OUTER HOUSE, COURT OF SESSION |
|
|
OPINION OF LORD HAMILTON in the cause CALEDONIA SUBSEA LIMITED Pursuers; against MICOPERI SRL Defenders: ________________
|
Pursuers: Swanson, Maclay Murray & Spens
Defenders: Murphy, Q.C., Henderson Boyd Jackson, W.S.,
9 March 2001
[1] In about March 1998 Mr Michael Chew and Mr Michael Kochalski, who both had substantial prior experience as employees in the provision of commercial diving services to the oil and gas industry, set about establishing their own business. They acquired equal shares in the pursuer, then a Scottish shelf company, and were appointed its sole directors. Trading began in about June 1998 from offices at East Tullos, Aberdeen. While the company continued to trade, as it did until some time in 2000, its only place of business was at East Tullos, where also was its registered office. The company's secretary was an accountant with premises in Aberdeen. An office manager, Mrs Sheila Aitken, was employed by the company and worked from its premises at East Tullos. The company also obtained the services of a full time project manager, Mr Macintosh. The latter operated through his own company, established in Aberdeen, which undertook to provide his personal services to the pursuer.
[2] The pursuer's initial major contract was for the provision of commercial diving services to a French company operating in the North Sea. For that purpose it engaged a number of commercial divers. In about the autumn of 1998 a business acquaintance drew the pursuer's attention to the defender, a body incorporated in Italy and having its principal place of business at Ravenna, as a company which might have a need for the pursuer's diving services. Telephone contact was made, followed by a fax dated 9 December 1998 in which Mr Chew gave to Mr Baynham, a Canadian providing consultancy services to the defender in Italy, indicative rates for diving services. That fax suggested that for work outside Europe "we would contract via our overseas company Caledonia Subsea International". In fact, no such company had at that stage been established or, in the event, was ever established. As at December 1998 Mr Chew and Mr Kochalski were in discussion with their accountant as to the corporate structure which in fiscal terms would best suit overseas business. The establishment of an overseas company was mentioned in that context but in the event a decision was reached not to take that notion further. The contract with which this action is concerned was entered into by the pursuer as principal for the provision of diving services by it.
[3] There is an outstanding issue as to whether the other party to that contract was Micoperi Limited Liability Company (a company established in Texas, USA) rather than the defender. But that issue does not require to be resolved at this stage. The issue presently for determination is what is the law applicable to the contract for diving services which was entered into (and at least in part performed) in 1999 between the pursuer on the one hand and the defender or Micoperi Limited Liability Company on the other. For present purposes only I shall refer to the latter two companies indiscriminately as "the defender". Determination of the applicable law (the alternatives being Scots law and the law of the Arab Republic of Egypt) is an important preliminary to determination of whether this court has jurisdiction to entertain this action, in which the pursuer seeks payment of a balance of monies allegedly due in respect of the diving services provided. I heard a preliminary proof on the issue of the applicable law, in which evidence was adduced by the pursuer from Mr Chew and Mr Kochalski and by the defender from Mr Baynham.
[4] Following meetings (in Ravenna and in Houston, Texas) among personnel on either side, during which an accord was reached as to possible mutual business, the pursuer was towards the end of July 1999 approached for a quotation of the rates it would charge to provide a team of divers (and related personnel) for a project in Egypt. By fax dated 28 July Mr Kochalski provided to Mr Baynham in Ravenna daily rates for members of such a team (the proposed team of 17 to comprise a superintendent, 2 supervisors, 2 life support supervisors, 2 life support technicians and 10 divers, 4 of the last in saturation) and provisional dates for mobilisation. The pursuer then arranged with A.B.C. Maritime, a Swiss company, for the services of personnel to make up that team and any replacements for the members of it. The qualifications of the potential individual members of the team were vetted by the pursuer's management at Aberdeen. The pursuer also at Aberdeen provided through its project management a documentation package on diving rules, regulations and procedures, some of it of general application and some customised for the particular project. The pursuer's management took the view that the safety standards to be applied on the contract should be consistent with those applicable in the North Sea, though the daily rates ultimately agreed reflected lower rates than those generally obtained there. The members of the team were all English speakers (this being an important qualification for safety communication and other reasons), though they were of various nationalities.
