JUDGMENT-1:
EVANS LJ: 1. Two issues arise in this appeal, both of them under the
Brussels Convention on Jurisdiction and the Enforcement of Judgments
in Civil and Commercial Matters 1968 (as set out in Sch 1 to the Civil
Jurisdiction and Judgments Act 1982). The first is the familiar question
whether proceedings may be brought in this country against a person not
domiciled here, on the ground that art 5(1) applies:
'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 . . .'
The second issue, only a little less familiar, is whether the parties 'have
agreed that [the courts of a country other than England and Wales] are to
have jurisdiction to settle any dispute' (art 17).
Parties
2. The appellants, whom I shall call 'E.', are an insurance company
domiciled in Greece which in 1997 succeeded to the rights and obligations
of another Greek insurance company, As. Insurance Co SA (As.).
3. In September 1994 As. insured factory buildings and machinery owned
by a Greek company, H. Weapon Co AE (H.), against, among other
risks, damage caused by earthquakes, for the period of 12 months until
September 1995.
4. As. reinsured 34.5% of that risk with the respondents, whom I shall
call 'A.', by a contract of reinsurance evidenced by a slip policy completed
on 28 November 1994.
5. An earthquake damaged one of H.c's factories on 15 June 1995. H. and
As. were unable to agree the amount for which the insurers were liable,
and in September 1997 H. started proceedings in Athens against As.. In
November 1997 E., now merged with As., issued the equivalent of third
party proceedings against A..
6. A. responded by starting this action against E. in London, claiming
declarations of non-liability to E. on the ground that As./E. was in breach
of two undertakings which were conditions precedent to its liability
under the reinsurance contract and of its alleged duties in relation to the
ascertainment of loss.
7. E. applied for the writ to be set aside, alternatively for the proceedings
to be stayed, on the grounds that the court has no jurisdiction by reasons
of arts 5(1) and 17 of the Brussels Convention. Colman J held that there
were no good grounds for declining jurisdiction or for setting aside service
of the proceedings.
8. The alleged breaches by E. were of express terms which required
performance in London: giving notice to A. within 72 hours of becoming
aware of H.'s claim (claims control clause (A)) and providing A. with all
information about the losses concerned (claims control clause (B)). The
claims control clause reads:
'Notwithstanding anything herein contained to the contrary, it is a
condition precedent to any liability under this policy that: (A) the
Reassured shall, upon any knowledge of loss or losses which may give
rise to a claim under this policy, advise the Underwriters thereof by cable
within 72 hours; (B) the Reassured shall furnish the Underwriters with all
information available respecting such loss or losses, and the Underwriters
shall have the right to appoint adjusters, assessors and/or surveyors and
to control all negotiations, adjustments and settlements in connection
with such loss or losses.'
9. The third alleged breach of the reinsurance contract, for which A. also
claims damages, is of an express and/or implied term, pleaded as follows:
'8. The effect of the Full Reinsurance Clause was that the plaintiffs were
bound to follow the settlements of As. unless: (i) As. lacked good faith;
or (ii) As. failed to take all proper and businesslike steps to have the
amount of the loss fairly and carefully ascertained (hereinafter called
"the ascertainment of loss duties"). 9. Further or alternatively it was an
implied term of the slip policy that As., on being notified of a claim under
the primary contract, would carry out the ascertainment of loss duties.'
10. Extensive particulars of these alleged breaches are set out in the
points of claim. In summary, the allegation is that, although As. appointed
its loss adjuster on the day of the loss, 15 June 1995, it failed to report
the loss to A. until 3 August 1995. A. then appointed its own adjuster
from London, Mr L. of M. LMS Ltd, but he had already been deprived,
the plaintiffs say, of the opportunity to visit the site immediately after
the loss. The gravamen may lie in para 17(iii): '. . . the Plaintiffs were
deprived of the opportunity to assume control of the adjustment in the
early days following the loss.'
11. The alleged breach of claims control clause (B) is that As. failed or
refused to provide information to A. and/or Mr L. although requested
to do so on numerous occasions between 28 September 1995 and 1
September 1997 (paras 21-22) and persistently failed to provide A.
with timely information in respect of the loss, including the proceedings
brought against As. in Athens (paras 23-26).
12. Paragraphs 19 and 20 set out the alleged failures in the
'ascertainment of loss'. They are set out in fourteen numbered sub-
paragraphs and are to the effect that As. and/or its loss adjuster Mr
Soutis failed to carry out an efficient and timely investigation into the loss
and failed properly to prepare As.'s defence to the claim, particularly as
regards the amount recoverable from them.
