„(…) The proceedings so far
The appellants P. A. S. and F. Ltd are a company carrying on business as
futures and options brokers. In the past they have carried out substantial
business for a number of German customers. The respondents are six
former customers of the appellants, all resident in Germany. Without
intending any impoliteness we shall for convenience refer to them by
their surnames: B., T., K., R., F. and G.. Customer agreements between
the appellants and each respondent contain different forms of arbitration
agreement. B.'s arbitration clause provided for arbitration in London
under the London Court of International Arbitration ('LCIA') Rules. The
agreements of T., K., R. and G. contained an arbitration clause providing
for arbitration in London under the LCIA rules, "subject only to SFA Rules
in respect of claims under 50,000". F.'s arbitration clause provided for
arbitration under the AFBD Scheme which has been superseded by the
SFA Arbitration Scheme. Disputes having arisen between the parties,
the respondents claimed against the appellants as a result of trading
losses incurred. Instead of referring those disputes to arbitration each
respondent commenced proceedings in German courts. In each case
the appellants contested the proceedings on the basis that there was a
binding arbitration agreement.
Interim injunctions were granted by the Commercial Court, and notice
of them given to the respondents. The respondents have however
continued to prosecute their claims, with the result that judgments in five
of the cases have now been given by the Monchengladbach or Krefeld
district courts. The appellants contend that three of those customers,
B., F. and G., had notice of the interim injunctions by fax before the
hearing in Germany took place. In relation to the five customers with
German judgments the purpose of these proceedings now is to obtain
declarations, so as to preclude enforcement of those judgments in
this country; and in relation to R. to obtain in addition an injunction
restraining the continuance of his pending claim in Germany. His case
is due for hearing there on 19 September l996. The appellants have
appealed against these judgments in Germany. If the appeals fail and the
judgments are not satisfied, the appellants must either seek to resist their
enforcement in this country or alternatively, as a final resort, pursue a
claim for damages for breach of the arbitration agreements.
In each of the judgments the German Court rejected the appellants'
submission that the Court had no jurisdiction because of the binding
arbitration agreement, and ruled, as a distinct ground of its decision,
that the arbitration agreements were under German law either invalid or
inapplicable. In G. as a matter of construction the Court decided that the
agreement to arbitrate had no application to claims over 50,000. But in
all the other cases the Court relied on one or more of five grounds all of
which treated the English choice of law or the arbitration clause itself as
overborne by mandatory rules of consumer protection.
The appellants now appeal against the judgment of Waller J dismissing
their claims for declarations that the arbitration agreements are valid
and enforceable and that the German judgments are not entitled to
recognition or enforcement in the United Kingdom. As in the court below,
Mr David Anderson and Ms Helen Davies have appeared as amici curiae,
and the Court is indebted to them.
It is convenient to present this judgment by reference to the issues
formulated by the appellants, though not in quite the same order.
References to sections are, unless otherwise stated, to sections of the
Consumer Arbitration Agreements Act l988.
Construction
As a matter of construction of the particular arbitration clauses, is there a
binding agreement to arbitrate claims under 50,000 in the cases of T., K.
and R.?
The arbitration clause in the Customer Agreements of T., K. and R. reads
as follows:
"The Company and the Customer agree, subject only to SFA Rules in
respect of claims under 50,000 whereby SFA Consumer Arbitration
procedures shall apply, that in the event of any dispute arising out of
or in connection with this Agreement, including any question regarding
its existence, validity or termination, such dispute shall be referred to
and finally determined by non-domestic arbitration under the Rules of
Arbitration of the London Court of International Arbitration, which Rules
are deemed to be incorporated by reference into this clause."
Clause 2(a) of the SFA Consumer Arbitration Scheme provides that -
"Subject to paragraph (c) below, any dispute between a Member Firm and
a private customer who is or has been a customer of a Member Firm ("a
Claimant") arising out of or in connection with any investment business of
a kind with which SFA is concerned (unless SFA and the parties otherwise
agree) and in respect of which the principal amount in dispute does not
exceed 50,000, (excluding interest and costs) shall, upon the election of
the Claimant, be arbitrated in accordance with these provisions, and the
Member Firm shall submit to the arbitration of such dispute in accordance
herewith."
