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House of Lords
Session 1997-98
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Judgments - Kleinwort Benson Limited v. City of Glasgow District Council


  Lord Goff of Chieveley   Lord Mustill   Lord Nicholls of Birkenhead
  Lord Clyde   Lord Hutton




ON 30 OCTOBER 1997


My Lords,

      The question in this appeal arises in the wake of the decision of your Lordships' House in Hazell v. Hammersmith and Fulham London Borough Council [1992] 2 A.C.1. In that case, the House held that an interest swap agreement to which a local authority was a party was ultra vires the local authority and so void ab initio. Between 7 and 15 September 1982 the appellants, City of Glasgow Council ("Glasgow"), entered into seven interest swap agreements with the respondents, Kleinwort Benson Ltd. ("Kleinwort"). Pursuant to the agreements, on various dates between 9 March 1983 and 10 September 1987 Kleinwort made payments to Glasgow totalling £807,230.31, and Glasgow made payments to Kleinwort totalling £79,152.41. Following the decision in Hazell, Kleinwort on 6 September 1991 commenced proceedings in the English High Court claiming restitution of the sums so paid by it to Glasgow. On 16 October 1991 Glasgow issued a summons claiming a declaration that the English High Court had no jurisdiction over the claim, over which the Scottish courts alone had jurisdiction. The appeal now before your Lordships' House relates to that issue of jurisdiction.

      It is right that I should record at once why this question of jurisdiction is being so keenly fought. In England, the limitation period generally applicable to a claim such as this is six years, whereas in Scotland it is five years. That of itself makes England a more beneficial jurisdiction for Kleinwort, but only to the limited extent that Kleinwort could claim to recover about one sixth more in England than it could do in Scotland. However it appears that Kleinwort's anxiety to proceed in England is actuated by a more fundamental consideration. It seeks to take advantage of section 32(1)(c) of the Limitation Act 1980, for which there is no precisely equivalent provision in Scotland (cf. section 6(4) of the Prescription and Limitation (Scotland) Act 1973). The subsection provides that:

     ". . . where in the case of any action for which a period of limitation is prescribed by this Act . . . (c) the action is for relief from the consequences of a mistake . . . the period of limitation shall not begin to run until the plaintiff has discovered the . . . mistake . . . or could with reasonable diligence have discovered it."

Reliance by Kleinwort on this provision in the present case faces the obstacle that the money was here paid under a mistake of law and, as English law stands at present, money so paid is not generally recoverable in restitution. However Kleinwort intends, in linked appeals pending before your Lordships' House (Kleinwort Benson v. Birmingham City Council [1997] Q.B. 380), to argue that the mistake of law rule should be judicially abrogated. If this argument should succeed the practical effect in the present case, if litigated in England, would be wholly to undo the contractual result (under which Glasgow would have emerged as the successful party) and to increase very substantially Kleinwort's restitutionary claim. It is substantially for this reason, the Appellate Committee was told, that this jurisdictional battle is so strongly contested. However these considerations have no impact on the question of the applicable jurisdiction, to which I now turn.

      Pursuant to sections 16 and 17 of the Civil Jurisdiction and Judgments Act 1982, which incorporates the Brussels Convention on Jurisdiction and Judgments of 1968 into the law of the United Kingdom, Schedules 4 and 5 to the Act make provision for the modification of Title II of the 1968 Convention for the allocation of jurisdiction within the United Kingdom. In this appeal, your Lordships are concerned with three provisions of Title II as so modified, viz. Article 2 which falls within Section 1, concerned with General Provisions; and Article 5(1) and (3) which fall within Section 2, concerned with Special Jurisdiction. These provide as follows:

     ARTICLE 2

     Subject to the provisions of this Title, persons domiciled in a part of the United Kingdom shall . . . be sued in the courts of that part.

    . . . . . . . .

     ARTICLE 5

     A person domiciled in a part of the United Kingdom may, in another part of the United Kingdom, be sued:

     (1) in matters relating to a contract, in the courts for the place of performance of the obligation in question;

    . . . . . . .

     (3) in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or in the case of a threatened wrong is likely to occur;

    . . . . . . . . .

It was the case of Glasgow that the English High Court had no jurisdiction over Kleinwort's claim because Glasgow was domiciled in Scotland and so, by virtue of Article 2, should have been sued in the Scottish courts. Kleinwort however claimed that the English courts had jurisdiction by virtue of four provisions including Article 5(1) and 5(3)--the only two provisions now relied on by Kleinwort.

