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Cite as: [2001] AC 223, [2000] 1 All ER 737, [2000] UKHL 7, [2000] 2 WLR 497, [2001] 1 AC 223

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Agnew and Others v. Länsförsäkringsbolagens A.B. [2000] UKHL 7; [2000] 1 All ER 737 (17th February, 2000)

HOUSE OF LORDS

Lord Nicholls of Birkenhead Lord Woolf M.R. Lord Cooke of Thorndon
Lord Hope of Craighead Lord Millett

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

AGNEW

(Suing on his own behalf and in a representative capacity on behalf of all members of Lloyd's Syndicates 672, 79, 1023 and 590) and others

(RESPONDENTS)

v.

LÄNSFÖRSÄKRINGSBOLAGENS A.B.

(APPELLANTS)

ON 17 FEBRUARY 2000

LORD NICHOLLS OF BIRKENHEAD

My Lords,

I agree with all your Lordships that article 7 of the Convention ('in matters relating to insurance') is not applicable to re-insurance. I agree similarly that the claims in the present proceedings do not fall within article 5(3) as a matter 'relating to tort, delict or quasi-delict'. On the remaining issue, concerning the applicability of article 5(1) ('in matters relating to a contract'), on which your Lordships are divided, I prefer the views and reasoning of my noble and learned friends Lord Woolf and Lord Cooke of Thorndon. Accordingly I would dismiss this appeal.

LORD WOOLF M.R.

My Lords,

This appeal turns on the proper interpretation of provisions of the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1988 (the "Lugano Convention"). As its full title indicates, the Lugano Convention is concerned with harmonising the rules as to the choice of jurisdiction and enforcement of judgments between the Contracting States. The Lugano Convention is set out in Schedule 3C to the Civil Jurisdiction and Judgments Act 1982 as inserted by Section 1(3) of and Schedule 1 to the Civil Jurisdiction and Judgments Act 1991.

The relevant provisions of the Lugano Convention are in identical terms to the provisions of the Brussels Convention. However, the Lugano Convention is entered into between the Members of the European Free Trade Association while the Brussels Convention is entered into by the Members of the European Union. The European Court of Justice has jurisdiction to give rulings on the interpretation of the Brussels Convention under the 1971 Protocol to the Brussels Convention, but not in the case of the Lugano Convention. However, Protocol No. 2 to the Lugano Convention makes any ruling on the Brussels Convention by the European Court of Justice (The E.C.J.) highly relevant to any decision as to the interpretation of the corresponding provisions of the Lugano Convention. Before the Court of Appeal it was argued that there should be a reference in this appeal notwithstanding that it concerns the Lugano Convention to the E.C.J. but the Court of Appeal rejected that argument and there is no appeal against that ruling.

In order to determine the issues raised on this appeal, it is necessary to understand the framework of the Lugano Convention. The general principle laid down by the Convention is that persons domiciled in a contracting state shall, whatever their nationality, be sued in the courts of that state (Article 2). There are then exceptions to that general principle. One of those exceptions is set out in Article 5 of Section 2 which deals with special jurisdictions. Article 5, so far as relevant, provides :

1. in matters relating to a contract, in the courts for the place of performance of the obligation in question; in matters relating to individual contracts of employment, this place is that where the employee habitually carries out his work, or if the employee does not habitually carry out his work in any one country, this place shall be the place of business through which he was engaged;

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

Section 3 of the Lugano Convention contains additional special rules which in turn override, inter alia, the provisions of Article 5. Section 3 commences with Article 7 which provides :

"In matters relating to insurance, jurisdiction shall be determined by this Section, . . . " Article 11 of Section 3 provides :

"Without prejudice to the provisions of the third paragraph of Article 10, 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."

It is apparent from these provisions of the Convention that it is not possible to avoid the general principle contained in Article 2 by relying on Article 5 because of Article 11, even if the proceedings raise "matters relating to a contract," if the claimant is "an insurer" who is bringing proceedings as to matters relating to insurance.

The Background to the Appeal

The issues on this appeal as to the effect of the Lugano Convention arise in the circumstances which I will now describe. The claimants are representative Lloyd's underwriters and United Kingdom insurers carrying on re-insurance business in the London Market. The defendant is an insurance company incorporated in Sweden with a registered office in Stockholm. For the purposes of the Lugano Convention and the 1982 Act, the defendant is domiciled in Sweden. The defendant issued suppliers' and manufacturers' guarantee insurance (the "original insurance") to A.B.B. Vetco Gray U.K. Ltd. in respect of obligations arising under a contract to supply Norsk Hydro with underwater valves (known as "Xmas Trees") for use in the Troll Oil Field in the North Sea.

From November 1993 to February 1994 the claimants underwrote in London various participations on primary and excess layer facultative reinsurance in relation to the defendant's exposure under the original insurance. The reinsurances were placed by London brokers acting on behalf of the defendant. Facultative reinsurance is a form of reinsurance by which the insurer reinsures each individual acceptance with a reinsurer who is willing to undertake liability. It is to be contrasted with obligatory reinsurance where there is an agreement, and "treaty" entered into between an insurer and reinsurer under which the insurer agrees to the reinsurance of specified categories of insurance which the reinsurer agrees to undertake. Both classes of insurance may also be layered. Then the reinsurer would only be liable for the loss to the extent that it is above or below a particular figure.

In their action the claimants contend that they should be granted a declaration stating that they are entitled to avoid the reinsurance contracts. The grounds on which they rely are that they were induced to enter the contracts by material misrepresentations and that the defendants, through their brokers, were guilty of material non-disclosure. The misrepresentations are alleged to have been made and the non-disclosure is alleged to have occurred during the negotiation and presentation of the risk in London.

When the writ was issued on 7 September 1995 it was endorsed with a certificate by the claimants' solicitors to the effect that the High Court had power to hear and determine the claimants' claim under the Civil Jurisdictions and Judgment Act 1982.

The defendant will succeed on its application if either Article 5 does not apply to the claim or the claimant was an insurer for the purposes of Articles 7 and 11.

The decision of Mance J.

The defendant was unsuccessful both before Mance J. at first instance and the Court of Appeal. Before Mance J. [1996] 4 All E.R. 978 the dispute was confined to the effect of Article 5. As to Article 5 the defendant accepted that the matter in dispute was one "relating to a contract." This concession the judge regarded as being well founded. The defendant however contended that the obligation upon which the claimants relied was one arising not under any term of the contract but independently under the general law. Furthermore, the obligation arose in the context of pre-contractual negotiations and not, as the defendant submitted was required by Article 5(1), under the contract. Mance J. rejected the defendant's contentions. He indicated, at p. 994, that he would regard it as "odd" if the application of Article 5(1) depended on a determination of whether the duty of disclosure arose as a matter of law rather than from a term of the contract. He also considered that it would be "odd" if the application of Article 5(1) should vary according to the time of non-disclosure. The position should be the same whether the claim was to set aside the contract for non-disclosure as at the time it was originally made or for non-disclosure from the date of an intermediate review of the contract. Both non-disclosures should give rise to the same duty of good faith. The judge considered that any distinction between pre-contract and post-contract duties appeared to break down in such situations. The reality was that but for the making of a contract the matter would never have come before a court at all.

The Decision of the Court of Appeal

In the Court of Appeal [1997] 4 All E.R. 937 Evans L.J. gave a judgment dismissing the appeal with which Hobhouse and Schiemann L.JJ. agreed. Evans L.J. stated, at p. 942, that :

Evans L.J. also accepted that it is well established that Article 5 should be interpreted by reference to the objects of the Convention rather than by reference to concepts of national law which may vary from one Member State to another. He pointed out that the right to avoid a contract which arose under the general law "could equally well be formulated (and perhaps they should be) in terms of 'contractual obligations' in the strict sense."

Evans L.J. also dealt, at pp. 943-944, with the new contentions of the defendant as to whether a contract of reinsurance was a contract of insurance. On this issue Evans L.J. relied on the report of Professor Schlosser on the Convention on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain to the Brussels Convention (O.J. 1979 No. C-59/71). The report bluntly stated, at p. 117, para. 151:

Evans L.J. having adopted the views of Professor Schlosser added that in his opinion reinsurance and insurance were "conceptually distinct, not least as regards subject matter and the respective definitions of risk."

The Issues on the Appeal

On the further appeal to this House, their Lordships are required to determine three issues. The first is whether insurance includes reinsurance for the purposes of Title II, Section 3 of the Convention (the "Insurance Issue"). The second issue is whether the claimants are entitled to rely upon Article 5(1) (the "Contract Issue"). The third issue only arises if the claimants do not succeed on the contractual issue. It is whether the claim for relief in respect of the defendant's alleged breach of duty falls within Article 5(3) of the Lugano Convention ("the Tort Issue").

The Insurance Issue

Mr. Siberry Q.C., who appeared for the defendant on the Insurance Issue, commences with the advantage that, as he submits, reinsurance is undoubtedly widely understood to be a form of insurance both in this jurisdiction and other jurisdictions. He refers to the fact that it is well established as a matter of English law that "by a contract of reinsurance the reinsuring party insures the original insuring party against the original loss" (per Viscount Cave L.C. in Forsikringsaktieselskabet National (of Copenhagen) v. Attorney-General [1925] A.C. 639, 642). As he points out, Section 3 of Title II is a self contained and exclusive code governing insurance which is not confined to insurance for domestic or private purposes. Mr. Siberry submits that applying Section 3 to reinsurance would not create any difficulty. He adds correctly that there is no doubt that Section 3 applies to the insurance of commercial activities. Article 12A for example refers to different risks, including the risk of loss of or damage to sea-going ships, installations situated offshore or aircraft "which relate to their use for commercial purposes." Furthermore, he submits that if the contracting nations had intended such a substantial exclusion one would have expected them to have spelled it out by an express term in the interests of certainty which was one of the major objectives of the Lugano Convention.

My Lords, these are attractive arguments but in my judgment they should not be accepted. The decision of the Court of Appeal is correct for the reasons submitted by Mr. Michael Crane Q.C. on behalf of the claimants. Section 3B(2) of the Act of 1982 provides that the Jenard and Möller Report on the Lugano Convention can be referred to in order to ascertain the meaning or effect of any provision of the Convention. That Report points out that Section 3 and Section 4 of the Convention, which deals with consumer contracts, have the primary objective of protecting the weaker party (para. 13). Unlike the ordinary insured the reinsured cannot conventionally be regarded as a weaker party than the reinsurer.