On behalf of the appellants Mr Morris argues that the provision in the
arbitration clause "subject only to SFA Rules in respect of claims under
50,000" is merely a derogation from the general right and obligation to
refer to LCIA arbitration. The Rules give the customer the right to elect
for SFA arbitration. The arbitration clause preserves that right, but in the
absence of its exercise, the general LCIA arbitration provision applies.
This, Mr Morris submits, is the proper construction to be placed on the
words "subject only to SFA Rules".
As a matter of construction this arbitration clause takes claims under
50,000 out of the reference to arbitration under LCIA Rules. Such claims
are made the subject of SFA Consumer Arbitration procedures. They
accord to the consumer an election whether or not to arbitrate. No
such election has been exercised in any of the cases now before the
Court. So there is no reference to arbitration, and the disputes can
only be litigated. The jurisdictional limit of the County Court, which was
extensively canvassed in argument, is a red herring. At best it might have
explained why 50,000 was chosen by SFA as the amount up to which the
consumer was to have an election. In any event the arbitration clause
was couched as it was in order to match the SFA provision. No reason
has been suggested why consumers might have wished to choose SFA
rather than LCIA arbitration. Since in our judgment the alternative to SFA
arbitration was litigation, T., K. and R. were not bound to refer their claims
to arbitration.
Section 2(a) and EC law
Should the Court disapply s 2(a) in the present cases as constituting a
restriction on the freedom to provide services contrary to art 59 of the EC
Treaty and/or unlawful discrimination contrary to art 6 of the EC Treaty
and thus apply s 1?
Section 1 provides (so far as material) -
"(1) Where a person (referred to in section 4 below as "the consumer")
enters into a contract as a consumer, an agreement that future
differences arising between parties to the contract are to be referred to
arbitration cannot be enforced against him in respect of any cause of
action so arising to which this section applies except
...
(c) Where the court makes an order under section 4 below in respect of
that cause of action.
(2) This section applies to a cause of action -
(a) if proceedings in respect of it would be within the jurisdiction of a
County Court...."
Section 2(a) removes from the scope of s 1 agreements which are
covered by s 1 of the Arbitration Act l975, that is arbitration agreements
other than domestic arbitration agreements. "Domestic arbitration
agreement" is defined as -
"an arbitration agreement which does not provide, expressly or by
implication, for arbitration in a State other than the United Kingdom and
to which neither -
(a) an individual who is a national of, or habitually resident in, any State
other than the United Kingdom; nor
(b) a body corporate which is incorporated in, or whose central
management and control is exercised in, any State other than the United
Kingdom;
is a party at the time the proceedings are commenced."
The Customer Agreements are non-domestic arbitration agreements,
because the relevant customers are German nationals and because they
habitually reside in Germany. Prima facie therefore s 2(a) renders them
amenable to arbitration, against which they would have been protected by
s 1, had they been British.
It is common ground that the three Articles of the EC Treaty that may
bear on this issue are arts 6 (formerly 7), 59 and 220. They provide, so
far as is material:
"6. Within the scope of application of this Treaty, and without prejudice to
any special provisions contained therein, any discrimination on grounds of
nationality should be prohibited...
59. Within the framework of the provision set out below restrictions on
freedom to provide services within the Community shall be progressively
abolished during the transitional period in respect of nationals of Member
States who are established in a State of the community other than that of
the person for whom the services are intended...
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 formalities governing the reciprocal recognition
and enforcement of judgments of courts or tribunals and of arbitration
awards."
The 1968 Convention on the Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters (the Brussels Convention) was
entered into by the Member States in pursuance of art 220 of the Treaty.
So far as art 59 is concerned, Mr Morris argues that this article by its
terms prohibits restrictions on the freedom to provide services and covers
discrimination in relation to the provision of services. On the other hand,
he submits that it does not apply to a restriction on, or discrimination in
relation to, the recipient of services except in two exceptional cases. The
first of these is said to arise where the service recipient travels to another
Member State in which it receives the services, and in that case the right
is granted to the recipient in the context of Treaty provisions on the free
movement of persons, and as a corollary of the right of free movement.
