Lord PENROSE:
[1] The pursuers, the B. of S., ("BOS") seek payment by the defenders,
SA B. N. de Paris, ("BNP") of the sum of PoundsSterling 750,000. BOS
contend that they are entitled to payment under a guarantee granted by
BNP on 24 April, and amended 2 May and 19 December 1991, in respect
of the indebtedness to BOS of O. Holdings U.K.) Limited ("O. U.K.").
[2] O. U.K. were incorporated in Scotland. The company had its head
office at …, Edinburgh and carried on business in Glenrothes. The
company was a subsidiary of a French company, O. B.. The Court
ordered that O. U.K. be wound up on 2 October 1992 on the ground
that the company was unable to pay its debts. At that date there was an
overdraft balance on the company's account with BOS of PoundsSterling
1,524,372. The maximum amount recoverable under the guarantee was
PoundsSterling750,000. the sum sued for in this action.
[3] BOS called on BNP to make payment under the guarantee, which I
shall refer to as the "Scottish guarantee" on 4 November 1992.
[4] BNP issued the Scottish guarantee on the instructions of O. B., a
customer of one of BNP's Marseille branches. The transaction, which was
authorised initially by O. B. in a letter dated 25 April 1991, was intended
to be in the following terms:
We, the undersigned B. N. DE PARIS... whereas B. OF S.... will grant to O.
HOLDING U.K.... credit facilities as follows:
sureties amounting to a maximum of PoundsSterling 750,000... In
any case, this guarantee shall automatically expire at the latest on 31
December 1991. Consequently, any claim under this guarantee should
reach us on or before 30 April 1992 at the latest. Should we receive
no claim from you by that date, the present guarantee shall; become
definitively null and void, without the need for any other advice and
notwithstanding the restitution or not of the present document and no
demand whatsoever shall be entertained...
This guarantee shall be governed and interpreted in accordance with the
Scottish law and shall be subject to the exclusive jurisdiction of the courts
of Scotland.
[5] The Scottish guarantee was contained in a telex message passing
from BNP to BOS dated 24 April 1991. There were two textual differences
between that document and the letter of authorisation. The event
triggering BNP's liability was said to be a written demand stating that
O. U.K. had failed to honour its obligations to "reimburse", as distinct
from "repay", the credit facilities. The last call-up date was said to be 31
December 1991. The guarantee apparently envisaged that it woud be a
condition of liability that a relevant claim was made within the period of
the guarantee rather than by reference to a balance struck at latest at the
expiry date of the obligation and within a limited period thereafter.
[6] The amendment made to the guarantee on 2 May 1991 altered the
designation of BOS and the location of the responsible office of the Bank,
but did not affect the substance of the transaction.
[7] The amendment of 19 December 1991 was contained in a telex sent
to the Glenrothes branch of BOS which stated:
We, the undersigned B. N. de Paris... hereby amend our letter of
guarantee... for PoundsSterling 750,000 issued on 2 April 1991 by order
of O. B. et Cie
As follows:
-The validity date of this letter of guarantee is extended till 31 December
1992
-The amount of this liability will become automatically
PoundsSterling100,000 on 1 March 1992...
[8] The purported reduction of the guarantee limit to PoundsSterling
100,000 was referred to in the French proceedings described later in this
judgment. …
[9] In terms of its letter dated 25 April 1991 O. B. for its part undertook
to indemnify BNP against liabilities under the Scottish guarantee....
[10] In the debate before me the parties proceeded on the basis that
a formal guarantee in pursuance of this undertaking was granted by O.
B. to BNP on 12 February 1992. I shall refer to this document as the
"French guarantee". It is clear from the terms of the document that it was
granted in substitution for an earlier guarantee dated 15 May 1991. The
superseded document was not produced. It was not suggested that the
terms of either document were communicated to BOS.
[11] The French guarantee was executed on a BNP standard form
apparently designed for a single bank transaction and intended for use
by joint obligants in respect of the borrowings of one of them from that
bank. O. B. were identified as the guarantor. O. U.K. were identified as the
creditee. The principal sum was defined as PoundsSterling 750,000 "for
facilities granted" by BOS to O. U.K. The document proceeded to define
the extent of the obligation as follows: …
This joint and several guarantee applies to the payment or repayment of
all sums which the creditee may owe to the bank now or in the future in
the form of principal, interest, commission, charges and ancillary charges
under the obligation specified above, a copy (4) of which is appended
hereto, with the signed agreement of the guarantor given at the same
time as this undertaking, the latter and the aforesaid appendix thereto
forming an indissoluble and indissociable whole, by express agreement,
the guarantor consequently declaring his express acceptance that all the
conditions of this obligation may be applied to him, particularly those
of the sum, the duration, redemption, interest, commission, normal or
anticipated payability... This joint and several guarantee is restricted
to the principal sum entered above, plus interest, commission, charges
and ancillary charges relating thereto, in accordance with the rates and
conditions applicable to the transaction under guarantee. …
This document is subject to French law and any difficulties to which it may
give rise will be subject to the exclusive jurisdiction of the courts at (7)
MARSEILLE.
[14] BOS and BNP have agreed that by a letter dated 14 September 1992
O. B. informed BNP of the existence of fraudulent actions on the part
of the accountant of O. U.K. In their pleadings in this action BOS state
that part of the balance of PoundsSterling 1,524,372 due by O. U.K. at
the date of the winding up order was attributed to sums debited to the
company's account in respect of cheques drawn in favour of creditors of
O. U.K. on which the signature of Mr Jacques Ar., the authorised signatory,
was forged by Mr J. who was the financial director of O. U.K. BOS contend
that O. U.K. are liable for sums applied in payment of debts due to the
company's creditors notwithstanding the forgery of Mr Ar. 's signature.
