Durbeck GmbH v Den Norske Bank ASA

LORD PHILLIPS, MR: This is an appeal by a German company ("the claimants") from the judgment of Mr Nigel Teare QC, sitting as an additional judge of the Queen's Bench Division, dated 13 June 2002. The judge held that the court had no jurisdiction to entertain the claim which the claimants seek to bring against a Norwegian company ("the defendants").

The appeal raises two issues of general importance on which the judge gave permission to appeal. The first is whether the provisions of Article 5(5) of the 1988 Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters ("the Convention") confer jurisdiction on the English court. The second is whether, if the English court has jurisdiction under Article 5(5), it has jurisdiction to stay the proceedings under the doctrine known in the jurisprudence of private international law as "forum non conveniens". The judge gave a negative answer to the first question. We have to decide whether he was right to do so. Had he not done so, he indicated he would have stayed the proceedings on the ground that Panama and not England was the convenient forum.

The claimants would wish to challenge his jurisdiction to stay the proceedings if they were properly founded under the Convention. They accept, however, that binding authority precludes them from doing so in this court. If they win on the first point, they accept that they must lose on the second, but will seek permission to appeal to the House of Lords.

I wish at the outset to pay tribute to the admirable clarity of the judgment below. I could not improve upon, and will gratefully incorporate, some of the early passages of the judgment.

The claim which the claimants seek to bring against the defendants is an action in tort based on the line of authorities, ending with the Myrto [1977] 1 Lloyd's Rep 243. It is alleged that the defendants, who were mortgagees of the vessel TROPICAL REEFER, wrongly interfered with the claimants' contracts for the carriage of a cargo of bananas by arresting the vessel in Panama in or about July 2001. The defendants contend that the principle set out in the Myrto conflicts with the principle that a secured creditor is entitled to enforce his security without regard to the effects on third parties. On that account the Myrto is not to be followed. They rely on Edwin Hill v First National Plc [1989] 1 WLR 225 and The Nazezhda Krupskaya [1997] 2 Lloyd's Rep 35. As the judge observed, the merits of this dispute do not need to be considered at this stage.

By a loan agreement dated 1 December 1997, the defendants, who are a Norwegian bank with a branch in London, agreed to provide a loan of US$6 million to three borrowing companies for the purchase or refinancing of three vessels, SPRING REEFER, BLUE REEFER and TROPICAL REEFER. The security for the loan included mortgages on each vessel. The ultimate beneficial owners of the vessels and the managers of the vessels were Cuban. The loan was entered into by, and administered from, the London branch of the defendants. The loan agreement was governed by English law. The mortgages and the deeds of covenant which regulated them were subject to the law of Cyprus.

Between 10 and 16 July 2001 a cargo or bananas was loaded on board TROPICAL REEFER in Guayaquil and Puerto Bolivar, Ecuador, for shipment to Europe. The bananas were to be delivered to the claimants who purchased them for US$1,192,013.

On 24 July 2001 TROPICAL REEFER was arrested in Panama in an action in rem against the vessel commenced by the defendants on the instructions of their London branch, having received approval from head office in Oslo. The defendants claim that over US$2 million is outstanding on the loan.

On 10 December 2001 the claimants considered that the cargo of bananas was a constructive total loss and on 12 September 2001 it was discharged overboard at sea. On 16 October 2001 the vessel was sold by order of the Panamanian court. On 22 November 2001 the claimants commenced proceedings in rem in Panama against the proceeds of sale claiming damages for breach of the contract of carriage.

On 19 December 2001 the defendants applied in Panama to commence an action for a declaration that they were not liable to the claimants. On 20 December 2001 the claimants issued the claim form in the present action in this court and served it on the London branch of the defendants. On 20 March 2001 the Panamanian court gave permission to the defendants to bring their claim for a declaration of non-liability.

The Convention is incorporated into the domestic law of the United Kingdom by section 3(A)(1) of the Civil Jurisdiction and Judgments Act 1982, as amended ("the 1982 Act"). The following provisions of the Convention are relevant:

Section 3(B)(2) of the 1982 Act provides that the Report on the Convention by Mr P Jenard and Mr G Möller shall be given such weight as is appropriate when interpreting the Convention. The material provisions of Article 5 of the Convention are, as is most of the Convention, in the same terms as those of the earlier Brussels Convention. They fall to be interpreted in the same manner. Thus, decisions of the European Court of Justice on Article 5 of the Brussels Convention apply, and reference may be made to the report of Mr Jenard on the Brussels Convention (see the observations of Lord Hope of Craighead in Agnew v Lansforsakringsbolagens [2000] 2 WLR 497 at pp 516-7).

