JUDGMENTBY-1: RIX J
JUDGMENT-1:
RIX J: If A contracts with B to pay a sum of money to C, and C sues A and
B to enforce the trust created for his benefit by that contract, can C obtain
jurisdiction over A in C's forum under art 5(1) of the Brussels or Lugano
Conventions on the basis that he is suing:
... in matters relating to a contract, in the courts for the place of
performance of the obligation in question...
That is the question raised by these proceedings. In them the first
plaintiffs, A. S. A. (UK) Ltd, (C in the above example), sue as shipbrokers
(together with their assignees, the second plaintiffs) to recover
commission which they earned in connection with the sale of two
vessels to Su. A. Societe d'A. M. SA, the first defendants (A in the above
example). I shall call Su. A. the "buyers". The contracts of sale dated
Apr 18, 1991, in the form of two memoranda of agreement on the
"Saleform 1987" form, provided for the sale of the vessels, Gulf Grain and
El Amaan, by L. B. Shipping Inc and U. B. Shipping Inc, the second and
third defendants respectively (collectively B in the above example). I shall
call them the "sellers". The first plaintiffs were brokers or sub-brokers
of the sellers (I shall refer to them simply as the "plaintiffs"). They had
no contractual relations with the buyers. The contracts, however, made
provision for the commissions payable in respect of the sales in the
following way. Under cl 16 of each memorandum:
The buyers have the right to deduct 2% commission; 0.5% to Messrs A.
S. A. (UK) Ltd and 0.5% to Messrs Su. A. Societe d'A. M. SA plus 1% to
Lorentzen Chartering A/S, from the purchase price at time of delivery.
The contracts provided for arbitration in London in accordance with
English law. The buyers elected to take the deduction allowed under cl
16, including US$137,500 due to the plaintiffs. The plaintiffs say that it
is a necessary implication of cl 16 that, where the deduction is taken, the
buyers have contracted with the sellers to pay the identified commissions
to the brokers concerned. They plead that in such circumstances the
buyers and sellers created a trust of which the buyers are trustees
and the plaintiffs the beneficiaries. In an affidavit they put the matter
somewhat differently, asserting that the sellers are constructive trustees
of the buyers' contractual promise to the sellers to pay the commission
to the plaintiffs. No point is taken by Mr Morpuss on behalf of the buyers
on the difference between the points of claim and the affidavit. Moreover,
while he does not concede the implication of an obligation under the
contracts to pay the commissions to the brokers where the deduction is
taken, for the present interlocutory purposes he does not dispute that
there is a good arguable case to that effect.
This form of claim is in fact well known to English law. In Robertson v
Wait, (1853) 8 Ex 299 it was decided that in a charter-party where an
owner contracts with his charterer to pay commission on hire to the
broker concerned, the charterer can sue the owner under the charter-
party as trustee for the broker. This decision and analysis was approved
by the House of Lords in Les Affreteurs Reunis Societe Anonyme v
Leopold Walford (London) Ltd, [1919] AC 801. At pp 806 and 807 Lord
Birkenhead, LC said this:
It appears to me plain that for convenience, and under long-established
practice, the broker in such cases, in effect, nominates the charterer
to contract on his behalf, influenced probably by the circumstance that
there is always a contract between charterer and owner in which this
stipulation, which is to enure to the benefit of the broker, may very
conveniently be inserted. In these cases the broker, on ultimate analysis,
appoints the charterer to contract on his behalf. I agree therefore with the
conclusion arrived at by all the learned Judges in Robertson v Wait, that in
such cases charterers can sue as trustees on behalf of the broker.
In Walford's case the broker appears to have sued alone, but the
charterer was treated, by agreement with the owner, as having been a
co-plaintiff: see at p 806. In Vandepitte v Preferred Accident Insurance
Corporation of New York, (1932) 44 Ll L Rep 41 at p 46; [1933] AC 70 at
p 79 Lord Wright in the Privy Council commented on this line of cases as
follows:
... a party to a contract can constitute himself a trustee for a third party
of a right under the contract and thus confer such rights enforceable
in equity on the third party. The trustee then can take steps to enforce
performance to the beneficiary by the other contracting party as in the
case of other equitable rights. The action should be in the name of the
trustee; if, however, he refuses to sue, the beneficiary can sue, joining the
trustee as a defendant.
