Introduction
1. In this action the pursuers, who are a Scottish company with their
registered office in Dunfermline, conclude for payment of two separate
sums by the defenders, who are a company domiciled in the Netherlands.
The first conclusion is for payment of £37,854.38, which sum is said to be
due as part of the price of certain work performed by the pursuers under
a contract between them and the defenders. The second conclusion is
for £120,000, which sum is said to be a reasonable estimate of loss and
damage suffered by the pursuers as a result of breach on the defenders'
part of an implied term of the contract between the parties.
2. The defenders plead inter alia (1) that the court has no jurisdiction,
and (2) that the pursuers' averments are irrelevant, and on each of these
bases seeks dismissal of the action. The case was appointed to debate in
respect of those pleas.
Jurisdiction
(a) The Defenders' Submissions
3. Although the defenders' first plea-in-law seeks dismissal of the action
on the ground that this court has no jurisdiction, the argument advanced
under that plea by Mr Lake, who appeared for the defenders, was
confined to the proposition that the court had no jurisdiction in respect of
the second conclusion, the claim for damages for breach of contract.
4. The Rules of Court require a pursuer to deal with the question of
jurisdiction in his averments. Rule of Court 13.2(4) provides inter alia as
follows:
"A condescendence shall include averments stating -
(a) in an action to which the Civil Jurisdiction and Judgments Act 1982
applies, the domicile of the defender (to be determined in accordance with
the provisions of that Act) so far as known to the pursuer; [and]
(b) the ground of jurisdiction of the court, unless jurisdiction would arise
only if the defender prorogated the jurisdiction of the court without
contesting jurisdiction".
5. In this case the pursuers make no express averment as to the
defenders' domicile. It is clear, however, from the averment that the
defenders are incorporated under the law of the Netherlands, and
have their principal seat at an address in the Netherlands, that it is
not maintained by the pursuers that the defenders are subject to the
jurisdiction of this court by virtue of domicile. The averments which the
pursuers make about jurisdiction are in the following terms:
"The parties entered into a contract for the sub-contract of design
services in application software hereinafter referred to. Payment in
respect of said contract was due to be made to the pursuers' registered
office aforesaid. The pursuers seek implementation of this obligation of
payment. This court accordingly has jurisdiction."
Those averments clearly cover the claim advanced in the first conclusion.
Mr Lake did not dispute the contentions advanced by Mr Logan for the
pursuers (1) that it is necessary first to determine by Scottish choice
of law rules what system of law is applicable to the contract, then to
apply that system of law to determine what the place of performance
of a particular obligation is (William Grant & Sons International Ltd v
Marie Brizard España SA 1998 SC 536; Industrie Tessili Italiana Como v
Dunlop AG, Case 12/76, [1976] ECR 1473; Leathertex Divisione Sintetici
SpA v Bodetex BVBA, Case C-420/97, [1999] 1 ECR 6748, [1999] 2 All
ER (Comm) 769); (2) that Scots law is the proper law of the contract
between the parties; (3) that under Scots law, in the absence of provision
to the contrary, a contractual debtor is bound to tender payment at his
creditor's place of business (Bank of Scotland v Seitz 1990 SLT 584);
(4) that the place of performance of the payment obligation relied upon
in the claim advanced in the first conclusion is therefore Scotland, and
(5) that accordingly, by virtue of Article 5(1) of the Brussels Convention
(Civil Jurisdiction and Judgments Act 1982, Schedule 1), this court has
jurisdiction in respect of that claim for payment. Mr Lake maintained,
however, that the averments simply did not address the question of the
basis on which it was contended that the court also had jurisdiction in
respect of the claim for damages for breach of contract advanced in the
second conclusion.
6. In the absence of averments expressly dealing with the matter, Mr Lake
derived his understanding of the pursuers' contention as to jurisdiction in
respect of the damages claim from the terms of their Note of Proposals
for Further Procedure (No. 19 of process). In that Note the pursuers
advance the proposition that:
"If the court is seized of jurisdiction in respect of a substantial issue under
a contract it also has jurisdiction to deal with other matters."
Mr Lake interpreted that proposition as an assertion that, because the
court had jurisdiction in respect of the claim for payment under the
contract, it followed that it also had jurisdiction in respect of the claim for
damages for breach of the contract. He therefore directed his submissions
against the soundness of that proposition.
7. The starting point of Mr Lake's submissions was to be found in the
terms of Article 5(1) of the Brussels Convention , which provides:
"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 ...".
