United Kingdom House of Lords Decisions

Baltic Insurance Group v. Jordan Grand Prix Ltd and Others and Quay Financial Software Ltd and Others [1998] UKHL 49; [1999] 2 AC 127; [1999] 2 WLR 134; [1999] 1 All ER 289 (15th December, 1998)

LORD SLYNN OF HADLEY

My Lords,

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Steyn. For the reasons he gives I, too, would dismiss the appeal.

LORD LLOYD OF BERWICK

My Lords,

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Steyn. For the reasons he gives I, too, would dismiss the appeal.

LORD STEYN

My Lords,

This appeal raises important questions about the interpretation of Article 11 of the Brussels Convention 1968, which is Schedule 1 (as substituted) to the Civil Jurisdiction and Judgments Act 1982.

The dispute

Jordan Grand Prix Limited is a company domiciled in England. Jordan is engaged in Formula 1 motor racing. A Jordan team competed in the 1994 FIA Constructors' Formula 1 World Championship. Jordan alleges that it undertook to make bonus payments to its employees if it finished in the top six of the 1994 World Championship. Jordan claims that through Belgian intermediaries it insured against this contingent liability with Baltic Insurance Group, an insurance company domiciled in Lithuania.

Quay Financial Software Limited, an Irish company, alleges that it entered into a sponsorship agreement with Jordan whereby it agreed to sponsor the Jordan team for the Championship: the sponsorship money being £1 million if the team finished in the top six and a lesser sum, if it finished in the top seven. Quay alleges that through the Belgian intermediaries it insured this contingent liability with Baltic. Mr. Desmond and Mr. Giblin are the two directors of Quay who were involved in the making of these arrangements.

In November 1994 the Championship ended. The Jordan team finished fifth. Jordan claimed under the main insurance cover on which it relies. Baltic refused to pay. Baltic's case was that neither the bonus agreement nor the sponsorship agreement was genuine. Baltic alleges a conspiracy between Jordan, Quay, two directors of Quay, and others, to defraud Baltic.

The proceedings.

On 26 January 1995, Jordan (the Plaintiff) issued a writ against Baltic (the First Defendant) and two companies carrying on business as reinsurers in Belgium (the Second and Third Defendants). Jordan sued the reinsurers under a "cut-through" clause. On 24 May 1995 Baltic served a defence and counterclaim. Baltic's case is that neither the bonus agreement nor the sponsorship agreement was valid. Baltic asserts that both agreements were kept secret and were "fraudulently manufactured". Baltic alleges that both agreements were made as part of a conspiracy to defraud Baltic. Baltic alleges that the contracts of insurance between Jordan and Baltic and between Quay and Baltic were voidable and that Baltic lawfully avoided them. By the counterclaim Baltic seeks to recover damages for losses it allegedly suffered as a result of the conspiracy. There were 12 defendants to the counterclaim, namely, Jordan, various individuals associated with Jordan, Quay and two of its directors (Mr. Desmond and Mr. Giblin), the Belgian intermediaries and the two reinsurers. For present purposes it is the joinder by Baltic to its counterclaim against Jordan of the three Irish parties, viz Quay, Mr. Desmond and Mr. Giblin (the Sixth, Seventh and Eighth Defendants to the counterclaim), which is at stake. Baltic could have sued the Irish parties in the Irish courts but instead chose to join them to its counterclaim against Jordan in the present proceedings. The three Irish parties took out a summons to strike out the counterclaim against them.

The decisions below:

The matter came before Langley J. The issue was whether Article 11 of the Brussels Convention 1968 allowed Baltic to join the three Irish parties as defendants to the counterclaim. So far as it is material Article 11, which forms part of Section 3 of the Convention, provides as follows:

 ". . . an insurer may bring proceedings only in the courts of the Contracting State in which the defendant is domiciled, irrespective of whether he is the policy-holder, the insured or a beneficiary.  The provisions of this Section shall not affect the right to bring a counterclaim in the court in which, in accordance with this Section the original claim is pending."

Three questions were debated before the judge, namely

 (1) Does Article 11 only apply to an insurer which is domiciled in a Contracting State?  (2) Does Article 11 permit a counterclaim against parties other than the original plaintiff?  (3) Does the fact that Mr Desmond and Mr Giblin are not policy-holders, insured persons or beneficiaries (but are directors of Quay and alleged conspirators) mean that Article 11 does not apply to them?

The judge answered all three questions in the negative. The judge accordingly dismissed the counterclaims of Baltic against the three Irish parties. Baltic appealed. By the judgments of Robert Walker L.J. and Otton L.J. the Court of Appeal upheld the reasoning of the judge on all three questions: Jordan Grand Prix Limited v. Baltic Insurance Group and Others [1998] 1 WLR 1049. But as to the third question Robert Walker L.J., who gave the leading judgment, pointed out that if Baltic is not entitled to counterclaim under Article 11 against the Irish parties the third question falls away: 1054H-1055A. Otton L.J. (at 1055B) and Staughton L.J. (at 1056B) agreed.

