Kleinwort Benson Ltd v Glasgow City Council

Under Schedule 4 to the Civil Jurisdiction and Judgments Act 1982, the defendant’s domicile is the basic ground of jurisdiction. The special jurisdictions in Article 5 are derogations and must be construed restrictively by reference to the required close connection.

A standalone unjust enrichment claim seeking repayment under an admittedly void contract does not fall within Article 5(1). No contractual obligation forms the basis of such a claim. A court exercising contractual jurisdiction may decide whether an alleged contract exists when that question is indispensable to its jurisdiction, but this does not extend Article 5(1) to the consequences of an admitted nullity. Unjust enrichment also falls outside Article 5(3) where no tort, delict, quasi-delict, harmful event or threatened wrong is alleged.

Kleinwort Benson Ltd v Glasgow City Council concerned seven interest rate swap agreements which were accepted, following earlier House of Lords authority, to have been beyond the local authority’s powers and void from the outset. Kleinwort Benson began proceedings in the English High Court for restitution of its payments. Glasgow sought a declaration that, because it was domiciled in Scotland, only the Scottish courts had jurisdiction.

Hirst J granted the declaration. After an unsuccessful reference for a preliminary ruling from the European Court of Justice, the Court of Appeal reversed that decision by a majority: [1996] 2 A.E.R. 257. It held that the claim fell within Article 5(1) of Schedule 4 to the Civil Jurisdiction and Judgments Act 1982.

The central questions were whether restitution following an admittedly void contract was a matter relating to a contract under Article 5(1), or alternatively a matter relating to tort, delict or quasi-delict under Article 5(3).

1. By a majority of three to two, the appeal was allowed. Lord Goff of Chieveley, Lord Clyde and Lord Hutton held that the English High Court lacked jurisdiction. Lord Nicholls of Birkenhead dissented on Article 5(1), with Lord Mustill agreeing.

2. Per Lord Goff, Lord Clyde and Lord Hutton, Article 2 of Schedule 4 to the Civil Jurisdiction and Judgments Act 1982 contains the basic rule that a defendant is sued in the courts of its domicile. Article 5 derogates from that rule and must be construed restrictively. Its special jurisdiction depends upon a clearly defined, close connection between the dispute and the designated court.

3. The majority held that Article 5(1) requires identification of the contractual obligation forming the basis of the proceedings. The principles stated in de Bloos v Bouyer, Case 14/76, and reaffirmed in Shenavai v Kreischer, Case 266/85, supported that construction. Kleinwort Benson’s only cause of action was restitution based upon unjust enrichment. Because the purported agreements were admittedly void from the outset, no contractual obligation existed on which the claim could be based and there was no contractual place of performance supplying the necessary connecting factor.

4. The majority distinguished Effer SpA v Kantner, Case 38/81. When a claimant seeks enforcement of an alleged contract and the defendant disputes its existence, the court designated by Article 5(1) may determine that preliminary issue because it is indispensable to deciding its own jurisdiction. That principle did not confer jurisdiction over a standalone restitution claim brought after both parties had accepted that the supposed contract never existed. The majority left open the possibility that exceptional restitutionary claims sufficiently founded upon a contractual obligation might fall within Article 5(1).

5. The House was unanimous that Article 5(3) did not apply. A claim based solely on unjust enrichment does not ordinarily presuppose a harmful event, threatened wrong, tort, delict or quasi-delict. The ruling in Kalfelis v Bankhaus Schröder, Case 189/87, did not create accessory jurisdiction over the non-tortious claim.

6. Lord Nicholls, dissenting on Article 5(1), considered the restitutionary consequences of contractual nullity to be an integral part of a single dispute relating to a contract. He regarded the intended place of performance as a sufficient connecting factor and considered that separating contractual and restitutionary relief would undermine certainty and efficient adjudication.

7. The order of Hirst J declaring that the English High Court had no jurisdiction was restored. Glasgow received its costs in the House and below.

1. House of Lords: By a majority of three to two, allowed Glasgow’s appeal, reversed the Court of Appeal and restored the declaration made by Hirst J that the English High Court lacked jurisdiction.

2. Court of Appeal: By a majority of Roch and Millett L.JJ., with Leggatt L.J. dissenting, reversed Hirst J and held that Article 5(1) conferred jurisdiction on the English High Court: [1996] 2 A.E.R. 257. It expressed no concluded view on Article 5(3).

3. European Court of Justice: Declined jurisdiction to answer the Court of Appeal’s preliminary reference because Schedule 4 was national law based upon, but not directly governed by, the Brussels Convention. The matter returned to a reconstituted Court of Appeal.

4. High Court: Hirst J held that none of the asserted special grounds of jurisdiction applied and granted Glasgow a declaration that the English High Court lacked jurisdiction.