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Cite as: 1999 SLT 1051, 1999 SCLR 349, [1999] ScotCS 2

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OPINION OF LORD MACFADYEN

in the cause

COMPAGNIE COMMERCIAL ANDRE S.A.,

Pursuers;

against

(FIRST) ARTIBELL SHIPPING COMPANY LIMITED AND (SECOND) THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND,

Defenders:

________________

7 January 1999

Introduction

In September 1997 the pursuers, who are a company incorporated under the laws of France, chartered a vessel, the "Aliki A" ("the vessel"), from its owners, the first defenders, who are a company incorporated under the laws of Cyprus, to carry a cargo of sugar from Rouen to Umm Qasr in Iraq. In the event the voyage was abandoned. In this action the pursuers make a number of claims against the first defenders, as well as claims against the second defenders, the Bank of Scotland, who were the first defenders' bankers. In their defences, the first defenders state a number of preliminary pleas, raising issues of (i) jurisdiction, (ii) forum non conveniens, (iii) arbitration, (iv) relevancy and (v) competency. The second defenders also have a plea to the relevancy of the pursuers' averments so far as directed against them. After

sundry preliminary procedure, the action was appointed to debate on all the preliminary pleas. At the commencement of the debate the pursuers sought leave to amend to add a plea (plea-in-law 12) to the relevancy of the first defenders' defences in respect of the first conclusion. That motion was not opposed, and the summons was amended accordingly.

The Pleadings

It is convenient to begin by summarising the pursuers' pleadings so far as they set out the sequence of events which gave rise to their claims, and by identifying the claims which are made.

By voyage charterparty dated 12 September 1997 the pursuers chartered the vessel from the first defenders for the voyage from Rouen to Umm Qasr. The cargo was to be sugar in bags. The charterparty (No. 6/3 of process) was in the Sugar Charter-Party 1969 (Revised 1977) form with various amendments and additional clauses. The cargo was loaded on board the vessel at Rouen. In accordance with Clause 9 of the charterparty the pursuers were obliged to pay 95% of the agreed freight to an account designated in Clause 46 within three days of the signing of bills of lading and the balance on right and true delivery of the cargo. Clause 46 provided that the freight was to be paid to the second defenders' international department in Edinburgh, the account being identified in the following terms:

"ACCOUNT : USD ACCOUNT No. 90949 USD 1

IN FAVOUR OF : ARTIBELL SHIPPING COMPANY LIMITED

REFERENCE : MV "ALIKI A" / ANDRE C/P 12.09.97".

The pursuers paid the advance freight of US $396,176.12 to that account on or about 3 October. The vessel duly sailed for Umm Qasr. On 10 October it suffered a main engine breakdown and diverted to Cadiz for repairs, arriving there on 12 October. The voyage was resumed at about 20.00 hours on 16 October. Various other problems were encountered, culminating in the main engine thrust bearing sustaining major damage, preventing the vessel from proceeding under her own propulsion. The vessel was towed to Piraeus, arriving there at 20.40 hours on 25 October. Repair work began on 29 October, but was abandoned when it was estimated that the cost of repair would exceed the sound repaired value of the vessel. The first defenders then abandoned the voyage, giving notice to the pursuers that they were doing so by fax from their authorised managers dated 21 November. The pursuers had to make arrangements for the trans-shipment of the cargo.

On those averments of fact, the pursuers conclude first for payment by the first defenders of damages of US $1,000,000, with interest. That claim proceeds on the basis, set out in article 3 of the condescendence, that the first defenders were in the circumstances in breach of various obligations incumbent on them in terms of the charterparty. The averments of loss are set out in article 4 of the condescendence. At the outset of the debate it was indicated that the defenders challenged the sufficiency of the specification of those averments of loss, and that the pursuers recognised that there was force in that challenge. It was, however, agreed that that issue would not be debated, but that, if the action survived the other challenges made in the course of the debate, the specification of the averments of loss would require to be improved by amendment in due course.

The second and third conclusions are for repayment of the advance freight. The second conclusion is directed against the first defenders, and the third conclusion is directed, in the alternative, against the second defenders. Various averments are made in support of those conclusions. Before reaching the stage of identifying the party allegedly liable to repay the advance freight, alternative bases for repetition are set out in articles 5 and 6 of the condescendence. The first basis is the assertion that on a proper construction of the terms of the charterparty the freight was not earned until completion of the voyage, and that although there was provision in the charterparty for the advance freight not to be recoverable in certain events, none of those were applicable, and accordingly in the events which happened the advance freight was repayable. The alternative basis for repayment, put forward on an esto basis on the hypothesis (contrary to the pursuers' primary position) that the first defenders were not in breach of contract in abandoning the voyage, is the assertion that performance of the charterparty was in the events which happened frustrated. On that alternative assertion the pursuers seek to rely on the condictio causa data causa non secuta. In article 7 of the condescendence, the pursuers set out in averment their understanding of the contractual relationship between the first and second defenders. In short their contention is that the second defenders were assignees of the first defenders' right to receive the advance freight, and accordingly received it in their own right as assignees, and not as agents for the first defenders. On that basis the pursuers seek repetition from the second defenders.

The fourth, fifth, sixth and seventh conclusions may be taken together, as forming two pairs. The fourth and fifth conclusions concern a sum of US$25,448.15 said to be standing to the credit of the first defenders in Account No. 90949USDO1 (Aliki A Earnings Account) with the second defenders. The sixth and seventh conclusions concern a sum of US$157,942.77 said to be standing to the credit of the first defenders in Account No. 90949USDO3 (Retention Account) with the second defenders. The fourth and sixth conclusions seek declarator that the respective sums are the property of the pursuers, and the fifth and seventh conclusions seek payment by the first and second defenders to the pursuers of the sums at credit of the two accounts. The basis for those conclusions is to be found in averments of constructive trust in articles 9 and 10 of the condescendence.

Finally, in the eighth conclusion the pursuers seek payment by the second defenders of the sum of US$79,768.62 upon the basis of averments in article 11 of the condescendence imputing to the second defenders knowledge of circumstances which put the first defenders under a fiduciary obligation to repay the advance freight, and asserting that in that knowledge the second defenders acted in breach of constructive trust by debiting the Retention Account with the sum in question in payment of interest due to them by the first defenders.

Jurisdiction - Introduction

It is not disputed that the court has jurisdiction over the second defenders, who are domiciled in Scotland. It is by the first defenders that a plea of no jurisdiction is stated. In respect of them the pursuers aver:

"The court ... has jurisdiction over the first and second defenders. Reference is made to Rule 2(15)(a) of Schedule 8 to the Civil Jurisdiction and Judgments Act 1982. Further the pursuers (sic) claims against the first defenders include claims for repayment of advance freight founded upon the condictio causa date causa non secuta, et separatim upon a constructive trust and breach thereof. Said matters relate to delict or quasi delict within the meaning of Rule 2(3) of Schedule 8 to the Civil Jurisdiction and Judgments Act 1982. The harmful event in respect of which such claims arise occurred in Scotland where the fund is located, where the constructive trust was constituted and where the first defenders failed in breach of trust to repay the trust funds. This court accordingly has jurisdiction over said claims."

The first defenders refer to the Rules relied on by the pursuers, deny that the court has jurisdiction over them, deny that the matters which the pursuers claim fall within the scope of Rule 2(3) do so, and aver that there is no connection between the claims made by the pursuers against each of the defenders. In addition they aver:

"Separatim by Clause 40 of the Charter-Party ... the pursuer and this defender submitted to the exclusive jurisdiction of the English Courts in relation to the claim now pled against this defender."

In making his submissions in support of the first defenders' first plea-in-law, Mr Kinroy began by submitting that in the circumstances of this case the court does not have jurisdiction over the first defenders under Rule 2(3), then went on to submit the pursuers could not in the circumstances rely on Rule 2(15)(a). For the pursuers, Mr Glennie stated that the ground of jurisdiction on which they placed primary reliance was that under Rule 2(15)(a). It therefore seems to me to be convenient to begin by considering the submissions on that ground of jurisdiction.

Jurisdiction - Rule 2(15)(a)

Section 20 of the Civil Jurisdiction and Judgments Act 1982 ("the 1982 Act") provides inter alia that:

"(1) Subject to Parts I and II and to the following provisions of this Part, Schedule 8 has effect to determine in what circumstances a person may be sued in civil proceedings in the Court of Session ...

...

(5) In determining any question as to the meaning or effect of any provision contained in Schedule 8 and derived to any extent from Title II of the 1968 Convention -

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; and
without prejudice to the generality of paragraph (a), the reports mentioned in section 3(3) may be considered and shall, so far as relevant, be given such weight as is appropriate in the circumstances."

In Schedule 8, Rule 1 sets out the following general provision:

"Subject to the following Rules, persons shall be sued in the courts for the place where they are domiciled."

Rule 2 provides that:

"Subject to Rules 3 (jurisdiction over consumer contracts), 4 (exclusive jurisdiction) and 5 (prorogation) a person may also be sued -

where he is one of a number of defenders, in the courts for the place where any one of them is domiciled".

Mr Kinroy's submissions in relation to Rule 2(15)(a) fell into two parts. He submitted, in the first place, that a defender who was not domiciled in the jurisdiction in question could be made subject to that jurisdiction by virtue of Rule 2(15)(a) only if there was a relevant case against another defender who was domiciled in the jurisdiction (The "Rewia" [1991] 2 Lloyd's Rep 325 at 333 and 336). Thus, in the present case, the pursuers could not found jurisdiction against the first defenders under Rule 2(15)(a) if they had not averred a relevant case against the second defenders. Mr Glennie for the pursuers accepted that that was so, and it is therefore unnecessary to say more about that aspect of the argument at this stage. Mr Kinroy did not himself develop the argument that the pursuers' averments against the second defenders were irrelevant, but adopted the submissions made by Mr Davidson for the second defenders to that effect. I shall deal with that aspect of the debate later in this opinion.

The second part of Mr Kinroy's submissions in relation to Rule 2(15)(a) involved an examination of the scope of Article 6(1) of the Convention, on which the Rule is based. Article 6 provides, in terms from which Rule 2(15)(a) does not materially differ, that:

"A person domiciled in a Contracting State may also be sued:

Where he is one of a number of defendants, in the courts of the place where any one of them is domiciled".

