|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. Länsförsäkringsbolagens A.B.
Although there is as yet no decision on the point, it respectfully seems to me that the jurisprudence of the Court of Justice provides no support for the view that the meaning of the phrase "the obligation in question" can include duties, such as the duty of utmost good faith, which the law imposes at the stage of the formation of the contract. One must bear in mind also that the special rules of jurisdiction in Article 5 derogate from the general rule in Article 2 that jurisdiction is founded upon domicile. I should have thought that it was unlikely that the Court would be willing to extend its jurisprudence so as to enable a claim to avoid a contract on the ground that a duty of that kind was breached when the contract was entered into, where no question has been raised by either party as to the performance of any of the obligations created by or arising from the contract, to be brought in the courts of a place other than that of the defendant's domicile.
Kleinwort Benson Ltd v. Glasgow City Council  1 A.C. 153 was concerned with the question whether a claim in restitution based on unjust enrichment was a matter "relating to a contract" (a question which in my opinion causes no difficulty in this case) and not with questions as to "the place of performance of the obligation in question". So it is not directly relevant to problem raised by the application to this case of the second requirement in Article 5(1). But I think that it is significant that the speeches in that case contain repeated references to the obligation in question as a "contractual obligation": see Lord Goff of Chieveley at pp. 166F, 168E and 169E, Lord Nicholls of Birkenhead at pp. 173F and 174D-F. Lord Clyde states at p. 181D that, as the "question" concerns a contractual obligation, the existence of a contract becomes an essential element. Lord Hutton said at p. 189F-G that, as the European Court had held that 'the obligation in question' is a contractual obligation, the wording of this part of Article 5(1) refers to an obligation arising under or contained in the contract which a party is seeking to enforce.
Boss Group Ltd v. Boss France S.A.  1 W.L.R. 351 was concerned both with the question whether the claim related to "matters relating to a contract" and with "the place of performance of the obligation in question". The dispute between the parties in that case was as to whether a contract existed between them under which the defendants were obliged to act as the exclusive distributors for the plaintiffs in France. The plaintiffs asserted that no such contract existed. The defendants asserted the contrary, while contending at the same time that Article 5(1) did not apply. The Court of Appeal held that the plaintiffs' claim fell within Article 5(1). Saville L.J. said at p. 356G that Article 5(1) was not confined to actions to enforce a contract or to obtain recompense for its breach: see Effer S.p.A. v. Kantner (Case 38/81)  E.C.R. 825; Anton, op. cit., pp. 183-184. As to the phrase "the place of performance of the obligation in question" which causes difficulty in this case, Saville L.J. noted at p. 357D that the obligation in dispute in Boss Group was whether the plaintiffs were bound to supply only the defendants with their products for distribution in France. He said that it could perhaps be said to comprise two obligations, one to supply to the defendants and the other not to supply to anyone else. He then sought to categorise the place of performance on the basis of common law conflict of law principles. It seems to me that, on this approach, he was dealing in a perfectly orthodox way with obligations which, if they existed at all, were clearly contractual. Their binding force, if any, was attributable entirely to the contract which was asserted by the defendants but which, on the plaintiffs' argument, did not exist. I do not find anything in the decision in that case which is inconsistent with the jurisprudence of the European Court as to the meaning of the phrase "the obligation in question" in Article 5(1) of the Brussels Convention.
It is common ground that the claims which the respondents make in this case are not for the performance of any of the obligations which were created by the reinsurance contracts. None of those obligations is put directly in issue in this case. Neither side has sought to identify the time or the place for their performance. What the respondents seek is to be released from the obligations which would otherwise be binding on them by the setting aside of the contracts on the ground that the appellants were in breach of the duty of utmost good faith that arose by operation of law when they were being entered into. In my opinion it is a misuse of language, in the context of the special rule in the Convention as to matters relating to a contract, to describe that duty as an "obligation". It was a duty which the law imposes on parties at the stage of the formation of the contract, a breach of which by one party may entitle the other to be released from it. Its description as an "obligation" confuses the jurisdictional rules which distinguish the place where an obligation arose from the place for its performance.