13. The ascertainment of loss provisions, it is clear, fell for performance
in Greece, or at least outside the United Kingdom. The case has been
argued, both before Colman J and before us, on the basis that the terms
requiring As. to give notice and provide information were for performance
in London, where A. carries on business.
Article 5(1)
14. The relevant principles were set out by Lord Goff in Kleinwort Benson
Ltd v Glasgow City Council [1997] 4 All ER 641 at 646-647, [1999] 1 AC
153 at 163-164 in numbered paragraphs, as follows:
'(2) The first point which is clearly established in the European
jurisprudence is that the basic principle is to be found in art 2. This is
the principle of domicile . . . But it is clearly recognised that art 5 is in
derogation from the basic principle of domicile in art 2 . . . and that as a
result the provisions of art 5 are to be construed restrictively (see Kalfelis
v Bankhaus Schroder Munchmeyer Hengst Case 189/87 [1988] ECR 5565
at 5585 (para 19)). In this connection, it is not to be forgotten that the
defendant can always be sued in the courts of his domicile.
(3) Next, in considering the function of the various provisions of art 5, it is
to be remembered that these provisions exist "because of the existence,
in certain clearly defined situations, of a particularly close connecting
factor between a dispute and the court which may be called upon to
hear it, with a view to the efficacious conduct of the proceedings": (see
Martin Peters Bauunternehmung GmbH v Zuid Nederlandse Aanemers
Vereniging Case 34/82 [1983] ECR 987 at 1002 (para 1)). In the case
of art 5(1), the relevant court is specified as being the court "for the
place of performance of the obligation in question" which is described
in the Jenard Report (OJ 1979 C 59, p 1) as the court of the place of
performance of the obligation on which the claim is based . . .
(4) It follows that, in order to identify the relevant court, it is necessary
first to identify the obligation in question. This was made plain in Ets
A de Bloos SPRL v Societe en commandite par actions Bouyer Case
14/76 [1976] ECR 1497 at 1508 (para 11) in which the European Court
of Justice held that the word "obligation" in art 5(1) refers to "the
contractual obligation forming the basis of the legal proceedings". The
Court of Justice subsequently affirmed that "the obligation" -- "cannot
be interpreted as referring to any obligation whatsoever arising under
the contract in question, but is rather that which corresponds to the
contractual right on which the plaintiff's action is based . . ." (See Custom
Made Commercial Ltd v Stawa Metallbau GmbH Case C-288/92 [1994]
ECR I-2913 at 2957 (para 23).'
15. It is also well established that the same approach to art 5(1) is
adopted when the defendant denies the existence of a contract (see
Effer SpA v Kantner Case 38/81 [1982] ECR 825 at 835-835 (para 7),
quoted by Lord Goff in the Kleinwort Benson case [1997] 4 All ER 641 at
647, [1999] 1 AC 153 at 165, and cf Boss Group Ltd v Boss France SA
[1996] 4 All ER 970, [1997] 1 WLR 351) and when the plaintiff seeks a
dissolution of the contract on the ground of the wrongful conduct of the
other party (see Ets A de Bloos SPRL v Societe en commandite par actions
Bouyer Case 14/76 [1976] ECR 1497 at 1508 (para 14), quoted by Lord
Goff in the Kleinwort Benson case [1997] 4 All ER 641 at 647, [1999] 1
AC 153 at 165). In the Ets A de Bloos case the relevant obligation is the
one 'non-performance of which is relied upon to support such claims'. It
has to be capable of being described mutatis mutandis as 'the obligation
on which the claim is based' (cf Lord Goff in the Kleinwort Benson case
[1997] 4 All ER 641 at 648-649, [1999] 1 AC 153 at 166).
16. Colman J held in Fisher v Unione Italiana de Riassicurazione SpA
[1998] CLC 682 and again in the present case that the same test applies
when the plaintiff claims a declaration of non-liability without impugning
the existence of the contract. In such a case, it is necessary to identify
'the obligation in question' in a situation where the plaintiff relies upon
the alleged breach of contract by the defendant in order to assert his
own release from any obligation to perform the contract further (cf The
Maciej Rataj, Tatry (cargo owners) v Maciej Rataj (owners) Case C-406/92
[1995] All ER (EC) 229, [1994] ECR I-5439 and the Boss Group case).
Neither party has challenged the correctness of this part of the judgment,
and I would agree with it.