That is what happened more recently in The Panaghia P, [1983] 2 Lloyd's
Rep 653, where Mr Justice Hobhouse said (at p 655):
Paragraph 4 by contrast does plead, whether or not in wholly accurate
language does not matter, the correct allegation. The legal contract
is between the first and second defendants. It includes a provision
for the first defendants under certain circumstances to pay money to
the plaintiffs. The second defendants are trustees of that obligation,
subject to the provisions of the charter-party, for the first and second
plaintiffs. The first and second plaintiffs have to enforce their equitable
rights through the legal right of the second defendant. Under such
circumstances either the second defendants should sue the first
defendants or if the second defendants will not do so, the second
defendants should be joined as additional defendants to the action:
Vandepitte v Preferred Accident Insurance Corporation of New York,
(1932) 44 Ll L Rep 41; [1933] AC 70. That is what the plaintiffs have
done in this case and they have laid the factual basis for it in par 7 of the
points of claim.
The buyers have been served with these proceedings in Switzerland,
where they are domiciled. Switzerland is a party to the Lugano
Convention, which has been inserted into the Civil Jurisdiction and
Judgments Act, 1982 (the "1982 Act") by means of the Civil Jurisdiction
and Judgments Act, 1991. The buyers now challenge the jurisdiction
of this Court on the ground that under art 2 of the Convention they
must be sued in the Courts of the country of their domicile, namely in
Switzerland. The plaintiffs rely upon art 5(1) as an exception to the prima
facie rule contained in art 2. The buyers say that art 5(1) does not apply
since they are not sued in contract, but by reason of a constructive trust
created by the memoranda. Therefore they are not sued "in matters
relating to a contract". In this connection they rely on the European Court
of Justice decision in Jakob Handte & Co GmbH v Societe Traitements
Mecano-Chimiques des Surfaces (TMCS), (Case C-26/91) [1993] ILPr 5,
submitting that that case decided that privity of contract between the
litigants is essential to jurisdiction under art 5(1). The plaintiffs, on the
other hand, submit that an earlier decision of the Court of Justice, namely
Martin Peters Bauunternehmung GmbH v Zuid Nederlandse Aannemers
Vereniging, (Case 34/82) [1983] ECR 987, decided that privity of contract
was not necessary to jurisdiction under art 5(1), so that the Handte case
must be confined to its own facts.
Both the Peters case and the Handte case are concerned with the
expression "in matters relating to a contract". In Peters, the issue was
whether membership of an association could be treated as a matter of
contract. The Court of Justice held that it could. The core of its reasoning
is contained in pars 11-13 of its judgment (at p 1002):
11. In this regard it should be pointed out that although Article 5 makes
provision in a number of cases for a special jurisdiction which the plaintiff
may choose, this is 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.
12. In that context, the designation by Article 5(1) of the Convention
of the courts for the place of performance of the obligation in question
expresses the concern that, because of the close links created by a
contract between the parties thereto, it should be possible for all the
difficulties which may arise on the occasion of the performance of a
contractual obligation to be brought before the same court: that for the
place of performance of the obligation.
13. In that regard it appears that membership of an association creates
between the members close links of the same kind as those which
are created between the parties to a contract and that consequently
the obligations to which the national court refers may be regarded
as contractual for the purpose of the application of Article 5(1) of the
Convention.
The Handte case concerned a claim by a French sub-buyer of machinery
against the German manufacturer. The facts are not entirely clear, but it
would seem that the claimant's complaint was that the goods were not fit
for their purpose in respects which were said to contravene French rules
on health and safety at work. The claim was brought in contract under a
French doctrine under which the intermediate supplier transmits to the
sub-buyer his contractual rights against the manufacturer: see the opinion
of the Advocate General, par 20, at p 13. However, there is no sign from
the report that the claimant was relying on breach of any express term
of the intermediate supplier's contract with the manufacturer as distinct
from French public rules (and therefore possibly terms implied by law)
relating to health and safety. Moreover, the Advocate General's opinion
takes pains to point out first, that among the states of the European
Community, only France, Belgium and Luxembourg would permit such a
claim by a sub-buyer against a manufacturer in contract, and secondly,
that even in France the classification of the doctrine was controversial and
might turn out to be delictual after all (pars 17/20, at p 12/14).