8. Mr Lake referred to a series of decision, mostly of the European Court
of Justice, explaining the scope of Article 5(1). The first of these was
Etablissements de Bloos SPRL v Société Bouyer, Case 14/76, [1976] ECR
1497. The judgment of the Court contained the following passages:
"5. In the first question, the Court is asked whether, in an action brought
by the grantee of an exclusive sales concession against the grantor in
which he claims that the latter has infringed the exclusive concession, the
term 'obligation' in Article 5(1) of the Convention is to be interpreted as
applying without distinction to any obligation arising out of the outline
contract granting an exclusive sales concession or even arising out of
the successive sales concluded in performance of the said contract, or
as referring exclusively to the obligation forming the basis of the legal
proceedings.
6. If the last-mentioned possibility is the correct one, the Court is further
asked to rule whether the word 'obligation' in the aforementioned Article
5(1) refers to the original obligation, the obligation to provide the
equivalent of the original obligation or to [the] obligation to pay damages
where the effect of the dissolution or termination of the contract is to
render void the original obligation, or, finally, to the obligation to pay 'fair
compensation' or even 'additional compensation' within the meaning of
the Belgian Law of 27 July 1961.
7. ...
8. As stated in its preamble, the Convention is intended to determine
the international jurisdiction of the courts of the contracting States, to
facilitate the recognition and to introduce an expeditious procedure for
securing the enforcement of judgments.
9. These objectives imply the need to avoid, so far as possible, creating
a situation in which a number of courts have jurisdiction in respect of one
and the same contract.
10. Because of this, Article 5(1) of the Convention cannot be interpreted
as referring to any obligation whatsoever arising under the contract in
question.
11. On the contrary, the word 'obligation' in the article refers to the
contractual obligation forming the basis of the legal proceedings.
12. ...
13. It follows that for the purpose of determining the place of
performance within the meaning of Article 5 ... the obligation to be taken
into account is that which corresponds to the contractual right on which
the plaintiff's action is based.
14. In a case where the plaintiff asserts the right to be paid damages or
seeks a dissolution of the contract on the ground of the wrongful conduct
of the other party, the obligation referred to in Article 5(1) is still that
which arises under the contract and the non-performance of which is
relied upon to support such claims."
9. Mr Lake then referred to Shenavai v Kreischer, Case 266/85, [1987]
ECR 239. In that case the Court, after referring to De Bloos v Bouyer,
went on to say:
"10. The general rule thereby defined admits, however, of certain
exceptions on the ground that 'matters relating to a contract' cover
relationships of widely differing kinds, ..."
10. At paragraph 16, the Court pointed out that contracts of employment
(such as had been under consideration in Ivenel v Schwab, Case 133/81,
[1982] ECR 1891) were distinguishable by virtue of certain particularities,
and went on to say:
"17. When no such particularities exist, it is neither necessary nor
appropriate to identify the obligation which characterises the contract and
to centralize at the place of performance thereof jurisdiction, based on
place of performance, over disputes concerning all the obligations under
the contract. The variety and multiplicity of contracts as a whole are such
that the above criterion might in those other cases create uncertainty
as to jurisdiction, whereas it is precisely such uncertainty which the
Convention is designed to reduce.
18. On the other hand, no such uncertainty exists for most contracts
if regard is had solely to the contractual obligation whose performance
is sought in the judicial proceedings. The place in which that obligation
is to be performed usually constitutes the closest connecting factor
between the dispute and the court having jurisdiction over it, and it is
this connecting factor which explains why, in contractual matters, it is the
court of the place of performance of the obligation which has jurisdiction.
19. Admittedly, the above rule does not afford a solution in the particular
case of a dispute concerned with a number of obligations arising under
the same contract and forming the basis of the proceedings commenced
by the plaintiff. However, in such a case the court before which the matter
is brought will, when determining whether it has jurisdiction, be guided
by the maxim accessorium sequitur principale; in other words, where
various obligations are at issue, it will be the principal obligation which will
determine its jurisdiction."
10. Pursuing the point mentioned in paragraph 19 of the judgment in
Shenavai v Kreischer, Mr Lake then cited Union Transport plc v Continental
Lines SA [1992] 1 WLR 15, an English House of Lords case dealing with
the problem of determining which court has jurisdiction on the basis
of place of performance when the claim is founded on more than one
obligation and the contract provides for performance of the various
obligations in different places. That case concerned a voyage charter
of a vessel to be nominated by the defendants (who were domiciled
in Belgium) for carriage of a cargo of telegraph poles from Florida to
Bangladesh. The nomination of the vessel was to take place in London.