The Jenard and Möller Report also refers to the paragraph of the Schlosser Report on which Evans L.J. relied. In addition, there is some indication both in the English authorities and in the decisions of the E.C.J. that it has been generally accepted that reinsurance is not included in Section 3. This was common ground in Arkwright Mutual Insurance Co. v. Bryanston Insurance Co. Ltd. [1990] 2 Lloyds Reports 70 (at p. 73 Col. 2). In the Trade Indemnity case ([1995] 1 All E.R. 796 at p. 804A-804C), although the point had not been argued, Rix J. concluded that Article 11 did not apply to reinsurance. In addition in Jordan Grand Prix Ltd. v. Baltic Insurance Group [1999] 2 AC 127 (at pp. 132G-134C) Lord Steyn indicated that the purpose of Section 3 was to protect the insured who is most frequently faced with a pre-determined contract and who is in a weaker position. In Overseas Union Insurance Ltd. v. New Hampshire Insurance Co. [1992] 1 Q.B. 434, a case involving the Brussels Convention, before the E.C.J., both parties contended that Section 3 was inapplicable to reinsurance. The German Government also contended that this was the position. However, the Commission argued that it was difficult to see any fundamental difference between insurance and reinsurance. The judgment did not deal with the issue.

Mr. Crane also submits that there is a consensus of academic opinion that Section 3 does not apply to reinsurance. He cites Kaye, Civil Jurisdiction and Enforcement of Foreign Judgments (1987) pp. 808, 858; O'Malley & Layton, European Civil Practice (1989) pp. 456-461; Dicey & Morris, The Conflict of Laws, 12th ed. (1993), pp. 372-9; Clarke, The Law of Insurance Contracts, (1999) para. 2-10F; and Butler & Merkin, Reinsurance Law, p. D4.1 189/196.

The Schlosser Report is of significance. The Report, in addition to the statement on which Evans L.J. relied, describes the negotiations relating to the accession of the United Kingdom. Professor Schlosser points out that the accession introduced a totally new dimension to the insurance business as it had been practised hitherto within the European Community. (Para.136). The United Kingdom requested a number of adjustments but these did not relate to reinsurance. This country would undoubtedly have been concerned about the position in relation to reinsurance if it was thought it was included in the term "insurance" and the categoric statement in the Schlosser Report could well be the explanation as to why there is no specific mention of reinsurance. In addition Mr. Siberry's reliance on Article 12A is misplaced. In fact that Article which was introduced at the request of the United Kingdom has to be read with Article 12(5) which has the effect of permitting agreements on jurisdiction which depart from Section 3 in relation to the risks referred to in Article 12A. That Article is therefore consistent with an approach which means that the sort of commercial risks referred to in Article 12A are not ones to which Section 3 has to be applied. The United Kingdom was also in favour of an exclusion based on the scale of the risk involved. However, there was difficulty in finding a solution which would provide adequate certainty as to the scale of risk which was to be excluded so there was in fact no exclusion. However, this underlines the limited significance of there being no negotiations as to the express exclusion of reinsurance. Finally, contracts of reinsurance are inherently a category of contract that one would not expect to be within Article 5. My Lords, I regard it as contrary to the policy and structure of the Lugano Convention to treat Section 3 as applying to reinsurance.

The Contract Issue

The starting point for resolving the issue as to whether a claim to avoid a contract for non-disclosure and misrepresentation is one of the exceptional situations where the claimant may but does not have to bring proceedings in the courts of the defendant's place of domicile, is the language of Article 5(1) itself. This at first blush appears clear. The structure which the draftsmen of the Convention adopted in Article 5 is simple and practical. The draftsmen no doubt hoped that they had produced a model which would avoid the complex satellite litigation as to the appropriate choice of jurisdiction which has resulted in this case and Kleinwort Benson Ltd. v. Glasgow City Council [1999] 1 AC 153. Their hopes were not fulfilled because, unfortunately, both these cases involved situations which fall close to the borderline between those cases which can and cannot be properly regarded as falling within Article 5(1). In Kleinwort Benson, the problem arose because there was never any contract at all. The Glasgow City Council could not enter into the contract which it purported to enter because it had no power to do so. At first instance Mr. Justice Hirst decided that the case fell within Article 5(1). A majority of the Court of Appeal (Roch and Millett L.JJ., Leggatt L.J. dissenting) allowed the appeal. This House restored the decision of the judge at first instance by a majority of three to two (Lord Goff, Lord Clyde and Lord Hutton with Lord Nicholls and Lord Mustill dissenting). At least here, where the issue is whether the contract can be avoided by the claimants but not whether it is void, so far there has been unanimity on the part of the judiciary. In both the court of first instance and in the Court of Appeal very experienced commercial judges have apparently had no difficulty in concluding that this litigation falls within Article 5(1).

The model which the draftsmen adopted throughout Article 5 was, in relation to a series of different situations, first to identify the nature of the issue and then to identify the applicable jurisdiction in which the proceedings could be brought. So in this part of Article 5(1) the issue is "in matters relating to a contract", and the jurisdiction is "in the courts for the place of performance of the obligation in question". As pointed out earlier, in his judgment, having examined the relevant principles, Mance J. records that "the defendants accept that the matter is one 'relating to a contract'" and adds that in his judgment this concession was well-founded. If it was only necessary to look at the opening words of Article 5(1) I would not only agree but would suggest that no other conclusion was possible. A claim to set aside a contract must be within the words "in matters relating to a contract."

In addition, in the context of this case in the absence of authority to the contrary, I would find no difficulty with the part of Article 5(1) which identifies the relevant jurisdiction: that is, the second part of the Article. Here, there is an obligation, namely to disclose. This is the obligation "in question." It is an obligation which is accepted by the parties it was to be performed in London. Therefore ours is the jurisdiction which would appear to be the jurisdiction identified by Article 5(1).

Before turning to the guidance provided by the authorities it is useful to enquire whether there appears to be any reason of principle or policy which suggests that it would not be appropriate to give the language of the Convention what appears to be its ordinary meaning. I find no such policy or principle. On the contrary, it seems to me that both policy and principle are in favour in adopting the ordinary meaning of the language used. This is because Article 5(1) clearly indicates that in contractual matters the close connection with the place of performance justifies permitting, as an exception to the general rule, that the place of performance has jurisdiction.

Although, as I have indicated, there are two parts to the relevant provision within Article 5(1), I recognise that the language of the whole can assist in the interpretation of both parts. If, for example, there was no obligation which could be identified or if there was no place of performance which could be identified, then that would be a strong indicator that no part of Article 5(1) has any application although what is in issue is literally a matter relating to a contract. Equally, the opening words of Article 5(1) give a contractual flavour to the "obligation in question." Again, I accept that as Article 5(1) provides for an exception to the general principle, a restrictive or strict interpretation of the language is appropriate. But the adoption of that approach does not require the ordinary meaning of the language to be artificially confined so as to give the language used an unnatural meaning.

When interpreting a convention which applies to a variety of jurisdictions, the less technical distinctions on the basis of domestic law which are adopted the better. They are inclined to produce the very uncertainty which the Convention was designed to remove. They result in satellite procedural litigation which is unproductive and expensive, both in monetary terms and in the delay to the legal proceedings which results. They make the language of the Convention incapable of being applied without resorting to an ever increasing volume of authorities which will become progressively more difficult to reconcile. I will turn in due course to the persuasive arguments of Mr. Siberry and the authorities on which he can properly rely, but before I do so I look generally at the issues which are involved in this case and I ask myself whether there is any feature of those issues which make it inappropriate for this jurisdiction to be seized of the dispute. Looking at the issues through the eyes of an English lawyer, I find the situation to be one where :

(a) if the claimants did not seek to rely on the non disclosure, there would undoubtedly be a contract which would have a close connection with the London reinsurance market with which the courts of this jurisdiction are very familiar.

(b) the obligation for disclosure is one which arises under the general law rather than an express term of that contract. However, the obligation arises because it is commercially highly desirable. If the obligation did not exist under the general law the parties would either have to include a term in the contract to the same effect or negotiate on terms which would be more financially burdensome to the insurer who is seeking reinsurance. In addition, to draw a distinction between the requirements of the general law and requirements of the contract is highly artificial. It is far from uncommon for the parties to a contract of reinsurance to include obligations expressly which the general law also requires.

(c) it would indeed be odd, as Mance J. indicated, to resolve the issue here differently depending on whether a general obligation is expressly mentioned in the contract. The general law avoids the parties having to include such a term if they are content to have their relationship governed by the general law. The parties could, for example, provide that in the event of non-disclosure the reinsurer has the option instead of avoiding the contract of affirming the contract and claiming an additional premium or commission which reasonably reflects the disadvantage of accepting the additional risk which results from the non-disclosure. A claim for the additional premium I would have thought uncontroversially fell within Article 5(1).

(d) the fact that what is being sought is a declaration avoiding the contract is not a distinguishing feature of this case. The declaration that a contract is no longer binding need not arise from an obligation which should be fulfilled before the contract is made. In contracts of insurance and reinsurance, obligations of good faith can arise both before and after the contract has been made. If a distinction is to be drawn depending on when the obligation begins or ends, then fine distinctions indeed will have to be drawn. The situations in which one party to a contract will regard the other party as having been discharged from any further obligation to perform the contract can arise in a great variety of situations.

(e) for the purposes of Article 5(1) there may well be a distinction between a party relying on non-disclosure or lack of good faith and a party relying upon duress, undue influence or mistake. If it would be appropriate to refer to an obligation not to be guilty of duress or undue influence or to induce a contract by mistake as relating to a contract, in the case of such an allegation it may still not be possible to rely upon Article 5(1) to establish jurisdiction. This is because there could be no place for performance of such a negative obligation. In the case of non-disclosure there is a place which can be identified where the disclosure should have taken place. In the case of non-disclosure therefore there is both an obligation and a place where that obligation is to be performed. The position would be the same in the case of any contract entered into in circumstances where one or other party is under an obligation of good faith.

(f) as Mance J. states (at p.986), "the fact that the remedy is avoidance emphasises the reality that, without the making of the contract, the matter would never come before a court at all."