[5] In the course of a subsequent telephone conversation Mr Kochalski agreed to reduce the rates quoted in the fax of 28 July. Mr Baynham then, by fax transmitted on 5 August from Ravenna to Aberdeen, confirmed the engagement of the pursuer at the reduced rates. This was in turn confirmed by a fax transmitted on 6 August from Aberdeen to Ravenna (which included an identification of some of the members of the team) and finalised by a fax transmitted on 11 August from Ravenna to Aberdeen. The rates agreed, which were on a daily basis and were expressed in US dollars (the usual currency in the international oil and gas industry), were related to the commercial market where the work was to be carried out, namely, Egypt. Those rates had built into them the cost of overheads, such as that of the project manager in Aberdeen.
[6] By that time it had become clear that the diving services were required to assist with "post trenching" of a pipe-line already laid on the Mediterranean seabed in connection with the Ha'py Field Development Project. A gas well (Ha'py 1) had been drilled in the seabed some 40 kilometres north of the headland Ras el Barr, which lies some distance west of Port Said. Two pipes, one of 24 inches and the other of 3 inches in diameter, ran together from the rig at Ha'py 1 to a terminal on the Egyptian coast at a point between Port Said and Ras el Barr. The operation on which the defender was engaged included the carrying out of trenching in the immediate vicinity of the pipe-line, the objective being that the pipe-line should sink into the trench which would then be backfilled, either naturally or by machine. The trenching was to be done by specialist machinery lowered from a vessel. Diving services were required to effect fine adjustments under water to the positioning of that machinery. Divers might also be required by way of preparatory work to manipulate the smaller diameter pipe which was liable to become detached to some extent from the larger diameter pipe. The work on which the divers provided by the pursuer were to work was solely on the deeper stretches of the pipe-line, that is, from about 80 metres in depth in the vicinity of the rig to about 20 metres in depth closer to the shore. That work was all beyond 6-7 kilometres from the shore. The operations (including diving services) carried out nearer to the shore were effected by companies other than the pursuer.
[7] Although the situation in relation to territorial limits is not on the evidence wholly clear, it may reasonably be taken that the Arab Republic of Egypt had on some legal basis jurisdiction over the area from which the gas reserves were being recovered. In any event, the pursuer admits in its pleadings that it was retained in relation to a construction project "in Egypt". Accordingly, it may be taken that all the operations in the Ha'py Field Development Project, including those on which the pursuer was engaged, took place in Egyptian waters and in respect of apparatus forming part of the Egyptian permanent or semi-permanent infrastructure. In addition, although the pursuer's management did not see it until very much later, the contract on which the defender was engaged was a subcontract between it as subcontractor and The Petroleum Projects and Technical Consultation Co. ("Petrojet") as main contractor, the latter being an Egyptian company. Petrojet was itself acting under a main contract in which the employer was Gulf of Suez Petroleum Company ("GUPCO"), another Egyptian company, it in turn acting on behalf of various interests (including two companies registered in the Netherlands) under a Concession apparently granted by the Government of the Arab Republic of Egypt. The main contract was subject to an express choice as governing law of the Laws of the Arab Republic of Egypt. That provision, it was accepted before me, was also incorporated by reference into the subcontract between Petrojet and the defender. Such contractual provision was unsurprising in the context of work to be performed in such a geographical location; it was normal, at least where the engaging party was established in that location. The main contract also contained an arbitration clause for settlement of all disputes under the Rules of the Regional Center for International Commercial Arbitration in Cairo. Both those contracts were written in the English language, the generally adopted language in the international oil and gas industry. All communications, written and oral, between the pursuer and the defender were also in that language.
[8] The defender chartered for the purposes of its work a vessel, DSV Bergen Viking, owned by Mohn Drilling, a Norwegian company, and operated by a Norwegian crew but sailing under a Bahamian flag. The defender also arranged for the provision on that vessel of saturation diving equipment, including a diving bell, living chamber for the divers in saturation and various control functions. It was arranged between the pursuer and the defender that a forward party comprising four members of the pursuer's team would join the DSV Bergen Viking at Dundee in Scotland with a view to familiarising themselves with the diving equipment as the vessel sailed to the Mediterranean. It was intended that the remainder of the team would join the vessel at Siracusa in Sicily before it proceeded thence to the Ha'py Field.
