JUDGMENT-1:
NEILL LJ: This is an appeal by M. R. & Co AG, the plaintiffs, from the
order of Mr Justice Hobhouse dated Nov 8, 1991 whereby he dismissed
the application by M. R. for an interim injunction to restrain Societa I. I.
PA (which I will call "I.") from pursuing an action in Genoa pending the
appointment of an arbitrator in these proceedings pursuant to s 10(3) of
the Arbitration Act, 1950. Mr Justice Hobhouse gave the reasons for his
judgment on Nov 11, 1991.
It is necessary to start by giving an account of the proceedings in this
country and in Italy. M. R. are a well known Swiss corporation with major
business activities world-wide. I. are an Italian company, partly state
owned. They carry on an engineering and manufacturing business in Italy.
At the beginning of 1987 I. sold a cargo of Iranian crude oil to M. R..
The contract for the sale was made or at any rate negotiated in Italy.
Following the sale two disputes arose between the parties. The first
dispute related to an allegation by M. R. as buyers that the cargo of oil
was contaminated with water. The second dispute related to a contention
by M. R. that the contract incorporated an English Law and London
arbitration clause.
Samples of the oil were taken and analysed. M. R. wished to deal with the
contamination dispute by arbitration. On Feb 29, 1988 they appointed an
arbitrator and asked I. to appoint an arbitrator too. Meanwhile, however,
on Feb 18 I. had issued proceedings in the Court in Genoa. In these
proceedings they sought a declaration of non-liability.
On May 20, 1988 M. R. issued an originating summons in the Commercial
Court in London seeking the appointment of an arbitrator pursuant to s
10(3) of the 1950 Act. They obtained leave to serve the summons out of
the jurisdiction. On July 8, 1988 I. applied to set aside the order granting
leave; I. contended that the contract did not contain an arbitration clause
and that the dispute should be resolved in Italy. On Nov 3, 1988 Mr
Justice Hirst dismissed I.'s application, holding that the Convention on
Jurisdiction and the Enforcement of Judgments in Civil and Commercial
Matters (the Brussels Convention) did not apply; that the putative law of
the contract was English and that it was a proper case for leave to serve
out of the jurisdiction: see [1989] 1 Lloyd's Rep 548. I. appealed. On Jan
26, 1989 the Court of Appeal held that in order to decide the case it was
necessary to refer questions on the interpretation of art 1 of the Brussels
Convention to the European Court.
Meanwhile M. R. had taken steps to contest the jurisdiction of the Court
in Genoa. On Oct 4, 1988 they lodged a document which has been
translated "Defence in a Civil Action" and, in the alternative, "Pleading in
Reply". I should read parts of this document. It is in bundle 1B at p 14
and following, and I read from p 20:
Claim
1. Lack of jurisdiction of the Italian AG
The arbitration clause inserted by M. R. in the telex confirming the terms
of sale was never contested by It., which executed the contract (albeit in
an abnormal manner) and by all its subsequent behaviour indicated that
it recognized the clause as valid. The clause moreover excludes Italian
jurisdiction.
2. Non-fulfilment by It. and its liability for losses
In the hypothesis, considered unlikely, that Italian jurisdiction should
be recognized, M. R. asks that judgment be given for It. to make
compensation for all losses it has suffered as a result of the shipment of
goods different from those contracted for.
Being a sale FOB, delivery took place at the time of loading the crude
oil on board the tanker "Atlantic Emperor". Now it is indisputable that at
that moment the crude oil contained a very high percentage of water, the
amount of which was definitively ascertained by means of the analysis
carried out in England on 26 November 1987. M. R. proposes to specify in
the course of the proceedings on the merits, still in the hypothesis of its
objection of lack of Italian jurisdiction being rejected, the precise nature
and extent of the losses suffered.
Given the above
M. R. & Co AG represented and defended as above, request acceptance of
the following pleadings:
May it please the Court, in acceptance of the preliminary objections of
the party pleading, to declare that it lacks jurisdiction inasmuch as the
dispute must be subject to arbitration in London. Secondarily, in the event
of dismissal of this claim and recognition of its jurisdiction, to order It.
SPA to make compensation for all losses suffered by M. R. & Co AG as a
result of the defects of the goods sold, plus interest and the greater loss
in the intendment of the final paragraph of Article 1224 of the Civil Code,
and interest on the interest in the intendment of Article 1283 of the Civil
Code.