That is denied by BNP. BNP also deny liability to make payment to BOS
under the Scottish guarantee. …All of the relevant events appear to have
taken place in Scotland. BOS and BNP have agreed that no criminal
proceedings have been brought in Scotland concerning the alleged actions
of the accountant, or against O. U.K. itself. …
[15] On 21 October 1992, O. B. initiated proceedings before the Tribunal
de Commerce de Marseille against BNP and BOS. …The material parts of
O. B.'s writ were in the following terms:
The plaintiff is joint and several guarantor for its Scottish subsidiary O.
Ltd,... with regard to the B. N. DE PARIS, for the purposes of providing a
counter-guarantee for payment by the said B. N. DE PARIS for the benefit
of the B. OF S., should the latter be a creditor of its client O. Ltd, the
guarantee being liable to calling-up upon written demand by the B. OF S.,
only after having been justified by default of O. LTD.
The guarantee in favour of the B. OF S. is restricted to PoundsSterling
750,000.
The plaintiff has just discovered that the B. OF S. has permitted payment
of a total of PoundsSterling 1,161,785.61 by debiting the account opened
in its books in the name of O. Ltd…
The plaintiff has also just discovered that the chief bookkeeper of its
subsidiary was the subject of a criminal prosecution for fraud, of which
the plaintiff was unaware. …
The plaintiff thus has the greatest interest in preventing an aggravation
of the unlawful wrong suffered due to the gross negligence of the B. OF
S., which may be tempted to make a call on the guarantee from the BNP,
which would motivate the latter to have recourse to the guarantee from
the plaintiff.
For this reason the plaintiff intends to petition the juge des referes
to prohibit the BNP from implementing any demand by the B. OF S.
made under the aforementioned guarantee, contrary to demands by the
latter, until such time as the responsible court has subsequently ruled
on the matter, the plaintiff not having wished to stand surety for the
consequences of fraud under any circumstances whatsoever. ON THESE
GROUNDS
Those defendants subpoenaed should appear to hear ruled and judged
that the B. N. DE PARIS must not respond to a demand for payment
by the B. OF S. based on a debit balance of Messrs O. Ltd, caused by
unsigned cheques, cheques bearing forged signatures or otherwise not
justified by a proper order for payment.
[16] On 6 November 1992, before the application was heard, O. B. wrote
to BNP purporting to prohibit BNP from paying the sums claimed by BOS
under the Scottish guarantee.
[17] Each of BOS and BNP lodged written submissions in response to O.
B.'s application to the commercial court. …
[18] The juge des referes held that he had jurisdiction, but refused the
application because of lack of evidence of fraudulent collusion between
BOS and O. U.K.'s employee alleged to have been primarily responsible. …
[19] O. B. also filed a criminal complaint relating to the allegations made,
and, in that context claiming compensation from BOS. A writ on the
merits of O. B.'s civil claim for damages was laid before the Commercial
Court of Marseille on 14 January 1993 complaining of the conduct of BOS
and claiming damages of at least 10,000,000 FF, subject to increase or
reduction. …
In these proceedings O. B. sought declarator that the French guarantee
was null and void and sought damages from the B. of S. on allegations of
gross professional negligence.
[20] O. B. and BOS both appealed the decision of the judge des referes
on 21 January 1993 to the Court of Appeal at Aix-en-Provence. Pending
the appeal, on 13 May 1993, BOS served an "Interpellative Notice" on
BNP requiring implementation of the obligation in the Scottish guarantee.
On the same day O. B. initiated fresh proceedings before the juge des
referes at Marseille against both banks. …
Only after the hearing before the juge des referes did the B. OF S. decide
to register a claim with the liquidator of Messrs O. U.K.
The liquidator wrote to the plaintiff on 8 April 1993 to inform the latter
that, in addition to the disputed payments by the B. OF S., he intended to
reject the claim for payment of all the interest on said payments, and that
he was enquiring into payments of £ 315,633 to verify their validity. The
same liquidator confirmed to the B. OF S. that he was not accepting their
claim. Consequently, the claim by the B. OF S., the existence of which
formed the basis for the call on the BNP guarantee, has not been proved
by the former.
Hence the call by the B. OF S. on the guarantee is evidently fraudulent.
Furthermore, the plaintiff has lodged a criminal complaint against the
signatory of the letter calling on the guarantee.
This complaint, with its associated civil component, has been filed with
the senior examining magistrate at the District Court in Marseilles.
When all these factors are taken into account, it is clear that the plaintiff
is the victim of an evident attempt at fraud by the B. OF S., which is
attempting to obtain repayment from the BNP in an unfounded and
abusive manner, due to the refusal of the liquidator of Messrs O. U.K. to
admit its claim. ON THESE GROUNDS
Those defendants subpoenaed should appear to hear ruled that payment
of the guarantee by the B. N. DE PARIS should be suspended until such
time as a non-appealable judgment is subsequently returned upon the
merits at a full hearing. …
[ [24] It is apparent that French officials shared many of the difficulties
of comprehension in their translation of the Scottish guarantee that
Scottish counsel and others have had in the translation of official French
documents. However, it is difficult to understand the confusion of O. B.
and O. U.K. in the translation of the guarantee which appears from the
decision of the juge des referes. It is perhaps inappropriate to comment
further on the content of the decision of the judge, except to observe
that the apparent confusion of identity of the banks in O. B.'s original
guarantee in favour of BNP appears not to have been resolved by the
date of the hearing on the second application before the juge des referes
and indeed to have been compounded by confusion of the identity of the
debtor in the Scottish guarantee. However that may be, the juge des
referes by his order, ad interim, prohibited BNP from making payment
to BOS on the basis of the written pleadings and submissions of O. B..
BNP did not take up the challenge in BOS's written pleadings to prove the
Scottish bank's complicity in the fraud of O. U.K.'s employee but rather
sought protection of its own position consequent upon a finding by the
judge adverse to BOS in the issue raised by O. B..