      The matter came before Hirst J. who held that none of the provisions relied on by Kleinwort applied, and so granted the declaration asked for by Glasgow. Kleinwort then appealed to the Court of Appeal. In relation to Article 5(1) and (3), the Court of Appeal sought a preliminary ruling from the European Court of Justice as to the interpretation of the corresponding provisions of the Brussels Convention. Written submissions were submitted to the Court not only by Glasgow and Kleinwort, but also by the European Commission, the United Kingdom, and three other member States--France, Germany and Spain. However Advocate General Tesauro expressed the opinion that the Court had no jurisdiction to deal with the question referred by the Court of Appeal, and his opinion was accepted by the Court. The Court concluded that, although the national law was based on the Brussels Convention, the Convention was not directly applicable. The Court of the Contracting State was free to decide whether the interpretation to be given by the Court of Justice was equally valid for the purposes of the application of the national law based on the Convention, and so the Court of Justice lacked jurisdiction to make the preliminary ruling asked for by the Court of Appeal.

      The case therefore returned to the Court of Appeal and was heard by a reconstituted Court, none of the members of the previous Court being available. On 25 January 1996, the Court by a majority (Roch and Millett L.JJ., Leggatt L.J. dissenting) held, reversing the decision of Hirst J., that the claim fell within Article 5(1), and that on that basis the English High Court had jurisdiction. In the circumstances, the Court expressed no concluded view as to the application of Article 5(3). It is against that decision that Glasgow now appeals to your Lordships' House, with the leave of the Court of Appeal.

The applicable principles

      Before I consider the reasoning in the judgments delivered by the members of the Court of Appeal, I feel that it is desirable first to set out some of the basic principles which underly the provisions in question. For this purpose I propose to put on one side Article 5(3), to which little attention was paid in argument before the Appellate Committee, and to concentrate on Articles 2 and 5(1).

      (1) I wish first to stress that, although the European Court of Justice declined to provide the guidance asked for by the Court of Appeal, nevertheless it is clear that the courts of this country, in considering questions which arise under Schedule 4 to the Act of 1982, must have regard to the principles laid down by the Court of Justice in connection with Title II of the Brussels Convention, and any relevant decisions of the Court as to the meaning and effect of any provision of that Title: see section 16(3) of the Act. A contrast is therefore drawn with section 3(1), which provides that any question as to the meaning or effect of the Convention is to be determined "in accordance with the principles laid down by and any relevant decisions of the European Court." Even so, too much should not be read into this distinction, which appears to be drawn only to accommodate the fact that Schedule 4 forms part of the national law, and because there are parts of Schedule 4 which do not correspond with Title II of the Convention. It will however be a rare case in which a provision of Schedule 4 bears a materially different meaning from the corresponding provision in Title II: see O'Malley and Layton, European Civil Practice (1989), para.41.09. It follows that your Lordships' House should, in cases arising under Schedule 4, take the relevant decisions of the European Court of Justice fully into account.

      (2) The first point which is clearly established in the European jurisprudence is that the basic principle is to be found in Article 2. This is the principle of domicile, viz. that a person domiciled in a part of the United Kingdom shall be sued in the courts of that part. This principle is expressed to be subject to the provisions of Title II, which includes the Special Jurisdiction in Section 2. Article 5, which falls within Section 2, states that a person domiciled in a part of the United Kingdom may be sued in another part of the United Kingdom in the circumstances specified in the paragraphs of the Article, including of course Article 5(1) with which we are here concerned. But it is clearly recognised that Article 5 is in derogation from the basic principle of domicile in Article 2 (see the Martin Peters case--Martin Peters Bauunternehmung GmbH v. Zuid Nederlandse Aannemers Vereniging Case 34/82 [1983] E.C.R. 987, 1001), and that as a result the provisions of Article 5 are to be construed restrictively (see Kalfelis v. Bankhaus Schröder Case 189/87 [1988] E.C.R. 5565, 5585, para. 19). In this connection, it is not to be forgotten that the defendant can always be sued in the courts of his domicile.

