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England and Wales Court of Appeal (Civil Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Samcrete Egypt Engineers and Contractors S.a.e. v Land Rover Exports Ltd [2001] EWCA Civ 2019 (21st December, 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/2019.html Cite as: [2001] EWCA Civ 2019, [2002] CLC 533 |
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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE BIRMINGHAM MERCANTILE COURT
(Her Honour Judge Alton)
| Royal Courts of Justice Strand, London, WC2A 2LL | ||
B e f o r e :
and
LORD JUSTICE POTTER
____________________
SAMCRETE EGYPT ENGINEERS AND CONTRACTORS S.A.E.Defendant/Appellant - and - LAND ROVER EXPORTS LIMITED Claimant/Respondent
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Andrew Thompson Esq (instructed by Wragge & Co, Birmingham, for the Claimant/Respondent)
____________________
AS APPROVED BY THE COURT
Crown Copyright ©
LORD JUSTICE POTTER:
INTRODUCTION
THE CONVENTION PROVISIONS
“1. A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable for the whole or a part only of the contract.”
5. Article 4 (Applicable Law in the absence of choice) provides:
“1. To the extent that law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected …
2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or un-incorporate, its central administration. However, if the contract is entered into the course of that party’s trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.
3. …
4. …
5. Paragraph 2 shall not apply if the characteristic performance cannot be determined and the presumptions of paragraphs 2., 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.”
FACTUAL BACKGROUND
6. At the time of the provision of the guarantee, Samcrete was a 20% shareholder in another Egyptian company called Technotrade S.A.E. (“Technotrade”) which was until June 1997 Land Rover’s appointed distributor in Egypt pursuant to a distributorship agreement dated 11 May 1993. That agreement related to Range Rover and Land Rover vehicles and parts and their distribution within the territory of Egypt. Clause 1(I) of the distribution agreement provided as follows:
“Law and Disputes
(i) This Agreement shall be governed by and construed in all respects in accordance with the laws of England
(ii) The English courts (to whose jurisdiction .. [the parties] .. hereby submit) shall be competent to entertain and adjudicate upon any matter arising out of or in connection with this Agreement”
7. In 1996, Land Rover and Technotrade corresponded about an arrangement for ninety days’ credit and Land Rover indicated that it required a parent company guarantee in order to grant such credit. It proffered a format for the guarantee which included a term that the guarantee should be construed in accordance with English Law and should be subject to the exclusive jurisdiction of the English Courts. It seems clear that Samcrete was not willing to include such a clause in that, on 11 March 1996, without requesting deletion of the clause, it simply signed a version of the guarantee from which the clause had been deleted, without substitution of any alternative choice of law clause and sent it to Land Rover. On 18 July 1996, Land Rover sent Technotrade a fax, agreeing to provide it with credit and indicating that it accepted the guarantee as signed subject to receipt of the original (which was thereafter provided). It seems (though it is not entirely clear from the evidence) that Land Rover’s acceptance of the form of guarantee signed came about through its oversight that the choice of law clause had been deleted.
8. The guarantee signed by Samcrete was headed ‘Re Distributor Agreement between Land Rover … ‘the supplier’ and Technotrade S.A.E. ‘The Distributor’ dated 11 March 1993’. It provided:
“In consideration of your continuing to supply our subsidiary, the Distributor, with Land Rover Group products, we, Samcrete .. do hereby guarantee without set off or counterclaim the payment on demand of all sums not paid on due date by [Samcrete] in respect of invoices raised on [Samcrete] with regard to the purchase of Rover Group products under any agreement from time to time in force between Rover Group Limited, or any of its associated companies including [Land Rover] and [Samcrete] for the supply of the products.
…
This guarantee is and shall be unconditional and irrevocable to [Land Rover] for all debts whatsoever and wheresoever contracted by [Samcrete] with [Land Rover] in respect of Rover Group products from time to time delivered to the Distributor.
