effect of the conferment of jurisdiction by consent, which
is to exclude both the jurisdiction determined by the general principle laid
down in Article 2 [domicile] and the special jurisdictions provided for in
Articles 5 and 6 of the Convention.
In view of the consequences that such an option may have on the
position of the parties to the action, the requirements set out in Article 17
governing the validity of clauses conferring jurisdiction must be strictly
construed.
By making such validity subject to the existence of an 'agreement'
between the parties, Article 17 imposes on the court before which
the matter is brought the duty of examining, first, whether the clause
conferring jurisdiction upon it was in fact the subject of consensus
between the parties, which must be clearly and precisely demonstrated.
The purpose of the formal requirements imposed by Article 17 is to
ensure that consensus between the parties is in fact established."
(See also Galeries Segoura v Bonakdarian Case 25/76 [1976] ECR 1851,
paragraphs 5 and 6).
[15] Mr Clark then turned to cases concerning whether a prorogation
clause was effective against a party not privy to the original contract.
He relied primarily on Coreck Maritime GmbH v Handelsveem BV
Case C-387/98 [2000] ECR I-9337, a case concerned with whether a
prorogation clause in a bill of lading could be relied on against a third
party bearer of the bill. Reference was made in particular to the following
passage in the judgment of the Court:
"22. By its third question, the national court essentially asks whether a
jurisdiction clause which has been agreed between a carrier and a shipper
and appears in a bill of lading is valid as against a third party bearer of
the bill of lading or whether it is only valid as against a third party bearer
of the bill of lading who succeeded by virtue of the applicable national law
to the shipper's rights and obligations when he acquired the bill of lading.
23. It is sufficient to note that the Court has held that, in so far as the
jurisdiction clause incorporated in a bill of lading is valid under Article
17 of the Convention as between the shipper and the carrier, it can be
pleaded against the third party holding the bill of lading so long as, under
the relevant national law, the holder of the bill of lading succeeds to the
shipper's rights and obligations...
24. It follows that the question whether a party not privy to the original
contract against whom a jurisdiction clause is relied on has succeeded
to the rights and obligations of one of the original parties must be
determined according to the applicable national law.
25. If he did, there is no need to ascertain whether he accepted the
jurisdiction clause in the original contract. In such circumstances,
acquisition of the bill of lading could not confer upon the third party more
rights than those attaching to the shipper under it. The third party holding
the bill of lading thus becomes vested with all the rights, and at the
same time becomes subject to all the obligations, mentioned in the bill of
lading, including those relating to the agreement on jurisdiction...
26. On the other hand, if, under the applicable national law, the party not
privy to the original contract did not succeed to the rights and obligations
of one of the original parties, the court seised must ascertain, having
regard to the requirements laid down in the first paragraph of Article 17 of
the Convention, whether he actually accepted the jurisdiction clause relied
on against him.
27. Accordingly, the reply to the third question must be that a jurisdiction
clause agreed between a carrier and a shipper which appears in a bill
of lading is enforceable against a third party bearer of the bill of lading
if he succeeded to the rights and obligations of the shipper under the
applicable national law when he acquired the bill of lading. If he did not,
it must be ascertained whether he accepted that clause having regard
to the requirements laid down in the first paragraph of Article 17 of the
Convention."
Mr Clark also cited Gerling v Amministrazione del Tesoro dello Stato Case
201/82 [1983] ECR 2503, in which the Court held (in paragraph 20 of its
judgment) that:
"where in a contract of insurance a clause conferring jurisdiction is
inserted for the benefit of the insured who is not a party to the contract
but a person distinct from the policy-holder, it must be regarded as valid
within the meaning of Article 17 of the Convention provided that, as
between the insurer and the policy-holder, the condition as to writing
laid down therein has been satisfied and provided that the consent of the
insurer in that respect has been clearly and precisely manifest."
