England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBCMI 96/1717/B

(Mr Justice Langley )

Royal Courts of Justice

Strand

London WC2

Friday 24th October, 1997

B e f o r e:

LORD JUSTICE STAUGHTON

LORD JUSTICE OTTON

LORD JUSTICE ROBERT WALKER

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JORDAN GRAND PRIX LIMITED

Plaintiff

- v -

(1) BALTIC INSURANCE GROUP

and others

Defendants

(BY ORIGINAL ACTION)

BALTIC INSURANCE GROUP

Appellant/Plaintiff

- v -

(6) QUAY FINANCIAL SOFTWARE LIMITED

(7) DERMOT DESMOND

(8) GERARD GIBLIN

Respondent/Defendants

(BY COUNTERCLAIM)

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(Computer Aided Transcript of the Palantype Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MR A TRACE (Instructed by LeBoeuf, Lamb, Greene & MacRae, London EC3R 7AA) appeared on behalf of the Appellant

MR R SOUTHERN (Instructed by Cameron Markby Hewitt, London EC3N 4BB) appeared on behalf of the Respondents

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J U D G M E N T

(As approved by the Court )

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©Crown Copyright

Friday 24th October, 1997

JUDGMENT

LORD JUSTICE ROBERT WALKER: This is an appeal with the leave of the judge against an order of Langley J, made on 15th November last, declaring that the Court has no jurisdiction over a claim by the plaintiff by counterclaim , Baltic Insurance Group ("Baltic"), against the 6th, 7th and 8th defendants to counterclaim, Quay Financial Software Ltd ("Quay"), Mr Dermot Desmond and Mr Gerard Giblin. The appeal raises a number of issues arising on or in connection with Article 11 of the Brussels Convention, which is set out in Schedule 1 to the Civil Jurisdiction and Judgments Act 1982.

These issues arise in unusual circumstances which I must summarize briefly, basing my summary on the judgment below. The plaintiff in the original action, Jordan Grand Prix Ltd ("Jordan"), is an English company engaged in Formula 1 motor racing. It is based at Silverstone in Northamptonshire. It ran a team which competed in the 1994 FIA Formula 1 world championship. Jordan claims that it had an agreement with its employees to make bonus payments to them if the team finished in the first six of the 1994 Constructors' World Championship, and it sought to cover its exposure to that contractual liability by insurance.

Baltic is a Lithuanian company with, as is pleaded in the Statement of Claim and admitted in the defence, a managing agent in Belgium; a Belgium company named Compagnie d'Investissements Universelle ("CIU"). Jordan's primary case is that the requisite insurance cover was effected with Baltic through CIU and with the participation of another intermediary, also a Belgium company, Special Risks Insurance SA ("SRI"). Jordan has a secondary claim against SRI.

Quay is an Irish company dealing in computer software. Mr Desmond and Mr Giblin are directors of Quay and claim to be domiciled in the Republic of Ireland. Quay claims that it entered into a sponsorship contact with Jordan under which Jordan would promote Quay's software and Quay would pay Jordan US $1m if its team finished in the top six, or a smaller sum if the team finished 7th, in the 1994 Constructors' World Championship. Quay's case is that this also was covered by Baltic through SRI and CIU.

In the event Jordan finished 5th in the 1994 Constructors' World Championship. Baltic declined to pay under the main cover on which Jordan relies (although the Statement of Claim pleads that Baltic did make some payments under another part of the cover, relating to points scored during the course of the Championship). Baltic's case was that neither the employees' bonus agreement nor the sponsorship agreement was genuine. Baltic alleged a conspiracy by Jordan, Quay and others to defraud Baltic and counterclaimed for declarations and damages.

That is the background to the writ issued on 26th January 1995 by Jordan initially against three defendants, namely Baltic, Kobe Reinsurance SA ("Kobe"), and Dai Ichi Kyoto Reinsurance SA ("Kyoto"). Kobe and Kyoto are Belgian companies carrying on insurance and reinsurance businesses in Belgium. They were sued as being reinsurers directly liable under a 'cut-through' clause. Later SRI was joined as a 4th defendant by amendment.