With the award of cost of proceedings, cost of judgment (and) its
subsequent recording.
Attached to that are a number of documents dating from various dates in
1987 and 1988. I shall consider the effect of this pleading later.
On Nov 22, 1988 M. R. lodged a petition in the Corte di Cassazione
seeking a declaration to the effect that by reason of the arbitration
agreement the Courts in Italy lacked jurisdiction to try the dispute.
Following the decision of the Court of Appeal in England on Jan 26,
1989 to refer certain questions to the European Court of Justice there
was then a pause of nearly 18 months. On June 21, 1990 the hearing
before the Corte di Cassazione took place in Rome. Judgment was
reserved and was delivered on Jan 25, 1991. By their judgment the
Corte di Cassazione rejected the plea by M. R. that the proceedings in
Genoa should be stayed. In summary they held (a) that as M. R. were a
company registered in Switzerland they were not subject to the decisions
of the European Court of Justice; (b) that there was no binding arbitration
agreement between M. R. and I. because there was no agreement in
writing as required by the New York Convention and because there was
no basis for assuming that there had been a tacit acceptance by I. of the
proposal to submit the dispute to arbitration; (c) that the only relevant
jurisdiction for the trial of the dispute was Italy where the contract had
been formed.
Meanwhile on Oct 17, 1990 the hearing took place before the European
Court of Justice in Luxembourg.
On May 14, 1991 M. R. lodged a further pleading in the proceedings
in Genoa. It seems to have been lodged on the day appointed by the
investigating magistrate for the continuation of the hearing. In this
pleading, which is set out in vol 1B at pp 103 and following, the earlier
steps in the action were recited including the outcome of the hearing in
Rome. The pleading then continued:
The action brought by It. has therefore been returned to the Court of
Genoa and the Investigating Magistrate, Dr Castellana, in a measure
dated 3 April 1991, has fixed the date for the continuation hearing for 24
May. M. R. & Co AG appear before the Court, contesting the claim of the
opposing party to be free of liability and reserving their rights in respect
of a fuller reply and impugnment as necessary, as a result of which It.
Spa may prove their claim, which appears, in the present state of affairs,
objectively to be excluded, given that 58,000 tons of water mixed with
crude oil were incontestably loaded.
In consideration of the above
M. R. & Co AG therefore, without any prejudice to their valid entitlement
to acknowledgment of damages and costs suffered in the claim for
compensation to be made in accordance with the applicable terms and
conditions, plead as follows:
The Court is asked, having rejected any petition, objection and inference
to the contrary, to dismiss the claim made by It. SpA by Virtue of the writ
of summons served on 29 February 1988.
There were further hearings in Genoa on June 4 and July 2, 1991 when M.
R. introduced some documentary evidence. In a later affidavit dated Nov
4, 1991 M. R.'s solicitor explained that the purpose of submitting these
documents was not to prove a claim for damages but merely to ensure
that the Court in Genoa did not proceed to a final judgment while the
judgment from the European Court of Justice was still awaited.
On July 25, 1991 the European Court of Justice gave their judgment on
the questions referred by the Court of Appeal. The first question related to
the scope of art 1(4) of the Brussels Convention. I should read art 1 and
then the question. I turn to art 1, which, so far as material, is in these
terms:
This Convention shall apply in civil and commercial matters whatever
the nature of the court or tribunal. It shall not extend, in particular, to
revenue, customs or administrative matters.
The Convention shall not apply to... (4) arbitration.
The judgment of the European Court is conveniently set out in bundle 1A
beginning at p 10. I turn first to par 9 which sets out the question which
was referred by the English Court of Appeal in the beginning of 1989. I
need not read the later questions, but the first question is this:
Does the exception in Article 1(4) of the Convention extend:
(a) to any litigation or judgments and, if so,
(b) to litigation or judgments where the initial existence of an arbitration
agreement is in issue?
In par 11 of the judgment that question was paraphrased by the Court in
these terms:
The first question submitted by the national court seeks, in substance,
to determine whether Article 1(4) of the Convention must be interpreted
in such a manner that the exclusion provided for therein extends to
proceedings pending before a national court concerning the appointment
of an arbitrator and, if so, whether that exclusion also applies where
in those proceedings a preliminary issue is raised as to whether an
arbitration agreement exists or is valid. These two points will be
considered successively.