I turn to Mr. Siberry's submissions. Mr. Siberry's first main submission is that the decision of their Lordships' House in Kleinwort Benson has made it clear that for a claim to fall within Article 5(1) it must be based on a contract, i.e. it must be a claim in respect of a right, and the corresponding obligation arising under a contract: the obligation in question must be a contractual obligation. So far as this submission is concerned apart, possibly, from the inclusion of the word "under" I find it quite acceptable. An obligation which, if it is not fulfilled, provides a right to set aside the contract I would regard as being in ordinary parlance as a contractual obligation of, if not also under, the contract. Otherwise you descend into the unattractive distinctions between obligations which are included in the contract and obligations which arise under the general law. Substitute the words "arising from" for the word "under" and this difficulty is resolved.

As to the authorities, these were examined in detail by their Lordships in Kleinwort Benson. Apart from Lord Mustill who was content to adopt the dissenting opinion of Lord Nicholls, each of their Lordships gave their own opinion. Each opinion examined the relevant Community jurisprudence.

It is Lord Goff of Chieveley who subjects the Community jurisprudence to the closest analysis. However, nowhere does he touch upon a situation where what is at issue is not seeking a remedy in relation to a contract which is void ab initio but seeking one which is only voidable. As he indicates, having ascertained the relevant principles under the Community jurisprudence, the "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)". Having specified that that is the issue he then turns immediately to state his conclusion, again focussing on a void contract, in these terms:

The requirement of Lord Goff is that there should be a contractual obligation. It is a matter of speculation as to whether he would have come to the same conclusion as that to which he came to in the case of a void contract in the different circumstances which exist here. Lord Goff correctly gleaned in particular from the case of Martin Peters (Case 34/82) [1983] ECR 987 (at p. 1002 para. 11) that what is important when deciding whether Article 5(1) applies is a "particularly close connecting factor between a dispute and the court which may be called upon to hear it". The dispute which Lord Goff had in mind was a contractual dispute as to performance. Once it is accepted that a contractual obligation can arise under the general law as well as under the terms of the contract, there is no difficulty in identifying the necessary proximity between the obligation which is relied on here by the claimants and the place of its performance which is within this jurisdiction.

Lord Clyde's approach is also closely tied to the need for there to be a contract. He states :

"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." (p.181D/F)

I would regard this as being one of the "variety of forms" in which an issue as to the performance of a contractual obligation can arise. Lord Clyde's approach does not create any difficulty in regarding the claim here as falling within Article 5(1).

That it would be wrong to regard Lord Clyde's opinion as being inconsistent with the present contentions of the claimants also appears from a passage later in his opinion where he refers to Effer S.p.A. v. Kantner (Case 38/81) [1982] ECR 825. In regard to that case, he states that :

Lord Clyde also refers to the case of Boss Group Ltd. v. Boss France S.A. [1997] 1 W.L.R. 351, a case which is similar to this case (declarations were sought denying the existence or the continued existence of the contract in question), without indication of disapproval of it.

Lord Hutton, in his opinion, accepts that the words "may . . . be sued . . . in matters relating to a contract" are wider than the words "may be sued on a contract". (p. 186) The remaining speech is that of Lord Nicholls which is strongly supportive of the claimants' case but as it is a dissenting speech, although I feel it is very persuasive, I place it on one side.

While therefore the comments of their Lordships who constitute the majority in the Kleinwort case deserve careful examination, I do not regard them as inconsistent with what I regard as being the common-sense answer to this case.

The decision of the E.C.J. to which most attention was paid was the decision in the case of Ets. A. de Bloos S.P.R.L. [1976] ECR 1497. Mr. Siberry's reference to an "obligation arising under the contract" came from the judgment in that case. It is a case which is concerned with identifying the place of performance, that is, the second part of Article 5(1). That is clear from the language of the paragraph of the judgment of the court in which the words "under the contract" appear. The court said :

"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." (paras. 13 and 14 at p.1508)

When obligations can arise in the different legal systems of the many Contracting States under the general law which can appropriately be regarded as contractual although they are not mentioned in the contract it would be inappropriate to attach any particular significance to the use of the word "under" by the E.C.J. in these circumstances. I certainly would not be prepared to assume that its use indicated that it was only obligations which arose under the express terms of the contract which the E.C.J. has in mind. Such a legalistic distinction has in my judgment no place in applying a convention which is seeking to lay down rules of jurisdiction of general application among a number of States.

The other case to which it is useful to refer is the case of Effer S.p.A. v. Kantner [1982] ECR 825. The decision provides a degree of support for the claimants' case since the court held :

While it is possible to find other paragraphs in the judgments of the E.C.J. which it can be argued support one side or the other, I do not consider that it is necessary for the purposes of this opinion to refer specifically to any other decisions. In my view there is nothing contained in the other decisions to which we were referred which is inconsistent with the adoption of what I have suggested is the correct approach. The defendant does not suggest otherwise. Apart from the general principles already identified, the arguments of the defendant return to the proposition that pre-contractual obligations are not within Article 5(1), and on this issue there is nothing in the other decisions of the E.C.J. or, for that matter, in the decisions of the other contracting States which are decisive on the subject.

My Lords, I am of the opinion that the authorities enable your Lordships' House to decide this issue in the manner which most satisfactorily promotes what I understand to be the policy of the Lugano Convention and which complies with the ordinary meaning of the language of Article 5(1). It is for this reason that I would reject the arguments of the defendants despite the persuasiveness of Mr. Siberry's argument.

The Tort Issue

It is accepted that if this case falls within Article 5(1) it does not fall within Article 5(3). It is not possible for the same issue to be classified under both heads. Having come to the conclusion that it falls under head 5(1) it does not appear to me desirable to consider subsection (3) further, other than to indicate that if the proceedings fall within Article 5, the obvious candidate is Article 5(1) rather than Article 5(3).

Conclusion

Throughout the hearing of this appeal I have been conscious that the issues before us are ones which it would be preferable for the E.C.J. to decide. It is however not possible to refer issues under the Lugano Convention to that court and while there is a case pending before that court involving the Brussels Convention which raises the insurance issue (Group Josi Reinsurance Company S.A. v. Compagnie d'Assurances Universal General Insurance Company [1999] I.L.Pr. 351), there is no equivalent issue before the European Court as to the contract issue. In these circumstances it seems that their Lordships have no alternative but to determine the present appeal. In giving my opinion as to the proper outcome of the appeal, I am reassured by the fact that the issues with which we are concerned are ones of which the courts in this country have considerable experience because of the size of the reinsurance market in London. When the E.C.J. gives a decision on the same issues under the Brussels Convention then those decisions will take precedence over your Lordships' conclusions. I would hope that when that happens, in coming to their decision the E.C.J. will obtain some assistance from their Lordships' opinions.

My Lords, for the reasons I have attempted to explain I would dismiss this appeal.

LORD COOKE OF THORNDON

My Lords,

I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Woolf, Lord Hope of Craighead and Lord Millett. While respecting the views of the two latter members of your Lordships' House and the lines of reasoning which they employ, I prefer the view of Lord Woolf as being more realistic. Independently I had reached the same conclusion by the end of the arguments of counsel. This view also accords with those of Mance J. at first instance and the Court of Appeal (Evans, Hobhouse and Schiemann L.JJ.), so there is an emphatic overall majority for it. I share with Lord Woolf the hope that this may be of some help to the European Court of Justice when giving a decision on the same issues under the Brussels Convention.

As to Section 3 of the Lugano Convention, the word "insurance" may be used in a general sense covering all aspects of the subject, but just as naturally it may be used in a more limited sense to refer only to direct insurance as distinct from reinsurance. Which sense is appropriate in any given instrument will depend on the context and purpose of the provision in question. The more limited sense is likely to be more appropriate when the rights of policy-holders other than reinsurers in the insurance industry are the focus of attention. In the present case I need not discuss this question at length, as your Lordships' Appellate Committee and the Court of Appeal are unanimous that the more limited meaning is correct; and, while the question was not argued before Mance J., there is an observation in his judgment indicating that he was of the same opinion (see [1996] 4 All E.R. at 993C).

The key point is that the wider choice of jurisdictions in which to sue the insurer, given by Article 8 of Section 3, is a form of "consumer" protection; whereas reinsured as a class cannot be supposed to be in need of similar protection and so are outside the evident purview of the Article. And, if Article 8 had been intended to apply to suits against reinsurers, one would expect to find provision for contracting out in Articles 12 and 12A, as there is no obvious reason why a reinsurer should not be entitled to stipulate that he may be sued only in the courts of the State where he is domiciled. Moreover, the provisions of Section 3 are elaborate, yet nowhere in them is there the slightest hint that reinsurance is within their scope. In contrast Article 8.3 expressly brings in co-insurers. Taken as a whole, the language of the Section is strongly suggestive of direct insurance only, and no little effort would be required to fit reinsurance into it (for example, Article 10 as to actions by the injured party directly against the insurer, and Article 11 as to proceedings by the insurer irrespective of whether the defendant is "the policy-holder, the insured or a beneficiary"). For these and for the other reasons given by my Lords, I join in holding that Section 3 must be ruled out.

Turning then to Section 2, Article 5.1: patently an action to avoid a contract is a matter "relating to a contract". All the nine judges who have considered this case in England are of the same mind on this point. One need say nothing more about it.

The issue on which a difference of opinion has arisen in your Lordships' House is whether the words "the place of performance of the obligation in question" are satisfied. This issue has proved to lend itself to extensive discussion. The considerations which seem to me decisive are as follows.

The obligation in question may be variously described as an obligation to make a fair presentation of the risk, an obligation not to misrepresent the risk, or an obligation to disclose facts material to the risk which the reinsured knows or ought to know. However described, it is an obligation falling on the reinsured for breach of which a remedy, namely the setting aside of the contract, is available against the reinsured. Cases where an apparent contract in void ab initio - for such causes as failure to comply with a statutory requirement as to form, lack of contractual power in one party, or uncertainty - are distinguishable.

