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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Kleinwort Benson Ltd v. City of Glasgow District Council [1997] UKHL 43; [1999] AC 153; [1997] 4 All ER 641; [1997] 3 WLR 923 (30th October, 1997)
URL: http://www.bailii.org/uk/cases/UKHL/1997/43.html
Cite as: [1998] Lloyds Rep 10, [1998] ILPr 350, [1999] AC 153, [1997] CLC 1609, [1998] Lloyds Rep Bank 10, [1999] 1 AC 153, (1997) 9 Admin LR 721, [1998] Lloyd's Rep Bank 10, [1997] UKHL 43, [1998] Lloyd's Rep 10, [1997] 4 All ER 641, [1997] 3 WLR 923

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Kleinwort Benson Ltd v. City of Glasgow District Council [1997] UKHL 43; [1999] AC 153; [1997] 4 All ER 641; [1997] 3 WLR 923 (30th October, 1997)

HOUSE OF LORDS

Lord Goff of Chieveley Lord Mustill Lord Nicholls of Birkenhead
Lord Clyde Lord Hutton

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE

KLEINWORT BENSON LIMITED
(RESPONDENTS)
v.

CITY OF GLASGOW DISTRICT COUNCIL
(APPELLANTS)

ON 30 OCTOBER 1997

LORD GOFF OF CHIEVELEY

My Lords,

The question in this appeal arises in the wake of the decision of your Lordships' House in Hazell v. Hammersmith and Fulham London Borough Council [1992] 2 A.C.1. In that case, the House held that an interest swap agreement to which a local authority was a party was ultra vires the local authority and so void ab initio. Between 7 and 15 September 1982 the appellants, City of Glasgow Council ("Glasgow"), entered into seven interest swap agreements with the respondents, Kleinwort Benson Ltd. ("Kleinwort"). Pursuant to the agreements, on various dates between 9 March 1983 and 10 September 1987 Kleinwort made payments to Glasgow totalling £807,230.31, and Glasgow made payments to Kleinwort totalling £79,152.41. Following the decision in Hazell, Kleinwort on 6 September 1991 commenced proceedings in the English High Court claiming restitution of the sums so paid by it to Glasgow. On 16 October 1991 Glasgow issued a summons claiming a declaration that the English High Court had no jurisdiction over the claim, over which the Scottish courts alone had jurisdiction. The appeal now before your Lordships' House relates to that issue of jurisdiction.

It is right that I should record at once why this question of jurisdiction is being so keenly fought. In England, the limitation period generally applicable to a claim such as this is six years, whereas in Scotland it is five years. That of itself makes England a more beneficial jurisdiction for Kleinwort, but only to the limited extent that Kleinwort could claim to recover about one sixth more in England than it could do in Scotland. However it appears that Kleinwort's anxiety to proceed in England is actuated by a more fundamental consideration. It seeks to take advantage of section 32(1)(c) of the Limitation Act 1980, for which there is no precisely equivalent provision in Scotland (cf. section 6(4) of the Prescription and Limitation (Scotland) Act 1973). The subsection provides that:

c

Reliance by Kleinwort on this provision in the present case faces the obstacle that the money was here paid under a mistake of law and, as English law stands at present, money so paid is not generally recoverable in restitution. However Kleinwort intends, in linked appeals pending before your Lordships' House (Kleinwort Benson v. Birmingham City Council [1997] Q.B. 380), to argue that the mistake of law rule should be judicially abrogated. If this argument should succeed the practical effect in the present case, if litigated in England, would be wholly to undo the contractual result (under which Glasgow would have emerged as the successful party) and to increase very substantially Kleinwort's restitutionary claim. It is substantially for this reason, the Appellate Committee was told, that this jurisdictional battle is so strongly contested. However these considerations have no impact on the question of the applicable jurisdiction, to which I now turn.

Pursuant to sections 16 and 17 of the Civil Jurisdiction and Judgments Act 1982, which incorporates the Brussels Convention on Jurisdiction and Judgments of 1968 into the law of the United Kingdom, Schedules 4 and 5 to the Act make provision for the modification of Title II of the 1968 Convention for the allocation of jurisdiction within the United Kingdom. In this appeal, your Lordships are concerned with three provisions of Title II as so modified, viz. Article 2 which falls within Section 1, concerned with General Provisions; and Article 5(1) and (3) which fall within Section 2, concerned with Special Jurisdiction. These provide as follows:

. . . . . . . .

. . . . . . .

. . . . . . . . .

It was the case of Glasgow that the English High Court had no jurisdiction over Kleinwort's claim because Glasgow was domiciled in Scotland and so, by virtue of Article 2, should have been sued in the Scottish courts. Kleinwort however claimed that the English courts had jurisdiction by virtue of four provisions including Article 5(1) and 5(3)--the only two provisions now relied on by Kleinwort.

The matter came before Hirst J. who held that none of the provisions relied on by Kleinwort applied, and so granted the declaration asked for by Glasgow. Kleinwort then appealed to the Court of Appeal. In relation to Article 5(1) and (3), the Court of Appeal sought a preliminary ruling from the European Court of Justice as to the interpretation of the corresponding provisions of the Brussels Convention. Written submissions were submitted to the Court not only by Glasgow and Kleinwort, but also by the European Commission, the United Kingdom, and three other member States--France, Germany and Spain. However Advocate General Tesauro expressed the opinion that the Court had no jurisdiction to deal with the question referred by the Court of Appeal, and his opinion was accepted by the Court. The Court concluded that, although the national law was based on the Brussels Convention, the Convention was not directly applicable. The Court of the Contracting State was free to decide whether the interpretation to be given by the Court of Justice was equally valid for the purposes of the application of the national law based on the Convention, and so the Court of Justice lacked jurisdiction to make the preliminary ruling asked for by the Court of Appeal.

The case therefore returned to the Court of Appeal and was heard by a reconstituted Court, none of the members of the previous Court being available. On 25 January 1996, the Court by a majority (Roch and Millett L.JJ., Leggatt L.J. dissenting) held, reversing the decision of Hirst J., that the claim fell within Article 5(1), and that on that basis the English High Court had jurisdiction. In the circumstances, the Court expressed no concluded view as to the application of Article 5(3). It is against that decision that Glasgow now appeals to your Lordships' House, with the leave of the Court of Appeal.

The applicable principles

Before I consider the reasoning in the judgments delivered by the members of the Court of Appeal, I feel that it is desirable first to set out some of the basic principles which underly the provisions in question. For this purpose I propose to put on one side Article 5(3), to which little attention was paid in argument before the Appellate Committee, and to concentrate on Articles 2 and 5(1).

(1) I wish first to stress that, although the European Court of Justice declined to provide the guidance asked for by the Court of Appeal, nevertheless it is clear that the courts of this country, in considering questions which arise under Schedule 4 to the Act of 1982, must have regard to the principles laid down by the Court of Justice in connection with Title II of the Brussels Convention, and any relevant decisions of the Court as to the meaning and effect of any provision of that Title: see section 16(3) of the Act. A contrast is therefore drawn with section 3(1), which provides that any question as to the meaning or effect of the Convention is to be determined "in accordance with the principles laid down by and any relevant decisions of the European Court." Even so, too much should not be read into this distinction, which appears to be drawn only to accommodate the fact that Schedule 4 forms part of the national law, and because there are parts of Schedule 4 which do not correspond with Title II of the Convention. It will however be a rare case in which a provision of Schedule 4 bears a materially different meaning from the corresponding provision in Title II: see O'Malley and Layton, European Civil Practice (1989), para.41.09. It follows that your Lordships' House should, in cases arising under Schedule 4, take the relevant decisions of the European Court of Justice fully into account.

(2) The first point which is clearly established in the European jurisprudence is that the basic principle is to be found in Article 2. This is the principle of domicile, viz. that a person domiciled in a part of the United Kingdom shall be sued in the courts of that part. This principle is expressed to be subject to the provisions of Title II, which includes the Special Jurisdiction in Section 2. Article 5, which falls within Section 2, states that a person domiciled in a part of the United Kingdom may be sued in another part of the United Kingdom in the circumstances specified in the paragraphs of the Article, including of course Article 5(1) with which we are here concerned. But it is clearly recognised that Article 5 is in derogation from the basic principle of domicile in Article 2 (see the Martin Peters case--Martin Peters Bauunternehmung GmbH v. Zuid Nederlandse Aannemers Vereniging Case 34/82 [1983] ECR 987, 1001), and that as a result the provisions of Article 5 are to be construed restrictively (see Kalfelis v. Bankhaus Schröder Case 189/87 [1988] ECR 5565, 5585, para. 19). In this connection, it is not to be forgotten that the defendant can always be sued in the courts of his domicile.