Then later in the judgment, at par 18, the Court continued:
18. The international agreements, and in particular the above-mentioned
New York Convention [-- that is the Convention on arbitration --]
on the recognition and enforcement of foreign arbitral awards... lay
down rules which must be respected not by the arbitrators themselves
but by the Courts of the Contracting States. Those rules relate, for
example, to agreements whereby parties refer a dispute to arbitration
and the recognition and enforcement of arbitral awards. It follows
that, by excluding arbitration from the scope of the Convention on the
ground that it was already covered by international conventions, the
Contracting Parties intended to exclude arbitration in its entirety, including
proceedings brought before national courts.
19. More particularly, it must be pointed out that the appointment of an
arbitrator by a national court is a measure adopted by the State as part of
the process of setting arbitration proceedings in motion. Such a measure
therefore comes within the sphere of arbitration and is thus covered by
the exclusion contained in Article 1(4) of the Convention.
21. That conclusion is also corroborated by the opinion expressed by the
experts in the report drawn up by them at the time of the accession of
Denmark, Ireland and the United Kingdom to the Convention, according
to which the Convention does not apply to court proceedings which are
ancillary to arbitration proceedings, for example the appointment or
dismissal of arbitrators (Official Journal 1979 No C 59, p 93). Similarly, in
the report drawn up at the time of the accession of the Hellenic Republic
to the Convention, the experts considered that case where a court is
instrumental in setting up the arbitration body are not covered by the
Convention...
Then the judgment continued under the heading
Whether a preliminary issue concerning the existence or validity of an
arbitration agreement affects the application of the Convention to the
dispute in question...
and I shall read the next few paragraphs:
22. I. contends that the exclusion in Article 1(4) of the Convention does
not extend to disputes or judicial decisions concerning the existence
or validity of an arbitration agreement. In its view, that exclusion
likewise does not apply where arbitration is not the principal issue in the
proceedings but is merely a subsidiary or incidental issue.
23. I. argues that, if that were not so, a party could avoid the application
of the Convention merely by alleging the existence of an arbitration
agreement.
24. I. contends that, in any event, the exception in art 1(4) of the
Convention does not apply where the existence or validity of an
arbitration agreement is being disputed before different courts to which
the Convention applies, regardless of whether that issue has been raised
as a main issue or as a preliminary issue.
25. The Commission shares I.'s opinion in so far as the question of the
existence or validity of an arbitration agreement is raised as a preliminary
issue.
26. Those interpretations cannot be accepted. In order to determine
whether a dispute falls within the scope of the Convention, reference must
be made solely to the subject-matter of the dispute. If, by virtue of its
subject-matter, such as the appointment of an arbitrator, a dispute falls
outside the scope of the Convention, the existence of a preliminary issue
which the court must resolve in order to determine the dispute cannot,
whatever that issue may be, justify application of the Convention...
29. Consequently, the reply must be that Article 1(4) of the Convention
must be interpreted as meaning that the exclusion provided for therein
extends to litigation pending before a national court concerning the
appointment of an arbitrator, even if the existence or validity of an
arbitration agreement is a preliminary issue in that litigation.
I have not found these last paragraphs easy to interpret. On the one hand
the Court appear in the first sentence in par 26 to reject the contention in
par 22 that the exclusion --
... does not extend to disputes or judicial decisions concerning the
existence or validity of an arbitration agreement.
On the other hand the reply given in par 29 is capable of meaning
that the exclusion covers s 10(3) cases even though the validity of the
arbitration agreement is also in issue, but gives no guidance in those
cases where the challenge to the validity of the agreement constitutes the
dispute and stands alone. I shall return to this matter later.
On Oct 15, 1991 the English proceedings came back before the Court of
Appeal. The answer given by the European Court of Justice is at bundle
1A, p 21. In the light of that answer the appeal from the judgment of Mr
Justice Hirst was dismissed.
On Oct 29, 1991 M. R. issued a further summons. By the summons M.
R. sought an injunction to restrain I. from taking any further steps in
the proceedings in Genoa until the publication of the final award in the
arbitration. The summons was heard by Mr Justice Hobhouse on Nov 8,
1991.