The question for the Court of Justice was as follows (par 8 at p 21):
Does Article 5(1) of the amended Brussels Convention of 27 September
1968, which provides for special jurisdiction in matters relating to a
contract, apply to a dispute between a subsequent purchaser and the
manufacturer, who is not the seller, of an object, in connection with
defects in that object or its unsuitability for the purpose for which it was
intended?
The essential reasoning of the Court is contained in pars 14-21 of its
judgment, at pp 22-23:
14. Thus the rules of special or exclusive jurisdiction and those relating
to the prorogation of jurisdiction derogate from the general principle
enshrined in Article 2(1) of the Convention that the courts of the
Contracting State where the defendant is domiciled have jurisdiction.
This rule of jurisdiction is a general principle because it makes it easier,
in principle, for the defendant to defend himself. Consequently the
jurisdiction rules which derogate from this general principle must not give
rise to an interpretation going beyond the situations envisaged by the
Convention.
15. It follows that the phrase "matters relating to a contract" within the
meaning of Article 5(1) of the Convention should not be understood to
cover a situation where there is no obligation freely entered into by one
party to another.
16. Where a sub-buyer of goods which are bought from an intermediate
seller brings an action against the manufacturer for damages on
the ground that the goods are not in conformity, it is important to
observe that there is no contractual link between the sub-buyer and
the manufacturer because the latter has not undertaken a contractual
obligation of any kind to the former.
17. Furthermore, particularly in a situation where there is a chain of
international contracts, the parties' contractual obligations may vary from
contract to contract, so that the contractual rights which the sub-buyer
can enforce against his immediate seller are not necessarily the same as
those which the manufacturer has assumed in his relationship with the
first buyer.
18. In addition, the objective of the legal protection of persons
established in the Community which the Convention seeks, inter alia, to
attain means that the jurisdiction rules which derogate from the general
principle of the Convention must be interpreted in such a way as to enable
a normally well-informed defendant to make a reasonable prediction as
to the court in which he may be sued, apart from the courts of the State
where he is domiciled.
19. However, it must be said that, in a situation such as that with which
the main action is concerned, the application of the special jurisdiction
rule laid down by Article 5(1) of the Convention to an action brought by
a subsequent buyer of goods against the manufacturer is not foreseeable
by the latter and is therefore incompatible with the principle of legal
certainty.
20. Apart from the fact that the manufacturer has no contractual
relationship with the sub-buyer and undertakes no contractual obligation
to that buyer, whose identity and domicile may legitimately be unknown
to him, it appears that in the overwhelming majority of the Contracting
States the manufacturer's liability to a sub-buyer for defects in the goods
sold is not regarded as contractual by nature.
21. It follows from the foregoing reasoning that the reply to the question
by the national court should be that Article 5(1) of the Convention must
be interpreted as meaning that it does not apply to an action between the
subsequent purchaser of a product and the manufacturer, who is not the
seller, for defects in the product or its unsuitability for the use for which it
is intended.
Mr Morpuss, on behalf of the buyers, relied in particular on pars 15-16
above for the submission that privity of contract between the litigants
was critical: in other words, "in matters relating to a contract" was to be
construed as "in matters relating to a contract between the parties to
the litigation". As for Peters, he points out that in par 5 of the Advocate
General's opinion (at p 1008) nearly all the legal systems of the member
states regarded the relationship between a member and an association as
contractual. He therefore submits that the earlier Peters case should be
read as qualified by the later Handte decision, rather then vice versa.