Whether the concept of contract, for the purposes of Article 5.1, be given an independent (or autonomous) convention interpretation or a common law interpretation, the remedy of repudiating the contract is essentially part of the law of contract. That is so not only because of the subject-matter but also because the remedy is available to the reinsurer in his capacity as one of the parties to the contract of reinsurance. As put in 25 Halsbury's Laws of England, 4th ed. (1994) para. 361, it is "an inherent right derived as a matter of law from the nature of the contract". In English law breach of the obligation in question does not itself give rise to a cause of action in tort or delict; for the latter there must be the added factor of deceit or breach of a duty of care. The obligation is imposed by law and has to be performed in negotiations for a contract (and may extend subsequently), but in a case such as the present it becomes enforceable only if a contract is concluded. It is then a condition precedent to the formation of a fully binding contract or, more shortly, a condition of the contract. Whether it is a term or condition "in" (or "under") the contract is the kind of question which schoolmen might debate, but that is a refinement of linguistics which, in my opinion, should be avoided if possible in interpreting a modern convention intended to provide clear and broad rules as to the jurisdiction of courts. Suffice it that the obligation is so intimately connected with the contract that if falls naturally within Article 5.1.

A powerful factor supporting that conclusion in a case such as the present is the close connection between the dispute and the courts sitting in London. Mance J. said (see [1996] 4 All E.R. at 981) -

That same concession was made in the Court of Appeal (see [1997] 4 All E.R. at 940E). In the argument before your Lordships' Committee the point ceased to be common ground, but I think that the judge at first instance and the Court of Appeal clearly proceeded on a correct basis. The obligation fell to be discharged where and when each contract was negotiated. The reinsurer was entitled to performance of it there and then, subject to agreement otherwise, waiver or estoppel (as by acceptance of disclosure to an authorised representative elsewhere).

Closely allied with the consideration just mentioned is the fact that, in a case concerned with the negotiation on the London reinsurance market of contracts with Lloyd's underwriters and others, the natural place of trial is London. The situation is analogous to that which arose some years ago when heavy losses by Lloyd's syndicates made resort against overseas Names necessary. Courts in the United States, Canada, Australia and New Zealand regarded London as the natural forum for the determination of resultant disputes: see Society of Lloyd's and Oxford Members' Agency Ltd. v. Hyslop [1993] 3 N.Z.L.R. 135, 137-138, 141-142, 154. I think that this factor, although far from conclusive, may be allowed some place in interpreting the Lugano Convention.

As to the general approach to the interpretation of the Lugano Convention, I accept that if there were real ambiguity the provisions of Section 2, being exceptions to the general rule of the defendant's domicile, should be interpreted restrictively. But Section 2 does provide quite an extensive range of exceptions, and I would not regard any grudging attitude to these as appropriate. The question must always be the fair meaning of the exception.

I do not think that any answer to the present issue can be wrung out of the decisions to date of the European Court of Justice, nor out of Kleinwort Benson Ltd. v. Glasgow City Council [1999] 1 AC 153. The fact is that neither the European court nor the English courts have had to face the present issue squarely before the present case; attempts to predict how a particular court would have decided it must be speculative. I would decide it as already stated. On all matters not expressly covered by what I have said, I would adopt the opinion of Lord Woolf. It will be apparent that I would dismiss this appeal.

LORD HOPE OF CRAIGHEAD

My Lords,

The question in this appeal is whether the English courts have jurisdiction to try a claim by reinsurers in the London market to avoid contracts which they entered into with an insurance company domiciled in Sweden on the ground of the company's alleged breach of the duty to observe utmost good faith that English law imposes in relation to the making of such contracts.

The respondents maintain that the English courts have jurisdiction to try the matter under Article 5 in Title II of the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters 1988, as set out in Schedule 3C to the Civil Jurisdiction and Judgments Act 1982 as amended by section 1(3) of and Schedule 1 to the Civil Jurisdiction and Judgments Act 1991. They rely, in the alternative, on two of the special rules of jurisdiction in Article 5. These are the rule which applies in matters relating to a contract in Article 5(1) and the rule which applies in matters relating to tort, delict or quasi-delict in Article 5(3). The Court of Appeal, affirming Mance J., held that the proceedings were within the scope of Article 5(1). The Court of Appeal rejected the appellants' argument that the proceedings fell within Article 11, by which an insurer may bring proceedings in matters relating to insurance only in the courts of the defendant's domicile.

These three issues are now before your Lordships in this appeal. It is common ground that, as they arise under the Lugano Convention and not the Brussels Convention of 1968, they cannot be made the subject of a preliminary reference to the European Court of Justice under Article 234 of the EC Treaty (ex Article 177). As the questions raised, especially in regard to article 5(1), have not been the subject of decision by that Court and are far from easy, this is regrettable. But we have no choice in the matter, so we must do our best to arrive at an interpretation of the relevant Articles of the Lugano Convention which is compatible with that which would be given to the equivalent provisions in the Brussels Convention by the European Court.

In Kleinwort Benson Ltd v. Glasgow City Council [1999] 1 AC 153 the European Court held (Case C-346/93) [1996] QB 57 that it did not have jurisdiction to make a preliminary ruling on the question referred to it by the Court of Appeal because, although the national law pursuant to sections 16 and 17 of the Civil Jurisdiction and Judgments Act 1982 and Articles 5(1) and 5(3) in Title II of Schedule 4 to that Act was based on the Brussels Convention, the Convention was not directly applicable in that case. Nevertheless, as section 16(3) of the Act of 1982 provides, and as Lord Goff of Chieveley was at pains to stress in Kleinwort Benson at p. 163D-G, it is clear that in considering questions which arise under the national law in Title II of the Schedule the courts of this country must have regard to the principles laid down by the Court of Justice in connection with the Brussels Convention. It follows that full account must be taken of any relevant decisions of the European Court as to the meaning and effect of the corresponding provision in Title II of the Convention, and that the reports mentioned in section 3(3) of the 1982 Act may also be considered and given such weight as is appropriate. The application of these rules ensures that the same approach is taken to the interpretation of the jurisdictional concepts in Title II under the national law as that taken to the like concepts under the Brussels Convention. In my opinion it is highly desirable, in the interests of consistency, that the same concepts in Title II of the Lugano Convention should be interpreted in the same way. Accordingly I would take, as a starting point for an examination of these concepts, the jurisprudence of the European Court and, so far as they may be relevant, the reports mentioned in section 3(3) of the Act of 1982.

Reinsurance

In my opinion Title II Section 3 of the Lugano Convention, by which matters relating to insurance are to be determined by special rules, does not apply to matters arising out of contracts of reinsurance. While it is no doubt true that reinsurance is a form of insurance, a clear line can be drawn between the generality of insurance business conducted between insurers and members of the public who wish to obtain insurance cover and the particular form or category of it which is commonly referred to by insurers, textbook writers and judges as reinsurance. The purpose of reinsurance is to lay off or pass on part of the liability of the insurer under an underlying insurance contract to another insurer. The contracting parties are engaged in the same industry. The reinsurer is an insurance company or underwriter who deals not with members of the public but only with other insurance companies or underwriters.

Professor Schlosser, in paragraph 140 of his Report on the 1978 Accession Convention to which the United Kingdom was a party, explains that the policy consideration which lies behind the special rules which derogate from the general rule in Article 2 that jurisdiction is founded upon domicile is that of social protection. It was in the light of this concept that the United Kingdom's request for special rules for the insurance of large risks was examined, in order to see which types of insurance contracts were in general concluded only by policy holders who did not require social protection. One has only to ask the question whether social protection needs to be extended to the insured under a reinsurance contract for it to be plain that the concept of social protection does not apply to this type of contract. An insurer who wishes to obtain reinsurance does not need social protection against the insurance company or underwriter who deals in reinsurance. Professor Schlosser did not give reasons for his brief statement in paragraph 151 that "Reinsurance contracts cannot be equated with insurance contracts". But when that paragraph is read in the context of his Report as a whole it can be seen that the reason is that contracts of that kind do not fall within the policy of social protection which has informed Section 3.

For these reasons, and for the reasons given by my noble and learned friends Lord Woolf and Lord Millett with which I agree, I would reject the appellants' argument on this point.

Article 5(1) of the Convention

I turn now to the second question which has been raised in this appeal. It is whether the respondents' claims for declarations that they are entitled to avoid the reinsurance contracts fall within the special jurisdiction in Title II, Section 2, Article 5(1) of the Lugano Convention. In this paragraph of Article 5 it is provided that a person domiciled in a Contracting State may, in another Contracting State, be sued:

The respondents' case is that that they were induced to enter into the reinsurance contracts by the misrepresentation and non-disclosure of material facts. They maintain that the appellants were in breach of the duty of good faith which the parties to a reinsurance contract owe to each other during the negotiation of the contract. Paragraph 8 of the agreed Statement of Facts and Issues states that the claim concerns the appellants' duty to make a fair presentation of, and not to misrepresent, the risk to the respondents. The question is whether an action in which a breach of duty during pre-contract negotiations is alleged falls within the special rule of jurisdiction in Article 5(1). If it does, the respondents will be entitled to sue the appellants in London where the contracts were made and not in Sweden which is the place of the appellants' domicile. The respondents' domicile is in London. So the effect will be to substitute the courts of the respondents' domicile for the general jurisdiction in Article 2 which provides that persons are to be sued in the courts of their domicile.

For the special rule in Article 5(1) to apply, two requirements must be satisfied by the claimant who seeks to bring himself within the rule. First, the subject matter of his action must fall within a particular category. It must be a matter "relating to a contract". If it is not, it may be possible for the claimant to bring himself within one of the other rules in Article 5. In this case, as an alternative, the respondents seek to invoke Article 5(3) which applies to "matters relating to tort, delict, or quasi-delict." I shall deal with Article 5(3) at a later stage in this judgment. As for Article 5(1), if the initial question as to whether the claim is a matter "relating to a contract" is answered in the affirmative, a second requirement must then be satisfied. The place of performance of "the obligation in question" must be identified. This is the requirement which determines the place where the defendant may be sued in matters relating to a contract. So it must be possible to identify an "obligation," and then to identify the place for its performance. As Article 5(1) deals with matters relating to a contract, and not with tort, delict or quasi-delict which are the subject of a different rule in Article 5(3), it would seem to follow that the obligation in question must be a contractual one.

