LORD NICHOLLS OF BIRKENHEAD
My Lords,
I agree with all your Lordships that article 7 of the Convention ('in matters
relating to insurance') is not applicable to re-insurance. I agree similarly
that the claims in the present proceedings do not fall within article 5(3)
as a matter 'relating to tort, delict or quasi-delict'. On the remaining
issue, concerning the applicability of article 5(1) ('in matters relating to
a contract'), on which your Lordships are divided, I prefer the views and
reasoning of my noble and learned friends Lord Woolf and Lord Cooke of
Thorndon. Accordingly I would dismiss this appeal.
LORD WOOLF M.R.
My Lords,
This appeal turns on the proper interpretation of provisions of the Lugano
Convention on Jurisdiction and the Enforcement of Judgments in Civil
and Commercial Matters 1988 (the "Lugano Convention"). As its full title
indicates, the Lugano Convention is concerned with harmonising the rules
as to the choice of jurisdiction and enforcement of judgments between
the Contracting States. The Lugano Convention is set out in Schedule 3C
to the Civil Jurisdiction and Judgments Act 1982 as inserted by Section
1(3) of and Schedule 1 to the CIVIL JURISDICTION AND JUDGMENTS ACT
1991.
The relevant provisions of the Lugano Convention are in identical terms
to the provisions of the Brussels Convention. However, the Lugano
Convention is entered into between the Members of the European Free
Trade Association while the Brussels Convention is entered into by the
Members of the European Union. The European Court of Justice has
jurisdiction to give rulings on the interpretation of the Brussels Convention
under the 1971 Protocol to the Brussels Convention, but not in the
case of the Lugano Convention. However, Protocol No. 2 to the Lugano
Convention makes any ruling on the Brussels Convention by the European
Court of Justice (The E.C.J.) highly relevant to any decision as to the
interpretation of the corresponding provisions of the Lugano Convention.
Before the Court of Appeal it was argued that there should be a reference
in this appeal notwithstanding that it concerns the Lugano Convention to
the E.C.J. but the Court of Appeal rejected that argument and there is no
appeal against that ruling.
In order to determine the issues raised on this appeal, it is necessary
to understand the framework of the Lugano Convention. The general
principle laid down by the Convention is that persons domiciled in a
contracting state shall, whatever their nationality, be sued in the courts of
that state (Article 2). There are then exceptions to that general principle.
One of those exceptions is set out in Article 5 of SECTION 2 which deals
with special jurisdictions….;"
Section 3 of the Lugano Convention contains additional special rules
which in turn override, inter alia, the provisions of Article 5. SECTION 3
commences with Article 7 which provides:
"In matters relating to insurance, jurisdiction shall be determined by this
Section,... "
Article 11 of SECTION 3 provides:
"Without prejudice to the provisions of the third paragraph of Article 10,
an insurer may bring proceedings only in the courts of the Contracting
State in which the defendant is domiciled, irrespective of whether he is
the policy-holder, the insured or a beneficiary.
The provisions of this Section shall not affect the right to bring a
counterclaim in the court in which, in accordance with this Section, the
original claim is pending."
It is apparent from these provisions of the Convention that it is not
possible to avoid the general principle contained in Article 2 by relying
on Article 5 because of Article 11, even if the proceedings raise "matters
relating to a contract," if the claimant is "an insurer" who is bringing
proceedings as to matters relating to insurance.
The Background to the Appeal
The issues on this appeal as to the effect of the Lugano Convention
arise in the circumstances which I will now describe. The claimants are
representative Lloyd's underwriters and United Kingdom insurers carrying
on re-insurance business in the London Market. The defendant is an
insurance company incorporated in Sweden with a registered office in
Stockholm. For the purposes of the Lugano Convention and the 1982 Act,
the defendant is domiciled in Sweden. The defendant issued suppliers' and
manufacturers' guarantee insurance (the "original insurance") to A.B.B. V.
Gray U.K. Ltd. in respect of obligations arising under a contract to supply
N. Hydro with underwater valves (known as "Xmas Trees") for use in the
Troll Oil Field in the North Sea.
From November 1993 to February 1994 the claimants underwrote in
London various participations on primary and excess layer facultative
reinsurance in relation to the defendant's exposure under the original
insurance. The reinsurances were placed by London brokers acting on
behalf of the defendant. Facultative reinsurance is a form of reinsurance
by which the insurer reinsures each individual acceptance with a reinsurer
who is willing to undertake liability. It is to be contrasted with obligatory
reinsurance where there is an agreement, and "treaty" entered into
between an insurer and reinsurer under which the insurer agrees to
the reinsurance of specified categories of insurance which the reinsurer
agrees to undertake. Both classes of insurance may also be layered. Then
the reinsurer would only be liable for the loss to the extent that it is above
or below a particular figure.
In their action the claimants contend that they should be granted
a declaration stating that they are entitled to avoid the reinsurance
contracts. The grounds on which they rely are that they were induced
to enter the contracts by material misrepresentations and that the
defendants, through their brokers, were guilty of material non-disclosure.
The misrepresentations are alleged to have been made and the non-
disclosure is alleged to have occurred during the negotiation and
presentation of the risk in London.
When the writ was issued on 7 September 1995 it was endorsed with a
certificate by the claimants' solicitors to the effect that the High Court
had power to hear and determine the claimants' claim under the Civil
Jurisdictions and Judgment Act 1982.
The defendant will succeed on its application if either Article 5 does not
apply to the claim or the claimant was an insurer for the purposes of
Articles 7 and 11.
The decision of Mance J.
The defendant was unsuccessful both before Mance J. at first instance and
the Court of Appeal. Before Mance J. [1996] 4 All E.R. 978 the dispute
was confined to the effect of Article 5. As to Article 5 the defendant
accepted that the matter in dispute was one "relating to a contract." This
concession the judge regarded as being well founded. The defendant
however contended that the obligation upon which the claimants relied
was one arising not under any term of the contract but independently
under the general law. Furthermore, the obligation arose in the context
of pre-contractual negotiations and not, as the defendant submitted
was required by Article 5(1), under the contract. Mance J. rejected the
defendant's contentions. He indicated, at p. 994, that he would regard it
as "odd" if the application of Article 5(1) depended on a determination of
whether the duty of disclosure arose as a matter of law rather than from a
term of the contract...