17. It is also established that when more than one contractual obligation
is in issue, then it is necessary to identify the principal obligation, for the
purposes of applying art 5(1), upon the principle accessorium sequitur
principale (see Shenavai v Kreischer Case 266/85 [1987] ECR 239 at 256
(para 19) and Union Transport Group plc v Continental Lines SA [1992]
1 All ER 161, [1992] 1 WLR 15 in the House of Lords (affirming [1991] 2
Lloyd's Rep 48 at 51-52 per Lloyd LJ in the Court of Appeal).
18. A further question arises when it is possible to identify two 'principal'
obligations 'neither . . . subordinate to the other and . . . of equal
rank'. This issue is currently before the Court of Justice of the European
Communities in Leathertex Divisione Sintetici SpA v Bodetex BVBA
Case C-420/97 [1999] 2 All ER (Comm) 769 upon a reference by the
Belgian Court of Cassation, and we were given a copy of the opinion of
the Advocate General M Philippe Liger dated 16 March 1999. We were
invited, if we formed the view that this was or might be a correct analysis
of the present case, to postpone our judgment accordingly. In the result,
however, this need does not arise.
19. Against this background, A. asserts that the principal obligation in
issue in the present case, and the 'obligation in question' for the purposes
of art 5(1), is the alleged breach by As./E. of the terms requiring prompt
notice and the provision of information, both of which are described as
conditions precedent to its liability under the reinsurance contract and
both of which were for performance in London. The judge adopted this
view, noting (at 307) that 'Omission to comply with the 72 hours' claims
notification obligation allegedly operated as a complete bar to a claim' and
concluding (at 308):
'. . . the claims control clause should be identified as the principal
obligation. Breaches of that clause are deployed as the basis for the
primary relief sought in the points of claim -- the general negative
declaration. The presence of alternative claims for a negative declaration
as to the reinsurers' duty to follow the settlements of the reassured and
for damages for breach of the ascertainment of loss obligation does not
justify treating that obligation as the principal one in preference to the
claims control clause.'
20. E.'s submissions were summarised (at 306-307). They were to the
effect that 'the real core of the claim for a negative declaration or for
damages is that the reassured failed adequately to investigate the claim
in Greece' (para (iv)) and that the 'centre of gravity of the obligations in
issue is in Greece, for it was the conduct of the defendants there which
gave rise to all the breaches relied upon' (para (vi)).
21. Mr Matthews maintained these contentions before us, and he was able
to supplement them by submitting that the judge erred in his approach
to the application of art 5(1). The judge stressed that the claims control
clause was expressed as a condition precedent to A.'s liability under the
contract and he had regard to the manner in which the plaintiffs had
formulated their claim for relief in the proceedings. His conclusion (quoted
above) therefore identified the principal obligation by reference to that
which was 'deployed as the basis for the primary relief sought in the
points of claim'. This was a wrong approach, Mr Matthews submitted,
because the principal obligation should be identified by reference to the
substance of the matters in issue, which in this case is the insurance
company's alleged failure to investigate the loss properly or timeously
in Greece. By eliding 'principal' into 'primary' obligation, and by paying
undue attention to the manner in which A.'s claims were pleaded, the
judge was distracted, he submits, from considering the substance of the
matter in this way.
22. His submission that the principal obligation may be identified by
considering what is the 'fundamental obligation' and 'the real ground of
complaint' is supported by the earlier House of Lords judgment in the
Union Transport case [1992] 1 All ER 161 at 168, [1992] 1 WLR 15 at 22,
23 per Lord Goff).
23. I would also agree with Mr Matthews that, if the judge did equate
'principal' with 'primary', meaning first in time, then he was wrong to do
so, but I do not think that he did. His conclusion was that breaches of the
claims control clause, which was expressed as a condition precedent, were
relied upon as grounds for the primary, meaning principal relief claimed,
namely, the declaration of non-liability.
24. The judge quoted from his judgment in Fisher's case where he
concluded, after considering the decisions of the Court of Justice in
the Ets de Bloos case and the Custom Made Commercial case, that the
obligation in question for the purposes of art 5(1) has three essential
characteristics, including '(3) the plaintiff has formulated his claim
for relief in the proceedings on the grounds of performance or non-
performance of that obligation' (see [1998] CLC 682 at 687). He added, in
the present case (at 305):
'The process of identification of the obligation in question thus depends
crucially on the way in which the plaintiff has formulated his claim for
relief.'