(3) Next, in considering the function of the various provisions of Article 5, it is to be remembered that these provisions exist "because of the existence, in certain clearly defined situations, of a particularly close connecting factor between a dispute and the court which may be called upon to hear it, with a view to the efficacious conduct of the proceedings": see the Martin Peters case at p. 1002 (para.11). In the case of Article 5(1), the relevant court is specified as being the court "for the place of performance of the obligation in question," which is described in the Jenard Report as the court of the place of performance of the obligation on which the claim is based. It is between the dispute and that court that a particularly close connecting factor is recognised to exist. Mr. Jenard, gives as an example proceedings for the recovery of fees, particularly where the obligation to pay must be performed where the services are provided.

(4) It follows that, in order to identify the relevant court, it is necessary first to identify the obligation in question. This was made plain in the case of de Bloos v. Bouyer (Ets. A. de Bloos S.P.R.L. v. Société en commandite par actions Bouyer Case 14/76 [1976] ECR 1497), in which the European Court of Justice held that the word "obligation" in Article 5(1) refers to "the contractual obligation forming the basis of the legal proceedings" (see p. 1508, para. 11). The Court of Justice subsequently affirmed that "the obligation" "cannot be interpreted as referring to any obligation whatsoever arising under the contract in question, but is rather that which corresponds to the contractual right on which the plaintiff's action is based": see Custom Made Commercial Ltd. v. Stawa Metallbau GmbH Case C-288/92 [1994] ECR I-2913, 2957 (para. 23).

(5) Within the scope of these principles, we can see the Court of Justice giving full effect to Article 5(1). For example:

(a) It was held in the Martin Peters case that membership of an association creates between the members close links of the same kind as those which are created between the parties to a contract, and that the obligations between them may be regarded as contractual for the purposes of Article 5(1). This was on the basis that the concept of "matters relating to contract" should be regarded as an independent or autonomous concept, to be interpreted by reference chiefly to the system and objectives of the Convention, and not by reference simply to the national law of the relevant Contracting State. See [1983] ECR 987, 1002, paras. 9, 10 and 13, applied in Powell Duffryn Plc. v. Wolfgang Petereit [1992] ECR I-1745, 1774, para. 15.

(b) In a case in which the plaintiff invokes the jurisdiction of the court of the place of performance, if the defendant denies the existence of the contract the court can consider the question whether there is a binding contract as one of the essential preconditions of its jurisdiction. "If that were not the case, Article 5(1) of the Convention would be in danger of being deprived of its legal effect, since it would be accepted that, in order to defeat the rule contained in that provision, it is sufficient for one of the parties to claim that the contract does not exist." See Effer SpA v. Kantner Case 38/81 [1982] ECR 825, 834-835, para. 7.

(c) "In a case where the plaintiff asserts the right to be paid damages or seeks a dissolution of the contract on the ground of the wrongful conduct of the other party, the obligation referred to in Article 5(1) is still that which arises under the contract and the non-performance of which is relied upon to support such claims." See de Bloos v. Bouyer Case 14/76 [1976] ECR 1497, 1508, para. 14. This is a point to which I shall have to return later.

(6) However, attempts to broaden the scope of Article 5(1) beyond the established principles have, with one notable exception, failed.

(a) The notable exception occurred in Ivenel v. Schwab Case 133/81 [1982] E.C.R. 1891. There the Court of Justice held, in a case concerned with claims based on different obligations arising under a contract of employment, that the obligation to be taken into account for the purposes of the application of Article 5(1) of the Convention is the obligation which characterises the contract: see p. 1901, para. 20. It is plain from the preceding paragraphs of the judgment in that case that this conclusion was derived from special considerations affecting contracts of employment. Subsequently however in Shenevai v. Kreischer Case 266/85 [1987] ECR 239, a case concerned with a claim by an architect to his fees, the Court of Justice rejected an argument that a similar approach to that in Ivenel v. Schwab should there be adopted. The reasoning of the Court most relevant for present purposes is to be found in paras. 16-19 of the judgment, which read as follows:

accessorium sequitur principale

I have taken the unusual course of quoting these paragraphs in full, because they demonstrate that the Court of Justice has returned to, and indeed has reinforced, the reasoning and conclusion in de Bloos v. Bouyer that the "obligation" in Article 5(1) is the contractual obligation on which the claim is based. It is the courts of the place of performance of that obligation in which jurisdiction is vested under Article 5(1). It is in that sense, if at all, that Article 5(1) is applicable in the present case.

(c) In Kalfelis v. Schröder Case 189/97 [1988] ECR 5565, a case concerned with Article 5(3) of the Convention, it was proposed by Advocate General Darmon that, where there are overlapping (concurrent) claims in contract and tort, only Article 5(1) will determine the jurisdiction of the court, since the matters relating to contract will "channel" all the aspects of the dispute. In that connection he stressed the manifest practical advantages of this course, since the court dealing with the contract is best placed to understand the context and the implications as regards legal proceedings: see p. 5577, paras. 25-30. This proposal was however rejected by the Court of Justice, which held (see p. 5585, paras. 18 and 19, and p. 5587) (a) that the term "matters relating to tort, delict or quasi-delict" in Article 5(3) 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 under Article 5(1); and (b) 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 so holding, the Court stressed (see para. 19) that the special jurisdictions in Articles 5 and 6 must be interpreted restrictively; and further stressed (see para. 20) that, while disadvantages may arise from different aspects of the same dispute being adjudicated upon by different courts, the plaintiff is always entitled to bring his action in its entirety before the courts of the defendant's domicile.

The application of the principles in the present case

With these principles in mind, I turn to consider the question in the present case. That question is whether the claim of Kleinwort to restitution of the sums paid by it to Glasgow under a contract accepted to be void ab initio falls within Article 5(1).

I have to confess that I find it very difficult to see how such a claim can fall within Article 5(1). It can only do so if it can properly be said to be based upon a particular contractual obligation, the place of performance of which is within the jurisdiction of the court. Where however, as here, the claim is for the recovery of money paid under a supposed contract which in law never existed, it seems impossible to say that the claim for the recovery of the money is based upon a particular contractual obligation.

In truth, the claim in the present case is simply a claim to restitution, which in English law is based upon the principle of unjust enrichment; and claims of this kind do not per se fall within Article 5(1). It is not necessary for the purposes of the present case to hold that a claim to restitution can never fall within Article 5(1). Very exceptionally, there may be particular circumstances in which it can properly be said, at least in cases arising under the Convention, that the claim in question, although a claim to restitution, is nevertheless based on a contractual obligation and so falls within the Article. This is a point to which I will return at a later stage. But no such circumstances arise in the vast majority of claims to restitution, which are founded simply upon the principle of unjust enrichment. Such is, in my opinion, the present case. No express provision is made in Article 5 in respect of claims for unjust enrichment as such; and it is legitimate to infer that this omission is due to the absence of any close connecting factor consistently linking such claims to any jurisdiction other than the defendant's domicile. Article 2 therefore provides the appropriate jurisdiction for such claims.

The point is very simple. I therefore propose to turn next to the judgments of the majority of the Court of Appeal, and to examine in some detail the reasons for which they held that this simple reasoning should not prevail.

The judgments of the majority in the Court of Appeal

The majority judgments were delivered by Roch and Millett L.JJ. Roch L.J. relied strongly on the Martin Peters case as showing that Article 5(1) applies even where there is no contract according to the national law. In my opinion, however, he sought to derive too much from that case. Certainly, the case shows that the expression "matters relating to a contract" must be construed in such a manner as to give effect to the system and objectives of the Convention, so that an independent or autonomous meaning must be given to the word "contract," which must be read as wide enough to embrace other consensual arrangements even though these may not be regarded as contractual under the national law of the relevant Contracting State. But that decision provides no useful guidance on the question whether, in the context of Article 5(1), the word "contract" is to be construed as including a supposed contract which is void ab initio, so that a claim to recover money paid under such a void contract falls within the Article. Next Roch L.J. invoked Article 10(1) of the Rome Convention, which expressly provides that the law applicable to a contract shall govern in particular "the consequences of nullity of the contract." However, the fact that such express provision is made in the Rome Convention in relation to the governing law provides no guidance on the scope of Article 5(1) forming part of the Brussels Convention which is concerned with jurisdiction and which contains no such provision. It is for that purpose entirely neutral, as was vividly illustrated by the fact that it was relied upon by both parties to the present litigation. Lastly, Roch L.J. asserted that the word "obligation" in Article 5(1) is not confined to contractual obligations. Again, I am unable to agree; it is plain both from de Bloos v. Bouyer and Shenavai v. Kreischer that the word does indeed refer to the contractual obligation on which the claim is based, though such a claim is not limited to a claim for the direct enforcement of the obligation. For these among other reasons, I am unable to accept the reasoning in Roch L.J.'s judgment.

In a most impressive judgment, which it is difficult to summarise in a few words, Millett L.J. developed a thesis which led to the conclusion that the word "contract" in Article 5(1) includes a void contract, i.e. a supposed contract which is void ab initio and so has never had any existence in law, and that the expression "place of performance of the obligation in question" includes the intended place of performance of the supposed obligation under a void contract. He therefore considered that a claim to recover money paid under a "contract" which is ultra vires the recipient is a "matter relating to a contract" within the opening words of Article 5(1). He went on to hold that, provided the matter relates to a contract, the jurisdiction conferred by Article 5(1) is available, and that the expression "matters relating to a contract" is not to be equated with "contractual causes of action" or "the enforcement of contractual obligations" or even "claims based on contract". He concluded that, when parties act pursuant to such a contract, the intended place of performance is no less relevant a connecting factor because the contract is afterwards held to be void.

