House of Lords Session 1999-2000

Judgments

Judgments - Agnew (Suing on his own behalf and in a representative capacity on behalf of all members of Lloyd's Syndicates 672, 79, 1023 and 590) and others v. Ländsförsäkringsbelagens A.B.

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HOUSE OF LORDS

Lord Nicholls of Birkenhead Lord Woolf M.R. Lord Cooke of Thorndon

Lord Hope of Craighead Lord Millett

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

AGNEW

(Suing on his own behalf and in a representative capacity on behalf of all members of Lloyd's Syndicates 672, 79, 1023 and 590) and others

(RESPONDENTS)

v.

LÄNSFÖRSÄKRINGSBOLAGENS A.B.

(APPELLANTS)

ON 17 FEBRUARY 2000

LORD NICHOLLS OF BIRKENHEAD

My Lords,

    I agree with all your Lordships that article 7 of the Convention ('in matters relating to insurance') is not applicable to re-insurance. I agree similarly that the claims in the present proceedings do not fall within article 5(3) as a matter 'relating to tort, delict or quasi-delict'. On the remaining issue, concerning the applicability of article 5(1) ('in matters relating to a contract'), on which your Lordships are divided, I prefer the views and reasoning of my noble and learned friends Lord Woolf and Lord Cooke of Thorndon. Accordingly I would dismiss this appeal.

LORD WOOLF M.R.

My Lords,

    This appeal turns on the proper interpretation of provisions of the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1988 (the "Lugano Convention"). As its full title indicates, the Lugano Convention is concerned with harmonising the rules as to the choice of jurisdiction and enforcement of judgments between the Contracting States. The Lugano Convention is set out in Schedule 3C to the Civil Jurisdiction and Judgments Act 1982 as inserted by Section 1(3) of and Schedule 1 to the Civil Jurisdiction and Judgments Act 1991.

    The relevant provisions of the Lugano Convention are in identical terms to the provisions of the Brussels Convention. However, the Lugano Convention is entered into between the Members of the European Free Trade Association while the Brussels Convention is entered into by the Members of the European Union. The European Court of Justice has jurisdiction to give rulings on the interpretation of the Brussels Convention under the 1971 Protocol to the Brussels Convention, but not in the case of the Lugano Convention. However, Protocol No. 2 to the Lugano Convention makes any ruling on the Brussels Convention by the European Court of Justice (The E.C.J.) highly relevant to any decision as to the interpretation of the corresponding provisions of the Lugano Convention. Before the Court of Appeal it was argued that there should be a reference in this appeal notwithstanding that it concerns the Lugano Convention to the E.C.J. but the Court of Appeal rejected that argument and there is no appeal against that ruling.

    In order to determine the issues raised on this appeal, it is necessary to understand the framework of the Lugano Convention. The general principle laid down by the Convention is that persons domiciled in a contracting state shall, whatever their nationality, be sued in the courts of that state (Article 2). There are then exceptions to that general principle. One of those exceptions is set out in Article 5 of Section 2 which deals with special jurisdictions. Article 5, so far as relevant, provides :

"A person domiciled in a contracting state may, in another Contracting State, be sued:

1. in matters relating to a contract, in the courts for the place of performance of the obligation in question; in matters relating to individual contracts of employment, this place is that where the employee habitually carries out his work, or if the employee does not habitually carry out his work in any one country, this place shall be the place of business through which he was engaged;

3. in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred;"

    Section 3 of the Lugano Convention contains additional special rules which in turn override, inter alia, the provisions of Article 5. Section 3 commences with Article 7 which provides :

"In matters relating to insurance, jurisdiction shall be determined by this Section, . . . "

Article 11 of Section 3 provides :

"Without prejudice to the provisions of the third paragraph of Article 10, an insurer may bring proceedings only in the courts of the Contracting State in which the defendant is domiciled, irrespective of whether he is the policy-holder, the insured or a beneficiary.

The provisions of this Section shall not affect the right to bring a counterclaim in the court in which, in accordance with this Section, the original claim is pending."

    It is apparent from these provisions of the Convention that it is not possible to avoid the general principle contained in Article 2 by relying on Article 5 because of Article 11, even if the proceedings raise "matters relating to a contract," if the claimant is "an insurer" who is bringing proceedings as to matters relating to insurance.

The Background to the Appeal

    The issues on this appeal as to the effect of the Lugano Convention arise in the circumstances which I will now describe. The claimants are representative Lloyd's underwriters and United Kingdom insurers carrying on re-insurance business in the London Market. The defendant is an insurance company incorporated in Sweden with a registered office in Stockholm. For the purposes of the Lugano Convention and the 1982 Act, the defendant is domiciled in Sweden. The defendant issued suppliers' and manufacturers' guarantee insurance (the "original insurance") to A.B.B. Vetco Gray U.K. Ltd. in respect of obligations arising under a contract to supply Norsk Hydro with underwater valves (known as "Xmas Trees") for use in the Troll Oil Field in the North Sea.

    From November 1993 to February 1994 the claimants underwrote in London various participations on primary and excess layer facultative reinsurance in relation to the defendant's exposure under the original insurance. The reinsurances were placed by London brokers acting on behalf of the defendant. Facultative reinsurance is a form of reinsurance by which the insurer reinsures each individual acceptance with a reinsurer who is willing to undertake liability. It is to be contrasted with obligatory reinsurance where there is an agreement, and "treaty" entered into between an insurer and reinsurer under which the insurer agrees to the reinsurance of specified categories of insurance which the reinsurer agrees to undertake. Both classes of insurance may also be layered. Then the reinsurer would only be liable for the loss to the extent that it is above or below a particular figure.