The Decision of the Court of Appeal
In the Court of Appeal [1997] 4 All E.R. 937 Evans L.J. gave a judgment
dismissing the appeal with which Hobhouse and Schiemann L.JJ. agreed.
Evans L.J. stated, at p. 942, that:
"the reference in Article 5(1) to 'the obligation in question' ought not to
be considered in isolation from the remaining words in Article 5(1), any
more, that Article 5 should be interpreted without regard to the fact that
it creates a special exception to the general rule of domiciliary jurisdiction
in Article 2."
Evans L.J. also accepted that it is well established that Article 5 should be
interpreted by reference to the objects of the Convention rather than by
reference to concepts of national law which may vary from one Member
State to another. He pointed out that the right to avoid a contract which
arose under the general law "could equally well be formulated (and
perhaps they should be) in terms of 'contractual obligations' in the strict
sense."
Evans L.J. also dealt, at pp. 943-944, with the new contentions of the
defendant as to whether a contract of reinsurance was a contract of
insurance. On this issue Evans L.J. relied on the report of Professor
Schlosser on the Convention on the Accession of the Kingdom of
Denmark, Ireland and the United Kingdom of Great Britain to the Brussels
Convention (O.J. 1979 No. C-59/71). The report bluntly stated, at p. 117,
para. 151:
"Reinsurance contracts cannot be equated with insurance contracts.
Accordingly, Articles 7 to 12 do not apply to reinsurance contracts."
Evans L.J. having adopted the views of Professor Schlosser added that
in his opinion reinsurance and insurance were "conceptually distinct, not
least as regards subject matter and the respective definitions of risk."
The Issues on the Appeal
On the further appeal to this House, their Lordships are required
to determine three issues. The first is whether insurance includes
reinsurance for the purposes of Title II, Section 3 of the Convention (the
"Insurance Issue"). The second issue is whether the claimants are entitled
to rely upon Article 5(1) (the "Contract Issue"). The third issue only arises
if the claimants do not succeed on the contractual issue. It is whether the
claim for relief in respect of the defendant's alleged breach of duty falls
within Article 5(3) of the Lugano Convention ("the Tort Issue").
The Insurance Issue
…
My Lords, these are attractive arguments but in my judgment they should
not be accepted. The decision of the Court of Appeal is correct for the
reasons submitted by Mr. Michael Crane Q.C. on behalf of the claimants.
Section 3B(2) of the Act of 1982 provides that the Jenard and Möller
Report on the Lugano Convention can be referred to in order to ascertain
the meaning or effect of any provision of the Convention. That Report
points out that Section 3 and Section 4 of the Convention, which deals
with consumer contracts, have the primary objective of protecting the
weaker party (para. 13). Unlike the ordinary insured the reinsured cannot
conventionally be regarded as a weaker party than the reinsurer.
The Jenard and Möller Report also refers to the paragraph of the Schlosser
Report on which Evans L.J. relied. In addition, there is some indication
both in the English authorities and in the decisions of the E.C.J. that
it has been generally accepted that reinsurance is not included in
Section 3. This was common ground in Arkwright Mutual Insurance
Co. v. Bryanston Insurance Co. Ltd. [1990] 2 Lloyds Reports 70 (at p.
73 Col. 2). In the Trade Indemnity case ([1995] 1 All E.R. 796 at p.
804A-804C), although the point had not been argued, Rix J. concluded
that Article 11 did not apply to reinsurance. In addition in Jordan Grand
Prix Ltd. v. Baltic Insurance Group [1999] 2 A.C. 127 (at pp. 132G-134C)
Lord Steyn indicated that the purpose of Section 3 was to protect the
insured who is most frequently faced with a pre-determined contract
and who is in a weaker position. In Overseas Union Insurance Ltd. v.
New Hampshire Insurance Co. [1992] 1 Q.B. 434, a case involving the
Brussels Convention, before the E.C.J., both parties contended that
Section 3 was inapplicable to reinsurance. The German Government also
contended that this was the position. However, the Commission argued
that it was difficult to see any fundamental difference between insurance
and reinsurance. The judgment did not deal with the issue.
The Schlosser Report is of significance. The Report, in addition to
the statement on which Evans L.J. relied, describes the negotiations
relating to the accession of the United Kingdom. Professor Schlosser
points out that the accession introduced a totally new dimension to the
insurance business as it had been practised hitherto within the European
Community. (Para.136). The United Kingdom requested a number of
adjustments but these did not relate to reinsurance. …. The United
Kingdom was also in favour of an exclusion based on the scale of the
risk involved. However, there was difficulty in finding a solution which
would provide adequate certainty as to the scale of risk which was to
be excluded so there was in fact no exclusion. However, this underlines
the limited significance of there being no negotiations as to the express
exclusion of reinsurance. Finally, contracts of reinsurance are inherently
a category of contract that one would not expect to be within Article 5.
My Lords, I regard it as contrary to the policy and structure of the Lugano
Convention to treat Section 3 as applying to reinsurance.
The Contract Issue
The starting point for resolving the issue as to whether a claim to
avoid a contract for non-disclosure and misrepresentation is one of the
exceptional situations where the claimant may but does not have to
bring proceedings in the courts of the defendant's place of domicile, is
the language of Article 5(1) itself. This at first blush appears clear. The
structure which the draftsmen of the Convention adopted in Article 5
is simple and practical. The draftsmen no doubt hoped that they had
produced a model which would avoid the complex satellite litigation as
to the appropriate choice of jurisdiction which has resulted in this case
and Kleinwort Benson Ltd. v. Glasgow City Council [1999] 1 A.C. 153.
Their hopes were not fulfilled because, unfortunately, both these cases
involved situations which fall close to the borderline between those cases
which can and cannot be properly regarded as falling within Article 5(1).
In Kleinwort Benson, the problem arose because there was never any
contract at all. The Glasgow City Council could not enter into the contract
which it purported to enter because it had no power to do so. At first
instance Mr. Justice Hirst decided that the case fell within Article 5(1).
A majority of the Court of Appeal (Roch and Millett L.JJ., Leggatt L.J.
dissenting) allowed the appeal. This House restored the decision of the
judge at first instance by a majority of three to two (Lord Goff, Lord
Clyde and Lord Hutton with Lord Nicholls and Lord Mustill dissenting).