The confusion arises because the duty on which the respondents rely is inevitably and inextricably linked to the place where the voluntary, or contractual, obligations arose. This was one of the grounds of jurisdiction which Article 5(1) of the Brussels Convention rejected. As the time for performance of those obligations has not arrived, the full extent of that confusion has not been revealed by the arguments which were presented in this case. But it is not difficult to imagine a case where arguments based on the duty of good faith are put forward by one party in answer to a claim for performance of contractual obligations by the other. If the respondents are right, the courts of the place where the duty of good faith was to be performed during the formation of the contract would have jurisdiction as well as those for the place of performance of the obligations created by the contract which are put in issue by the claim for performance on the one hand or the claim to be relieved from performance on the other. It was just that kind of dispute that the special rule in Article 5(1) was designed to avoid, as Mr P. Jenard made clear in his report when he said at p. C59/23 that the Committee considered that it would be unwise to give jurisdiction to a number of courts, and thus possibly create conflicts of jurisdiction.
I would hold that the English courts do not have jurisdiction under Article 5(1).
It is reasonably clear that a liability in tort may arise in some circumstances where there has been a breach of a duty in the formation of a contract, for example if the breach can be said to have been fraudulent. In that situation it will be open to the injured party to claim damages, and jurisdiction may then be founded on the special rule in Article 5(3). But the respondents' claim in this case is not, and cannot be, a claim to enforce a liability in tort. The duty which is said to have been breached was not one for the breach of which there is a liability in damages. Their claim is a contractual one, to which the special rule in Article 5(3) does not apply.
For these reasons I would hold that the respondents are not able to bring themselves within the special rule in Article 5(1), that their claims do not fall with the special rule in Article 5(3) which is relied upon in the alternative and that the general rule in Article 2 which gives jurisdiction to the courts of the defendant's domicile must be applied. I would allow the appeal.
The question in this appeal is whether the respondents are entitled to maintain the present proceedings against the appellant in England, or whether they are obliged by the terms of the Lugano Convention ("the Convention") to bring them in the Courts of the appellant's domicile, that is to say in Sweden.
The appellant is an insurance company incorporated and carrying on business in Sweden. For the purpose of the Convention as set out in Schedule 3C to the Civil Jurisdiction and Judgments Act 1982 it is domiciled in Sweden. The respondents are representative Lloyd's underwriters and English or Scottish companies carrying on reinsurance business in the London market. Between November 1993 and February 1994 the appellant entered into contracts of excess layer facultative reinsurance with the respondents in respect of its exposure under certain insurance policies which it had underwritten. The reinsurance contracts were placed in London by brokers acting on behalf of the appellant. All the pre-contractual negotiations and the presentation of the risk to the respondents by the brokers took place in London.
The respondents have brought proceedings against the appellant in England. They allege that they were induced to enter into the reinsurance contracts by material misrepresentations made in London by the brokers acting for the appellant or as a result of material non-disclosure on their part. The contracts are governed by English law, and if the respondents establish their allegations they are entitled to avoid the contracts. They seek declarations to this effect. They make no claim to damages, to which English law does not entitle them. They have also pleaded a claim for breach of warranty, but this is not relied on for the purposes of this appeal.
The appellant contends that the respondents' claim is "a matter relating to insurance" within the meaning of Section 3 of the Convention, and that under Article 11 it can be sued only in the courts of the Contracting State in which it is domiciled. The respondents deny that "insurance" in Section 3 of the Convention includes reinsurance. They contend that Article 5.1 of the Convention permits them to bring the proceedings in England, as their claim arises "in a matter relating to a contract" and they seek relief in respect of the appellant's non-performance of obligations which fell to be performed in London. Alternatively, they contend that Article 5.3 entitles them to bring the proceedings in England arising out of a tort or delict where the harmful event occurred in England. I shall deal with the three issues in turn.
Section 3 of the Convention: "matters relating to insurance."
This issue is a narrow one. Does "insurance" in Section 3 of the Convention include reinsurance? The question whether the corresponding and identically worded Section in the Brussels Convention applies to reinsurance has not yet been considered by the Court of Justice, but it has recently been referred to the Court by the Versailles Court of Appeal in Group Josi Reinsurance Co. S.A. v. Compagnie d'Assurances Universal General Insurance Company  I.L.Pr. 351. It is common ground that we cannot refer the question to the Court, as we would otherwise do. We must decide it ourselves.