In Engdiv Ltd v G Percy Trentham Ltd, 1990 SLT 617, a case in the Outer
House of Scotland, the pursuers Engdiv, who had been held liable to their
employer, Nairn, under their contract for architectural and design services,
sought contribution from the defenders Trentham under s 3(2) of the Law
Reform (Miscellaneous Provisions) (Scotland) Act, 1940, alleging that the
loss and damage suffered by Nairn for which they, Engdiv, had been held
liable was due to Trentham's own breach of another contract made with
Nairn. Trentham were, I think, an English company, and Engdiv relied
for jurisdiction in Scotland upon art 5(1) on the basis that Trentham's
obligations under that contract were to be performed in Scotland. Lord
Prosser said (at p 621):
Counsel for the defenders maintained that they were not being sued "in
matters relating" to their contract with Nairn. It was merely background.
I reject that contention. On this aspect of their case, the pursuers are in
my view suing in matters relating to a contract, although not directly for
breach of contract.
It is true that this case was decided before Handte, and that the
reasoning in it is brief. As far as it goes, however, it supports the plaintiffs'
position.
In The Panaghia P, [1983] 2 Lloyd's Rep 653 Mr Justice Hobhouse had
to deal, in an identical situation to the one before me, with a challenge
to the jurisdiction of the Court, not in that case based upon the Brussels
or Lugano Conventions, but pursuant to the terms of O 11, r 1(1). The
broker there relied on sub-r(f) -- what is now sub-r (d). Mr Justice
Hobhouse said at p 655:
The charter-party contract is a contract within (f). It was made in England
and is governed by English law. The action is to enforce the contract,
albeit, under par 4 of the points of claim, using an equitable principle to
do so. If this is not an action to enforce a contract, I do not know how one
would describe it.
The owner in that case sought to argue that the O 11, r 1(1) sub-rule
dealing with trusts, then sub-r(e), now (j), was an "exhaustive provision
on equitable rights". Mr Justice Hobhouse said (at 655):
Such an argument was unsustainable. Paragraph (e) is narrowly drafted.
To accede to the first defendants' argument would exclude from the
scope of O 11 many equitable rights which should clearly be included;
for example, equitable assignments of contracts and rights which are
included in the ordinary meaning of the wording of the other par of r 1(1).
A similar argument was raised by Mr Morpuss on behalf of the buyers in
relation to the paragraph of art 5 which deals with trusts, viz art 5(6).
That provides as follows:
A person domici1ed in a Contracting State may, in another Contracting
State, be sued --... 6. As settlor, trustee or beneficiary of a trust created
by the operation of a statute, or by a written instrument, or created orally
and evidenced in writing, in the courts of the Contracting State in which
the trust is domiciled.
The plaintiffs do not rely on art 5(6), and it is common ground that it
does not apply, since par 117 of the Official Report of Professor Schlosser
expresses the opinion that art 5(6) was intended to cover only those
cases where trusts are expressly constituted, or arise by operation of
statute, and not instances of constructive or implied trusts. Mr Morpuss,
however, submits that because each paragraph of art 5 is intended to be
"disjunctive", therefore a claim to enforce a constructive trust which falls
outside art 5(6) falls outside art 5 altogether. This would be a surprising
submission when one considers that art 5(6) was not originally part of
the Brussels Convention and was only introduced by means of the 1978
Convention to take account of special rules relating to trusts developed in
English and Irish law to solve problems with which Continental systems
deal in a different way (see par 117 of Professor Schlosser's Report). In
support of his submission Mr Morpuss relied on the remark at p 440 of
O'Malley and Layton, European Civil Practice, 1989, to the effect that
constructive or resulting trusts are excluded "from the scope of the rules
of special jurisdiction": but the cited basis of that remark is merely a
reference to par 117 of the Schlosser Report, which states only that such
trusts are not within art 5(6).
I should add that, if the claim in these proceedings were within art 5(6),
then a special jurisdiction would exist in the Courts of the state where
the trust is domiciled. The concept of the domicile of a trust is not an
easy one: see the Schlosser Report at par 114. However, I have not been
concerned with such problems.