[25] This decision of the juge des referes was appealed by BOS. The
proceedings in both appeals against the decision of the juge des referes
were heard in parallel. The Court of Appeal in Aix-en-Provence advised
both cases at the same time, after consideration, on 13 January 1994.
[26] O. B. were allowed to withdraw the appeal against the refusal of
interim measures by the juge des referes on 21 January 1993. BOS
insisted in the appeal against the competence of the court to entertain the
applications. In respect of that appeal, the Court of Appeal summarised
the facts relating to the issue of jurisdiction and proceeded to issue
judgment as follows:
…-dismisses the appeal by BOS on a point of law.
[27] In the BOS appeal against the decision of 18 May 1993, the Court of
Appeal dealt first with jurisdiction, noting that BOS maintained in the first
place that the French court was not competent, and that that dispute had
been settled by the previous decision, and set out in summary the basis
of that decision. The judgment then proceeded to dismiss the technical
objection to the competency of the second application by holding that
there were sufficient new circumstances to justify the application.
The Court:
...rejects the claims of incompetence raised in appeal by the B. OF S.;
Finds that the request for the implementation of a guarantee payable
upon first demand formulated by the B. OF S. constitutes evident abuse;
Finds that the BNP nevertheless offers to honour its commitment;
Finds that this offer and the letter of undertaking of 25 April 1991
constitutes an imminent danger for Messrs O. B. et CIE;
Rejects the request of the BNP for authorisation to debit the account
of this company automatically until such time as a definitive decision is
made after a full hearing;
Confirms the injunction granted...
[28] On 11 May 1994 there was a hearing before the Commercial Court of
Marseille on O. B.'s application of 14 January 1993 for declarator that the
French guarantee was null and void and for damages against BOS. The
commercial court, for the purpose of this application, was constituted as a
court competent to deal with the merits of the dispute. The substance of
the written pleadings of O. B. reflected the position previously adopted by
them. Similarly BOS challenged the application on jurisdiction, and on the
merits. In support of the challenge on jurisdiction BOS relied extensively
upon the construction and application of the E.C. Judgments Convention.
In general it asserted the priority of the jurisdiction of the Scottish courts
to deal with the issues sought to be focused against them by O. B..
The position of BNP before the Commercial Court was, once more, in
substance neutral. BNP set out certain matters of history, including, at
length, the terms of O. B.'s letter of 25 April 1991, the provision of the
formal guarantee, the history of the claim, and what was perceived to be
the position of BNP....
[29] There were pleadings at the bar for O. B. in which comment was
made on the alleged strangeness of the position of the BOS in respect
of jurisdiction. O. B. deferred its claim for damages pending the criminal
enquiries by the examining magistrate
and set out the history of prior proceedings in support of its application to
the court. BOS maintained its challenge to competence and on the merits.
BNP for its part sought to assert that protection of BNP should follow from
whatever was decided as between O. B. and BOS. The commercial court
once more affirmed its competence to deal with all aspects of the matter.
The decision on the merits was as follows. In the first place the court
ruled and judged that no claim should have been made for the calling up
of the guarantee by BOS on first demand on 3 November 1992. It ruled
and judged that the BNP did not owe the B. of S. any money under the
guarantee and consequently ruled that the guarantee provided by O. B. to
the BNP was null and void.
[30] That judgment was appealed by BOS to the Court of Appeal in Aix-
en- Provence. The appeal has yet to be heard.
[31] In the meantime BOS appealed the previous decisions of the Court
of Appeal to the Cour de Cassation. …No submissions are made on
jurisdiction. …
[33] The summons in the present case was signed on 25 March 1994.
Defences were lodged on 16 June 1994. An open record on the pleadings
was prepared and lodged on 6 July and periods of adjustment were
allowed extending to 2 November 1994. No adjustment of parties'
pleadings occurred. The case was sisted on 29 September 1994, on the
unopposed motion of BNP, "pending the outcome of appeals in respect
of proceedings before the French courts". On 2 December 1994 the case
was brought before the court on a motion by BOS. The sist was recalled
of consent, and the action was transferred to the commercial roll. Apart
from purely procedural orders, the substance of the disposal on that date
was that the case should proceed to debate on BNP's first three pleas-
in-law. These were: (1) that the subject-matter of the action had been
determined by a judgment entitled to recognition in the Scottish courts,
and that the action should be dismissed; (2) that there being in any
event prior proceedings involving the same cause of action between the
same parties in the French courts, the jurisdiction of those courts being
established, the Scottish courts should decline jurisdiction and dismiss the
action; and (3) that, esto the jurisdiction of the French courts had not yet
been established, the Scottish courts should sist the present action until
the jurisdiction of the French courts had been established. …
[35] For BNP counsel contended that the Scottish proceedings should
be sisted pending final disposal of the French litigation on a number of
grounds…
[36] I shall deal first with the discussion of BNP's contention that BOS had
vountarily submitted to the jurisdiction of the French courts to adjudicate
on the issues raised in the Scottish litigation. …It was accepted by BOS
that the concession had been made in the terms quoted by the Court
of Appeal. The parties were in dispute as to the nature and scope of
the concession, as to the validity in law of the basis on which it was
made, and as to the courts to which it applied as well as differing on the
interpretation of the decision of the Court of Appeal before which the
matter was raised.