Mr Kinroy referred first to the discussion of that Article in Dicey & Morris, The Conflict of Laws, 12th Edn., pp. 369-70 where reference is made to the decision of the European Court of Justice in Kalfelis v Bankhaus Schröder, Münchmeyer, Hengst and Co (Case 189/87) [1988] ECR 5565. In answering the first of the two questions before it in that case the Court decided that:

"For Article 6(1) of the Convention to apply there must exist between the various actions brought by the same plaintiff against different defendants a connection of such a kind that it is expedient to determine the actions together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings."

In the Court's judgment, reference is made (in paragraph 8) to the fact that Article 6(1) is an exception to the principle that jurisdiction is vested in the courts of the defendant's domicile, and it is said to follow that the exception "must be treated in such a manner that there is no possibility of the very existence of that principle being called in question"; (in paragraph 9) to the fact that, in order to exclude the possibility of a plaintiff making a claim against a number of defendants with the sole object of ousting the jurisdiction of the courts of the domicile, "there must be a connection between the claims made against each of the defendants"; (in paragraph 10) to the need for the nature of that connection to be determined independently in order to ensure uniformity; and (in paragraph 11) to the express reference in the Jenard Report (one of the reports mentioned in section 3(3) of the 1982 Act) to the concern to avoid the risk of incompatible judgments in Contracting States. In light of these considerations the Court, before setting out the answer quoted above, concluded (in paragraph 12):

"The rule laid down in Article 6(1) therefore applies where the actions brought against the various defendants are related when the proceedings are instituted, that is to say where it is expedient to hear and determine them together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings. It is for the national court to verify in each individual case whether that condition is satisfied."

Mr Kinroy's submission was that it followed that it was for the party seeking to rely on Article 6(1), or Rule 2(15)(a), to justify such reliance against a non-domiciled defender by satisfying the court that there would otherwise be a risk of irreconcilable judgments. In addressing that issue the court had to consider the action of which it was seized, and any other extant or potential actions. It was for the pursuers to aver that if not allowed to sue the first defenders in this action they would sue them in an identified alternative forum, and that in that event there would be a risk of irreconcilable judgments. Here, he submitted, the pursuers were not offering to do that. They had not, therefore, relevantly invoked Rule 2(15)(a). In relation to what was meant by "irreconcilable judgments" Mr Kinroy referred to Sarrio SA v Kuwait Investment Authority [1997] 3 WLR 1143. That case was concerned with the interpretation of Article 22 which regulates the situation which arises where two or more "related actions" are brought in the courts of different Contracting States. The last paragraph of the Article provides that actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together "to avoid the risk of irreconcilable judgments resulting from separate proceedings". Lord Saville, after noting (at 1147E) that in The Maciej Rataj (Case C-406/92) [1994] ECR I-5439 the European Court of Justice had rejected the argument that the phrase "irreconcilable judgments" should be interpreted so as to confine it to cases where the decisions would have mutually exclusive legal consequences and, after a full discussion (at 1147D - 1149C) of the considerations which influenced his conclusion, said (at 1149C-D):

"I am of the view that there should be a broad commonsense approach to the question whether the actions in questions are related, bearing in mind the objective of the article, applying the simple wide test set out in article 22 and refraining from an over-sophisticated analysis of the matter."

Mr Kinroy also referred to Bank of Scotland v SA Banque Nationale de Paris 1996 SLT 103, in which Lord Penrose suggested (at 127I-J) the solution that the risk of irreconcilable judgments could be significantly reduced by a reference to the European Court of Justice for a preliminary ruling. At a later stage in the debate, Mr Kinroy very properly added reference to The Eras EIL Actions [1995] 1 Lloyd's Rep 64. In that case an interlocutory application was made by originating summonses to restrain the plaintiffs in the actions from bringing or pursuing certain claims elsewhere than in England and/or France. Certain of those plaintiffs (referred to in the judgment as "the foreign plaintiffs") sought a declaration that the court had no jurisdiction to entertain that application against them, founding inter alia on Article 6(1). In dealing with that matter Potter J said (at 77, col.1):

"It seems to me to be plain on the face of it that in relation to the originating summonses, many of the defendants to which are domiciled in England, each of the foreign plaintiffs [who were also defendants to those summonses] falls within the description contained in art. 6, namely that of a person domiciled in a Contracting State who is sued as one of a number of defendants in the Courts for the place where a number of those other defendants are domiciled. That being so, it also seems to me that the burden rests upon the foreign plaintiffs to demonstrate that for some reason the words of art. 6 are either restricted as to the type of suit referred to or, on the principles set out in the Kalfelis case, that the actions are such that it is not expedient to hear and determine them together."

Mr Kinroy recognised that that dictum might be thought to be against his submission, but maintained (under reference to passages at 77, col.2 and 78, col.1) that, in the absence of averments identifying the other proceedings which were thought to give rise to the risk of irreconcilable judgments, there was no onus on the first defenders to demonstrate the inexpediency of hearing the claims against both defenders together.

Mr Glennie accepted that the rationale of Article 6(1) was as explained in Kalfelis. He pointed out, however, that the judgments in two jurisdictions might be irreconcilable either because different views were taken of the applicable law or because of conflicting findings in fact. Lord Penrose's suggested solution was therefore unsatisfactory, since a reference to the European Court of Justice would be of no assistance where the conflict was between findings in fact. It did not follow from Kalfelis that in every case in which Article 6(1) or Rule 2(15)(a) was founded upon the court required to investigate whether in the particular case there was indeed a risk of irreconcilable judgments. In particular, there was no need for that issue to be made the subject of averment by the pursuer. In most cases the risk would be obvious. In any event, it was not necessary slavishly to follow the reasoning of the European Court of Justice when dealing with the domestic rules under Schedule 8. In the domestic context, an additional safeguard was provided under section 22 in the form of the court's power to decline jurisdiction on the ground of forum non conveniens. By resort to that provision the court could deal with any attempt to abuse Rule 2(15)(a). In the present case, however, although forum non conveniens had been pled by the first defenders, Mr Kinroy had not sought to move that that plea should be sustained. In the present case it was obvious that, if there was a relevant case against the second defenders, it was expedient that the claims against both defenders should be brought and determined in the same action. The recoverability of the advance freight was in issue as between the pursuers and each of the defenders. It was of no moment that the proceedings which had been taken against the first defenders in England were arbitration proceedings. The first defenders could have been sued in Cyprus. It could not be sound to say that the pursuers were obliged to aver what the other proceedings which would give rise to the risk of irreconcilable judgments would be. The risk arose from the nature of the overlapping issues between the parties, not from any peculiarity of the jurisdictions in which the claims might otherwise be brought. Founding on Potter J's dictum in The Eras EIL Actions, Mr Glennie submitted that it was sufficient for the pursuers to make averments which brought the first defenders within the scope of Rule 2(15)(a), and that it was for the first defenders, if so advised, to seek to show that by the Kalfelis criteria the reliance on that rule was an abuse. All that Rule of Court 13.2(4)(b) required was an averment of the ground of jurisdiction, which in a Rule 2(15)(a) case was no more than an averment that another defender, against whom a relevant case had been averred, was domiciled in Scotland. He contrasted Rule 2(15)(a) with Rule 2(15)(b). The latter rule, which deals with jurisdiction over third parties, differs from the former in respect that it contains the express proviso excluding jurisdiction where the third party proceedings "were instituted solely with the object of removing [the third party] from the jurisdiction of the court which would be competent in his case". There was no equivalent anti-abuse provision in Rule 2(15)(a). Mr Glennie went on to submit that it was necessary to exercise caution in drawing an analogy from Article 22. The present case was concerned with the domestic rules under Schedule 8, which contained no equivalent to Article 22. He did, however, accept that if there was a challenge to the pursuers' reliance on Rule 2(15)(a) the broad approach to the meaning of "irreconcilable judgments" adopted by Lord Saville in Sarrio SA would be applicable. He submitted that it was inherently undesirable that jurisdiction should be a matter of uncertainty. To demand of the pursuer in every case

In reply to those submissions Mr Kinroy suggested that it was necessary to bear in mind the considerations that had led to the adoption, as the domestic rules governing the jurisdiction of the Scottish courts, of rules based on the Convention (Report of the Scottish Committee on Jurisdiction and Enforcement (1980) ("the Maxwell Committee"), pages 16-21, paragraphs 2.20-2.24; Anton and Beaumont, Civil Jurisdiction in Scotland, 2nd Edn., pages 19-21). It was wrong to suggest that the court in applying Schedule 8 did not require to follow the jurisprudence of the European Court of Justice (see section 20(5)(a)). Cogent reasons would require to be advanced to justify departure from that jurisprudence. The attempt to distinguish between Rule 2(15)(a) and Rule 2(15)(b) by reference to the express proviso to the latter, and to point to that distinction as the basis for not applying Kalfelis to Rule 2(15)(a), was misconceived. The same express qualification to the third party rule was to be found in Article 6(2), and that had not deterred the European Court of Justice from interpreting Article 6(1) as it did in Kalfelis. The provisions of section 22(1) about forum non conveniens were not intended as a control of abuse of Rule 2(15)(a). There purpose was to cover the absence from Schedule 8 of an equivalent to Article 22 (see Anton and Beaumont, op. cit. page 234, paragraph 9.31). Kalfelis was concerned not merely with identifying the rationale of Article 6(1), but with its proper interpretation. Properly understood, it required the court to consider whether it was expedient to determine the claims together in order to avoid the risk of conflicting judgments. Paragraph 12 of the judgment expressly required the national court to verify in each individual case whether that risk was present. That meant that the party relying on Article 6(1) or Rule 2(15)(a) required to put before the court information about the actual or potential litigation in another jurisdiction to enable such verification to be carried out. Without doing that, a pursuer could not relevantly invoke Rule 2(15)(a). It was accepted that certainty in matters of jurisdiction was desirable, but the proper application of Kalfelis would yield such certainty.