The fact that these two requirements raise different issues which must be considered separately is clearly demonstrated by three cases in which Article 5(1) has been considered under the national law. Kleinwort Benson Ltd v. Glasgow City Council [1999] 1 A.C. 153 was concerned only with the first requirement, as to whether a claim for unjust enrichment fell within Article 5(1) as being in "matters relating to a contract". As it was held that this requirement was not satisfied, it was not necessary for their Lordships to consider the application to the facts of that case of the second requirement. In Bank of Scotland v. Seitz, 1990 S.L.T. 584, on the other hand, it was the second requirement only that was in issue. The claim was brought for payment under two letters of guarantee. No express provision had been made in the letters of guarantee as to the place where any payments due under them was to be made. There was no dispute that the claim raised "matters relating to a contract", nor was it disputed that the obligation to make payment was an "obligation" within the meaning of Article 5(1). The dispute was as to whether the place of performance of that obligation was in Scotland. In Industrie Tessili Italiana Como v. Dunlop A.G. (Case 12/76) [1976] ECR 1473, 1485, paragraphs 13-14 the European Court stated that the place of performance was to be determined by national law. So the Court of Session applied the legal implication under the law of Scotland that the debtor was bound to tender payment to his creditor at the creditor's residence or place of business. In Boss Group Ltd. v. Boss France S.A. [1997] 1 W.L.R. 351 both requirements were in issue. Saville L.J. dealt first with the question whether the claim raised "matters relating to a contract." Having answered that question in the affirmative, he then dealt separately with the obligation which was in question and the place for its performance.

In most cases in which a claimant is seeking a remedy under a contract the application of the special rule in Article 5(1) will be quite simple. He will normally be seeking a remedy for a failure to perform one of the obligations which were created by the contract. The task of the court will be to identify the place where that obligation was to be performed having regard to the express terms of the contract, and if there is no express term, such legal implications relating to that issue as may be relevant: see Bank of Scotland v. Seitz, 1990 S.L.T. 584. In this case the respondents seek to avoid the contracts which they entered into. So it is relatively easy to see that their claim raises "matters relating to a contract" and that the initial requirement for the application of the special rule in Article 5(1) is satisfied. The question raised by the second requirement, as to whether the "performance of [an] obligation" is in question, is more difficult. This is because the "obligation" on which the respondents seek to rely is a duty which had to be fulfilled at or before the stage when the contracts were being entered into. Neither side has sought to identify the place of performance of any of the obligations which were created by the contracts, the performance of which was due after they were made.

The relevant part of the special rule in Article 5(1) is in identical terms to the equivalent rule in the Brussels Convention. Having regard to Protocol No. 2 to the Lugano Convention on the Uniform Interpretation of the Convention, to chapter 1.1.2 of the Report on the Lugano Convention by Mr. P. Jenard and Mr. G. Möller which refers to the various Reports on the Brussels Convention where the provisions of the Brussels and Lugano Conventions are identical and to the Declarations of E.F.T.A. and the European Union States dated 16 September 1988, it is plain that these provisions should receive a common interpretation and that where provisions in the Lugano Convention are in issue decisions of the European Court of Justice on identically worded provisions in the Brussels Convention should be applied. Reference may also be made to the Report by Mr. P. Jenard on the Brussels Convention (O.J. 1979 C59/22). The question as to the application of the special rule in Article 5(1) which has been raised in this case is not dealt with directly in the Jenard Report, nor has it been the subject of any decision by the European Court of Justice under the Brussels Convention. But it must be answered, so far as possible, in conformity with the jurisprudence relating to the Brussels Convention. So I think that it is appropriate first to see what guidance can be obtained from that jurisprudence, before applying Article 5(1) to the claims which are being made in this case.

The background to special rule in Article 5(1) is described in the Jenard Report at pp. C59 22/24. Two initial points are made. The first is that by laying down the special rules of jurisdiction the Committee intended to facilitate the implementation of the Brussels Convention. This has been done by enabling a claimant to sue without having to take the internal laws of the State into consideration. The Convention itself determines which court has jurisdiction. The second is that the adoption of special rules is justified by the fact that, for the special rule to apply in place of the general rule of jurisdiction based on domicile, there must be a close connecting factor between the dispute and the court with jurisdiction to resolve it. From these passages I infer that the intention was, in order to achieve certainty, that the special rules should be capable of being applied uniformly by all member States without regard to their own internal laws of jurisdiction. For this to be done it was necessary that they should identify in clear and simple language the situations in which they could be applied.

In the discussion which follows about Article 5(1) it is explained that there were great differences between the laws of the six member States in their attitude to the jurisdiction of the forum contractus. Some did not recognise this jurisdiction at all, while others differed as to whether jurisdiction belonged to the courts for the place where the obligation arose or the place where the obligation had been performed or the place where the obligation was to be performed. The important passages in this discussion are these:

forum solutionis

The first reason was that it would be unwise to give jurisdiction to a number of courts, and thus possibly create conflicts of jurisdiction. The second was that to recognise also the jurisdiction of the place where the obligation arose would involve very considerable changes for those States which did not recognise that forum, or did so only with certain restrictions. The third reason was expressed in these terms:

It seems to me that these passages indicate, first, that the phrase "matters relating to a contract" should be interpreted as extending to all matters in which a remedy is sought which can be identified as a contractual remedy. Clearly a claim for the performance of an obligation which was created by a contract between the parties will fall within this description. But the phrase may be capable of being applied to other contractual remedies. For example, where a party has been induced to enter into a contract by a misrepresentation which was fraudulent, he has a choice of remedies. He may decide to sue for damages, in which case his remedy may be founded in tort or delict. Or he may decide to reduce or to rescind the contract so that he is no longer bound by it, in which case his remedy will be contractual.

The Jenard Report supports the view that the claims which the respondents make in this case fall within the opening words of Article 5(1) as matters "relating to a contract". Their claim is to be released from the reinsurance contracts, thus depriving the appellants of their right to call for performance of them according to their terms. If they are not released from them, the respondents will be in a position when the time comes to enforce the contracts against them by means of the usual contractual remedies. But it suggests, contrary to the respondents' argument, that the phrase "performance of the obligation in question" refers to the performance of an obligation which arose under the contract. This is indicated by the discussion as to the choice which had to be made between giving jurisdiction to the courts for the place where the obligation arose and those where the obligation had been or was to be performed. It is also indicated by the use of the expression forum solutionis to describe the jurisdiction of the courts for the place of performance of the obligation on which the claim is based.

The noun solutio as used in the expression forum solutionis means, literally, "loosening," and the verb solvere from which it is derived means "to untie". More particularly, solutio means release from an obligation which has been created by a contract. The term "obligation" is widely used in the civilian systems to refer to the relationship which exists between a party who has a right to claim on the one hand and a party who has a duty to render performance on the other: Reinhard Zimmermann, The Law of Obligations (1990), p. 1. In the contractual context, the sense conveyed by the use of the word solutio is that of the debtor's release from his obligation by performing what he was obliged to do. Performance of the obligations undertaken by the parties under their contract is one of the recognised means by which those obligations are extinguished or come to an end: Zimmermann, op. cit., p. 748-750. The use of the word "obligation" in this context suggests that what the Committee had in mind throughout their discussion was the obligations express or implied which the parties undertake to each other under their contract, not duties which the law imposes upon them when the contract is under negotiation and before it is made.

As my noble and learned friend Lord Millett explains, the ordinary meaning of the word "obligation" extends to implied terms as well as to those for which the parties have made express provision in their contract. It is immaterial whether these implied terms are made part of the contract by the common law or by statute. All these terms, whether express or implied, are "contractual obligations," because they are created by or arise out of the agreement between the parties when they enter into the contract which they have made. So there is no reason to think that the Committee intended to confine the use of the word "obligation" in Article 5(1) to the express provisions of the contract. But it does not follow from the fact that contractual obligations include those which are implied as well as those which have been included in the contract as express terms that the implied duty of good faith on which the respondents rely in this case is correctly described as a contractual obligation. The duties which the law implies at the stage when parties are in negotiation or are in the process of entering into the contract, and which must be fulfilled by the date when the contract is entered into, fall into an entirely different category from the obligations which are created by or arise from the contract when it is made. Contractual obligations do not bind the parties until the contract has been entered into.

The jurisprudence of the European Court of Justice lends further support to the view that when Article 5(1) uses the word "obligation" in the context of matters relating to a contract it means an obligation which one party has undertaken to perform to the other under the contract. Obligations may be classified by a civilian system into those which arise by force of law, those which arise from a wrongful act and those which depend for their existence on an expression by the obligor of his intention to be bound: T.B. Smith, A Short Commentary on the Law of Scotland (1962), p. 281. The obligations in the third category, which are commonly referred to as voluntary obligations, are those which are created by a contract. They include all the terms, express and implied, which the parties have undertaken to perform to each other under their contract. It is normal to describe those obligations as contractual obligations, as the Court has done from time to time in its decisions on the Brussels Convention.

For example, in Ets A. de Bloos S.P.R.L. v. Société en commandite par actions Bouyer (case 14/76) [1976] ECR 1497, at p. 1508, paragraph 11 the Court held that the word "obligation" in Article 5(1) refers to "the contractual obligation forming the basis of the legal proceedings". In Industrie Tessili Italiana Como v. Dunlop A.G. (Case 12/76) [1976] ECR 1473 at p. 1485, paragraph 14 the Court said:

The advocate general said in that case at p. 1488 that preparatory work, commentaries by legal writers and the text of the Convention showed clearly that its authors had opted for the criterion of the "place where the obligation has been or is to be performed" and that they considered performance to be the ingredient which best distinguished the transaction as a whole.

The Court was concerned in Tessili with the seller's obligation of delivery. That was plainly a contractual obligation which was created by or arose from the contract, the performance of which was due after the date when the contract was entered into. It did not have to consider the question whether a duty which had to be performed at or before the stage of entering into the contract was an "obligation" within the meaning of Article 5(1). But the whole discussion proceeded on the basis that the obligations with which the special rule in Article 5(1) is concerned are those which fall to be performed under the contract - that is to say, obligations which can properly be described as "contractual obligations" because they were created by or arose under the contract when it was made. In Custom Made Commercial Ltd v. Stawa Metallbau G.m.b.H. (Case C-288/92) [1994] ECR I-2913, at p. 2957, paragraph 23 the Court noted that it had ruled in previous cases that the obligation in Article 5(1) cannot be interpreted as referring to any obligation whatsoever arising under the contract in question, but rather that which corresponds to the "contractual right" on which the plaintiff's action is based. The obligation mentioned in Article 5(1) has been consistently described in the decisions of the Court as being a reference to "contractual obligations": see Martin Peters Bauunternehmung G.m.b.H. v. Zuid Nederlandse Aanemers Vereniging (case 34/82) [1983] ECR 987, p. 1002, paragraph 12; Hassan Shenavai v. Klaus Kreischer (case 266/85) [1987] ECR 239, p. 256, paragraph 17; Arcado S.P.R.L v. Haviland S.A. (case 9/87) [1988] ECR 1539, p. 1555, paragraph 13; and Handte (Jakob) & Co. G.m.b.H v. Traitements Mécano-chimiques des Surfaces S.A. (case C-26/91) [1992] ECR I-3967, p. 1-3995, paragraph 17.