Jenard and Möller set out a number of fundamental principles that apply to the two Conventions. The third of these begins with the statement that a defendant's domicile is the point on which the rules on jurisdiction hinge. The fourth principle states that the provisions of Article 5 relate to "proceedings which can be considered as having a particularly close link with the court before which the proceedings are brought". It describes the provisions of Article 5 as special in that both Conventions directly specify which court has jurisdiction.

Jenard and Möller have a specific commentary on Article 5(5) to which I shall revert when I outline the submissions made by Mr Parsons on behalf of the defendants.

In his report on the Brussels Convention Jenard remarks of Article 5 that adoption of the special rule of jurisdiction is justified by the fact that there must be a close connection factor between the dispute and the court with jurisdiction to resolve it. This proposition is echoed by an observation of the European Court in Martin Peters Bauunternehmung GmbH v Zuid Nederlandse Aannemers Vereniging (case 34/82) [1983] 987 at 1001. In Kleinwort Benson Limited v Glasgow City Council [1999] 1 AC 153 at page 164, Lord Goff of Chieveley cited the same case in support of the proposition that:

In the court below the claimants argued that they could establish jurisdiction under Article 5(3) on the ground that England was the place where the harmful event occurred. The basis of this submission was that the loan and mortgage were transactions of the London branch of the defendants and that the decision of the London branch to enforce the mortgage by arresting the vessel was the event which gave rise to the damage. The judge gave the following reasons for rejecting this submission:

The following findings of the judge in relation to the stay application have some relevance to this appeal.

Under the Private International Law (Miscellaneous Provisions) Act 1995 the judge held that the proper law of the tort was the law of Panama.

While some evidence, including evidence as to the state of the loans secured by the vessel, when it was in default and to what extent, would emanate from London, this was not, on the judge's analysis, likely to be a significant factor.

It was and is common ground that the defendants' London branch was "a branch, agency or other establishment" within the meaning of Article 5(5). The issue was whether the fact that it was a decision taken by the London branch that led to the arrest of the TROPICAL REEFER in Panama meant that the dispute was one arising out of the operations of the branch. The judge summarised the claimants' submissions as follows:

For the claimants, Mr Meeson QC repeated the submissions which had not found favour before the judge. He submitted, in essence, that the words of Article 5(5) fell to be given their natural meaning. He accepted that there had to be a link between the activities carried on by the branch and a dispute so that it could properly be said that the dispute was one arising out of the activities of the branch. He submitted, however, that on the facts of this case this requirement was clearly satisfied. The arrest arose out of a London branch loan. It was the London branch which decided to arrest the vessel and it was the London branch which gave power of attorney to the Panamanian lawyers to enable them to arrest the vessel.

For the defendants, Mr Parsons submitted that the judge's analysis was correct. What had to be demonstrated was a link between the dispute and the English court, not merely with the English branch of the bank. To establish such a link, it was necessary that the activities of the branch should constitute an element in the cause of action. Where a claim was brought in tort, the activities of the branch had to have produced the harmful event within the jurisdiction if the link was to be established. Mr Parsons submitted that in the present case there was no link at all between the dispute and the English court. He relied upon the findings made by the judge in relation to the place where the tort was committed and the proper law of the tort to which I have referred.

In support of his submissions Mr Parsons relied heavily on the decision in Somafer. He accepted that part of the reasoning in that case had not survived the subsequent decision of the European Court in Lloyd's Register of Shipping v Society Campenon Bernard [1995] ECR I-961. That part, however, related to claims in contract. So far as claims in tort were concerned, the observations of the court in Somafer remained authoritative.

Counsel's submissions call for a careful analysis of the effect of Somafer and of the Lloyd's Register case. The issue in Somafer was whether a company which had its principal place of business in France had a "branch, agency or other establishment" in Germany within the meaning of Article 5(5). The questions referred to the European Court related to the tests to be applied in resolving that issue.

The findings of the court appear from the following paragraphs of their judgment:

Paragraph 13 appears to be addressing the question of what it is necessary to establish in order to demonstrate the necessary nexus between the operations of the branch and the claim. The court had not been asked to provide guidance on this, but may have been influenced by the opinion of the Advocate General that part of the test of a branch was whether the branch carried out operations that were independent of its parent.