Impressive though his judgment is, in my opinion Millett L.J.'s thesis founders upon the terms of Article 5(1) as construed in the established jurisprudence of the European Court of Justice. We know from de Bloos v. Bouyer that the reference in Article 5(1) to the "obligation in question" is to "the contractual obligation forming the basis of the legal proceedings", and is that obligation "which corresponds to the contractual right on which the plaintiff's action is based." It was that principle which was reaffirmed by the Court in Shenavai v. Kreischer, where it was stated that uncertainty was avoided "if regard is had solely to the contractual obligation whose performance is sought in the judicial proceedings." Moreover, again in de Bloos v. Bouyer, it was recognised that where the plaintiff asserts the right to be paid damages or seeks a dissolution of the contract on the ground of the wrongful conduct of the defendant, the obligation referred to in Article 5(1) is "still that which arises under the contract and the non-performance of which is relied upon to support such claims." With the exception of Ivenel v. Schwab, in no case cited to the Appellate Committee, either from the European Court of Justice or from the courts of this country, has the "obligation in question" been construed to mean anything other than the particular contractual obligation upon which the plaintiff's claim is based, the performance or non-performance of which is relied upon to support the plaintiff's claim. It is in my opinion plain that this principle can have no application in a case where the supposed contract in question is void ab initio and so has never had any legal existence. Furthermore, Article 5(1) specifies in clearly defined terms a particularly close connecting factor between the dispute and the court which will be called on to hear it, i.e. the place of performance of the contractual obligation in question. No such close connecting factor can, in my opinion, exist in a case where the contract is void ab initio and the only question at issue relates to the recovery of money paid under it on the ground of unjust enrichment. Furthermore the approach of Millett L.J. offends, in my opinion, against the fundamental principle that the special jurisdiction in Article 5 is in derogation from the general jurisdiction in Article 2 and so falls to be construed restrictively; on the contrary, Millett L.J.'s approach constitutes an expansion of the special jurisdiction in Article 5(1). Indeed the effect in the present case would be that for the courts of the defendant's domicile are substituted the courts of the plaintiff's domicile; and it is difficult to understand why, in this as in most other cases of unjust enrichment for which no provision is made in Article 5, the courts of the defendant's domicile should not have jurisdiction.

In his judgment, Millett L.J. relied on two matters in particular as providing support for his thesis.

(1) The first matter relied upon by him was that in most cases the validity of the contract will be in issue; and it would not be consistent with the objectives of the Convention if a court having jurisdiction to decide the validity of the contract did not also have jurisdiction to decide the consequences. But there must be serious doubt whether, as a general rule, a court can have jurisdiction under Article 5(1) to rule upon the validity of a contract. True it appears that, in France, the Cour de Cassation has decided that jurisdiction may exist under Article 5(1) in the case of an action for the annulment of a contract (see ISI c. Soc. de Promotion des Centres Privés Audiovisuels 25 January 1983). In that case a German company granted to a French company exclusive rights in respect of a method of teaching shorthand; and the French company, having discovered that the method in question was merely a counterfeit of another, brought an action for the invalidity of the contract on the grounds, essentially, that the object was illegal. The Cour de Cassation held that the Commercial Court of Paris was entitled to exercise jurisdiction in respect of the issue of invalidity under Article 5(1), apparently on the basis that all the contractual duties should be performed in Paris. However, in her commentary on the decision, Professor Gaudemet-Tallon points out that in other cases performance of the contractual duties could well take place in more than one state. She therefore commends the solution of M. Huet, viz. that, in the case of an action for invalidity of contract, Article 5(1) is applicable, the competent court by virtue of the Article being the court of the place of the performance of the characteristic duty of the contract. This solution is, she suggests, necessary "both to avoid a multiplicity of competent courts and to be assured that the judge approached does indeed have a serious connection with the case." In abstract terms, this solution has much to commend it; but, since the decision of the European Court of Justice in Shenevai v. Kreischer Case 266/85 [1987] ECR 239, it is as a general rule no longer appropriate to invoke the characteristic obligation of the contract in this context. Moreover it is striking that when, in Effer SpA v. Kantner Case 38/81 [1982] ECR 825, the Court of Justice held that a national court could, in a case under Article 5(1), consider the question whether the relevant contract was binding, this was only on the basis that the court could do so as one of the essential preconditions of its jurisdiction to adjudicate on the contractual claim before it. In these circumstances, although the point does not fall to be decided in the present case, there must be serious doubt whether the issue of the validity of a contract alleged to be void ab initio would fall within Article 5(1).

I wish to record in parenthesis at this stage that Professor Gaudemet-Tallon, departing from her previous view in which she favoured "channelling," now considers that Article 5(1) cannot apply to quasi-contracts, favouring instead Article 2: see the Written Observations of the Commission to the Court of Justice in the present case, para. 63, n.80.

(2) The second matter relied upon by Millett L.J. was this. He took the example of a case of breach of contract in which the plaintiff can sue the defendant either for damages for breach of contract or for recovery of money paid to him under the contract, the claim for such recovery being on the basis of failure of consideration. Millett L.J. suggested that, on his thesis, the nature of the remedy chosen by the plaintiff does not prevent the action from being tried in the place of performance of the contractual obligation the breach of which has given rise to the relief claimed. But (although again it is not necessary to decide the point in the present case) it is at least possible that, in cases arising under the Convention, the same result can be achieved on the basis of the established European jurisprudence. It is true that in English law a claim to recover money on the ground of failure of consideration is classified as a claim in restitution, based on unjust enrichment. Nevertheless it was (as I have already recorded) established in de Bloos v. Bouyer Case 14/76 [1976] ECR 1497 at p. 1508, para. 14, that the plaintiff's claim to be paid damages or to seek dissolution of a contract on the ground of the defendant's default may fall within Article 5(1), the contractual obligation being the obligation the non-performance of which is relied upon to support the claim. Moreover a claim to recover, on the ground of failure of consideration, money paid under a valid contract is capable of being classified in some systems of law as contractual; and, on the principle recognised in the Martin Peters case, it may be appropriate, at least in cases arising under the Convention, to treat the concept of contractual obligation as being, for the purposes of Article 5(1), broad enough to provide the basis of such a claim. Whether it would be appropriate to do so in cases arising under Schedule 4 to the Act of 1982 is, however, more problematical.

More fundamentally, however, it seems to me that the whole basis of Millett L.J.'s thesis is that Article 5(1) should be construed broadly so that any matter relating to a contract should be held to fall within the Article; and he seeks to justify this on the practical basis that all claims relating to contracts should fall to be considered in the same jurisdiction, viz. the jurisdiction of the courts for the place of performance, or intended performance, of the contract, even where no such contract ever existed. I feel bound to say, however, that the jurisprudence of the European Court of Justice reveals an understanding that Article 5(1) has a more limited purpose, an understanding which is moreover more consistent with the words of the Article. This appears most clearly from the judgment of the Court in Shenevai v. Kreischer, in para.18 (on p. 256) of which the Court recommended that regard should be had "solely to the contractual obligation whose performance is sought in the judicial proceedings." As I have already recorded, the Court continued: "The place in which that obligation is to be performed usually constitutes the closest connecting factor between the dispute and the court having jurisdiction over it, and it is this connecting factor which explains why, in contractual matters, it is the court of the place of performance of the obligation which has jurisdiction." The obligation is, of course, the "obligation in question." The view of the court appears to be that, once this criterion is abandoned, the justification for jurisdiction being vested in the court of the place of performance of the obligation in question is destroyed. If that criterion cannot be fulfilled, it must not be forgotten that (as the court pointed out in a related context--see Kalfelis v. Schröder at para. 20 on p. 5586) "a plaintiff is always entitled to bring his action in its entirety before the courts for the domicile of the defendant."

I have exceptionally subjected the judgment of Millett L.J. to close examination, not out of any desire to disparage his work, but rather out of respect for the formidable thesis which he has propounded and developed.

Article 5(3)

Before the Appellate Committee, Mr. Pollock Q.C. for Kleinwort advanced a brief argument to the effect that Article 5(3), which is concerned with "matters relating to tort, delict or quasi-delict" and places jurisdiction in the courts for the place "where the harmful event occurred or in the case of a threatened wrong is likely to occur" applied in cases of unjust enrichment, and was therefore applicable in the present case. This argument is impossible to reconcile with the words of Article 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 was based on a misreading of paragraph 2(a) of the Ruling of the Court of Justice in Kalfelis v. Schröder Case 189/87 [1988] ECR 5565, 5587, a misreading which is plainly inconsistent with paragraph 2(b) of the same Ruling (which I have referred to earlier in this opinion). There is, in my opinion, no substance in the point, which was rightly rejected by Leggatt L.J. in the Court of Appeal.