The other is said to arise where the substance of the complaint is that
there is a restriction on the provision of services.
In support of these propositions Mr Morris relies on three decisions of the
European Court of Justice. In the first, Joined Cases 262/82 and 26/83
Luisi and Carbone v Ministero del Tesoro [1984] ECR 377 two Italian
nationals complained that Italian exchange control legislation prevented
them from enjoying tourist facilities and, in one case, medical services,
in another Member State. In para 10 of its judgment the Court said that
in order to enable services to be provided, the person providing the
service may go to the Member State where the person for whom it is
provided is established or the latter may go to the State in which the
person providing the service is established. Although the second of these
cases is not expressly mentioned in the third paragraph of art 60, which
permits the person providing the service to pursue his activity temporarily
in the Member State where the service is provided, the court said that it
was the necessary corollary of the first case, "which fulfils the objective of
liberalising all gainful activity not covered by the free movement of goods,
persons and capital".
It was in this context, therefore, after describing the Directives introduced
in pursuance of the General Programme for the Abolition of Restrictions on
Freedom to Provide Services, that the Court held (in para 16):
"It follows that the freedom to provide services includes the freedom,
for the recipients of services, to go to another Member State, in order to
receive a service there, without being obstructed by restrictions, even
in relation to payments and that tourists, persons receiving medical
treatment and persons travelling for the purpose of education or business
are to be regarded as recipients of services."
This decision was applied in the second case on which Mr Morris relies,
Case 186/87 Cowan v Tresor Public [1989] ECR 195. In that case a British
citizen had sustained serious injuries when he was assaulted outside a
metro station in Paris, and he complained that French law, which limited
its criminal injuries compensation scheme to French nationals, was
discriminatory in that it prevented tourists from going freely to another
Member State to receive services there. The Court upheld his complaint,
saying (at para 17):
"When Community law guarantees a natural person the freedom to go
to another Member State the protection of that person from harm in the
Member State in question, on the same basis as that of nationals and
persons residing there, is a corollary of that freedom of movement. It
follows that the prohibition of discrimination is applicable to recipients of
services within the meaning of the Treaty as regards protection against
the risk of assault and the right to obtain financial compensation provided
for by national law when that risk materialises."
In Case C-45/93 Commission v Spain [1994] ECR I-911, the third case
on which Mr Morris relies, the Court was concerned with a complaint by
the European Commission that Spain had infringed arts 7 (as it then
was) and 59 of the Treaty by providing free admission to its national
museums to Spanish citizens, foreigners resident in Spain and nationals
of other Member States under the age of 21, while adult tourists from
other Member States were charged an entrance fee. The Court applied
its decision in Cowan and held that this practice constituted unlawful
discrimination. Although it did not say in terms which of the Commission's
specific arguments it accepted, Advocate-General Gulmann did (see
p 915), and he upheld the Commission's arguments that access to
museums is one of the decisive factors for a tourist's visit to the territory
of a Member State, and is closely and indissolubly linked to the right to
freedom of movement enjoyed by tourists (see p 914).
It will be seen that in each of these cases the Court was concerned with a
factual situation in which the recipient of a service complained of unlawful
discrimination when he or she went to the other Member State in which
the service was provided. In C-384/93 Alpine Investments BV [1995] ECR
I-1141 the European Court of Justice was concerned with a complaint
that a Dutch law which prohibited the marketing practice known as "cold
calling" in relation to Securities Transactions infringed art 59 because
it prohibited a firm established in the Netherlands from approaching
prospective clients established in other Member States.
In his Opinion, Advocate-General Jacobs recognised (at para 43) that
most of the cases on the provision of services which had been decided
by the Court so far concerned restrictions imposed by the Member State
of destination. The Court had been asked: must art 59 of the EEC Treaty
be interpreted as meaning that it also covers services which the provider
offers by telephone from the Member State of his establishment to
(potential) clients established in another Member State and therefore
also provides from that Member State? The Court answered this question
unequivocally in the affirmative: see paras 21 and 22 of the judgment:
"21. In this case, the offers of services are made by a provider
established in one Member State to a potential recipient established in
another Member State. It follows from the express terms of Article 59
that there is therefore a provision of services within the meaning of that
provision.