At least here, where the issue is whether the contract can be avoided by
the claimants but not whether it is void, so far there has been unanimity
on the part of the judiciary. In both the court of first instance and in the
Court of Appeal very experienced commercial judges have apparently had
no difficulty in concluding that this litigation falls within Article 5(1).
The model which the draftsmen adopted throughout Article 5 was, in
relation to a series of different situations, first to identify the nature of
the issue and then to identify the applicable jurisdiction in which the
proceedings could be brought. So in this part of Article 5(1) the issue is
"in matters relating to a contract", and the jurisdiction is "in the courts
for the place of performance of the obligation in question". As pointed out
earlier, in his judgment, having examined the relevant principles, Mance
J. records that "the defendants accept that the matter is one 'relating
to a contract'" and adds that in his judgment this concession was well-
founded. If it was only necessary to look at the opening words of Article
5(1) I would not only agree but would suggest that no other conclusion
was possible. A claim to set aside a contract must be within the words "in
matters relating to a contract."
In addition, in the context of this case in the absence of authority to the
contrary, I would find no difficulty with the part of Article 5(1) which
identifies the relevant jurisdiction: that is, the second part of the Article.
Here, there is an obligation, namely to disclose. This is the obligation "in
question." It is an obligation which is accepted by the parties it was to
be performed in London. Therefore ours is the jurisdiction which would
appear to be the jurisdiction identified by Article 5(1).
Before turning to the guidance provided by the authorities it is useful to
enquire whether there appears to be any reason of principle or policy
which suggests that it would not be appropriate to give the language
of the Convention what appears to be its ordinary meaning. I find no
such policy or principle. On the contrary, it seems to me that both policy
and principle are in favour in adopting the ordinary meaning of the
language used. This is because Article 5(1) clearly indicates that in
contractual matters the close connection with the place of performance
justifies permitting, as an exception to the general rule, that the place of
performance has jurisdiction.
Although, as I have indicated, there are two parts to the relevant
provision within Article 5(1), I recognise that the language of the whole
can assist in the interpretation of both parts. If, for example, there
was no obligation which could be identified or if there was no place of
performance which could be identified, then that would be a strong
indicator that no part of Article 5(1) has any application although what
is in issue is literally a matter relating to a contract. Equally, the opening
words of Article 5(1) give a contractual flavour to the "obligation in
question." Again, I accept that as Article 5(1) provides for an exception to
the general principle, a restrictive or strict interpretation of the language
is appropriate. But the adoption of that approach does not require the
ordinary meaning of the language to be artificially confined so as to give
the language used an unnatural meaning.
… Looking at the issues through the eyes of an English lawyer, I find the
situation to be one where:…
(a) if the claimants did not seek to rely on the non disclosure, there would
undoubtedly be a contract which would have a close connection with the
London reinsurance market with which the courts of this jurisdiction are
very familiar.
(b) the obligation for disclosure is one which arises under the general
law rather than an express term of that contract. However, the obligation
arises because it is commercially highly desirable. If the obligation did
not exist under the general law the parties would either have to include
a term in the contract to the same effect or negotiate on terms which
would be more financially burdensome to the insurer who is seeking
reinsurance. In addition, to draw a distinction between the requirements
of the general law and requirements of the contract is highly artificial. It is
far from uncommon for the parties to a contract of reinsurance to include
obligations expressly which the general law also requires.
…
(d) the fact that what is being sought is a declaration avoiding the
contract is not a distinguishing feature of this case. The declaration that
a contract is no longer binding need not arise from an obligation which
should be fulfilled before the contract is made. In contracts of insurance
and reinsurance, obligations of good faith can arise both before and after
the contract has been made. If a distinction is to be drawn depending on
when the obligation begins or ends, then fine distinctions indeed will have
to be drawn. The situations in which one party to a contract will regard
the other party as having been discharged from any further obligation to
perform the contract can arise in a great variety of situations.
(e) for the purposes of Article 5(1) there may well be a distinction
between a party relying on non-disclosure or lack of good faith and a
party relying upon duress, undue influence or mistake. If it would be
appropriate to refer to an obligation not to be guilty of duress or undue
influence or to induce a contract by mistake as relating to a contract, in
the case of such an allegation it may still not be possible to rely upon
Article 5(1) to establish jurisdiction. This is because there could be no
place for performance of such a negative obligation. In the case of non-
disclosure there is a place which can be identified where the disclosure
should have taken place. In the case of non-disclosure therefore there is
both an obligation and a place where that obligation is to be performed.
The position would be the same in the case of any contract entered into
in circumstances where one or other party is under an obligation of good
faith.
…
I turn to Mr. Siberry's submissions. Mr. Siberry's first main submission
is that the decision of their Lordships' House in Kleinwort Benson has
made it clear that for a claim to fall within Article 5(1) it must be based
on a contract, i.e. it must be a claim in respect of a right, and the
corresponding obligation arising under a contract: the obligation in
question must be a contractual obligation. So far as this submission is
concerned apart, possibly, from the inclusion of the word "under" I find it
quite acceptable. An obligation which, if it is not fulfilled, provides a right
to set aside the contract I would regard as being in ordinary parlance as
a contractual obligation of, if not also under, the contract. Otherwise you
descend into the unattractive distinctions between obligations which are
included in the contract and obligations which arise under the general law.
Substitute the words "arising from" for the word "under" and this difficulty
is resolved.
…The requirement of Lord Goff is that there should be a contractual
obligation. It is a matter of speculation as to whether he would have
come to the same conclusion as that to which he came to in the case of
a void contract in the different circumstances which exist here. Lord Goff
correctly gleaned in particular from the case of Martin Peters (Case 34/82)
[1983] E.C.R. 987 (at p. 1002 para. 11) that what is important when
deciding whether Article 5(1) applies is a "particularly close connecting
factor between a dispute and the court which may be called upon to hear
it". The dispute which Lord Goff had in mind was a contractual dispute as
to performance. Once it is accepted that a contractual obligation can arise
under the general law as well as under the terms of the contract, there is
no difficulty in identifying the necessary proximity between the obligation
which is relied on here by the claimants and the place of its performance
which is within this jurisdiction.