Postscript

May I by way of postscript express my indebtedness to the Written Observations of Germany to the Court of Justice in the present case, prepared by Professor Dr. Christof Böhmer. These Observations are of particular relevance because, as appears from the Jenard Report, the wording of Article 5(1) of the Convention was influenced by German law. It is of significance that, as Dr. Böhmer records, the unanimous view in German case law and literature has hitherto been that Article 5(1) does not cover claims based on unjust enrichment. He does not however specifically consider the case where money has been paid under a valid contract, and it is sought to recover such money on the ground of failure of consideration, following upon a breach of contract by the defendant.

Conclusion

For the reasons I have given, I find myself to be in agreement with the conclusion reached by Hirst J., and by Leggatt L.J. in his dissenting judgment in the Court of Appeal. I would, therefore, allow the appeal, with costs before your Lordships' House and below, and restore the order of Hirst J.

LORD MUSTILL

My Lords,

I have read the speech which will be delivered by my noble and learned friend, Lord Nicholls of Birkenhead. I agree with it, and have nothing to add.

LORD NICHOLLS OF BIRKENHEAD

My Lords,

This appeal raises the question whether a restitutionary claim in respect of money paid in purported performance of a contract, subsequently found to be null and void because of the lack of capacity of one party, is within article 5(1) of the Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (as modified for allocation of jurisdiction within the United Kingdom by schedule 4 to the Civil Jurisdiction and Judgments Act 1982). It is a short but teasing question of construction.

The proper approach to the interpretation of the Convention is well established. The basic jurisdictional provision is article 2: persons shall be sued in the courts of the contracting state where they are domiciled. Article 5, like other articles conferring a special jurisdiction, is a derogation from the basic provision and should be construed restrictively. The rationale of article 5 is the existence, in "certain clearly defined situations", of a particularly close connecting factor between a dispute and the court called upon to hear it. In those situations the plaintiff may opt to choose the special jurisdiction, with a view to the efficacious conduct of the proceedings: see Bier v. Mines de Potasse d'Alsace, Case 21/76, paragraphs 10-11, [1976] ECR 1735, 1745-46, and Peters v. ZNAV, Case 34/82, paragraph 11, [1983] ECR 987, 1002. In the case of contractual matters, the place of performance of the obligation in question usually constitutes the closest connecting factor between the dispute and the court having jurisdiction over it: hence the terms of article 5(1). When more than one contractual obligation is in issue, the principal issue determines the jurisdiction: see Shenavai v. Kreischer, Case 266/85, paragraphs 18-19, [1987] ECR 239, 256.

The phrase "matters relating to a contract" in article 5(1) is an independent Convention concept, but the European Court has not yet given any basic definition of the concept or its scope. The article itself gives little guidance. The second limb of article 5(1) identifies the close connecting factor in these terms: " . . . in the courts for the place of performance of the obligation in question". Bearing in mind the need to construe the ambit of this special jurisdiction restrictively, this wording might suggest that, despite the apparent width of the concept, to be within article 5(1) the dispute must relate solely to the performance of a contractual obligation, and that other contractual disputes are not within the special jurisdiction because they would lack any connection with the place of performance.

This beguilingly simple approach cannot withstand even the most superficial examination. Not only would it cut down the ambit of article 5(1) by removing from its scope many disputes normally regarded as contractual matters: for instance, a dispute over whether a contract complied with prescribed formalities, such as the need for writing. This construction would also produce capricious practical results inconsistent with the underlying aims of the Convention and with the pragmatic interpretation given to it by the European Court of Justice. The court has emphasised the importance of certainty. In Custom Made Commercial v. Stawa Metallbau, paragraph 15, Case C-288/92, [1994] ECR I-2913, 2956, the court said:

The Court has also drawn attention to the desirability of the whole of a single dispute being resolved by one court. In the Peters case, at paragraph 17, the European Court observed:

Not surprisingly, the European Court has rejected the narrowest interpretation of article 5(1). Article 5(1) is not confined to the determination of disputes relating strictly to a performance obligation. The jurisdiction is wider than this, because the jurisdiction under article 5(1) is not ousted by a dispute between the parties over the existence of the contract sought to be enforced: see Effer v. Kantner, Case 38/81, [1982] ECR 825.

This decision shows that, at least for the purpose of establishing jurisdiction, the court of the place of performance of a contractual obligation can also decide a dispute relating to the existence of a contract even though this may raise issues having no particular connection with the place of performance. Disputes over the existence of a contract cover an exceedingly wide range: whether the parties were ad idem, whether there was an intention to create legal relations, whether the parties had legal capacity, whether apparent agreement was vitiated by mistake or misrepresentation or undue influence, whether the making of the contract was illegal. These issues on the formation of a contract do not necessarily have a connection with the place of performance of the contractual obligation being sued upon by the plaintiff. Nevertheless, for reasons of obvious good sense and convenience, these issues may fall within the competence of the court of the place of performance as much as a dispute focused more narrowly on failure of performance.

Against this background I approach the question of construction arising in the present case. I say at once that the feature which ultimately has weighed heavily with me is the unattractive practical difficulties which would result from the narrow interpretation urged by the appellant local authority. I can illustrate these difficulties most easily by taking a simple case where D agrees to carry out work for P. P makes part payments in advance. Subsequently D asserts that the agreement was ultra vires because he lacked legal capacity to enter into such a contract. He declines to carry out the work and he refuses to return the part payments. Clearly, if P sues D for damages for non-performance, article 5(1) would apply. The jurisdiction of the court of the place where the work was to be done would not be displaced by the ultra vires dispute. The court would determine the ultra vires issue.

Suppose next that P, anxious to dispose of this dispute once and for all, adds an alternative claim. He wishes to recover the money he has already paid, should the court uphold the ultra vires defence. So, as an alternative to damages for breach of contract, he seeks repayment of the part payments on the footing that there is no legally-binding contract. This alternative claim is not based on any term of the contract: the contract is a nullity. The claim is a restitutionary claim.

To my mind it is really unthinkable that such an alternative claim should lie outside article 5(1). The Convention is concerned to promote the efficacious conduct of proceedings and to avoid multiplicity of closely related proceedings in different contracting states. It would be surprising and unfortunate if, having decided that the contract is null and void, the same court cannot proceed to decide on the restitutionary consequences following directly from this. What matters is not whether the consequential relief is classified by English or Scottish law or the law of some other contracting state as part of its national law of contract or part of its national law of restitution. What matters is that, however labelled, the relief is no more than part of the effective determination of a dispute relating to a contract. It is one facet of a single dispute.

The application of article 5(1) in this situation would not take the article beyond its underlying rationale. Contracts are consensual arrangements. Part payments made in advance in purported performance of a contractual obligation are likewise made and accepted on an agreed, consensual basis. They are made on the terms of that contract, and they are explicable only by reference to those terms. This remains so, even if subsequently the contract if found to be void in law. As Millett L.J. observed in the Court of Appeal ( [1996] 2 A.E.R. 257, 274), when parties act pursuant to such a contract, the intended place of performance is no less a relevant connecting factor because the contract is afterwards found to be void.

The next step in this line of examples is to assume that P reverses the order in which he makes his two claims in the proceedings. D is constantly prevaricating, sometimes saying there is a contract, sometimes not. The primary claim brought by P is for restitution on the footing that there is no binding contract. His alternative claim is for damages for breach of contract. Here again, to my mind it would be surprising if this reversal of the order of presentation of the alternative claims affected the application of article 5(1), so that the dispute would be within the article if the claims were formulated in one order in the proceedings but not if the identical claims were presented in a different order.

The penultimate step in this sequence is to consider whether the outcome would be different if, in the previous example, the alternative claim for damages for breach were omitted. The answer must surely be no. If a claim for restitutionary relief in respect of payments made in purported performance of a contract is a matter relating to a contract within the meaning of article 5(1), this must be so irrespective of whether there is also an alternative claim based on the existence of the contract.

In this series of simple examples there can be no sound distinction between one example and another. The repayment claim falls within article 5(1) in all the examples or in none. If none, there will be considerable practical inconvenience in some cases in seeking to separate a claim based on breach of contract from a claim for repayment of money paid in purported performance of a contract. Further, in practice the positions of parties often shift as cases proceed and the issues change. Courts and parties could find themselves hamstrung after a case has been properly and reasonably started in one country in reliance on the article 5(1) jurisdiction. The narrow view would obstruct rather than advance the Convention objectives of promoting certainty and finality.

This is not surprising. At root the narrow view seeks to draw a line between cases where relief is sought for non-performance of a contractual term and all other cases. This would mean that when the existence of the contract is disputed, a claim for damages for breach of contract is within the article but not a claim for relief consequential upon a successful defence that the contract is void or ought to be set aside. This, in turn, means that the narrow interpretation ascribes to the court an incomplete role in what is a common enough situation.