The anterior question:

Mr Richard Southern, who appeared for the Irish parties, pointed out in a careful analysis of the issues that before the three questions arising on the appeal can be addressed, it is essential to resolve the logically anterior question whether Baltic's counterclaim against the Irish parties is a "matter relating to insurance" within the meaning of Section 3 of the Convention. Baltic alleges an insurance fraud; it seeks to avoid a contract of insurance and to recover damages. The Court of Appeal unanimously held that it is clearly a matter relating to insurance. That is plainly right.

The first question: Does Article 11 apply to any insurer?

The competing interpretations of Article 11 involve treating it as applicable to any insurer wherever domiciled (as submitted by the Irish parties) or as applicable only to an insurer domiciled in a Contracting State (as submitted by Baltic). Article 11 must be construed in the context of the scheme of the convention. Article 2 contains the general principle that persons domiciled in a Contracting State shall, whatever their nationality, be sued in the courts of that state. Section 2 provides for special jurisdiction in respect of various matters including contract, tort, delict, or quasi-delict. Section 3 provides for special jurisdiction in regard to matters relating to insurance. Article 7 is the first provision in Section 3. It provides:

 "In matters relating to insurance, jurisdiction shall be determined by this Section, without prejudice to the provisions of Articles 4 and 5 point 5."

Articles 4 and 5.5 relate to defendants not domiciled in a Contracting State and to branches, agencies or other establishments. Article 8 provides:

 "An insurer domiciled in a Contracting State may be sued -

 1. in the courts of the State where he is domiciled. or  2. in another Contracting State, in the courts for the place where the policy-holder is domiciled, or  3. if he is a co-insurer, in the courts of a Contracting State in which proceedings are brought against the leading insurer.

 An insurer who is not domiciled in a Contacting State but has a branch, agency or other establishment in one of the Contracting States shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that State."

Articles 9 and 10 confer additional jurisdiction in claims against insurers in respect of liability insurance and insurance of immovable property. Articles 12 and 12a regulate the extent to which the provisions of the section may be excluded by agreement. This is the matrix in which Article 11 is embedded.

Before I can directly examine the interpretation of Article 11 it is necessary to consider the status of Section 3 in the scheme of the Convention. Counsel for Baltic submitted that Section 3 is not an exhaustive statement of the principles applicable in matters relating to insurance. In my view this contention is plainly wrong. The structure of the Convention, the language of Section 3, and in particular the express qualification contained in the words "without prejudice to the provisions of Articles 4 and 5 point 5" in Article 7, demonstrate that Section 3 is a self-contained and exclusive code governing insurance. Contrary to the submissions made on behalf of Baltic, I would hold that an insurer may not in respect of matters relating to insurance "fall back on other provisions of the Convention" as counsel for Baltic suggested. And the rival interpretations of Article 11 must be judged on this basic premise.

The language of Article 11 is plain. It speaks of "an insurer" and contains no language suggestive of a limitation to insurers who are domiciled in a Contracting State. By contrast in Article 8 the words "an insurer who is not domiciled in a Contracting State" are used. The difference in wording is instructive. Not surprisingly, Lloyd L.J. in New Hampshire Insurance Co. v. Strabag Bau A.G. [1992] 1 Lloyds Rep. 361, at 367, regarded the language of Article 11 as clear and peremptory: it rules out any limitation on the meaning of "an insurer": see also O'Malley and Layton, European Civil Practice, 1989, par 18.44. In any event, as counsel for the Irish parties pointed out, it is an important consideration that Article 11 is permissive as well as prohibitive. It only confers jurisdiction to hear a claim brought by an insurer on the courts of the Contracting State in which the defendant is domiciled. Apart from an agreement on jurisdiction under Article 12 no other provision in Section 3 permits an insurer to bring proceedings in a matter relating to insurance against a defendant. Unless Article 11 applies to all insurers, wherever domiciled, an insurer who is not domiciled in a Contracting State would not in matters relating to insurance be able to bring proceedings in a Contracting State against a defendant domiciled in a Contracting State. After all, an insurer such as Baltic would not be able to rely on Article 2 of the Convention, because Section 3 of the Convention is an independent code governing all matters relating to insurance. This consideration highlights the implausibility of Baltic's argument on the first question. Finally, it must be borne in mind that in the words of the European Court of Justice the purpose of Section 3 was "to protect the insured who is most frequently faced with a predetermined contract the clauses of which are no longer negotiable and who is in a weaker economic position": Gerling v. Italian Treasury [1983] ECR 2503, 2516, para. 17. This purpose must inform the approach to the interpretation of Article 11. But if Article 11 is held to apply only to insurers domiciled in a Contracting State the purpose of Article 11 would be undermined.

