For these reasons I would dismiss this appeal. The last of my examples covers the present case. Article 5(1) is to be construed restrictively, but it must also be construed with due regard to the underlying objectives of the Convention. Disputes relating to the existence of a contract are to be regarded as within the Convention concept of contractual matters, as also are disputes on the restitution consequences flowing from a decision that a contract is void. I am fortified in this view by noting that in the course of the abortive reference to the European Court a similar conclusion was expressed in the written observations submitted by France, Spain, the United Kingdom and the E.C. Commission. Germany alone expressed a contrary view.

      On article 5(3) I agree with the views of my noble and learned friends Lord Goff of Chieveley, Lord Clyde and Lord Hutton.

LORD CLYDE

My Lords,

      The appellant in this appeal is the City of Glasgow Council, formerly the City of Glasgow District Council. In 1982 the District Council entered into a number of financial arrangements with the respondent which were of the kind known as interest rate swap contracts. In Hazell v. Hammersmith and Fulham London B.C. [1992] 2 A.C. 1, your Lordships' House held that it was ultra vires of a local authority to enter into such arrangements. That decision had considerable repercussions. There were a number of local authorities who had entered into them and in a number of those cases there was a balance standing to the credit of the local authority at the time when the transactions were found by your Lordships' decision to have been void ab initio. Such was the position in the case of the City of Glasgow District Council. The respondent raised proceedings in England against the District Council for restitution of the sums which had been paid by them to the Council. The question which has arisen is whether the proceedings fall within the jurisdiction of the courts in England under the provisions of the Civil Jurisdiction and Judgments Act 1982.

      The majority of the judges in the Court of Appeal held that the English Court had jurisdiction under article 5(1) of Schedule 4 of the Act. The respondent also argued before that court that in the alternative there was jurisdiction under Article 5(3), but that argument did not prevail. Article 5 provides:

 "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. . . ."

      Schedule 4 prescribes the rules for the allocation of jurisdiction within the United Kingdom. It is a modified form of Title II of the Brussels Convention of 1968. The references in the opening passage of the Article to the parts of the United Kingdom and in Article 5(3) to the case of a threatened wrong are modifications of the text of the Convention. That convention is set out in Schedule 1 and together with certain other conventions is declared by section 2(1) of the Act to have the force of law in the United Kingdom. In relation to the interpretation of these conventions section 3(1) of the Act requires that any question as to their meaning and effect is to be "determined in accordance with the principles laid down by and any relevant decision of the European Court." The corresponding provision in section 16 which requires effect to be given to Schedule 4 for the purpose of allocating jurisdiction within the United Kingdom in the civil proceedings to which it refers is in slightly different terms. Section 16(3) provides that:

 "In determining any question as to the meaning or effect of any provision contained in Schedule 4

 (a) regard shall be had to any relevant principles laid down by the European Court in connection with Title II of the 1968 Convention and to any relevant decision of that Court as to the meaning or effect of any provision of that Title. . . ."

      Since the provisions in Schedule 4 comprise a modified version of the 1968 Convention it is understandable that they should not be interpreted with the full rigour provided by section 3 of the Act for the construction of the conventions.

      In the present case the Court of Appeal referred to the European Court of Justice the questions now raised in this appeal. But that Court has held that it has no jurisdiction to give a preliminary ruling. It regarded the issue as being one of the application not of the Convention but of the national law. It pointed to the difference between sections 3(1) and 16(3) and indicated that the matter was one for interpretation by the English Court. But while the matter has thus been returned for a domestic decision regard must still be paid to any principles relevant to the provisions of the Convention which correspond with those directly in issue in the present case. In addition to the statutory requirement it would in any event be proper to have regard to European law in the interests of uniformity. It is true that Advocate General Tesauro recognised in his Opinion when the present case was before the European Court that different rules for internal jurisdictional problems could well exist in different countries and that the scheme of the Convention was indifferent to purely internal situations, but it seems to me that where the issue concerns phrases taken directly from the Convention which are of some importance in the definition of the classes of case to which certain jurisdictional rules should apply it is desirable to find solutions which are consonant with the principles applicable to the Convention itself. One objective of the Convention was to strengthen the legal protection of persons established in the Community. But the Court has recognised that the effectiveness of that protection may be reduced by the multiplication of bases of jurisdiction in one and the same case. For that reason the Court in Somafer v. Saar-Ferngas [1978] E.C.R. 2183 observed (p. 2191) "it is in accord with the objective of the Convention to avoid a wide and multifarious interpretation of the exceptions to the general rule of jurisdiction contained in Article 2."