Reinsurance is merely a species of insurance. In English law the subject-matter of a contract of reinsurance is the same as the subject-matter of the original direct insurance. The reinsurer reinsures the insurer against the same event as that covered by the original insurance, the original policy giving the insurer an insurable interest in the insured risk. This analysis may not apply in all the Contracting States, some of which may regard the subject-matter of reinsurance as the contractual liabilities which the insurer has accepted under the policies he has underwritten. But in my opinion nothing turns on the difference.
If the question arose under a domestic statute, then absent a compelling context to the contrary there would be no reason to confine insurance to direct insurance. But the word "insurance" in Section 3 of the Convention cannot be interpreted exclusively in accordance with English language, law and practice. An independent construction must be adopted in order to ensure that the rights and obligations arising out of the Convention achieve a reasonable measure of uniformity. I am satisfied that the social policy to which Section 3 of the Convention gives effect provides a compelling context which requires the word to be given a restrictive interpretation excluding reinsurance from its scope.
The general rule of the Convention, enshrined in Article 2, is that jurisdiction is given to the national courts of the Contracting State in which the defendant is domiciled. Section 2 of the Convention, containing Articles 5 and 6, provides derogations from the general rule which permit the defendant to be sued elsewhere than in the courts of his domicile. Section 3, comprising Articles 7 to 12A, is a self-contained code "in matters relating to insurance." Article 11 provides that "an insurer" may bring proceedings only in the courts of the Contracting State in which the defendant is domiciled, thereby excluding the special jurisdictions permitted by Articles 5 and 6. The insured, by contrast, is afforded a wide choice of jurisdictions in which to sue the insurer. Article 8.2 permits the insurer to be sued in the courts of the State where the policyholder is domiciled, and Article 12 limits the circumstances in which the jurisdiction prescribed by the Convention may be varied by agreement.
Article 8.2, which allows the plaintiff to sue in the Courts of his own domicile, marks a significant departure from the general principle of the Convention. It is explicable only in terms of social policy. The Court of Justice has explained that the purpose of Section 3 is to protect the insured who is frequently faced with a predetermined contract the terms of which are not negotiable and who is in a relatively weak bargaining position: see Gerling Konzern Speziale Kreditversicherungs A.G. v. Amministrazione del Tesoro dello Stato  E.C.R. 2503.
This is confirmed by the course of the negotiations which preceded the enactment of the Convention. The United Kingdom sought the exclusion of large risks from the scope of Section 3. Its request was viewed sympathetically as being consistent with the protective purpose of the Section, but it was rejected on the ground that it was impossible to devise a suitable line of demarcation which possessed a sufficient degree of certainty.
The preponderance of judicial and academic opinion supports the respondents' submission that Section 3 of the Convention does not extend to reinsurance. This is based largely on the view succinctly expressed by Professor Schlosser in Paragraph 151 of his Report on the 1978 Accession Convention. He wrote:
As the appellant has pointed out, this view is not unanimously held. In its written observations to the Court of Justice in Overseas Union Insurance Ltd. v. New Hampshire Insurance Co.  1 Q.B. 434 the European Commission expressed the view that reinsurance was not excluded from the scope of Section 3. It submitted that it was difficult to see any fundamental difference between insurance and reinsurance which could justify the exclusion of reinsurance.
My Lords, it is a cardinal rule of the construction of the Brussels and Lugano Conventions that the special rules of jurisdiction which derogate from the general principle enshrined in Article 2 cannot be interpreted as going beyond the situations envisaged by the Convention: see for example Handte (Jacob) & Co. GmbH v. Traitements Mécano-chimiques des Surfaces S.A.  E.C.R. 1-3967 para. 14; Shearson Lehman Hutton v. TVB. Treuhandgesellschaft für Vermögensverwaltung und Beteiligungen m.b.H.  E.C.R. I-139 para. 16. In my opinion an interpretation of Section 3 which extends it to contracts of reinsurance goes beyond what is necessary to enable the Section to achieve its purpose.