22. The answer to the first question is therefore that, on a proper
construction, Article 59 of the EEC Treaty covers services which the
provider offers by telephone to potential recipients established in other
Member States and provides without moving from the Member State in
which he is established."
Although this judgment was delivered in May 1995, it was not referred to
by the judge who reached the same conclusion by using a commonsense
approach – namely that the disadvantage sustained by the recipient of
services was the same whether he or she stayed at home or travelled to
receive the services. If the services happened to be of a type where there
was no necessity for travel, it seemed strange to the judge if this fact
distinguished discrimination in relation to the provision of those services
from one where travel was necessary to receive them.
Turning to art 220, in Mund & Fester v Hatrex International Transport
[1994] ECR I-467 the European Court of Justice was concerned with
a complaint about that part of the German Code of Civil Procedure
which provides different rules for deciding whether a party's assets may
be seized before judgment depending on whether judgment is to be
eventually enforced in Germany or in another Member State. The Court
held that the provisions of the Brussels Convention are linked to the
Treaty and therefore within the scope of its application within the meaning
of what is now art 6 because (see para 12 of the judgment) it was on the
basis of art 220 and within the framework defined by it that the Member
States had concluded the Convention. The Court held that the national
provision at issue entailed a covert form of discrimination on grounds of
nationality within the field of application of the Treaty (see paras 14-15)
which could not be justified by objective circumstances.
The Court of Appeal applied this decision in Fitzgerald v Williams
[1996] 2 All ER 171, [1996] 2 WLR 447 when it set aside an order for
security of costs made under Ord 23 r 1(1)(a) against Irish plaintiffs. Sir
Thomas Bingham MR held at p 460 that he could not think that a factual
distinction between a rule relating to security for a future judgment and
a rule relating to security for further costs of litigation could be held to
support a difference of principle between them, since both provisions
looked towards a future judgment, for compensation in one case and for
reimbursement of the costs of litigation in the other.
Mr Morris submits that s 2(a) of the 1988 Act has nothing to do with the
assignment of jurisdiction or the enforcement of judgments under the
Brussels Convention for two reasons. First, because the only situation
treated more favourably under the Act is an agreement between two
English parties, and this is a situation which does not fall within the
scope of the Convention; and secondly, in any event, because questions
as to the effect and validity of an arbitration agreement are expressly
excluded from the Convention: see art 1(4). Mr Anderson on the other
hand submits that the enforceability of arbitration agreements is "linked
to the Treaty" via the Brussels Convention and/or via the reference in art
220 to arbitration.
We will address the art 59 point first. Mr Morris sought to distinguish the
rather unpromising line of authority from the European Court by repeating
that art 59 is concerned with restrictions on the freedom to provide
services, and all that the Court has done has been to ensure that the
provider of services would not be disadvantaged by restrictions making
it impossible or less easy for nationals of other Member States to receive
his services, whether those restrictions were achieved by stopping them,
by exchange control regulations, from coming to his state with a capacity
to pay for the services (Luisi and Carbone), or by charging them more
when they arrived there (Commission v Spain), or simply by prohibiting
the delivery of the services altogether (Alpine Investments). He said,
correctly, that Cowan was not an art 59 case, but a case concerned with
freedom of movement.
He went on to submit that there is nothing in the 1988 Act to impede his
clients as providers of services in any way, and that for this reason art 59
is irrelevant and there is no unlawful discrimination within the meaning of
art 6.
In our judgment this submission is not well founded. A rule which
disadvantages recipients of services in another Member State inevitably
restricts the freedom of the service provider to provide services on equal
terms to everyone in the Community and is inimical to the objective of
the Treaty (see art 3) of achieving an internal market characterised by
the abolition of obstacles to the free movement of services. As the Court
has made clear, whether the restriction is placed on the provider of the
services or the recipient, the effect is the same, and it is inconsistent
with the purposes of the Treaty. Nationals in Germany, Spain or Finland
may be less inclined to avail themselves of the services of Mr Morris's
clients because English law does not afford to them the same treatment
as that which is available to English nationals, and in our judgment this is
clearly discriminatory and impermissible pursuant to arts 6 and 59 of the
Treaty. We should make it clear that Mr Morris did not seek to rely on any
objective justification for this discrimination. Before the judge there had
been some discussion whether the United Kingdom's obligations under art
2(3) of the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards might be capable of constituting such justification.