    In their action the claimants contend that they should be granted a declaration stating that they are entitled to avoid the reinsurance contracts. The grounds on which they rely are that they were induced to enter the contracts by material misrepresentations and that the defendants, through their brokers, were guilty of material non-disclosure. The misrepresentations are alleged to have been made and the non-disclosure is alleged to have occurred during the negotiation and presentation of the risk in London.

    When the writ was issued on 7 September 1995 it was endorsed with a certificate by the claimants' solicitors to the effect that the High Court had power to hear and determine the claimants' claim under the Civil Jurisdictions and Judgment Act 1982.

    The defendant will succeed on its application if either Article 5 does not apply to the claim or the claimant was an insurer for the purposes of Articles 7 and 11.

The decision of Mance J.

    The defendant was unsuccessful both before Mance J. at first instance and the Court of Appeal. Before Mance J. [1996] 4 All E.R. 978 the dispute was confined to the effect of Article 5. As to Article 5 the defendant accepted that the matter in dispute was one "relating to a contract." This concession the judge regarded as being well founded. The defendant however contended that the obligation upon which the claimants relied was one arising not under any term of the contract but independently under the general law. Furthermore, the obligation arose in the context of pre-contractual negotiations and not, as the defendant submitted was required by Article 5(1), under the contract. Mance J. rejected the defendant's contentions. He indicated, at p. 994, that he would regard it as "odd" if the application of Article 5(1) depended on a determination of whether the duty of disclosure arose as a matter of law rather than from a term of the contract. He also considered that it would be "odd" if the application of Article 5(1) should vary according to the time of non-disclosure. The position should be the same whether the claim was to set aside the contract for non-disclosure as at the time it was originally made or for non-disclosure from the date of an intermediate review of the contract. Both non-disclosures should give rise to the same duty of good faith. The judge considered that any distinction between pre-contract and post-contract duties appeared to break down in such situations. The reality was that but for the making of a contract the matter would never have come before a court at all.

The Decision of the Court of Appeal

    In the Court of Appeal [1997] 4 All E.R. 937 Evans L.J. gave a judgment dismissing the appeal with which Hobhouse and Schiemann L.JJ. agreed. Evans L.J. stated, at p. 942, that :

"the reference in Article 5(1) to 'the obligation in question' ought not to be considered in isolation from the remaining words in Article 5(1), any more, that Article 5 should be interpreted without regard to the fact that it creates a special exception to the general rule of domiciliary jurisdiction in Article 2."

    Evans L.J. also accepted that it is well established that Article 5 should be interpreted by reference to the objects of the Convention rather than by reference to concepts of national law which may vary from one Member State to another. He pointed out that the right to avoid a contract which arose under the general law "could equally well be formulated (and perhaps they should be) in terms of 'contractual obligations' in the strict sense."

    Evans L.J. also dealt, at pp. 943-944, with the new contentions of the defendant as to whether a contract of reinsurance was a contract of insurance. On this issue Evans L.J. relied on the report of Professor Schlosser on the Convention on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain to the Brussels Convention (O.J. 1979 No. C-59/71). The report bluntly stated, at p. 117, para. 151:

"Reinsurance contracts cannot be equated with insurance contracts. Accordingly, Articles 7 to 12 do not apply to reinsurance contracts."

    Evans L.J. having adopted the views of Professor Schlosser added that in his opinion reinsurance and insurance were "conceptually distinct, not least as regards subject matter and the respective definitions of risk."

The Issues on the Appeal

    On the further appeal to this House, their Lordships are required to determine three issues. The first is whether insurance includes reinsurance for the purposes of Title II, Section 3 of the Convention (the "Insurance Issue"). The second issue is whether the claimants are entitled to rely upon Article 5(1) (the "Contract Issue"). The third issue only arises if the claimants do not succeed on the contractual issue. It is whether the claim for relief in respect of the defendant's alleged breach of duty falls within Article 5(3) of the Lugano Convention ("the Tort Issue").

The Insurance Issue

    Mr. Siberry Q.C., who appeared for the defendant on the Insurance Issue, commences with the advantage that, as he submits, reinsurance is undoubtedly widely understood to be a form of insurance both in this jurisdiction and other jurisdictions. He refers to the fact that it is well established as a matter of English law that "by a contract of reinsurance the reinsuring party insures the original insuring party against the original loss" (per Viscount Cave L.C. in Forsikringsaktieselskabet National (of Copenhagen) v. Attorney-General [1925] A.C. 639, 642). As he points out, Section 3 of Title II is a self contained and exclusive code governing insurance which is not confined to insurance for domestic or private purposes. Mr. Siberry submits that applying Section 3 to reinsurance would not create any difficulty. He adds correctly that there is no doubt that Section 3 applies to the insurance of commercial activities. Article 12A for example refers to different risks, including the risk of loss of or damage to sea-going ships, installations situated offshore or aircraft "which relate to their use for commercial purposes." Furthermore, he submits that if the contracting nations had intended such a substantial exclusion one would have expected them to have spelled it out by an express term in the interests of certainty which was one of the major objectives of the Lugano Convention.

