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|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.
HOUSE OF LORDS
Lord Nicholls of Birkenhead Lord Woolf M.R. Lord Cooke of Thorndon
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
(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
ON 17 FEBRUARY 2000
LORD NICHOLLS OF BIRKENHEAD
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 :
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 :
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.  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  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 :
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:
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  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.  2 Lloyds Reports 70 (at p. 73 Col. 2). In the Trade Indemnity case ( 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  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.  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  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 :