It is in my view appropriate, when approaching the task of construing the rules set out in Schedule 8 to the 1982 Act, to bear in mind the reasoning which underlay the recommendation by the Maxwell Committee that there should be adopted as the domestic Scottish rules of jurisdiction rules which were broadly equivalent to those provided for in the Convention. It seems to me that that reasoning finds statutory reflection in section 20(5)(a) which requires regard to be had to the jurisprudence developed by the European Court of Justice in relation to the convention. Mr Glennie was no doubt right in submitting that that section does not require slavish adherence to the Convention jurisprudence in the domestic context, but I am of opinion that Mr Kinroy was also right in submitting that there requires to be cogent reason for departure from that jurisprudence. I am therefore of opinion that, in the search for the sound construction of Rule 2(15)(a), the decision of the European Court of Justice in Kalfelis on the proper construction of Article 6(1) ought to be taken as the starting point. From that decision it may be taken that an assertion of jurisdiction under Rule 2(15)(a) ought not to stand or fall by the simple criterion of whether the defender in question is sued as one of a number of defenders in the courts of the place where one of them is domiciled, but must depend on the further criterion of whether it is expedient to hear the claims against the domiciled and the non-domiciled defenders together to avoid the risk of irreconcilable judgments. The reason for that conclusion stems from the nature of Rule 2(15)(a) as an exception to the general principle set out in Rule 1, and the need to guard against undermining that general principle. The rationale for the exception is identified as the need to avoid the risk of irreconcilable judgments in competing jurisdictions. It might have been held that although that consideration was the rationale for the exception, it did not operate as an additional control upon the circumstances in which the exceptional ground of jurisdiction might be invoked; and that it had to be accepted that as formulated the exception might apply in circumstances in which the risk which it was designed to obviate was not present. Instead, however, the European Court of Justice held that the scope of the exception must be judged by reference to whether the risk sought to be guarded against was actually present. The proper area of operation of the exception was therefore held to be where the circumstances disclose that such a risk exists and that it is thus expedient for the claims against the domiciled and the non-domiciled defenders to be heard in the same process.

I do not find persuasive certain of the considerations advanced by Mr Glennie in support of the contention that a different approach to construction of the exception is appropriate in the domestic context. It is no doubt right that Rule 2(15)(b) contains an express proviso designed to prevent abuse of the exceptional jurisdiction, and that there is no equivalent express proviso in Rule 2(15)(a). But the same distinction is to be seen between Article 6(2) and Article 6(1). That point therefore cannot in my view be seen as justifying departure in the domestic context from the approach to construction which has been authoritatively held to be appropriate under the Convention. Nor in my view can the provisions of section 22(1) preserving the court's right in the domestic context to decline jurisdiction on the ground of forum non conveniens be seen as justifying such departure. It seems to me that section 22(1) may properly be seen as dealing with matters which under the Convention are to be dealt with under Article 22 (see Anton and Beaumont, op. cit., paragraph 9.31). In short, I do not consider that the pursuers have put forward any cogent reason for not adopting in relation to Rule 2(15)(a) the approach to construction approved in Kalfelis.

It remains for consideration, however, whether Mr Kinroy is correct in his submission that it follows from the ratio of Kalfelis that the pursuers must make positive averments identifying the alternative jurisdiction and making good the proposition that, if proceedings were brought there, there would be a risk of irreconcilable judgments. He was, in my view, right to emphasise that Kalfelis goes beyond mere identification of the rationale of the Article 6(1) exception; "for Article 6(1) of the Convention to apply there must exist ... a connection of such a kind that it is expedient to determine those actions together in order to avoid the risk of irreconcilable judgments resulting from separate proceedings" (paragraph 12). He was also right to stress the statement in Kalfelis that verification of the presence of such a risk is a matter for the court before whom the dispute as to jurisdiction arises (paragraph 11). It does not, however, in my view follow that the exceptional jurisdiction may not relevantly be invoked without averments of the sort desiderated by the first defenders. Mr Glennie was in my view correct in his submission that in most cases the presence or absence of the risk of irreconcilable judgments will be obvious. That risk will, in my view, often be apparent upon an examination of the nature of the claims made against the domiciled and non-domiciled defenders respectively, and will not turn on the identification of the alternative jurisdiction. If the court can verify the existence of the risk by examining the pursuers' substantive averments against the domiciled and non-domiciled defenders, there is no need for further averment by the pursuers to support the exceptional jurisdiction. If such verification is not possible by reference solely to the substantive averments, it is open to the pursuers to make such supplementary averments as they see fit for the purpose of demonstrating the existence of the risk. If the existence of the risk turns on some peculiarity of the alternative jurisdiction, those supplementary averments will no doubt identify that jurisdiction, and explain why proceedings brought there would give rise to the risk. Conversely, it is open to the defenders to make such averments as they see fit for the purpose of supporting the contention that there is no such risk. The burden on the defenders mentioned by Potter J in The Eras EIL Actions does not seem to me necessarily to be a burden of averment or proof. The defender might succeed by satisfying the court as a matter of argument that the pursuers' averments did not disclose the existence of the requisite risk, or they might bring forward additional material not evident on the face of the pursuers' case to demonstrate that the risk did not exist. Circumstances may well in my view vary. In any case, however, it is in my opinion for the court to decide on the material which the parties have chosen to put before it whether or not, by the Kalfelis criteria, the jurisdiction has been properly invoked. I am therefore of opinion that the first defenders do not succeed in their contention that the pursuers' reliance on Rule 2(15)(a) must fail for want of averments identifying the alternative jurisdiction.

It is, in my opinion, clear on the face of the pursuers' averments against the first and second defenders that if the claims against them were brought in separate proceedings in different jurisdictions there would be a material risk that irreconcilable judgments would result. The claims of both defenders arise out of the failure of the Aliki A's voyage from Rouen to Umm Qasr. The claims are to a material extent expressed as alternative to each other. There is a substantial overlap in the factual and legal issues which arise in the two groups of claims. There is in my view clear scope for inconsistent factual decisions, as well as differences in the application of the law. The court in this jurisdiction might decide that the pursuers' claim against the second defenders failed, on the view that the proper party to be held liable was the first defender, while the court in the alternative jurisdiction held, on a different view of the relevant facts or the applicable law, that the claim against the first defenders failed and they should seek redress against the second defenders. Nothing, in my view, turns on the identity of the alternative jurisdiction. Since this is not a Convention case, Lord Penrose's suggested solution of a reference to the European Court of Justice is not available, and in any event I accept the submission that that solution does not elide the risk of divergent decisions on matters of fact. In the whole circumstances I take the view that I am able on the material before me to hold that the Kalfelis criterion is satisfied in the present case.

I am therefore of opinion that, provided the pursuers' case against the second defenders is averred with sufficient relevancy to justify its being remitted to probation, the pursuers have validly founded jurisdiction against the first defenders under Rule 2(15)(a).

Jurisdiction - Rule 2(3)

Rule 2(3) of Schedule 8 of the 1982 Act, like Rule 2(15)(a), is an exception to the general principle that jurisdiction is vested in the courts of the place of a defender's domicile. It provides that:

"Subject to Rules 3 ..., 4 ... and 5 ... a person may also be sued -

in matters relating to delict or quasi-delict, in the courts for the place where the harmful event occurred".

That rule is derived from Article 5 of the Convention which provides that:

"A person domiciled in a Contracting State may, in another Contracting State, be sued:

In matters relating to tort, delict or quasi-delict, in the courts of the place where the harmful event occurred."

The pursuers seek to rely on Rule 2(3), maintaining that their claims against the first defenders founded on unjustified enrichment and constructive trust fall within the scope of the rule. In challenging the soundness of that contention, Mr Kinroy began by making reference to the discussion of Article 5(3) in Dicey and Morris, op. cit., at 361-3, and went on to cite Kleinwort Benson Limited v Glasgow City Council [1997] 4 All ER 641, in which the argument that cases of unjust enrichment fall within the scope of Article 5(3) was rejected. That argument in that case was based on the answer to the second question addressed by the European Court of Justice in Kalfelis. That question fell into two parts, and was formulated (in paragraph 14 of the judgment) as follows:

"The second question ... is intended essentially to ascertain, first, whether the phrase 'matters relating to tort, delict or quasi-delict' used in Article 5(3) of the Convention must be given an independent meaning or be defined in accordance with the applicable national law and, secondly, in the case of an action based concurrently on tortious or delictual liability, breach of contract and unjustified enrichment, whether the court having jurisdiction by virtue of Article 5(3) may adjudicate on the action in so far as it is not based on tort or delict."

Dealing with the first part of the question, the court observed (in paragraph 15) that the concept of "matters relating to tort, delict or quasi-delict" serves as a criterion for defining the scope of one of the rules concerning special jurisdictions; and that having regard to the objectives and general scheme of the Convention it was important that, with a view to equality and uniformity, that concept should not be interpreted simply as referring to the national law of the States concerned. The Court therefore went on to hold (in paragraph 2(a) of its ruling) that:

"The term 'matters relating to tort, delict or quasi-delict' must be regarded as an independent concept covering all actions which seek to establish the liability of a defendant and which are not related to 'contract' within the meaning of Article 5(1)".

In relation to the second part of the question, the court held (in paragraph 2(b) of its ruling) that:

"A court which has jurisdiction under Article 5(3) over an action in so far as it is based on tort or delict does not have jurisdiction over that action in so far as it is not so based."

In Kleinwort Benson it was argued that Article 5(3) applied to cases of unjust enrichment. Lord Goff (at 653j) said:

"This argument is impossible to reconcile with the words of art 5(3), if only because a claim based on unjust enrichment does not, apart from exceptional circumstances, presuppose either a harmful event or a threatened wrong. The argument is based on a misreading of para 2(a) of the ruling of the Court of Justice in Kalfelis' case, ... a misreading which is plainly inconsistent with paragraph 2(b) of the same ruling."

(See also in the Court of Appeal, [1996] QB 678, per Leggatt LJ at 691E - 692B, and at first instance, [1993] QB 429, per Hirst J at 441C - 443B.) Mr Kinroy submitted that that reasoning applied equally to the pursuers' claims against the first defenders founded on constructive trust. The essence of a delictual claim, he submitted, was that it arose by virtue of the occurrence of a harmful event in the absence of a pre-existing relationship between the parties.

Mr Glennie disputed that the touchstone of a delictual claim was the absence of a pre-existing relationship between the pursuer and the defender. For example, in cases of professional negligence delictual duties of care arose out of the pre-existing professional relationship. If delictual claims might arise in such cases despite the pre-existing relationship, why should non-contractual claims arising out of the pre-existing relationship constituted by the charterparty not be regarded as delictual? Kalfelis suggests that Article 5(3) is intended to encompass all claims not falling within the scope of Article 5(1). Even if the understanding of Kalfelis expressed in Kleinwort Benson were correct, it would not exclude from the scope of Article 5(3) claims based on constructive trust, nor would it exclude a claim for restitution where that claim arose from the fault of the defenders, here in failing to complete the voyage.