Before the Judge the proceedings took what in retrospect may appear
to be a rather curious turn. At the suggestion of the parties the Judge
did not hear argument on the question whether the decision of the Corte
di Cassazione was or was not a complete bar to the relief sought in the
originating summons. The hearing therefore went forward on the basis
that if English law applied M. R. had an arguable case that the contract of
sale incorporated a clause providing for arbitration in England.
The Judge then proceeded to examine M. R.'s application for an injunction
in accordance with the principles laid down in American Cyanamid Co v
Ethicon Ltd, [1975] AC 396. He started by reminding himself of the nature
of the injunction sought and of the fact that the most senior Court in Italy
had ruled that the Italian Courts had jurisdiction. He cited passages from
the judgments in the Court of Appeal in The Lisboa, [1980] 2 Lloyd's Rep
546 on the caution which should be exercised where a party asserts that
he should not be subjected to legal proceedings in a foreign country. At p
13 of his judgment the Judge continued:
These words of caution are to my mind even more imperative where
as in the present case the foreign jurisdiction is one which the British
Government has by treaty undertaken to recognise and where the
jurisdiction assumed by the foreign court is one which under that treaty
the foreign court is entitled to assume. It is of course true as was
expressly recognised in the argument of I. before me that the injunction
only enjoins the litigant and does not affect the foreign court as such.
But it does affect the foreign court indirectly and has as its subject
matter acts which are going to be done within the territorial jurisdiction
of that court and relate to its procedure. Whatever the niceties, such
injunctions are justifiably seen by the foreign court as an interference with
its exercise of its legitimate jurisdiction.
The Judge then turned his attention to some of the provisions of the
Brussels Convention and of the 1982 Act. In addition he reminded
himself of the argument on behalf of M. R. that they wished to guard
themselves against the danger that, as well as incurring further costs in
Genoa, an adverse decision in Italy would create an issue estoppel on
the substantive issue which would be binding both in the English Courts
and in the arbitration. It is not necessary to refer in detail to this part of
the judgment. Suffice to say that at p 18 the Judge expressed the view
that "were it not for one further factor" there was a very forceful case for
preserving the status quo, that is to say, for granting an injunction.
This further factor was that M. R. had, so it seemed to the Judge,
submitted to the jurisdiction of the Court in Genoa. The Judge read the
further pleading which M. R. lodged on May 14, 1991 and which I have
already read myself. The Judge then continued at p 20G as follows:
On an interlocutory application it is not necessary for me to give any final
ruling upon any issue in the litigation before this Court; that is for the
trial. But, in my judgment, this pleading cannot be viewed other than as a
submission to the jurisdiction of the Italian court to decide the substantive
question. It is a step taken in the face of the court which is neither
necessary for the purpose of disputing the jurisdiction nor relevant to
such a dispute. It is inconsistent with continuing to reject the jurisdiction
of the Court of Genoa. It is directed to the determination by that Court of
the substantive dispute. In English procedural law it would amount to a
submission to the jurisdiction of the court and there is no reason to view
it differently when it occurs in Italy. This conclusion is further confirmed
by other steps which M. R. has taken in the Genoa action since May 1991.
[That I understand to be a reference to the documents which were lodged
in June and July.] One has some sympathy with M. R.. The reference
to the European Court had held up their action in this country and had
likewise held up any arbitration. They were faced with the necessity,
through no fault of their own, to make a decision about what to do in the
Italian action -- let it go by default or defend it. They chose the latter
alternative. It was a voluntary act on their part. The consequence is that
they have now put themselves in a position where they cannot resile from
those proceedings.
The Judge then considered that by this submission the balance of
convenience had been altered, and concluded at p 22A:
M. R. are going to be bound by the judgment of the Genoa Court and
are going to have no basis for disputing that it is binding upon them and
must be recognised, whether under the Brussels Convention, the 1982
Act or the ordinary principles of private international law internationally
accepted.
A little later the Judge listed two other factors which he said pointed in
the same direction. First, as the Judge described it, there was "... the very
tenuous connection" between I. and this country. Second, he regarded
the usefulness of the award of M. R. as "problematical". The award would
not be enforceable in Italy and any assets outside Italy could be applied in
the alternative to satisfy a claim for damages for breach of the arbitration
agreement. The Judge ended his judgment with these words at p 23:
In the end the fundamental point is whether it is appropriate to grant an
interim injunction to restrain further proceedings in Italy after M. R. have
apparently voluntarily submitted to the jurisdiction of that Court. In my
judgment it is not and this application must be refused.