      (3) Next, in considering the function of the various provisions of Article 5, it is to be remembered that these provisions exist "because of the existence, in certain clearly defined situations, of a particularly close connecting factor between a dispute and the court which may be called upon to hear it, with a view to the efficacious conduct of the proceedings": see the Martin Peters case at p. 1002 (para.11). In the case of Article 5(1), the relevant court is specified as being the court "for the place of performance of the obligation in question," which is described in the Jenard Report as the court of the place of performance of the obligation on which the claim is based. It is between the dispute and that court that a particularly close connecting factor is recognised to exist. Mr. Jenard, gives as an example proceedings for the recovery of fees, particularly where the obligation to pay must be performed where the services are provided.

      (4) It follows that, in order to identify the relevant court, it is necessary first to identify the obligation in question. This was made plain in the case of de Bloos v. Bouyer (Ets. A. de Bloos S.P.R.L. v. Société en commandite par actions Bouyer Case 14/76 [1976] E.C.R. 1497), in which the European Court of Justice held that the word "obligation" in Article 5(1) refers to "the contractual obligation forming the basis of the legal proceedings" (see p. 1508, para. 11). The Court of Justice subsequently affirmed that "the obligation" "cannot be interpreted as referring to any obligation whatsoever arising under the contract in question, but is rather that which corresponds to the contractual right on which the plaintiff's action is based": see Custom Made Commercial Ltd. v. Stawa Metallbau GmbH Case C-288/92 [1994] E.C.R. I-2913, 2957 (para. 23).

      (5) Within the scope of these principles, we can see the Court of Justice giving full effect to Article 5(1). For example:

      (a) It was held in the Martin Peters case 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 the obligations between them may be regarded as contractual for the purposes of Article 5(1). This was on the basis that the concept of "matters relating to contract" should be regarded as an independent or autonomous concept, to be interpreted by reference chiefly to the system and objectives of the Convention, and not by reference simply to the national law of the relevant Contracting State. See [1983] E.C.R. 987, 1002, paras. 9, 10 and 13, applied in Powell Duffryn Plc. v. Wolfgang Petereit [1992] E.C.R. I-1745, 1774, para. 15.

      (b) In a case in which the plaintiff invokes the jurisdiction of the court of the place of performance, if the defendant denies the existence of the contract the court can consider the question whether there is a binding contract as one of the essential preconditions of its jurisdiction. "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." See Effer SpA v. Kantner Case 38/81 [1982] E.C.R. 825, 834-835, para. 7.

      (c) "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." See de Bloos v. Bouyer Case 14/76 [1976] E.C.R. 1497, 1508, para. 14. This is a point to which I shall have to return later.

      (6) However, attempts to broaden the scope of Article 5(1) beyond the established principles have, with one notable exception, failed.

      (a) The notable exception occurred in Ivenel v. Schwab Case 133/81 [1982] E.C.R. 1891. There the Court of Justice held, in a case concerned with claims based on different obligations arising under a contract of employment, that the obligation to be taken into account for the purposes of the application of Article 5(1) of the Convention is the obligation which characterises the contract: see p. 1901, para. 20. It is plain from the preceding paragraphs of the judgment in that case that this conclusion was derived from special considerations affecting contracts of employment. Subsequently however in Shenevai v. Kreischer Case 266/85 [1987] E.C.R. 239, a case concerned with a claim by an architect to his fees, the Court of Justice rejected an argument that a similar approach to that in Ivenel v. Schwab should there be adopted. The reasoning of the Court most relevant for present purposes is to be found in paras. 16-19 of the judgment, which read as follows:

     "16. In that connection it should first be observed that contracts of employment, like other contracts for work other than on a self-employed basis, differ from other contracts--even those for the provision of services--by virtue of certain particularities: they create a lasting bond which brings the worker to some extent within the organisational framework of the business of the undertaking or employer, and they are linked to the place where the activities are pursued, which determines the application of mandatory rules and collective agreements. It is on account of those particularities that the court of the place in which the characteristic obligation of such contracts is to be performed is considered best suited to resolving the disputes to which one or more obligations under such contracts may give rise.

     "17. When no such particularities exist, it is neither necessary nor appropriate to identify the obligation which characterizes the contract and to centralise at the place of performance thereof jurisdiction, based on place of performance, over disputes concerning all obligations under the contract. The variety and multiplicity of contracts as a whole are such that the above criterion might in those other cases create uncertainty as to jurisdiction, whereas it is precisely such uncertainty which the Convention is designed to reduce.