    My Lords, these are attractive arguments but in my judgment they should not be accepted. The decision of the Court of Appeal is correct for the reasons submitted by Mr. Michael Crane Q.C. on behalf of the claimants. Section 3B(2) of the Act of 1982 provides that the Jenard and Möller Report on the Lugano Convention can be referred to in order to ascertain the meaning or effect of any provision of the Convention. That Report points out that Section 3 and Section 4 of the Convention, which deals with consumer contracts, have the primary objective of protecting the weaker party (para. 13). Unlike the ordinary insured the reinsured cannot conventionally be regarded as a weaker party than the reinsurer.

    The Jenard and Möller Report also refers to the paragraph of the Schlosser Report on which Evans L.J. relied. In addition, there is some indication both in the English authorities and in the decisions of the E.C.J. that it has been generally accepted that reinsurance is not included in Section 3. This was common ground in Arkwright Mutual Insurance Co. v. Bryanston Insurance Co. Ltd. [1990] 2 Lloyds Reports 70 (at p. 73 Col. 2). In the Trade Indemnity case ([1995] 1 All E.R. 796 at p. 804A-804C), although the point had not been argued, Rix J. concluded that Article 11 did not apply to reinsurance. In addition in Jordan Grand Prix Ltd. v. Baltic Insurance Group [1999] 2 A.C. 127 (at pp. 132G-134C) Lord Steyn indicated that the purpose of Section 3 was to protect the insured who is most frequently faced with a pre-determined contract and who is in a weaker position. In Overseas Union Insurance Ltd. v. New Hampshire Insurance Co. [1992] 1 Q.B. 434, a case involving the Brussels Convention, before the E.C.J., both parties contended that Section 3 was inapplicable to reinsurance. The German Government also contended that this was the position. However, the Commission argued that it was difficult to see any fundamental difference between insurance and reinsurance. The judgment did not deal with the issue.

    Mr. Crane also submits that there is a consensus of academic opinion that Section 3 does not apply to reinsurance. He cites Kaye, Civil Jurisdiction and Enforcement of Foreign Judgments (1987) pp. 808, 858; O'Malley & Layton, European Civil Practice (1989) pp. 456-461; Dicey & Morris, The Conflict of Laws, 12th ed. (1993), pp. 372-9; Clarke, The Law of Insurance Contracts, (1999) para. 2-10F; and Butler & Merkin, Reinsurance Law, p. D4.1 189/196.

    The Schlosser Report is of significance. The Report, in addition to the statement on which Evans L.J. relied, describes the negotiations relating to the accession of the United Kingdom. Professor Schlosser points out that the accession introduced a totally new dimension to the insurance business as it had been practised hitherto within the European Community. (Para.136). The United Kingdom requested a number of adjustments but these did not relate to reinsurance. This country would undoubtedly have been concerned about the position in relation to reinsurance if it was thought it was included in the term "insurance" and the categoric statement in the Schlosser Report could well be the explanation as to why there is no specific mention of reinsurance. In addition Mr. Siberry's reliance on Article 12A is misplaced. In fact that Article which was introduced at the request of the United Kingdom has to be read with Article 12(5) which has the effect of permitting agreements on jurisdiction which depart from Section 3 in relation to the risks referred to in Article 12A. That Article is therefore consistent with an approach which means that the sort of commercial risks referred to in Article 12A are not ones to which Section 3 has to be applied. The United Kingdom was also in favour of an exclusion based on the scale of the risk involved. However, there was difficulty in finding a solution which would provide adequate certainty as to the scale of risk which was to be excluded so there was in fact no exclusion. However, this underlines the limited significance of there being no negotiations as to the express exclusion of reinsurance. Finally, contracts of reinsurance are inherently a category of contract that one would not expect to be within Article 7. My Lords, I regard it as contrary to the policy and structure of the Lugano Convention to treat Section 3 as applying to reinsurance.

The Contract Issue

    The starting point for resolving the issue as to whether a claim to avoid a contract for non-disclosure and misrepresentation is one of the exceptional situations where the claimant may but does not have to bring proceedings in the courts of the defendant's place of domicile, is the language of Article 5(1) itself. This at first blush appears clear. The structure which the draftsmen of the Convention adopted in Article 5 is simple and practical. The draftsmen no doubt hoped that they had produced a model which would avoid the complex satellite litigation as to the appropriate choice of jurisdiction which has resulted in this case and Kleinwort Benson Ltd. v. Glasgow City Council [1999] 1 A.C. 153. Their hopes were not fulfilled because, unfortunately, both these cases involved situations which fall close to the borderline between those cases which can and cannot be properly regarded as falling within Article 5(1). In Kleinwort Benson, the problem arose because there was never any contract at all. The Glasgow City Council could not enter into the contract which it purported to enter because it had no power to do so. At first instance Mr. Justice Hirst decided that the case did not fall within Article 5(1). A majority of the Court of Appeal (Roch and Millett L.JJ., Leggatt L.J. dissenting) allowed the appeal. This House restored the decision of the judge at first instance by a majority of three to two (Lord Goff, Lord Clyde and Lord Hutton with Lord Nicholls and Lord Mustill dissenting). At least here, where the issue is whether the contract can be avoided by the claimants but not whether it is void, so far there has been unanimity on the part of the judiciary. In both the court of first instance and in the Court of Appeal very experienced commercial judges have apparently had no difficulty in concluding that this litigation falls within Article 5(1).

