England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL ( CIVIL DIVISION )
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR JUSTICE SIMON)

		Royal Courts of Justice Strand, London, WC2A 2LL
		23rd April 2010

Lord Justice Aikens:

1. This is an appeal from an order of Simon J dated 29 October 2009. By that order he refused the application of Mr Warren Halle, the appellant and the defendant in the action, who had sought two orders. The orders Mr Halle had sought were: 1) that the court declare that it did not have jurisdiction over the claim to which he was the defendant; and 2) that it set aside the order of Blair J dated 27 February 2009 giving the respondent to this appeal, the claimant in the action, permission to serve the claim form in the case on the appellant out of the jurisdiction. I will refer to the appellant as Mr Halle and the respondent as Lurssen Werft.
2. The claim arises out of a Commission Agreement between Mr Halle, who resides in Florida in the United States of America, and Lurssen Werft, which is a German company. I will describe the facts in a little more detail later.
3. The appeal concerns one issue only. The judge decided, in summary, that at this interlocutory stage he was satisfied that Lurssen Werft had "much the better of the argument" that the Commission Agreement between the parties was impliedly governed by English law. The issue on this appeal is whether that decision was correct. Mr Andrew Thomas, who appears for Mr Halle, says that it was not; Mr David Lewis for Lurssen Werft says that it was. Alternatively, Mr Lewis says in his written submissions to the court that it cannot be demonstrated that the conclusion of the judge was so obviously wrong that this court would be entitled to interfere with it.
4. There is no appeal on the other two aspects of Simon J's judgment, viz. that he was satisfied that there was a serious issue to be tried in this case and that England was the forum conveniens. The effect of the judge's decisions on these issues and the order he made is that it confirmed that Lurssen Werft had permission to serve the proceedings on Mr Halle and that the English court does have jurisdiction.
5. The facts of the case are set out in the judgment of the judge at paragraphs 4 to 13. That summary of the facts is not in dispute. They are to be treated as follows, with the exception of the last sentence of paragraph 11 of the judge's judgment:

"4. The Claimant is a German shipbuilding company. The Defendant is an American citizen and a resident of the State of Florida.

5. On 15 April 2005 the parties entered into a Vessel Construction Contract ('VCC') for the construction of a 20m Motor Yacht (the 'Nemo') for an adjustable price of Euros 48m. On the same date they entered into a similar contract for a vessel (the 'Shark').

6. It is convenient to focus on the terms of the 'Nemo' contract, in which the Defendant was referred to as the 'Purchaser' and the Claimant as 'the Builder'.

By Clause 1.9 the 'Completion Date' was to be 31 May 2007 and by Clause 1.30 the 'Owner' was to have the same meaning as the 'Purchaser'. In each VCC there were specified staged payments to be made over the course of construction. Clause 3.2 provided for 50% of the price to be paid at the date the keel was laid (no earlier than 1 January 2006), and a further 20% on the date the hull and superstructure were welded together (no earlier than 1 June 2006). The Delivery of the 'Nemo' was to take place on 31 May 2007, and the 'Shark' on 31 March 2008. Clause 8.4 provided that for the purposes of securing payments made and as security for any claims, title was to pass at the date of keel-laying.
7. Of particular relevance in the context of the present application are Clauses 20 and 21.
Clause 20 is comprehensive Arbitration Clause, which provides (subject to various qualifications) that disputes arising out of or in connection with the VCC should be settled under the Rules of Arbitration of the London Maritime Arbitrators Association (the 'LMAA'). Clause 21 was headed 'Law'

'This Contract shall be construed in accordance with and shall be governed by English Law, however and always provided that, the stipulations of this Contract shall prevail. With regard to title within Germany, the Pre Delivery Mortgage and the registration with the German shipbuilding register, German Law will be applicable insofar as this law is mandatory (lex rei sitae)'

8. On 8 May 2008 the parties entered into the Commission Agreement dated 8 May 2006.  The Commission Agreement provided, amongst other matters, that if the vessel were purchased by a client introduced by the Claimant then a commission of 5% of the sale price would be payable by the Defendant to the Claimant.

9. The Commission Agreement's entire terms were expressed as follows

'It has been agreed between [the Claimant] and [the Defendant] that, in the event that the yacht 'Nemo' or 'Shark' is purchased by a client introduced to the yacht and the Owner, by [the Claimant] or one of its representatives, a commission of 5% of the sales price will be payable to [the Claimant] by [the Defendant] no later than 15 days from the sale becoming effective.'

Nothing was said about how any dispute was to be resolved, or what system of law governed the agreement.
10. On 28 July 2006 the Defendant granted to the Claimant, for the week beginning on 28 July, the exclusive right to sell the 'Nemo' at a price of €71.5m.
11. In the event a deal was struck whereby the 'Nemo' was sold to a third-party buyer; and there were negotiations between the Claimant and the Defendant, among other matters, about who should pay for certain legal fees."