9. Following the takeover of Rover Group by BMW in 1996, on 29 November 1996 Land Rover gave Technotrade six months’ notice of termination of the distributorship agreement, making clear that the termination was not a reflection of any dissatisfaction with the performance of Technotrade, but was rather the result of a decision to select BMW’s Egyptian distributor as the single importer for both BMW and Rover.
10. A dispute developed between Land Rover and Technotrade as to the state of the account between them and the consequences of the termination of the distributorship.
11. Land Rover claims that it is owed the sum of £646,162.89 by Technotrade in respect of unpaid invoices which it seeks to recover against Samcrete under the terms of the guarantee. Technotrade however asserts that on the overall account between the parties in respect of their mutual dealings under the distributorship, monies are due to Technotrade. Technotrade claims damages for wrongful termination of the distributorship. A written demand under the guarantee was made by Land Rover upon Samcrete on 20 July 1999, followed by a further written demand from Land Rover’s solicitors. The claim form in these proceedings was issued on 11 April 2000 and, on 28 April 2000, an order was made giving permission to serve on Samcrete out of the jurisdiction. On 26 June 2000, the claim was amended prior to service, such service being acknowledged by Samcrete on 20 July 2000.
12. Meanwhile, Technotrade had commenced proceedings in the Giza Court in Egypt against Land Rover seeking, in effect, an order for an account in relation to all sums due as between the parties under the distributorship agreement. Those proceedings have yet to be served upon Land Rover.
THE PROCEEDINGS BELOW
13. Before the judge, Samcrete relied upon (1) the witness statement of Doctor Youssef, the chairman of Technotrade, in which he deposed to the nature of Technotrade’s claims against Land Rover and asserted that their failure properly to consider such claims had led to the application made by Technotrade to the Giza Court for the appointment of an accountant expert to review the accounts between Land Rover and Technotrade; (2) the expert witness statement of Doctor Abdelwahed, an Egyptian lawyer, in which he stated that, according to Egyptian law, the content and effect of the guarantee was governed by Egyptian law; also that, under section 788 of the Egyptian Civil Code, a creditor is not able take proceedings against a guarantor alone unless it has first taken proceedings against the debtor. He also stated that once the Egyptian Court has made a ruling in the action for an account, if it determines that Land Rover is owed sums by Technotrade, Land Rover will then be able to take steps to recover the sums due from Technotrade, and to proceed against Samcrete in default of recovery from Technotrade.
14. In respect of Technotrade’s Egyptian action, Doctor Youssef did not dispute the evidence for Land Rover that not only the language of the contract but also invoices, accounts and other correspondence passing between the parties were in English. However, he stated that it was logical for Technotrade to bring its claim before the Egyptian Court because all such invoices and related correspondence concerning vehicles, spare parts and other goods supplied by Land Rover were at Technotrade’s premises in Cairo, and that many of the staff involved in reconciling and resolving disputes on invoices were only capable of expressing themselves clearly in Arabic and not in English. He also asserted that all evidence and other documents necessary to prove Technotrade’s further claims arising from termination of the distributorship agreement were at their premises in Cairo. These included correspondence and documents relating to the various heads of loss claimed, a large proportion of which were in the Arabic language.
15. It was common ground between the parties below, as it has been before us, that the relevant governing principles in relation to an application to stay proceedings on the ground of forum non conveniens remain those formerly applicable under RSC Order 11 and set out in the well established authorities of Spiliada Maritime Corporation –v- Cansulex Limited [1987] AC 460 and Seaconsar Far East Limited –v- Bank Markazi Iran [1994] 1 AC 458 i.e. whether the court can be satisfied that there is another available forum, with competent jurisdiction, which is clearly a more appropriate forum for the trial of the dispute in the interests of the parties and the ends of justice.