    The model which the draftsmen adopted throughout Article 5 was, in relation to a series of different situations, first to identify the nature of the issue and then to identify the applicable jurisdiction in which the proceedings could be brought. So in this part of Article 5(1) the issue is "in matters relating to a contract", and the jurisdiction is "in the courts for the place of performance of the obligation in question". As pointed out earlier, in his judgment, having examined the relevant principles, Mance J. records that "the defendants accept that the matter is one 'relating to a contract'" and adds that in his judgment this concession was well-founded. If it was only necessary to look at the opening words of Article 5(1) I would not only agree but would suggest that no other conclusion was possible. A claim to set aside a contract must be within the words "in matters relating to a contract."

    In addition, in the context of this case in the absence of authority to the contrary, I would find no difficulty with the part of Article 5(1) which identifies the relevant jurisdiction: that is, the second part of the Article. Here, there is an obligation, namely to disclose. This is the obligation "in question." It is an obligation which is accepted by the parties it was to be performed in London. Therefore ours is the jurisdiction which would appear to be the jurisdiction identified by Article 5(1).

    Before turning to the guidance provided by the authorities it is useful to enquire whether there appears to be any reason of principle or policy which suggests that it would not be appropriate to give the language of the Convention what appears to be its ordinary meaning. I find no such policy or principle. On the contrary, it seems to me that both policy and principle are in favour in adopting the ordinary meaning of the language used. This is because Article 5(1) clearly indicates that in contractual matters the close connection with the place of performance justifies permitting, as an exception to the general rule, that the place of performance has jurisdiction.

    Although, as I have indicated, there are two parts to the relevant provision within Article 5(1), I recognise that the language of the whole can assist in the interpretation of both parts. If, for example, there was no obligation which could be identified or if there was no place of performance which could be identified, then that would be a strong indicator that no part of Article 5(1) has any application although what is in issue is literally a matter relating to a contract. Equally, the opening words of Article 5(1) give a contractual flavour to the "obligation in question." Again, I accept that as Article 5(1) provides for an exception to the general principle, a restrictive or strict interpretation of the language is appropriate. But the adoption of that approach does not require the ordinary meaning of the language to be artificially confined so as to give the language used an unnatural meaning.

    When interpreting a convention which applies to a variety of jurisdictions, the less technical distinctions on the basis of domestic law which are adopted the better. They are inclined to produce the very uncertainty which the Convention was designed to remove. They result in satellite procedural litigation which is unproductive and expensive, both in monetary terms and in the delay to the legal proceedings which results. They make the language of the Convention incapable of being applied without resorting to an ever increasing volume of authorities which will become progressively more difficult to reconcile. I will turn in due course to the persuasive arguments of Mr. Siberry and the authorities on which he can properly rely, but before I do so I look generally at the issues which are involved in this case and I ask myself whether there is any feature of those issues which make it inappropriate for this jurisdiction to be seized of the dispute. Looking at the issues through the eyes of an English lawyer, I find the situation to be one where :

(a) if the claimants did not seek to rely on the non disclosure, there would undoubtedly be a contract which would have a close connection with the London reinsurance market with which the courts of this jurisdiction are very familiar.

(b) the obligation for disclosure is one which arises under the general law rather than an express term of that contract. However, the obligation arises because it is commercially highly desirable. If the obligation did not exist under the general law the parties would either have to include a term in the contract to the same effect or negotiate on terms which would be more financially burdensome to the insurer who is seeking reinsurance. In addition, to draw a distinction between the requirements of the general law and requirements of the contract is highly artificial. It is far from uncommon for the parties to a contract of reinsurance to include obligations expressly which the general law also requires.

(c) it would indeed be odd, as Mance J. indicated, to resolve the issue here differently depending on whether a general obligation is expressly mentioned in the contract. The general law avoids the parties having to include such a term if they are content to have their relationship governed by the general law. The parties could, for example, provide that in the event of non-disclosure the reinsurer has the option instead of avoiding the contract of affirming the contract and claiming an additional premium or commission which reasonably reflects the disadvantage of accepting the additional risk which results from the non-disclosure. A claim for the additional premium I would have thought uncontroversially fell within Article 5(1).

(d) the fact that what is being sought is a declaration avoiding the contract is not a distinguishing feature of this case. The declaration that a contract is no longer binding need not arise from an obligation which should be fulfilled before the contract is made. In contracts of insurance and reinsurance, obligations of good faith can arise both before and after the contract has been made. If a distinction is to be drawn depending on when the obligation begins or ends, then fine distinctions indeed will have to be drawn. The situations in which one party to a contract will regard the other party as having been discharged from any further obligation to perform the contract can arise in a great variety of situations.

(e) for the purposes of Article 5(1) there may well be a distinction between a party relying on non-disclosure or lack of good faith and a party relying upon duress, undue influence or mistake. If it would be appropriate to refer to an obligation not to be guilty of duress or undue influence or to induce a contract by mistake as relating to a contract, in the case of such an allegation it may still not be possible to rely upon Article 5(1) to establish jurisdiction. This is because there could be no place for performance of such a negative obligation. In the case of non-disclosure there is a place which can be identified where the disclosure should have taken place. In the case of non-disclosure therefore there is both an obligation and a place where that obligation is to be performed. The position would be the same in the case of any contract entered into in circumstances where one or other party is under an obligation of good faith.