The Court has followed the same line in two recent judgments on the interpretation of Article 5(1). In GIE Groupe Concorde and Others v. The Master of the Vessel Suhadiwarno Panjan and Others, 28 September 1999 (Case C-440/97), the Court said this in paragraphs 11-13, 26 and 28 of its judgment:

Mulox I.B.C. v. Geels

Tessili

Gubisch Maschinenfabrik v. Palumbo

[1987] ECR 4861

Tessili

Custom Made Commercial v. Stawa Metallbau

[1994] ECR I-2913

Zelger v. Salinitri

M.S.G. v. Gravieres Rhènanes

[1997] ECR I-911

The references in paragraph 28 of Groupe Concorde to the "intention of the parties" and to the place which has a real connection with the "true substance of the contract" seem to me to confirm the impression which I would draw from the earlier authorities that when the court uses the expression "contractual obligation" it has in mind obligations which were created by or arose under the contract, not duties which were to be performed at or before the stage when it was entered into. As for the discussion in paragraphs 11 to 13 and 26 about the circumstances in which reference may be made to the law which governs the contract, it seems to me these observations indicate that a distinction must be made between those questions which may properly be referred to the law of the contract, such as what is the obligation in question and what is the place for its performance, and questions which relate to the interpretation of one of the terms used in Article 5(1) of the Convention, such as what is meant by the word "obligation" in that Article.

The issue in the present case relates to the interpretation of one of the terms used in Article 5(1) of the Convention. As paragraph 11 of the judgment in Groupe Concorde indicates, it should be given an autonomous interpretation as far as possible. This is to ensure its uniform application in all member states under Article 293 of the E.C. Treaty (ex Article 220). That is an entirely different exercise from that which approaches the matter by examining the meaning of the words used through the eyes of the English lawyer. It is clear that this how the matter must be approached where the issue is raised as one of national law under the statute. Professor A.E. Anton, Private International Law (2nd ed., 1990), p. 183 states that the characterisation of an obligation as being contractual or otherwise in Rule 2(2) of Schedule 8 to the Act of 1982, which sets out the rules as to jurisdiction in Scotland, is a matter for Community rather than for national law. At p. 319 he observes that the question whether or not an obligation is to be considered to be a contractual one for the purposes of the E.C. Convention on the law applicable to Contractual Obligations (O.J. 1980, L266) is likely to be regarded not as a matter of characterisation referable primarily to the court deciding the matter but as a matter going to the scope of the Convention. As such, it is properly to be decided by the European Court as a matter of Community law. I would take the same view of the question as to the meaning of the word "obligation" in Article 5(1) in the Lugano Convention. As this is a matter which goes to the scope of the special rule rather than its application to particular circumstances, it is a question which ought to be decided in the same way as if it had been raised a matter of Community law under the Brussels Convention.

In Leathertex Divisione Sintectici SpA v. Bodetex B.V.B.A., 5 October 1999 (Case C-420/97) the Court referred, in paragraph 31 of its judgment, to paragraphs 8, 9 and 10 of the judgment in De Bloos v. Bouyer where it held that the objectives of the Convention implied the need to avoid, so far as possible, creating a situation in which a number of courts had jurisdiction in respect of one and the same contract and that Article 5(1) of the convention could not therefore be interpreted as referring to any obligation whatsoever arising under the contract in question. In the concluding part of paragraph 31 and in paragraph 32 it said this:

The references in paragraph 31 to the "contractual right" and to the obligation "which arose under the contract" are consistent with the indication which has been given repeatedly by the European Court in previous judgments that the word "obligation" in Article 5(1) means a contractual obligation properly so called because it was created by or arose under the contract when it was made.

Although there is as yet no decision on the point, it respectfully seems to me that the jurisprudence of the Court of Justice provides no support for the view that the meaning of the phrase "the obligation in question" can include duties, such as the duty of utmost good faith, which the law imposes at the stage of the formation of the contract. One must bear in mind also that the special rules of jurisdiction in Article 5 derogate from the general rule in Article 2 that jurisdiction is founded upon domicile. I should have thought that it was unlikely that the Court would be willing to extend its jurisprudence so as to enable a claim to avoid a contract on the ground that a duty of that kind was breached when the contract was entered into, where no question has been raised by either party as to the performance of any of the obligations created by or arising from the contract, to be brought in the courts of a place other than that of the defendant's domicile.

Kleinwort Benson Ltd v. Glasgow City Council [1999] 1 AC 153 was concerned with the question whether a claim in restitution based on unjust enrichment was a matter "relating to a contract" (a question which in my opinion causes no difficulty in this case) and not with questions as to "the place of performance of the obligation in question". So it is not directly relevant to problem raised by the application to this case of the second requirement in Article 5(1). But I think that it is significant that the speeches in that case contain repeated references to the obligation in question as a "contractual obligation": see Lord Goff of Chieveley at pp. 166F, 168E and 169E, Lord Nicholls of Birkenhead at pp. 173F and 174D-F. Lord Clyde states at p. 181D that, as the "question" concerns a contractual obligation, the existence of a contract becomes an essential element. Lord Hutton said at p. 189F-G that, as the European Court had held that 'the obligation in question' is a contractual obligation, the wording of this part of Article 5(1) refers to an obligation arising under or contained in the contract which a party is seeking to enforce.

Boss Group Ltd v. Boss France S.A. [1997] 1 W.L.R. 351 was concerned both with the question whether the claim related to "matters relating to a contract" and with "the place of performance of the obligation in question". The dispute between the parties in that case was as to whether a contract existed between them under which the defendants were obliged to act as the exclusive distributors for the plaintiffs in France. The plaintiffs asserted that no such contract existed. The defendants asserted the contrary, while contending at the same time that Article 5(1) did not apply. The Court of Appeal held that the plaintiffs' claim fell within Article 5(1). Saville L.J. said at p. 356G that Article 5(1) was not confined to actions to enforce a contract or to obtain recompense for its breach: see Effer S.p.A. v. Kantner (Case 38/81) [1982] ECR 825; Anton, op. cit., pp. 183-184. As to the phrase "the place of performance of the obligation in question" which causes difficulty in this case, Saville L.J. noted at p. 357D that the obligation in dispute in Boss Group was whether the plaintiffs were bound to supply only the defendants with their products for distribution in France. He said that it could perhaps be said to comprise two obligations, one to supply to the defendants and the other not to supply to anyone else. He then sought to categorise the place of performance on the basis of common law conflict of law principles. It seems to me that, on this approach, he was dealing in a perfectly orthodox way with obligations which, if they existed at all, were clearly contractual. Their binding force, if any, was attributable entirely to the contract which was asserted by the defendants but which, on the plaintiffs' argument, did not exist. I do not find anything in the decision in that case which is inconsistent with the jurisprudence of the European Court as to the meaning of the phrase "the obligation in question" in Article 5(1) of the Brussels Convention.

It is common ground that the claims which the respondents make in this case are not for the performance of any of the obligations which were created by the reinsurance contracts. None of those obligations is put directly in issue in this case. Neither side has sought to identify the time or the place for their performance. What the respondents seek is to be released from the obligations which would otherwise be binding on them by the setting aside of the contracts on the ground that the appellants were in breach of the duty of utmost good faith that arose by operation of law when they were being entered into. In my opinion it is a misuse of language, in the context of the special rule in the Convention as to matters relating to a contract, to describe that duty as an "obligation". It was a duty which the law imposes on parties at the stage of the formation of the contract, a breach of which by one party may entitle the other to be released from it. Its description as an "obligation" confuses the jurisdictional rules which distinguish the place where an obligation arose from the place for its performance.

The confusion arises because the duty on which the respondents rely is inevitably and inextricably linked to the place where the voluntary, or contractual, obligations arose. This was one of the grounds of jurisdiction which Article 5(1) of the Brussels Convention rejected. As the time for performance of those obligations has not arrived, the full extent of that confusion has not been revealed by the arguments which were presented in this case. But it is not difficult to imagine a case where arguments based on the duty of good faith are put forward by one party in answer to a claim for performance of contractual obligations by the other. If the respondents are right, the courts of the place where the duty of good faith was to be performed during the formation of the contract would have jurisdiction as well as those for the place of performance of the obligations created by the contract which are put in issue by the claim for performance on the one hand or the claim to be relieved from performance on the other. It was just that kind of dispute that the special rule in Article 5(1) was designed to avoid, as Mr P. Jenard made clear in his report when he said at p. C59/23 that the Committee considered that it would be unwise to give jurisdiction to a number of courts, and thus possibly create conflicts of jurisdiction.

I would hold that the English courts do not have jurisdiction under Article 5(1).

Article 5(3)

It is reasonably clear that a liability in tort may arise in some circumstances where there has been a breach of a duty in the formation of a contract, for example if the breach can be said to have been fraudulent. In that situation it will be open to the injured party to claim damages, and jurisdiction may then be founded on the special rule in Article 5(3). But the respondents' claim in this case is not, and cannot be, a claim to enforce a liability in tort. The duty which is said to have been breached was not one for the breach of which there is a liability in damages. Their claim is a contractual one, to which the special rule in Article 5(3) does not apply.

Conclusion

For these reasons I would hold that the respondents are not able to bring themselves within the special rule in Article 5(1), that their claims do not fall with the special rule in Article 5(3) which is relied upon in the alternative and that the general rule in Article 2 which gives jurisdiction to the courts of the defendant's domicile must be applied. I would allow the appeal.

LORD MILLETT

My Lords,

The question in this appeal is whether the respondents are entitled to maintain the present proceedings against the appellant in England, or whether they are obliged by the terms of the Lugano Convention ("the Convention") to bring them in the Courts of the appellant's domicile, that is to say in Sweden.