[16] Mr Clark then turned to certain English authorities. In AIG Europe
(UK)Ltd v The Ethniki [2000] 2 All ER 566 the issue was whether a
clause in a reinsurance contract which provided "Conditions: Wording
as original" was sufficient to incorporate a jurisdiction clause from the
primary policy. The court held that it was not, approaching the matter
as one of English law. In paragraph 41 at page 576 Evans LJ recognised
that it would have been more correct to have interpreted and applied
Article 17, but held that by that route and the application of the "clear and
precise demonstration" test formulated in Estasis Salotti the result would
have been the same. In AIG Europe SA v QBE International Insurance Ltd
[2000] 2 Lloyd's Rep 268, another reinsurance case, Moore-Bick J said (at
273, paragraph 26):
"Community law, in common with English law, regards jurisdiction clauses
as ancillary to the substantive provisions of the contract for the purposes
of Article 17... The incorporation of the terms of one contract into another
related contract between different parties raises rather different questions
from those which arise when one party to a contract seeks to incorporate
by reference a set of standard trading terms.... In many cases... in the
absence of specific language the Court will not be able to infer with
confidence that the parties did intend to incorporate any terms other
than those which are germane to their own contract... In each case the
Court must construe the language of the contract in the context of its
commercial background and ask itself whether a consensus on the subject
matter of the jurisdiction clauses is clearly and precisely demonstrated."
(See also Dresser UK Ltd v Falcongate Freight Management Ltd [1992]1
QB 502, per Bingham LJ at 511D; Barratt International Resorts Ltd v
Martin 1994 SLT 434.)
[17] In the light of these authorities, Mr Clark submitted that the
defenders could only rely on Article 15(a) of the shipbuilding contract in
a question between them and the pursuers if it was clearly and precisely
demonstrated that there was consensus between the pursuers and the
defenders that that Article should apply to such questions. He submitted
that there was no clear or precise demonstration of such consensus. On
that additional basis, the defenders' averments based on Article 15(a)
were irrelevant and the defenders' first plea-in-law should therefore be
repelled.
The defenders' submissions
[18] Mr Howie, for the defenders, accepted that if, in accordance with
the defenders' primary contention on the merits, the second letter of
15 February 2001 imposed no personal obligation on the defenders, the
defenders' plea of no jurisdiction could not succeed. He also accepted that
if, in terms of that letter, the defenders undertook a personal obligation
which was wholly independent of the shipbuilding contract, again the
plea of no jurisdiction could not succeed. His contention was that, if the
pursuers were right in the only contention on which the action proceeded,
namely that the second letter of 15 February imposed a personal
obligation on the defenders, that obligation nevertheless arose from a
"further agreement signed by both parties to [the shipbuilding] Contract",
and therefore fell within the scope of Article 19 of the shipbuilding
contract. It followed that Article 15(a) applied, and that the plea of no
jurisdiction was well founded.
[19] Mr Howie submitted that the pursuers' contention that the obligation
undertaken by the defenders was a personal obligation independent of the
shipbuilding contract depended essentially on the first sentence of Clause
5 of the second letter of 15 February 2001. In all other respects the
form of the letter was indicative of an agreement between the pursuers
and Duthies. It did not follow, however, from the contention that that
sentence imposed a personal obligation on the defenders, that that
obligation did not fall within the scope of Article 19 and so come to be
embodied in the shipbuilding contract as an integral part of it. The two
letters of 15 February were precisely the sort of further agreement or
addendum that was contemplated in Article 19. They required to be read
together. The first letter was plainly an addendum to the shipbuilding
contract. It was signed on behalf of the pursuers and Duthies. That
was sufficient to make it an agreement "signed by both parties" within
the meaning of Article 19. It substituted a new form of procedure for
the resolution of the disputes which had arisen under the shipbuilding
contract for the procedure originally provided in the shipbuilding contract
itself. There could therefore be no doubt that that letter fell within the
scope of Article 19. The second letter was likewise signed on behalf of
(and therefore, within the meaning of Article 19, by) both parties to the
shipbuilding contract. As was made clear by the preamble to the letter,
it was an integral part of the arrangements by which the bulk of the final
instalment of the price was paid, the mortgages were discharged, and the
unpaid balance was put on deposit to await the outcome of the dispute
resolution procedure in relation to the warranty claims. In so far as the
second letter placed personal obligations on the solicitors acting for the
parties to the shipbuilding contract, it did so as part of the machinery
for making the procedure for resolving the outstanding dispute between
those parties effective. The second letter also thus fell within the scope
of Article 19. The fact that it involved two additional parties, as well as
the original parties to the shipbuilding contract, was not enough to take
it outwith the scope of Article 19. The obligations undertaken by the
solicitors, DWS and the defenders, if personal to them as the pursuers
contended, were nevertheless an integral part of a further agreement
between the pursuers and Duthies. It was not realistic to regard them
as severable from the agreements amending the shipbuilding contract
and thus beyond the scope of Article 19. Clause 5 of the second letter
dealt not only with the solicitors' obligations, but also with the agreement
by the original parties to the shipbuilding contract divesting themselves
of power to intromit with the security deposit. It was plain from the
introductory words "On behalf of and as instructed by our clients...",
and the concluding words "Please confirm your clients agreement to the
foregoing", that the second letter was primarily part of an agreement
between the original parties to the shipbuilding contract. On a sound
construction of Article 19 and the letters of 15 February, both of the
letters came to be embodied in the shipbuilding contract as an integral
part of it. That included any part of the second letter in terms of which, as
an ancillary part of the dispute resolution procedure, the defenders and
DWS undertook personal obligations. It followed that Article 15(a) applied
to the defenders' obligations in relation to the security deposit, and the
plea of no jurisdiction was well founded.