Following a dispute the defendants declined to nominate a vessel.
Consequently, no vessel was supplied to undertake the voyage. The
plaintiffs brought proceedings in the High Court in London claiming
damages for the defendants' failure to nominate the vessel. The
defendants maintained that the High Court had no jurisdiction. That
contention was rejected. Lord Goff of Chieveley said (at 22C-H):
"I entirely agree that a charter which calls for tonnage to be nominated
- a t.b.n. charter - is for present purposes quite different from a charter
of a named vessel. Nomination of a vessel under such a contract is not
a mere naming of a vessel; it is rather the identification of the subject
matter of the contract, with the effect that the name of the vessel, once
nominated, becomes written into the contract. Furthermore ... nomination
of the vessel triggers certain other obligations under the contract ...
Of course, it is true that a voyage charterparty is a contract of services
under which the owners make available the services of their vessel and
her crew for the carriage of the relevant cargo from the loading port to
the discharging port; and it is also true that, under a t.b.n. charter, the
owners have to cause the vessel, once nominated, to proceed to the
loading port in accordance with the terms of the charter. But the question
in the present case is whether, on the principles stated by the European
Court of Justice in Shenavai v Kreischer ... the nomination of the vessel
or the causing of the vessel (once nominated) to proceed to the loading
port is to be regarded as the principal obligation. For the reasons given
by Evans J, I have no doubt that it is the former. ... However ... I do not
reach this conclusion on the ground that the performance of the obligation
to nominate precedes in point of time the performance of the obligation to
provide the vessel; I do so because the obligation to nominate is, for the
reasons I have given, the more fundamental obligation."
11. A distinction fell to be made, however, Mr Lake submitted, between
that sort of situation where a single claim was based on more than one
obligation, and a situation in which separate claims were made based
on separate obligations. In that connection he cited Leathertex Divisione
Sintetici SpA v Bodetex BVBA (supra). Bodetex, who had acted for a
number of years as commercial agent for Leathertex, sued for payment
of (1) arrears of commission, and (2) compensation in lieu of notice
(Judgment, paragraph 9). The question on which a preliminary ruling was
sought was in the following (somewhat cumbersome) terms (paragraph
18):
"Are Articles 5(1) and 2 of the Brussels Convention , in the version
applicable to the present case, to be interpreted as meaning that a
composite claim founded on different obligations arising from the same
contract may be brought before the same court, even though, according
to the jurisdictional rules of the State in which the proceedings are
brought, one of the contractual obligations on which the claim is based is
to be performed in that State and the other is to be performed in another
EC Member State, having regard to the fact that the court before which
the proceedings are brought decides, on the basis of the claim brought
before it, that neither of the two obligations forming the subject-matter of
the claim is subordinate to the other and that they are of equal rank."
The Court noted that the Belgian courts had held that the obligation to
pay compensation in lieu of notice was to be performed in Belgium, while
the obligation to pay commission was to be performed in Italy (paragraph
34); and that the contract was not a contract of employment (paragraph
35) and therefore not subject to the rule in Ivenel v Schwab distinguished
in Shenavai at paragraphs 16 and 17. The Court expressed its conclusion
as follows:
"39. Finally, when a dispute relates to a number of obligations of equal
rank arising from the same contract, the court before which the matter is
brought cannot, when determining whether it has jurisdiction, be guided
by the maxim accessorium sequitur principale referred to by the Court in
paragraph 19 of the judgment in Shenavai, cited above.
40. The same court does not therefore have jurisdiction to hear the whole
of an action founded on two obligations of equal rank arising from the
same contract when, according to the conflict rules of the State where
that court is situated, one of those obligations is to be performed in that
State and the other in another Contracting State.
41. It should be remembered that, while there are disadvantages in
having different courts ruling on different aspects of the same dispute,
the plaintiff always has the option, under Article 2 of the Convention ,
of bringing his entire claim before the courts for the place where the
defendant is domiciled."