      Consistently with the aim of achieving a uniform application of the Convention it is established that at least for the purposes of the Convention the phrase "matters relating to a contract" should not be given the technical meaning which it might have in the particular national law of a member state, but should be seen as an independent concept. That was the view expressed in Martin Peters v. Z.N.A.V. [1983] E.C.R. 987, in Arcado v. Haviland and in Powell Duffryn Plc. v. Wolfgang Petereit [1992] E.C.R. I-1745. It is not necessary to decide whether that interpretation should be followed under national law for the purposes of Schedule 4, but I proceed on the basis that this wider interpretation should be followed.

      It seems to me that one clear principle is that it is Article 2 of the Convention which sets out the basic rule on jurisdiction, namely that persons are to be sued in the courts of their domicile. It would seem that that should also be the basic rule for the interpretation of Article 2 in Schedule 4. The provisions of Article 5 then are to be seen as derogations from the basic rule, although of course both Article 2 and Article 5(1) may be equally available if their respective qualifications are met (Bank of Scotland v. Seitz 1990 S.L.T. 584). It is sufficient to refer in this connection to Somafer v. Saar-Ferngas [1978] E.C.R. 2183 at p. 2191 and to Arcado v. Haviland [1988] E.C.R. 1539 at p. 1554. It may also be noted that Article 2 is in mandatory terms, while Article 5 is permissive. It follows from all of this that the approach to the construction of Article 5 should be narrow rather than generous. As the European Court put it in Kalfelis (at para.19):

 ". . . the 'special jurisdictions' enumerated in Articles 5 and 6 of the Convention constitute derogations from the principle that jurisdiction is vested in the courts of the State where the defendant is domiciled and as such must be interpreted restrictively."

This approach has been recognised and followed in relation to Article 5(3) of Schedule 4 in Davenport v. Corinthian Motor Policies at Lloyds, 1991 S.L.T. 774.

      It is of course for the plaintiff to identify the jurisdiction under the Convention in which his proceedings should be taken. If there is a question about the applicability of any of the special jurisdictions he can always sue under the basic jurisdiction provided in Article 2. The rules of jurisdiction should not be construed so as to favour the wishes of the plaintiff. One particular reason for discouraging a liberal interpretation of the special jurisdictions, which was advanced in Marinari v. Lloyds Bank [1996] Q.B. 217, is that it might lead to the recognition of a jurisdiction in the courts of the plaintiff's domicile, which the Convention seeks in the second paragraph of Article 3 to exclude. A like point is made by the Court in Dumez France and Tracoba v. Hessische Landesbank [1990] E.C.R. I-49 at p. 80. The Jenard report makes it clear, that the intention was to avoid recourse to the plaintiff's forum (See the edition at para. A1.100 in O'Malley's European Civil Practice).

      The characteristic of the special jurisdictions which explains and justifies the provision for them is, as the Court put it in Somafer (p. 2191):

 ". . . 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."

This same view was expressed in the later case of Dumez France v. Hessische Landesbank (Helaba) and Others [1990] E.C.R. I-49 at p. 80. The point was made with greater particularity in Handte v. T.M.C.S. [1992] E.C.R. I-3967 at p. 3994 where the court stated that the jurisdictional rules which derogate from the general principle laid down in Article 2:

 ". . . must not lead to an interpretation going beyond the situations envisaged by the Convention. It follows that the phrase 'matters relating to a contract,' as used in Article 5(1) of the Convention, is not to be understood as covering a situation in which there is no obligation freely assumed by one party towards another."