[9] The DSV Bergen Viking was constructed with a "moon pool", through which a diving bell could be lowered into the sea, but after its arrival at Dundee it became apparent that some physical modifications would be required before the diving equipment provided could be used safely on that vessel. Moreover, some pipe-work connections for the diving equipment still required to be made. The defender arranged for relative parts to be delivered to Siracusa for fitting there.
[10] In the event there were delays in completing the arrangements to allow operations to commence at the Ha'py Field. The vessel, having sailed from Dundee early in August, arrived at Siracusa about the middle of that month. It remained in that port until about the end of August during which time some of the outstanding fitting work was carried out, part of it by members of the pursuer's team who had relative additional skills, the balance of that team having joined the vessel over the period while it was at Siracusa. The vessel then sailed to Malta to fuel, returned to
Siracusa to pick up further equipment and then proceeded to Port Said from where it ultimately sailed to the Ha'py Field arriving there in about the third week in September, when work started.
[11] On board the vessel during the diving operations, in addition to the Norwegian crew and the pursuer's team, were one or two representatives of the defender. During the post trenching operations a technical crew of Italian personnel was also on board, some of these being employees of the defender. A representative of GUPCO and/or of Petrojet came on board almost daily.
[12] The pursuer had no place of business or representative on the Egyptian mainland. The defender had two representatives there, a Mr Schiaretti, responsible for logistics supervision and stationed at Port Said, and a Mr Gazolla, responsible for project management and stationed at Cairo. The defender also engaged the services of an Egyptian customs and freight forwarding agent, Delmar Marine Transport, of Port Said. Supplies for the vessel while on station at the Ha'py Field passed through Port Said, where also the vessel would seek refuge in the event of bad weather. Emergency diving gas supplies were stored there for part of the period of the work. Arrangements for the transfer between Cairo airport and the vessel of replacements for members of the pursuer's team were handled through the defender's representatives or agent. Such changes in personnel typically occurred every
4-6 weeks. The organisation of replacements was carried out by the pursuer's project manager in Aberdeen. This included travel arrangements as far as Cairo airport. Travel arrangements for original team members joining the vessel at Dundee or at Siracusa were also organised in Aberdeen. On one occasion a diver in the pursuer's team received emergency medical treatment in Egypt. In early December the DSV Bergen Viking was briefly in dry dock in Israel for immediate repairs.
[13] The pursuer's team carried out diving operations under the contract from about mid-September 1999 until about the end of that year. By the latter time relations between the parties had broken down. Concerns had arisen by November about due payment to the pursuer. Mr Kochalski visited Egypt in November and again in December, where he met the defender's project manager and, separately, personnel from GUPCO. The diving operations were ultimately completed by the pursuer early in 2000 under a separate arrangement not involving the defender. In so far as payments were made to the pursuer under the present contract (as they were on two occasions) these were made to the pursuer's bank account in Aberdeen, its only bank account.
[14] During the subsistence of the contractual operations the superintendent (the senior member of the pursuer's team) reported daily from the vessel to the pursuer's management in Aberdeen, usually by e-mail and sometimes by satellite telephone. Such reports included matters relating to safety issues. Although decisions on such matters were generally taken on the spot, on one occasion a safety issue required to be referred for decision to the pursuer's management in Aberdeen. This occurred when a "through water" acoustic communication system between the vessel and the diving bell broke down. Other interested parties wished diving operations to continue (to avoid adverse financial consequences) but the pursuer's management in Aberdeen insisted that these operations be discontinued until that system was again functioning. During the currency of the operations, communication between the pursuer and the defender (other than between personnel on the vessel) was by fax between Aberdeen and Ravenna.
[15] The service for which the pursuer was engaged was the provision of a diving team but in the event certain additional services were also provided. An arrangement was made whereby diving gas supplies (for which the defender was responsible) were purchased by it from Global Gas Supplies Limited, an Aberdeen company, through the pursuer. This was essentially an accounting exercise entered into to avoid a commercial problem for the defender. The pursuer also obtained for the defender in Aberdeen certain other supplies. These elements were, however, under separate contractual arrangements than those for the diving services and were, in any event, in relation to the parties' relationship as a whole, of relatively minor importance.
[16] There was no serious conflict among the three witnesses who gave evidence. The above facts emerge from their testimony and the documentary productions, all as supplemented by certain matters admitted in the parties' pleadings.