16. Before the judge it was effectively accepted by both parties that the appropriate forum for Land Rover’s claim under the guarantee would be the country whose law governed the contract. It appears that it was initially argued on the part of Land Rover that the English choice of law clause in the distributorship agreement had the effect of an implied choice of the same law under the guarantee: Article 3 of the Rome Convention. However, it appears from the judgment that it was acknowledged by Mr Thompson for Land Rover that the deletion by Samcrete of the original express choice contained in the guarantee forwarded to it might preclude the inference of a choice of English law under Article 3 and the judge dealt with the matter on the basis that her task was to determine the applicable law in the absence of a choice of law by application of the principles set out in Article 4. The judge acknowledged that upon a simple application of the presumption contained in Article 4(2), Egyptian law would be the governing law as it was the country where the party (Samcrete) who was to effect the performance characteristic of the contract of guarantee (i.e. payment) had its central administration. She noted the argument of Mr Tolley for Samcrete that, in the light of the presumption, the claimant had the burden of proving that the contract was more closely connected with another country (England) but stated that she found it possible to reach a conclusion without resorting to the burden of proof. She expressed herself satisfied that it was clear that the contract was more closely connected with England on the basis:
“… firstly that the contract is written in English. Secondly, that whilst the guarantor may effect its performance by action taken in Egypt, given its central basis there, the place of performance of the contractual obligation is England, as the guarantor is obliged to make payment to the creditor in that country, in Sterling or Sterling equivalent. Equally, on default the breach is a breach arising in England. Thus, it guarantees obligations owed in England to an English company with its central administration in England, those guaranteed obligations arising pursuant to an agreement which is itself declared to be governed by English law and to be subject to the jurisdiction of the English Courts.”
17. Later the judge referred to
“.. the fact that the underlying contract guaranteed itself has an express choice law clause and submission to jurisdiction is plainly a highly material consideration when determining with which country the contract is most closely connected.”
She went on:
“I would not suggest for one moment that the guarantee contract must, so far as proper law is concerned, invariably follow the principal contract. But in this particular case the existence of that choice of law in the principal contract is of considerable relevance. In essence, the contract under consideration guarantees the performance of obligations by Technotrade which are themselves to be governed and interpreted by English law, and to be subject to the competent jurisdiction of the English Courts. The obligation as to payment, which is guaranteed, is to be performed by Technotrade in England, and if there is a breach that breach occurs within this jurisdiction also. The central administrative base of the surety has little relevance to the contract which is, I find, most closely connected to England …
It is plain that Technotrade would not have been able to operate an open account unless or until a guarantee of their obligations and liability to make payment under the distributorship agreement was provided. Accordingly, the execution of the guarantee was intimately bound up with the distribution agreement and payments due thereunder. I conclude therefore, that the contract was governed by English law.”
THE GROUNDS OF APPEAL
18. Mr Tolley for Samcrete has argued before us that, whereas the judge was correct to hold that Article 3 had no application to this case, she erred in her approach to Article 4 and the lack of weight which she attached to the presumption in paragraph 2 of that Article. He complains that she treated that presumption as no more than a 'default' or 'fallback' provision in cases where it is difficult otherwise to decide the question with which country is the contract most closely connected. Whilst accepting that the presumption under Article 4(2) is rebuttable, Mr Tolley has submitted that it should not be regarded as readily or easily rebuttable, but as requiring the demonstration of connecting factors of significant force, if not overwhelming weight, before the wording of Article 4(5) comes into play. At the very least he invites us to adopt the view expressed by Dicey and Morris: Conflict of Laws (13th ed) at para 32-123(p.1240) that:
“It would be inconsistent with the scheme and purpose of Article 4 for the presumptions to have no role except where other factors are evenly balanced, and that, for the presumptions to be displaced, it must be shown (which probably means clearly) that the contract has a closer connection with some other country.”