This is unattractive. It is not a conclusion compelled either by the language of the article or, more importantly, by its underlying rationale. As to the language, all that need be said is to repeat that a dispute over the existence of a contract is one of the commonest types of disputes relating to contracts. Claims to set aside contracts are also of everyday occurrence. Such disputes would fall naturally within the words used in article 5 when defining its ambit: "matters relating to a contract". Claims for consequential relief are an integral and unexceptional part of the resolution of such disputes by the court. In short, a dispute over the existence of a contract and, if it is held to be void, over the consequences for payments already made under the contract, is as much a dispute "relating to a contract" as a dispute over the existence of a contract and, if it is held to be valid, over the consequences of non-performance.

The application of the second limb of article 5(1) in such cases is not quite so obvious because the repayment claim is not based on a contractual obligation. In such cases, however, where the existence of the contract is in dispute, the "obligation in question" can be read, without undue straining of language, as a reference to the obligation whose existence is in dispute.

In argument before your Lordships' House much reliance was placed on observations repeatedly made by the European Court to the effect that the obligation referred to in article 5(1) is the contractual obligation which forms the actual basis of the legal proceedings. These observations, however, were directed at a different point. In de Bloos v. Bouyer, Case 14/76, [1976] ECR 1497, and also in Shenavai v. Kreischer, Case 266/85, [1987] ECR 239, the question was which contractual obligation was the relevant one for the purposes of the article. Custom Made Commercial v. Stawa Metallbau, Case C-288/92, [1994] ECR I-2913, concerned identification of the place of performance of an obligation. These observations cannot be read as indicative of the thinking of the European Court on the altogether different issue now under consideration. That would be a misuse of authority.

Nor is the narrow interpretation compelled by the rationale underlying the article. I have already touched upon this. I add only that it is, of course, true that the issues arising on claims for consequential restitutionary relief may have little or no particular connection with the place of performance of the contractual obligation whose existence was disputed. However, as noted above, it is now established that the issues coming before the court identified in article 5(1) can include issues falling outside the connecting factor upon which that article fastens.

One final step remains to be taken, having regard to the unusual facts of the present case. After P has paid D in purported performance of the contract, the nullity of the contract is established in other proceedings. Thereafter there is no dispute between the parties over the nullity of the contract. The dispute between the parties is confined to the consequences directly flowing from the nullity. P claims to be entitled to repayment, by way of restitution. D denies this. I find it difficult to see on what basis this reduction in the ambit of the dispute can have the consequence of taking outside article 5(1) a dispute otherwise within the article. If the whole is within the article, so should be a part of that whole. There can be no justification for distinguishing between repayment claims where nullity is disputed and repayment claims where nullity is no longer in dispute.

For these reasons I would dismiss this appeal. The last of my examples covers the present case. Article 5(1) is to be construed restrictively, but it must also be construed with due regard to the underlying objectives of the Convention. Disputes relating to the existence of a contract are to be regarded as within the Convention concept of contractual matters, as also are disputes on the restitution consequences flowing from a decision that a contract is void. I am fortified in this view by noting that in the course of the abortive reference to the European Court a similar conclusion was expressed in the written observations submitted by France, Spain, the United Kingdom and the E.C. Commission. Germany alone expressed a contrary view.

On article 5(3) I agree with the views of my noble and learned friends Lord Goff of Chieveley, Lord Clyde and Lord Hutton.

LORD CLYDE

My Lords,

The appellant in this appeal is the City of Glasgow Council, formerly the City of Glasgow District Council. In 1982 the District Council entered into a number of financial arrangements with the respondent which were of the kind known as interest rate swap contracts. In Hazell v. Hammersmith and Fulham London B.C. [1992] 2 A.C. 1, your Lordships' House held that it was ultra vires of a local authority to enter into such arrangements. That decision had considerable repercussions. There were a number of local authorities who had entered into them and in a number of those cases there was a balance standing to the credit of the local authority at the time when the transactions were found by your Lordships' decision to have been void ab initio. Such was the position in the case of the City of Glasgow District Council. The respondent raised proceedings in England against the District Council for restitution of the sums which had been paid by them to the Council. The question which has arisen is whether the proceedings fall within the jurisdiction of the courts in England under the provisions of the Civil Jurisdiction and Judgments Act 1982.

The majority of the judges in the Court of Appeal held that the English Court had jurisdiction under article 5(1) of Schedule 4 of the Act. The respondent also argued before that court that in the alternative there was jurisdiction under Article 5(3), but that argument did not prevail. Article 5 provides:

"(3) in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or in the case of a threatened wrong is likely to occur. . . ."

Schedule 4 prescribes the rules for the allocation of jurisdiction within the United Kingdom. It is a modified form of Title II of the Brussels Convention of 1968. The references in the opening passage of the Article to the parts of the United Kingdom and in Article 5(3) to the case of a threatened wrong are modifications of the text of the Convention. That convention is set out in Schedule 1 and together with certain other conventions is declared by section 2(1) of the Act to have the force of law in the United Kingdom. In relation to the interpretation of these conventions section 3(1) of the Act requires that any question as to their meaning and effect is to be "determined in accordance with the principles laid down by and any relevant decision of the European Court." The corresponding provision in section 16 which requires effect to be given to Schedule 4 for the purpose of allocating jurisdiction within the United Kingdom in the civil proceedings to which it refers is in slightly different terms. Section 16(3) provides that:

a

Since the provisions in Schedule 4 comprise a modified version of the 1968 Convention it is understandable that they should not be interpreted with the full rigour provided by section 3 of the Act for the construction of the conventions.

In the present case the Court of Appeal referred to the European Court of Justice the questions now raised in this appeal. But that Court has held that it has no jurisdiction to give a preliminary ruling. It regarded the issue as being one of the application not of the Convention but of the national law. It pointed to the difference between sections 3(1) and 16(3) and indicated that the matter was one for interpretation by the English Court. But while the matter has thus been returned for a domestic decision regard must still be paid to any principles relevant to the provisions of the Convention which correspond with those directly in issue in the present case. In addition to the statutory requirement it would in any event be proper to have regard to European law in the interests of uniformity. It is true that Advocate General Tesauro recognised in his Opinion when the present case was before the European Court that different rules for internal jurisdictional problems could well exist in different countries and that the scheme of the Convention was indifferent to purely internal situations, but it seems to me that where the issue concerns phrases taken directly from the Convention which are of some importance in the definition of the classes of case to which certain jurisdictional rules should apply it is desirable to find solutions which are consonant with the principles applicable to the Convention itself. One objective of the Convention was to strengthen the legal protection of persons established in the Community. But the Court has recognised that the effectiveness of that protection may be reduced by the multiplication of bases of jurisdiction in one and the same case. For that reason the Court in Somafer v. Saar-Ferngas [1978] ECR 2183 observed (p. 2191) "it is in accord with the objective of the Convention to avoid a wide and multifarious interpretation of the exceptions to the general rule of jurisdiction contained in Article 2."

Consistently with the aim of achieving a uniform application of the Convention it is established that at least for the purposes of the Convention the phrase "matters relating to a contract" should not be given the technical meaning which it might have in the particular national law of a member state, but should be seen as an independent concept. That was the view expressed in Martin Peters v. Z.N.A.V. [1983] ECR 987, in Arcado v. Haviland and in Powell Duffryn Plc. v. Wolfgang Petereit [1992] ECR I-1745. It is not necessary to decide whether that interpretation should be followed under national law for the purposes of Schedule 4, but I proceed on the basis that this wider interpretation should be followed.

It seems to me that one clear principle is that it is Article 2 of the Convention which sets out the basic rule on jurisdiction, namely that persons are to be sued in the courts of their domicile. It would seem that that should also be the basic rule for the interpretation of Article 2 in Schedule 4. The provisions of Article 5 then are to be seen as derogations from the basic rule, although of course both Article 2 and Article 5(1) may be equally available if their respective qualifications are met (Bank of Scotland v. Seitz 1990 S.L.T. 584). It is sufficient to refer in this connection to Somafer v. Saar-Ferngas [1978] ECR 2183 at p. 2191 and to Arcado v. Haviland [1988] ECR 1539 at p. 1554. It may also be noted that Article 2 is in mandatory terms, while Article 5 is permissive. It follows from all of this that the approach to the construction of Article 5 should be narrow rather than generous. As the European Court put it in Kalfelis (at para.19):

This approach has been recognised and followed in relation to Article 5(3) of Schedule 4 in Davenport v. Corinthian Motor Policies at Lloyds, 1991 SLT 774.

It is of course for the plaintiff to identify the jurisdiction under the Convention in which his proceedings should be taken. If there is a question about the applicability of any of the special jurisdictions he can always sue under the basic jurisdiction provided in Article 2. The rules of jurisdiction should not be construed so as to favour the wishes of the plaintiff. One particular reason for discouraging a liberal interpretation of the special jurisdictions, which was advanced in Marinari v. Lloyds Bank [1996] QB 217, is that it might lead to the recognition of a jurisdiction in the courts of the plaintiff's domicile, which the Convention seeks in the second paragraph of Article 3 to exclude. A like point is made by the Court in Dumez France and Tracoba v. Hessische Landesbank [1990] ECR I-49 at p. 80. The Jenard report makes it clear, that the intention was to avoid recourse to the plaintiff's forum (See the edition at para. A1.100 in O'Malley's European Civil Practice).