Lord Clyde's approach is also closely tied to the need for there to be a
contract. He states:
"There must be an obligation to be performed and the obligation
must be in dispute. I can see no other obligation which could here be
intended than an obligation based on contract. The 'question' concerns
a contractual obligation. The existence of a contract then becomes an
essential element. And while the question may appear in a variety of
forms essentially at the heart of the dispute will be a consideration
relating to its performance. It can then be seen that the later words
demonstrate the narrow scope of the phrase 'relating to.' It is not every
connection with a contract however remote or tenuous which is intended
here. The relationship is one whereby the matter is based on a contractual
obligation. In my view it is essential for jurisdiction to lie under Article
5(1) that there should be at the heart of the proceedings a dispute about
the performance of a contractual obligation. If there is no obligation
because there has never been a contract then there is no jurisdiction
under the Article." (p.181D/F)
….
The Tort Issue
It is accepted that if this case falls within Article 5(1) it does not fall within
Article 5(3). It is not possible for the same issue to be classified under
both heads. Having come to the conclusion that it falls under head 5(1) it
does not appear to me desirable to consider subsection (3) further, other
than to indicate that if the proceedings fall within Article 5, the obvious
candidate is Article 5(1) rather than Article 5(3).
Conclusion
Throughout the hearing of this appeal I have been conscious that the
issues before us are ones which it would be preferable for the E.C.J.
to decide. It is however not possible to refer issues under the Lugano
Convention to that court and while there is a case pending before that
court involving the Brussels Convention which raises the insurance
issue (Group Josi Reinsurance Company S.A. v. Société d'Assurances
Universal General Insurance Company [1999] I.L.Pr. 351), there is no
equivalent issue before the European Court as to the contract issue. In
these circumstances it seems that their Lordships have no alternative but
to determine the present appeal. In giving my opinion as to the proper
outcome of the appeal, I am reassured by the fact that the issues with
which we are concerned are ones of which the courts in this country have
considerable experience because of the size of the reinsurance market
in London. When the E.C.J. gives a decision on the same issues under
the Brussels Convention then those decisions will take precedence over
your Lordships' conclusions. I would hope that when that happens, in
coming to their decision the E.C.J. will obtain some assistance from their
Lordships' opinions.
My Lords, for the reasons I have attempted to explain I would dismiss this
appeal.
LORD COOKE OF THORNDON
My Lords,
….
The key point is that the wider choice of jurisdictions in which to sue
the insurer, given by Article 8 of Section 3, is a form of "consumer"
protection; whereas reinsured as a class cannot be supposed to be in
need of similar protection and so are outside the evident purview of
the Article. And, if Article 8 had been intended to apply to suits against
reinsurers, one would expect to find provision for contracting out in
Articles 12 and 12A, as there is no obvious reason why a reinsurer should
not be entitled to stipulate that he may be sued only in the courts of
the State where he is domiciled. Moreover, the provisions of Section
3 are elaborate, yet nowhere in them is there the slightest hint that
reinsurance is within their scope. In contrast Article 8.3 expressly brings
in co-insurers. Taken as a whole, the language of the Section is strongly
suggestive of direct insurance only, and no little effort would be required
to fit reinsurance into it (for example, Article 10 as to actions by the
injured party directly against the insurer, and Article 11 as to proceedings
by the insurer irrespective of whether the defendant is "the policy-holder,
the insured or a beneficiary"). For these and for the other reasons given
by my Lords, I join in holding that Section 3 must be ruled out.
Turning then to Section 2, Article 5.1: patently an action to avoid a
contract is a matter "relating to a contract". All the nine judges who have
considered this case in England are of the same mind on this point. One
need say nothing more about it.
The issue on which a difference of opinion has arisen in your Lordships'
House is whether the words "the place of performance of the obligation
in question" are satisfied. This issue has proved to lend itself to extensive
discussion. The considerations which seem to me decisive are as follows.
The obligation in question may be variously described as an obligation
to make a fair presentation of the risk, an obligation not to misrepresent
the risk, or an obligation to disclose facts material to the risk which the
reinsured knows or ought to know. However described, it is an obligation
falling on the reinsured for breach of which a remedy, namely the setting
aside of the contract, is available against the reinsured. Cases where an
apparent contract in void ab initio – for such causes as failure to comply
with a statutory requirement as to form, lack of contractual power in one
party, or uncertainty – are distinguishable.
Whether the concept of contract, for the purposes of Article 5.1, be
given an independent (or autonomous) convention interpretation or a
common law interpretation, the remedy of repudiating the contract is
essentially part of the law of contract. That is so not only because of the
subject-matter but also because the remedy is available to the reinsurer
in his capacity as one of the parties to the contract of reinsurance. As
put in 25 Halsbury's Laws of England, 4th ed. (1994) para. 361, it is "an
inherent right derived as a matter of law from the nature of the contract".
In English law breach of the obligation in question does not itself give
rise to a cause of action in tort or delict; for the latter there must be
the added factor of deceit or breach of a duty of care. The obligation is
imposed by law and has to be performed in negotiations for a contract
(and may extend subsequently), but in a case such as the present it
becomes enforceable only if a contract is concluded. It is then a condition
precedent to the formation of a fully binding contract or, more shortly,
a condition of the contract. Whether it is a term or condition "in" (or
"under") the contract is the kind of question which schoolmen might
debate, but that is a refinement of linguistics which, in my opinion, should
be avoided if possible in interpreting a modern convention intended to
provide clear and broad rules as to the jurisdiction of courts. Suffice it
that the obligation is so intimately connected with the contract that if falls
naturally within Article 5.1.
A powerful factor supporting that conclusion in a case such as the present
is the close connection between the dispute and the courts sitting in
London. Mance J. said (see [1996] 4 All E.R. at 981) -
"... it was common ground that the third [criterion] is also satisfied.
The duty to make a fair presentation fell due for performance in London
and any misrepresentation took place in the course of the brokers'
presentation of the risk to the reinsurers in their office or underwriting
boxes in London."
….
I do not think that any answer to the present issue can be wrung out
of the decisions to date of the European Court of Justice, nor out of
Kleinwort Benson Ltd. v. Glasgow City Council [1999] 1 A.C. 153. The fact
is that neither the European court nor the English courts have had to face
the present issue squarely before the present case; attempts to predict
how a particular court would have decided it must be speculative. I would
decide it as already stated. On all matters not expressly covered by what
I have said, I would adopt the opinion of Lord Woolf. It will be apparent
that I would dismiss this appeal.