This is not because contracts of reinsurance are commercial rather than "consumer" contracts; or because the insured risks tend to be very large. It is because, while both employ the same insurance mechanism, insurance and reinsurance are conceptually different and serve different purposes. All insurance is about managing risk. Direct insurance protects the insured against extraordinary risks outside the ordinary course of events, whether in his private life or in his business dealings. Reinsurance is concerned with the management of risks which it is the ordinary business of both parties to underwrite. It is essentially a professional hedging operation by which, by the only means known to the law, the insurer assigns all or part of his insurance liabilities to the reinsurer.
I should add that, in my view, for the purpose of the Convention, reinsurance should be construed loosely to mean any contract of insurance placed by or for the benefit of a party carrying on insurance business and covering risks underwritten in the course of that business. This is a wider definition than is employed in our domestic law (see Toomey v. Eagle Star Insurance Co. Ltd.  1 L1.R. 516), but it is easy to apply and serves to give full effect to the policy of Section 3 without extending it further than is necessary to achieve its object.
In my opinion the Court of Appeal were right to reject the appellant's argument that the proceedings are a matter relating to insurance within Article 11 of the Convention.
Article 5.1: "matters relating to a contract".
The respondents claim that they are entitled to avoid the reinsurance contract. I find it impossible to understand how such a claim can sensibly be regarded as not being "a matter relating to a contract." Whether the contract is voidable or not, until avoided it remains a valid and binding contract freely entered into by the parties. The problem which arose in Kleinwort Benson Ltd. v. Glasgow City Council  1 A.C. 153, where one of the parties lacked contractual capacity and the contract was accordingly void ab initio, so that no contract ever came into existence, is absent.
Accordingly Article 5.1 of the Convention entitles the respondents to bring proceedings in the courts for "the place of performance of the obligation in question." They contend that the obligation in question is the obligation on the part of the appellant to make a fair presentation of (and not to misrepresent) the risk, and that this obligation fell to be performed in London. The question, which is by no means easy, is whether this correctly identifies "the obligation in question" for the purpose of Article 5.1.
The expression "the obligation in question" has been considered by the Court of Justice on a number of occasions. The Court has variously described it as "the contractual obligation forming the basis of the legal proceedings" or "the obligation . . . which arises under the contract and the non-performance of which is relied upon to support [the claim]" (Ets A. de Bloos S.P.R.L. v. Société en commandite par actions Bouyer  E.C.R. 1497); and "the contractual obligation . . . whose performance is sought in the judicial proceedings" (Shenavai v. Kreischer  E.C.R. 239).
The obligation upon which the respondents rely may appear to come within some of these formulations; but in expressing them the Court of Justice did not have a case of the present kind in mind. They are therefore of doubtful assistance.
The respondents place great reliance on the de Bloos case. There the plaintiff alleged that it was entitled to be discharged from further performance of the contract by reason of a repudiatory breach of contract on the part of the defendant. The Court of Justice identified "the obligation in question" as the particular obligation which the defendant had allegedly failed to perform and the non-performance of which entitled the plaintiff to treat the contract as at an end. This would clearly have been the case if the plaintiff had merely claimed damages for the breach. The fact that it chose in addition (or instead) to treat the contract as determined made no difference. The Court of Justice refused to regard the contractual obligation from which the plaintiff sought to be relieved as the relevant obligation.
In the light of that decision it is common ground between the parties that "the obligation in question" is the particular contractual obligation (if any) which the defendant is alleged to have broken and which founds the claim, and not the obligation the enforceability of which is the real subject-matter of the dispute between them. Accordingly neither party contends for the payment obligation, though this may be because the place for payment is disputed and accordingly neither is confident that it provides the venue it desires.
The de Bloos case, however, was concerned with a claim that the defendant was in breach of a contractual obligation voluntarily undertaken by the defendant and contained in the contract itself. It was a very different case from the present, where the appellant is charged not with breach of a contractual obligation but with a failure to observe standards imposed by the general law on parties to pre-contractual negotiations; and where the only result of the failure of one party to observe them is to render any resulting contract voidable at the instance of the other.