(f) as Mance J. states (at p.986), "the fact that the remedy is avoidance emphasises the reality that, without the making of the contract, the matter would never come before a court at all."

 I turn to Mr. Siberry's submissions. Mr. Siberry's first main submission is that the decision of their Lordships' House in Kleinwort Benson has made it clear that for a claim to fall within Article 5(1) it must be based on a contract, i.e. it must be a claim in respect of a right, and the corresponding obligation arising under a contract: the obligation in question must be a contractual obligation. So far as this submission is concerned apart, possibly, from the inclusion of the word "under" I find it quite acceptable. An obligation which, if it is not fulfilled, provides a right to set aside the contract I would regard as being in ordinary parlance as a contractual obligation of, if not also under, the contract. Otherwise you descend into the unattractive distinctions between obligations which are included in the contract and obligations which arise under the general law. Substitute the words "arising from" for the word "under" and this difficulty is resolved.

    As to the authorities, these were examined in detail by their Lordships in Kleinwort Benson. Apart from Lord Mustill who was content to adopt the dissenting opinion of Lord Nicholls, each of their Lordships gave their own opinion. Each opinion examined the relevant Community jurisprudence.

    It is Lord Goff of Chieveley who subjects the Community jurisprudence to the closest analysis. However, nowhere does he touch upon a situation where what is at issue is not seeking a remedy in relation to a contract which is void ab initio but seeking one which is only voidable. As he indicates, having ascertained the relevant principles under the Community jurisprudence, the "question is whether the claim of Kleinwort to restitution of the sums paid by it to Glasgow under a contract accepted to be void ab initio falls within Article 5(1)". Having specified that that is the issue he then turns immediately to state his conclusion, again focussing on a void contract, in these terms:

"I have to confess that I find it very difficult to see how such a claim can fall within Article 5(1). It can only do so if it can properly be said to be based upon a particular contractual obligation, the place of performance of which is within the jurisdiction of the court. Where however, as here, the claim is for the recovery of money paid under a supposed contract which in law never existed, it seems impossible to say that the claim for the recovery of the money is based upon a particular contractual obligation." (At p.167C-E)

    The requirement of Lord Goff is that there should be a contractual obligation. It is a matter of speculation as to whether he would have come to the same conclusion as that to which he came to in the case of a void contract in the different circumstances which exist here. Lord Goff correctly gleaned in particular from the case of Martin Peters (Case 34/82) [1983] E.C.R. 987 (at p. 1002 para. 11) that what is important when deciding whether Article 5(1) applies is a "particularly close connecting factor between a dispute and the court which may be called upon to hear it". The dispute which Lord Goff had in mind was a contractual dispute as to performance. Once it is accepted that a contractual obligation can arise under the general law as well as under the terms of the contract, there is no difficulty in identifying the necessary proximity between the obligation which is relied on here by the claimants and the place of its performance which is within this jurisdiction.

    Lord Clyde's approach is also closely tied to the need for there to be a contract. He states :

"There must be an obligation to be performed and the obligation must be in dispute. I can see no other obligation which could here be intended than an obligation based on contract. The 'question' concerns a contractual obligation. The existence of a contract then becomes an essential element. And while the question may appear in a variety of forms essentially at the heart of the dispute will be a consideration relating to its performance. It can then be seen that the later words demonstrate the narrow scope of the phrase 'relating to.' It is not every connection with a contract however remote or tenuous which is intended here. The relationship is one whereby the matter is based on a contractual obligation. In my view it is essential for jurisdiction to lie under Article 5(1) that there should be at the heart of the proceedings a dispute about the performance of a contractual obligation. If there is no obligation because there has never been a contract then there is no jurisdiction under the Article." (p.181D/F)

    I would regard this as being one of the "variety of forms" in which an issue as to the performance of a contractual obligation can arise. Lord Clyde's approach does not create any difficulty in regarding the claim here as falling within Article 5(1).

    That it would be wrong to regard Lord Clyde's opinion as being inconsistent with the present contentions of the claimants also appears from a passage later in his opinion where he refers to Effer S.p.A. v. Kantner (Case 38/81) [1982] E.C.R. 825. In regard to that case, he states that :

"The case was one of enforcement of the performance of a contract. The preliminary problem of determining whether there was a contract between the parties in such circumstances falls within the scope of Article 5(1). The court reasoned that the power to determine questions relating to a contract included the power to consider the constituent parts of the contract itself, since that was indispensable for the determination of its jurisdiction. Once there is a dispute as to the existence of a contract the performance of which the one party is seeking to enforce or for the non-performance of which he is seeking a remedy, then it should not matter whether procedurally it is the defendant or the plaintiff who raises the issue of the existence of the contract." (p.182F-G)

    Lord Clyde also refers to the case of Boss Group Ltd. v. Boss France S.A. [1997] 1 W.L.R. 351, a case which is similar to this case (declarations were sought denying the existence or the continued existence of the contract in question), without indication of disapproval of it.

    Lord Hutton, in his opinion, accepts that the words "may . . . be sued . . . in matters relating to a contract" are wider than the words "may be sued on a contract". (p. 186) The remaining speech is that of Lord Nicholls which is strongly supportive of the claimants' case but as it is a dissenting speech, although I feel it is very persuasive, I place it on one side.

    While therefore the comments of their Lordships who constitute the majority in the Kleinwort case deserve careful examination, I do not regard them as inconsistent with what I regard as being the common-sense answer to this case.