M. R. has now appealed to this Court. The background to the appeal is
that the hearing of the originating summons for the appointment of an
arbitrator under s 10(3) is fixed for hearing on Jan 13, 1992. The trial in
Genoa is due to begin in February, 1992 though I understand that the trial
may take place over a number of days separated by substantial intervals.
In addition there is outstanding a petition by I. for leave to appeal to the
House of Lords.
Faced with this prospect of further litigation both in this country and in
Italy we invited argument on the question, which, it will be remembered,
was not argued before the Judge, whether the decision of the Corte di
Cassazione is a binding decision as to the existence of the arbitration
agreement. If the decision is binding the basis for the originating
summons and any relief ancillary to it disappears.
Before considering the arguments which were addressed to us on this
question, it is first necessary to refer to the relevant provisions of the
Brussels Convention and of the 1982 Act. I have already read so far as is
necessary art 1 of the Convention. I should next read art 18. That article
is in these terms:
Apart from jurisdiction derived from other provisions of this Convention,
a court of a Contracting State before whom a defendant enters an
appearance shall have jurisdiction. This rule shall not apply where
appearance was entered solely to contest the jurisdiction, or where
another court has exclusive jurisdiction by virtue of Article 16.
I come next to the first paragraph of art 26, which is in these terms:
A judgment given in a Contracting State shall be recognised in the other
Contracting States without any special procedure being required.
Article 27 sets out a number of circumstances in which a judgment shall
not be recognized. The article contains five paragraphs, and I should refer
to three of them:
(1) if such recognition is contrary to public policy in the State in which
recognition is sought;
(2) where it was given in default of appearance, if the defendant was not
duly served with the document which instituted the proceedings or with
an equivalent document in sufficient time to enable him to arrange for his
defence;
(3) if the judgment is irreconcilable with a judgment given in a dispute
between the same parties in the State in which recognition is sought.
Article 28 contains further provisions relating to circumstances where
recognition will not be given to a judgment. It is not necessary to refer
to them, but I should read the last paragraph of art 28, which is in these
terms:
Subject to the provisions of the first paragraph, the jurisdiction of the
court of the State in which the judgment was given may not be reviewed;
the test of public policy referred to in Article 27(1) may not be applied to
the rules relating to jurisdiction.
Finally, I refer to art 29, which provides:
Under no circumstances may a foreign judgment be reviewed as to its
substance.
It will be seen from this recital of the relevant articles that the rules
for the recognition of judgments in Convention states are far-reaching.
"Judgment" is defined in art 25 in these terms:
For the purposes of this Convention, "judgment" means any judgment
given by a court or tribunal of a Contracting State, whatever the
judgment may be called, including a decree, order, decision or writ of
execution, as well as the determination of costs or expenses by an officer
of the court.
That plainly covers interlocutory as well as final judgments.
I turn next to the Civil Jurisdiction and Judgments Act, 1982 (which I will
call "the 1982 Act") to which the Brussels Convention is set out by way of
the first appendix. Section 2(1) of the 1982 Act is in these terms:
The Conventions shall have the force of law in the United Kingdom, and
judicial notice shall be taken of them.
Part IV of the Act, with which we are particularly concerned, contains
miscellaneous provisions. Section 32 is concerned with overseas
judgments given in breach of agreement for settlement of disputes. I
must read most of this section:
(1) Subject to the following provisions of this section, a judgment
given by a court of an overseas country in any proceedings shall not
be recognised or enforced in the United Kingdom if -- (a) the bringing
of those proceedings in that court was contrary to an agreement under
which the dispute in question was to be settled otherwise than by
proceedings in the courts of that country; and (b) those proceedings were
not brought in that court by, or with the agreement of, the person against
whom the judgment was given; and (c) that person did not counterclaim
in the proceedings or otherwise submit to the jurisdiction of that court.
(2) Subsection (1) does not apply where the agreement referred to in
paragraph (a) of that subsection was illegal, void or unenforceable or was
incapable of being performed for reasons not attributable to the fault of
the party bringing the proceedings in which the judgment was given.