25. I do not believe that the judge intended to suggest that the plaintiff
can somehow select what he regards as the obligation in question by
wording his claim document accordingly. That would foreclose the court's
identification of the principal obligation, in case of dispute, and there are
ample references to the objective nature of this inquiry, not least in the
Custom Made Commercial case [1994] ECR I-2913 at 2957 (para 23)
'the contractual right on which the plaintiff's action is based'. What the
Court of Justice emphasised in that case, and what Colman J has held, is
that the national court which determines the application of art 5(1) must
consider the plaintiff's claim document and identify from it the principal
obligation upon which the claim is based. The plaintiff cannot camouflage
the principal obligation by relegating it to a subordinate role by the way
he chooses to express his claim. The court's decision does not rest in the
plaintiff's hands.
26. The correct inquiry in the present case, therefore, is to ask whether
A.'s claim for a declaration of non-liability depends or is based principally
(or 'substantially') on the alleged breaches of the claims control clause or
on the accompanying allegations of breaches of the insurance company's
obligation to investigate the claim fully and timeously in Greece. If the
two were or might be of equal importance then the question raised in
the Leathertex case would arise. But in my judgment the judge was
clearly correct in the conclusion he reached. My reasons are as follows.
(1) A.'s claim is based essentially on As.'s failure to inform it promptly
of the claim received in Athens. If notice had been given, then a London
adjuster could and allegedly would have been appointed forthwith, and
A.'s reliance on As. for information and for investigating and responding
to the claim would have been greatly reduced, probably extinguished
altogether. This picture derives from the points of claim, notwithstanding
the prominence given to detailed particulars of alleged breach of the
ascertainment of loss provisions, but not from the fact that the alleged
breaches of the claims control clause appear first and are of terms
described as condition precedents. (2) Due performance of a term
described as a condition precedent to the other party's liability under the
contract can properly be described as 'fundamental', and its breach as the
'real ground of complaint', if the tests referred to in the Union Transport
case are applied.
27. I therefore would reject this ground of appeal. This makes it
unnecessary to consider the respondents' notice, which asserts that the
obligation in question in cases such as the present, where the plaintiff
claims a declaration of non-liability on grounds of alleged breaches by the
defendant, is the plaintiff's contractual obligation, which he asserts is no
longer binding on him. It seems to me that this cannot be right. The issue
between the parties is whether there has been a breach of contract by the
defendant which has released the plaintiff from further performance of its
obligations under the contract. Those obligations themselves are not in
dispute, and I do not see how they can be regarded as the 'obligation in
question' in proceedings brought by the plaintiff, even though the purpose
in bringing the proceedings is to establish a freedom from liability to
perform the contract in future.
28. I should refer finally to the question of 'fragmentation', in other
words, the possibility that the English court should have jurisdiction in
respect of the alleged breaches of the claims control clause but not over
those of the ascertainment of loss provisions. The latter are also relied
upon as releasing A. from liability and to that extent they can properly be
described as subordinate to the former. The claim for damages would be
the only candidate for divestment, and like the judge I would reject this
course, which in any event Mr Matthews has not suggested to us.
Article 17
29. The issue arising under art 17 is whether the parties to the
reinsurance contract agreed that the courts of Athens were to have
jurisdiction to settle disputes; if they did, those courts have exclusive
jurisdiction by virtue of art 17.
30. The relevant term of the reinsurance contract is in the slip policy:
'CONDITIONS: Wording as original.'
31. The underlying insurance policy included the following 'Condition':
'Both contracting parties do hereby agree that they submit to the
jurisdiction of the Courts of Athens the trial of any dispute, which shall
arise out from [sic] the present policy and they now expressly waive the
right to contest the above jurisdiction of the Courts of Athens for any
reason.'
32. Mr Matthews makes the straightforward submission that the terms
of the slip policy/reinsurance contract should be given their literal effect.
The jurisdiction clause in the underlying policy was one of the 'conditions'
expressly incorporated in the former.
33. The judge rejected this submission on the ground that general words
of incorporation such as these do not suffice to bring an arbitration clause
from the other contract referred to into the contract in which they appear;
and he held that the same principle would be applied when the clause
in question is a clause conferring jurisdiction not on arbitrators but on
another court.
34. The judge therefore held (at 311):
'In my view, it is to be inferred that the function of the incorporating
words was confined to ensuring that the substantive or subject matter
terms of the reinsurance matched the substantive or subject matter terms
of the primary cover, except where expressly provided to the contrary.'
He acknowledged, however, that it remains necessary to construe the
particular contract in each case:
'I do not suggest that to be an inflexible rule of construction. There may
be cases where in all the circumstances prevailing between the parties
when they made their contract it would be unrealistic to restrict the scope
of incorporation so as to exclude a jurisdiction clause.'
