England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM ORDER OF PHILIP MOTT QC

		Royal Courts of Justice Strand London WC2 Wednesday 27th June 2001

1. LORD JUSTICE CHADWICK: This is an appeal against an order made on 14th December 2000 by Mr Philip Mott QC, sitting as a Deputy Judge of the High Court in the Queen's Bench Division, in proceedings brought by Mr Michael Maimann against his sister Miss Monica Maimann. The issue before the judge was whether those proceedings should be struck out on the ground that all matters in dispute in the proceedings were the subject of an agreement falling within Article 17 of the Lugano Convention. The judge struck out substantial parts of the particulars of claim as they then stood. He gave permission to amend and, on the basis of the amendments, allowed the proceedings to continue. It is against the judge's refusal to disallow the amendments and to strike out the particulars of claim as a whole that the defendant appeals. She does so with permission of this Court granted on 23rd January 2001.
2. The underlying facts, so far as they appear from the particulars of claim, are not in dispute and may be stated shortly. The appellant and her brother are the children of the late Mr Max Maimann who died on 24th July 2000. In or about 1956 Mr Max Maimann established a trust fund for his two children. In 1970 the respondent emigrated to Australia where he now lives. He was then aged 22 years. On 15th July 1973 the children's trust was wound up. The appellant's share was transferred to a new trust for her children. It is not at all clear what, if any, distribution was made in respect of the respondent's share. It seems to be common ground that it was not then transferred to the respondent. In a witness statement signed on 11th July 2000, very shortly before her father's death, the appellant states her belief to be that the respondent's share remained under the control of Mr Max Maimann for some years thereafter, but that it was eventually transferred to the respondent in 1985. There is some correspondence which tends to support this view; but the letters are not unequivocal and it is impossible to say, at this stage, whether the appellant's view is correct. She does not, I think, claim to have any direct knowledge of the matter. The respondent's contention is that his share of the trust fund was transferred by his father into a numbered account opened for that purpose with Swiss Bank Corporation in Zurich.
3. The appellant agrees that there was a numbered account with Swiss Bank Corporation, but does not accept that that was the destination of any part of her brother's share of the trust fund. Her contention is that the account was funded by savings made by her father over the years and that it was regarded by him as an "insurance" or fund of last resort. Mr Max Maimann had, it seems, arrived in England in or about 1939 from Austria as a refugee. He prospered in this country and acquired considerable wealth. But, as the appellant suggests, his early experiences had left him with an understandable fear of future persecution; and this fear led him to transfer so much of his wealth as he could to an nominate account in Switzerland. It is difficult to avoid the suspicion that that course (if that is what happened) was not unconnected with theobvious potential for tax evasion which the ownership ofundisclosed assets in a low tax environment would offer; nor to avoid the suspicion that the transfer of assets to Switzerland at that time is likely to have given rise to a breach of exchange control.
4. Be that as it may, it seems to be common ground that the numbered account in Zurich remained under the direct control of Mr Max Maimann until July 1988. It is common ground also that on 22nd July 1988 Mr Max Maimann, his wife and the respondent visited the bank in Zurich. By that date the value of the money and securities in the numbered account was in excess of £7 million. By arrangement with the manager of the bank (Mr Willy Keiser) on that day the respondent became the bank's principal in relation to the numbered account (identified in the particulars of claim as account no. 40839), and £2.5 million was transferred to an account in his own name - either at Barclays Bank, Stanmore or in Australia (the point is in dispute). Of that sum, £1 million was transferred on to the respondent's parents to enable them to buy a property in London and the remainder (£1.5 million) was used by the respondent for his own benefit.
5. The appellant's explanation for the transactions which took place in Zurich on 22nd July 1998, as appears from the witness statement to which I have referred, is that her father arranged for his numbered Swiss bank account to be held in the respondent's name with an address in Australia, "as he thought it would be safer". As she puts it, "he was very concerned that the account would be detected by the UK authorities and that this might expose him to prosecution". The respondent, of course, asserts that the monies and securities in the numbered Swiss bank account represented his share of the former trust fund; and that they had belonged him beneficially since 1973. It is impossible, at this stage of the proceedings, to say which explanation is correct.
6. In the course of the visit to Swiss Bank Corporation in Zurich, the respondent executed a power of attorney in favour of his father. The power, which appears to be on a Swiss Bank Corporation standard from and which is in the English language, was expressed to be made "with power of substitution". It authorised Mr Max Maimann to represent the respondent "vis a vis" the bank, and in particular to dispose of all or any assets deposited at any time in the respondent's name with the bank. It contained an exclusive jurisdiction clause in these terms:

"Applicable law and jurisdiction: All disputes will be decided in accordance with Swiss law. The place of performance, the place for special proceedings for the collection of debts owed by persons domiciled or residing abroad and the place of jurisdiction shall be Zurich but the Bank shall also be entitled to bring proceedings against the undersigned at his/her domicile, in which event Swiss law shall remain applicable."