[17] The Contracts (Applicable Law) Act 1990 provides that certain Conventions, including the Rome Convention, shall, with certain exceptions, have the force of law in the United Kingdom. An English language text of the Conventions is set out in Schedule I to the Act. Article I.1 of the Rome Convention provides that its rules "shall apply to contractual obligations in any situation involving a choice between the laws of different countries". It is thus immaterial, albeit the Rome Convention is an instrument of what is now the European Union, that one of the laws in question in this action is the law of a country outside that Union. Article 3 confers on parties freedom of choice as to the law to govern their contract. No such choice was exercised here.
Article 4, in so far as material, provides -
"1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.
2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party's trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.
3. Notwithstanding the provisions of paragraph 2 of this Article, to the extent that the subject matter of the contract is a right in immovable property or a right to use immovable property it shall be presumed that the contract is most closely connected with the country where the immovable property is situated.
....
5. Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country".
Paragraph 4 sets out a presumption concerned with a contract for the carriage of goods.
[18] Among the matters which, by section 3(3) of the Act, may be considered in ascertaining the meaning or effect of any provision of the Rome Convention is the report on it by Professor Mario Guiliano and Professor Paul Lagarde ("the Report"), to be found at O.J.1980 C282. Any question as to the meaning or effect of any provision of the Convention is to be determined in accordance with the jurisprudence of the European Court of Justice (section 3(1) and (2)).
[19] In this case it is now undisputed (1) that the pursuer was a party to the contract in question, (2) that the performance which is characteristic of that contract was the provision of diving services, (3) that the pursuer was the party who was to effect that performance and (4) that the principal (indeed the only) place of business of the pursuer at the time of conclusion of the contract was in Aberdeen. In these circumstances Mr Murphy for the defender conceded that, if the presumption set out in Article 4.2 fell to be applied, the contract was most closely connected with Scotland and that Scots law would accordingly be the applicable law. However, he submitted that that presumption fell by virtue of Article 4.5 to be disregarded as it appeared from the circumstances as a whole that the contract was more closely connected with the Arab Republic of Egypt; accordingly the applicable law was the law of that country (hereinafter referred to as "Egyptian law"). Mrs Swanson for the pursuer submitted that the circumstances as a whole were such that the presumption in Article 4.2 did not fall to be "disregarded" and that the applicable law was accordingly Scots law. Neither party contended that the applicable law was Italian or any other law.
[20] In these circumstances it is convenient to summarise first the defender's contentions as to the proper approach to the construction and application of Article 4. Mr Murphy submitted that, in the absence of a law chosen by the parties, the primary guiding principle was that identified by Article 4.1, namely, governance by the law of the country with which the contract was most closely connected. The presumption in Article 4.2 was simply a convenient vehicle adopted against the circumstance that in most cases the party effecting the characteristic performance would be likely to do so in his own country. Where, however, the circumstances as a whole, including substantial performance in a country other than where that party had its principal place of business, raised other considerations, the position was otherwise. The presumption under Article 4.2 was a weak one and, where an Article 4.5 exercise had to be undertaken, would fall to be applied only where other considerations were evenly balanced. Reference was made to the report, particularly at C.282/19-23, and to an article by one of its co-authors, Professor Lagarde, entitled "The European Convention On The Law Applicable To Contractual Obligations: An Aplogia" and published in [1981] Virginia Journal of International Law, Vol.22:1 at pp.91 and following. Also cited by Mr Murphy were Dicey and Morris - The Conflict of Laws (13th Edition), especially at para.32-123, Bank of Baroda v Vysya Bank [1994] 2 Ll.L.R.87, Credit Lyonnais v New Hampshire Insurance Co [1997] 2 Ll.L.R.1 and Ferguson Shipbuilders Ltd v Voith Hydro 2000 S.L.T.229. In support of the subcontract being more closely connected with the Arab Republic of Egypt than with Scotland, Mr Murphy submitted (1) that any services provided by the pursuer's diving team other than in Egypt were merely preparatory to work in Egypt, (2) that the performance characteristic of the subcontract (namely, diving services) was provided in Egypt and in respect of the infrastructure of Egypt, it being to Egypt that all personnel and materials associated with the diving services gravitated, (3) that the daily rates of payment reflected performance in Egypt, (4) that the subcontract comprised part of a wider contractual structure governed by Egyptian law (and that the pursuer was at the time of contracting aware that local law would be likely to govern such a structure), (5) that the diving personnel supplied by the pursuer were truly international and (6) that the Egyptian mainland was the place from and to which supplies and personnel proceeded to and from the Field and the place to which resort was had for medical services, a safe haven for the vessel in bad weather etc. In contrast, the connection of the subcontract with Scotland or activity in Scotland was negligible.