For these reasons I would hold that Article 11 applies to any insurer. Given this conclusion, it is unnecessary to consider an alternative argument of the Irish parties, based on Article 8, that because the insurance was effected through Belgian intermediaries, Baltic is deemed to be domiciled in Belgium which is a Contracting State.

Second Question: Does "a counterclaim" mean only a counterclaim against the original plaintiff?

Counsel for Baltic submitted that as a matter of language "counterclaim" in Article 11 is capable of covering not merely a counterclaim against the original plaintiff but also a counterclaim against new parties. If the focus is restricted to the meaning of the word "counterclaim", I would be content to accept this proposition. On the other hand, the concept of a counterclaim in Article 11 apparently derives from Article 15 of the draft Belgian Judicial Code: see the explanation by Advocate General Leger in his opinion in Danvaern Production A/S v. Schuhfabriken Otterbeck GmbH & Co. 1995 E.C.R. 1, 2053, at paragraphs 24-26 (2061-2062) and 35-37 (at 2065). And under Article 15 of the Belgian Judicial Code a counterclaim was not permitted against new parties. For my part I would not place too much weight on this point because the primary search must be for an objective and independent interpretation capable of accommodating the needs of a diversity of national legal systems. Counsel for Baltic further submitted that the wider interpretation would promote the objective of non-fragmentation of legal proceedings: that is the desirable policy of hearing related matters in one set of proceedings. I would also accept this general proposition. But what at first glance seem may seem a reasonable argument breaks down when one examines contextual considerations which bear on the problem.

There are three such factors which point to a narrower interpretation of counterclaim in Article 11. First, the structure of the Convention is important. The general principle is that national courts of the Contracting State in which the defendant is domiciled are to have jurisdiction: first para. of Article 2. Derogations from this principle are carefully circumscribed in Articles 2 to 6: those provisions set out when a defendant in a Contracting State may or must be sued in the courts of another Contracting State. The right to counterclaim is a special jurisdiction: it is a derogation from the general principle. It must therefore be restrictively construed. It is rightly conceded by Baltic that as a matter of language "counterclaim" in Article 11 is capable of accommodating the wider and narrower meanings. The structure of the Convention therefore suggests that the narrower interpretation ought to be preferred.

The second contextual factor relied on by the Irish parties is that, unlike Article 6.1 and 6.2 contained in Section 2, Section 3 in dealing with matters relating to insurance does not confer on a plaintiff the right to join co-defendants or third parties. As my noble and learned friend Lord Hoffmann put it in argument it would involve a striking asymmetry if a defendant has a right to join new parties to a counterclaim. This factor militates strongly in favour of the narrower interpretation.

The third factor is that Section 3 is an independent code governing "matters relating to insurance" which was devised for the protection of insured: see Gerling v. Italian Treasury, supra. That protection would be substantially eroded if a defendant is permitted to join new parties to a counterclaim: see Gerling v. Italian Treasury supra. The policy of non-fragmentation of legal proceeding has been trumped in Section 3 by giving primacy to the protection of the insured.

My Lords, in combination these contextual considerations are decisive. They convincingly demonstrate that the semantic argument of Baltic, as well as the reliance by Baltic on a general policy of non-fragmentation, are outweighed by more cogent considerations. I am satisfied that the correct interpretation of Article 11 is that "counterclaim" means only a counterclaim against the original plaintiff. Given this conclusion it is unnecessary to consider an alternative argument of the Irish parties that the counterclaim against them is not made out because the counterclaim as pleaded does not satisfy the requirements of Article 6 (3) of the Convention, which only permits "a counterclaim arising from the same contract or facts on which the original claim was based".

The third question: Is the expression "the policy-holder, the insured or a beneficiary" exhaustive or merely illustrative?

For my part I would not wish to decide more in regard to the interpretation of the Convention than is necessary for the disposal of the appeal. As Robert Walker L.J. pointed out it is Baltic which is seeking to take advantage of the last sentence of Article 11. Baltic is only entitled to do so by counterclaim against an original plaintiff. But Baltic is not entitled to counterclaim against the Irish parties. This issue therefore falls away.

Reference to the European Court of Justice

The question was raised whether under Article 3 of the 1971 Protocol the House should refer any question to the European Court of Justice. Subject to your Lordships agreeing, I take the view that the answers to the questions arising on this appeal are inescapable and that a reference is unnecessary and inappropriate.

Conclusion

My Lords, for these reasons, which are substantially the same as the reasons given by Walker L.J. I would dismiss the appeal.

LORD HOFFMANN

My Lords,

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Steyn. For the reasons he gives I, too, would dismiss the appeal.

LORD MILLETT

My Lords,

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Steyn. For the reasons he gives I, too, would dismiss the appeal. start rest here!