7. The power of attorney is dated 22nd July 1988. and appears to have been signed by both principal and attorney in the presence of Mr Keiser, the manager of the Zurich branch of Swiss Bank Corporation.
8. Some months thereafter, Mr Max Maimann, acting under the authority of the power of attorney granted to him by his son, the respondent, appointed his daughter, the appellant, to be sub-attorney "to represent the principal with regard to Swiss Bank Corporation in the same manner as the undersigned attorney is authorised to do himself". The substitute power of attorney is also on a Swiss Bank Corporation standard form; but it is in the German language. It is dated 10th November 1988 and it, too, appears to have been signed by both attorney and sub-attorney in the presence of Mr Keiser. The substitute power of attorney, itself, contains a provision which incorporates the exclusive jurisdiction clause in the earlier power, to which I have referred.
9. On or about 17th January 1989 the respondent transferred a further £600,000 from the numbered account (40839) at Swiss Bank Corporation to his account with Barclays Bank Plc, Stanmore. His belief is that following that transfer the balance of funds in the numbered account was approximately £4.5 million made up of a combination of cash and securities. The appellant learned of this transfer. In early March 1989, acting under the subsstitute power of attorney, she transferred the whole, or substantially the whole, of the funds in the account to another numbered account, 42169, at Swiss Bank Corporation of which she was principal. She says that she did so "in order to protect my father's fund"; further, that she informed her brother in writing that she had done so and that she granted her mother power of attorney in relation to the new account. Whether or not the respondent did inform her brother of what she had done at the time, it seems reasonably clear that he was informed of the transfer by Mr Keiser within a couple of years thereafter - that is to say not later than 1991.
10. The present proceedings were commenced by the issue of a claim form on 26th May 2000. Particulars of claim were served on or about 29th June 2000. At or about the same time the respondent, as claimant in the proceedings, applied for an order restraining the appellant from dealing with her assets up to a limit of £10 million, including, in particular, her house in North London and any monies or assets in the two numbered Swiss bank accounts. The application was made without notice to the appellant, and an interim order was granted by Mr Justice Sullivan on 28th June 2000 for a period of 14 days. The application was renewed, on notice, before Mr James Goudie QC, sitting as a Deputy Judge of the High Court, on 12th July 2000. He discharged the order which had been made on the 28th June. He did so in the light of evidence as to Swiss law in relation to the scope and effect of the exclusive jurisdiction clause. That evidence is contained in a letter dated 22nd May 2000 which is exhibited to a witness statement which had been made by the respondent in support of his application to Mr Justice Sullivan. The relevant passages from that letter are these:

"2 The concept of beneficial ownership does not exist under Swiss law. There is only one type of title and that is the legal title irrespective of whether or not a third party has any beneficial interest in the property. Should the holder of the legal title dispose of the property in breach of the beneficial owner's instruction, the latter may claim damages for the loss suffered.

As for monies held in a bank account, when these are transferred to an account of someone else, the beneficial owner could not give any instructions to the bank where the monies are held. Again, the beneficial owner would have to bring a claim against the person transferring the funds.

3 The jurisdiction clause contained in both Powers of Attorney means that proceedings must be initiated in Zurich (except for the bank which may start proceedings at the defendant's domicile). This is an exclusive jurisdiction.

The jurisdiction clause only relates to (1) the parties to the contract and (2) the matters covered by the contract. The parties to the contract are Michael Maimann, his father and the bank (pursuant to the Power of Attorney). By virtue of the Substitution Power of Attorney Monica Maimann became party to the contract too. Hence, disputes between Michael Maimann and Monica Maimann arising out of or in connection with the Power of Attorney must be brought before the courts of the canton of Zurich.

.....