It is, of course, true that, if the appellant did not seek to rely on the non-disclosure, there would be a contract with a close connection with England and, if the payment obligation fell to be performed here, one in respect of which Article 5.1 would permit the respondents to bring proceedings in England. It is also true that, as I observed in the Kleinwort Benson case in the Court of Appeal (at  Q.B. 678, 699), the intended place of performance is no less a relevant connecting factor because the contract is afterwards found to be defective. But this consideration does not help to identify the obligation in question or determine the present question, which is whether the so-called "obligation" to make disclosure is an obligation of the kind contemplated by Article 5.1.
The appellant relies on the Kleinwort Benson case as demonstrating that Article 5.1 is concerned with claims premised on the existence of a valid and binding contract and enforceable contractual rights thereunder arising out of the non-performance of contractual obligations. It is not concerned with claims based on the assertion that a contract is void, voidable, or non-existent. The appellant submits that "the obligation in question" must be a contractual obligation which the defendant has voluntarily undertaken by his contract and not one imposed by law as an incident of pre-contractual negotiations.
It is a question of some difficulty whether Article 5.1 operates to confer jurisdiction on a court to pronounce on the validity of a contract except where this is necessary to enable it to adjudicate on the contractual claim itself. The question has not yet come before the Court of Justice. In the Kleinwort Benson case Lord Goff of Chieveley expressed serious doubt on the matter, while Lord Clyde and Lord Hutton disagreed on the point. The English Court of Appeal has held that Article 5.1 gives the court jurisdiction to hear and determine a plaintiff's claim for a declaration that no contract was ever concluded (see Boss Group Ltd. v. Boss France S.A.  1 W.L.R. 351), but this is doubtful.
I do not find it necessary to decide this question, since there is no doubt that a contract of reinsurance did come into existence. Nor am I impressed by the argument that "the obligation in question" must be an obligation voluntarily undertaken and contained in the contract as distinct from one imposed ab extra by law. All contractual obligations are voluntary, whether they are contained expressly in the contract or imposed on the contracting parties by law. No one is compelled to undertake contractual obligations. If the parties voluntarily enter into a contract, they seldom express all the contractual terms in the contract. It is often necessary for the law to imply terms into the contract. Many terms, for example, are implied by statute into a contract for the sale of goods. Sometimes such terms are subject to express provision to the contrary; sometimes they cannot be excluded by the contract. While it is customary to describe them as implied terms of the contract, it is equally and often more correct to describe them as legal incidents of the contract. It is not necessary to incorporate them expressly into the contract in order to make them contractual obligations within the meaning of Article 5.1.
In my opinion, the source of the obligation does not matter. But its nature does. This raises a question of characterisation. The expression "obligation," like the expressions "contract" and "insurance" must be given an autonomous meaning if the Convention is to have uniform application. But the existence and nature of the particular "obligation" in question must be ascertained by reference to the applicable national law. Once it is found that a dispute concerns a matter relating to a contract within the meaning of Article 5.1, then in my opinion the true nature and extent of the contractual obligations on which the plaintiff relies must depend on the proper law of the contract. This receives support from the recent case of GIE Groupe Concorde v. The Master of the Vessel Suhadiwarno Panjan to which my noble and learned friend Lord Hope of Craighead has referred, and in particular para. 26 where the Court of Justice pointed out that some of the questions which might arise in this context could hardly be resolved without reference to the applicable law. In the present case that is English law. The question whether the so-called obligation of an insured under English law to make a fair presentation of the risk and not to misrepresent it is an obligation within the autonomous meaning of that word in Article 5.1 does not depend on the classification of the obligation in English law but it does require an appraisal of the nature of the obligation and the consequences in English law of a failure to perform it.
Contracts are consensual transactions; they depend for their validity on the consent of both parties. The apparent consent of one party, however, may be obtained by duress or undue influence or induced by mistake or misrepresentation however innocent. English law does not, generally speaking, regard such circumstances as giving rise to an independent cause of action. Instead it treats them as vitiating consent, and allows the party whose consent was affected to avoid the contract. There is no "obligation" not to exercise undue influence in order to persuade a party to enter into a contract. The party exercising influence incurs no liability. It is merely that the party whose consent was obtained by the exercise of undue influence is entitled to have the contract set aside.