[21] Mrs Swanson submitted that Mr Murphy's approach to the presumption in Article 4.2 was misconceived. The emphasis was not on the place of performance but on the place where the performing party had its base. In relation to the exercise under Article 4.5, one started with the scales weighed down in favour of the country identified under Article 4.2; the applicable law was that of another country only if other factors were clearly sufficient to raise and tip the balance in its favour. The social and economic base of the contract was, she argued, Aberdeen from which the service had been provided and to which payment was made; any benefit to the Egyptian economy was irrelevant. She cited the same authorities as Mr Murphy, with the addition of William Grant & Sons International Ltd v Marie Brizard Espana SA 1998 S.C.536 and Dicey and Morris - The Conflict of Laws at paras.32-111, -116 and -123. The presumption in favour of Scotland had not been rebutted in favour of Egypt. The pursuer, the party effecting the performance which was characteristic of the subcontract, had been formed in Scotland and had at all material times had its sole place of business there. The contract had been negotiated and performed wholly in the English language. Payment had been made to Aberdeen. The pursuer's directors, project manager and office manager had all been stationed in Scotland where important functions in respect of the subcontract had been performed. Those included the preparation of relative documentation, the arrangements for transportation and the decision, ultimately taken in Aberdeen, that diving operations should not continue so long as the through water communication system was not functioning. Diving gases and other supplies had been sourced from Aberdeen. The superintendent had reported back to Aberdeen on a daily basis. The place where the contract had been concluded was Aberdeen, where the finalising fax had been received. There was no preponderance of Egyptian elements - many non-Egyptian factors (including Norwegian and Italian) had played a part in the performance of the subcontract services. The circumstances as a whole did not point to that contract being more closely connected with Egypt than with Scotland.
[22] The rules for determination of the applicable law laid down by Article 4 plainly involve a marked departure from the principles which at common law formerly determined the "proper law" of a contract. One striking feature is that, while the rule established by Article 4.1 is that, in the absence of choice, the governing law is that of the country with which the contract is most closely connected (an objective criterion not apparently restricted to factors in existence when the contract was concluded), it is directed by paragraph 2 that, subject to paragraph 5, it is to be presumed that the contract is most closely connected with the country identified by applying the former paragraph. The use of presumptions is a material departure from the approach adopted in British courts immediately prior to the 1990 Act.
[23] It is observed in the Report (at p.C282/20) that "... the flexibility of the general principle established by paragraph 1 is substantially modified by the presumptions in paragraphs 2, 3 and 4 ...". The submission of the contract, in the absence of a choice by the parties, to the law appropriate to the characteristic performance "... defines the connecting factor of the contract from the inside and not from the outside by elements unrelated to the essence of the obligation ....." (Report p.C282/20). Although characteristic performance is central to the presumption, the country identified is not that of the place of such performance but that of the residence, central administration or principal place of business of the performer. The concept in paragraph 2, the Report suggests, may also be related to the general idea "that [the performer's] performance refers to the function which the legal relationship fulfils in the economic and social life of any country" and "essentially links the contract to the social and economic environment of which it will form a part" (p.C282/20). "Article 4(2) gives specific form and objectivity to the, in itself, too vague concept of 'closest connection'. At the same time it greatly simplifies the problem of determining the law applicable to the contract in default of choice by the parties. The place where the act was done becomes unimportant. There is no longer any need to determine where the contract was concluded, with all the difficulties and the problems of classification that arise in practice. Seeking the place of performance or the different places of performance and classifying them becomes superfluous" (p.C282/21). Paragraph 5 is discussed at p.C282/22. There it is stated -
"However, that paragraph also provides for the possibility of disregarding the presumptions in paragraphs 2, 3 and 4 when all the circumstances show the contract to have closer connections with another country. In this case the law of that other country is applied.
The grounds for the latter provision are as follows. Given the entirely general nature of the conflict rule contained in Article 4, the only exemptions to which are certain contracts made by consumers and contracts of employment, it seemed essential to provide for the possibility of applying a law other than those referred to in the presumptions in paragraphs 2, 3 and 4 whenever all the circumstances show the contract to be more closely connected with another country.