I approach this aspect of the argument with the terms of section 20(5)(a) of the 1982 Act in mind. I therefore consider that it is appropriate in addressing the task of construing Rule 2(3) of Schedule 8 to have regard to the interpretation given to Article 5(3) by the European Court of Justice in Kalfelis. It is, in my view, easy to be misled by the language of paragraph 2(a) of the Court's ruling and paragraphs 17 and 18 of its judgment ("all actions which seek to establish the liability of the defendant and which are not related to a 'contract' within the meaning of Article 5(1)" (emphasis added)) into thinking that any ground of action which is not related to contract is encompassed within the scope of Article 5(3). I agree, however, with Lord Goff, Leggatt LJ and Hirst J in Kleinwort Benson in regarding that reading of paragraph 2(a) of the ruling as inconsistent with paragraph 2(b) of the ruling. When the terms in which the Court formulated the second part of the second question are borne in mind (see paragraph 14 of the judgment), it is clear that the Court regarded unjust enrichment as falling outwith the scope of delict. It therefore appears to me that paragraph 2(a) of the ruling, despite its apparently all-encompassing terms, cannot have been intended to bring unjust enrichment within the scope of Article 5(3). If the matter of the construction of Rule 2(3) were to be determined by reference to the concept of delict as ordinarily understood in the law of Scotland, it is in my view clear that it would not be held to encompass claims in respect of unjustified enrichment. I am not persuaded that on a proper understanding of Kalfelis a different result is suggested by the Convention jurisprudence. I am therefore of opinion that this court does not by virtue of Rule 2(3) have jurisdiction over the first defenders in respect of the pursuers' claims against them so far as based on unjustified enrichment.

It remains for consideration whether the pursuers' claims against the first defenders based on constructive trust should be regarded as falling within the scope of Rule 2(3). I note that, despite the reference in Article 1 of the condescendence to "constructive trust and breach thereof" (emphasis added), the claims made by the pursuers against the first defenders on the basis of constructive trust involve an attempt to enforce an alleged obligation on the first defenders as constructive trustees to account to the pursuers for funds impressed with a constructive trust in their favour, and are not claims for damages for breach of constructive trust. I hesitate to attempt a comprehensive definition of "matters relating to delict or quasi-delict", but it seems to me that an obligation to account for and pay over funds impressed with a constructive trust clearly do not, as a matter of Scots law, fall within the category in question. Again, I find nothing in Kalfelis which persuades me that I should take a different view for the purpose of Rule 2(3). I am therefore of opinion that this court does not by virtue of Rule 2(3) have jurisdiction over the first defenders in respect of the constructive trust claims made against them in the fourth to seventh conclusions. The first defenders will, however, be subject to the jurisdiction of the court by virtue of Rule 2(15)(a) in respect of those claims as well as the others, if the averments made against the second defenders are relevant.

Jurisdiction - Prorogation

Rule 5 of Schedule 8 to the 1982 Act provides inter alia as follows:

"(1) If the parties have agreed that a court is to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court shall have exclusive jurisdiction.

(2) Such an agreement conferring jurisdiction shall be either in writing or evidenced in writing or, in trade or commerce, in a form which accords with practices in that trade or commerce of which the parties are or ought to have been aware."

Those provisions are based on Article 17 of the Convention, although expressed in somewhat different form.

Clause 40 of the charterparty provides as follows:

"All dispute arising out of this contract shall be governed in London and English Law shall apply."

Under reference to Rule 5(1) and Clause 40, Mr Kinroy submitted that the pursuers and the first defenders had prorogated the exclusive jurisdiction of the English courts in relation to disputes arising out of the charterparty. Accordingly, if this court would otherwise have had jurisdiction over the first defenders on either of the grounds asserted, that jurisdiction was thereby excluded. He referred to a number of cases decided under Article 17. In two of them, Estasis Salotti di Colzani Aimo e Gianmario Colzani v RÜWA Polstereimaschinen GmbH (Case 24/76) [1976] ECR 1831 and Galeries Segoura SPRL v Rahim Bonakdarian (Case 25/76) [1976] ECR 1851, the European Court of Justice stated that:

"the requirements set out in Article 17 governing the validity of clauses conferring jurisdiction must be strictly construed. ... The purpose of the formal requirements imposed by Article 17 is to ensure that the consensus between the parties is in fact established."

In the third, Powell Duffryn plc v Wolfgang Petereit (Case C-214/89) [1992] ECR I-1745, the Court held that, in the interests of equality and uniformity, the concept of "agreement conferring jurisdiction" should not be interpreted by reference to national law, but must be regarded as an independent concept (paragraphs 13 and 14 of the judgment); that the question whether the clause conferring jurisdiction was to be regarded as relating to disputes "arising in connection with a particular legal relationship" was a question of interpretation for the national court to resolve (paragraphs 32 and 33); and that it was for the national court to interpret the clause in order to determine which disputes fell within its scope (paragraph 37).

Mr Kinroy also referred to Morrison v Panic Link Ltd 1993 SLT 602, affirmed 1994 SLT 232, in which the prorogation clause in question provided that proceedings arising out of or in connection with the contract "may be brought in any Court of competent jurisdiction in England". That was held to be merely permissive, and insufficient to confer on the English courts exclusive jurisdiction ousting the jurisdiction of the Scottish courts (see per Lord Sutherland at 603K).

Mr Kinroy's submission was that the pursuers' claims against the first defenders gave rise to disputes which, although not all founded in contract, nevertheless arose in the sense required by Rule 5(1) "in connection with a particular legal relationship" namely that constituted by the charterparty, and in the sense required by Clause 40 arose out of that contract. Properly construed, Clause 40, by its provision that disputes "shall be governed in London" (emphasis added) and that English law was to apply, constituted an agreement that the English courts alone should have jurisdiction. It was mandatory in its terms, and therefore conferred exclusive jurisdiction.

Where there was a valid prorogation of the exclusive jurisdiction of the courts of one country, Mr Kinroy submitted, a party could not rely on other rules, such as Rule 2(15)(a) or Rule 2(3) to thwart the agreement (Anton and Beaumont, op. cit., paragraph 5.65; O'Malley and Leyton, European Civil Practice, paragraph 17.80; Bank of Scotland v SA Banque Nationale de Paris 1996 SLT 103 at 131K).

Mr Glennie began his response to this aspect of the argument by citing authority to explain what was meant by the last few words of Rule 5(1) - "that court shall have exclusive jurisdiction". The case upon which he relied was Kurz v Stella Musical Veranstaltungs GmbH [1992] Ch 196, per Hoffmann J at 203D-206B. The effect of that case, he submitted, was to confirm that a prorogation clause which bore to confer exclusive jurisdiction on the courts of one country would, if it complied with Article 17 in point of form, be given effect so as to exclude any other jurisdictions which might otherwise be competent under the Convention; but a prorogation clause which bore merely to confer non-exclusive jurisdiction on the courts of one country would not be made exclusive by virtue of the Article. It followed, he argued, that for this aspect of the first defenders' submissions to succeed, they required to show that, as a matter of construction, Clause 40 was an agreement that the English courts and only the English courts should have jurisdiction in respect of the claims made by the pursuers against the first defenders in this action. In other words, Rule 5(1) has no impact on whether the prorogation clause has exclusive effect.

Mr Glennie's next point was that in any event, Rule 5(1) was nothing to the point where the issue was whether there had been prorogation of the jurisdiction of courts other than Scottish courts. It was, he said, important to understand correctly the respective scope of Rule 5(1) and section 22(2). To appreciate the proper scope of Rule 5(2) it was necessary to bear in mind that it forms part of Schedule 8 which, by virtue of section 20(1), "has effect to determine in what circumstances a person may be sued in civil proceedings in the Court of Session or the sheriff court". Where, therefore, the issue was whether a Scottish court had jurisdiction by virtue of a prorogation agreement, the matter was to be tested by reference to Rule 5(1). Section 22(2), however, was the relevant provision where the question raised in Scottish proceedings was whether the jurisdiction of a foreign court had been prorogated. Section 22(2) provides:

"Nothing in Schedule 8 affects the operation of any enactment or rule of law under which a court may decline to exercise jurisdiction because of the prorogation by parties of the jurisdiction of another court."

Where, therefore, the issue was whether there had been prorogation of the jurisdiction of a foreign court and, if so, whether a Scottish court should on that account decline to exercise a jurisdiction which it would otherwise have had, the matter was not regulated by anything contained in Schedule 8 but was left to the common law.

Assuming that to be the case, Mr Glennie went on to argue that, even if there was a prorogation clause which according to its proper construction conferred exclusive jurisdiction on a foreign court, the proper course for a Scottish court to take was to sist the Scottish proceedings rather than dismiss them. He referred to Scotmotors (Plant Hire) Limited v Dundee Petrosea Limited 1980 SC 351, in which that point was taken in argument, although the case was decided on the ground that as a matter of construction the prorogation clause was not exclusive of the jurisdiction of Scottish courts. In Ladgroup Limited v Euroeast Lines SA 1997 SLT 916, in which the matter before the court was a motion for recall of the arrestment of a ship ad fundandam jurisdictionem, Lord Prosser, after discussing a prorogation clause, said (at 919G):

"There is a further question as to whether the proper course would be to sist the action, or to dismiss it, if such a point were taken."

These cases are inconclusive, but Mr Glennie went on to cite English authority to indicate that in that jurisdiction it is settled that the effect of an agreement prorogating a foreign jurisdiction is to confer on the English court a discretion to stay the English proceedings (The Fehmarn [1957] 1 WLR 815 per Willmer J at 818-9; The Eleftheria [1969] 1 Lloyd's Rep 237, per Brandon J at 240 and 242; The El Amria [1981] 2 Lloyd's Rep 119 per Brandon LJ at 123). Mr Glennie therefore suggested that, even if Clause 40 was to be construed as an agreement to prorogate the exclusive jurisdiction of the English courts, that did not justify dismissal on the basis of the plea of no jurisdiction.

Mr Glennie then turned to the construction of Clause 40 of the charterparty. He did not dispute that it was for this court to construe the clause. He submitted, however, that it should be construed with proper regard to its context. He drew attention to the presence in the charterparty of an arbitration clause, Clause 30, which was in the following terms:

"Any dispute that may arise under this Charter to be settled by arbitration, each party appointing an Arbitrator, and should they be unable to agree, the decision of an Umpire nominated [?] by them to be final. The Arbitrators and Umpire are all to be commercial shipping men and resident in London, and the arbitration to take place there. This submission may be made a rule of the High Court of Justice in England by either party."