12. It was clear, Mr Lake submitted, that the present action contained two
separate claims, as was evidenced by the fact that they were advanced in
two separate conclusions, supported by two separate pleas-in-law. Each
claim was based on a separate alleged obligation. The claim for payment
(conclusion 1) was based on an alleged obligation under the contract
to make payment for work done. The claim for damages (conclusion 2)
was a claim for damages for breach of an implied obligation, allegedly
incumbent on the defenders, to comply with their obligations under their
contract with a third party, Z. Corporation ("Z."), and not by any action
or default within their control to allow a termination of the Z. contract
to occur, to the effect of preventing the pursuers from earning royalties
which were calculable by reference to the quantity of goods supplied by
the defenders to Z.. The payment obligation relied upon in support of
the claim made in the first conclusion was one which fell to be performed
in Scotland. It was accepted that this court therefore had jurisdiction in
respect of that part of the action. There was no suggestion, however, that
the implied obligation relied upon in support of the second conclusion was
one which fell to be performed in Scotland. These were two obligations
of equal rank, one of which fell to be performed in Scotland and one
of which did not. This was therefore a case to which the rule explained
in paragraph 40 of the judgment in Leathertex applied, and not one to
which the rule mentioned in paragraph 19 of the judgment in Shenavai
and applied in Union Transport applied. The plea of no jurisdiction should
therefore be sustained to the extent of granting decree of dismissal in
respect of the second conclusion.
(b) The Pursuers' Submissions
13. The submissions made by Mr Logan did not take the form
foreshadowed in the pursuers' Note of Proposals. His submission was
not, as the Note of Proposals appeared to suggest, that the fact that
the court has jurisdiction over one issue arising under the contract
gives it jurisdiction over other issues arising under the contract. Rather
his submission was that the principal obligation on which the second
conclusion was based was not the implied term contended for, but the
obligation in certain circumstances to make a payment of royalties in
respect of goods supplied to Z.. The implied obligation was designed to
protect the right to payment of those royalties. The search, carried out in
accordance with Shenavai, for the principal obligation on which the claim
in the second conclusion is founded thus led to the defenders' obligation
to make a payment to the pursuers of the royalties on goods supplied by
the defenders to Z.. The place of performance of that obligation to make
payment, like that of the obligation to make payment of the sum claimed
in the first conclusion, was Scotland. It therefore did not matter that the
place of performance of the obligation to comply with the alleged implied
term was not Scotland. That was only an accessory obligation. The
principal obligation was the obligation to make payment of the royalties.
The court therefore had jurisdiction under Article 5(1) in respect of the
second conclusion.
14. In order to elaborate upon that argument, Mr Logan pointed to the
averments made by the pursuers about the evolution of the contract
between the parties. The contract was for the supply by the pursuers
to the defenders of certain software products. The defenders required
those products in order to fulfil a contract which they had with Z.. The
arrangements evolved through three stages.
(1) In December 1999 the defenders explained that their contract with
Z. was a fixed price contract with royalty payments. The cost of the
software to the defenders in accordance with the pursuers' standard rates
would exceed the payment that the defenders were to receive from Z..
The pursuers had previously done work for the defenders' associated
company, C. Europe BV, at a discounted rate in exchange for a royalty
payment. It was agreed that the pursuers would invoice the work at
the same discounted rate as they had previously charged C. Europe BV
in exchange for payment of a royalty of 5 guilders for each of the first
100,000 units of the completed product sold by the defenders to Z..
Although a written contract was to be entered into, it was agreed that the
pursuers would start work immediately and invoice the defenders on the
agreed basis, i.e. at the discounted rate.
(2) The defenders continued to press the pursuers for a fixed price
contract in the sum of £150,000 plus royalties. In April the pursuers
proposed a new agreement to cover all work done in 2000 (but not
work done in 1999, which had already been paid for). It provided that
if the additional costs exceeded £150,000, the pursuers would only
recover the additional costs from the royalty payment. If the royalty
payments were insufficient to pay the overrun of costs within 24 months
of completion of the contract, the defenders would pay 50% of the
outstanding overrun, up to a maximum of £25,000. Those terms were
accepted by the defenders.
(3) In June 2000 the defenders advised the pursuers that Z. were not
proceeding with the project. The project did not proceed because the
defenders had failed to supply their part of the project timeously. The
defenders said that they were anxious to proceed with the project without
Z.. It was agreed that the pursuers would continue to undertake the
work and invoice it at the discounted rate until some equivalent of the
royalty payment the defenders had previously undertaken to pay could be
ascertained.
15. It was against the background disclosed in those averments, Mr Logan
submitted, that the claim based on breach of an implied term of the
contract fell to be examined. The pursuers' recovery of royalties depended
on the defenders supplying units of the completed product to Z.. In these
circumstances, the pursuers contend that certain terms were implied into
their contract with the defenders. They aver, in particular:
"It was an implied term of the agreement ... that the defenders would
comply with their obligations in terms of the contract with Z.. It was an
implied term that the defenders would not by any action or default within
their control allow a termination of the Z. contract to occur and thus
defeat the payment of the royalty."