5 As explained in point 3 above the jurisdiction clause only relates to the matters covered by the Power of Attorney itself, that is to its underlying agreement (in casu the agreement would qualify as a mandate under art. 394 following of the Code of Obligations). It is valid where the claim is based on the very mandate. The jurisdiction clause does not extend to an action in tort or any grounds other than contract (under Swiss law conceivably an action could also be based on `unjust enrichment') and hence an action based on any grounds other than the mandate would not be limited by the jurisdiction clause."

11. Mr Goudie QC, after referring to those passages, expressed his conclusion in these terms:

"So my conclusion is that the claimant's case that the English court has jurisdiction is one that is likely to fail on the current state of the evidence as to Swiss law and surrounding factual matters, and as things presently stand certainly he does not have a good arguable case that the English court does have jurisdiction. I am therefore minded to discharge the injunction on that ground."

12. Encouraged, perhaps, by those observations the appellant pursued an application to strike out the claim made against her on the ground that the English court was bound to decline jurisdiction in the light of Article 17 of the Lugano Convention. The article, which is given the force of law in the United Kingdom by section 3 of the Civil Jurisdiction and Judgments Act 1982 is in these terms, so far as material:

"If the parties, one or more of whom is domiciled in a contracting state have agreed that the court or the court's contracting state are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with, in particular, the legal relationship that court or those courts shall have exclusive jurisdiction."

13. The application to strike out - together with a related application by the respondent to amend his particulars of claim so as to rumour the defects upon which the application to strike out was based - came before Mr Mott QC on 14th December 2000. Mr Mott summarised the effect of the evidence as to Swiss law in a passage at page 5 of his written judgment. He said this:

"The advice of the Swiss attorney is as follows:

1. Both powers of attorney are valid under Swiss law.

2. The concept of beneficial ownership does not exist under Swiss law. There is only one type of title, which is the legal title, but a `beneficial owner' can claim damages from the holder of the legal title if the property is disposed of in breach of instructions.

3. The exclusive jurisdiction clause relates only to the parties to the contract and the matters covered by the contract. That would cover any disputes between the Claimant and the Defendant arising out of or in connection with the power of attorney.

4. The claimant is bound by the substitute power of attorney as he agreed to it in advance.

5. The exclusive jurisdiction clause is valid where the claim is based on the `mandate' (as defined by Article 394 of the Swiss Code of Obligations). The clause does not extend to an action in tort or any grounds other than contract, such as unjust enrichment, which could conceivably found a claim in Swiss law.

6. A power of attorney can be revoked at any time without reason."

14. It is important to keep in mind that the answers given by the Swiss lawyers, to which the judge refers in that passage, must be read in the light of the questions put to them. With that in mind, it is clear that the second sentence under point 5 of the judge's summary, to which I have just referred, must be understood in the sense that the exclusive jurisdiction clause does extend to any action arising out of or in connection with the use of the power of attorney or the substitute power authorised thereunder; and that the claims to which the exclusive jurisdiction clause does not extend are limited to claims which do not arise out of or in connection with the use of the powers of attorney.
15. The judge was satisfied that the exclusive jurisdiction clause clearly covered the following claims and issues - which he listed at page 6 of the judgment:

"1. The validity of the power of attorney and/or substitute power of attorney

2. Misrepresentation and/or deceit inducive to contract

3. Breach of fiduciary duty in relation to the power of attorney

4. Breach of trust as originally pleaded

5. Trusteeship de son tort."

16. As he said:

"All these concern the relationship of principal and attorney, whether it existed at all, whether it was induced by fraud, and the obligations arising expressly or impliedly as a result of its existence."

17. He went on to say this:

"They are all aspects of the Roman law of obligations. On the other hand, I conclude that it does not cover the following claims:

1. Conversion

2. Unjust enrichment.

These causes of action arose (if at all) after the original Swiss account had been closed, and therefore after the power of attorney and substitute power of attorney had been brought to an end. They are not covered by the Roman law of obligations."

18. He took the same view in relation to claims in constructive trust. After referring to a passage in the judgment of Lord Justice Millett in Paragon Finance Plc v D B Thakerar & Co [1999] 1 All ER 401 at 409, he said:

"In my judgment, a claim of constructive trust of this sort, stemming from the alleged misappropriation of the fund by [the defendant] as an alternative to conversion and unjust enrichment, is not caught by the exclusive jurisdiction clause. It cannot be said to arise from the law of obligations, even in its widest sense."