(Nothing appears to turn on the last sentence, as to the origin of which see Duff Development Limited v Kelantan Government [1924] AC 797 at 817.) The word which I have italicised is an amendment of the printed form, and that, Mr Glennie argued, excluded the possibility of Clause 40 (which is in its entirety an addition to the printed form) being regarded as superseding the arbitration clause. Clause 48 makes further provision to the effect that "Claims/disputes not exceeding US$20,000 to be settled in accordance with the L.M.A.A. small Claims Procedure". If, against that background of provision for arbitration, Clause 40 had been intended as a general prorogation of the jurisdiction of the English courts, some provision for the resolution of the conflict between the arbitral jurisdiction and that of the courts would have been expected. It was unlikely that Clause 40 was intended to derogate from the arbitration clauses. Even without the conflict which there would be between Clause 40 and Clauses 30 and 48 if Clause 40 were construed as a general prorogation of the jurisdiction of the English courts, it was difficult to construe Clause 40 in the way contended for by the first defenders. The last few words of the clause were a choice of law provision, which left as the only words from which submission to the jurisdiction of the English courts was to be inferred the phrase "governed in London". In Union of India v E B Aaby's Rederi A/S [1975] AC 797 the phrase "to be settled in London" was held not to take a dispute out of the scope of an arbitration clause (per Viscount Dilhorn at 815A).

Whatever meaning was to be given to Clause 40, Mr Glennie submitted that it did not cover the repetition and constructive trust claims. It applied to "All dispute arising out of this contract". The phrase "arising out of" a contract has been held, in the context of an arbitration clause in a charterparty, to be no wider in scope than the phrase "arising under" a contract (Union of India per Viscount Dilhorn at 814G and Lord Salmon at 817A; cf The Antonis P Lemos [1985] AC 711 where Lord Brandon of Oakbrook (at 727B) recognised the possibility of the phrase being equivalent to "connected with", but (at 728D) accepted that the narrower meaning was appropriate in an arbitration clause in a commercial contract). In Fillite (Runcorn) Limited v Aqua-Lift (1989) 45 BLR 27 Slade LJ said (at 41):

"In my judgment, on the ordinary and natural meaning of the words, the phrase 'disputes arising under a contract' is not wide enough to include disputes which do not concern obligations created by or incorporated in that contract."

Mr Glennie submitted that in light of those authorities Clause 40 would apply to claims for payment or performance under the contract, and claims for damages for breach of the contract. It would also cover disputes as to the validity of the contract. It would not, however, have any wider application. Accordingly, it would apply to some of the claims made by the pursuers, namely their claim for damages for breach of contract, and their claim for repayment of the advance freight, so far as founded on an implied term of the contract. It would not, however, apply to the claim based on the condictio or the claims founded on constructive trust.

Responding to Mr Glennie's submissions about the relationship between Rule 5(1) and section 22(2), Mr Kinroy referred to Anton, Private International Law, 2nd Edn., page 170, where the following view is expressed:

"Prorogation has both a positive and a negative aspect. In relation to Scotland, the principle of prorogation enables the Scottish courts to assume jurisdiction where they would not otherwise possess it, except in cases where Rule 4 of Schedule 8 creates an exclusive jurisdiction in favour of another court. Negatively, Rule 5 means that the Scottish courts may not assume jurisdiction where another court possesses jurisdiction by virtue of an agreement to refer to it. But an element of confusion is introduced by section 22(2) of the 1982 Act."

After quoting section 22(2), Professor Anton continues:

"Does this entail the preservation of the operation, even on matters to which Schedule 8 applies, of the Scottish common law rules relating to prorogation as negative rules? The matter is far from clear."

Mr Kinroy suggested that, consistent with the applicability of Rule 5(1) in a negative sense, as contemplated by Professor Anton, content could be found for section 22(2) in the fact that there could be a prorogation agreement which fell outwith the scope of Rule 5(1) by reason of non-compliance with the requirements of Article 5(2) as to formal validity. If Rule 5(1) applied there was no warrant for construing it as leaving any residual jurisdiction in a court which would otherwise have had jurisdiction. When Rule 5(1) said "exclusive" it meant exclusive. Otherwise it would be possible to subvert section 27 (concerning provisional and protective measures in Scotland in the absence of substantive proceedings) by bringing proceedings in Scotland in defiance of the prorogation of another jurisdiction simply in order to obtain, for example, arrestment in Scotland. On the question of whether the prorogation of a foreign jurisdiction should lead to dismissal, or merely a sist, of the Scottish action, Mr Kinroy referred to Elderslie Steamship Co Limited v Burrell & Son (1895) 22 R 389. The circumstances of that case were that the owners of a ship, in order to prevent its arrest for salvage, granted a bail bond conferring on the salvors the option of having the amount of salvage determined in the Scottish or the English courts. They subsequently themselves petitioned the Court of Session to have the amount of salvage fixed. The salvors sought dismissal of the petition on the basis that they were proceeding in England. The owners argued that the English court had no jurisdiction, because the vessel was registered in Scotland, and its owners were resident there. That argument was held to be excluded by the agreement giving the salvors the option to proceed in Scotland or England. The majority of the court held that the petition should be dismissed, Lord Rutherford Clark preferring the view that it should be sisted. On that basis Mr Kinroy submitted that the prorogation clause should lead to dismissal. If the court had a discretion to sist or dismiss, it ought to exercise it in favour of dismissal. Mr Kinroy submitted, further, that there was nothing odd in the charterparty containing both an arbitration clause and a prorogation of the jurisdiction of the English courts. Since Clause 30 dealt with arbitration, Clause 40 must be construed as making some additional provision, rather than being mere repetition. As to the meaning of "arising out of", it was clear from the authorities that it had no fixed meaning. All of the pursuers' claims against the first defenders, breach of contract, the alleged implied term that on failure of the voyage the advance freight would be repaid, the claim for repetition and even the constructive trust claims arose out of the charterparty.

It is not, in my opinion, necessary for the decision of the issues before me to reach a concluded view about the relationship between Rule 5(1) of Schedule 8 to the 1982 Act and section 22(2) of the Act. The matter is, as Professor Anton has pointed out, unclear. Mr Glennie's analysis, allocating to Rule 5(1) the task of determining whether there has been prorogation of the jurisdiction of the Scottish courts, or a particular Scottish court, and treating section 22(2) as having the role of preserving the application of the common law to the determination of whether the jurisdiction of a foreign court has been prorogated and, if so, how that should affect any proceedings brought in Scotland, is initially attractive. It might be thought to reflect the terms of section 20(1) which provide that Schedule 8 "has effect to determine in what circumstances a person may be sued in civil proceedings in the Court of Session or the sheriff court". But Rule 5(1) is, according to its terms, as much applicable to an agreement that a foreign court should have exclusive jurisdiction as to one that a Scottish court should have exclusive jurisdiction. If there is an agreement which complies with the requirements of Rules 5(1) and (2) and provides for the exclusive jurisdiction of the French courts, for example, that may surely be said to determine that in the circumstances the Scottish courts do not have jurisdiction, and therefore to be operating to the effect contemplated in section 20(1). It seems to me to be too narrow a reading of section 20(1) to suppose that it is concerned solely with determining affirmatively the circumstances in which the Scottish courts have jurisdiction. Looking to Schedule 8 as a whole, it is in my view clearly concerned with identifying which courts (foreign or domestic) do have jurisdiction, and consequently which courts do not. To regard Rule 5(1) as dealing with the positive aspects of prorogation of jurisdiction, and section 22(2) as dealing with the negative aspects seems to me to be attempting to separate the inseparable. To reject that approach does not leave section 22(2) with no content. Rules 5(1) and (2) impose certain requirements which must be satisfied before a prorogation agreement takes effect for the purpose of Rule 5(1), and the European Court of Justice has indicated in Estasis Salotti and Galeries Segoura that these requirements must be strictly construed. It is therefore in my view not implausible that the function of section 22(2) is to preserve the common law in cases to which Rule 5(1) does not apply.

It seems to me, however, that the distinction between Rule 5(1) and section 22(2) matters to the pursuers primarily because of their submission that at common law the proper result of the prorogation of a foreign jurisdiction is a sist rather than dismissal. I am not persuaded that that submission is sound. It seems clear from the authorities which Mr Glennie cited that the established rule in English law is that the prorogation of a foreign jurisdiction gives the English court a discretion to stay the proceedings before it. I do not consider, however, that the same rule is well established at common law in Scotland. In Ladgroup Limited, Lord Prosser went no further than to recognise that the question of sist rather than dismissal might arise. Elderslie Steamship Co Ltd seems to me to be somewhat special. It did not concern an exclusive prorogation clause. In any event, it is if anything in favour of at least a discretion to dismiss. There is no doubt an analogy to be drawn with the situation in which an arbitration clause is founded on, in which context normal practice favours a sist rather than dismissal. I am not persuaded, however, that it would be right to conclude that, if there was a clear exclusive prorogation of the jurisdiction of a foreign court and it was plain that that court had accepted the jurisdiction conferred on it, it would not be open to the Scottish court to dismiss proceedings brought before it.

The real question, as it seems to me, concerns the construction of Clause 40 of the charterparty. For the first defenders' submission to succeed, Clause 40 must fall to be construed as a prorogation of the exclusive jurisdiction of the English courts. I do not consider that it is capable of bearing that construction. The latter part of the clause - "and English law to apply" - is in my opinion clearly a choice of law clause rather than a prorogation of the jurisdiction of the English courts. The question therefore comes to be whether the earlier part of the clause - "All disputes arising out of this contract shall be governed in London" - is properly to be construed as a prorogation of the jurisdiction of the English courts. There is in my view force in Mr Glennie's point that if that were to be construed as a prorogation of the jurisdiction of the English courts, it would sit uneasily with the arbitration provisions in Clauses 30 and 48. Given that Clause 30 is amended from the standard form, and that Clause 48, like Clause 40, is an addendum to the standard form, it is in my view difficult to argue that Clause 40 overrides the arbitration clauses. The more substantial point, however, in my view is that the language of Clause 40 is not apt to amount to a prorogation agreement. There would have been no difficulty in expressing clearly and unequivocally a prorogation of the jurisdiction of the English courts if that was what the parties intended. The words "shall be governed in London" are in my view obscure. There may be some clue to their intended function to be gleaned from the approach to the similar words "settled in London" discussed in Union of India. However that may be, I am not persuaded that the language of Clause 40 is properly to be regarded as prorogating the jurisdiction of the English courts. Bearing in mind the need for clarity and distinct expression if jurisdiction which the Scottish courts would otherwise have is to be excluded by an agreement to prorogate the jurisdiction of a foreign court (Morrison v Panic Link Ltd, 1994 SLT 232 at 234J-L; Scotmotors at 354), it would in my view be wrong to accord that effect to the obscure language of Clause 40.