[20] In response to the second branch of Mr Clark's submissions,
Mr Howie submitted that the approach supported by the European
jurisprudence (Estasis Salotti and Galeries Segoura) did not differ
materially from the approach of Scots law to the question of prorogation.
Coreck was concerned with the question of the circumstances in which
a third party who was a stranger to the contract containing the original
prorogation clause could be compelled to submit to the prorogated
jurisdiction. Here the situation was the reverse. The defenders were the
strangers to the original contract containing the prorogation clause, yet
it was they who sought to found on it. Given that factor, and their role as
Duthies' solicitors, there could be no question as to their understanding
and acceptance of the effect of Article 15(a). There could be no question
as to the pursuers' consent to the prorogation clause in the shipbuilding
contract, and if it was right that, on a proper construction of Article 19
and the second letter, the obligation imposed on the defenders by that
letter was part of the shipbuilding contract, the pursuers as original
parties to the shipbuilding contract could not escape the consequence
that the prorogation clause applied to their action against the defenders.
The English authorities cited by Mr Clark were not in point. They were
concerned with the issue of whether a jurisdiction clause in one contract
was incorporated into another. The issue in the present case was whether
a subsequent ancillary obligation was drawn back into the original
contract containing the jurisdiction clause, so as to become an integral
part of that contract and thus be affected by that clause.
Discussion
[21] Although the defenders, in their defences on the merits, dispute
that the effect of the second letter of 15 February 2001 was to impose
on the defenders a personal obligation, it is necessary, for the purpose
of considering the question of whether this Court has jurisdiction in this
action, to proceed on the hypothesis that that letter did impose such an
obligation, because that is the sole basis on which the pursuers' claim
against the defenders proceeds. For the purpose of the issue presently
before me, therefore, I proceed on the basis that in terms of Clause 5
of the second letter the defenders undertook a personal obligation to
take such steps as might be required to effect the release of the security
deposit in accordance with the other provisions of the letter.
[22] The primary issue therefore comes to be whether on a sound
construction of, on the one hand, Article 19 of the shipbuilding contract,
and, on the other hand, the second letter of 15 February 2001, the
personal obligation undertaken by the defenders in terms of the latter
falls to be regarded as having been embodied in and become an integral
part of the shipbuilding contract. In my view there is nothing in the
shipbuilding contract which precludes that result. Article 19 applies only to
"Any further agreement or addenda". Although the point is not spelled out
any more explicitly than that, it is in my view clear (and was not disputed
by either party) that the further agreement or addendum must be an
agreement varying, amending, supplementing or otherwise relating to
the shipbuilding contract. In addition, to fall within the scope of Article 19
the further agreement or addendum must be "signed by both parties".
Again it was not disputed that an agreement signed by agents on behalf
of the parties to the shipbuilding contract would satisfy that requirement.
It is undoubtedly correct, as Mr Clark submitted, that the shipbuilding
contract, as originally concluded, was a bilateral contract to which only
the pursuers and Duthies were parties. I am not persuaded, however,
that Mr Clark was correct in his submission that Article 19 could not
apply to an agreement signed by the original parties which also involved
the imposition of obligations upon additional parties. It seems to me
that there is nothing in Article 19 to exclude the possibility of a further
agreement, provided it was "signed by [or on behalf of] both parties",
and provided it related in the necessary way to the shipbuilding contract,
introducing additional parties and placing ancillary obligations on them,
and nevertheless coming to be embodied in and an integral part of the
shipbuilding contract.