The characteristic of the special jurisdictions which explains and justifies the provision for them is, as the Court put it in Somafer (p. 2191):

This same view was expressed in the later case of Dumez France v. Hessische Landesbank (Helaba) and Others [1990] ECR I-49 at p. 80. The point was made with greater particularity in Handte v. T.M.C.S. [1992] ECR I-3967 at p. 3994 where the court stated that the jurisdictional rules which derogate from the general principle laid down in Article 2:

It is thus not enough for the invocation of jurisdiction under Article 5(1) that some remote connection can be found between the point in dispute and a contractual relationship. The question then is where the line is to be drawn. Academic opinion seems to be divided on the point.

The language of the Article should provide the solution. There is no direct reference to restitution, although that remedy is mentioned in Article 5(4), and there is no direct reference to quasi-contract (even if that was relevant to a claim for restitution), although delict and quasi-delict are identified in Article 5(3). The express reference to cases of nullity in Article 10(1)(e) of the Rome Convention can also be seen to point a contrast with the language of Article 5(1) of the Brussels Convention. So the phrase "relating to" has to be considered. The distinction drawn by the Sheriff Principal in Strathaird Farms v. Chattaway 1993 S.L.T. (Sh. Ct.) 36 between the words "relating" and "related" seems to me to be helpful. The present participle indicates that there is a relationship still continuing between the current issue and a contract. The contract is not a matter of past history forming the background to the current controversy but is still of present relevance. Furthermore the reference to "a" contract appears to envisage an identifiable agreement. The point is not so evident from the French text of the Convention, although at least in the context of Schedule 4 the use of the indefinite article may be significant. But however that may be the later words of Article 5(1) "in the courts for the place of performance of the obligation in question" are of considerable importance. The use of the definite article shows that there is a particular obligation to be performed. Moreover the reference is to "the obligation in question." That is a reference not to the contract but to the obligation which is at the heart of the dispute. That obligation is the obligation on which the claim is based. There must be an obligation to be performed and the obligation must be in dispute. I can see no other obligation which could here be intended than an obligation based on contract. The "question" concerns a contractual obligation. The existence of a contract then becomes an essential element. And while the question may appear in a variety of forms essentially at the heart of the dispute will be a consideration relating to its performance. It can then be seen that the later words demonstrate the narrow scope of the phrase "relating to." It is not every connection with a contract however remote or tenuous which is intended here. The relationship is one whereby the matter is based on a contractual obligation. In my view it is essential for jurisdiction to lie under Article 5(1) that there should be at the heart of the proceedings a dispute about the performance of a contractual obligation. If there is no obligation because there has never been a contract then there is no jurisdiction under the Article.

That view seems to accord with the decision of the court in de Bloos v. Bouyer [1976] ECR 1497 where it was stated that the word "obligation" contained in Article 5(1) of the Convention " . . . refers to the obligation forming the basis of the legal proceedings, namely the contractual obligation of the grantor which corresponds to the contractual right relied upon by the grantee in support of the application." The point was again taken up by the Court in Custom Made Commercial v. Stawa Metallbau [1994] ECR I-2913 where it was stated under reference to de Bloos (para.23):

As Lord McCluskey observed in Davenport v. Corinthian Motor Policies at Lloyds (at p. 778) "the words 'in matters relating to' become virtually synonymous with the words 'in proceedings based upon.'"

Accordingly it is necessary to be able to identify "the obligation in question," that is the obligation which forms the basis of the particular proceedings. It must be an obligation under a contract. It is here that a difference appears in the analyses adopted by the majority of the judges in the Court of Appeal. Roch L.J. considered that an "obligation" could include something other than a contractual obligation. That could open the way to regarding the word as capable of including an obligation to make restitution. Millett L.J. considered that the "place of performance of the obligation in question" could mean the "intended place of performance of the supposed obligation." On this analysis the obligation is consensual but the contract is non-existent. Neither of these two solutions seem to me to be consonant with the decisions to which I have referred.

But cases may well arise where there is a dispute about the existence of the contract. Where one party is claiming that there is a contract and is seeking some remedy in respect of the performance or the non-performance of its obligations and the other party is resisting the claim on the ground that there has never been a contractual relationship between them Article 5(1) should be available. In such a case if the court holds that there never has been a contract its jurisdiction will not extend beyond the decision on that point. If on the other hand it holds that a valid contract has been constituted its jurisdiction to entertain the dispute will be affirmed. In that kind of situation the court is inquiring into its own jurisdiction and such a preliminary issue can properly be brought within the scope of Article 5(1). In the case of Effer SpA v. Hans-Joachim Kantner [1982] ECR 825 it was held that jurisdiction for that initial issue could be found under Article 5(1). The basic dispute was whether it was against Effer or against a bankrupt undertaking called Hykra that Kantner should enforce the contract in question. Kantner had sued Effer. The case was one of enforcement of the performance of a contract. The preliminary problem of determining whether there was a contract between the parties in such circumstances falls within the scope of Article 5(1). The Court reasoned that the power to determine questions relating to a contract included the power to consider the constituent parts of the contract itself, since that was indispensable for the determination of its jurisdiction. Once there is a dispute as to the existence of a contract the performance of which the one party is seeking to enforce or for the non-performance of which he is seeking a remedy, then it should not matter whether procedurally it is the defendant or the plaintiff who raises the issue of the existence of the contract. In Boss Group Ltd. v. Boss France S.A. where an alleged breach of contract was in issue the English Court accepted jurisdiction under Article 5(1) in proceedings whereby declarations were sought denying the existence or the continued existence of the contract in question.

Where on the other hand there has undoubtedly has been a contract constituted and the Court has jurisdiction under Article 5(1) the Court should be able to deal not only with such issues as whether the obligation is still enforceable or indeed whether the contract is still extant but also with any claims which arise consequentially on the determination of any issue about performance, such as damages or an award quantum meruit. When the defendant challenges the continued existence of the contract and seeks some remedy on the basis that it has terminated, that could procedurally be brought within the scope of Article 6(3) whereby the court of the place of performance is given jurisdiction to entertain a counterclaim arising from the same contract or facts on which the original claim was based. Where the remedy is sought by the plaintiff that should be competent under the principle expressed in the maxim accessorium sequitur principale. That principle was recognised in Shenevai v. Kreischer [1987] ECR 239 as an applicable guide where several obligations arise under the same contract are in issue. That approach was adopted in this House in Union Transport Plc. v. Continental Lines S.A. [1992] 1 W.L.R. 15. But the obligation in such cases will still be the contractual obligation which formed the basis of the proceedings. It will not be any separate obligation, such as an obligation to pay damages or an obligation to make a quantum meruit payment. As was stated in de Bloos at paragraph 14 of the judgment:

But in order for the Court to entertain the accessory or consequential matters the principal matter must be within the jurisdiction. In a case where there has never been a contract, either after inquiry by the Court or by admission, so that no jurisdiction lies under Article 5(1) for the determination of any dispute about the performance of a contractual obligation, there is nothing to which any relief then claimable can be seen as accessory.

There are of course attractive arguments in favour of giving one court the power to deal with the whole extent of claims which are in some way related to each other. Certainly it is desirable to avoid an accumulation of different grounds of jurisdiction for associated claims. But the apparent convenience of such a course cannot be allowed to overcome the jurisdictional rules set out in the Act. In Kalfelis the Advocate General put forward a view to the effect that different grounds of claim can all be attracted to Article 5(1) and channelled into it together. But that view was not adopted by the Court. What the Court stated was (para 20):

Two sentences from the judgment in Peters (at p. 1003F) may usefully be quoted here:

Where the court has jurisdiction on the ground of an acknowledged contractual obligation it should be able to dispose of all the issues raised in the case. If there is a fundamental question about its jurisdiction because there is a dispute whether there has ever been a contractual obligation it may try that issue under Article 5(1) but has no obligation and indeed no power to go further if the attempt to establish the jurisdiction fails.

In this context the close connecting factor which provides the basis for the special jurisdiction prescribed by Article 5(1) is of importance. It was stated in Peters (p. 1002) that:

Where there is no contractual obligation and no place for the performance of a contractual obligation there is no close connecting factor and no justification for the invocation of Article 5(1). In addition there must be an identifiable place of performance. In Tessili v. Dunlop [1976] ECR 1473 (at p. 1485) the Court stated that the identification of the place of performance required to be determined by national law adding that "the determination of the place of performance of obligations depends on the contractual context to which these obligations belong." And as Lord Maxwell observed in Bank of Scotland v. I.M.R.O. 1989 S.L.T. 432 at p. 445 in relation to the corresponding provision in Schedule 8 to the Act of 1982: "If they (the petitioners) are unable to identify a place of performance of the obligation in question in my opinion they cannot rely on Rule 2(2)."