The appellant is an insurance company incorporated and carrying on business in Sweden. For the purpose of the Convention as set out in Schedule 3C to the Civil Jurisdiction and Judgments Act 1982 it is domiciled in Sweden. The respondents are representative Lloyd's underwriters and English or Scottish companies carrying on reinsurance business in the London market. Between November 1993 and February 1994 the appellant entered into contracts of excess layer facultative reinsurance with the respondents in respect of its exposure under certain insurance policies which it had underwritten. The reinsurance contracts were placed in London by brokers acting on behalf of the appellant. All the pre-contractual negotiations and the presentation of the risk to the respondents by the brokers took place in London.

The respondents have brought proceedings against the appellant in England. They allege that they were induced to enter into the reinsurance contracts by material misrepresentations made in London by the brokers acting for the appellant or as a result of material non-disclosure on their part. The contracts are governed by English law, and if the respondents establish their allegations they are entitled to avoid the contracts. They seek declarations to this effect. They make no claim to damages, to which English law does not entitle them. They have also pleaded a claim for breach of warranty, but this is not relied on for the purposes of this appeal.

The appellant contends that the respondents' claim is "a matter relating to insurance" within the meaning of Section 3 of the Convention, and that under Article 11 it can be sued only in the courts of the Contracting State in which it is domiciled. The respondents deny that "insurance" in Section 3 of the Convention includes reinsurance. They contend that Article 5.1 of the Convention permits them to bring the proceedings in England, as their claim arises "in a matter relating to a contract" and they seek relief in respect of the appellant's non-performance of obligations which fell to be performed in London. Alternatively, they contend that Article 5.3 entitles them to bring the proceedings in England arising out of a tort or delict where the harmful event occurred in England. I shall deal with the three issues in turn.

Section 3 of the Convention: "matters relating to insurance."

This issue is a narrow one. Does "insurance" in Section 3 of the Convention include reinsurance? The question whether the corresponding and identically worded Section in the Brussels Convention applies to reinsurance has not yet been considered by the Court of Justice, but it has recently been referred to the Court by the Versailles Court of Appeal in Group Josi Reinsurance Co. S.A. v. Compagnie d'Assurances Universal General Insurance Company [1999] I.L.Pr. 351. It is common ground that we cannot refer the question to the Court, as we would otherwise do. We must decide it ourselves.

Reinsurance is merely a species of insurance. In English law the subject-matter of a contract of reinsurance is the same as the subject-matter of the original direct insurance. The reinsurer reinsures the insurer against the same event as that covered by the original insurance, the original policy giving the insurer an insurable interest in the insured risk. This analysis may not apply in all the Contracting States, some of which may regard the subject-matter of reinsurance as the contractual liabilities which the insurer has accepted under the policies he has underwritten. But in my opinion nothing turns on the difference.

If the question arose under a domestic statute, then absent a compelling context to the contrary there would be no reason to confine insurance to direct insurance. But the word "insurance" in Section 3 of the Convention cannot be interpreted exclusively in accordance with English language, law and practice. An independent construction must be adopted in order to ensure that the rights and obligations arising out of the Convention achieve a reasonable measure of uniformity. I am satisfied that the social policy to which Section 3 of the Convention gives effect provides a compelling context which requires the word to be given a restrictive interpretation excluding reinsurance from its scope.

The general rule of the Convention, enshrined in Article 2, is that jurisdiction is given to the national courts of the Contracting State in which the defendant is domiciled. Section 2 of the Convention, containing Articles 5 and 6, provides derogations from the general rule which permit the defendant to be sued elsewhere than in the courts of his domicile. Section 3, comprising Articles 7 to 12A, is a self-contained code "in matters relating to insurance." Article 11 provides that "an insurer" may bring proceedings only in the courts of the Contracting State in which the defendant is domiciled, thereby excluding the special jurisdictions permitted by Articles 5 and 6. The insured, by contrast, is afforded a wide choice of jurisdictions in which to sue the insurer. Article 8.2 permits the insurer to be sued in the courts of the State where the policyholder is domiciled, and Article 12 limits the circumstances in which the jurisdiction prescribed by the Convention may be varied by agreement.

Article 8.2, which allows the plaintiff to sue in the Courts of his own domicile, marks a significant departure from the general principle of the Convention. It is explicable only in terms of social policy. The Court of Justice has explained that the purpose of Section 3 is to protect the insured who is frequently faced with a predetermined contract the terms of which are not negotiable and who is in a relatively weak bargaining position: see Gerling Konzern Speziale Kreditversicherungs A.G. v. Amministrazione del Tesoro dello Stato [1983] ECR 2503.

This is confirmed by the course of the negotiations which preceded the enactment of the Convention. The United Kingdom sought the exclusion of large risks from the scope of Section 3. Its request was viewed sympathetically as being consistent with the protective purpose of the Section, but it was rejected on the ground that it was impossible to devise a suitable line of demarcation which possessed a sufficient degree of certainty.

The preponderance of judicial and academic opinion supports the respondents' submission that Section 3 of the Convention does not extend to reinsurance. This is based largely on the view succinctly expressed by Professor Schlosser in Paragraph 151 of his Report on the 1978 Accession Convention. He wrote:

As the appellant has pointed out, this view is not unanimously held. In its written observations to the Court of Justice in Overseas Union Insurance Ltd. v. New Hampshire Insurance Co. [1992] 1 Q.B. 434 the European Commission expressed the view that reinsurance was not excluded from the scope of Section 3. It submitted that it was difficult to see any fundamental difference between insurance and reinsurance which could justify the exclusion of reinsurance.

My Lords, it is a cardinal rule of the construction of the Brussels and Lugano Conventions that the special rules of jurisdiction which derogate from the general principle enshrined in Article 2 cannot be interpreted as going beyond the situations envisaged by the Convention: see for example Handte (Jacob) & Co. GmbH v. Traitements Mécano-chimiques des Surfaces S.A. [1992] E.C.R. 1-3967 para. 14; Shearson Lehman Hutton v. TVB. Treuhandgesellschaft für Vermögensverwaltung und Beteiligungen m.b.H. [1993] ECR I-139 para. 16. In my opinion an interpretation of Section 3 which extends it to contracts of reinsurance goes beyond what is necessary to enable the Section to achieve its purpose.

This is not because contracts of reinsurance are commercial rather than "consumer" contracts; or because the insured risks tend to be very large. It is because, while both employ the same insurance mechanism, insurance and reinsurance are conceptually different and serve different purposes. All insurance is about managing risk. Direct insurance protects the insured against extraordinary risks outside the ordinary course of events, whether in his private life or in his business dealings. Reinsurance is concerned with the management of risks which it is the ordinary business of both parties to underwrite. It is essentially a professional hedging operation by which, by the only means known to the law, the insurer assigns all or part of his insurance liabilities to the reinsurer.

I should add that, in my view, for the purpose of the Convention, reinsurance should be construed loosely to mean any contract of insurance placed by or for the benefit of a party carrying on insurance business and covering risks underwritten in the course of that business. This is a wider definition than is employed in our domestic law (see Toomey v. Eagle Star Insurance Co. Ltd. [1994] 1 L1.R. 516), but it is easy to apply and serves to give full effect to the policy of Section 3 without extending it further than is necessary to achieve its object.

In my opinion the Court of Appeal were right to reject the appellant's argument that the proceedings are a matter relating to insurance within Article 11 of the Convention.

Article 5.1: "matters relating to a contract".

The respondents claim that they are entitled to avoid the reinsurance contract. I find it impossible to understand how such a claim can sensibly be regarded as not being "a matter relating to a contract." Whether the contract is voidable or not, until avoided it remains a valid and binding contract freely entered into by the parties. The problem which arose in Kleinwort Benson Ltd. v. Glasgow City Council [1999] 1 AC 153, where one of the parties lacked contractual capacity and the contract was accordingly void ab initio, so that no contract ever came into existence, is absent.

Accordingly Article 5.1 of the Convention entitles the respondents to bring proceedings in the courts for "the place of performance of the obligation in question." They contend that the obligation in question is the obligation on the part of the appellant to make a fair presentation of (and not to misrepresent) the risk, and that this obligation fell to be performed in London. The question, which is by no means easy, is whether this correctly identifies "the obligation in question" for the purpose of Article 5.1.

The expression "the obligation in question" has been considered by the Court of Justice on a number of occasions. The Court has variously described it as "the contractual obligation forming the basis of the legal proceedings" or "the obligation . . . which arises under the contract and the non-performance of which is relied upon to support [the claim]" (Ets A. de Bloos S.P.R.L. v. Société en commandite par actions Bouyer [1976] ECR 1497); and "the contractual obligation . . . whose performance is sought in the judicial proceedings" (Shenavai v. Kreischer [1987] ECR 239).

The obligation upon which the respondents rely may appear to come within some of these formulations; but in expressing them the Court of Justice did not have a case of the present kind in mind. They are therefore of doubtful assistance.

The respondents place great reliance on the de Bloos case. There the plaintiff alleged that it was entitled to be discharged from further performance of the contract by reason of a repudiatory breach of contract on the part of the defendant. The Court of Justice identified "the obligation in question" as the particular obligation which the defendant had allegedly failed to perform and the non-performance of which entitled the plaintiff to treat the contract as at an end. This would clearly have been the case if the plaintiff had merely claimed damages for the breach. The fact that it chose in addition (or instead) to treat the contract as determined made no difference. The Court of Justice refused to regard the contractual obligation from which the plaintiff sought to be relieved as the relevant obligation.

In the light of that decision it is common ground between the parties that "the obligation in question" is the particular contractual obligation (if any) which the defendant is alleged to have broken and which founds the claim, and not the obligation the enforceability of which is the real subject-matter of the dispute between them. Accordingly neither party contends for the payment obligation, though this may be because the place for payment is disputed and accordingly neither is confident that it provides the venue it desires.

The de Bloos case, however, was concerned with a claim that the defendant was in breach of a contractual obligation voluntarily undertaken by the defendant and contained in the contract itself. It was a very different case from the present, where the appellant is charged not with breach of a contractual obligation but with a failure to observe standards imposed by the general law on parties to pre-contractual negotiations; and where the only result of the failure of one party to observe them is to render any resulting contract voidable at the instance of the other.