[23] The matter therefore, in my view comes to turn on the nature of the
additional agreement. It seems to me to be clear on the face of the two
letters of 15 February 2001 that they each formed an integral part of an
agreed variation of the contractual arrangements between the pursuers
and Duthies originally set out in the shipbuilding contract. A dispute had
arisen under that contract in terms of which Duthies (a) made warranty
claims against the pursuers and (b) on that account sought to retain part
of the last instalment of the purchase price. With a view to resolution of
that dispute, supplementary terms were agreed (i) altering the dispute
resolution procedure originally provided in the shipbuilding contract, and
(ii) setting aside funds to be held in neutral hands until either the dispute
was resolved, or Duthies defaulted on the dispute resolution procedure.
Part of the machinery provided in the latter connection involved the
solicitors for the parties to the shipbuilding contract holding the security
deposit in an account in their joint names, and undertaking an obligation
to release it (if necessary, in face of instructions to the contrary from their
clients) to the party ultimately entitled to receive it. The fact that the
obligations undertaken by the solicitors were (according to the pursuers'
contention) personal obligations undertaken by them does not in my
view sever them from the remainder of the arrangements. No doubt in
a sense the solicitors' obligations were separate from any obligations
incumbent on their respective clients. But in any realistic commercial
sense, the solicitors' obligations were mere machinery for implementation
of the supplementary agreement between the original parties to the
shipbuilding contract. In my opinion it follows that the whole of the two
letters of 15 February 2001, including the personal obligations undertaken
by DWS and the defenders in terms of Clause 5 of the second letter, fell
within the scope of Article 19, and thus came to form an integral part of
the shipbuilding contract. In these circumstances, subject to the issue
discussed in the following paragraph, I am of opinion that Article 15(a) of
the shipbuilding contract applies to the dispute between the pursuers and
the defenders which forms the subject matter of this action.
[24] In my opinion, in seeking to apply the requirement of the European
jurisprudence that a jurisdiction clause must be shown to have been the
subject of consensus between the parties (Estatis Salotti, paragraph 7;
Galeries Segoura, paragraph 6), it is necessary to recognise that the
circumstances of this case differ somewhat from those of any of the
authorities cited. Looking at the matter first from the point of view of
the pursuers, it is material to note that they were original parties to the
shipbuilding contract, of which Article 15(a) forms part. Article 15(a)
is part of a specifically drafted contract, not part of an incorporated set
of standard conditions. There can therefore in my view be no doubt
that the pursuers consented to the incorporation of Article 15(a) in the
shipbuilding contract. They must also be taken to have consented to
Article 19; and also to the letters of 15 February 2001, which were written
by their solicitors on their behalf. If, as I have held, the combined effect
of Article 19 and the letters is that the obligations undertaken by the
defenders in terms of Clause 5 of the second letter came to form an
integral part of the shipbuilding contract, it is not in my view open to the
pursuers now to maintain that there is any lack of consensus on their part
in respect of the application of Article 15(a) to the present action. Turning
to the position of the defenders, it seems to me that two circumstances
are of importance. The first is that, although the defenders are the party
who were strangers to the original shipbuilding contract, it is they who
now seek to found on Article 15(a). The second is that, as solicitors acting
for Duthies, one of the original parties to the shipbuilding contract, they
are particularly well placed to be aware of the terms and effect of Article
15(a). This is therefore not a case, such as Coreck, where there is any
need for concern about ensuring that the third party has accepted the
jurisdiction clause before subjecting him to its effect. There is, in my view,
no good reason to look for direct evidence of consensus about Article
15(a) between the pursuers and the defenders, where the defenders,
although the strangers to the original shipbuilding contract, evince their
consent to the application of the Article by seeking to rely on it, and the
pursuers, as original parties to the shipbuilding contract, must be taken
to have consented to it and to its application in relation to any further
agreement which, in accordance with the provisions to which they agreed,
became an integral part of the original shipbuilding contract.
Result[25] For these reasons I am of opinion that the pursuers' plea to
the relevancy of the defenders' averments in support of their plea of no
jurisdiction is not well founded. I shall therefore repel the pursuers' first
plea-in-law, so far as directed against the relevancy of those averments,
sustain the defenders' first plea-in-law, and dismiss the action. I shall
reserve the question of expenses.