(3) In determining whether a judgment given by a court of an overseas
country should be recognised or enforced in the United Kingdom, a court
in the United Kingdom shall not be bound by any decision of the overseas
court relating to any of the matters mentioned in subsection (1) or (2).
(4) Nothing in subsection (1) shall affect the recognition or enforcement
in the United Kingdom of -- (a) a judgment which is required to be
recognised or enforced there under the 1968 Convention...
I should also read s 33 which reflects provisions which I have already read
from art 18. It is to be noted, however, that both s 32 and s 33 relate
to judgments given by Courts of overseas countries generally and are
not restricted to judgments given in Convention countries. "Judgment" is
defined in s 50 as meaning (subject to exceptions which do not apply) as
--
... any judgment or order (by whatever name called) given or made by a
court, in any civil proceedings.
Section 33, to which I earlier referred, is in these terms, under the rubric
"Certain steps not to amount to submission to jurisdiction of overseas
court":
(1) For the purposes of determining whether a judgment given by
a court of an overseas country should be recognised or enforced in
England and Wales or Northern Ireland, the person against whom the
judgment was given shall not be treated as having submitted to the
jurisdiction of the court by reason only of the fact that he appeared
(conditionally or otherwise) in the proceedings for all or any one or more
of the following purposes, namely -- (a) to contest the jurisdiction of
the court; (b) to ask the court to dismiss or stay the proceedings on the
ground that the dispute in question should be submitted to arbitration or
to the determination of the courts of another country; (c) to protect, or
obtain the release of, property seized or threatened with seizure in the
proceedings.
I need not read sub-s (2).
With that introduction I come to the arguments which were addressed to
the Court.
It was submitted on behalf of I. that the judgment of the Corte di
Cassazione was enforceable for the following reasons:
(1) The judgment was the judgment of a competent Court. M. R. had
submitted to the jurisdiction of the Italian Courts by lodging the first
defence in October, 1988 or alternatively by lodging the second defence in
May 1991 and subsequently documents in June and July, 1991.
(2) Accordingly all the ingredients of an issue estoppel were present:
we were referred by counsel to the decision of the House of Lords in The
Sennar (No 2), [1985] 1 Lloyd's Rep 521 at p 526; [1985] 1 WLR 490 at p
499, and in particular to a passage in the speech of Lord Brandon in which
he set out the ingredients of an issue estoppel. At p 526 col 2; p 499 Lord
Brandon said this:
... if an estoppel exists at all, it is that kind of estoppel which is known as
issue estoppel per rem judicatam. The second matter is that, in order to
create an estoppel of that kind, three requirements have to be satisfied.
The first requirement is that the judgment in the earlier action relied on
as creating an estoppel must be (a) of a Court of competent jurisdiction,
(b) final and conclusive and (c) on the merits. The second requirement is
that the parties (or privies) in the earlier action relied on as creating an
estoppel, and those in the later action in which that estoppel is raised as a
bar, must be the same. The third requirement is that the issue in the later
action, in which the estoppel is raised as a bar, must be the same issue as
that decided by the judgment in the earlier action.
(3) M. R. could not rely on s 32 of the 1982 Act because the condition in s
32(1)(c) could not be satisfied. M. R. had submitted to the jurisdiction of
the Italian Court.
(4) In the alternative, the judgment was a judgment which had to be
recognized under the 1968 Convention. Although the 1968 Convention did
not apply to arbitrations, the decision of the Corte di Cassazione was a
decision on the contract. Counsel referred us to par 26 of the judgment of
the European Court of Justice. The subject matter of the dispute did not
fall within art 1(4) of the 1968 Convention. It will be remembered that I
have already read par 26.
(5) It followed that in the light of the provisions of s 32(4)(a), s 32(1) did
not apply.
On behalf of M. R. on the other hand it was submitted that the judgment
of the Corte di Cassazione was not the judgment of a competent Court.
Having regard to the terms of s 33 of the 1982 Act the first defence could
not be recognized as a submission to the jurisdiction. Mr Milligan referred
us to the terms of s 33 of the 1982 Act.