The observations of the court in paragraph 13 appeared severely to circumscribe the effect of Article 5(5). It was not enough that the branch should have entered into an undertaking in favour of the claimant if the undertaking was not one which had to be performed in the country where the branch was established. It would seem to follow that, if the claim was in tort, jurisdiction would not lie under Article 5(5) unless the activities of the branch constituted or directly brought about the harmful event. It seems to me that, were the observations in paragraph 13 of Somafer to represent the law, they would provide unshakeable support for the conclusion reached by the judge.

In the Lloyd's Register case Advocate General Elmer observed that what the court had to say about "operations" had been the subject of criticism both in academic writings and in the opinion of the Advocate General, Sir Gordon Slynn, in SAR Schotte v Parfums Rothschild [1987] ECR 4905. In that opinion Sir Gordon stated at page 4914:

I turn to the facts of the Lloyd's Register case. Lloyd's Register of Shipping is an English registered charity established in London. It maintained a branch in France. Campenon Bernard, a French company, contacted the French branch in order to arrange for the testing of concrete reinforcing steel which it was to use in the construction of a motorway in Kuwait. Following negotiations, in a letter of 3 December 1985, Campenon Bernard placed the order with the French branch of Lloyd's Register. That letter specified that inspection would take place in Spain and would be carried out by the Spanish branch of Lloyd's Register. It also stated that payment would be effected in pesetas. On 9 December 1985 the French branch communicated its acceptance.

Although the Spanish branch of Lloyd's Register issued certificates of compliance, the Kuwait Ministry of Public Works, for whom the concrete was being produced, refused to accept the concrete reinforcing steel on the ground that it did not comply with the United States technical standard.

On 2 February 1988 Campenon Bernard paid the invoice issued by the Spanish branch of Lloyd's Register, having been pressed to do so by the French branch, but without prejudice to its rights. Alleging that Lloyd's Register had wrongly stated that the steel complied with the United States technical standard, it then brought a claim for damages in the Tribunal de Commerce in Paris. Lloyds Register challenged the jurisdiction.

The Cour d'Appel held that the Tribunal had jurisdiction, pursuant to Article 5(5). The Cour de Cassation referred to the European Court the question of whether the application of Article 5(5) was restricted to cases where the dispute concerned obligations to be performed in the state in which the branch, agency or other establishment was situated. This put in issue the correctness of paragraph 13 of the judgment in Somafer.

In his opinion, Judge Advocate Elmer observed that the geographical limit imposed by the court in Somafer was in the nature of an obiter dictum. He went on to express his own view:

The decision of the court echoed the opinion of the Advocate General:

Mr Parsons made the following submissions in relation to these two cases. First, he drew our attention to certain passages in chapter 6 of the Jenard and Möller report under the heading "Judgments of the Court of Justice of the European Communities Concerning the Interpretation of the Brussels Convention of 27 September 1968". Under the heading "General" is this paragraph:

Mr Parsons submitted that the effect of this was that the findings in relation to the Brussels Convention of the European Court, as interpreted in the report, should be treated as definitive of the meaning of similar provisions in the Lugano Convention, unless expressly overruled by subsequent decisions of the European Court.

Next, Mr Parsons referred us to this commentary of the Report on Somafer:

Mr Parsons submitted that this passage made it plain that paragraph 13 of Somafer was intended to be the definitive and exclusive definition of "operations of a branch, agency or other establishment" that were capable of giving rise to a dispute that fell within the jurisdiction accorded by Article 5(5). The adverse comment on the geographical limitation in paragraph 13 made by Advocate General, Sir Gordon Slynn, in Schotte was made in relation to a contract case. Advocate General Elmer only described the geographical limit in paragraph 13 as obiter dictum in so far as it was made in relation to contract disputes in a case concerned with non-contractual obligations. Somafer remained authority for the proposition that, in a non-contractual claim, the activities of the branch had to bring about the harmful event giving rise to the dispute within the jurisdiction of the court if Article 5(5) were to be engaged.

I consider this argument to be over-sophisticated and unsound. The effect of decisions of the European Court on provisions which are common to the Brussels and Lugano Conventions should not be artificially circumscribed in the manner suggested by Mr Parsons. They must be given their natural effect.

