IN THE HOUSE OF LORDS

Thursday 17th February, 2000

B e f o r e: LORD NICHOLLS OF BIRKENHEAD LORD WOOLF M.R. LORD COOKE OF 
THORNDON LORD HOPE OF CRAIGHEAD LORD MILLETT

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.
LNSFRSKRINGSBOLAGENS A.B. (APPELLANTS)

J U D G M E N T

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:

"A person domiciled in a contracting state may, in another Contracting 
State, be sued:

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:

"the reference in Article 5(1) to 'the obligation in question' ought not to 
be considered in isolation from the remaining words in Article 5(1), any 
more, that Article 5 should be interpreted without regard to the fact that 
it creates a special exception to the general rule of domiciliary 
jurisdiction in Article 2."

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:

"Reinsurance contracts cannot be equated with insurance contracts. 
Accordingly, Articles 7 to 12 do not apply to reinsurance contracts."

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 Mller 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 Mller 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 A.C. 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 A.C. 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:

"I have to confess that I find it very difficult to see how such a claim 
can fall within Article 5(1). It can only do so if it can properly be said 
to be based upon a particular contractual obligation, the place of 
performance of which is within the jurisdiction of the court. Where 
however, as here, the claim is for the recovery of money paid under a 
supposed contract which in law never existed, it seems impossible to say 
that the claim for the recovery of the money is based upon a particular 
contractual obligation." (At p.167C-E)

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] E.C.R. 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] E.C.R. 825. In regard to that case, he states that:

"The case was one of enforcement of the performance of a contract. The 
preliminary problem of determining whether there was a contract between the 
parties in such circumstances falls within the scope of Article 5(1). The 
court reasoned that the power to determine questions relating to a contract 
included the power to consider the constituent parts of the contract 
itself, since that was indispensable for the determination of its 
jurisdiction. Once there is a dispute as to the existence of a contract the 
performance of which the one party is seeking to enforce or for the non-
performance of which he is seeking a remedy, then it should not matter 
whether procedurally it is the defendant or the plaintiff who raises the 
issue of the existence of the contract." (p.182F-G)

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] E.C.R. 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] E.C.R. 825. The decision provides a degree of support for 
the claimants' case since the court held:

"In Article 5(1) of the Convention, the national court's jurisdiction to 
determine questions relating to a contract includes the power to consider 
the existence of the constituent parts of the contract itself, since that 
is indispensable in order to enable the national court in which proceedings 
are brought to examine whether it has jurisdiction under the Convention. If 
that were not the case, Article 5(1) of the Convention would be in danger 
of being deprived of its legal effect, since it would be accepted that, in 
order to defeat the rule contained in that provision, it is sufficient for 
one of the parties to claim that the contract does not exist." (para 7 at 
p.834)

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) -

"... it was common ground that the third [criterion] is also satisfied. The 
duty to make a fair presentation fell due for performance in London and any 
misrepresentation took place in the course of the brokers' presentation of 
the risk to the reinsurers in their office or underwriting boxes in 
London."

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 A.C. 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 A.C. 153 the 
European Court held (Case C-346/93) [1996] Q.B. 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:

"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."

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] E.C.R. 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. Mller 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:

"Article 5(1) provides a compromise between the various national laws.

The jurisdiction of the forum is, as in German law, limited to matters 
relating to contract. It could have been restricted to commercial matters, 
but account must be taken of the fact that European integration will mean 
an increase in the number of contractual relationships entered into. To 
have confined it to commercial matters would moreover have raised the 
problem of classification.

Only the jurisdiction of the forum solutionis has been retained, that is to 
say the jurisdiction of the courts for the place of performance of the 
obligation on which the claim is based. The reasons for this are as 
follows."

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:

"There was also concern that acceptance of the jurisdiction of the courts 
for the place where the obligation arose might sanction, by indirect means, 
the jurisdiction of the forum of the plaintiff. To have accepted this forum 
would have created tremendous problems of classification, in particular in 
the case of contracts concluded by parties who are absent."

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. Socit en commandite par actions 
Bouyer (case 14/76) [1976] E.C.R. 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] E.C.R. 1473 at p. 
1485, paragraph 14 the Court said:

"Having regard to the differences obtaining between national laws of 
contract and to the absence at this stage of legal development of any 
unification in the substantive law applicable, it does not appear possible 
to give any more substantial guide to the interpretation of the reference 
made by Article 5(1) to the 'place of performance' of contractual 
obligations. This is all the more true since the determination of the place 
of performance of obligations depends on the contractual context to which 
these obligations belong."