Mr Morris accepted before us that under the Convention it was open to
the Court of Contracting State to find that an agreement was inoperative
in a consumer context, and he did not pursue any argument on this issue.
Because of the clear view we have reached on the combined effect of
art 6 and art 59 it is not necessary for us to express an opinion on the
more difficult question that arises in relation to art 220. The judge did not
mention it in his judgment and we are happy to leave this point open to
another day when it may be necessary to decide it.
Mr Morris invited us to refer the issues arising under art 6 to the European
Court pursuant to art 177 of the Treaty. He accepted that the governing
principle has been set out by Sir Thomas Bingham MR in R v International
Stock Exchange ex p Else (1982) Ltd [1993] QB 534, [1993] 1 ALL ER
420:
"I understand the correct approach in principle of a national court (other
than a final court of appeal) to be quite clear: if the facts have been found
and the Community law issue is critical to the court's final decision, the
appropriate course is ordinarily to refer unless the national court can with
complete confidence resolve the issue itself."
Because we have reached a clear view on the issue, we do not consider it
appropriate to take this course.
Section 2(b)
Is the effect of s 1 excluded because the disputes in question are
differences arising under contracts relating to the creation or transfer of
securities or of any right or interest in securities within s 2(b)?
Section 2(b) excepts from the scope of s 1 -
"the resolution of differences arising under any contract so far as it is, by
virtue of section 1 (2) of, and Schedule 1 to the Unfair Contract Terms Act
l977 ("the Act of l977"), excluded from the operation of section 2, 3, 4 or
7 of that Act."
Section 1(2) Unfair Contract Terms Act 1977 provides that:
"..in relation to contracts, the operation of sections 2 to 4 and 7 is subject
to the exceptions made in Schedule 1"
Schedule 1 provides, so far as relevant:
"1. Sections 2 to 4 do not extend to -
(e) any contract so far as it relates to the creation or transfer of securities
or of any right or interest in securities."
The appellants' Customer Agreements offer the provision of:-
"General investment advisory and dealing services and related research
in the following investments, and the effecting of margined transactions
thereon:
(a) futures on any commodity, security, interest rate instrument of other
indices, precious metals or any currency and forward foreign exchange
transactions;
(b) contracts for differences, e.g. contracts based on the FT-SE 100 or S &
P 500 stock indices;
(c) options to acquire or dispose of any of the instruments specified in (a)
and (b) above, any securities, any currency or gold, palladium, platinum
or silver;
(d) securities where the transaction in question is ancillary to a
transaction in any of the foregoing; and
(e) units in collective investment schemes which are not regulated."
Thus the appellants draw for themselves the distinction between securities
on the one hand and futures and options on the other, and under
paragraph (d) there is a power to deal in securities only when ancillary
to futures and options. As appears from the affidavit of the appellants'
compliance officer, it is in practice only in futures and options that the
appellants deal.
The appellants argue that all the financial instruments in which they deal
are "securities" within Sch 1 of the Act of l977. Alternatively they contend
that if commodities and currency-based transactions are not "securities",
a substantial part of the transactions such as stocks bonds and treasury
certificates, were clearly transactions in securities. They argue that each
Customer Agreement "related to" the transfer of securities or at the least
a right or interest in securities.
Mr Morris, on their behalf, submits that although in the Prevention of
Fraud Investments Act 1958 'securities' includes gilts, they are one of the
classes expressly excluded for listing purposes by the Financial Services
Act 1986. Because futures and options are relatively recent products,
'securities' should be defined as investments which fall within the
Schedule of the 1986 Act. Mr Morris further argued that when construing
the Unfair Contracts Terms Act 1977, which contains no definition of
securities, it is proper to do so as at 1986, by which time it would have
included those wider categories.