16. Mr Logan's submission was that the pursuers' entitlement to receive
and the defenders' obligation to pay royalties on completed units
supplied by the defenders to Z. was a sine qua non of the contract. The
pursuers' claim for damages for breach of the implied term arose out of
the defenders' non-payment of royalties. The implied obligation not to
interfere with the earning of royalties had no free-standing status. Its
only point was to support the pursuers' entitlement to receive payment
of royalties. The implied term was ancillary to the defenders' obligation to
pay royalties. Mr Logan submitted that on a proper interpretation of what
was said by the European Court of Justice in De Bloos at paragraph 14 -
"In a case where the plaintiff asserts the right to be paid damages ... the
obligation referred to in Article 5(1) is still that ...the non-performance
of which is relied upon to support such claims" - the principle was wide
enough to identify, as the obligation to which Article 5(1) would direct
attention in relation to the claim made in the second conclusion, the
defenders' obligation to pay royalties. He referred to Martin Peters
Bauunternehmung GmbH v Zuid Nederlandse Aannemers Vereniging,
Case 34/82, [1983] ECR 987, in which the European Court of Justice
observed:
"The provisions of the Convention should therefore be interpreted in
such a way that the court seised is not required to declare that it has
jurisdiction to adjudicate upon certain applications but has no jurisdiction
to hear certain other applications, even though they are closely related."
(Reference was also made to Kleinwort Benson Ltd v Glasgow City Council
[1999] AC 153, per Lord Goff of Chieveley at 170-171.) The present case
was one in which the principle enunciated in Leathertex at paragraph 40
was inapplicable; this was not a case of two obligations of equal rank.
The obligation to comply with the implied term was merely ancillary to
the principal obligation to pay royalties, and therefore the court had
jurisdiction by virtue of the application of the principle enunciated in
Shenavai at paragraph 19. Moreover, Mr Logan submitted, it was a
useful cross check to ask whether the claim, if entertained in this court,
would be determined in the forum which is clearly the most appropriate
for it (Union Transport per Lord Goff at 23). Here the contract was a
Scots contract expressed in English, and this court would be the most
appropriate forum.
17. Finally, Mr Logan submitted that if he was wrong about the implied
obligation being ancillary to the obligation to pay royalties, it did not
follow that the plea of no jurisdiction was well founded. In determining
the place of performance of the implied obligation, the place of
performance of the obligations of the defenders to Z. were not relevant. It
was not clear that the place of performance of the implied obligation was
the Netherlands.
(c) The Defenders' Response
18. In response to Mr Logan's submissions, Mr Lake made two additional
points. The first, which perhaps relates principally to the question of
the relevancy of the averments of the existence of the implied term,
was that Mr Logan had accepted, in the course of preliminary hearings,
that the pursuers' claims were based on the agreement of June 2000.
I shall return to that point in the context of the issue of the relevancy
of the averments of the implied term. The second point, however,
related exclusively to the issue of jurisdiction. It was that Mr Logan had
accepted that the fact that the court has jurisdiction in respect of the first
conclusion does not per se give it jurisdiction in respect of the second
conclusion. That, however, was the only basis of jurisdiction advanced in
the pleadings. It was necessary for a party invoking Article 5(1) to make
clear averments of the basis on which he did so. In Eddie v Alpa Srl 2000
SLT 1062, Lord Eassie made that point at 1067H-I:
"In my view a pursuer seeking to rely on the special and derogative
provisions of art 5(1) of the Brussels Convention should be able to set
out, in averment, a sufficient exposition of contractual terms wherefrom it
can be seen that there is an intelligible and statable basis for maintaining
that the location of the place of performance of the contractual obligation
in issue is within the territorial jurisdiction of the court before which the
action has been brought. ... [A] pursuer ostensibly in doubt as to his
contractual situation and as to whether he is able to aver the existence
of art 5(1) jurisdiction always has available to him the primary ground of
jurisdiction, namely domicile under art 2 ...".
Reference was also made to Kleinwort Benson Ltd per Lord Clyde at 184F-
H. In the present case, the pursuers had failed to set out in averment the
basis on which they maintain that this court has jurisdiction in respect of
the conclusion for damages. More particularly, Mr Logan's final submission
about the place of performance of the implied obligation (see paragraph
[17] above) was without merit. If the implied obligation was the relevant
one for the purpose of Article 5(1), it was for the pursuers to aver that
its place of performance was in Scotland, if they wished to advance that
contention. They had not done that.