LORD HOPE OF CRAIGHEAD
My Lords,
….
Reinsurance
In my opinion Title II Section 3 of the Lugano Convention, by which
matters relating to insurance are to be determined by special rules, does
not apply to matters arising out of contracts of reinsurance. While it is
no doubt true that reinsurance is a form of insurance, a clear line can be
drawn between the generality of insurance business conducted between
insurers and members of the public who wish to obtain insurance cover
and the particular form or category of it which is commonly referred to
by insurers, textbook writers and judges as reinsurance. The purpose
of reinsurance is to lay off or pass on part of the liability of the insurer
under an underlying insurance contract to another insurer. The contracting
parties are engaged in the same industry. The reinsurer is an insurance
company or underwriter who deals not with members of the public but
only with other insurance companies or underwriters.
For these reasons, and for the reasons given by my noble and learned
friends Lord Woolf and Lord Millett with which I agree, I would reject the
appellants' argument on this point.
Article 5(1) of the Convention
I turn now to the second question which has been raised in this appeal.
It is whether the respondents' claims for declarations that they are
entitled to avoid the reinsurance contracts fall within the special
jurisdiction in Title II, Section 2, Article 5(1) of the Lugano Convention.
In this paragraph of Article 5 it is provided that a person domiciled in a
Contracting State may, in another Contracting State, be sued:
"1. in matters relating to a contract, in the courts for the place of
performance of the obligation in question; in matters relating to individual
contracts of employment, this place is that where the employee habitually
carries out his work, or if the employee does not habitually carry out his
work in any one country, this place shall be the place of business through
which he was engaged."
The respondents' case is that that they were induced to enter into the
reinsurance contracts by the misrepresentation and non-disclosure of
material facts. They maintain that the appellants were in breach of the
duty of good faith which the parties to a reinsurance contract owe to
each other during the negotiation of the contract. Paragraph 8 of the
agreed Statement of Facts and Issues states that the claim concerns the
appellants' duty to make a fair presentation of, and not to misrepresent,
the risk to the respondents. The question is whether an action in which
a breach of duty during pre-contract negotiations is alleged falls within
the special rule of jurisdiction in Article 5(1). If it does, the respondents
will be entitled to sue the appellants in London where the contracts were
made and not in Sweden which is the place of the appellants' domicile.
The respondents' domicile is in London. So the effect will be to substitute
the courts of the respondents' domicile for the general jurisdiction in
Article 2 which provides that persons are to be sued in the courts of their
domicile.
For the special rule in Article 5(1) to apply, two requirements must be
satisfied by the claimant who seeks to bring himself within the rule. First,
the subject matter of his action must fall within a particular category. It
must be a matter "relating to a contract". If it is not, it may be possible
for the claimant to bring himself within one of the other rules in Article 5.
In this case, as an alternative, the respondents seek to invoke Article 5(3)
which applies to "matters relating to tort, delict, or quasi-delict." I shall
deal with Article 5(3) at a later stage in this judgment. As for Article 5(1),
if the initial question as to whether the claim is a matter "relating to a
contract" is answered in the affirmative, a second requirement must then
be satisfied. The place of performance of "the obligation in question" must
be identified. This is the requirement which determines the place where
the defendant may be sued in matters relating to a contract. So it must
be possible to identify an "obligation," and then to identify the place for
its performance. As Article 5(1) deals with matters relating to a contract,
and not with tort, delict or quasi-delict which are the subject of a different
rule in Article 5(3), it would seem to follow that the obligation in question
must be a contractual one.
The fact that these two requirements raise different issues which must
be considered separately is clearly demonstrated by three cases in which
Article 5(1) has been considered under the national law. Kleinwort Benson
Ltd v. Glasgow City Council [1999] 1 A.C. 153 was concerned only with
the first requirement, as to whether a claim for unjust enrichment fell
within Article 5(1) as being in "matters relating to a contract". As it was
held that this requirement was not satisfied, it was not necessary for
their Lordships to consider the application to the facts of that case of the
second requirement. In Bank of Scotland v. Seitz, 1990 S.L.T. 584, on
the other hand, it was the second requirement only that was in issue.
The claim was brought for payment under two letters of guarantee. No
express provision had been made in the letters of guarantee as to the
place where any payments due under them was to be made. There was
no dispute that the claim raised "matters relating to a contract", nor was
it disputed that the obligation to make payment was an "obligation" within
the meaning of Article 5(1). The dispute was as to whether the place of
performance of that obligation was in Scotland. In Industrie Tessili Italiana
Como v. Dunlop A.G. (Case 12/76) [1976] E.C.R. 1473, 1485, paragraphs
13-14 the European Court stated that the place of performance was
to be determined by national law. So the Court of Session applied the
legal implication under the law of Scotland that the debtor was bound
to tender payment to his creditor at the creditor's residence or place
of business. In Boss Group Ltd. v. Boss France S.A. [1997] 1 W.L.R.
351 both requirements were in issue. Saville L.J. dealt first with the
question whether the claim raised "matters relating to a contract." Having
answered that question in the affirmative, he then dealt separately with
the obligation which was in question and the place for its performance.
In most cases in which a claimant is seeking a remedy under a contract
the application of the special rule in Article 5(1) will be quite simple. He
will normally be seeking a remedy for a failure to perform one of the
obligations which were created by the contract. The task of the court
will be to identify the place where that obligation was to be performed
having regard to the express terms of the contract, and if there is no
express term, such legal implications relating to that issue as may be
relevant: see Bank of Scotland v. Seitz, 1990 S.L.T. 584. In this case
the respondents seek to avoid the contracts which they entered into.
So it is relatively easy to see that their claim raises "matters relating
to a contract" and that the initial requirement for the application of the
special rule in Article 5(1) is satisfied. The question raised by the second
requirement, as to whether the "performance of [an] obligation" is in
question, is more difficult. This is because the "obligation" on which the
respondents seek to rely is a duty which had to be fulfilled at or before
the stage when the contracts were being entered into. Neither side has
sought to identify the place of performance of any of the obligations which
were created by the contracts, the performance of which was due after
they were made.