In the Court of Justice, through the medium of the Advocate General's
opinion, the Court can be provided with a comparative overview of the
way in which certain legal problems are viewed in the member states,
as was done in Peters and in Handte. This can be important information,
especially as the relevant provisions of the Convention have to be applied
to ensure its uniform application and not by reference to merely national
legal analysis or classification: see Handte at par 10 (at p 21). In this
case I have no information about how other European jurisdictions regard
the claim before me. Therefore, the submission that I should not be over-
influenced by the peculiarly English doctrine of the trust or by English
law's insistence on the doctrine of privity of contract does not assist me.
Indeed, as far as it goes, the Advocate General's opinion in the Handte
case would lead me to think that the doctrine of privity was of general and
not merely domestic importance: see pars 16-21 at pp 12-14. I would
point out, however, that the Advocate General did allow for exceptions to
the doctrine of privity, saying (at par 17, p 12):
Most legal systems have a rule to the effect that a contract cannot
confer rights or impose obligations on persons who are not parties to the
contract, except in limited circumstances. [My emphasis.]
The solution to the present problem must, therefore, be sought by
subjecting an analysis of the English claim brought in these proceedings
to the reasoning in the decisions of the Court of Justice as to the scope
of art 5(1). I have no other material to guide me. So far as English law
is concerned, it seems to me that the obligation that is being enforced,
albeit with the aid of equitable principles, is the contractual obligation
owed by the buyers to the sellers to pay the brokers. That is why Mr
Justice Hobhouse in The Panaghia P said that the claim was to enforce
a contract. That is why the promisee (the sellers) must be made a
party, either as plaintiffs or as co-defendants. If the sellers had been
made co-plaintiffs, the fact that the obligation that is being enforced
is a contractual one would be perfectly obvious. Does it make all the
difference that the sellers to whom the contractual promises have been
given have been made co-defendants instead? I think not. Does it make
all the difference that the contractual promises have been given with the
intention of creating an irrevocable trust in favour of a third party? I do
not see why it should or that it does, at any rate in the present case.
There remains the basic fact that the obligations in question that are
being enforced are contractual ones. The present case is not concerned
with a claim by the beneficiary to specific property in the hands of either
of the parties to the contract as being trust and not personal property.
I turn next, therefore, to the decisions of the European Court of Justice,
and first of all to the Handte case. It seems to me that it is too narrow a
reading of that case to say that it insists upon privity of contract between
the parties to the litigation. If it did, then not even the legal assignee
of a contract could bring a claim to enforce the contract and maintain
jurisdiction within art 5(1). It has to be borne in mind that the decision
in Handte is about the problems which arise out of a chain of contracts.
In such a case, because the sub-buyer and the manufacturer are not
in direct contractual relations, there is no obligation freely entered
into between the parties; on the contrary, each may have entered
into contracts with their direct contractual partners on different terms.
Moreover, the identity and domicile of the ultimate sub-buyer may be
entirely unknown to the manufacturer, so that he cannot predict the
Court in which he may be sued. In these circumstances the jurisdictional
connecting factor of the place of performance may become an arbitrary
touchstone.
None of this reasoning applies to the case before me of a contract
between A and B to pay C. There is only one contractual obligation in
question; there is privity between the parties to it; the obligation was
freely entered into by those parties; although neither of them may have
realized that English law would give to the plaintiffs an independent right
to enforce the buyers' promise to the sellers to pay the brokers, they both
knew the identity and domicile of the plaintiffs and, ex hypothesi, both
intended to benefit them by means of the contracted payment. Moreover,
both parties to the contract will also be parties to the litigation, in the
promisee sellers' case either as plaintiffs or as co-defendants. In these
circumstances the fact that performance of the obligation is to take place
in the brokers' domicile is exactly what the buyers must have anticipated,
and the appropriateness of there being jurisdiction in the Courts of the
country of that domicile is consistent with the rationale behind art 5(1)
(see Peters at pars 11-12).