[37] As set out above, in its decision of 13 January 1994 the Court of
Appeal in Aix-en-Provence held that the appeal of BOS on competence
should be dismissed. …
[38] In my opinion this issue turns essentially on what the concession
amounted to as seen by and as reflected in the decisions of the French
court. It was for BOS to decide the attitude to adopt to the competence
of the French courts before whom they had been convened and on
what basis to resist or concede that jurisdiction. If, standing the clear
terms of Article 24, BOS chose to concede jurisdiction on the basis that
Article 6 applied, then whether that was well founded in law on a proper
construction of the Convention would be of no consequence. It would not
be open to BOS to challenge before the Scottish court the validity of its
own concession in France on which the French courts may have proceeded
to entertain the case and pass judgment, however else the arguments
on the interaction of Articles 6 and 17 might apply in relation to other
aspects of the case. A concession made on professional advice could not
be undermined by demonstrating that the advice was misconceived. …
[42] In my opinion a concession made in court must take account
of the system of law within which the court is established and which
that court must be expected to apply. The competence of the French
courts must generally, be a matter primarily for those courts. There is
a grave danger of error if one seeks to superimpose on the judgments
of a different court understandings and views derived from experience
in one's own jurisdiction in the application of rules and principles of
local law. In a domestic context, one would hesitate to conclude that a
concession of jurisdiction made in one process, against the background
of particular allegations of fact and in a particular context of law, and
while an appeal was outstanding and was maintained against an adverse
decision in an earlier process, should be relevant as a consideration in
the disposal of an appeal against the material part of the first decision
on the question of competence. But it cannot be assumed that a French
court applying French law and following French practice would have any
such difficulty. Similarly in a Scottish context one might think there would
be difficulties with an approach that at once drew distinctions between
legal relationships founded on as between the several parties, yet relied
on the plurality of defenders provisions of Article 6. It must be said that
no such difficulty appears to have occurred to BOS or their advisers in the
French proceedings at the material time. One might have expected, in
Scottish proceedings, to have heard submissions based on the ground of
jurisdiction in terms of Article 24 in an application for interim interdict or
some equivalent provisional order, but that was never referred to by the
parties or by the court in France. It is idle to speculate on these matters.
The only basis for forming any view on the question of concession is to
examine what the French court did. …
[44] In the end, it appears to me to be reasonably clear that the Court of
Appeal in this judgment gave limited weight to the concession. …
[46] In my opinion BNP have not made out their contention that
the present action should be sisted because BOS had conceded the
jurisdiction of the courts of France generally.
[47] The second and third grounds on which a sist was sought depends on
the construction of Articles 17, 21 and 22 of the Convention. …
[48] Before turning to the arguments, it is convenient to summaries
the material facts on which the defenders relied in support of their
motion. Essentially these turned on what had been done by the French
courts in respect of the several applications already mentioned. The
order of 18 May 1993 by which the juge des referes suspended payment
under the guarantee by BNP to BOS until a definitive judgment on the
merits had been passed was of particular significance. That order was
confirmed by the Court of Appeal on 13 January 1994. It was still in
force. It would remain in force until the appeal to the Cour de Cassation
had been disposed of. Any judgment in Scottish proceedings against
BNP in reliance on the Scottish guarantee would clash with that order.
Council drew attention to the extent to which the French courts had
considered the merits of the case in deciding whether to make an interim
order. In the judgments one found statements concerning the truth,
reliability and accuracy of statements of fact. The test applied was
patently different from the Scottish test of a prima facie case requiring
interim protective measures pending investigation of matters of fact.
That, however, was of no significance. The scheme of the E.C. Judgments
Conventionrequired that the Scottish court should not concern itself
with the merits of any decision arrived at in France. The writ in O. B.'s
case on the merits before the French court was issued on 14 January
1993 by which time parallel criminal proceedings had been instituted.
In the civil proceedings before the Assignation Tribunal de Commerce
de Marseille O. B. sought two orders, namely, an order for annulment of
the French guarantee by O. B. in favour of BNP and compensation from
BOS for gross professional negligence. Reference to the decision of the
court dated 11 May 1994 demonstrated that there was a decision on the
merits of the issues which BOS sought to bring before the Scottish court
in respect that it was held that BNP were not obliged to make payment
under the Scottish guarantee. Faced with a claim which would have as
a necessary consequence the reduction of the French guarantee in their
favour, depriving them of any right of relief if liable to BOS, BNP had
relied on the factual basis of O. B.'s case against BOS to seek an order
that they in turn should not be obliged to pay BOS, BNP were in the horns
of a dilemma, and took the step for their protection against the risk of
loss. It was acknowledged by counsel that the proper law of the Scottish
contract was Scots law, but the French court could take congnisance of
that as a matter of fact. Counsel drew attention to the apparent scope
of the argument on jurisdiction in the case, that it referred to plurality of
defenders, and to the special ground of jurisdiction under Article 6 of the
Convention, as well as the ground of jurisdiction under Article 5 relating
to the place where harm was suffered. It did not appear that there was
argument with reference to the prorogation clause and Article 17 of the
Convention at that stage. …
[111] In my opinion the proper starting point for discussion of the
competing contentions on this branch of the case must be an examination
of the relevant provisions of the E.C. Judgments Convention. That
involves questions of interpretation of particular provisions and questions
of the interaction of provisions and their priority inter se in a context
which has not hitherto been subject to definitive treatment by the Court
of Justice in certain respects.
[112] Central to the dispute are Articles 17, 21 and 22. Article 17, like
the other provisions in sections 1-6 of the Convention, is concerned with
the identification and definition of grounds of jurisdiction which are to be
recognised by the courts of Contracting States. Articles 21 and 22, along
with Article 23, are not of that character. They deal with the resolution
of difficulties which arise where, ex hypothesi, it is contended that the
courts of two or more Contracting States have jurisdiction to adjudicate
on the same or related issues. In particular circumstances there may
be competing grounds of jurisdiction, for example as between Articles 6
and 17. That was the context for the cases of Estasis Salotti v. Ruwaand
Galeries Segoura. Section 8 does not assist in resolving any such contest
or conflict as a matter of substance. The Articles in that section relate
solely to the conduct of proceedings in which issues of competence fall to
be determined independently. …
[115] Counsel were agreed that there was no authoritative guidance on
the application of the Convention in circumstances such as arise in the
present case. The general question of the relationship between Articles 17
and 21 was left open in the Overseas Union case. Further, the question
does not arise in the way it did, directly between the same contracting
parties, in the Kloeckner and Continental Bank cases. In Kloeckner, Hirst
J. decided that Article 17 had priority over Article 21. In Continental
Bankthe Court of Appeal followed the same approach. Steyn L.J. said...
since Art. 17 applies, the question of a stay under Arts. 21 and 22 of
the Convention does not arise. [116] In those cases one could state
without difficulty that the initiation of proceedings before a court other
than the selected court was breach of contract. If BNP are in breach of
contract in the present case, it is because on a proper understanding of
the French proceedings in which they have been convened as defenders,
and before which they are in no sense volunteers so far as their own
interests are concerned, they have associated themselves with, or have
become associated with or tainted by the contentions of a third party, O.