6. On 27 February 2009 Lurssen Werft issued a claim form claiming from Mr Halle €3.65 million as commission, said to arise under the Commission Agreement dated 8 May 2006. Lurssen Werft alleges: (1) that Lurssen Werft sold the MB 'Nemo' to Mr Halle under a Vessel Construction Contract dated 15 April 2005; (2) the parties entered into the Commission Agreement of 8 May 2006; and (3) that this provided that if 'Nemo' was purchased by a client introduced by Lurssen Werft then a commission of 5 per cent of the sale price would be payable by Mr Halle to Lurssen Werft.
7. Permission to serve the claim form out of the jurisdiction was granted on the basis of CPR Part 6.36 and CPR Practice Direction 6B, paragraph 3.1(6)(c). Those are set out conveniently in the outline argument of Mr Thomas at paragraphs 11 and 12. They provide:

"11. CPR 6.36 provides: 'In any proceedings to which rule 6.32 or 6.33 does not apply, the claimant may serve a claim form out of the jurisdiction with the permission of the court if any of the grounds set out in paragraph 3.1 of Practice Direction B supplementing this Part apply.'

12. CPR PD6B 3.1(6)(c) provides that: 'The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where … (6) A claim is made in respect of a contract where the contract … (c) is governed by English law.'"

8. The Commission Agreement does not contain any express provision as to its applicable law. In the application for permission to serve out of the jurisdiction, Lurssen Werft relied on the express applicable law provisions in the vessel construction contracts in relation to 'Nemo' and the 'Shark' to which I have referred.
9. There is no dispute between Mr Thomas and Mr Hall and Mr Lewis for Lurssen Werft that the question of the applicable law of the Commission Agreement is to be determined by the provisions of the Contracts (Applicable Law) Act 1990 and the Rome Convention which that Act gives effect to for the purposes of English law.
10. Article 3.1 of the Rome Convention provides as follows:

"A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract."

11. If Article 3 does not apply to this contract then its applicable law is to be determined by Article 4 of the Rome Convention. That article provides that:

"To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected."

12. It is common ground that if Article 4 applies in this case, then the English court can have no jurisdiction in respect of this claim because it is clear that England and Wales is not the country with which the Commission Agreement is most closely connected.
13. I should also refer to section 3(3)(a) of the 1990 Act, which states that:

"the report on the Rome Convention by Professor Mario Giuliano and Professor Paul Lagarde which is reproduced in the Official Journal of the [O.J.1980 No.C282/1.] Communities of 31st October 1980 may be considered in ascertaining the meaning or effect of any provision of that Convention"

The relevant passage in that report is paragraph 3.3 under the heading of Article 3 to which Mr Thomas refers. That passage is set out at paragraph 27 of the judgment of Simon J. The passage states:

"The parties' choice must be express or be demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. This interpretation, which emerges from the second sentence of Article 3 (1), has an important consequence.
The choice of law by the parties will often be express but the Convention recognises the possibility that the Court may, in the light of all the facts, find that the parties have made a real choice of law although this is not expressly stated in the contract. For example, the contract may be in a standard form which is known to be governed by a particular system of law even though there is no express statement to this effect, such as a Lloyd's policy of marine insurance. In other cases a previous course of dealing between the parties under contracts containing an express choice of law may leave the court in no doubt that the contract in question is to be governed by the law previously chosen where the choice of law clause has been omitted in circumstances which do not indicate a deliberate change of policy by the parties. In some cases the choice of a particular forum may show in no uncertain manner that the parties intend the contract to be governed by the law of that forum, but this must always be subject to the other terms of the contract and all the circumstances of the case. Similarly references in a contract to specific Articles of the French Civil Code may leave the court in no doubt that the parties have deliberately chosen French law, although there is no expressly stated choice of law. Other matters that may impel the court to the conclusion that a real choice of law has been made might include an express choice of law in related transactions between the same parties, or the choice of a place where disputes are to be settled by arbitration in circumstances indicating that the arbitrator should apply the law of that place.
This Article does not permit the court to infer a choice of law that the parties might have made where they had no clear intention of making a choice. Such a situation is governed by Article 4."