We do not accept these submissions. First we see no basis on which it
could be right to construe the provisions of the Unfair Contract Terms Act
1977 by reference to the Financial Services Act 1986 or the scheme of
regulation which existed in 1988 when Consumer Arbitration Agreements
Act 1988 came into force. In the latter Act Parliament decided that the
exclusion should be that which applied in relation to the 1977 Act. The
1977 Act cannot be construed by reference to these subsequent events.
In any event the effect of the Financial Services Act l986 s 142 and Sch
1 is to define securities for listing purposes in terms which specifically
exclude futures and options.
Second we see no reason to give the word "securities" in the 1977 Act
any wider meaning than it would ordinarily have borne in 1977. The
purpose of the exclusion was to remove from the protection of the 1977
Act a contract of the relevant type entered into by a consumer. There
is no reason to think that Parliament wished to remove that protection
from consumers entering into futures or options contracts. We doubt
whether it is possible to give an exhaustive definition of "securities". For
present purposes it is in our view sufficient to indicate that it refers to the
financial assets represented by certificates attesting ownership of stocks
and shares and the like. Futures and options, even when concerned with
securities so defined, are to be distinguished from securities themselves.
Mr Morris has been unable to bring to our attention a single example of
the term securities being used so as to embrace futures or options. The
exclusion from the scope of s 1 of the 1988 Act of contracts relating to
securities is understandable: different considerations apply to contracts
relating to futures and options.
Mr Morris argued that the Customer Agreements "related to" the transfer
of securities or at the least a right or interest in securities. We have
already held that it could not have related to securities. In our view
it would not normally relate to rights or interests in securities either.
The usual option or futures contract would be one which if exercised or
matured would lead to a contract for sale by description. Such a contract
would not confer any right or interest in specific securities until securities
answering the description had been appropriated to the contract.
In any event the words "relate to" could not cover the contracts in this
case. They do not relate to the creation or transfer of the securities or of
any right or interest in such securities. The performance of the contract
may lead to such a contract but is not a contract of that description itself.
Accordingly in our judgment the Judge was right on this issue and the
provisions of s.2(b) do not exclude the application of s.1 to the contracts
with which this appeal is concerned.
Section 4 and disapplication
In the case of R., if the arbitration agreement would otherwise be
rendered unenforceable, should the Court disapply s 1 by an order under
s 4?
Section 4 gives the Court power to disapply s 1 where there is no
detriment to the consumer. Since the argument based on s 4 applies
only to R., it is in the light of the answer to the first issue immaterial.
The appellants would have argued that the bringing of a claim in LCIA
arbitration would not necessarily be disadvantageous to R.. In the
exercise of his discretion the judge, however, concluded that, having
regard to the previous decisions of the German Courts and to the cost of
conducting an arbitration in a foreign country, he "could not be satisfied
that it would not be detrimental to R. for the claim which he is pursuing in
Germany to be referred to Arbitration". That conclusion is unimpeachable.
Judgments in face of interlocutory injunctions granted by Commercial
Court
In the cases of B., G. and F., does the fact that notice of interlocutory
injunctions was given before the respective hearings in Germany provide
grounds under art 27(1) of the Brussels Convention for not recognising
the German judgments which would otherwise preclude a finding of a
binding arbitration agreement?
For the reasons set out above none of the arbitration agreements was
enforceable; in those circumstances the question of recognition of German
judgments does not arise. It follows that it is unnecessary to resolve any
of the other issues, except as to declarations relating to recognition and
enforcement of German judgments on the merits.
About the issue relating to interlocutory injunctions we say no more than
that we agree with the judge and both counsel that in the cases of B., F.
and G., who had notice of the interlocutory injunctions before obtaining
judgment in their German actions, the German judgments should by force
of art 27(1) of the Brussels Convention not be recognised. At page 53 of
the transcript of his judgment the judge said -
"It would seem to me prima facie that if someone proceeds in breach of,
and with notice of, an injunction granted by the English Court to obtain
judgments abroad, those judgments should not, as a matter of public
policy, be recognised in the United Kingdom."
Unless, therefore, the apparent breaches of those respondents could be
excused, their German judgments would not be enforceable.