The relevant part of the special rule in Article 5(1) is in identical terms to
the equivalent rule in the Brussels Convention. Having regard to Protocol
No. 2 to the Lugano Convention on the Uniform Interpretation of the
Convention, to chapter 1.1.2 of the Report on the Lugano Convention
by Mr. P. Jenard and Mr. G. Möller which refers to the various Reports
on the Brussels Convention where the provisions of the Brussels and
Lugano Conventions are identical and to the Declarations of E.F.T.A.
and the European Union States dated 16 September 1988, it is plain
that these provisions should receive a common interpretation and that
where provisions in the Lugano Convention are in issue decisions of the
European Court of Justice on identically worded provisions in the Brussels
Convention should be applied. Reference may also be made to the Report
by Mr. P. Jenard on the Brussels Convention (O.J. 1979 C59/22). The
question as to the application of the special rule in Article 5(1) which has
been raised in this case is not dealt with directly in the Jenard Report,
nor has it been the subject of any decision by the European Court of
Justice under the Brussels Convention. But it must be answered, so far
as possible, in conformity with the jurisprudence relating to the Brussels
Convention. So I think that it is appropriate first to see what guidance can
be obtained from that jurisprudence, before applying Article 5(1) to the
claims which are being made in this case.
The background to special rule in Article 5(1) is described in the Jenard
Report at pp. C59 22/24. Two initial points are made. The first is that by
laying down the special rules of jurisdiction the Committee intended to
facilitate the implementation of the Brussels Convention. This has been
done by enabling a claimant to sue without having to take the internal
laws of the State into consideration. The Convention itself determines
which court has jurisdiction. The second is that the adoption of special
rules is justified by the fact that, for the special rule to apply in place of
the general rule of jurisdiction based on domicile, there must be a close
connecting factor between the dispute and the court with jurisdiction to
resolve it. From these passages I infer that the intention was, in order to
achieve certainty, that the special rules should be capable of being applied
uniformly by all member States without regard to their own internal
laws of jurisdiction. For this to be done it was necessary that they should
identify in clear and simple language the situations in which they could be
applied.
In the discussion which follows about Article 5(1) it is explained that
there were great differences between the laws of the six member States
in their attitude to the jurisdiction of the forum contractus. Some did
not recognise this jurisdiction at all, while others differed as to whether
jurisdiction belonged to the courts for the place where the obligation
arose or the place where the obligation had been performed or the place
where the obligation was to be performed. The important passages in this
discussion are these:
"Article 5(1) provides a compromise between the various national laws.
The jurisdiction of the forum is, as in German law, limited to matters
relating to contract. It could have been restricted to commercial matters,
but account must be taken of the fact that European integration will mean
an increase in the number of contractual relationships entered into. To
have confined it to commercial matters would moreover have raised the
problem of classification.
Only the jurisdiction of the forum solutionis has been retained, that
is to say the jurisdiction of the courts for the place of performance of
the obligation on which the claim is based. The reasons for this are as
follows."
The first reason was that it would be unwise to give jurisdiction to a
number of courts, and thus possibly create conflicts of jurisdiction. The
second was that to recognise also the jurisdiction of the place where
the obligation arose would involve very considerable changes for those
States which did not recognise that forum, or did so only with certain
restrictions. The third reason was expressed in these terms:
"There was also concern that acceptance of the jurisdiction of the courts
for the place where the obligation arose might sanction, by indirect
means, the jurisdiction of the forum of the plaintiff. To have accepted
this forum would have created tremendous problems of classification, in
particular in the case of contracts concluded by parties who are absent."
It seems to me that these passages indicate, first, that the phrase
"matters relating to a contract" should be interpreted as extending to
all matters in which a remedy is sought which can be identified as a
contractual remedy. Clearly a claim for the performance of an obligation
which was created by a contract between the parties will fall within this
description. But the phrase may be capable of being applied to other
contractual remedies. For example, where a party has been induced to
enter into a contract by a misrepresentation which was fraudulent, he has
a choice of remedies. He may decide to sue for damages, in which case
his remedy may be founded in tort or delict. Or he may decide to reduce
or to rescind the contract so that he is no longer bound by it, in which
case his remedy will be contractual.
….
The noun solutio as used in the expression forum solutionis means,
literally, "loosening," and the verb solvere from which it is derived
means "to untie". More particularly, solutio means release from an
obligation which has been created by a contract. The term "obligation"
is widely used in the civilian systems to refer to the relationship which
exists between a party who has a right to claim on the one hand and
a party who has a duty to render performance on the other: Reinhard
Zimmermann, The Law of Obligations (1990), p. 1. In the contractual
context, the sense conveyed by the use of the word solutio is that of the
debtor's release from his obligation by performing what he was obliged
to do. Performance of the obligations undertaken by the parties under
their contract is one of the recognised means by which those obligations
are extinguished or come to an end: Zimmermann, op. cit., p. 748-750.
The use of the word "obligation" in this context suggests that what the
Committee had in mind throughout their discussion was the obligations
express or implied which the parties undertake to each other under their
contract, not duties which the law imposes upon them when the contract
is under negotiation and before it is made.
As my noble and learned friend Lord Millett explains, the ordinary
meaning of the word "obligation" extends to implied terms as well as
to those for which the parties have made express provision in their
contract. It is immaterial whether these implied terms are made part of
the contract by the common law or by statute. All these terms, whether
express or implied, are "contractual obligations," because they are
created by or arise out of the agreement between the parties when they
enter into the contract which they have made. So there is no reason
to think that the Committee intended to confine the use of the word
"obligation" in Article 5(1) to the express provisions of the contract.
But it does not follow from the fact that contractual obligations include
those which are implied as well as those which have been included in the
contract as express terms that the implied duty of good faith on which
the respondents rely in this case is correctly described as a contractual
obligation. The duties which the law implies at the stage when parties
are in negotiation or are in the process of entering into the contract, and
which must be fulfilled by the date when the contract is entered into, fall
into an entirely different category from the obligations which are created
by or arise from the contract when it is made. Contractual obligations do
not bind the parties until the contract has been entered into.
….