On 24th May Baltic put in its defence and counterclaim alleging conspiracy and fraud. There were 12 defendants to the counterclaim. As well as being made against Jordan the counterclaim was made against various individuals associated with Jordan; against Quay and its directors (Mr Desmond and Mr Giblin); against SRI and its director Mr Henry Braun, and against Kobe and Kyoto. I should perhaps add that Mr Desmond is alleged to have been a close associate of Mr Edmund Jordan, who is a director of Jordan and the 2nd defendant to counterclaim. Mr Giblin is said to have signed the impugned sponsorship agreement on behalf of Quay.

On 30th May 1995, before the counterclaim had been served on Quay, Mr Desmond or Mr Giblin, Quay served proceedings in the Belgian Court against SRI, Baltic and CIU.

In his judgment Langley J recorded that under their amended summons under RSC Order 12, rule 8. Quay relied on Articles 11, 21 and 22 of the Brussels Convention, and Mr Desmond and Mr Giblin on Articles 11 and 22. The judge recorded that in view of time restraints:

"it was agreed that the hearing and so this judgment should be limited to the issues which arise under Article 11 only. Both parties have, with my agreement, fully reserved their rights as regard Articles 21 and 22 so that they may consider the position in the context of this judgment and any appeals there might be from it."

Section 3 which contains Articles 7 to 12A of the Convention deals with jurisdiction in "matters relating to insurance". Mr Trace, who has appeared in this court, as he did below, for Baltic, reserved the right to contend that the counterclaim by Baltic was not such a matter, but in the court below he did not press that point. In this court he has developed the point at a little length though not at great length. For my part I think Mr Trace was right not to press the point below. It seems to me that as the judge said,

"the whole issue between the parties arises from the alleged insurance and whether it is binding and effective."

The general scheme of Section 3 of the Convention is that Article 7 introduces the special regime as to jurisdiction in matters (relating to insurance, without prejudice to Articles 4 and 5(5) relating to defendants not domiciled in a contracting state, and to branches, agencies or other establishments). Article 8 regulates where an insured, domiciled in a contracting state, may be sued. Articles 9 and 10 confer additional jurisdiction in claims against insurers in respect of liability insurance and insurance of immovable property. Articles 12 and 12A regulate the extent to which the provisions of the section may be excluded by agreement. Article 12(4) and (5) and Article 12A were added on the occasion of the accession of the United Kingdom, as was described by Lloyd LJ in New Hampshire Insurance v Strabag Bau [1992] 1 LR 361, at 367. That is the legislative context in which Article 11 appears. Subject to an irrelevant qualification which I omit, Article 11 is in the following terms:

"... 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 the 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."

Apart from the scope of "matters relating to insurance", which I need not go into further, the judge considered three issues:

(1) Is Article 11 limited to an insurer which is itself domiciled in a contracting state?

(2) Does the right of Baltic (as a defendant insurer) to counterclaim extend to a counterclaim which joins Quay, Mr Desmond and Mr Giblin (among others) as co-defendants, with Jordan, to the counterclaim?

(3) Does the fact that Mr Desmond and Mr Giblin are not policy-holders, insured persons or beneficiaries (but are directors of Quay and alleged conspirators) mean that Article 11 does not apply to them?

That is not the order in which the issues have been taken by Mr Trace in his oral submissions, but it seems to me a convenient order in which to take them.

The judge answered all three questions in the negative. As regards the domicile of a defendant insurer, there is no express authority, but in the New Hampshire case already mentioned Lloyd LJ clearly proceeded on the basis that the English court had no jurisdiction to hear a claim by an American insurer against a German domiciled insured. Article 11 is, as he said at page 367 of the report, "clear and peremptory in its terms". The absence of any reference to the domicile of a plaintiff insurer in Article 11 is in clear contrast to the reference to a defendant insurer's domicile in Article 8 and, more generally, the references to a non-domiciled defendant in Article 4. As I have noted Article 7 takes effect without prejudice to Article 4.