      It is thus not enough for the invocation of jurisdiction under Article 5(1) that some remote connection can be found between the point in dispute and a contractual relationship. The question then is where the line is to be drawn. Academic opinion seems to be divided on the point.

      The language of the Article should provide the solution. There is no direct reference to restitution, although that remedy is mentioned in Article 5(4), and there is no direct reference to quasi-contract (even if that was relevant to a claim for restitution), although delict and quasi-delict are identified in Article 5(3). The express reference to cases of nullity in Article 10(1)(e) of the Rome Convention can also be seen to point a contrast with the language of Article 5(1) of the Brussels Convention. So the phrase "relating to" has to be considered. The distinction drawn by the Sheriff Principal in Strathaird Farms v. Chattaway 1993 S.L.T. (Sh. Ct.) 36 between the words "relating" and "related" seems to me to be helpful. The present participle indicates that there is a relationship still continuing between the current issue and a contract. The contract is not a matter of past history forming the background to the current controversy but is still of present relevance. Furthermore the reference to "a" contract appears to envisage an identifiable agreement. The point is not so evident from the French text of the Convention, although at least in the context of Schedule 4 the use of the indefinite article may be significant. But however that may be the later words of Article 5(1) "in the courts for the place of performance of the obligation in question" are of considerable importance. The use of the definite article shows that there is a particular obligation to be performed. Moreover the reference is to "the obligation in question." That is a reference not to the contract but to the obligation which is at the heart of the dispute. That obligation is the obligation on which the claim is based. 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.

      That view seems to accord with the decision of the court in de Bloos v. Bouyer [1976] E.C.R. 1497 where it was stated that the word "obligation" contained in Article 5(1) of the Convention " . . . refers to the obligation forming the basis of the legal proceedings, namely the contractual obligation of the grantor which corresponds to the contractual right relied upon by the grantee in support of the application." The point was again taken up by the Court in Custom Made Commercial v. Stawa Metallbau [1994] E.C.R. I-2913 where it was stated under reference to de Bloos (para.23):

 "The Court has ruled 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."

As Lord McCluskey observed in Davenport v. Corinthian Motor Policies at Lloyds (at p. 778) "the words 'in matters relating to' become virtually synonymous with the words 'in proceedings based upon.'"

      Accordingly it is necessary to be able to identify "the obligation in question," that is the obligation which forms the basis of the particular proceedings. It must be an obligation under a contract. It is here that a difference appears in the analyses adopted by the majority of the judges in the Court of Appeal. Roch L.J. considered that an "obligation" could include something other than a contractual obligation. That could open the way to regarding the word as capable of including an obligation to make restitution. Millett L.J. considered that the "place of performance of the obligation in question" could mean the "intended place of performance of the supposed obligation." On this analysis the obligation is consensual but the contract is non-existent. Neither of these two solutions seem to me to be consonant with the decisions to which I have referred.

      But cases may well arise where there is a dispute about the existence of the contract. Where one party is claiming that there is a contract and is seeking some remedy in respect of the performance or the non-performance of its obligations and the other party is resisting the claim on the ground that there has never been a contractual relationship between them Article 5(1) should be available. In such a case if the court holds that there never has been a contract its jurisdiction will not extend beyond the decision on that point. If on the other hand it holds that a valid contract has been constituted its jurisdiction to entertain the dispute will be affirmed. In that kind of situation the court is inquiring into its own jurisdiction and such a preliminary issue can properly be brought within the scope of Article 5(1). In the case of Effer SpA v. Hans-Joachim Kantner [1982] E.C.R. 825 it was held that jurisdiction for that initial issue could be found under Article 5(1). The basic dispute was whether it was against Effer or against a bankrupt undertaking called Hykra that Kantner should enforce the contract in question. Kantner had sued Effer. 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. In Boss Group Ltd. v. Boss France S.A. where an alleged breach of contract was in issue the English Court accepted jurisdiction under Article 5(1) in proceedings whereby declarations were sought denying the existence or the continued existence of the contract in question.