35. He referred to his earlier judgment in OK Petroleum AB v Vitol Energy
SA [1995] 2 Lloyd's Rep 160 both for the 'normal' rule in relation to
arbitration clauses and for applying it to jurisdiction clauses also.
36. Mr Matthews does not challenge the judge's conclusion as to
arbitration clauses, but he disputes that the same, or any, rule applies in
relation to jurisdiction clauses. Rightly, he points to significant differences
between agreeing that disputes shall be referred to arbitrators, by what
has been described as a 'self-contained contract collateral or ancillary to'
the substantive contract (see Aughton Ltd v MF Kent Services Ltd (1991)
57 BLR 1 at 31 per Sir John Megaw) and, on the other hand, agreeing as
part of a contract that disputes under it shall be referred to the courts of
a particular country. Such a term, he submits, cannot be regarded as a
separate contract, like an arbitration agreement, which may be subject
to a statutory regime and have its own proper law, independently of the
contract in which it appears.
37. I respectfully adopt and agree with Sir John Megaw's analysis of the
authorities with regard to arbitration clauses and specifically with regard
to the incorporation of charterparty arbitration clauses into bills of lading.
There was a time when the objection to incorporation was expressed
on semantic grounds (the arbitration clause was, or was not, a 'term
condition or exception', etc) but this was overtaken by the closer analysis
of the nature of an arbitration agreement which appeared from Bremer
Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corp Ltd
[1981] 1 All ER 289, [1981] AC 909. The question is whether the same
approach should be adopted towards incorporation of a jurisdiction clause.
38. It is clear in my judgment that the circumstances in which
charterparty provisions are stated to be incorporated in a bill of lading
are special and possibly unique, and they cannot give rise to any rule of
construction which should apply whenever one contract incorporates the
terms of another. The present case, even if it was typical of reinsurance
contracts, has features which are relied upon by both parties and which
could not arise in the bill of lading/charterparty context. Mr Matthews
submits that the parties agreeing the reinsurance contract in London must
have recognised that disputes under the insurance contract would arise
in Greece and if litigation became necessary it would be most likely to be
decided by the courts there. On the other hand, as the judge noted, the
reinsurance contract is probably governed by English law, and the parties
to it may be thought unlikely to have intended that disputes arising under
it should be decided in Greece. Neither of these factors arises in the same
way in a bill of lading/charterparty case.
39. Nevertheless, there is one feature which the two situations have
in common. In both, the parties intend that the subject matter of the
two contracts shall be the same. In the bill of lading, that the terms
etc of carriage shall be those already agreed in the charterparty. In a
reinsurance contract, that what may be called the scope of the insurance
is identical with that in the underlying policy, particularly when the
reinsurance includes a 'pay as may be paid' provision, as here. In my
judgment, this is a good and sufficient reason for asking, in both contexts,
what is essentially the same question: did the parties to the contract in
which the general words of incorporation appear intend that their contract
should include the particular term from the other contract referred to?
40. In my judgment, the judge was correct to answer this question in
the negative as regards the jurisdiction clause in the present case. In
the original insurance, the clause does nothing to define the risk, and
if regard is had to its terms, they are wholly inappropriate to disputes
arising between insurers and reinsurers under the reinsurance contract
(as distinct from disputes under the original insurance, which could be
binding on reinsurers notwithstanding that they were decided by the
Greek courts).
41. Like the judge, I have considered this issue on the basis that the
construction of the reinsurance contract is governed by its proper law,
English law. It would perhaps be more correct to interpret and apply
art 17 in accordance with Community law, as was done by this court
in Credit Suisse Financial Products v Societe Generale d'Enterprises
[1997] CLC 168 at 170 (where the parties agreed on this approach) and
as was held by Tuckey J in ARIG Insurance Co v SASA Ass Riass Spa
(10 February 1998, unreported). But the result, in my judgment, is the
same. The governing European authority is Estasis Salotti di Colzani
Aimo e Gianmario Colzani v RUWA Polstereimaschinen GmbH Case 24/76
[1976] ECR 1831) which requires 'clear and precise demonstration' in the
reinsurance contract that the jurisdiction clause relied on was in fact the
subject of a consensus between the parties. That test is not satisfied here.
42. I therefore would dismiss the appeal on this ground also, but not
without acknowledging the help I have received from Mr Matthews'
written and oral submissions.
JUDGMENTBY-2: THORPE LJ
JUDGMENT-2:
THORPE LJ: I agree.
JUDGMENTBY-3: JONATHAN PARKER J
JUDGMENT-3:
JONATHAN PARKER J: I also agree.
DISPOSITION:
Appeal dismissed.