B., that an inference of breach of their contract with BOS arises.
[117] Nevertheless, the case of two parties to a contract with a
prorogation clause provides a suitable starting point. I have found little
assistance in the literature. Professor Helene Guademet-Tallon in Les
Conventions de Bruxelles et de Lugano, argues that it can be inferred
from the language of the Convention that where the exclusive jurisdiction
of the judge second seized is asserted by a party in the prior proceedings,
the second judge's competence must be sustained. The argument, based
on the Opinion of the Court in the Overseas Union case, is that the
judge second seized is entitled to assert his competence, because the
court first seized is not competent according to the Convention, and any
decision issued could neither be recognised nor enforced in the court of
another Contracting State. To the extent that the argument depends on
enforcement and recognition, it is clearly related to cases where exclusive
jurisdiction is of a class defined in Article 16, and one could not apply it,
at least directly, in a case under Article 17. The Professor's concluding
observations might have a wider application. In relation to the second
part of the French text of Article 21, which, in contradistinction to the
forms of language used in the English text, alone uses the expression "est
etablie", she says that the judge second seized is not obliged to concede
jurisdiction until the competence of the first judge is established: ex
hypothesi competence cannot be established because the second judge
has exclusive jurisdiction. But this does not, in my opinion, assist. One
might still require to permit the proceedings before the first court to
run their course to ascertain that that court's jurisdiction had or had not
been established. That is, the discussion does not address the procedural
aspects of the present problem at all. In my opinion, counsel for BOS got
no help from Professor Gaudemet-Tallon. Further, her discussion does not
deal with the question of underlying policy. …
[121] Looking at the provisions very generally, it appears to me that
where there is a valid and enforceable election of the courts of a specified
jurisdiction, meeting the requirements of Article 17, its application in
any particular case between the parties is one of the factors which
of necessity they have remitted to the decision of the selected court.
They must be held to have contemplated that that court, applying local
procedural and substantive law, would resolve differences between
them as to the scope and application of the particular provision in their
contract. If that agreement could be circumvented by either party, or any
one of the parties to the contract, initiating proceedings in a different
court which was alone entitled to adjudicate on its own competence
to entertain the action, it would not simply be a matter of delay that
would be involved. The court first seized could not adjudicate on its
own competence without considering the validity and effectiveness of
the prorogation agreement if founded on by any party. In this way,
one of the main purposes to be attributed to the parties in making
the agreement in the first place would have been defeated, whatever
the outcome of the proceedings before the judge first seized, and, in
particular, irrespective of whether he conceded jurisdiction in terms of the
agreement. The Convention, through a priority accorded to Article 21,
would have succeeded in introducing wholly unnecessary and unjustified
proceedings before the court first seized on an issue which, ex hypothesi,
should not have arisen at all had the prorogation agreement been given
effect. Delay and expense would, of course, be further considerations.
There would be the time taken for the court first seized to determine
the issue, perhaps with appeals through a hierarchy of courts over a
considerable period of time. Meantime, the proceedings in the appropriate
tribunal on the merits of the dispute would be delayed. Those proceedings
could be commenced, or carried to a conclusion, only following the
establishment of jurisdiction by the court first seized and the concession
of that jurisdiction in favour of the court second seized. Efficiency in the
conduct of litigation would have been jeopardised. …
[123] Acordingly, in a simple conflict such as those which have arisen in
England, I would agree with the conclusion reached by the English courts.
It does not appear to me to be necessary for this result to rely on the
principle pacta sunt servanda as a super-eminent consideration nor to
identify breach of contract as a significant factor tending to support the
priority accorded to Article 17. But those considerations, which are fully
set out in the Opinions of the English courts support the same conclusion.
The alternatives are, firstly, that the Convention has make provision.
The alternatives are, firstly, that the Convention has opted for finality
of judgment of the court first seized even where that court may have
declared its own competence in circumstances which are insupportable, in
the face of contrary submission, and ignoring a breach of contract by one
of the parties bound; and, secondly, that the framework of the Convention
assumes that prorogation agreements which meet the requirements of
Article 17 will invariably be given effect, either by the court first seized
acknowledging its own lack of competency, or by the selected court
having jurisdiction despite failure of the first court to acknowledge and
give effect to the agreement. The latter alternative appears to me to be
more consistent with the overall objectives of the Conventions Cheshire &
North at pp. 434-5 and Dicey & Morrisat p. 534.
[124] The present case does not, on any view, fit the simple model, either
absolutely or in relation to the provisions of Article 17. The first point of
importance to observe in considering the interpretation of that Article,
for present purposes, is that it relates to a particular legal relationship.
In my opinion that legal relationship must be defined in the agreement.