(d) Discussion
19. In my opinion the principles which emerge from the European
jurisprudence in relation to the application of Article 5(1) are clear.
Although counsel quite properly examined the principal authorities, I
can do no better by way of summary of the result than to quote the
following passage from the opinion of Lord Eassie in Eddie v Alpa Srl at
1063L-1064B, to which Mr Logan referred:
"[Where] damages are sought for breach of contract the obligation
relevant for the purposes of art 5(1) was the obligation under the
contract which had allegedly been breached (De Bloos, paragraph 14).
In determining the location or situation of the place of performance it
was necessary, in construing the contract, to apply the proper law of
the contract, that law being ascertained in accordance with the private
international law rules of the lex fori (Industrie Tessili). If an action were
founded on a number of different obligations all arising under the same
contract a court might identify the principal obligation in issue, which
would determine its jurisdiction, any subsidiary obligation being governed
by the maxim accessorium sequitur principale - Shenavai, paragraph 19.
However, if the separate obligations were of equal importance and the
one was not clearly ancillary to another, principal obligation, jurisdiction
existed only in respect of a claim based on the obligation whose place
of performance lay within the territorial jurisdiction of the court seized -
Leathertex. ... [Since] the provisions of art 5(1) constitute a derogation
from the basic leading provision of the Convention that a defender be
sued in the courts of his domicile, its provisions fell to be construed
restrictively."
20. In order to determine whether this court has jurisdiction in respect of
the second conclusion by virtue of Article 5(1), the first question which
requires to be answered is: What is "the obligation in question"? The
answer is to be found, in my opinion, by applying paragraph 14 of the
judgment in De Bloos. The claim is a claim of damages for breach of
contract. The obligation in question is therefore the obligation the non-
performance of which is relied upon in support of the claim. In the present
case, that obligation is the defenders' alleged implied obligation to comply
with the terms of their contract with Z., and not by any action or default
within their control to allow a termination of their contract with Z. to occur
and thus defeat the payment of royalties to the pursuers.
21. The next question is: What is the place of performance of the
obligation in question? Since it is, as I understand the position, a matter
of concession that Scots law is the proper law of the parties' contract,
that question is to be answered in accordance with Scots law (Grant
v Marie Brizard España; Industrie Tessili, paragraph 13; Leathertex,
paragraph 33). It is, in my view, clear that the place of performance of
that obligation is not in Scotland. Mr Logan was no doubt right to say that
the place of performance of the obligations which the defenders owed
to Z. was not relevant as such, but the alleged implied obligation in the
parties' contract on which the pursuers found seems to me inevitably to
have had its place of performance in the place where the defenders were
to perform their obligations under their contract with Z.. Given that the
only place of business of the defenders mentioned in the pleadings is in
the Netherlands, it appears probable that the place of performance of
the defenders under their contract with Z., and consequently the place
of performance of the implied obligation in the parties' contract, was
in the Netherlands. Be that as it may, it is in my view clear that it is
for the pursuers to aver the place of performance of the obligation in
question (Eddie v Alpa Srl per Lord Eassie at 1067; Kleinwort Benson
per Lord Clyde at 184G). The pursuers make no averment in support of
the proposition that the place of performance of the implied obligation
was Scotland. If, therefore, the obligation in question was that implied
obligation, there are no relevant averments that on the basis of Article
5(1) this court has jurisdiction in respect of the second conclusion.
22. That is not, however, the end of the matter, because the pursuers
contend that the implied obligation, even if it is the obligation which is
identified by the application of the principle set out in paragraph 14 of the
judgment in De Bloos, is not the principal obligation founded upon. The
contention is that that obligation is merely ancillary to the obligation to
pay royalties. It is therefore submitted that, on the principle enunciated in
Shenavai at paragraph 19, it is the place of performance of the obligation
to pay royalties that determines jurisdiction. It is therefore necessary to
examine the contention that the implied obligation is in the relevant sense
ancillary or accessory to the obligation to pay royalties.
23. There is, in my view, a sense in which the implied obligation is
ancillary to the obligation to pay royalties. As Mr Logan submitted, its
purpose can be seen as the protection of the pursuers against loss of
their right to royalties through act or default on the part of the defenders.