Had I been persuaded that Clause 40 was an effective prorogation of the jurisdiction of the English courts, I would have been inclined to hold that its language - "All dispute arising out of this contract" - is not apt to cover more than the pursuers' contractual claims. In light in particular of what was said in Union of India and Fillite I would have held that it did not cover the unjust enrichment claim or the constructive trust claims. In the event, however, that issue does not arise.

Had I accepted that Clause 40 was an effective prorogation agreement conferring exclusive jurisdiction on the English courts, I would have accepted the first defenders' submission that in that event the pursuers were disabled from relying on any other provision of Schedule 8 under which this court might otherwise have had jurisdiction. That point too, however, does not arise in view of my conclusion as to the proper interpretation of Clause 40.

In the result therefore I decline to hold that Clause 40 constitutes a prorogation of the jurisdiction of the English courts. If, therefore, the pursuers can otherwise succeed in founding jurisdiction against the first defenders by virtue of Rule 2(15)(a), Clause 40 does not in my opinion afford the first defenders ground for eliding that jurisdiction.

Forum Non Conveniens

Although the first defenders have stated a plea of forum non conveniens, Mr Kinroy intimated at the beginning of the debate that he did not propose to advance any argument in support of it, and consented to its being repelled. I shall therefore repel it.

Arbitration

The first defenders also plead that the dispute between the pursuers and the first defenders falls to be resolved by arbitration under Clause 30 of the charterparty, and that the action should be sisted. It is averred by the first defenders and admitted by the pursuers that arbitration proceedings have begun in London. At the beginning of the debate, Mr Kinroy intimated that he did not propose to argue that plea, but sought to have it reserved. Mr Glennie submitted, however, that that plea required to be disposed of in limine, and could not be reserved. Later in the debate Mr Kinroy intimated the first defenders' consent to that plea being repelled. I shall therefore do that.

Relevancy - First Defenders' Plea

The first defenders have a general plea to the relevancy of the pursuers' averments. In outlining at the beginning of the debate the submissions which he proposed to make, Mr Kinroy indicated that he proposed to argue that there were no relevant averments (i) of constructive trust under Scots law, or (ii) of frustration of the charterparty. When he reached the stage at which he would have made those submissions, however, his position had changed and he accepted that those averments were sufficient to be remitted to proof before answer. Mr Glennie did not resist that suggestion, and the relevancy of those averments was therefore not discussed.

Relevancy - Second Defenders' Plea - Introduction

The second defenders have a general plea to the relevancy of the pursuers' pleadings against them. Mr Davidson submitted that that plea should be sustained and the action, so far as laid against the second defenders dismissed. He divided his submissions into three parts. In the first part, he challenged the relevancy of the pursuers' averments in support of their fifth, sixth and seventh pleas-in-law. In those pleas the pursuers formulate three separate bases for their third conclusion, which is for repayment by the second defenders to the pursuers of the advance freight of US$396,176.12. The second part of Mr Davidson's submissions was directed against the relevancy of the pursuers' averments in support of their eleventh plea-in-law, on which is based the eighth conclusion for payment of US$79,768.62. In the third part of his submissions Mr Davidson attacked the relevancy of the averments in support of the pursuers' tenth plea-in-law. That plea is the foundation for the fifth and seventh conclusions, by which the pursuers seek decree for payment against both defenders in respect of the sums standing to the credit of the Aliki A Earnings Account and the Retention Account respectively. I shall consider each of these three parts of the second defenders' submissions in turn.

Relevancy - Second Defenders' Plea - Repetition

The pursuers' pleas-in-law in terms of which they seek repetition of the advance freight from the second defenders are in the following terms:

	"5.	The pursuers having paid the second defenders the sum third concluded for, for a purpose, namely the carriage of their cargo of sugar on-board the vessel "ALIKI A" to Iraq, which has wholly failed, are entitled to repayment as third concluded for.
	6.	The second defenders having been unjustly enriched at the expense of the pursuers in the amount of the advance freight paid to them, the pursuers are entitled to repayment as third concluded for.
	7.	Alternatively, the pursuers having paid the second defenders the sum third concluded for pursuant to the terms of a charterparty future performance of which has been frustrated, are entitled to payment as third concluded for."

Mr Davidson's submission concentrated on what he submitted was the common factor shared by these three pleas. They were all, he said, predicated on the averment that the second defenders were the recipients of the payment of advance freight made by the pursuers, not in the sense that the money was paid into the nominated account in name of the first defenders and held subject to their instruction, but in the sense that the money, once deposited in that account, belonged to the second defenders and could be applied by them as they chose. The pursuers' case was predicated on that contention because a claim for repetition lay only against a party who had himself received the payment or benefit which the claim sought to reverse (Stair, The Institutions of the Law of Scotland, I, vii, 7; Shilladay v Smith 1998 SC 725). The deposit of the advance freight in the nominated account did not per se place the second defenders in the position of recipients of the money. Mr Davidson referred to Agip (Africa) Limited v Jackson [1990] 1 Ch 265, in which (at 292B) Millett J said:

"In paying or collecting money for a customer the bank acts only as his agent. It is otherwise, however, if the collecting bank uses the money to reduce or discharge the customer's overdraft. In doing so, it receives the money for its own benefit."

If, therefore, the second defenders received the advance freight only as the first pursuers' bankers, and not in their own right, no relevant claim for repetition could be made against the second defenders.

Mr Davidson turned therefore to the averments made by the pursuers in support of the proposition that the second defenders received the advance freight for themselves. Those averments were set out in article 7 of the condescendence and narrated the Loan Agreement (No. 7/1 of process), the Mortgage and Deed of Covenants (No. 7/2 of process) and the General Assignment (No. 9/1 of process), and culminated in the averment that:

"In the circumstances condescended upon the pursuers paid the advance freight to the second defenders and the second defenders received the same as principals pursuant to their rights as assignees thereof under the General Assignment and for their own account."

The issue which was discussed was whether that averment was well-founded on the documents on which the pursuers rely. It is therefore necessary to examine the documents in more detail.

The Loan Agreement was entered into by the first defenders and another company as joint and several borrowers and the second defenders as lender on 23 July 1997. In terms of it the second defenders made available to the borrowers a loan facility of US$2,075,000 to be used for the purpose of assisting the first defenders to finance part of the cost of the purchase of the Aliki A and the other borrowers to finance part of the cost of the purchase of another vessel. The pursuers aver that the whole amount of the facility was drawn down by the borrowers on that date. By Clause 14 of the Loan Agreement the borrowers were obliged to execute a number of security documents including Mortgages (Clause 14.3.1), Deeds of Covenant (Clause 14.3.2) and General Assignments (Clause 14.3.3). On the same date as the Loan Agreement was executed the first defenders and the second defenders entered into (i) a Mortgage and Deed of Covenants and (ii) a General Assignment. In article 7 of the condescendence the pursuers quote part of Clause 2.1 of the General Assignment, but it is in my view as well to quote that clause in full. It provided:

"As security for the payment of the Outstanding Indebtedness, the Owner [the first defenders] as beneficial owner and with full title guarantee hereby assigns and agrees to assign to the Mortgagee [the second defenders] absolutely all its rights, title and interest, both present and future, in and to the Assigned Property all of which the Owner hereby warrants that it has not assigned, mortgaged, charged or otherwise encumbered or disposed of to any other person."

In Clause 1.2 Assigned Property as defined in such a way as to include earnings derived from the charter of the vessel to the pursuers, including the advance freight. Clause 2.3 provides:

"The Earnings, unless and until the Mortgagee shall otherwise direct, shall be paid to the Aliki Earnings Account and be applied in accordance with the provisions of Clause 12 of the [Loan] Agreement".

I do not understand it to be disputed that the Aliki Earnings Account referred to in Clause 2.3 is the account with the second defenders designated in Clause 46 of the charterparty, and to which the advance freight was credited.

Clause 12 of the Loan Agreement is too lengthy to quote here in full, but it provides inter alia as follows:

"So long as no Event of Default or Potential Event of Default has occurred, any and all moneys credited to the Earnings Accounts will be applied by the Lender (which applications the Lender is hereby irrevocably and unconditionally authorised to make) as follows:
FIRST:	in payment of any amounts due and owing under or pursuant to the Security Documents [subject to certain exception];
SECONDLY:	by the Lender making the following transfers from the Earnings Accounts to the Retention Account:
	(i)	at successive monthly intervals from the Drawdown Date of [a fraction] of the amount of the Loan falling due for repayment to the Lender ... [at the next] Repayment Date ...; and
	(ii)	at successive monthly intervals from the start of each Interest Period ... an amount equal to [a fraction] of the amount falling due to the Lender by way of interest ... on the next succeeding Interest Date ...;
THIRDLY:	subject always to the Lender's rights under Clause 12.5, the balance (if any) in the Earnings Account will be available to the Borrowers for the payment and/or reimbursement of the Operating Expenses ...
FOURTHLY:	subject always to the Lender's rights under Clause 12.5, the balance (if any) in the Earnings Account will be available to the Borrowers for general working capital purposes."

The powers conferred on the second defenders by Clause 12 of the Loan Agreement are to be contrasted with the powers exercisable by them under Clause 8 of the General Assignment on the occurrence of an event of default.

Mr Davidson submitted that on a sound construction of those contractual provisions the advance freight deposited in the nominated account was received by the second defenders as agents for the first defenders, and not as assignees. The General Assignment was an assignation in security, as the full text of Clause 2.1 made clear. There was no averment that an event of default or potential event of default had taken place. The advanced freight was received by the second defenders as agents of the first defenders. While Clause 12 of the Loan Agreement gave the second defenders certain contractual rights to draw on the Aliki A Earnings Account to feed the Retention Account with sums earmarked to meet periodic payments of capital and interest due at a future date by the first defenders to them under the Loan Agreement, the sum at credit of the Aliki A Earnings Account, so far as not so drawn upon, remained available to the first defenders for their purposes. Documents produced (Nos. 7/3 and 7/11 of process) showed a payment of US$250,000 out of the account on the first defenders' managers' instructions on the same date as the advance freight was deposited. It was therefore wrong to infer that when the advanced freight was deposited in the Aliki A Earnings Account, it was there and then received by the second defenders for their own benefit. The party to whom the pursuers had paid the advanced freight, and to whom they must look for any restitutionary remedy, was therefore the first defenders. There were thus no relevant averments in support of the pursuers' fifth, sixth and seventh pleas-in-law, which should therefore be repelled.