It need not, as a matter of interpretation of the expression, be related
wholly to the relationships between the parties otherwise defined in, or
arising directly from, the agreement. For example, the expression would
appear to be wide enough to cover legal relationships arising as a matter
of general law from delict or quasi-delict where the proximity created by
the parties' contractual relationship would be an element in, but would
not be exhaustive of, the relevant rule of law. The scope of the provision
is, however, limited by the clear implication that it applies only to legal
relationships between the parties to the agreement. One might envisage
circumstances in which a group holding company, such as O. B., entered
into a contract with a financial institution in terms of which the parties
purported expressly to bind all subsidiary companies to a prorogation
clause. An issue could arise whether the clause was enforceable against
a subsidiary domiciled in a territory other than that selected. So long
as there were no relevant third party interests, practical effect might
be given to such a provision at least indirectly if the creditor compelled
the holding company to use its control of the relevant subsidiary to
require compliance. But as soon as third party interests were required
to be acknowledged, as in the case of insolvency of the subsidiary, the
provision could only be enforced to the extent that it was, or had become,
independently legally binding on the subsidiary. The practical effectiveness
of the agreement would at least be seriously eroded and might be wholly
extinguished. Such an issue does not arise for decision in the present
case. But it appears to me to be significant that the Article relates in
terms to the parties to the contract, and to them alone. The policy that
agreements are to be enforced can be taken to be at least a significant,
if not the only, underlying principle on which the Article is based, and
enforcing the application of that principle should have a high priority in
any system of law in which freedom of contract was generally recognised.
Equally it would be no part of the policy to such a system to enforce
agreements against persons who were not parties to them. …
[126] The decision in Estasis Salotti is helpful in focusing some of the
peculiarities of the present case. The exclusion of Article 6 jurisdiction
in favour of the conventional jurisdiction under Article 17 is of particular
significance. The first head of jurisdiction in Article 6 arises where there
are a number of defenders in an action otherwise competently brought
before a particular court which, ex hypothesi,is a court different from
that selected by the pursuer and defenders for the resolution of disputes
arising from the legal relationship which formed the subject matter of
the action. In the context of contract, the most obvious example would
be of an agreement among three or more parties, two of whom were
willing to depart from the prorogation clause. Any one would be entitled
to enforce the clause against all. But difficulties arise in cases in which
some only of the litigants are parties to the agreement contained in the
clause. In such a case there will invariably be a question whether the
party asserting the effectiveness of the prorogation clause is seeking
to enforce the agreement against a person who was not party to the
contract to the detriment of that party's right to rely on some ground
of jurisdiction recognised in the Convention. The second head of Article
6 already provides one limitation on its scope. The priority of Article 17
would entitle a party to a prorogation clause to challenge the competence
of third party proceedings on the basis of the agreement without proof
of the strict requirements of Article 6 itself. In a case such as the present
this would have entitled BOS to deny the competence of the French courts
to entertain third party proceedings on the invitation of BNP in an action
raised against BNP alone by O. B.. But it does not provide an automatic
answer to the practical question in this case, since BOS were convened
directly by O. B. who were not parties to the prorogation agreement.
[127] The third head of Article 6 reflects conventional jurisprudence
in entitling a defender to counterclaim in proceedings in which that
defender has been convened by the pursuer. There could be no conflict
with Article 17 because: (a) the pursuer would ex hypothesi have already
departed from the agreement; and (b) tendering a counterclaim would
either expressly or by necessary implication involve a departure from the
clause by the defender. The decision in Estasis Salotti would appear to
have no relevance to such a case. The fourth head of Article 6 involves
the assertion of public policy considerations relating to rights in rem in
immovable property. Article 17(4) excludes provisions in conflict with
Article 16. This head of Article 6 provides little content for the application
of the Opinion of the Court of Justice relating to the priority of Article 17.
The priority accorded to Article 17 over Article 6 in Estasis Salottidoes not
take one very far.
[128] The French courts have so far asserted their competence to
adjudicate on the enforceability of the Scottish guarantee in a question
between O. B. and BOS under Article 6 of the Convention. …
[129] For the purposes of the present motion the more serious question
is whether anything that has transpired in France can be relied upon by
BNP in support of their motion for sist. It is necessary to make some
observations on the pleadings to define a context for the discussion. O.
B.'s claim for damages against BOS has been reserved. Perhaps for that
reason it has not been fully developed in written pleadings or argument.
One has considerable difficulties in understanding the legal basis of
the claim from the pleadings. There are at least three possible legal
relationships which might lie at its root. O. B. were holders of all or of
a majority of the equity of O. U.K. They had an interest in the company
as shareholders. They had, or may have had, guarantee obligations
to BNP arising out of the operations of O. U.K. They may have funded
the operations of O. U.K. or provided management services and been
creditors of the company accordingly. The allegations of fact made against
BOS involve impropriety in managing O. U.K.'s account in a way which
resulted in payment of that company's creditors by cheques or other
forms of credit transfer which were improperly executed in one way or
another. On the pleadings it is difficult to understand how the alleged
conduct of BOS could have affected adversely the financial position of O.
B. as shareholder. The debts to trade and other creditors must have been
incurred in trading operations prior to any act of BOS. The transaction
in this respect merely substituted one creditor for another. If O. B. were
creditors of O. U.K., one might understand that there could be some
circumstances in which the payment of third party creditors in preference
to paying O. B. could give the appearance of exposing O. B. to risk on
a liquidation of O. U.K. But the solution to problems of that kind would
require to be found in Scottish insolvency law, would be the responsibility
of the Scottish liquidators, and would be remediable in the course of the
liquidation if the circumstances were such as to involve a wrong entitling
the company in liquidation to recover for the benefit of creditors generally,
including O. B. but not limited to their interest. O. B. would not have
an independent claim enforceable otherwise than in the context of the
liquidation. If the factual basis for the claim relates to O. B.'s position
as guarantor, it is difficult to see how loss can have been incurred by O.
B. independently of the company's liability under the French guarantee.
One would not have expected, in a Scottish context, to resolve the issue
directly between O. B. and BOS. One might have thought that what would
free O. B. from its obligation to BNP, or in some other way affect the
enforceability of that obligation, would relate to the conduct or actions
of BNP, perhaps in paying on the BOS call, or intimating an intention
to pay, without taking any steps to deny liability under the Scottish
guarantee on the grounds identified by O. B. in correspondence or in the
writs brought before the juge des referes, or even in participating in an
agreement which denied the opportunity of challenge on such grounds
without informing O. B. of the risks involved. The same point appears in
the judgment of the Court of Appeal relating to the decision of the juge
des referesdated 21 January 1993, where it is stated that the dispute
could have been disposed of without involving BOS. The translation
of "inopposable"in the following finding seems less than precise. If
the sense is that the decision would have been arrived at without BOS
having an opportunity to resist it, one can understand the language.