Taking pro veritate the pursuers' averments as to the terms of the
contract, their entitlement to royalties depended on the delivery of
completed units by the defenders to Z.. They were therefore at risk of
losing that entitlement if the defenders failed to perform their contract
with Z.. The purpose of the implied term contended for was to give them
a claim against the defenders if, through the defenders' default, no units
were delivered and thus no royalties came to be payable. Were it not
for the provision entitling the pursuers to royalties on completed units
delivered by the defenders to Z., there would have been no question of
the implied obligation coming into existence.
24. It does not, however, in my view follow that the obligation to pay
royalties is the relevant principal obligation for the purpose of determining
which court has jurisdiction as the court of the place of performance of
"the obligation in question". The rule in paragraph 19 of the judgment
in Shenavai is concerned with the situation in which the dispute is
"concerned with a number of obligations arising under the same contract
and forming the basis of the proceedings" (emphasis added). It is
therefore not enough, in my opinion, to identify an obligation (to be
performed within the jurisdiction of this court) to which the obligation
performable elsewhere can be said to be ancillary. The obligation said to
be the principal obligation must form part of the basis of the proceedings.
In the present case, I am of opinion that the obligation to pay royalties
forms no part of the basis for the second conclusion. Indeed, for the
implied obligation to come into operation, the situation must be such that
there is, in the events which have happened, no obligation on the part
of the defenders to pay royalties. It is not in my view sufficient, to make
the obligation to pay royalties the principal obligation founded upon, that
for the purpose of quantification of damages reference will have to be
made to the amount of royalties which would have been payable if the
defenders had not acted in breach of the implied obligation. The only
obligation on which the second conclusion is based is, in my opinion,
the alleged implied obligation. I am therefore of opinion that Mr Logan's
attempt to found on the rule in paragraph 19 of the judgment in Shenavai
is misguided.
25. In my opinion, therefore, "the obligation in question" for the purpose
of the application of Article 5(1) to the claim advanced in the second
conclusion is the alleged implied obligation, the place of performance of
which is not relevantly averred to be in Scotland. It follows, in my opinion,
that the defenders' plea of no jurisdiction is well founded in respect of the
second conclusion, and should be sustained to the extent of dismissal of
that conclusion.
Relevancy - The Implied Term
26. On the view which I have taken of the plea of no jurisdiction, the
relevancy of the averments relating to the implied term is no longer a
live issue. Nevertheless, lest the matter go further, it is appropriate that I
should indicate briefly the view which I would have taken on that issue.
(a) The Defenders' Submissions
27. Mr Lake submitted that the familiar tests of the relevancy of
averments of an implied term of a contract were to be found in The
Moorcock (1889) 14 PD 64 and in the other authorities referred to in
Scottish Power plc v Kvaerner Construction (Regions) Ltd 1999 SLT 721.
All that the pursuers said by way of an attempt to satisfy that test was:
"It was necessary for the operation of the contract that the risk of non-
payment of the royalty by Z. following a breach of their obligations by the
defenders rested on the defenders."
That bare assertion was not, by itself, enough. What were required were
averments of facts and circumstances supporting the bare assertion.
28. Secondly, Mr Lake submitted that since it was clear that by the time
of the agreement said to have been concluded in June 2000 Z. had
already terminated their contract with the defenders, an implied term
that the defenders would not cause the termination of the Z. contract
was inconsistent with the known facts on the basis of which the June
agreement was entered into. In advancing that argument, Mr Lake relied
heavily on the understanding which he said that Mr Logan had conveyed
in the course of preliminary hearings that the pursuers' claim was founded
solely on the June agreement. Moreover, Mr Lake submitted, since the
June agreement was for payment on a time and line basis, it could not be
said that continuation of the Z. contract was necessary to give it business
efficacy. Mr Lake also pointed to the pursuers' admission that it was C.
Europe BV, and not the defenders, who were the party to the Z. contract.
There therefore could not be an implied term that the defenders would
comply with their obligations under the Z. contract, when they were not
parties to it.
29. On these grounds Mr Lake submitted that the averments relating to
the implied term were irrelevant, and that on that ground, if not on the
ground of no jurisdiction, decree of dismissal should be pronounced in
respect of the second conclusion.