These wider considerations however are not of immediate relevance to the particular issue which arises in the present case. The claim which is being made by the respondent in the present case is simply and solely a claim for restitution. That is not a claim based on a contract but a claim based on the principle of undue enrichment. The remedy of restitution is in a category distinct from that of contractual remedies. That appears to be the position not only in England and Scotland but also in at least a number of the other states in Europe. That the parties purported to enter into a contract which turned out to be void ab initio is matter of background history, too remote from the claim now made to be related to a contract in the sense intended by Article 5(1), even if what is now agreed to be a void contract can properly be called a contract at all. In the present case the plaintiffs do not seek to found on any contract; indeed their claim is one which is pursued in the absence of any contract. There is no contractual obligation forming the basis of their claim. There is no clear place of performance such as can establish the close connection between the dispute and the courts of that place. In my view there is no jurisdiction available under Article 5(1) for the purposes of the present case.

Counsel for the respondent presented a brief argument upon the possible applicability of Article 5(3) to the present proceedings. This was based on a passage in the opinion of Advocate General Darmon in Shearson Lehman Hutton v. TVB [1993] ECR I-139 at p. 178 where he construed a passage in the judgment of the court in Kalfelis as enabling a claim for unjust enrichment to fall within Article 5(3). It is evident that the argument depends upon an imprecise translation of the passage in Kalfelis and properly understood the judgment does not support the suggested conclusion. The basis for the argument in the present case then disappears.

For the reasons which I have given I consider that the order granted by Hirst J. was correct and I would allow the appeal.

LORD HUTTON

My Lords,

Section 16 of the Civil Jurisdiction and Judgments Act 1982 allocates proceedings in civil and commercial matters within the different jurisdictions of the United Kingdom in accordance with Schedule 4 to that Act which contains a modified version of Title II of the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1968 (the Brussels Convention).

Section 16(3) provides:

a

Article 2 of Schedule 4 provides:

Article 5 of Schedule 4 provides:

"(3) in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or in the case of a threatened wrong is likely to occur;"

The appellant, City of Glasgow District Council (Glasgow), is domiciled in Scotland and the first issue for determination on this appeal is whether in the action brought in the High Court of Justice in England by the respondent, Kleinwort Benson Limited (Kleinwort Benson), for restitution of moneys paid under interest rate swap agreements which were void ab initio, Glasgow is being sued pursuant to Article 5(1):

The claim of Kleinwort Benson in its writ of summons is for restitution and there is no claim in contract. In English law it is clear that a claim for restitution is a separate and distinct cause of action from a claim in contract. In Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd. [1943] AC 32 at 61 Lord Wright stated:

In Westdeutsche Bank v. Islington L.B.C. [1996] AC 669, 710E Lord Browne-Wilkinson stated:

Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd.

[1943] AC 32

per

Pavey & Matthews Pty. Ltd. v. Paul

162 CLR 221

Lipkin Gorman v. Karpnale Ltd.

[1991] 2 AC 548

Woolwich Equitable Building Society v. Inland Revenue Commissioners

[1993] AC 70

Sinclair v. Brougham

Therefore in English law the action brought by Kleinwort Benson against Glasgow is not a claim in contract.

However, in my opinion, the consideration that the action brought by Kleinwort Benson is not in English law a claim in contract is not decisive, for two reasons, in favour of Glasgow on the question whether, within the meaning of Article 5(1), it is being sued "in matters relating to a contract." First, the words "may . . . be sued in matters relating to a contract" are wider than the words "may be sued on a contract." Secondly, pursuant to section 16(3)(a) the meaning of Article 5(1) is to be determined having regard 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."

In the present case the Court of Appeal referred to the European Court for a preliminary ruling the questions arising in the present appeal. The European Court held that it had no jurisdiction to give a preliminary ruling as the provisions of the Brussels Convention which the court was asked to interpret were not directly applicable to the present case, and therefore the court did not have jurisdiction to give replies which were merely advisory and would not have binding effect. But, in my opinion, whilst the European Court has declined to give a ruling for the reason it stated, and notwithstanding the difference in wording between section 16(3)(a) which requires regard to be had to any relevant principles laid down by, and any relevant decisions of, that Court, and section 3(1) of the 1982 Act which requires any question as to the meaning or effect of any provision of the Brussels Convention, if not referred to the European Court, to be determined "in accordance with the principles laid down by and any relevant decision of the European Court", the wording of Section 16(3)(a) does not mean that regard is only to be had to the principles laid down by, and decisions of, the European Court if English law does not provide clear guidance on the meaning of an Article in Schedule 4. Rather I consider that section 16(3)(a) provides that an English court is to seek guidance from any relevant principle laid down by, and any relevant decision of, the European Court, where the English court is construing an article in Schedule 4. Schedule 4 closely follows the wording of Title II of the Brussels Convention and the wording of Article 5(1) of Schedule 4 is identical to the first part of Article 5(1) of the Brussels Convention, save for the substitution of the words "part of the United Kingdom" for the words "Contracting State", and it is clearly desirable that an English court should give the same meaning to Article 5(1) of Schedule 4 as the European Court gives to Article 5(1) of the Brussels Convention.

The primary submission advanced on behalf of the appellant, Glasgow, by Mr. Burton QC was that as the contract between Glasgow and Kleinwort Benson was void ab initio and as Kleinwort Benson is suing, not in contract, but for restitution, the present action is not one in which Glasgow is being sued "in matters relating to a contract."

The primary submissions advanced on behalf of Kleinwort Benson by Mr. Pollock QC can be briefly summarised as follows. First, Article 5(1) does not distinguish between contracts which, in accordance with differing domestic systems of law, are treated as valid, voidable, unenforceable or void. Secondly, where two parties have come together for the purpose of entering into a contractual relationship, have fulfilled the requirements of certainty and finality necessary to conclude an agreement, intend to enter into a contract and believe that they have in fact done so, it is intelligible and sensible to treat the resolution of the consequences of their acts, having proved ineffective in law, as falling within the concept of "matters relating to a contract." Thirdly, an important objective of the Brussels Convention is that a national court should be able to rule upon the issue of its own jurisdiction by applying a relatively simple test without being compelled to consider the substance of the case, and that a purposive interpretation of Article 5(1) leads to the conclusion that the present claim arose from "matters relating to a contract."

My Lords, whilst there is no decision of the European Court directly on the point which arises for decision in this appeal, consideration of the judgments of that Court has led me to the conclusion that the submissions on behalf of Glasgow should be accepted and that its appeal should succeed. The judgments relied on by Mr. Burton which have caused me to form this opinion are the following. In Kalfelis v. Schröder [1988] ECR 5565 the Court treated a claim for unjust enrichment as a cause of action separate and distinct from a cause of action in contract and a cause of action in tort, and the judgment states at page 5581:

Bürgerliches Gesetzbuch

Strafgesetzbuch

Bürgerliches Gesetzbuch

Moreover in Kalfelis v. Schröder the court observed at pp. 5585, 5586 that Articles 5 and 6 should be interpreted restrictively and that a plaintiff is always entitled to bring his action in its entirety before the courts of the domicile of the defendant:

In Somafer v. Saar-Ferngas [1978] ECR 2183, in referring to the words of Article 5(5) of the Brussels Convention the European Court also stated that in interpreting Article 5 a wide and multifarious interpretation of the exceptions to the general rule of jurisdiction contained in Article 2 must be avoided, and the Court said at page 2191:

The second limb of Article 5(1) is worded "in the courts for the place of performance of the obligation in question." I consider that these words help to define the meaning of the words "in matters relating to a contract". The European Court has held that "the obligation in question" is a contractual obligation; it is an obligation arising under the contract which the plaintiff is seeking to enforce. Accordingly the wording of the second limb as interpreted by the European Court leads to the conclusion that it is only where a party is seeking to enforce the performance of an obligation contained in a contract (or of an obligation arising from a relationship closely akin to a contract such as membership of an association: see Peters v. ZNAV [1983] ECR 987 referred to later in this judgment) that the action can be brought in the place of performance of that obligation, rather than in the domicile of the defendant. In de Bloos v. Bouyer [1976] ECR 1497 the European court stated at pp. 1508, 1509:

"On the contrary, the word 'obligation' in the article refers to the contractual obligation forming the basis of the legal proceedings.

"This interpretation is, moreover, clearly confirmed by the Italian and German versions of the article.

"It follows that for the purposes of determining the place of performance within the meaning of Article 5, quoted above, the obligation to be taken into account is that which corresponds to the contractual right on which the plaintiff's action is based.

"In a case where the plaintiff asserts the right to be paid damages or seeks a dissolution of the contract on the ground of the wrongful conduct of the other party, the obligation referred to in Article 5(1) is still that which arises under the contract and the non-performance of which is relied upon to support such claims.