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] E.C.R. 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] E.C.R. 987, p. 1002, paragraph 12; Hassan Shenavai v. Klaus 
Kreischer (case 266/85) [1987] E.C.R. 239, p. 256, paragraph 17; Arcado 
S.P.R.L v. Haviland S.A. (case 9/87) [1988] E.C.R. 1539, p. 1555, paragraph 
13; and Handte (Jakob) & Co. G.m.b.H v. Traitements Mcano-chimiques des 
Surfaces S.A. (case C-26/91) [1992] E.C.R. 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:

"11. As far as possible, the Court of Justice gives the terms used in the 
Brussels Convention an autonomous interpretation, rather than by reference 
to national law, so as to ensure that the Convention is fully effective, 
having regard to the objectives of Article 220 of the E.C. Treaty (now 
Article 293 E.C.), in the implementation of which the Convention was 
adopted (Case C-125/92 Mulox I.B.C. v. Geels [1993] E.C.R.-I-4075, 
paragraph 10).

"12. The Court has, however, made it clear that neither option excludes the 
other, since the appropriate choice can only be made in relation to each of 
the provisions of the Brussels Convention (Tessili, paragraph 11, and Case 
144/86 Gubisch Maschinenfabrik v. Palumbo [1987] E.C.R. 4861, paragraph 7).

"13. As regards the expression 'place of performance of the obligation in 
question', the Court has repeatedly ruled that this expression is to be 
interpreted as referring to the law which governs the obligation in 
question according to the conflict rules of the court seised (Tessili, 
paragraph 134, and Case C-288/92 Custom Made Commercial v. Stawa Metallbau 
[1994] E.C.R. I- 2913, paragraph 26)....

"26. Some of the questions which might arise in this context, such as 
identification of the contractual obligation forming the basis of 
proceedings, as well as the principal obligation where there are several 
obligations, could hardly be resolved without reference to the applicable 
law....

"28. Moreover, bearing in mind the important position generally accorded by 
national contract law to the intention of the parties, the Court has held 
that, if the parties to the contract are permitted by the applicable law, 
subject to the conditions it lays down, to specify the place of performance 
of an obligation without satisfying any special condition of form, that 
agreement on the place of performance is sufficient to found jurisdiction 
in that place within the meaning of Article 5(1) of the Brussels Convention 
(Case 56/79 Zelger v. Salinitri [1980] E.C.R. 89, paragraph 5), on 
condition that this place has a real connection with the true substance of 
the contract (Case C- 106/95 M.S.G. v. Gravieres Rhnanes [1997] E.C.R. I-
911, paragraphs 30 and 31)."

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:

"31.... The Court concluded, in paragraphs 11 and 13 of the same judgment, 
that, for the purposes of determining the place of performance within the 
meaning of Article 5(1), the obligation to be taken into account was that 
which corresponded to the contractual right on which the plaintiff's action 
was based. It stated in paragraph 14 that, in a case where the plaintiff 
asserted the right to be paid damages or sought dissolution of the contract 
on the ground of the wrongful conduct of the other party, that obligation 
was still that which arose under the contract and the non-performance of 
which was relied upon to support such claims.

"32. This interpretation was corroborated by the Convention of 9 October 
1978 on the Accession of the Kingdom of Denmark, Ireland and the United 
Kingdom of Great Britain and Northern Ireland, which amended certain 
language versions of Article 5(1) of the Convention in order to specify 
that the obligation whose place of performance determines which court has 
jurisdiction in matters relating to a contract is the obligation which 
forms the basis of the claim (in the English version 'the obligation in 
question')."

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 A.C. 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] E.C.R. 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] E.C.R. 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:

"Reinsurance contracts cannot be equated with insurance contracts. 
Accordingly, Articles 7 to 12 [of the Brussels Convention] do not apply to 
reinsurance contracts."

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 Mcano-chimiques des Surfaces S.A. 
[1992] E.C.R. 1-3967 para. 14; Shearson Lehman Hutton v. TVB. 
Treuhandgesellschaft fr Vermgensverwaltung und Beteiligungen m.b.H. [1993] 
E.C.R. 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 A.C. 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. Socit en commandite par actions Bouyer [1976] E.C.R. 
1497); and "the contractual obligation ... whose performance is sought in 
the judicial proceedings" (Shenavai v. Kreischer [1987] E.C.R. 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