I do not think that the actual decision in the Peters case takes matters
much further. Although there may not be contractual relations under
Dutch law between an association and its members, there is privity or
something akin to privity between them. In the present case there is
privity of contract between the parties to the obligation in question. What
is different here is that there is something more, namely a right by a
third party identified in that obligation as the beneficiary of it to enforce
it through the medium of the contractual promisee. That is an additional
mechanism by which the contract is enforced. It does not mean that the
requirements of art 5(1) are lacking.
In my judgment therefore the buyers are being sued in these proceedings
"in matters relating to a contract", and the "obligation in question" is the
alleged implied promise given by them that, if they took the appropriate
deduction from the purchase price, they would pay over that deduction in
the form of commissions to the identified brokers. It is common ground
that the place of performance of that obligation, so far as the plaintiffs are
concerned, is England. I bear in mind that the special jurisdictions under
art 5 are a derogation from the underlying philosophy that jurisdiction is
vested in the country of the state where the defendant is domiciled and
must therefore be interpreted restrictively (Kalfelis v Bankhaus Schroder
Munchmeyer; Hengst & Co, (Case 189/87) [1988] ECR 5565 at p 5585
(par 19). Even so, it seems to me that the present claim is within both the
letter and the spirit of art 5(1).
Order 6, r 8
The buyers took one other point in their challenge to the jurisdiction,
which was that the concurrent writ which had been served on them in
Switzerland, although renewed in time and in that respect a valid writ,
had not been stamped as having been so renewed. The facts relating to
this point are that the original writ was issued on May 5, 1994 and was
valid for six months, since service against the sellers required the leave of
the Court. A concurrent writ was used to effect service upon the various
defendants. While service was in the process of being effected upon the
buyers in Switzerland through diplomatic channels, an application was
made to extend the validity of the original writ. It was validly extended
on Nov 3, 1994 until Mar 4, 1995 and stamped as such with the official
stamp of the Admiralty and Commercial Registry. The concurrent writ in
process of being served, however, was not so stamped. In due course
the concurrent writ was served on the buyers on Jan 27, 1995. So it was
that the writ served upon the buyers appeared to have been served out of
time, but was in fact served within the time extended.
Order 6, r 8 provides as follows:
(3) Before a writ, the validity of which has been extended under this rule,
is served, it must be marked with an official stamp showing the period for
which the validity of the writ has been so extended.
(4) Where the validity of a writ is extended by order made under this
Rule, the order shall operate in relation to any other writ (whether original
or concurrent) issued in the same action which has not been served so as
to extend the validity of that other writ until the expiration of the period
specified in the order.
It follows that under sub-r (4) the extension of the original writ
automatically operated as an extension of the concurrent writ, and that
is not in issue. Mr Croall, on behalf of the plaintiffs, submitted that for
the purposes of sub-r (3) it was sufficient that either an original or a
concurrent writ was stamped, so that there was no breach of that sub-
rule in the present case. It seems to me, however, that his submission
cannot survive the language of sub-r (4) with its talk of "any other writ
(whether original or concurrent)". Therefore there was a breach of sub-r
(3).
Under O 2, r 1(1), however, any failure to comply with the requirements
of the Rules of the Supreme Court in respect of time, place, manner, form
or content or in any other respect shall be treated as an irregularity and
shall not nullify the proceedings or any step in them, unless, under O 2, r
1(2), the Court in its discretion thinks it just to set aside the proceedings
or any step in them on the ground of such a failure. In the present case
no prejudice has been suggested as having been suffered on the part of
the buyers by reason of the failure to stamp the writ with which they were
served. It may be, that if the buyers had not in any event been minded to
challenge jurisdiction in England under the Lugano Convention, they may
have suffered some penalty in costs by being erroneously led into thinking
that they had been served under an invalid, because expired, writ. In
any event I will have full power to deal with any such aspect involving
costs when I hear submissions about them in due course. As it is, I see
no reason why I should not exercise my discretion in favour of upholding
service under an extended but unstamped writ, treating the failure to
stamp it as a mere irregularity. The point is without merit.
In these circumstances Su. A.'s challenge to the jurisdiction of the English
Court fails, and their summons under O 12, r 8(1) is dismissed.
DISPOSITION:
Judgment accordingly.