"For these reasons, the answer to the first question must be that, in disputes in which the grantee of an exclusive sales concession charges the grantor with having infringed the exclusive concession, the word 'obligation' contained in Article 5(1) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters refers to the obligation forming the basis of the legal proceedings, namely the contractual obligation of the grantor which corresponds to the contractual right relied upon by the grantee in support of the application."

In Handte v. Traitements Mécano-Chimiques des Surfaces [1992] ECR I-3967 the Court stated at pages 3994, 3995:

"Where a sub-buyer of goods purchased from an intermediate seller brings an action against the manufacturer for damages on the ground that the goods are not in conformity, it must be observed that there is no contractual relationship between the sub-buyer and the manufacturer because the latter has not undertaken any contractual obligation towards the former."

In Custom Made Commercial v. Stawa Metallbau [1994] ECR I-2913 the Court stated at page 2957:

"The Court has ruled that the obligation cannot be interpreted as referring to any obligation whatsoever arising under the contract in question, but is rather that which corresponds to the contractual right on which the plaintiff's action is based (see Case 14/76 de Bloos v. Bouyer [1976] ECR 1497, paragraphs 10 and 13).

"Having allowed an exception in the case of contracts of employment presenting certain special features (see, in particular, Case 133/81 Ivenel v. Schwab [1982] ECR 1891), in paragraph 20 of its judgment in Shenavai, cited above, the Court confirmed that the obligation referred to in Article 5(1) is the contractual obligation which forms the actual basis of the legal proceedings."

A further consideration referred to by the European Court is that the reason why under Article 5(1) a court for the place of performance of the contractual obligation is given jurisdiction is that the bringing of an action in such a court will enable the action to be brought in an efficacious way and the place of performance of the contractual obligation will be the place where the case can conveniently be heard. In Bier v. Mines de Potasse d'Alsace [1976] ECR 1735 the court stated at pages 1745, 1746 that the scheme of conferment of jurisdiction contained in Title II of the Convention:

"This freedom of choice was introduced having regard to the existence, in certain clearly defined situations, of a particularly close connecting factor between a dispute and the court which may be called upon to hear it, with a view to the efficacious conduct of the proceedings."

However in the present case this consideration is not applicable and the "particularly close connecting factor" between the dispute and the English court does not exist, because the action is brought, not to enforce a contract to be performed in England, but to recover monies which are repayable to the plaintiff because the contract never existed and because the plaintiff cannot seek to enforce it. In this case where Kleinwort Benson is suing Glasgow, domiciled in Scotland, for the repayment of monies unjustly retained by Glasgow, there is no "particularly close connecting factor" between the dispute and the court in England, which justifies departure from the general principle the defendant should be sued in the place of its domicile.

The judgments relied on by Mr. Pollock do not, in my opinion, lead to the conclusion that the present action brought by Kleinwort Benson comes within the scope of Article 5(1). Mr. Pollock cited the judgment of the European Court in Peters v. ZNAV [1983] ECR 987 at pages 1002 and 1003:

"It should be noted that multiplication of the bases of jurisdiction in one and the same type of case is not likely to encourage legal certainty and effective legal protection throughout the territory of the Community. The provisions of the Convention should therefore be interpreted in such a way that the court seised is not required to declare that it has jurisdiction to adjudicate upon certain applications but has no jurisdiction to hear certain other applications, even though they are closely related. Moreover, respect for the purposes and spirit of the Convention requires an interpretation of Article 5 which enables the national court to rule on its own jurisdiction without being compelled to consider the substance of the case."

This judgment shows that the words of Article 5(1) can include a consensual relationship between an association and its members which, as Hirst J. observed at first instance, "was manifestly very closely akin to an actual contract," but I do not consider that a claim based on unjust enrichment can be regarded as contractual in the same way as the close links and obligations created by membership of an association were regarded as being contractual in that case.

Mr. Pollock also relied on the judgment of Mr. Moore-Bick Q.C. in DR Insurance Co. v. Central National Insurance Co. [1996] 1 Lloyd's Rep. 74 where the learned Deputy Judge was considering the words of Order 11 Rule 1(1)(d) of the Rules of the Supreme Court in relation to a claim brought to "enforce, rescind, dissolve, annul or otherwise affect a contract . . .". Mr. Moore-Bick stated at pages 79, 80:

d

However the wording of Order 11 Rule 1(1)(d) differs from the wording of Article 5(1) and does not contain the words "in the courts for the place of performance of the obligation in question."

Mr. Pollock further relied on the judgment of the European Court in Arcado v. Haviland [1988] ECR 1539 where the court stated at pp. 1554, 1555:

"The same view must be taken of a claim for compensation for the wrongful repudiation of such an agreement as the basis for such compensation is the failure to comply with a contractual obligation. . . .

"In addition, Article 10 of the Convention on the Law Applicable to Contractual Obligations of 19 June 1980 (Official Journal 1980, L 266, p. 1) confirms the contractual nature of judicial proceedings such as those in point inasmuch as it provides that the law applicable to a contract governs the consequences of a total or partial failure to comply with obligations arising under it and consequently the contractual liability of the party responsible for such breach."

To the same effect was the earlier judgment of the European Court in Effer v. Kantner [1982] ECR 825 where the question referred to the Court was:

In its judgment the Court stated at page 834:

Therefore the European Court has held that the national court has jurisdiction under Article 5(1) to decide a dispute relating to the repudiation of a contract or a dispute as to the existence or non-existence of a contract.

In Tesam Distribution Ltd. v. Schuh Mode Team GmbH [1990] I.L.Pr. 149, where the defendants claimed that no contract had been entered into, the Court of Appeal applied the decision of the European Court in Effer v. Kantner and held:

In his judgment Stocker L.J. recognised that if it were clear that no contract had existed a court would not have jurisdiction under Article 5(1) and stated at page 165:

The learned Lord Justice later stated at page 165:

Effer v. Kantner

Therefore, whilst as a matter of legal analysis there may be fine distinctions between a contract which is void and a contractwhich is voidable or unenforceable, there is nevertheless in my opinion for the purposes of Article 5(1) a distinction, which is not difficult to apply in practice, between a case where one party claims that the contract is, or was, in existence and the other party claims that the contract never existed or has ceased to exist, and a case such as the present one where both parties accepted before the commencement of the action that the contract was void ab initio.

Accordingly, in my opinion, the judgments of the European Court give guidance in three respects to a national court considering the ambit of Article 5(1) of the Brussels Convention, and therefore to a court of the United Kingdom considering the ambit of Article 5(1) of Schedule 4 to the 1982 Act. First, the special jurisdiction given by Article 5(1) constitutes a derogation from the general rule contained in Article 2 that jurisdiction is vested in the courts of the State where the defendant is domiciled, and accordingly a wide interpretation of Article 5(1) should be avoided. Secondly, whilst, as in the Peters case, the words "in matters relating to a contract" can apply to a consensual obligation similar to that created by a contract, nevertheless when read with the words "in the courts for the place of performance of the obligation in question," the jurisdiction under Article 5(1) only arises when the claim is to enforce an obligation arising under a contract or a relationship akin to a contract such as membership of an association. Thirdly, the reason for the national court having jurisdiction is that there is a close connecting factor between the dispute giving rise to the claim and that court. Having regard to these considerations, and to the further consideration that in Kalfelis v. Schröder the European Court treated a claim for unjust enrichment as a cause of action separate and distinct from a claim in contract. I consider that the present action for restitution does not come within Article 5(1). Accordingly I am in agreement with the decision of Hirst J. at first instance and the conclusion of Leggatt L.J. in his dissenting judgment in the Court of Appeal. As I consider that the claim must be to enforce an obligation arising under a contract or a relationship akin to a contract I respectfully differ from the view of Roch L.J. that in Article 5(1) the word "contract" embraces a contract that is a nullity, and from the view of Millett L.J. that the word "contract" in Article 5(1) can include "void contract" and that the expression "place of performance of the obligation in question" can mean "intended place of performance of the supposed obligation."

Kleinwort Benson submitted, in the alternative, that the claim fell within Article 5(3) of Schedule 4. As the claim is one based on unjust enrichment, and not on tort or delict, I consider that it does not come within Article 5(3). In my opinion it would be inappropriate to apply the words "where the harmful event occurred" to a claim for unjust enrichment. I further consider that the judgment of the European Court in Kalfelis v. Schröder operates to strengthen the submission of Glasgow that Article 5 (3) is inapplicable rather than to assist the argument of the respondent. In that case question 2 referred to the court for a preliminary ruling was in these terms:

and for unjust enrichment

The court considered that question in paragraphs 14 to 21 of its judgment and answered the question as follows:

I agree with Hirst J. that the word "liability" in answer 2(a) must be interpreted as meaning liability within the scope of Article 5(3), namely, liability in tort, delict or quasi-delict. Accordingly, in my opinion, the court in its answer to question 2(b) is stating 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 an action in so far as it is not based on tort or delict but is based on unjust enrichment.

Accordingly I consider, for the reasons which I have given, that the decision of Hirst J. was correct and I would allow this appeal.