For whatever reason, and it may be because French procedure does not
require the analysis and specification of parties' legal relationships in
the circumstances, one cannot tell from the pleadings of O. B. which if
any of these legal relationships they found on. However, it is reasonably
clear that the French courts have not proceeded on the basis that the
questions of O. U.K.'s liability to BOS, and of BNP's liability under the
Scottish guarantee arose as aspects of O. B.'s claim against BOS.
[130] It is implicit in the argument for BNP founded on Article 21 that
BNP assert that they and BOS are parties between whom there are
parallel proceedings in France and Scotland relating to the validity and
enforceability of the Scottish guarantee; that one should await the
outcome of the appeal or appeals to the Cour de Cassation on all of the
French proceedings in which jurisdiction is an issue before taking further
procedural steps in Scotland; and that if the jurisdiction of the French
courts is established, the Scottish courts should finally decline jurisdiction
despite the prorogation clause. Procedurally this is said to arise from the
assertion by the French courts of competence to adjudicate as between
BOS and BNP on the validity and enforceability of the Scottish guarantee,
as an incidental matter in resolving the dispute between O. B. and BNP as
to the validity and enforceability of the French guarantee in such a way as
to oust the prorogation clause in favour of the Scottish courts in a direct
issue between BOS and BNP.
[131] As already mentioned in passing, it appears from the Opinion
of the Court of Justice in the Overseas Union case that the question
whether the French courts have jurisdiction to entertain the dispute is
exclusively for those courts to determine, subject always to the views
of the Court of Justice itself within the area of its competence. It is
necessary only to take note of what has occurred in order to form a view
on the defenders' motion. In my opinion one could not readily conclude
that such an incidental issue could be brought within Article 6 because in
respect of such an incidental issue BOS is not a defender in the French
proceedings. BOS is not made a defender simply because its interests
are involved in the resolution of the issue as between O. B. and BNP.
Nor is BOS a third party in relation to that issue, in terms of Article 6(2).
Further, unless BNP were to have made a positive case against BOS in the
French proceedings, there could be no scope for conflict between Article
6 and Article 17 in any event. The adjudication of the French courts on an
issue in which BNP had not been joined would leave the prorogation of the
exclusive jurisdiction of the Scottish courts intact in all questions between
BNP and BOS.
[132] One is concerned at the present stage with the first part only to
Article 21…
[133] Certain requirements for the application of Article 21 are
authoritatively laid down in the cases of Gubisch and Tatry Cargo. It is
clear from the latter case, in the first place, that it is not a determinative
factor that there is not a precise correlation between all of the parties to
the competing proceedings. The fact that O. B. are not, or are not yet,
parties to the Scottish proceedings is not significant as an independent
factor. Secondly, the decision in Tatry Cargo endorsed Gubischin stating
that although the English language version of the Article does not
expressly distinguish between the concepts of "object" and "cause"of
action, that distinction must be observed. Thirdly, the decision provides
the clearest statement of the requirements to be met in respect of each
of those matters. It appears to me that counsel for BOS were correct
in emphasising the narrowness of the question before the Court of
Justice in Gubisch and the relatively uncomplicated nature of the factual
situation the Court had to consider as bearing on the general application
of the Opinions delivered by the Advocate General and the Court itself
in that case. In the case of the Tatry Cargo, the issue is dealt with more
generally. …
[134] The Advocate General summarised the effect of Gubisch and
applied it in arriving at his Opinion. In discussion he said:
That judgment shows, therefore, that it is necessary and sufficient, in
order for Article 21 to be applicable, for the parties to be the same,
regardless of the procedural position of each of them in the two actions,
and for the basic legal relationship from which the situations relied on
by the parties derive to be the same: the latter circumstance arises, in
particular, where the issue raised in an action constitutes a logical pre-
condition for the claim on which the other action is based, or where the
origin of different actions is to be found in the same substantive situation.
[135] In relation to the question, the Advocate General's Opinion was that
Article 21:
...must be interpreted as meaning that lis pendens arises whenever there
is total or partial identity of subject-matter, cause of action and parties as
between two (or more) actions.
[136] The Advocate General's Opinion and the decision emphasised
that the application of Article 21 is to be determined in the first place as
between parties. Litigants who are not common to two or more actions
are not affected by it. It appears to me that both positive and negative
consequences flow from this view. In the first place, as exemplified
by the decision, Article 21 does not apply to those who are parties to
one only of a series of actions. It follows that, although it may be an
important purpose, it cannot be an overriding purpose of the Article to
avoid irreconcilable decisions. As soon as one defines an area within which
it is legitimate for the courts to two different jurisdictions to adjudicate
on what may be an otherwise identical issue between different groups
of litigants the risk of irreconcilable judgments inevitably arises. In
the instant case two different answers might have been returned to
the question whether the owners of the ship were liable to different
combinations of owners of cargo. On the positive side, it appears to me
to follow from the view that the position of the person as a "party" in
relation to the cause and object of action is a prerequisite of application of
Article 21.
[137] A conflict between Articles 17 and 21 can arise therefore only
where there is a prorogation agreement between or among certain legal
or natural persons; where those persons or some of them are at the
same time involved in parallel litigations in the courts of two Contracting
States; where one or more of them found on the agreement to challenge
the competence of the court first seized; and where they are properly
identified as "parties" relative to each other in respect of a cause of
action which is the same in the two features identified in the Opinion of
the Court. It may be of no consequence whether they are respectively
pursuers and defenders or defenders and third parties or defenders
seeking relief against one another. That is the effect of the Linda. But they
must properly be identified as persons between whom a cause of action
subsists.