19. In addition to that passage from Dicey and Morris, Mr Tolley relies (i) upon certain passages from the Giuliano and Lagarde Report on the Rome Convention OJ 1980 C282, to which the court is directed by s.3(3)(a) of the 1990 Act and which he submits assist him in this case; (ii) observations by Hobhouse LJ in Credit Lyonnais –v New Hampshire Insurance Company [1997] 2 Lloyd’s Rep 1 at 5-7 emphasising the need, if the presumption in Article 4(2) is to be disregarded, to look for a geographical connection in relation to the performance of the contract pointing elsewhere than the country in which the party who is to effect the performance which is characteristic of the contract is located; (iii) a decision of the Dutch Supreme Court in Société Nouvelle des Papèteries de l'Aa -v- Machinefabriek BOA (1992) Nederlandse Jurisprudentie No 750, as noted in the commentary by THD Struycken at 1996 LMCLQ 18. In that case the court propounded a rule of thumb that the 'main rule' set out in Article 4 (2) should be disregarded only if, in the special circumstances of a particular case, the place of business of the party who is to effect the characteristic performance contract has no real significance as a connecting factor. Mr Tolley submits that, if the judge had given proper recognition to the weight of the presumption or 'main rule', in Article 4(2), she would have disregarded, or, at any rate discounted, the significance of the various other factors mentioned by her and would have found in favour of Egyptian law.
20. Mr Thompson for Land Rover, on the other hand, submits as follows. The first point which he takes appears in the first ground of Land Rover's Respondent's Notice, namely that, on ordinary principles of construction under English law (the lex fori), by reason of the circumstances in which the contract of guarantee was concluded, the parties impliedly chose English law for the purposes of Article 3 and that the judge should so have decided, thus rendering an investigation under Article 4 unnecessary. In this respect, he relies upon the so-called doctrine of 'infection', submitting that it is a general principle recognised by the English courts that, when a contract such as a contract of guarantee is dependent or parasitic upon another principal contract, in the absence of an express choice of law the parasitic contract will be governed by the same law as the principal contract: see for instance Wahda Bank -v- Arab Bank PLC [1996] 1 Lloyds Rep 470 and Broken Hill PTY Co Limited -v- Xenakis [1982] 2 Lloyds Rep 304.
21. In relation to the implied choice said thereby to arise, Mr Thompson submits that, again under English principles of construction, evidence that Samcrete had deleted the choice of law clause in the guarantee as originally proffered by Land Rover is irrelevant and should be ignored as one of ‘the circumstances of the case’ referred to in Article 3.
22. Alternatively, Mr Thompson supports the decision of the judge for the reasons given by her in the passages from her judgment which I have quoted at paragraphs 16 and 17 above. In this connection he has submitted that the presumption in Article 4(2) is not to be regarded as a 'fortified' presumption in the sense which appears to have been applied by the Dutch Supreme Court in Société Nouvelle des Papéteries de l'Aa, but simply a presumption which calls for clear and convincing rebuttal by a party who asserts that the circumstances as a whole demonstrate a closer connection with another country. In that respect he, too, is content to adopt the statement in Dicey and Morris which I have already quoted (see paragraph 18 above). Finally, Mr Thompson relies upon two recent decisions of English judges at first instance which, he submits, (whether expressly or by implication) rejected the ‘weighted’ approach of the Dutch Supreme Court and have rather taken the words of Article 4 at face value: see Definitely Maybe (Touring) Limited -v- Marek Lieberberg Konzertagentur Gnb [20001] 1WLR 1745 (Morison J) and Kenburn Waste Management Limited -v- Heinz Bergmann 11th May 2001, unreported, (Pumfrey J).
ARTICLE 3
23. Because of the circumstances in which the contract of guarantee was agreed, it seems to me that the judge was right to hold that she could not be satisfied that the parties had made a choice of law for the purposes of Article 3. There was plainly no express choice, and nor was any choice demonstrable from the terms of the contract. As to “the circumstances of the case”, I would accept that if, in applying the rules of evidence of the lex fori, the Court were confined to considering the terms of the contract itself, construed against the background of the underlying distributorship contract with its express choice of English law, and eschewing all reference to the negotiations between the parties, there would be strong arguments for inferring a choice of English law in respect of the contract of guarantee: see Wahda Bank -v- Arab Bank (supra) at pp 472-3. However, in relation to choice of law, in the light of the incorporation into English law of Article 3 of the Convention, I do not think the court is so confined, and I consider that it is entitled to have regard to the fact that when Land Rover requested the inclusion of an English choice of law clause Samcrete deleted it from the original draft before signing the guarantee.