(b) The Pursuers' Submissions
30. Mr Logan submitted that the bare averment of necessity should be
read in the context of the earlier averments about the basis on which the
pursuers were to be remunerated. It was clearly averred that the only
means by which the pursuers were to make a profit on the transaction
was through earning commission. That background gave adequate
content to the averment of necessity. Further, he disputed Mr Lake's
interpretation of what had been said about the basis of the claim at the
preliminary hearings. It was plain, he submitted, that the implied term
related to the April 2000 agreement, not the June 2000 agreement. The
April agreement made provision for a payment by the defender in the
event of a shortfall in royalties within 24 months of the end of the project,
but did not contemplate a situation in which there would ultimately be
no royalties. So far as the identity of the party contracting with Z. was
concerned, Mr Logan pointed to the pursuers' averments explaining that
the defenders and C. Europe BV were both subsidiaries of Pijnenburg
Beheer NV, and that the defenders had been incorporated specifically for
the purpose of undertaking the work involved in the Z. contract.
(c) Discussion
31. With some hesitation I am prepared to accept that the averment
of the necessity of the implied term can be read in the context of the
earlier averments about the basis on which the pursuers were to be
remunerated, and that in that form further specification is given. Mr
Lake was, in my view, mistaken about what Mr Logan had said at the
preliminary hearings about the contractual basis of the pursuers' claims.
It is, according to my recollection, correct that Mr Logan said that the
claim for payment was based on the June agreement, and that the earlier
agreements were referred to only to explain the reference to a discounted
rate in the June agreement. I do not consider, however, that Mr Logan
can be taken to have meant that the claim for damages too was based
on the June agreement. For the reason clearly identified by Mr Lake,
namely that the Z. agreement was already terminated by the time of the
June agreement, the claim based on breach of the implied term cannot
be based on the June agreement. In light of the explanation about the
defenders having been formed specifically to do the work required under
the Z. contract, I do not consider that the pursuers' admission that it was
C. Europe BV that contracted with Z. can be regarded at this stage as
fatal to the damages claim. In all the circumstances, I would, had I not
sustained the plea of no jurisdiction, have allowed a proof before answer
in respect of the damages claim.
Relevancy - The Payment Claim
a. The Defenders' Submissions
32. Mr Lake submitted that in certain respects the claim for payment
made in the first conclusion was not supported by relevant averments.
He pointed out that the claim was based on three invoices, namely (i)
invoice number 00-122 dated 30 June 2000 (No. 6/13 of process); (ii)
invoice number 00-126 also dated 30 June 2000 (No. 6/14 of process);
and (iii) invoice number 00-149 dated 31 July 2000 (No. 6/15 of process).
Although these invoices were not formally incorporated in the pursuers'
pleadings, it was only through them that specification of the composition
of the claim was given. He therefore submitted that he was entitled to
treat them as part of the pleadings. On that basis, he made two points
about them.
(1) He submitted that, although it was the agreement of 10 June 2000
that the pursuers relied upon, two of the invoices (Nos. 6/13 and 6/14 of
process) made claims in whole or in part for work done before that date.
(2) Two of the invoices were headed "Z. Application", but the third (No.
6/14 of process) was headed "Open TV Platform - Ian Moody", and thus
did not bear to relate to the relevant contract.
(b) The Pursuers' Submissions
33. Mr Logan responded to those submissions in the following way.
(1) So far as the dates in the invoices were concerned, the claim was
based on the April agreement as well as the June agreement, and the fact
that some of the work appeared to antedate the June agreement was of
no moment.
(2) The reference to "Open TV Platform" was simply another way of
referring to the contract in question. He pointed to the averment in article
2 of the condescendence in which reference is made to agreement about
"what the defenders required in respect of the development of software
for boxes to operate Open TV space, a product being developed for Z.".
(c) Discussion
34. In my view, it would be inappropriate to rule at this stage that the
claims made in the invoices relating to dates before 10 June 2000 are
irrelevant. I do not take that view for the reason advanced by Mr Logan,
because it seems to me that it is correct that the payment claim is based
on the June agreement. However, it is averred that:
"At the meeting on 10 June ... [it] was agreed that the pursuers would
continue to undertake the work instructed and invoice this work at the
discounted rates".
It seems to me to be a possible interpretation of that agreement that it
applied not only to work done thereafter, but also to work already done
but not yet invoiced.
35. In light of the explanation offered by Mr Logan and the averment
about "Open TV", I do not consider that I can properly exclude invoice
00-126 from probation on the basis that it does not relate to the relevant
contract.
Result
35. I shall accordingly -
(1) sustain the defenders' first plea in law, so far as it relates to the
second conclusion, and accordingly grant decree of dismissal in respect of
that conclusion; and
(2) quoad ultra allow a proof before answer.
36. I shall reserve meantime the question of expenses.