The irrelevance under Article 11 of the domicile of a plaintiff insurer is consistent with those works of authority, Jenard and Schlosser, which are admissible under Section 3(3) of the 1982 Act as aids to construction of the Convention. It is also consistent with the general purpose of Section 3 of the Convention, which is, in the words of Lloyd LJ at 367 in the New Hampshire case:

"to protect the small policy-holder against the more powerful insurer."

In my judgment the judge was right to reject Baltic's argument on this point. The second point that the judge considered was that of a counterclaim against parties other than the original plaintiff. The judge held that "counterclaim" in Article 11 is limited, in its context, to a counterclaim against an original plaintiff. Against that Mr Trace for Baltic has argued in this court:

(1) that the natural meaning of counterclaim is wider, and means any claim counter to the original claim;

(2) that the judge gave weight to the particular provisions of RSC Order 15, rule 3 and that a domestic procedural rule is not a valid aid to the construction of the Convention; and

(3) that so far as the provision in Article 11 about counterclaims is based on submission to jurisdiction, it should apply with all its consequences, including (as he says in his skeleton argument) that all co-conspirators should be taken to have submitted to the jurisdiction.

For my part I am not persuaded by any of those arguments. The essence of a counterclaim and of the Convention's approach to a counterclaim was recognised by Oliver LJ in Republic of Liberia v Gulf Oceanic Inc [1985] 1 Ll Rep 539 at 544, cited with approval by Lord Brandon in Metal Scrap Trade Corporation Ltd v Kate Shipping Company Ltd [1990] 1 WLR 115 at 128.

"that by becoming a litigant within the jurisdiction, a plaintiff submits himself to the incidents of such litigation, including liability to a counterclaim."

(See also Neill LJ at 547).

That, it seems to me, is the basic principle naturally underlying the last part of Article 11, and also the more general provision in Article 6(13) to which Mr Trace referred.

Another general principle, as Mr Trace submitted, is that related matters should, so far as is possible, be heard together in order to avoid conflicting and contradictory decisions. Those two general principles may sometimes pull in different directions. Where they do the Court may have to resolve the matter simply by giving reasonably clear words their natural meaning, even if that leads to possible fragmentation of proceedings. It seems to me that this is such a case.

In referring to RSC Order 15, rule 3 the judge was not, as I read his judgment, using it as an aid to construction of the Convention, except in the completely negative sense of pointing out that a counterclaim against a non-plaintiff, although permitted by Order 15, rule 3(1), was a special procedure and so was to some degree an extension of the ordinary and natural extent of a counterclaim.

The suggestion that an alleged co-conspirator must be taken to have agreed to any submission to jurisdiction made by the alleged arch-conspirator is to my mind a very bold submission indeed. It assumes at the outset what the counterclaim seeks to prove. As to the authorities which Mr Trace relied on by analogy on this point, it seems to me that as far as they are relevant at all, they do not assist Mr Trace: note especially the way in which Lord Russell of Killowen in Derby & Company Ltd v Larsson [1976] 1 WLR 202 at 206 distinguished the decision of the House of Lords in John Russell and Company Ltd v Cayzer, Irvine and Company Ltd [1916] 2 AC 298. It seems to me that the respondents can also draw some assistance from the case of Danvaern Productions v Schuhfabriken Otterbeck [1995] ECR Vol 1 2053 where passages in the opinion of Advocate General Leger at 2016 and 2062, seem to support the view that the natural meaning of counterclaim in Community jurisprudence is a claim against the original plaintiff.

For this reasons I consider that the judge was correct on the second point also. He regarded his decision as being in line with the "party by party" approach in The Maciej Rataj [1995] 1 Ll R, 302. I am inclined to agree, while noting that this Court has, for reasons already mentioned, heard no submissions as to the effect of Articles 21 and 22.

In my judgment the judge was also right on the third point, which he seems to have regarded as the most difficult. He rejected the submission that the reference in Article 11 to the defendant being "the policy-holder, the insured or a beneficiary" was intended to be an exhaustive list of those capable of taking advantage of Article 11.

It seems to me that the list was probably intended to note the most likely range of parties to proceedings by an insurer "in matters relating to insurance". Mr Southern, for the respondents, is in my view right to submit in his skeleton that the list is elaborating, rather than restricting, the meaning of "defendant". In that he is following the alternative view in O'Malley and Leighton paragraph 18(45).