    The decision of the E.C.J. to which most attention was paid was the decision in the case of Ets. A. de Bloos S.P.R.L. [1976] E.C.R. 1497. Mr. Siberry's reference to an "obligation arising under the contract" came from the judgment in that case. It is a case which is concerned with identifying the place of performance, that is, the second part of Article 5(1). That is clear from the language of the paragraph of the judgment of the court in which the words "under the contract" appear. The court said :

"It follows that for the purposes of determining the place of performance within the meaning of Article 5, quoted above, the obligation to be taken into account is that which corresponds to the contractual right on which the plaintiff's action is based.

In a case where the plaintiff asserts the right to be paid damages or seeks a dissolution of the contract on the ground of the wrongful conduct of the other party, the obligation referred to in Article 5(1) is still that which arises under the contract and the non-performance of which is relied upon to support such claims." (paras. 13 and 14 at p.1508)

    When obligations can arise in the different legal systems of the many Contracting States under the general law which can appropriately be regarded as contractual although they are not mentioned in the contract it would be inappropriate to attach any particular significance to the use of the word "under" by the E.C.J. in these circumstances. I certainly would not be prepared to assume that its use indicated that it was only obligations which arose under the express terms of the contract which the E.C.J. has in mind. Such a legalistic distinction has in my judgment no place in applying a convention which is seeking to lay down rules of jurisdiction of general application among a number of States.

    The other case to which it is useful to refer is the case of Effer S.p.A. v. Kantner [1982] E.C.R. 825. The decision provides a degree of support for the claimants' case since the court held :

"In Article 5(1) of the Convention, the national court's jurisdiction to determine questions relating to a contract includes the power to consider the existence of the constituent parts of the contract itself, since that is indispensable in order to enable the national court in which proceedings are brought to examine whether it has jurisdiction under the Convention. If that were not the case, Article 5(1) of the Convention would be in danger of being deprived of its legal effect, since it would be accepted that, in order to defeat the rule contained in that provision, it is sufficient for one of the parties to claim that the contract does not exist." (para 7 at p.834)

    While it is possible to find other paragraphs in the judgments of the E.C.J. which it can be argued support one side or the other, I do not consider that it is necessary for the purposes of this opinion to refer specifically to any other decisions. In my view there is nothing contained in the other decisions to which we were referred which is inconsistent with the adoption of what I have suggested is the correct approach. The defendant does not suggest otherwise. Apart from the general principles already identified, the arguments of the defendant return to the proposition that pre-contractual obligations are not within Article 5(1), and on this issue there is nothing in the other decisions of the E.C.J. or, for that matter, in the decisions of the other contracting States which are decisive on the subject.

    My Lords, I am of the opinion that the authorities enable your Lordships' House to decide this issue in the manner which most satisfactorily promotes what I understand to be the policy of the Lugano Convention and which complies with the ordinary meaning of the language of Article 5(1). It is for this reason that I would reject the arguments of the defendants despite the persuasiveness of Mr. Siberry's argument.

The Tort Issue

    It is accepted that if this case falls within Article 5(1) it does not fall within Article 5(3). It is not possible for the same issue to be classified under both heads. Having come to the conclusion that it falls under head 5(1) it does not appear to me desirable to consider subsection (3) further, other than to indicate that if the proceedings fall within Article 5, the obvious candidate is Article 5(1) rather than Article 5(3).

Conclusion

    Throughout the hearing of this appeal I have been conscious that the issues before us are ones which it would be preferable for the E.C.J. to decide. It is however not possible to refer issues under the Lugano Convention to that court and while there is a case pending before that court involving the Brussels Convention which raises the insurance issue (Group Josi Reinsurance Company S.A. v. Compagnie d'Assurances Universal General Insurance Company [1999] I.L.Pr. 351), there is no equivalent issue before the European Court as to the contract issue. In these circumstances it seems that their Lordships have no alternative but to determine the present appeal. In giving my opinion as to the proper outcome of the appeal, I am reassured by the fact that the issues with which we are concerned are ones of which the courts in this country have considerable experience because of the size of the reinsurance market in London. When the E.C.J. gives a decision on the same issues under the Brussels Convention then those decisions will take precedence over your Lordships' conclusions. I would hope that when that happens, in coming to their decision the E.C.J. will obtain some assistance from their Lordships' opinions.

    My Lords, for the reasons I have attempted to explain I would dismiss this appeal.

LORD COOKE OF THORNDON

My Lords,

    I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Woolf, Lord Hope of Craighead and Lord Millett. While respecting the views of the two latter members of your Lordships' House and the lines of reasoning which they employ, I prefer the view of Lord Woolf as being more realistic. Independently I had reached the same conclusion by the end of the arguments of counsel. This view also accords with those of Mance J. at first instance and the Court of Appeal (Evans, Hobhouse and Schiemann L.JJ.), so there is an emphatic overall majority for it. I share with Lord Woolf the hope that this may be of some help to the European Court of Justice when giving a decision on the same issues under the Brussels Convention.