14. It is common ground that the judge had to determine whether or not Lurssen Werft had "much the better of the argument" that the Commission Agreement was impliedly governed by English law. It is clear from the cases that to show there has been an implied choice of law within Article 3 of the Rome Convention it has to be demonstrated that there was a real choice of the applicable law. This has to be demonstrated with reasonable certainty and sufficient clarity either from the terms of the contract itself or the surrounding circumstances or both. Those phrases are not alternatives. One can examine both the terms of the contract and the surrounding circumstances to see if the choice had been demonstrated with reasonable clarity. The Giuliano-Lagarde report states that one example where the real but implied choice of law may be demonstrated is where there has been an express choice of law in related contracts between the same parties. Mr Thomas points out, however, the use of strong words in the passage of that report to which he referred us, in particular words such as "may show in no uncertain manner" and "may impel the court to that conclusion".
15. Mr Thomas argues that the judge went wrong in this case because of his conclusion in paragraph 34 of his judgment that the vessel construction contracts were "plainly closely related to the finished agreement". He attacks the judge's further conclusion that those two construction contracts entirely governed the parties prior commercial relationships and that their performance forms the practical background to the relationship between the parties that was created by the Commission Agreement. He submits that the Commission Agreement was not a contract that was sufficiently closely associated with the other two contracts so as to impel the court to the conclusion that there had been a clear implied choice of English law.
16. Mr Thomas points to the following factors, which he says demonstrate that it is clear that the parties intended a different applicable law for the Commission Agreement or at least that it cannot be shown that the Lurssen Werft party has "by far the better of the argument" that there was a clear choice of English law. First, he submits that the parties chose English law for the construction contracts in the context of a nuanced dispute resolution procedure choosing the LMAA arbitration procedure over litigation in court. Secondly, he submits that the existence of the Commission Agreement does not depend upon the contracts to build the two vessels, 'Nemo' and 'Shark'; rather it depends upon the existence of those two vessels. Terms relating to the specifications of those two vessels, which are set out in the construction contracts, are completely irrelevant to the Commission Agreement, he says. Thirdly, therefore, Mr Thomas submits that issues that arise on the Commission Agreement will not involve any of the substantive terms of the two shipbuilding contracts. If so, he says there is no basis on which to say that the parties would have presumed that the same applicable law should apply to the Commission Contract as to the other two contracts.
17. Fourthly, Mr Thomas submits that the Commission Contract makes no reference to the two shipbuilding contracts. The fact that Mr Hall is described as "Owner" in the Commission Contract is, he says, not persuasive. He submits that "Owner" is a subsidiary definition term for Mr Hall in the two shipbuilding contracts. Mr Thomas says that the use of the word "Owner" is a perfectly natural way to describe Mr Hall in the Commission Contract. It does not, he says, mean that the parties intended that the Commission Contract was related to the two existing shipbuilding contracts. Fifthly, he submits that the parties have no links with England. Mr Thomas stresses that the links are with the United States of America and with Germany and that performance of the Commission Contract will not have anything to do with England either. Mr Thomas therefore submits that the conclusion of the judge at paragraph 34 is wrong.
18. Mr Thomas drew our attention to the passage in Dicey, Morris and Collins on the Conflict of Laws, which the judge quoted at paragraph 30 of his judgment. That passage is at 32-093 of Dicey, Morris and Collins and is dealing with Article 3(1) of the Rome Convention. The particular sentence on which Mr Thomas focussed states:

"These are both references to different contracts between the same parties, where it will undoubtedly be the normal inference that, if one of their contracts is clearly governed by one law, then associated or succeeding contracts will be governed by the same law."

19. The authorities for that proposition given in footnote 38 are, and I note the "c.f." before the reference to the two cases, first, the well known case of Re United Railways of Havana and Regla Warehouses Ltd [1960] Ch 52 and secondly, The Evia Luck [1986] 2 Lloyds Rep 165. The latter case is a decision of Hirst J as he then was. It is quite clear from the report in that case that Hirst J put the basis of his decision not on an implied choice of law simpliciter, but on the basis that the relevant contract with which he was dealing was to be regarded as being governed by English law because that was the law of the country with which that contract was most closely connected. It therefore seems to me that Mr Thomas was right is saying that that case is not authority for the proposition that it supports the passage in Dicey which is dealing with Article 3 of the Rome Convention. The case was of course decided before the 1990 Act and the Rome Convention came into force in this country.
20. However, despite all the able and persuasive arguments of Mr Thomas I cannot find fault with the conclusion of the judge on this issue. I am quite satisfied that Lurssen Werft do have "much the better of the argument" in being able to demonstrate with reasonable certainty that the Commission Contract is governed by English law. The Commission Contract follows on from the two shipbuilding contracts. The Commission Contract concerns the sale of the two vessels which are the subject matter of the two shipbuilding contracts. The Commission Contract would not have come into existence if those two contracts had not existed and if the two vessels were not there to be sold, having been built. To my mind it is obvious that these contracts are all of a series. There has been a previous course of dealing between the same parties, and the Commission Contract is closely associated with those other two contracts. There is nothing in either of the terms of the Commission Contract or in the surrounding circumstances to lead away from the conclusion that the parties did silently, as it were, chose English law.
21. I am quite satisfied that Lurssen Werft had "much the better of the argument" that if the parties had been asked at the time, they would have said "of course the Commission Contract is governed by English law just like the two shipbuilding contracts to which it relates". I would therefore conclude that Lurssen Werft not only had much the better of the argument, but that the court is impelled to conclude that there has been a clear implied choice of English law for the Commission Contract. Accordingly I agree with the conclusion of the judge at paragraph 34 of his judgment.
22. Like the judge I would reach this conclusion without considering the subsequent termination agreement. I therefore feel it is not necessary to comment on the views expressed in Dicey, Morris and Collins referred to by the judge at paragraphs 37 and 38 of his judgment on the possible relevance of subsequent conduct to the issue of an implied choice of law. Accordingly, despite the able arguments of Mr Thomas I would dismiss this appeal.

Sir Paul Kennedy:

23. I agree.

Lord Justice Thorpe:

24. I also agree.

Order: Appeal dismissed