It is common ground that the claims which the respondents make in this
case are not for the performance of any of the obligations which were
created by the reinsurance contracts. None of those obligations is put
directly in issue in this case. Neither side has sought to identify the time
or the place for their performance. What the respondents seek is to be
released from the obligations which would otherwise be binding on them
by the setting aside of the contracts on the ground that the appellants
were in breach of the duty of utmost good faith that arose by operation
of law when they were being entered into. In my opinion it is a misuse
of language, in the context of the special rule in the Convention as to
matters relating to a contract, to describe that duty as an "obligation". It
was a duty which the law imposes on parties at the stage of the formation
of the contract, a breach of which by one party may entitle the other
to be released from it. Its description as an "obligation" confuses the
jurisdictional rules which distinguish the place where an obligation arose
from the place for its performance.
The confusion arises because the duty on which the respondents rely is
inevitably and inextricably linked to the place where the voluntary, or
contractual, obligations arose. This was one of the grounds of jurisdiction
which Article 5(1) of the Brussels Convention rejected. As the time for
performance of those obligations has not arrived, the full extent of that
confusion has not been revealed by the arguments which were presented
in this case. But it is not difficult to imagine a case where arguments
based on the duty of good faith are put forward by one party in answer
to a claim for performance of contractual obligations by the other. If
the respondents are right, the courts of the place where the duty of
good faith was to be performed during the formation of the contract
would have jurisdiction as well as those for the place of performance
of the obligations created by the contract which are put in issue by the
claim for performance on the one hand or the claim to be relieved from
performance on the other. It was just that kind of dispute that the special
rule in Article 5(1) was designed to avoid, as Mr P. Jenard made clear in
his report when he said at p. C59/23 that the Committee considered that
it would be unwise to give jurisdiction to a number of courts, and thus
possibly create conflicts of jurisdiction.
I would hold that the English courts do not have jurisdiction under Article
5(1).
Article 5(3)
It is reasonably clear that a liability in tort may arise in some
circumstances where there has been a breach of a duty in the formation
of a contract, for example if the breach can be said to have been
fraudulent. In that situation it will be open to the injured party to claim
damages, and jurisdiction may then be founded on the special rule in
Article 5(3). But the respondents' claim in this case is not, and cannot
be, a claim to enforce a liability in tort. The duty which is said to have
been breached was not one for the breach of which there is a liability in
damages. Their claim is a contractual one, to which the special rule in
Article 5(3) does not apply.
Conclusion
For these reasons I would hold that the respondents are not able to bring
themselves within the special rule in Article 5(1), that their claims do
not fall with the special rule in Article 5(3) which is relied upon in the
alternative and that the general rule in Article 2 which gives jurisdiction to
the courts of the defendant's domicile must be applied. I would allow the
appeal.
LORD MILLETT
My Lords,
The question in this appeal is whether the respondents are entitled to
maintain the present proceedings against the appellant in England, or
whether they are obliged by the terms of the Lugano Convention ("the
Convention") to bring them in the Courts of the appellant's domicile, that
is to say in Sweden. ….
Section 3 of the Convention: "matters relating to insurance."
This issue is a narrow one. Does "insurance" in Section 3 of the
Convention include reinsurance? The question whether the corresponding
and identically worded Section in the Brussels Convention applies to
reinsurance has not yet been considered by the Court of Justice, but it has
recently been referred to the Court by the Versailles Court of Appeal in
Group Josi Reinsurance Co. S.A. v. Société d'Assurances Universal General
Insurance Company [1999] I.L.Pr. 351. It is common ground that we
cannot refer the question to the Court, as we would otherwise do. We
must decide it ourselves.
…
The preponderance of judicial and academic opinion supports the
respondents' submission that Section 3 of the Convention does not extend
to reinsurance. This is based largely on the view succinctly expressed by
Professor Schlosser in Paragraph 151 of his Report on the 1978 Accession
Convention. He wrote:
"Reinsurance contracts cannot be equated with insurance contracts.
Accordingly, Articles 7 to 12 [of the Brussels Convention] do not apply to
reinsurance contracts."
…My Lords, it is a cardinal rule of the construction of the Brussels and
Lugano Conventions that the special rules of jurisdiction which derogate
from the general principle enshrined in Article 2 cannot be interpreted
as going beyond the situations envisaged by the Convention: see for
example Handte (Jacob) & Co. GmbH v. Traitements Mécano-chimiques
des Surfaces S.A. [1992] E.C.R. 1-3967 para. 14; Shearson Lehman
Hutton v. TVB. Treuhandgesellschaft für Vermögensverwaltung und
Beteiligungen m.b.H. [1993] E.C.R. I-139 para. 16. In my opinion an
interpretation of Section 3 which extends it to contracts of reinsurance
goes beyond what is necessary to enable the Section to achieve its
purpose.
This is not because contracts of reinsurance are commercial rather than
"consumer" contracts; or because the insured risks tend to be very
large. It is because, while both employ the same insurance mechanism,
insurance and reinsurance are conceptually different and serve different
purposes. All insurance is about managing risk. Direct insurance protects
the insured against extraordinary risks outside the ordinary course of
events, whether in his private life or in his business dealings. Reinsurance
is concerned with the management of risks which it is the ordinary
business of both parties to underwrite. It is essentially a professional
hedging operation by which, by the only means known to the law, the
insurer assigns all or part of his insurance liabilities to the reinsurer.
I should add that, in my view, for the purpose of the Convention,
reinsurance should be construed loosely to mean any contract of
insurance placed by or for the benefit of a party carrying on insurance
business and covering risks underwritten in the course of that business.
This is a wider definition than is employed in our domestic law (see
Toomey v. Eagle Star Insurance Co. Ltd. [1994] 1 L1.R. 516), but it is
easy to apply and serves to give full effect to the policy of Section 3
without extending it further than is necessary to achieve its object.
In my opinion the Court of Appeal were right to reject the appellant's
argument that the proceedings are a matter relating to insurance within
Article 11 of the Convention.
Article 5.1: "matters relating to a contract".
…Accordingly Article 5.1 of the Convention entitles the respondents to
bring proceedings in the courts for "the place of performance of the
obligation in question." They contend that the obligation in question is the
obligation on the part of the appellant to make a fair presentation of (and
not to misrepresent) the risk, and that this obligation fell to be performed
in London. The question, which is by no means easy, is whether this
correctly identifies "the obligation in question" for the purpose of Article
5.1. ….