Article 4(5) obviously leaves the judge a margin of discretion as to whether a set of circumstances exists in each specific case justifying the non-application of the presumptions in paragraphs 2, 3 and 4. But this is the inevitable counterpart of a general conflict rule intended to apply to almost all types of contract".
[24] Although paragraph 5 speaks of the presumptions being "disregarded", it does not appear that this verb is intended in any different sense from "rebutted" - see Report, passim. It appears that the concept of "characteristic performance" draws heavily on Swiss law and practice (Dicey and Morris - The Conflict of Laws para.32-112).
[25] In approaching any question of the construction and application of the Rome Convention it is important, in my view, to bear in mind that it was designed to establish uniform rules in the field of private international law, rules which are to be interpreted and to have effect in accordance with the jurisprudence of the European Court of Justice. No decisions or expressions of opinion of that Court were cited to me; nor was reference made to any decisions made in courts of other signatories to the Convention. However, it is important to avoid viewing these new rules from a traditional British perspective.
[26] Having regard to the terms and structure of Article 4 and to the explanations given in the Report, I am of opinion that the presumption laid down by paragraph 2 was designed (in the interests of certainty and of the taking into account of social and economic considerations) prima facie to localise the contract in the country where the party to effect the characteristic performance is established. The place (or places) where the characteristic performance is to take place or in fact takes place is subordinated to the place of the performer's establishment. I am unable to accept Mr Murphy's submission that this is because performance will ordinarily take place in the country of such establishment. The true reason, it seems, is that the social and economic source from which the performance comes (and to which in ordinary course the economic benefit of payment may be expected to return) is in the country of establishment. If the place of performance had been the dominant factor, it would have been easy so to provide.
[27] Nor am I able to accept that, when paragraph 5 is seriously invoked, the presumption in paragraph 2 only has effect when other factors are evenly balanced. I agree with the suggestion in Dicey and Morris - The Conflict of Laws at para.32-123: "... that it would be inconsistent with the scheme and purpose of Article 4 for the presumptions to have no role except where other factors are evenly balanced, and that for the presumptions to be displaced it must be shown (which probably means clearly) that the contract has a closer connection with some other country" (italics in text). That passage also suggests, and I agree, that the presumption is, when one is carrying out an exercise under paragraph 5, of material weight. In Credit Lyonnais v New Hampshire Insurance Co Hobhouse L.J. at p.5 suggested obiter that the wording of Article 4 ", formally, makes the presumption very weak ...". He appears to have relied in that regard on the use of "disregarded" rather than "rebutted". But, while the choice of English verb is perhaps puzzling, I would, with respect, be unable to agree with the implication, if there be one, that in substance the presumption should be regarded as "very weak".
[28] In the application of paragraph 5 the place of performance of a contract can be a powerful factor, as it was in Ferguson Shipbuilders Ltd v Voith Hydro, where, in holding that the presumption under paragraph 2 was displaced, Lord Penrose observed obiter (at p.232H-I) that "it was [in Scotland] and there alone that Voith performed their contractual obligations". (Certain other factors, including the use of English rather than German as the language of the contract, in that case also pointed to Scotland). In the present case Mr Murphy submitted that substantial performance by the pursuer was in Egypt and in Egypt alone. In Dicey and Morris - The Conflict of Laws para.32-124 it is stated -
"Inevitably the solution of individual cases will depend on the facts, but in principle it is submitted that the presumption may most easily be rebutted in those cases where the place of performance differs from the place of business of the party whose performance is characteristic of the contract. It has already been seen that the presumption is designed to lead to the country of the residence or place of business of the party whose performance is characteristic, and that usually that country will coincide with the place of performance, because normally contracts are performed in the country of that party's place of business. The situations in which they are performed elsewhere may (but by no means inevitably) provide material to rebut the presumption".