The pleading lodged in October, 1988, it was argued, made it quite clear
that M. R. were contesting the jurisdiction of the Italian Court, and though
the alternative defence was not expressed to be without prejudice to the
primary challenge to the jurisdiction, the pleading could not properly be
construed as a submission. Moreover, even if (which was not conceded)
the May, 1991 pleading and the lodgment of the additional documents
subsequently could amount to a submission, the submission was a
submission for the future only and was a submission to the jurisdiction of
the Court in Genoa to try the substantive issue. The submission did not
have any retrospective effect so as to endow the Corte di Cassazione ex
post facto with competence to determine the validity of the arbitration
agreement.
As to the alternative argument by I. based on s 32(4)(a), Mr Milligan
submitted that a decision concerning the existence of an arbitration
agreement was clearly excluded by art 1(4). The effect of the judgment
of the European Court of Justice was to exclude from the 1968
Convention all disputes relating to arbitrations including disputes as to
the appointment of an arbitrator or as to the existence or validity of an
arbitration agreement.
I propose to deal first with the argument based on s 32(4)(a). I see the
force of the contention that where the dispute is concerned with whether
or not an arbitration clause was incorporated in a contract the subject
matter of the dispute is the contract itself. If, however, one considers the
form of the question which was sent to the European Court of Justice and
the argument recorded in par 22 of the judgment, both of which I have
already set out, I am unable to accept that the judgment of the European
Court of Justice provides any clear authority for the proposition that the
judgment of the Corte di Cassazione was one to which s 32(4)(a) applies.
I have also considered a further possible argument that the judgment
of the Corte di Cassazione is to be recognized in accordance with art 26
because the decision itself by rejecting the existence of an arbitration
agreement removed the dispute from the ambit of art 1(4). The problem
with this argument, however, is that the Corte di Cassazione were not
purporting to decide whether art 1(4) applied. The question of the correct
classification of the proceedings was not in issue. I should refer, however,
to a passage in O'Malley and Layton's "European Civil Practice" which
is relevant to this point. Having discussed the proper interpretation of
"arbitration" in art 1(4), at p 364 the authors continue:
The disputed question is whether the scope of sub-paragraph (4) extends
further, so as to exclude all disputes which the parties had agreed should
be resolved by way of arbitration...
The classic case will be where a court assumes jurisdiction over a
dispute, despite a valid arbitration clause, and the successful party then
seeks to enforce his judgment in another Contracting State pursuant
to the Convention. At the recognition and enforcement stage, the court
addressed has only very limited power to review the jurisdiction of the
original court and is not entitled to refuse to recognise and enforce
such a judgment if it falls within the Convention. If the argument
advanced by the United Kingdom negotiators is correct, the court of the
state addressed would be free to hold that the decision fell within sub-
paragraph (4) and was therefore outside the scope of the Convention. Its
recognition and enforcement in that state would accordingly be a matter
for national law and applicable internal conventions.
The argument then continues in par 14.33 as follows:
The argument that that is the correct interpretation of the Convention, as
recorded in the Schlosser Report, is that:
... since a court in the state addressed is free, contrary to the view
of the court in the state of origin, to regard a dispute as affecting the
status of an individual, or the law of succession, or as falling outside the
scope of civil law, and therefore as being outside the scope of the 1968
Convention, it must in the same way be free to take the opposite view to
that taken by the court of origin and to reject the applicability of the 1968
Convention because arbitration is involved.
That argument does not mean that the court addressed may treat
a judgment as falling outside the Convention if arbitration is only
incidentally involved in the decision, any more than it can treat a case
only incidentally involving any of the other excluded matters as being
outside the Convention. The Convention specifically allows judgments
to be refused recognition in certain circumstances where a preliminary
question concerning personal status, matrimonial property or succession
has arisen: Article 27(4); but it does not do so where a preliminary
question concerning an arbitration clause has arisen. It is not easy to see
how, in the absence of special circumstances, arbitration can be said to
form the principal subject-matter of a dispute which has been resolved by
a judgment ignoring or overruling an arbitration clause.
The European Court has held that the scope of the 1968 Convention
is to be determined by means of its independent interpretation and
the question whether the assumption of jurisdiction by a court in a
Contracting State contrary to the terms of an arbitration agreement, or
after holding the arbitration agreement invalid, will ultimately have to
await the decision of that court.
It is to be noted that a German Court by a decision of Mar 28, 1989
declined to review the decision of an Italian Court which had held that
an arbitration clause was invalid. The authors come to the conclusion
that this question awaits the ultimate decision of the European Court. For
my part, because of the conclusion which I have reached on the issue
of submission, I find it unnecessary to express any final view on this
question. Therefore I am not prepared to decide the case on the basis of
Mr Gross's argument based on s 32(4)(a).