19. In the light of those findings as to the effect of the exclusivejurisdiction clause, the judge permitted the particulars of claim to be amended so as to plead claims in conversion, unjust enrichment and constructive trust. Those claims are now found in paragraphs 10, 11 and 12 of the amended particulars of claim which were served after the judge had given permission to amend. The paragraphs are in these terms:

"10. On a date or dates presently unknown to the Claimant (but on a date the Claimant believes to be on or after the closure of the original Swiss Bank account in March 1989) the Defendant unlawfully and dishonestly converted to her own use the abovementioned securities and in further breach of duty despite repeated requests by the Claimant during the course of 1999 and 2000 has dishonestly and unlawfully refused to return the same to the Claimant or to provide an account or to disclose any information relevant to the securities or the said bank accounts.

11. In the circumstances the Claimant claims for the Defendant's unjust enrichment of the aforementioned money and securities had and received by her and/or for an order for an Account by the Defendant together with all necessary enquiries to establish the amount of compensation due to the Claimant. Alternatively the Claimant claims damages for the Defendant's conversion of the said securities pleaded in paragraph 10 herein.

12. As a consequence of the 1st Defendant's denial that the Claimant was the beneficial owner of the contents of the original Swiss Bank account, the Claimant seeks a declaration that the monies and securities in Swiss Bank account number 40839 belonged beneficially to the Claimant prior to and/or as at 22nd July 1988. Further, the Claimant seeks a declaration that the Defendant holds the said monies and securities and/or any assets representing such monies and securities together with any proceeds thereof and/or profits thereon on constructive trust for the benefit of the Claimant."

20. It is, I think, reasonably clear that reference to "further breach of duty" in paragraph 10 of the amended particulars of claim, when read in conjunction with the second sentence of paragraph 12, is an allegation of breach of duty as trustee; the trust alleged being described as a constructive trust.
21. In addressing the question whether the claims now relied upon in the amended particulars of claim are within the scope of the exclusive jurisdiction clause, it is necessary to keep in mind that the evidence accepted by the judge was that the concept of beneficial ownership does not exist under Swiss law. As he put it, at point 2 of his summary, there is only one type of title recognised by Swiss law - legal title. Claims against the holder of the legal title by a person who, in English law, would be recognised as having a beneficial interest in equity in the property lie in contract for breach of the mandate. There is no proprietary claim under Swiss law by someone who is not a person recognised as having legal title. The effect of that evidence, as it seems to me, is, first, that when the respondent became the holder of account 40839 in July 1988 he became the only person recognised by Swiss law as having any title in relation to the monies and securities held to that account. It is immaterial - under Swiss law - whether the origin of those monies and securities was, as the respondent alleges, his share of the trust fund established by his father in 1956; or whether, as the appellant noted, those monies and securities represented their father's savings. The effect of what Mr Max Maimann did in July 1988 was that under Swiss law the respondent became the owner in every sense recognised by that law.
22. The corollary is that upon the transfer of the monies and securities from account 40839 to account 42169 in March 1999 the appellant became the owner of those monies and securities. The respondent might have said - although he does not do so - that the transfer was in breach of the mandate conferred by the power of attorney and the substitute power of attorney; and to have claimed damages in contract for breach of that mandate. That would be a claim arising out of or in connection with the mandate and would be subject to an exclusive jurisdiction clause.
23. The respondent is entitled to say - as he does say - that a subsequent refusal to re-transfer the monies and securities in account 42169 to him or to his order, or any subsequent disposal of those monies and securities to another account held by the appellant or to a third party, was also in breach of the mandate; and to claim damages. But that, again, is a claim arising out of or in connection with the mandate and so subject to the exclusive jurisdiction clause.
24. The respondent has not appeared at the hearing of this appeal. He has written from an address in Australia to explain that his financial circumstances do not enable him either to instruct legal representatives or to travel to London. He asks the Court to take account of the skeleton argument relied upon by his counsel at the hearing below and to read the judgments both of Mr Goudie QC and Mr Mott QC. That, we have done. His letter concludes with these paragraphs:

"In conclusion, I wish to reiterate that I do not understand some of the legal arguments put forward on Monica's behalf to suggest that this case should not be pursued in England as a consequence of the Power of Attorney. However, I wish to make very clear that it is not my case, and never has been my case, that Monica used the Power improperly.

It appears that Dad gave her the Power and I make no complaint as regards the use of it when the monies were initially withdrawn from my Swiss account. However, what I do complain of is that a number of years after the transfer Monica decided to steal my money. This act had nothing to do with the Power of Attorney. Moreover, Monica herself has never claimed that she was acting for her own benefit at the time she exercised her power under the Power of Attorney. The actual mechanical exercise of that power is therefore not in issue."