In response to those submissions, Mr Glennie argued first that it was incorrect to say that the second defenders could be made liable to repay the advance freight to the pursuers only if they received it as principals, and not if they received it as agents for the first defenders. A cargo owner in the position of the pursuers, who paid advance freight to the credit of a nominated bank account, would not necessarily know whether the banker received the money merely as agent for the shipowner, or for his own benefit as assignee. In principle, such a cargo owner ought, in the event of failure of the voyage, to be able to look to the party to whom he paid the money for repayment. In this case the pursuers had averred that they had received notice of the assignation in the form of an answer in a questionnaire completed by the first defenders in which they had stated:

"earnings are assigned to the Governor of the Bank of Scotland in Edinburgh."

They had paid the advanced freight to the nominated account with the second defenders pursuant to that assignation. They were not to know whether money credited to that account would be received by the second defenders in their own right as assignees or only as agents for the first defenders. Prima facie the pursuers, having paid the second defenders in pursuance of an assignation intimated to them by the first defenders, were entitled to look to the second defenders to satisfy their claim for repetition. Prima facie the second defenders were the party enriched by the payment. The second defenders could derive no assistance from the account (No. 7/11 of process), because on its face the payment out to the first defenders' managers entered the account before the receipt of the advanced freight. On one view, therefore, applying the principle mentioned by Millett J in Agip (Africa), the second defenders were here applying a substantial part of the advance freight to extinguish an overdraft, and were therefore receiving the money for their own benefit. The account also showed payments to the Retention Account. The claim for repetition against the second defenders did not, in any event, depend on their still having the funds in their hands. These points could not be resolved in the second defenders' favour without inquiry. The matter should therefore be remitted to proof before answer.

The second branch of Mr Glennie's response was to examine the effect of the contractual documents on the basis on which the second defenders received the advance freight. In terms of Clause 2.3 of the General Assignment the earnings were to be paid to the Aliki A Earnings Account and applied in accordance with Clause 12 of the Loan Agreement. Clause 12 clearly contemplated that, once deposited in the account, earnings might be dealt with by the second defenders in various ways for their own benefit.

I have come to the conclusion that it would be inappropriate to come to a final decision on the pursuers' claims for repetition from the second defenders as a matter of relevancy and without inquiry. In my opinion Mr Davidson's proposition that the claims for restitution lie against the second defenders only if they received the payment of advance freight for their own benefit is sound. I do not consider that any distinction, in that regard, falls to be made among the three pleas-in-law which seek repetition on one ground or another. I have no difficulty accepting in principle the distinction made by Millett J in Agip (Africa). If the advanced freight had simply been paid by the pursuers to the credit of a bank account maintained by the first defenders with the second defenders, an account in which there was a credit balance immediately before the advance freight was deposited in it, the recipient of the money would have been the first defenders, and the role of the second defenders would have been that of banker or agent. If that had been the situation, there would in my view have been no relevant claim for repetition against the second defenders. If, on the other hand, the payment had been made unequivocally to the second defenders as assignees and taken by them for their own purposes, they would in my view have been subject, in principle, to claims for repetition, provided the circumstances otherwise justified that remedy. The same result would probably have followed if the advance freight had been credited to an account in name of the first defenders with the second defenders, but immediately used by the latter to extinguish or reduce a debit balance. The difficulty in the present case is that, so far as can be seen from the material presently before the court in the pleadings and the contractual documents, there appear to have been present features of, or akin to, each of those situations.

In terms of the charterparty the pursuers' obligation was to pay advance freight to the first defenders. The machinery for their doing so was laid down in Clause 46, which stipulated for payment to a named account with the second defenders. According to the pursuers' averments they had notice of an assignation of the vessel's earnings to the second defenders. The averments do not suggest, however, that they had notice of the precise contractual arrangements between the defenders and, despite notice of the assignation, they nevertheless made payment to the nominated account. The pursuers' averments thus, it seems to me, fall short of an unequivocal assertion that they paid the second defenders as assignees. What they do set out is a basis for contending that they were on notice that the benefit of the advance freight might go directly to the second defenders, but whether it did or not might depend on circumstances beyond their knowledge. The contractual arrangements between the first and second defenders were more complex than a simple assignation of the advance freight by the former in favour of the latter. In the first place the assignation was in security, not absolute. There is no averment that an event of default had occurred. But until the occurrence of such an event, the second defenders had in terms of Clause 2.3 of the General Assignment certain rights in respect of the advance freight paid into the Aliki Earnings Account. In particular, under Clause 12.3 FIRST of the Loan Agreement the second defenders were irrevocably and unconditionally authorised to apply the sums credited to the account in payment of certain sums due under the security documents (although it does not appear from No. 7/11 of process that any such application was made); and under Clause 12.3 SECONDLY they were similarly authorised to make transfers to the Retention Account both in respect of repayments of instalments of capital of the loan and in respect of interest payments. The second defenders were authorised to apply the sums in the Retention Account to satisfy the first defenders' obligations under the loan as they arose (Clause 12.6). The rights of the first defenders under Clause 12.3 THIRDLY and FOURTHLY to make use for their own purposes of the sums at credit of the Earnings Account were subordinate to the rights of the second defenders under parts FIRST and SECONDLY of the clause, and also subject to the further right of retention conferred on the second defenders by Clause 12.5. Whether the powers conferred on the second defenders to deal with the sums at credit of the Earnings Account for their own benefit, and the way in which those powers were actually exercised in the particular case, are sufficient to make it appropriate to treat the second defenders as recipients of, and benefited by, the payment by the pursuers of the advance freight to the credit of the Earnings Account, is an issue which it would in my opinion be better to resolve after proof, when parties have had an opportunity of laying the circumstances fully before the court in evidence. The true significance of the payment of US$250,000 to the first defenders' managers - whether illustrative of the first defenders' ability to use the sums at credit of the Earnings Account for their own purposes, or something achieved only of consent of the second defenders - seems to me also to be a matter which requires to be resolved after proof. So too does the question as to the timing of that payment - whether the fact that the debit entry in respect of that sum appears in the account (No. 7/11 of process) before the credit entry in respect of the advance freight means that the advance freight should be regarded pro tanto as having been applied by the second defenders in extinction of an overdraft, and thus in accordance with the dictum in Agip (Africa) as having been received by the second defenders as principals for their own benefit. Whil

Relevancy - Second Defenders' Plea - Constructive Trust

In the eighth conclusion of the summons the pursuers seek payment by the second defenders of the sum of US$78,768.62. The relative plea-in-law is in the following terms:

"11.

The second defenders, having wrongly and in breach of trust applied in discharge of an indebtedness to them of the first defenders the sum of US$78,768.62 from sums held on constructive trust for the pursuers, and having done so with knowledge of said constructive trust or the circumstances from which it arose, decree should be pronounced as eighth concluded for."

The case of breach of constructive trust made by the pursuers against the second defenders is built upon the allegation, in article 9 of the condescendence, that if (contrary to their primary contention) the advance freight was received for the benefit of the first defenders, the first defenders, from no later than 21 November 1997 when notice of abandonment of the voyage was given, held what then remained of the advance freight in the Earnings Account and the Retention Account on constructive trust for the pursuers. The allegation of constructive trust against the first defenders is made primarily as a matter of English law, and Mr Kinroy accepted that it fell to be admitted to proof before answer. He eventually accepted that the token averment "Alternatively the constructive trust arises as a matter of Scots law" should also be admitted to proof before answer. The case of breach of constructive trust against the second defenders is set out in article 11 of the condescendence. It is to the effect that on 3 December 1997 the second defenders debited the Retention Account with the sum of US$79,768.62, in respect of interest due to them under the Loan Agreement, knowing that the funds from which that payment was taken were then held by the first defenders on constructive trust for the pursuers. In submitting that that case was irrelevant, Mr Davidson concentrated attention on one aspect of the matter, namely what he characterised as the averments of constructive knowledge on the part of the second defender. The averments which he criticised are in the following terms:

"Separatim in terms of clause 5.2.8 of the Deed of Covenants the first defenders were required to notify the second defenders by telex or fax (a) of any accident to the vessel or incident which is or likely to be a Major Casualty i.e., a casualty or incident in respect of which claims against insurers are likely to exceed US$100,000 and (b) any occurrence resulting in the vessel becoming or being likely to become an actual or constructive total loss. It was apparent on the occurrence of the breakdown in October 1997 that the incident was likely to be a Major Casualty as therein defined. By 21 November the first defenders had made a decision to declare the vessel a constructive total loss and to abandon the voyage. On 21 November 1997, as hereinbefore condescended upon, they informed the pursuers of that fact by fax from their managers. Said fax was copied to representatives of the first defenders' insurers, Ocean P & I Services Limited and to Richard Hogg International Limited, average adjusters. There was no reason for the first defenders to attempt to keep the incident secret from the second defenders. They would not have been able to do so and would have known that. In the circumstances believed that the first defenders complied with their obligation under the Deed of Covenants and notified the second defenders on or before 21 November of the fact of the incident, of the fact that they regarded the vessel as a constructive total loss, and of the fact that the voyage was being abandoned. Upon being so informed the second defenders knew of the facts giving rise to the obligations on the part of the first defenders to repay the advanced freight. They knew of the facts giving rise to the constructive trust. They knew or ought to have known that the first defenders were under an obligation to repay the advance freight to the pursuers. They knew or ought to have known that the sums in the Retention Account hereinbefore particularised were trust moneys belonging beneficially to the pursuers. They knew or ought to have known of the fiduciary relationship arising out of such circumstances between the pursuers and the first defenders. ... They knew or ought to have known that such moneys belonged to the pursuers as part of the advance freight held on constructive trust by the first defenders. They knew or ought to have known that they were not entitled to use these moneys to discharge or reduce the first defenders' indebtedness to them."

Mr Davidson submitted that those averments periled the pursuers' case on constructive knowledge, and that there was no relevant averment of actual knowledge. Regard had to be paid also to averments in earlier articles of the condescendence, in particular in Article 5 concerning the application of the Hague-Visby Rules to the question of whether advance freight was repayable, and in Article 8 in relation to the awareness of mortgagee banks of the possibility that advance freight might have to be repaid, and the basis for the pursuers' belief that the second defenders were aware of the terms of the charterparty. On these averments it could not be said that the pursuers actually had the knowledge requisite to place them in the position of constructive trustees.

In support of his submission that constructive knowledge was not enough to fix the second defenders with liability Mr Davidson referred to Paget, Law of Banking, 11th Edn., pages 428-432 and to Thomson v Clydesdale Bank [1893] AC 282, (1893) 20 R (HL) 59, Baden v Sociéte Générale SA [1992] 4 All ER 161, Eagle Trust plc v S B C Securities Limited [1993] 1 WLR 484, Cowan de Groot Properties Limited v Eagle Trust plc [1992] 4 All ER 700, and Polly Peck International plc v Nadir (No. 2) [1992] 4 All ER 769. The breach of constructive trust alleged against the second defenders falls into the category referred to in the authorities as "knowing receipt", and the broad proposition, as set out in Paget at page 429, is that:

"A bank may become liable as constructive trustee under this head if it receives trust property with knowledge that the transfer to it is in breach of trust, or if it deals with the property in a manner inconsistent with the trust after acquiring knowledge of the trust."

