Matters relating to a contract: voidable contracts and ‘void contracts’

One particular context in which the expression ‘matters relating to a contract’ has given rise to some difficulty of organisation is where the claimant asserts that he has rescinded a voidable contract, or that a supposed contract was in fact void ah initio, and that judgment should be given accordingly with such relief as may follow from it. A potential difficulty arises from the fact that the contract laws of the Lugano States diverge in their analysis of these faults, complaints, vices and impediments. It is not safe to assume that just because a particular complaint would, in English contract law, render the contract voidable, other systems will take the same view.

In Agnew v Lansforsakringsbolagens AB,⁶¹ the House of Lords held that, in a case where the claimant brought proceedings for a declaration that it had been entitled to avoid a contract of reinsurance on the basis of material non-disclosure, the matter was one relating to a contract. The court also accepted that, in a case in which the claimant asserts that the alleged contract is void, or never was, but the defendant pleads its validity and existence,^[1] the matter was one relating to a contract: a dispute between the parties which had at its heart the question whether an alleged contract was valid and binding, naturally fell within Article 5(1). This seems right: Article 5(1) speaks of a ‘matter relating to a contract’, rather than about a ‘claim to enforce a contract’. The effect of Agnew must have been, so far as the English courts were concerned, to confine the real difficulty to cases in which the supposed contract was said, or perhaps was agreed, to have been wholly void of legal effect.

The decision contrasts, perhaps uneasily, with the court’s earlier decision in Kleinwort Benson Ltd v Glasgow City Council.¹⁶ In that case it was common ground between the parties that a supposed contract, which they had purported to conclude, had been void ab initio, as being ultra vires the council. The bank sued to recover money which it had paid under this ‘void contract’; a majority of the House of Lords held that the claim was not within Article 5(1). Such doubt as there is reflects the fact that the majority considered that whether or not the matter was one relating to a contract, the ‘obligation in question’ had to be a contractual one, and that because the obligation to repay or reimburse was not properly understood as contractual in nature, the proceedings fell outside the Article.

To some minds, the decision in Kleinwort Benson was challenging even before the decision in Agnew. The parties had intended to create legally valid and binding contractual obligations, and they would have expected Article 5(1) to have been potentially available in a dispute between them. The majority may have proceeded from the proposition that restitution, which the claimant claimed, was a form of obligation separate and distinct from contract and tort, and that claims for it were not within Article 5(1) or 5(3). However, the decision has been overtaken by events. It was held in Profit Investment SIM SpA (in liq) v Ossi,™ that proceedings for a declaration that a contact was a nullity and for repayment of sums not due are liable to be brought within Article 5(1), because they had the validity or invalidity of the contract as the basis for the relief sought: that meant they were related to a contract. If Kleinwort Benson still stands for anything, it may be that if it is common ground, when the pleadings are drafted, that the supposed contract was wholly void, a claim

B JURISDICTION ACCORDING TO LUGANO/BRUSSELS brought simply for the return of money transferred because the supposed contract was understood to be valid is not within Article 5(1). But it may not stand even for that.

In Fonderie Officine Meccaniche TacconiSpA v Heinrich WagnerSinto Maschinenfabrik GmbH,¹⁵ parties had entered into negotiations aimed at concluding a contract of sale, but one had withdrawn before the anticipated contract had been concluded. Italian law evidently gave a cause of action to the wronged party for losses caused by the unjustified refusal to act in good faith by concluding the contract. On the question whether proceedings brought to claim damages for breach of that obligation fell within Article 5(1), the European Court said not. This conclusion could, and probably should, have been rested on the simple proposition that where it is common ground that the parties did not conclude a contract, and where they never had any doubt about it, there is no contract in any sense which could have brought the case within Article 5(1).

It is not clear whether the Court shared this view. It said that though Article 5( 1) did not require a contract to have been concluded,^[2] it did require there to be an obligation, and on the facts there did not appear to be an obligation freely entered into by the defendant with the claimant. This is not persuasive. There was an obligation between the parties, to which each side had chosen to subject itself in embarking on negotiation: an obligation to negotiate in good faith. That obligation was freely entered into in the sense that neither was obliged to negotiate with the other, but once they had placed themselves in negotiation the obligation arose and bound them. The conclusion that the proceedings were not in a matter relating to a contract was right. The better reason is that this conclusion was not in dispute, but was accepted by the parties as common ground.

• [1] [2001] 1 AC 223. 2 Such as Boss Group Ltd v Boss France SA [1997] I WLR 351. 3 The Court of Appeal has held that proceedings seeking restitution of money paid by mistake are not within Article 5 at all, and that Kleinwort Benson remains binding on the courts: Aspen Underwriting Ltd v Credit Europe Bank NV [2018] EWCA Civ 2590, [2019] 1 Lloyd's Rep 221 (the issue was not addressed by the Supreme Court: [2020] UKSC 11, [2020] 2 WLR 919). 4 [1999] 1 AC 153, a decision on the meaning of this term as it was used in Sch. 4 to the 1982 Act. 5 It had been held, in an earlier test case, that such contracts were ultra vires the council, and therefore void. 6 The issue is examined below. 7 It would be different if the reason for impeaching the alleged contract were a mistake as to the identity of the other, where it would be much harder to say that the parties freely undertook obligations in relation to each other. 8 C-366/13, EU:C: 2016:282, [2016] 1 WLR 3832.
• [2] C-334/00, [2002] ECR 1-7357. 2 On this point, by contrast with the requirements of Section 4 of Title II, Chapter 10 above. 3 See, for example, Henderson v Merrett Syndicates £/