It is, of course, true that, if the appellant did not seek to rely on the non-disclosure, there would be a contract with a close connection with England and, if the payment obligation fell to be performed here, one in respect of which Article 5.1 would permit the respondents to bring proceedings in England. It is also true that, as I observed in the Kleinwort Benson case in the Court of Appeal (at [1996] Q.B. 678, 699), the intended place of performance is no less a relevant connecting factor because the contract is afterwards found to be defective. But this consideration does not help to identify the obligation in question or determine the present question, which is whether the so-called "obligation" to make disclosure is an obligation of the kind contemplated by Article 5.1.

The appellant relies on the Kleinwort Benson case as demonstrating that Article 5.1 is concerned with claims premised on the existence of a valid and binding contract and enforceable contractual rights thereunder arising out of the non-performance of contractual obligations. It is not concerned with claims based on the assertion that a contract is void, voidable, or non-existent. The appellant submits that "the obligation in question" must be a contractual obligation which the defendant has voluntarily undertaken by his contract and not one imposed by law as an incident of pre-contractual negotiations.

It is a question of some difficulty whether Article 5.1 operates to confer jurisdiction on a court to pronounce on the validity of a contract except where this is necessary to enable it to adjudicate on the contractual claim itself. The question has not yet come before the Court of Justice. In the Kleinwort Benson case Lord Goff of Chieveley expressed serious doubt on the matter, while Lord Clyde and Lord Hutton disagreed on the point. The English Court of Appeal has held that Article 5.1 gives the court jurisdiction to hear and determine a plaintiff's claim for a declaration that no contract was ever concluded (see Boss Group Ltd. v. Boss France S.A. [1997] 1 W.L.R. 351), but this is doubtful.

I do not find it necessary to decide this question, since there is no doubt that a contract of reinsurance did come into existence. Nor am I impressed by the argument that "the obligation in question" must be an obligation voluntarily undertaken and contained in the contract as distinct from one imposed ab extra by law. All contractual obligations are voluntary, whether they are contained expressly in the contract or imposed on the contracting parties by law. No one is compelled to undertake contractual obligations. If the parties voluntarily enter into a contract, they seldom express all the contractual terms in the contract. It is often necessary for the law to imply terms into the contract. Many terms, for example, are implied by statute into a contract for the sale of goods. Sometimes such terms are subject to express provision to the contrary; sometimes they cannot be excluded by the contract. While it is customary to describe them as implied terms of the contract, it is equally and often more correct to describe them as legal incidents of the contract. It is not necessary to incorporate them expressly into the contract in order to make them contractual obligations within the meaning of Article 5.1.

In my opinion, the source of the obligation does not matter. But its nature does. This raises a question of characterisation. The expression "obligation," like the expressions "contract" and "insurance" must be given an autonomous meaning if the Convention is to have uniform application. But the existence and nature of the particular "obligation" in question must be ascertained by reference to the applicable national law. Once it is found that a dispute concerns a matter relating to a contract within the meaning of Article 5.1, then in my opinion the true nature and extent of the contractual obligations on which the plaintiff relies must depend on the proper law of the contract. This receives support from the recent case of GIE Groupe Concorde v. The Master of the Vessel Suhadiwarno Panjan to which my noble and learned friend Lord Hope of Craighead has referred, and in particular para. 26 where the Court of Justice pointed out that some of the questions which might arise in this context could hardly be resolved without reference to the applicable law. In the present case that is English law. The question whether the so-called obligation of an insured under English law to make a fair presentation of the risk and not to misrepresent it is an obligation within the autonomous meaning of that word in Article 5.1 does not depend on the classification of the obligation in English law but it does require an appraisal of the nature of the obligation and the consequences in English law of a failure to perform it.

Contracts are consensual transactions; they depend for their validity on the consent of both parties. The apparent consent of one party, however, may be obtained by duress or undue influence or induced by mistake or misrepresentation however innocent. English law does not, generally speaking, regard such circumstances as giving rise to an independent cause of action. Instead it treats them as vitiating consent, and allows the party whose consent was affected to avoid the contract. There is no "obligation" not to exercise undue influence in order to persuade a party to enter into a contract. The party exercising influence incurs no liability. It is merely that the party whose consent was obtained by the exercise of undue influence is entitled to have the contract set aside.

The so-called "obligations" relied upon by the appellant are in similar case. There is, of course, a duty to act honestly, and a dishonest misrepresentation may give rise to an action in tort for damages for fraud. But there is no contractual obligation not innocently to misrepresent the facts during contractual negotiations. Such a misrepresentation does not found a claim for breach of contract, though any concluded contract which is induced by the misrepresentation is voidable at the suit of the representee.

English law draws a clear distinction between misrepresentation and non-disclosure. There are, of course, exceptional cases where in the particular circumstances silence amounts to a positive statement. Apart from these, however, there is normally no duty to disclose information which is material to the other party's decision whether or not to enter into the contract. English law knows no general obligation of good faith in pre-contractual negotiations. In this respects it differs from civilian systems. There is, however, an exception in the case of contracts where in the nature of the case knowledge of the relevant facts is in the exclusive possession of one of the parties. Such contracts are described as contracts "of the utmost good faith." The party who is in possession of the relevant facts must make full disclosure of them to the other party. If he does not, the other party may have the contract set aside ab initio. Contracts of insurance (which for this purpose includes reinsurance) are the paradigm example of such contracts. The insured is bound to make a fair presentation of the risk to the insurer. If he does not, the insurer may avoid the contract. This is so whether the insurer is able to prove a positive misstatement of the facts or merely a failure to state them fairly.

It is tempting to equate the duty of the insured to make a fair presentation of the risk with the obligation of good faith which obtains in civil law systems, but it would in my view be a mistake to do so. French law recognises a general "obligation de bonne foi dans la formation des contrats," breach of which gives rise to liability in delict. German law has embraced the concept of "culpa in contrahendo", which gives rise to liability whether or not a contract is concluded, and accordingly is also not considered to be based on contract. But both sound in damages, and thus differ from the English doctrine, which is incapable of giving rise to contractual or tortious liability whether or not a contract is concluded but merely serves to render any resulting contract voidable.

It is true that, as the respondents have stressed, English judges tend to describe the obligation to make full disclosure, where it exists, in terms of duty and obligation. It is also true that Section 18(1) of the Marine Insurance Act 1906, which prescribes the corresponding duty in the case of marine insurance, is couched in mandatory terms, though it does not use the expressions "duty" or "obligation." But all that is meant is that the insured is bound to make full disclosure if he wishes to achieve a fully binding contract. We employ similar language when we speak of compliance with formal requirements. We say that a contract "must" be in writing, or that it "must" be signed by the parties. But there is no obligation on either party to observe the requisite formalities. Failure to do so does not constitute a breach of a contractual obligation; it merely prevents the formation of a binding contract.

In my view, while the expression "obligation in question" has an autonomous meaning, it must be limited to an obligation non-performance of which gives rise to contractual liability, and does not extend to what, when properly analysed, is merely a condition precedent to the formation of a fully binding contract. This conclusion is reinforced by the consideration that, as Evans L.J. recognised, the respondents' arguments, if accepted in full, would permit cases like the present to be litigated in the forum loci contractus contrary to the general scheme of the Convention.

I should add that in my opinion it would make no difference if the contract contained an express warranty on the part of the insured that it had made full disclosure of all relevant facts. Such a warranty, which is sometimes included in the contract, adds nothing. It does not convert a condition precedent to the formation of a binding contract into an independent contractual obligation. It is no more than a warranty that the condition has been satisfied, and serves primarily as a reminder of its existence.

On the related question, I am not persuaded that the so-called obligation to make full disclosure has any place of performance within the meaning of that expression in Article 5.1. It is true that, if the appellant had made a fair presentation of the risk, it would have done so in London where the risk was in fact presented to the respondents. But I do not think that that is enough. "The place of performance of a contractual obligation" must surely mean the place where the contract stipulates that the obligation ought to be performed, not the place where it would have been performed in practice if it had been performed at all. This is reasonably clear in the English version of the Convention, but it is crystal clear in the German, French and Italian versions. Of course, a "negative obligation" not to be guilty of duress or undue influence has no place of performance (though it is inappropriate to describe this as an obligation at all) but the same is true of the "obligation" to make full disclosure which has both positive and negative aspects. It has no place stipulated for performance. A misrepresentation can be corrected and a failure to make disclosure can be remedied at any time and in any place prior to the conclusion of the contract. This reinforces the conclusion that the so-called "obligation" of full disclosure is not a contractual obligation which the party in default has promised to perform but rather a condition precedent to the formation of a fully binding contract.

In my opinion the respondents are not alleging the breach of a contractual obligation which ought to have been performed in London, and the Court of Appeal were wrong to conclude that they are permitted by Article 5.1 to bring the proceedings in England. This gives rise to a difficult question on which the Court of Justice has not hitherto pronounced. It is this. Where the dispute concerns a matter relating to a contract but the plaintiff's claim that he is not liable is not founded on the breach of any particular contractual obligation by the defendant, is the jurisdiction conferred by Article 5.1 excluded altogether, or does Article 5.1 operate to confer jurisdiction on the courts for the place of performance of the contractual obligation from which the plaintiff seeks to be relieved? The jurisprudence of the Court of Justice suggests that strict compliance with Article 5.1 is required, and that the Court does not strain to make the Article apply. It takes refuge in the fact that the plaintiff can always sue the defendant in the courts of the Contracting State where the defendant is domiciled. But we are not called upon to decide this question, for as I have explained neither party contends for the place of performance of the obligation from which the respondents seek to be relieved.

Article 5.3: "matters relating to tort, delict or quasi-delict."

The respondents also rely on Article 5.3, which applies in matters relating to tort, delict and quasi-delict, and which confers jurisdiction on the courts for the place where the harmful event occurred. Their claim to bring the present proceedings within this principle is hopeless. The application of Article 5.3 is excluded by the fact that the matter relates to a contract, for the two are mutually exclusive. The failure to make a fair presentation of the risk and not to misrepresent it does not give rise to contractual or tortious liability under English law, and cannot therefore be classified as delictual. Finally there is no relevant harmful event, since apart from the costs of negotiation and preparation of the contract, which are not recoverable in English law, the plaintiff suffers no loss. The appellant does not bring proceedings in order to recover a loss, but to avoid one.

Conclusion.

I would allow the appeal and stay the proceedings.