Scottish Court of Session Decisions

In this action the pursuers seek payment by the defender of two sums of money allegedly due by him to them. The pursuers are a Belgian company which carries on insurance business. In 1993 they entered into a management agreement with the Baltic Insurance Group (Baltic) in terms of which the pursuers were appointed Baltic's sole agent in respect of the processing, underwriting and subsequent handling of all types of insurance. The agreement provided that the pursuers were to be paid certain fees in respect of such business. In about March 1994 the defender became the pursuers' General Manager, entrusted by them with their business. In particular, he was the sole person authorised to write business for the pursuers as agent for Baltic. In that capacity he wrote considerable business, on which premiums would have been paid from which the pursuers would have been entitled to their fees. In the event, it is alleged, the pursuers never received certain fees to which they were so entitled as the defender defalcated the funds and appropriated them to his own use.

These matters eventually came to light and the pursuers' initial enquiries revealed that the defender had misappropriated their funds to the extent of 23 million Belgian Francs in the 1995 accounting year. They confronted him with this discovery and he admitted misappropriation to that extent. The parties entered into a formal written agreement on 9 October 1995 (No. 5/1 of Process) in terms of which the defender admitted he had so used the pursuers' funds and agreed to a programme of repayment in return for which the pursuers agreed to refrain from initiating proceedings provided the repayment programme was met. It is averred that the programme has not been met. Repayment of the sums so misappropriated by the defender is therefore sought.

The matter came before me at Procedure Roll debate on the defender's first and second pleas-in-law. The first plea is a plea to the jurisdiction. Clause 10 of the said repayment agreement is a prorogation clause in these terms:-

Mr Marshall for the defender submitted that any money due by the defender to the pursuers is due under that agreement as long as it subsists. He further submitted that the present dispute fell within the terms of the prorogation clause and since only one court could have jurisdiction in terms of the Convention as implemented in the Civil Jurisdiction and Judgments Act 1972, that court was the Belgian Court. Article 17 of the Convention conferred exclusive jurisdiction where there was a written prorogation agreement in respect of disputes which arise out of a legal relationship. In this case the legal relationship between the parties was constituted by the 1995 Agreement and the disputes between the parties arise from it. Mr Marshall further submitted that in terms of the 1995 Agreement the pursuers agreed not to raise actions regarding the defalcations but to accept payment on the compromise therein contained. The dispute in this case covered "implementation" of the agreement and thus was covered by the prorogation clause. Mr Marshall submitted that any original right of action had been extinguished by implementation of the compromise agreement. He conceded that there was no authority on the point in Scotland, England or in Europe but referred me for any assistance they could give to the European cases of Zelger v Salinitri 1980 E.C.R. 89; Effer v Kantner 1982 E.C.R 828 and Arcado v S.A. Haviland 1988 ECR 1539. Mr Marshall for the defender further submitted that even if, as was here alleged, the defender was in breach of the primary obligations of the compromise agreement, the prorogation clause nevertheless applied still (Lep Air Services v Rolloswin 1973 A.C. 331 per Lord Diplock at 350B; Lloyds Bank v Bamberger 1993 SC 570; Bank of East Asia Ltd v Scottish Enterprise 1997 S.L.T. 1213.

In reply counsel for the pursuers submitted that the defender's arguments on jurisdiction missed the point of the action. The action was not brought in terms of the 1995 agreement and was therefore not an action to which the prorogation clause applied. The action was one in delict based on the defalcations by the defender. What was averred was that the defender has misappropriated the funds and the pursuers had agreed to stay their hand provided that the repayment arrangements were met. They had not been met and therefore the agreement no longer applied and the original sums were due. The only reason the compromise agreement is referred to in the pursuers' pleadings at all is because it is good pleading practice to aver admissions and the document contains an admission that certain sums are due (Hutchison v Henderson 1987 S.L.T. 338; Jackson v Glasgow Corporation 1956 S.C. 354). The document is a further adminicle of evidence that the original sums defalcated have not been repaid. The general rule as to jurisdiction provided for in the Convention relates to domicile (Article 2). Articles 5 and 17 are exceptions. Article 17 does not apply in this case which is based on delict and not on the contract which contains the prorogation clause.

In my opinion these submissions for the pursuers are well founded. It is plain from the pursuers' pleadings that their action relates to repayment of monies misappropriated by the defender (p. 9D and p.13D). The 1995 agreement is referred to simply as an admission by the defender that he had misappropriated the pursuers' funds. The action does not seek implementation of that agreement and is not therefore a dispute to which the prorogation clause applies. It is plainly an action in delict, relating to the defender's original fraudulent misappropriation. The obligation to make repayment or reparation in respect thereof cannot be said to be in any way "superseded" by the compromise agreement, at least so long as that agreement has not been implemented. In my opinion therefore this court has jurisdiction in terms of Article 2 of the Convention. Accordingly I repel the defender's first plea-in-law.

Mr Marshall for the defender also advanced an argument in support of his second plea-in-law to the relevancy of the pursuers' pleadings. The first conclusion seeks payment of 20,760,000 Belgian Francs with interest from 9 October 1995. He questioned how this sum could be arrived at as damages for defalcations by the defender prior to that date, that being the date on which the compromise agreement was reached. He pointed out that the defalcations alleged were specified in Article 3 of the Condescendence and totalled five heads of claim. The sums specified under those heads exceeded the sum sued for. Mr Marshall submitted that the answer to his question lay in the compromise agreement since once you deduct the repayments actually made by the defender from the sum agreed to be due in terms of the agreement you arrive at the sum sued for. Furthermore, the interest claimed was from the date of the agreement. Therefore, he contended, that although the pursuers say they are suing on the basis of delict they are actually suing on the basis of the contract. The consequence is that either the action is under the contract, in which case the prorogation clause applies, or all the averments regarding the defalcations are irrelevant as they bear no relation to the sum sued for.

Counsel for the pursuers submitted that the first conclusion was in proper form for a reparation action. The sum sued for is expressed as it is as being the sum that the pursuers believe that they can prove to be due and that they can corroborate by reference to the admission. The date from which interest is sought is entirely a matter for the pursuers. If it is too late in time then that is their loss. In any event, the date chosen, being the date of the defender's admission is the last date of any defalcation. There was certainly no defalcation after that date.

In my opinion the argument for the defender is misconceived. It cannot be said that by selecting the sum for which to sue as the sum admitted to be due the pursuers are in any way basing their case on an agreement to make repayment of that sum. Their case is clearly based on the fraudulent misappropriations of the defender which occurred before 9 October 1995. They have chosen to restrict the sum sued for to one which they allege can most easily be proved by reference to their factual averments and the admission by the defender. That in my view is entirely a matter for them. The same holds true, in my opinion, for the date selected in relation to the claim for interest. The pursuers had good and proper reasons for framing the first conclusion as they did.

Mr Marshall for the defender raised a final point, namely that the sum sued for in the second conclusion was already claimed as part of the sum sought in the first conclusion. That could be seen by comparing Article 3 with Article 5. Counsel for the pursuers accepted that that would seem to be so from the face of the Record but assured me that the sum second sued for was in fact a separate debt. He undertook to make that clear on record.

In the whole matter therefore I repel the first and second pleas-in-law for the defender and also the fifth plea-in-law for the pursuers which was not insisted on and allow parties a proof.