    As to Section 3 of the Lugano Convention, the word "insurance" may be used in a general sense covering all aspects of the subject, but just as naturally it may be used in a more limited sense to refer only to direct insurance as distinct from reinsurance. Which sense is appropriate in any given instrument will depend on the context and purpose of the provision in question. The more limited sense is likely to be more appropriate when the rights of policy-holders other than reinsurers in the insurance industry are the focus of attention. In the present case I need not discuss this question at length, as your Lordships' Appellate Committee and the Court of Appeal are unanimous that the more limited meaning is correct; and, while the question was not argued before Mance J., there is an observation in his judgment indicating that he was of the same opinion (see [1996] 4 All E.R. at 993C).

    The key point is that the wider choice of jurisdictions in which to sue the insurer, given by Article 8 of Section 3, is a form of "consumer" protection; whereas reinsured as a class cannot be supposed to be in need of similar protection and so are outside the evident purview of the Article. And, if Article 8 had been intended to apply to suits against reinsurers, one would expect to find provision for contracting out in Articles 12 and 12A, as there is no obvious reason why a reinsurer should not be entitled to stipulate that he may be sued only in the courts of the State where he is domiciled. Moreover, the provisions of Section 3 are elaborate, yet nowhere in them is there the slightest hint that reinsurance is within their scope. In contrast Article 8.3 expressly brings in co-insurers. Taken as a whole, the language of the Section is strongly suggestive of direct insurance only, and no little effort would be required to fit reinsurance into it (for example, Article 10 as to actions by the injured party directly against the insurer, and Article 11 as to proceedings by the insurer irrespective of whether the defendant is "the policy-holder, the insured or a beneficiary"). For these and for the other reasons given by my Lords, I join in holding that Section 3 must be ruled out.

    Turning then to Section 2, Article 5.1: patently an action to avoid a contract is a matter "relating to a contract". All the nine judges who have considered this case in England are of the same mind on this point. One need say nothing more about it.

    The issue on which a difference of opinion has arisen in your Lordships' House is whether the words "the place of performance of the obligation in question" are satisfied. This issue has proved to lend itself to extensive discussion. The considerations which seem to me decisive are as follows.

    The obligation in question may be variously described as an obligation to make a fair presentation of the risk, an obligation not to misrepresent the risk, or an obligation to disclose facts material to the risk which the reinsured knows or ought to know. However described, it is an obligation falling on the reinsured for breach of which a remedy, namely the setting aside of the contract, is available against the reinsured. Cases where an apparent contract in void ab initio - for such causes as failure to comply with a statutory requirement as to form, lack of contractual power in one party, or uncertainty - are distinguishable.

    Whether the concept of contract, for the purposes of Article 5.1, be given an independent (or autonomous) convention interpretation or a common law interpretation, the remedy of repudiating the contract is essentially part of the law of contract. That is so not only because of the subject-matter but also because the remedy is available to the reinsurer in his capacity as one of the parties to the contract of reinsurance. As put in 25 Halsbury's Laws of England, 4th ed. (1994) para. 361, it is "an inherent right derived as a matter of law from the nature of the contract". In English law breach of the obligation in question does not itself give rise to a cause of action in tort or delict; for the latter there must be the added factor of deceit or breach of a duty of care. The obligation is imposed by law and has to be performed in negotiations for a contract (and may extend subsequently), but in a case such as the present it becomes enforceable only if a contract is concluded. It is then a condition precedent to the formation of a fully binding contract or, more shortly, a condition of the contract. Whether it is a term or condition "in" (or "under") the contract is the kind of question which schoolmen might debate, but that is a refinement of linguistics which, in my opinion, should be avoided if possible in interpreting a modern convention intended to provide clear and broad rules as to the jurisdiction of courts. Suffice it that the obligation is so intimately connected with the contract that if falls naturally within Article 5.1.

    A powerful factor supporting that conclusion in a case such as the present is the close connection between the dispute and the courts sitting in London. Mance J. said (see [1996] 4 All E.R. at 981) -

". . . it was common ground that the third [criterion] is also satisfied. The duty to make a fair presentation fell due for performance in London and any misrepresentation took place in the course of the brokers' presentation of the risk to the reinsurers in their office or underwriting boxes in London."

That same concession was made in the Court of Appeal (see [1997] 4 All E.R. at 940E). In the argument before your Lordships' Committee the point ceased to be common ground, but I think that the judge at first instance and the Court of Appeal clearly proceeded on a correct basis. The obligation fell to be discharged where and when each contract was negotiated. The reinsurer was entitled to performance of it there and then, subject to agreement otherwise, waiver or estoppel (as by acceptance of disclosure to an authorised representative elsewhere).

    Closely allied with the consideration just mentioned is the fact that, in a case concerned with the negotiation on the London reinsurance market of contracts with Lloyd's underwriters and others, the natural place of trial is London. The situation is analogous to that which arose some years ago when heavy losses by Lloyd's syndicates made resort against overseas Names necessary. Courts in the United States, Canada, Australia and New Zealand regarded London as the natural forum for the determination of resultant disputes: see Society of Lloyd's and Oxford Members' Agency Ltd. v. Hyslop [1993] 3 N.Z.L.R. 135, 137-138, 141-142, 154. I think that this factor, although far from conclusive, may be allowed some place in interpreting the Lugano Convention.

    As to the general approach to the interpretation of the Lugano Convention, I accept that if there were real ambiguity the provisions of Section 2, being exceptions to the general rule of the defendant's domicile, should be interpreted restrictively. But Section 2 does provide quite an extensive range of exceptions, and I would not regard any grudging attitude to these as appropriate. The question must always be the fair meaning of the exception.