25. It is from those paragraphs that I have felt able to say, with confidence, that - although it might have appeared from the allegation in paragraph 10 of the amended particulars of claim that the words "on a date which the claimant believes to be on the closure of the original Swiss bank account in March 1999 the defendant unlawfully and dishonestly converted to her own use the abovementioned securities" to be otherwise - the respondent does not assert that the transfer from account 40839 to account 42169 was wrongful. His complaint is as to dealings with monies and securities while or after they have been held in account 42169;that is to say, after they have become, under Swiss law, the sole property of the appellant.
26. In the eyes of an English lawyer there is no conceptual difficulty in a claim that a person who has transferred to himself, in exercise of a power authorising him to do so, monies and securities formerly in the legal and beneficial ownership of another holds that money and those securities as trustee for the former owner; that is to say, no difficulty in a claim that the circumstances in which the transfer took place were such as to impose upon the transferee the obligation of a trustee - see the observations of Lord Browne-Wilkinson in West Deutsche Landesbank Girocentrale v Islington London Borough Council [1996] AC 669 at 705. The question in such a case is whether the circumstances in which the transfer took place are such as to make it unconscionable for the transferee to refuse to acknowledge he was to hold, or is required to hold, the property transferred to him for the benefit or to the order of the former owner.
27. In the present case, the only matter relied upon in support of the claim that the appellant holds as trustee is that she transferred the funds to her account 42169 by the use of the power of attorney and substitute power of attorney. There is no subsequent event or acknowledgement upon which a claim that she is a fiduciary or has acknowledged fiduciary obligations can be founded. The whole claim stands or falls on her obligations under the mandate. The respondent disclaims any contention that the use of the mandate was wrongful. That, of itself, as it seems to me, makes the trust claim impossible to sustain. There is no allegation that the powers of attorney were used for an improper purpose or in breach of fiduciary obligations. Even if such an allegation were to be implied, the claim - if made in English proceedings - would founder on the exclusive jurisdiction clause. A claim that the powers of attorney were used for improper purposes or in breach of fiduciary obligations would, as it seems to me, necessarily be a claim arising out of or in connection with the mandate. If complaint about the use of the mandate is to be made, it must be made in proceedings brought in Zurich. That is the effect of the Lugano Convention, which has been adopted in this country.
28. Nothing is added, as it seems to me, by the claims in conversion or unjust enrichment. The claim in conversion, as understood by English law, is the interference with chattels in the possession or ownership of another. There are formidable difficulties in the argument that such a claim can be brought in respect of monies or securities - other than, perhaps, bearer shares. But even if those difficulties are overcome, the only person entitled to ownership or possession of the monies and securities - other than perhaps Swiss Bank Corporation - is the appellant. That is the effect of the law of Switzerland - which is the lex situs - and the appellant cannot be held to have converted property which, under the applicable law, is her own property. Nor is there any independent claim in unjust enrichment. If she has been enriched unjustly it is because she has made an improper use of the mandate given to her; and that brings the claim back within the exclusive jurisdiction clause.
29. In my view therefore the claims in conversion, unjust enrichment and constructive trust cannot be entertained in the English courts. The particulars of claim must be struck out in those respects.
30. That leaves the declaration sought in paragraph 12 - namely the declaration that the monies and securities in account 40869 belonged to the claimant before 22nd July 1988. The issue, of course, is whether those monies and securities belonged to the respondent, as his share of the original trust fund; or whether they were, as the appellant asserts, funded by their father's savings.
31. I can see no reason why the English court should entertain a claim for declaratory relief as to the position before 22nd July 1988. Whatever the position may have been before 22nd July 1988 the position after 22nd July 1998 was that under Swiss law those monies and securities belonged - in every sense recognised by that law - to the respondent. He cannot be in any better position, or in any worse position, as a result of anything which had happened before that date. His claim against the appellant in these proceedings is based on what happened after 22nd July 1988 - indeed, on what happened some 10 years after that date. The claim is not improved by establishing he was the beneficial owner before that date.
32. For those reasons I would allow this appeal.
33. LORD JUSTICE KENNEDY: I agree.
Order: Appeal allowed with the costs; detailed assessment not to be enforced until determination of respondent's liability. Respondent to be sent a copy of this judgment at public expense.