I turn therefore to the question whether M. R. submitted to the
jurisdiction of the Italian Courts at a time and in a manner which prevents
them relying on s 32 because of the non-fulfilment of condition (c).
In my judgment it is important that s 33 should not be construed too
narrowly. It may well be that it was not necessary for M. R. to lodge
an alternative defence on the merits in October, 1988, but they made
it abundantly clear in the pleading that the primary purpose of the
document was to challenge the jurisdiction of the document was to
challenge the jurisdiction of the Genoa Court. I am prepared to assume
that the first defence did not amount to a submission. It seems to me
that this conclusion is in line with the decision of the European Court in
Elefanten Schuh GmbH v Pierre Jacqmain, which was decided on June
24, 1981. It is to be noted that in the course of the written observations
which were lodged with the Court (which appears from p 1678 of the
report) attention was drawn to the fact that the text in French of art
18 left out the word "only" (or the French equivalent), whereas in the
English, Danish, Irish, Italian and German texts, as well as other texts,
the word "only" or an equivalent word was inserted. However that may
be, when the Court came to give its decision, it appears from par 17 (p
1686) that the answer to Question 1 should be
... that Article 18 of the Convention must be interpreted as meaning
that the rule on jurisdiction which that provision lays down does not
apply where the defendant not only contests the court's jurisdiction but
also makes submissions on the substance of the action, provided that,
if the challenge to jurisdiction is not preliminary to any defence as to
the substance, it does not occur after the making of the submissions
which under national procedural law are considered to be the first defence
addressed to the court seised.
As I understand that paragraph, coupled with the answer which was
given formally on p 1689 in par 2, the Court is there saying that provided
the defendant makes it clear in his first defence rather than in some
subsequent defence that he is contesting the jurisdiction, that will not
amount to a submission even though there is some additional material
which constitutes a plea to the merits of the case. That seems to be an
additional reason for interpreting s 33 in a broad sense.
The second defence, however, which was lodged in May 1991, is another
matter. It seems to me that this pleading was a plain and unequivocal
submission to the jurisdiction of the Italian Court to deal with the merits
of the claim. Though not asking for damages M. R. were seeking the
rejection of the declaratory relief claimed by I.. The matter was put
beyond doubt by the lodging of documents to support the case for M. R..
What then was the effect of that submission on the earlier judgment of
the Corte di Cassazione? It was said that the submission was at most
only a submission to a trial of the merits. It was not and could not be a
retrospective submission to the trial of the issue of jurisdiction.
Counsel were unable to refer us to any authority on this point.
Nevertheless the answer to the question seems to me to be quite clear.
Once M. R. had submitted to the jurisdiction of the Italian Courts to try
the merits of the case, the submission covered the whole proceedings.
After submission M. R. could no longer have disputed any earlier
interlocutory orders in the proceedings. Nor could they any longer
challenge the validity or competence of any earlier decision in those
proceedings.
It follows that in my view the judgment of the Corte di Cassazione was
the judgment of a competent Court. M. R. must be regarded as having
submitted to the jurisdiction of that Court. The condition in (c) in s 32(1)
cannot therefore be satisfied. Accordingly M. R. are bound by the decision
that the contract did not contain an arbitration agreement.
I therefore conclude that the decision of the Rome Court was binding on
M. R. and that accordingly the basis of the originating summons seeking
the appointment of an arbitrator falls to the ground. I would dismiss the
appeal on that basis. I would only add this, that had it been necessary
to do so I would also have dismissed the appeal on the narrower ground
-- that is whether an injunction should be granted -- broadly in line with
the reasons given by Mr Justice Hobhouse which it is now unnecessary to
review in detail.
For these reasons I would dismiss the appeal.
JUDGMENTBY-2: WOOLF LJ
JUDGMENT-2:
WOOLF LJ: I agree that this appeal should be dismissed for the reasons
set out in the judgment which my Lord has just given.
JUDGMENTBY-3: SCOTT LJ
JUDGMENT-3:
SCOTT LJ: I also agree.
DISPOSITION:
Appeal dismissed with costs; application for leave to appeal to the House
of Lords refused.