    I do not think that any answer to the present issue can be wrung out of the decisions to date of the European Court of Justice, nor out of Kleinwort Benson Ltd. v. Glasgow City Council [1999] 1 A.C. 153. The fact is that neither the European court nor the English courts have had to face the present issue squarely before the present case; attempts to predict how a particular court would have decided it must be speculative. I would decide it as already stated. On all matters not expressly covered by what I have said, I would adopt the opinion of Lord Woolf. It will be apparent that I would dismiss this appeal.

LORD HOPE OF CRAIGHEAD

My Lords,

    The question in this appeal is whether the English courts have jurisdiction to try a claim by reinsurers in the London market to avoid contracts which they entered into with an insurance company domiciled in Sweden on the ground of the company's alleged breach of the duty to observe utmost good faith that English law imposes in relation to the making of such contracts.

    The respondents maintain that the English courts have jurisdiction to try the matter under Article 5 in Title II of the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1988, as set out in Schedule 3C to the Civil Jurisdiction and Judgments Act 1982 as amended by section 1(3) of and Schedule 1 to the Civil Jurisdiction and Judgments Act 1991. They rely, in the alternative, on two of the special rules of jurisdiction in Article 5. These are the rule which applies in matters relating to a contract in Article 5(1) and the rule which applies in matters relating to tort, delict or quasi-delict in Article 5(3). The Court of Appeal, affirming Mance J., held that the proceedings were within the scope of Article 5(1). The Court of Appeal rejected the appellants' argument that the proceedings fell within Article 11, by which an insurer may bring proceedings in matters relating to insurance only in the courts of the defendant's domicile.

    These three issues are now before your Lordships in this appeal. It is common ground that, as they arise under the Lugano Convention and not the Brussels Convention of 1968, they cannot be made the subject of a preliminary reference to the European Court of Justice under Article 234 of the EC Treaty (ex Article 177). As the questions raised, especially in regard to article 5(1), have not been the subject of decision by that Court and are far from easy, this is regrettable. But we have no choice in the matter, so we must do our best to arrive at an interpretation of the relevant Articles of the Lugano Convention which is compatible with that which would be given to the equivalent provisions in the Brussels Convention by the European Court.

    In Kleinwort Benson Ltd v. Glasgow City Council [1999] 1 A.C. 153 the European Court held (Case C-346/93) [1996] Q.B. 57 that it did not have jurisdiction to make a preliminary ruling on the question referred to it by the Court of Appeal because, although the national law pursuant to sections 16 and 17 of the Civil Jurisdiction and Judgments Act 1982 and Articles 5(1) and 5(3) in Title II of Schedule 4 to that Act was based on the Brussels Convention, the Convention was not directly applicable in that case. Nevertheless, as section 16(3) of the Act of 1982 provides, and as Lord Goff of Chieveley was at pains to stress in Kleinwort Benson at p. 163D-G, it is clear that in considering questions which arise under the national law in Title II of the Schedule the courts of this country must have regard to the principles laid down by the Court of Justice in connection with the Brussels Convention. It follows that full account must be taken of any relevant decisions of the European Court as to the meaning and effect of the corresponding provision in Title II of the Convention, and that the reports mentioned in section 3(3) of the 1982 Act may also be considered and given such weight as is appropriate. The application of these rules ensures that the same approach is taken to the interpretation of the jurisdictional concepts in Title II under the national law as that taken to the like concepts under the Brussels Convention. In my opinion it is highly desirable, in the interests of consistency, that the same concepts in Title II of the Lugano Convention should be interpreted in the same way. Accordingly I would take, as a starting point for an examination of these concepts, the jurisprudence of the European Court and, so far as they may be relevant, the reports mentioned in section 3(3) of the Act of 1982.

Reinsurance

    In my opinion Title II Section 3 of the Lugano Convention, by which matters relating to insurance are to be determined by special rules, does not apply to matters arising out of contracts of reinsurance. While it is no doubt true that reinsurance is a form of insurance, a clear line can be drawn between the generality of insurance business conducted between insurers and members of the public who wish to obtain insurance cover and the particular form or category of it which is commonly referred to by insurers, textbook writers and judges as reinsurance. The purpose of reinsurance is to lay off or pass on part of the liability of the insurer under an underlying insurance contract to another insurer. The contracting parties are engaged in the same industry. The reinsurer is an insurance company or underwriter who deals not with members of the public but only with other insurance companies or underwriters.

    Professor Schlosser, in paragraph 140 of his Report on the 1978 Accession Convention to which the United Kingdom was a party, explains that the policy consideration which lies behind the special rules which derogate from the general rule in Article 2 that jurisdiction is founded upon domicile is that of social protection. It was in the light of this concept that the United Kingdom's request for special rules for the insurance of large risks was examined, in order to see which types of insurance contracts were in general concluded only by policy holders who did not require social protection. One has only to ask the question whether social protection needs to be extended to the insured under a reinsurance contract for it to be plain that the concept of social protection does not apply to this type of contract. An insurer who wishes to obtain reinsurance does not need social protection against the insurance company or underwriter who deals in reinsurance. Professor Schlosser did not give reasons for his brief statement in paragraph 151 that "Reinsurance contracts cannot be equated with insurance contracts". But when that paragraph is read in the context of his Report as a whole it can be seen that the reason is that contracts of that kind do not fall within the policy of social protection which has informed Section 3.