In my judgment, the decision in the Lloyd's Register case robs the geographical limit in paragraph 13 of Somafer of such authority as it might otherwise have had, bearing in mind that it was an obiter dictum on a matter not referred to the court and in respect of which no submissions had been made to it. This must be true of claims in tort as well as claims in contract. What the Lloyd's Register case demonstrates is that there must be such nexus between the branch and the dispute as to render it natural to describe the dispute as one which has arisen out of the activities of the branch. Where the claim is in contract, that nexus can be derived from the negotiations between the claimant and the branch which gave rise to the contractual obligation, the alleged breach of which is the subject of the dispute. Where the claim is in tort or delict, there will be no such nexus.

The events which give rise to liability in tort can vary widely - compare the liability of the publishers of a defamatory book with the vicarious liability of a company for the negligent driving of an employee in the course of his employment. In these circumstances, I do not think it desirable to attempt to formulate any test to determine whether a dispute has arisen out of the activities of a branch. The answer to that question must depend on the facts of the individual case. I would, however, venture some general observations.

As Lord Justice Laws observed in the course of argument, paragraph 5 of Article 5 differs from the other paragraphs of that Article. The other paragraphs address different specific causes of action. Paragraph 5 is of general application. It would seem designed to cover situations where the connection of the claim with the activities of the branch, agency or other establishment is such to make it appropriate in the interests of the due administration of justice to permit suit to be brought in the State where the branch, agency or other establishment is situated.

I would endorse the conclusions of the Advocate General in the Lloyd's Register case that one purpose of Article 5(5) is to approximate the place where a branch carries on business with third parties to the point of departure of the first paragraph of Article 2. Article 5(5) provides a quasi defendant's domicile basis for jurisdiction. Once the existence of an entity which qualifies as a "branch, agency or other establishment" of the defendant is established in a State, it accords with the due administration of justice from the view point of the defendant, the claimant and the court to permit suit to be brought in that State in relation to disputes which arise out of the activities of the branch, agency or establishment, regardless of where those activities take effect.

I have set out positive reasons for giving Article 5(5) a meaning which is not subject to the geographical limitation suggested by the court in Somafer. There are, however, powerful negative reasons which point in the same direction. In the Lloyd's Register case, which was a case involving contract, the court observed that the Somafer interpretation would render Article 5(5) almost wholly redundant having regard to the provisions of Article 5(1). Advocate General Elmer made a similar observation in relation to matters relating to tort, delict or quasi-delict, having regard to the provisions of Article 5(3). The only such claim that Mr Parsons could suggest in respect of which, on his interpretation, Article 5(5) would make a difference was a claim in restitution.

In considering the application of Article 5(5), the judge considered it pertinent to compare the connection between the dispute and London with the connection between the dispute and Panama. Mr Neeson suggested that this was not a helpful comparison. Rather, the judge should have compared the connection between the dispute and London with the connection between the dispute and Norway. Had he done so, he would have reached the conclusion that this was a case in which it could properly be said that the dispute arose out of the activities of the defendants' London branch.

I think that Mr Neeson is correct. The actions giving rise to the dispute arose out of London banking business, conducted by the defendants' London branch. The loan in respect of which the security over the vessel was taken was negotiated in London. The decision to enforce the security was taken in London. The London branch gave instructions to enforce the security and the power of attorney to enable it to be done. Giving the words of Article 5(5) their natural meaning, the dispute in this case has arisen out of the activities of the London branch. It is true that in this case these factors do not point to London as the most convenient forum. If the jurisdiction to stay is soundly based, the action will be fought in Panama and not here. It seems to me, however, that if considerations of, or akin to, domicile are to govern the available forum, it makes good sense and accords with the due administration of justice that London should be available to the parties as an alternative to Norway.

For these reasons I would allow the first limb of the appeal.

That leaves the judge's alternative decision that the decisions should be stayed in favour of Panama. No attack has been made on that decision on the merits. It is not open to the claimants to challenge that decision in this court on the basis it was made without jurisdiction. It is common ground that we are bound by the decision in Ace Insurance Company v Zurich Insurance Company [2001] 1 Lloyd's Rep 618, to hold that the judge had jurisdiction to stay the proceedings.

Accordingly, I would replace the judge's order with one staying the action. If my Lords, or at least one of them, are in agreement, it will remain to consider the application that I anticipate will follow for permission to appeal to the House of Lords against the imposition of a stay.

LORD JUSTICE BROOKE: I agree.

LORD JUSTICE LAWS: I also agree.