It is, of course, true that, if the appellant did not seek to rely on the non-
disclosure, there would be a contract with a close connection with England
and, if the payment obligation fell to be performed here, one in respect
of which Article 5.1 would permit the respondents to bring proceedings
in England. It is also true that, as I observed in the Kleinwort Benson
case in the Court of Appeal (at [1996] Q.B. 678, 699), the intended
place of performance is no less a relevant connecting factor because the
contract is afterwards found to be defective. But this consideration does
not help to identify the obligation in question or determine the present
question, which is whether the so-called "obligation" to make disclosure is
an obligation of the kind contemplated by Article 5.1. ….
In my opinion, the source of the obligation does not matter. But its
nature does. This raises a question of characterisation. The expression
"obligation," like the expressions "contract" and "insurance" must be
given an autonomous meaning if the Convention is to have uniform
application. But the existence and nature of the particular "obligation"
in question must be ascertained by reference to the applicable national
law. Once it is found that a dispute concerns a matter relating to a
contract within the meaning of Article 5.1, then in my opinion the true
nature and extent of the contractual obligations on which the plaintiff
relies must depend on the proper law of the contract. This receives
support from the recent case of GIE Groupe Concorde v. The Master of
the Vessel Suhadiwarno Panjan to which my noble and learned friend
Lord Hope of Craighead has referred, and in particular para. 26 where
the Court of Justice pointed out that some of the questions which might
arise in this context could hardly be resolved without reference to the
applicable law. In the present case that is English law. The question
whether the so-called obligation of an insured under English law to make
a fair presentation of the risk and not to misrepresent it is an obligation
within the autonomous meaning of that word in Article 5.1 does not
depend on the classification of the obligation in English law but it does
require an appraisal of the nature of the obligation and the consequences
in English law of a failure to perform it.
Contracts are consensual transactions; they depend for their validity on
the consent of both parties. The apparent consent of one party, however,
may be obtained by duress or undue influence or induced by mistake
or misrepresentation however innocent. English law does not, generally
speaking, regard such circumstances as giving rise to an independent
cause of action. Instead it treats them as vitiating consent, and allows
the party whose consent was affected to avoid the contract. There is no
"obligation" not to exercise undue influence in order to persuade a party
to enter into a contract. The party exercising influence incurs no liability.
It is merely that the party whose consent was obtained by the exercise of
undue influence is entitled to have the contract set aside.
The so-called "obligations" relied upon by the appellant are in similar
case. There is, of course, a duty to act honestly, and a dishonest
misrepresentation may give rise to an action in tort for damages for fraud.
But there is no contractual obligation not innocently to misrepresent the
facts during contractual negotiations. Such a misrepresentation does
not found a claim for breach of contract, though any concluded contract
which is induced by the misrepresentation is voidable at the suit of the
representee.
…In my view, while the expression "obligation in question" has
an autonomous meaning, it must be limited to an obligation non-
performance of which gives rise to contractual liability, and does not
extend to what, when properly analysed, is merely a condition precedent
to the formation of a fully binding contract. This conclusion is reinforced
by the consideration that, as Evans L.J. recognised, the respondents'
arguments, if accepted in full, would permit cases like the present to be
litigated in the forum loci contractus contrary to the general scheme of
the Convention.
I should add that in my opinion it would make no difference if the contract
contained an express warranty on the part of the insured that it had made
full disclosure of all relevant facts. Such a warranty, which is sometimes
included in the contract, adds nothing. It does not convert a condition
precedent to the formation of a binding contract into an independent
contractual obligation. It is no more than a warranty that the condition
has been satisfied, and serves primarily as a reminder of its existence.
On the related question, I am not persuaded that the so-called obligation
to make full disclosure has any place of performance within the meaning
of that expression in Article 5.1. It is true that, if the appellant had made
a fair presentation of the risk, it would have done so in London where the
risk was in fact presented to the respondents. But I do not think that that
is enough. "The place of performance of a contractual obligation" must
surely mean the place where the contract stipulates that the obligation
ought to be performed, not the place where it would have been performed
in practice if it had been performed at all. This is reasonably clear in the
English version of the Convention, but it is crystal clear in the German,
French and Italian versions. Of course, a "negative obligation" not to be
guilty of duress or undue influence has no place of performance (though
it is inappropriate to describe this as an obligation at all) but the same
is true of the "obligation" to make full disclosure which has both positive
and negative aspects. It has no place stipulated for performance. A
misrepresentation can be corrected and a failure to make disclosure can
be remedied at any time and in any place prior to the conclusion of the
contract. This reinforces the conclusion that the so-called "obligation" of
full disclosure is not a contractual obligation which the party in default has
promised to perform but rather a condition precedent to the formation of
a fully binding contract.
In my opinion the respondents are not alleging the breach of a contractual
obligation which ought to have been performed in London, and the Court
of Appeal were wrong to conclude that they are permitted by Article
5.1 to bring the proceedings in England. This gives rise to a difficult
question on which the Court of Justice has not hitherto pronounced. It
is this. Where the dispute concerns a matter relating to a contract but
the plaintiff's claim that he is not liable is not founded on the breach of
any particular contractual obligation by the defendant, is the jurisdiction
conferred by Article 5.1 excluded altogether, or does Article 5.1 operate
to confer jurisdiction on the courts for the place of performance of the
contractual obligation from which the plaintiff seeks to be relieved? The
jurisprudence of the Court of Justice suggests that strict compliance with
Article 5.1 is required, and that the Court does not strain to make the
Article apply. It takes refuge in the fact that the plaintiff can always sue
the defendant in the courts of the Contracting State where the defendant
is domiciled. But we are not called upon to decide this question, for as I
have explained neither party contends for the place of performance of the
obligation from which the respondents seek to be relieved.
Article 5.3: "matters relating to tort, delict or quasi-delict."
…The application of Article 5.3 is excluded by the fact that the matter
relates to a contract, for the two are mutually exclusive. The failure to
make a fair presentation of the risk and not to misrepresent it does not
give rise to contractual or tortious liability under English law, and cannot
therefore be classified as delictual. Finally there is no relevant harmful
event, since apart from the costs of negotiation and preparation of the
contract, which are not recoverable in English law, the plaintiff suffers no
loss. The appellant does not bring proceedings in order to recover a loss,
but to avoid one.
Conclusion.
I would allow the appeal and stay the proceedings.