The narrower construction for which Mr Trace contends would seem to me to be potentially inconsistent with both of the general policy considerations identified above, that is both the curtailment of the rights of action of powerful insurers in matters relating to insurance and the avoidance, so far as possible, of fragmentation of litigation. However, for my part I would decide this third point simply on the basis that it is Baltic which is seeking to take advantage of the last sentence of Article 11, and that it is not entitled to take advantage of that against anyone in a matter relating to insurance except by way of counterclaim against an original plaintiff. On that approach it seems to me that the third point really disappears.

Therefore, despite Mr Trace's able written and oral submissions, I regard the judge's conclusions on all these points as being correct and sufficiently clearly correct that I would not regard it as appropriate for us to refer any question to the European Court of Justice under Article 177 of the Treaty of Rome.

LORD JUSTICE OTTON: I agree. Baltic alleges conspiracy and fraud against them, and in so doing Baltic seeks to avoid the contract of insurance and recover damages. That is clearly, in my view, a matter relating to insurance within Article 11. Article 11 also has effect on insurers outside the contracting states. Thus an insurer, who proposes to take proceedings in the courts of a contracting state against a person domiciled in a contracting state, is bound to choose the courts of the contracting states where the defendant is domiciled.

If Baltic had chosen to start proceedings against the present defendants to the counterclaim claiming damages for conspiracy and fraud, they could only have done so in Ireland. It cannot therefore be correct, in my view, for them to circumvent this requirement by attaching their counterclaim to the United Kingdom litigation in which they are defendants. The judge was also correct to hold that the proviso in article 11A applies only to a counterclaim in the ordinary sense. That is, the counterclaim must be against the person who has brought the original claim. It does not apply, in my judgment, to the joinder of new parties by the insurers as defendants to the counterclaim, because quite simply the new party has not done anything to submit itself to the jurisdiction of the court. I too would dismiss this appeal.

LORD JUSTICE STAUGHTON: I agree that this appeal should be dismissed. I have had rather more doubt about it than my colleagues. It seemed to me that it was arguable that the word 'counterclaim' could include a situation where the original defendant had a claim, not only against the original plaintiff but also against others who are not parties to the original action. I am not much impressed, in this particular context, by the argument that insurers are powerful and insured persons are weak. No doubt that is true in domestic life. We all know only too well that the insurers of our private affairs are much more powerful than we are. But whether this Lithuanian company is more powerful than the people who run the Formula 1 racing team does not seem to me self-evident. However, I suppose one is not entitled to look at the individual circumstances of the case but only at the general impression which people have as to the relative power of the parties.

I have also had doubts as to whether Article 11 prohibits proceedings in this country against Mr Desmond and Mr Giblin, who are neither of them domiciled here. We are told, in the evidence, that Mr Desmond lives in Gibraltar and Mr Giblin in the Irish Republic.

I have doubts as to whether we should refer this matter to the European Court of Justice. That of course would involve a delay of two years or so. Whether the rest of the action would proceed, including the counterclaim against other new defendants, or whether it would by forced to a halt during the deliberations of the European Court of Justice, seems to me open to question. But I am not prepared, in the result, to differ from the views of my colleagues where they conclude that we are not concerned with a counterclaim in the sense of Article 11, in so far as there is a proceeding against the 6th, 7th and 8th defendants to counterclaim.

In the light of that conclusion it seems to me unnecessary to decide whether Mr Desmond and Mr Giblin are within the expression "policy-holder, insured or beneficiary", and whether the first part of Article 11 prohibits proceedings against them other than in the country where they are domiciled, in a matter relating to insurance. If it does not prohibit proceedings against them here, at least it does not authorise proceedings against them in this country. The result is either that one is not entitled to sue them anywhere in a matter relating to insurance, or that they can be sued in the country where they are domiciled.

In those circumstances I too would dismiss this appeal and decline to refer the matter to the European Court of Justice. That is not because I think the result is clear, although my colleagues do, but because as a matter of discretion in this Court we are entitled to refuse a reference.

ORDER: Appeal dismissed with costs. Leave to appeal refused.

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