[29] I accept that the place where the characteristic performance is effected is a material consideration for the purposes of paragraph 5. I also accept that in the circumstances of this case such performance was substantially, albeit not exclusively, in Egypt. It was there and there alone that actual diving operations took place. However, other activities connected with such operations took place outside Egypt. Necessary preparatory work took place at Siracusa and elsewhere en route from Dundee to Port Said. More importantly, activities critically linked to the diving operations were localised in Aberdeen. It was there that the pursuer's project management and administrative staff were based throughout the performance of the contract and it was to there that the superintendent reported daily. It was there that, as illustrated by the issue over diving without through water communication, matters of major consequence to the continuation of the diving operations were referred and decided - notwithstanding that day to day decisions were taken by the superintendent in Egypt. Accordingly, this is not a case in which the effecting of the characteristic performance was unrelated or insignificantly related to the country where the performer had its principal place of business at the time of the conclusion of the contract. There was a continuing and important connection between the latter place and the place of performance. Additionally it was to Aberdeen alone that payments under the contract were remitted.
[30] As to the contractual matrix, I do not regard the circumstance that the pursuer might have contemplated that the "superior" contract or contracts would be governed by Egyptian law as a material consideration. Once any question of choice of law under Article 3 ("express or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case") has been passed from, such contemplation is, in my view, irrelevant. It would amount to being influenced (illegitimately) by "considerations of inferred choice and connection with legal systems and not with questions of performance and the location of performing parties" (Credit Lyonnais v New Hampshire Insurance Co, per Hobhouse L.J. at p.7). I also doubt whether, at least in a case such as the present, the circumstance that the "superior" contracts had in fact Egyptian law as the chosen applicable law is of material significance to the application of paragraph 5. I acknowledge that Professor Lagarde (in the article in the Virginia Journal of International Law) suggests, by way of example, that a subcontract might be governed by the same law as that governing the principal contract between the contractor and the employer; but at least in circumstances where the subcontractor is "domestic" (rather than one nominated or approved by the local employer) the materiality of the contractual nexus is, in my view, of limited significance. The logic of such an argument would appear to require the same result down the whole contractual train (for example, in the present case to the contract between the pursuer and the Swiss company); that appears difficult to sustain. It is not suggested that the parties to the present contract are obliged to go to arbitration in Egypt - an arrangement that seems likely to be inconvenient to both. Nor is this a case (such as Bank of Baroda v Vysya Bank) where material confusion would be likely to arise by reason of different laws applying to interdependent contracts.
[31] As to the circumstance that the diving work related to Egyptian infrastructure, it appears to me that the relevant social and economic base is that of the country of the performer rather than the country in which are situated any structures or apparatus to which the performer's operations relate. Mr Murphy did not submit that paragraph 3 applied, no doubt recognising that even if the pipe-line could be regarded as immovable property the subject matter of the contract was not a right in immovable property or a right to use such property. The non-extension (as stressed in the Report at p.C282/21) of that paragraph to contracts for the construction or repair of immovable property appears to bring one back to the pre-eminent significance of the place of business of the performer.
[32] The Convention does not provide clear guidance as to the circumstances in which paragraph 5 will give rise to a different result from that emerging from paragraph 2. The Report refers to the judge having a "margin of discretion" and to circumstances "justifying" the non-application of the presumptions (p.C282/22). Professor Lagarde in footnote 35 to the article in the Virginia Journal of International Law states -
"The judge's discretion with respect to disregarding the presumption [in paragraph 2] is comparable to the judge's power in exceptional cases to sever a part of the contract ... [under the second sentence of paragraph 1]".
While that article does not carry the authority of the Report, the author's formulation suggests that the presumption is not lightly to be disregarded.
[33] The exercise under paragraph 5 is comparative ("more closely connected") but the fact that countries other than Scotland and Egypt had parts to play is not irrelevant to that exercise. The multi-national character of the operations in the present case tends, in my view, to favour the certainty of the presumptive country - not least where the alternative is the country of neither contracting party.
[34] Having weighed up all the factors relied on by each party (including but not restricted to those discussed specifically) I have come to the view that it does not appear from the circumstances as a whole that the contract in question is more closely connected with Egypt than with Scotland. In these circumstances it is not disputed that the applicable law is Scots law and I so hold.
[35] The defender has a plea-in-law (plea 2) to the effect that the pursuer has no title to sue the present action. That rests on the proposition that the subcontract was not entered into by the pursuer as principal but by it as agent for "Caledonia Subsea International". It was accepted by Mr Murphy at the hearing on evidence that it had been proved that the contract was entered into by the pursuer as principal and that the defenders' second plea should accordingly be repelled. I shall repel that plea and, in light of my finding as to the applicable law, put the case out By Order for discussion of further procedure.