Judgments in face of binding agreements
In the cases of T. and K. are the respective judgments in Germany,
holding that the arbitration agreement is not binding, required to be
recognised in this Court under the Brussels Convention, thus precluding
this Court from finding that there is a binding arbitration agreement?
If it had been material, it would have been appropriate to refer this issue
to the European Court of Justice, since it raises the very point that the
Court itself refrained from answering when it had the opportunity of
doing so in C190/89 Atlantic Emperor No 1 [1991] ECR I-3855. But in the
circumstances it does not arise.
Declarations as to recognition and enforcement of German Judgments
In the case of all the respondents except R. should the Court now grant
declarations that the German judgments are not to be recognised and/or
enforced -
(a) In so far as those judgments decide that the arbitration agreements
are invalid or unenforceable, or
(b) In so far as those judgments determine on the merits the substantive
claims of the respondents for restitution and/or compensation?
As to (a), obviously the Court should not make any declaration on this
ground, since the judgments are not wrong in their effect. As to (b), save
for notice of interlocutory injunctions, there is no ground for challenging
the judgments. The appellants submit that having concluded that any
of the German judgments are not to be recognised, there is no reason
why declarations to that effect, which would be of substantial benefit
to the appellants, should not be granted. It would provide protection
in the event of applications for enforcement of German judgments in
this country. Mr Anderson, on the other hand, pointed to the judge's
uncertainty whether the German customers would actually seek to
enforce their judgments, and to the appellants' own idea that they might
be content to claim damages for breach of the arbitration agreement,
although Mr Morris told us, on instructions, that his clients would only
consider pursuing this course as a last resort if their resistance to the
enforcement of the German judgments proved ultimately unsuccessful.
Mr Anderson added that if the appellants' appeals in Germany were
successful, the perceived need for a declaration would fall away
completely. He also submits that the modern approach of the courts is to
dismiss claims for declarations on hypothetical facts (meaning that they
may not happen).
In our judgment the judge's discretion not to grant declarations was
exercised on correct principles. He was entitled to refrain from rendering
the issue res judicata, and so to leave it open to the respondents to
attempt enforcement, even though they have not so far resisted the
appellants' proceedings here. Although the judge was to some extent
influenced by his uncertainty concerning service of notice of the injunction
(which has been resolved in this Court so far as B., F. and G. are
concerned), there were other sound reasons, which are not affected by
this consideration, for him to have exercised his discretion in the way that
he did. Since we do not consider that the judge was plainly wrong, we
would not interfere with his decision.
Injunction
In the case of R. should the Court grant a final injunction restraining the
continuation of the proceedings in Germany?
The judge's refusal to grant an injunction constituted an alternative
ground for rejecting the appeal in respect of R.. It constituted an exercise
of discretion with which this Court would in any event have been reluctant
to interfere. But in the absence of an enforceable arbitration clause the
basis for granting an injunction goes.
The practice of the courts in England to grant injunctions to restrain a
defendant from prosecuting proceedings in another country may require
reconsideration in the light of the facts of this case. The conventional
view is that such an injunction only operates in personam with the
consequence that the English courts do not and never have regarded
themselves as interfering with the exercise by the foreign court of its
jurisdiction. In cases where the defendant lives or has assets of substance
in England that view may have some reality for there is reason to think
that the injunction may be enforced so as to prevent proceedings taken
in breach of it from reaching the foreign court. But in cases in which
the defendant does not live in England and does not have assets here
the injunction is unlikely to be enforceable except by the foreign court
recognising and giving effect to the injunction or, where it refuses to do
so, by this court refusing to recognise the order of the foreign court made
without such recognition. In the present case the German courts regarded
the injunctions as an infringement of their sovereignty and refused to
permit them to be served in Germany. In addition they proceeded to give
judgments on the merits. It was for that reason that the amici curiae were
appointed in this case. In practice that point has not been developed in
these proceedings. But in future cases it may assume greater importance.
In cases concerning the European Union what would best meet the
predicament is a Directive defining the extent of the recognition which the
orders of the courts of each Member State are entitled to receive from the
courts of other Member States.
Conclusion
This appeal is dismissed. (…)“