There is much discussion in the authorities cited of the nature and the degree of knowledge that must be possessed by or imputed to the alleged constructive trustee before he can be held liable. Mr Davidson's position was that the weight of the authorities required actual rather than constructive knowledge, and that the pursuers had failed to make adequate averments of actual knowledge on the second defenders' part of the facts necessary to support the conclusion that at the date when they withdrew the US$79.768.62 from the Retention Account the sums held therein were held by the first pursuer on a constructive trust for the pursuers. Mr Glennie's submissions proceeded on the same authorities as Mr Davidson's, but advanced a different view of the effect of the pursuers' averments, which he maintained asserted actual knowledge on the part of the second defenders, albeit they did so on an inferential basis. It was not appropriate to attempt to define precisely at the stage of examining the relevancy of the pursuers' pleadings what knowledge would, and what knowledge would not, be sufficient to establish liability on the part of the second defenders, especially since that issue had not been clearly resolved as a matter of authority. The decision should only be made after evidence had been heard.

In my opinion the pursuers' averments are properly to be seen as averments of actual knowledge on the part of the second defenders (a) of the terms of the charterparty and (b) of the decision to abandon the voyage and treat the vessel as a constructive total loss. So far as the charterparty is concerned, they aver that in terms of Clause 6.1.1 of the General Assignment the first defenders were obliged to notify the second defenders forthwith of the details of each contract, and supply a copy as soon as practicable. That is, in my view, when taken in conjunction with the presumption in favour of regularity, a sufficient basis for the averred belief that the first defenders complied with that obligation in relation to the charterparty between them and the pursuers. It is open to the defenders, if they maintain that they did not receive a copy of the charterparty, to say so; but in the absence of such a contention I am of opinion that the pursuers have said enough to enable the inference to be drawn that the second defenders were aware of the terms of the charterparty. So far as the constructive total loss is concerned, the pursuers' averment of the first defenders' obligation under Clause 5.2.8 of the Deed of Covenants to notify the second defenders of any incident amounting to a Major Casualty, when taken with the averment that the pursuers and the first defenders' insurers were promptly informed, is a sufficient basis, in my view, for the inference which the pursuers seek to draw that the second defenders were likewise duly informed. Again, it is open to the second defenders to undermine that inference if they can.

I am of opinion that in these averments the pursuers have said enough to make it appropriate to allow a proof before answer on the averments in support of the eighth conclusion. In taking that view I am mindful (i) of the fact that the case of constructive trust against the second defenders is closely bound up with, and dependent upon, the case of constructive trust against the first defenders; (ii) that the case of constructive trust against the first defenders is said primarily to be governed by the law of England, and the relevancy of the averments in support of it was not challenged at this stage and is therefore a matter for resolution after proof before answer; (iii) that the authorities relied upon in connection with the nature and degree of knowledge required to support the case of constructive trust against the second defenders are almost all English; and (iv) that the law discussed in those authorities does not seem to be wholly settled. These considerations all reinforce me in the conclusion that the appropriate course is to allow a proof before answer on all aspects of the constructive trust cases against both defenders.

Relevancy - Second Defenders' Plea - Fifth and Seventh Conclusions

In the fourth and sixth conclusions the pursuers seek declarator that sums at credit of the Aliki A Earnings Account and the Retention Account respectively belong to the pursuers. The relative averments in Article 9 of the condescendence make it clear that these claims proceed on the hypothesis (contrary to that which underlies the repetition claim against the second defenders made in the third conclusion) that the advance freight was paid to the second defenders merely as bankers or agents for the first defenders, and that any obligation of repayment would fall on the first defenders. On that hypothesis, the contention is then put forward that the first defenders hold such sums as remain in the two account on constructive trust for repayment to the pursuers. It is as part of working out the consequences of that contention that in the fifth and seventh conclusions decree of payment is sought against both defenders in respect of the sums remaining at credit of the two accounts.

In respect of this part of the pursuers' case, Mr Davidson's simple submission was that on the hypothesis on which it proceeded, there was no ground for holding the second defenders liable to make payment. Mr Glennie submitted that it was appropriate that the fifth and seventh conclusions should be directed against the second defenders as well as the first defenders, to secure that in the event of decree passing, they as well as the first defenders were bound by it.

In my opinion the fifth and seventh conclusions so far as laid against the second defenders are misconceived. The hypothesis on which these conclusions proceed is that the first defenders received the advance freight. On that hypothesis the second defenders have no liability to make payment. If the pursuers succeed in making good their contention that the sums at credit of the two accounts are held by the first defenders on a constructive trust for them, no decree against the second defenders is necessary or appropriate to enforce that trust obligation. I am therefore of opinion that there are no relevant averments supporting these conclusions so far as laid against the second defenders. The second defenders are therefore in my opinion entitled to decree of dismissal in respect of these conclusions.

Competency

In making his initial submissions Mr Kinroy intimated that he would argue that the fifth and seventh conclusions were incompetent. He did not, however, at that stage address that point in argument. After Mr Davidson had made the submission recorded above against the relevancy of the averments in support of those conclusions so far as directed against the second defenders, Mr Kinroy returned to his submission that the conclusions were incompetent. His point was in part the same as Mr Davidson's, namely that in the circumstances decree for payment could not be pronounced against both defenders, and partly that the form of conclusion was inept, in so far as it sought an order for payment from a particular fund, namely the sum at credit of a named bank account. Since I have decided to grant decree of dismissal in favour of the second defenders in respect of these conclusions, the first part of Mr Kinroy's argument falls away. In my opinion, however, there remains force in the latter point. If the pursuers were to succeed in establishing that the sums at credit of the Aliki A Earnings Account and the Retention Account are held by the first defenders on constructive trust for the pursuers, I have no doubt that an appropriate form of decree to secure transfer of those funds to the pursuers could be devised. I am satisfied, however, that a decree for payment by a customer of a bank of the sum standing at credit of an identified bank account is not a competent form of decree. I shall therefore sustain the first defenders' plea to competency to the effect of granting in the first defenders' favour decree of dismissal in respect of the fifth and sixth conclusions. If the pursuers wish to seek leave to amend to insert into the summons differently framed conclusions to take their place, that motion can be considered when made.

Relevancy - Pursuers' Plea

The pursuers' submission was that there was no relevant defence to the case of breach of contract upon which the first conclusion rests, and that accordingly the first defenders' sixth plea-in-law should be repelled, and proof restricted to quantum of damages. In the course of the debate, a motion was intimated on the pursuers' behalf for summary decree under Rule 21.2 to the same effect. In support of that submission, Mr Glennie pointed to the averment in article 3 of the condescendence that it was the first defenders' obligation under the charterparty (Clause 6) to proceed upon the voyage with all convenient speed and deliver the cargo to Umm Qasr. If (as Mr Kinroy subsequently accepted was the case, although it is not formally admitted) the vessel failed to carry the cargo to Umm Qasr, the first defenders were prima facie in breach of contract, and it was for them, if they sought to resist liability, to set out a relevant excuse for not completing the voyage. In response, Mr Kinroy pointed out that there was no admission of breach of contract. In a case where the pursuers aver both breach of contract and frustration, it may turn out after proof that there has been no breach of contract. Moreover, in terms of Clause 8 of the charterparty the first defenders were not answerable for inter alia "any latent defect in the machinery or hull not resulting from want of due diligence by the Owners of the ship ... or by the ship's Master". Here, while it was accepted that the vessel did not reach Umm Qasr, the pursuers had not based their case on that simple fact. They had averred the cause of the failure in terms if engine breakdown which might well be latent defect. Mr Kinroy indicated, as I understood him, that it was the first defenders' position that there was a latent defect within the scope of the exception in Clause 8, although there is no positive averment to that effect in their defences. The frustration case was also inconsistent with the reason for the failure of the vessel to reach Umm Qasr constituting breach of contract (Scrutton on Charterparties pages 23-27; Blane Steamships Limited v Minister of Transport [1951] 2 KB 965).

In my opinion the fact that the pursuers make averments of frustration is of no assistance to the first defenders, because as Mr Glennie pointed out the frustration case is prefaced with the words "Alternatively, esto the first defenders were not in breach as hereinbefore condescended upon...". If the first defenders have no relevant defence to the averments of breach of contract, that alternative hypothesis does not arise for consideration.

It seems to me that if it is indeed the position of the first defenders that the reason for the failure of the voyage was a latent defect in the vessel's machinery not resulting from want of due diligence on their part or that of the Master, it is regrettable that that point is not positively and candidly stated in their defences. With some hesitation, however, I have come to the conclusion that since the pursuers have chosen to make averments about the cause of the failure of the voyage in terms of engine breakdown, they have founded on circumstances which may, but do not necessarily constitute breach of contract on the first defenders' part. I am therefore not prepared to go so far as to hold that in the circumstances of this case the first defenders' denial of breach of contract is irrelevant, or that (in terms of Rule 21.2) there is no defence on the merits to the first conclusion.

Summary

In the result, therefore, I shall:

repel the first defenders' first plea-in-law;
of consent, repel the first defenders' second plea-in-law;
of consent, repel the first defenders' third plea-in-law;
sustain the second defenders' first plea-in-law, but only to the extent of excluding from probation the pursuers' averments in support of the fifth and seventh conclusions so far as laid against the second defenders, and accordingly grant decree of dismissal in favour of the second defenders in respect of the fifth and seventh conclusions;
sustain the first defenders' seventh plea-in-law, and accordingly grant decree of dismissal in their favour in respect of the fifth and seventh conclusions; and

quoad ultra allow to parties a proof before answer of their respective averments.

The case will be put out By Order with a view to discussing future procedure.

OPINION OF LORD MACFADYEN

in the cause

COMPAGNIE COMMERCIAL ANDRE S.A.,

Pursuers;

against

(FIRST) ARTIBELL SHIPPING COMPANY LIMITED AND (SECOND) THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND,

Defenders:

________________

Act: Glennie

Henderson Boyd Jackson, W.S.

Alt: Kinroy

Anderson Strathern, W.S.

(First Defenders)

Davidson, Q.C.

Biggart Baillie, W.S.

(Second Defenders)

7 January 1999