[138] Whether the relationship thus described is a lis becomes a matter
of language. I would be inclined so to describe it. In my opinion, counsel
for BOS were correct in their analysis of the approach of the Court of
Justice in the Zelger case. But in this respect, as in others, it appears
to me to be of more importance to concentrate on the analysis of the
language of the Article, having regard to the purpose of the provision,
than to characterise the result in terms which may have taken on distinct
and particular connotations in one's own legal system.
[139] In the present case I am of opinion that BNP have not
demonstrated that they had adopted the position of parties relative to
BOS in an action in France. At every stage of the French proceedings they
have adopted a position of neutrality on the substantive issues raised
by O. B.. It appears that they did attempt to alter their position before
the Court of Appeal in Aix-en-Provence. But they were held not to be
entitled to do so, and the finding of the Court was that they were offering
to honour their commitment to BOS. In the Cour de Cassation they have
adopted a position of neutrality. They have not put in issue as a matter of
fact their liability under the Scottish guarantee, nor, so far as I understand
the position, have they put that matter in issue as one of law. At most
they have sought protective measures depending on the resolution of the
issues between O. B. and BOS. …
[141] …I consider that BNP have failed to show that the requirements
of Article 21 are met, and, in any event, if they were, the circumstances
would be such that Article 17 would prevail, and the Scottish court would
be entitled to assert its exclusive
jurisdiction to resolve issues of the enforcement of the Scottish guarantee
as between BOS and BNP.
[142] Turning to Article 22, I consider that Article 17 again has priority,
and that the conditions for exercise of the power of sist are not satisfied.
However, apart from that, it is clear that while the proceedings in Scotland
are at first instance, those in France are not. For whatever reason, Article
22 applies only so long as the parallel proceedings are both or all at
first instance. The reasons for the restriction are unclear. I am unable to
reach a concluded view on what they might be. If one is to depart from
the plain language of the Article for reasons of policy or to proceed on a
purposive construction one would require to look beyond the framework
of the Convention in my opinion. I have not found the observations of the
commentators and textbook writers helpful in resolving this particular
matter.
[143] On this approach, it is irrelevant to consider whether the actions
are related actions. However in so far as that is or may be a factor of
importance, I am clearly of opinion that they are related in the relevant
sense. …
[145] In the whole circumstances I consider accordingly that the motion
for sist based either on Article 21 or in Article 22 of the Convention should
be refused. …
The critical area of interest in the present case relates to the possible
view that the French commercial courts have determined as between
O. U.K. and BOS, in the first place, liability in respect of the overdraft
and, in the second place, liability as between BNP and BOS under the
Scottish guarantee, not in respect of any conclusion identified in any of
the actions on the merits, but as an incidental step in dealing with the
enforceability of the French guarantee. Counsel for BOS proposed an
additional question on the view that the answer to the third question
might not deal comprehensively with the dispute. …
[156] The exceptions to the general exclusion of power to sist are
narrowly conceived in this passage. In my opinion, where the issue arises
as between the courts of Contracting States, there is much to be said
for the view that the purpose and intent of the Convention was to define
more or less comprehensively the rules to be applied in relation to the
stay or sist of proceedings. A competition of jurisdiction between the
courts of two Contracting States would seldom be an exclusively domestic
matter. It appears unlikely that the Convention would have left to local
procedural rules the resolution of issues of that kind. The exceptions
noted by Dicey & Morris relate generally to circumstances in which as a
matter of public policy no court would willingly allow injustice to be done.
In the present case there is no question, in my opinion, of unconscionable
or improper conduct on eitherpart. BOS and BNP alike have been
convened for certain purposes as defenders in the French proceedings.
BOS has resisted the jurisdiction of the French courts to adjudicate upon
the particular matters which are the subject of thepresent action. The
parties' contract identifies Scotland as theappropriate forum for the
resolution of their disputes. There is no scope for the application of any
extraordinary remedy. I have already indicated that as a matter of general
discretion I would not have been inclined to grant a sist under Article
22 had it otherwise applied. For the same reasons, whatever the scope
of any residual power of sist at common law I would not be prepared
to exercise it in support of the motion made by BNP at this stage in the
present proceedings. In my opinion such an exercise would be wholly
inappropriate given the nature and extent of the defence that has been
proponed.
[157] Nevertheless it is appropriate to set out the detailed submissions
ofcounsel on this matter. For BNP it was emphasised that the power of
sist or stay was a strictly procedural matter. Provided that the principles
of the Convention were recognised, and not ignored, the Court of Justice
was not concerned with how a national court ran its own affairs. If the
national court thought it appropriate not to throw a case out, but to stay
it, then certainly where proceedings were on their way upwards in another
jurisdiction, and where the result might for aught yet seen be that the
Cour de Cessation might say that all previous decisions had been wrong,
then the Scottish court might have an interest, setting aside questions of
delay, in considering that it would be for the Cour de Cessation to solve
the problem. Counsel stressed that the argument addressed only the
question of principle. There was a strong argument that, if the case did
not fit into the Convention that should not prevent this court asserting
a discretion to sist for the better administration of justice in general. Mr
Clarke emphasised the difficult position in which BNP found themselves
given the challenge to their right to recover under the French guarantee.
If one were prepared to accept the principle, then it would depend on the
weighing up of factors. Mr Hodge had relied wholly on factors relating to
Scotland and connecting the case with Scotland. Those factors would be
persuasive if truly one were in limini. They were concerned exclusively
with forum non conveniens. But their force flew off when matters had
already become so significantly advanced in France and when time and
expense had been incurred when, for whatever reason, BOS had not
raised the Scottish action until nearly two years after the French issue had
become alive. BOS had notmoved as fast as they might had they always
seen it as an exclusively Scottish problem.
[160] In the whole circumstances I shall refuse the defenders' motion for
sist. Application refused.