24. Article 18 (Uniform interpretation) provides:
“In the interpretation and application of the preceding uniform rules, regard shall be had to their international character and to the desirability of achieving uniformity in their interpretation and application.”
“… that the question of interpretation should be looked at from a broad Convention-based approach, not constrained by national rules of construction. This is supported by the fact that whether an actual choice of law is to be inferred from the circumstances depends on it “being demonstrated with reasonable certainty” under Article 3(1), and not on purely national rules relating to terms to be implied from the contract itself or from surrounding circumstances.”
“It is indeed appropriate to adopt a purposive approach and not to construe the Convention in a narrow literal way.”
“It is sufficient to say that the party relying upon art. 3 must demonstrate with reasonable certainty that the parties have chosen a particular law as the governing or applicable law. I accept the submission that, as the Giulano-Lagarde report says, it must be a real choice which the parties had a clear intention to make. In Redfern & Hunter on International Commercial Arbitration (2nd ed. at p.123) the authors say that in the absence of an expressed choice the tribunal must look for a tacit choice of law which they say may be known as an implied inferred or implicit choice. They add that art. 3 makes it clear that a tacit choice must only be found where it is reasonably clear that it is a genuine choice by the parties. I accept that approach. See to the same effect Jaffey in (1984) 33 ICLQ 545.
Mr Dunning further relies upon an article in [1979] Current Legal Problems, where Professor Diamond said (at p. 160):
“The principle that the parties can choose the governing law is not intended to introduce the possibility of implied choice of law. Where there is no choice the Court is not expected to define what law the parties would have chosen if they had thought about it. Freedom of choice operates only if there is genuine choice.
However I agree with Dr Plender (op. cit. at par. 5.06) that it is plain from the wording of art. 3 and the Giulano-Lagarde report that the Convention contemplates an implied choice of law, provided that the choice is a real choice which appears with sufficient clarity from the terms of the contract as a whole, or the circumstances of the case.”
“The circumstances which may be taken into account when deciding whether or not the parties have made an implied choice of law under Article 3 of the Rome Convention (whether by initial choice or subsequent change) range more widely in certain respects than the considerations ordinarily applicable to the implication of a term into a written agreement, in particular by reason of the reference in Article 3(1) to “the circumstances of the case”.” (paragraph 16)
and at paragraph 18, I implicitly accepted that the correspondence prior to the undertaking in relation to which a ‘choice of law’ issue arose in that case would have been admissible upon that issue had it been available.
ARTICLE 4
“Article 4 deals with the applicable law in the absence of choice and lays down the general rule that, to the extent that the law applicable has not been chosen according to art. 3:
“… the contract shall be governed by the law of the country with which it is most closely connected.”
Paragraphs 2 to 4 of art. 4 lay down certain presumptions ...”
“The test in this paragraph is a test which I identify as the closest connection of the contract with a country by identifying the country in which the primary performing party is located. Thus, the test looks first at what is involved in the performance of the contract, then identifies the party who is to provide that performance and then connects that party to a country. Paragraphs 3 and 4 similarly refer to the location of the subject-matter of the contract or of a performing party.
It is therefore a test which consistently with the logic of the drafting does not look for some referred or imputed intention but rather implies a criterion which takes into account the performance of the contract and a geographical location. As the commentators point out, this criterion gets away from the concept of simply having regard to where the contract is made, nor is it, as such, a criterion of place of performance. It is a criterion which seeks to identify the country in which the party providing the significant performance is located. It is also to be observed that, just as it is not a test directed to ascertaining intention, so it is not directed to identifying a legal system with respect to which the intention to enter into contractual relations must be taken to refer. The test fundamentally departs from the logic of the approach of the conflicts of laws rules or English private international law for ascertaining the proper law of a contract.
The word used in art. 4 of the Rome Convention is “presumption”. The commentators refer to it as a “rebuttable” presumption. But par. 5 of the Article goes further: it provides that where the “characteristic performance” cannot be determined the presumption in par. 2 is not to be made and, in any case the presumptions in pars. 2 to 4 -
… shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.
The presumption is therefore displaced if the court concludes that it is not appropriate in the circumstances of any given case. This, formally, makes the presumption very weak but it does not detract from the guidance that par. 2 gives as to what is meant by “the country with which it is most closely connected” and does not detract from the need to look for a geographical connection. This reading of art. 4 is also supported by the commentators.” (emphasis added)
“It is always important to have in mind that [the provisions] are intended to have a uniform international implication. Their provisions and the Act by which they are incorporated into English law should not be given a construction deriving from specifically English concepts which are not within the scheme of the relevant International Convention.”
“In the interpretation and application of the preceding uniform rules, regard shall be had to their international character and to the desirability of achieving uniformity in their interpretation and application.”
“Article 4 (2) gives specific form and objectivity to the, in itself, too vague concept of “closest connection.”
“.. even in situations peculiar to certain contracts, as for example in the contract of guarantee where the characteristic performance is always that of a guarantor, whether in relation to the principal debtor or the creditor”,
it elsewhere recognises that Article 4(5) provides for the possibility of disregarding the presumption in paragraph (2) because:
“.. given the entirely general nature of the conflict rule contained in Article 4, the only exemptions to which are certain contracts made by consumers and contracts of employment, it seemed essential to provide for the possibility of applying a law other than those referred to in the presumptions in paragraph 2, 3 and 4 whenever all the circumstances show the contract to be more closely connected with another country.
Article 4(5) obviously leaves the judge a margin of discretion as to whether a set of circumstances exists in each specific case justifying the non-application of the presumptions in paragraph 2, 3 and 4. But this is the inevitable counterpart of a general conflict rule intended to apply to almost all types of contract.”
“Inevitably the solution of individual cases will depend on the facts, but in principle it is submitted that the presumption may be most easily rebutted in those cases where the place of performance differs from the place of business of the party whose performance is characteristic of the contract.”
See also the approach of Morison J in the Definitely Maybe -v- Marek Lieberberg (supra) at para. 15 p. 1750.
“Paragraph (2) must have been inserted to provide a “normal” rule which it is simple to apply. Giving wide effect to paragraph (5) will render the presumption of no value and represent a return to the English common law test to ascertain the proper law, which places much less weight on the location of the former and much more on the place of performance, and the presumed intention of the parties.”
“… it follows both from the wording and the structure of art 4, as well as from the uniformity in the application of the law which has been intended with the Convention, that this exception to the main rule has to be applied restrictively, to the effect that the main rule should be disregarded only if, in the special circumstances of the case, the place of business of the party who is to effect the characteristic performance has no real significance as a connecting factor.”
“But the presumption based on characteristic performance is not absolute … the presumption shall even be disregarded when it appears from all of the circumstances that the contract is more closely connected with a country other than the one in which the party who is to supply the characteristic performance has his place of business. A subcontractor, for example, might be governed by the same law governing the principal contact between the contractor and the employer rather than by the law of the country in which the subcontractor has his place of business.”
“… the presumption may most easily be rebutted in those cases where the place of performance differs from the place of business of the party whose performance is characteristic of the contract. It has already been seen that the presumption is designed to lead to the country of the residence or place of business of the party whose performance characteristic, and that usually that country will coincide with the place of performance, because normally contracts are performed in the country of that party’s place of business. The situations in which they are performed elsewhere may (but by no means inevitably) provide material to rebut the presumption.”
CONCLUSION
“.. the question of choice and absence of choice becomes irrelevant to the question of ascertaining with what State the contract is most closely connected. Similarly, to refer to contemplation by one party or another that certain local laws may or may not be relevant is to be influenced by considerations of inferred choice and connection with legal system and not with questions of performance and the location of the performing parties.”
LORD JUSTICE THORPE:
