A judgment handed down by a Queens Bench judge dealt with an application for summary judgment brought by the Claimants in a probate matter. The Claimants are the son (Israel) and grandson (Samuel) of the late Rabbi Joseph Halpern and his wife Frieda, also deceased. This is an appeal from that judgment.
Their claim was to enforce a Compromise Agreement which they allege to have been reached between Israel and Samuel (who at all material times acted for his father Israel) and the Defendants (four other sons and a daughter of Joseph and Frieda). The Compromise was of an arbitration before a Beth Din composed of three Rabbis which for the most part was taking place in Zurich. The parties had intended that the arbitration was to settle issues, which had arisen after the deaths of Joseph and Frieda, between Israel (the first claimant) and his siblings relating to what he deemed to be his due inheritance.
The first three Defendants (Mordecai, David and Jacob) were the executors of both estates. The dispute, however, was not simply about the distribution of the estates (valued for Probate, as we were shown but the judge was not, in the case of Joseph at L309,945 and in the case of Frieda at L210,000). More importantly, it was to decide whether there were other assets which the Defendants should take account of in assessing what should be Israel’s fair share.
Mordecai made the Compromise on behalf of himself, his two executor brothers, another brother, Aaron, and his sister, Esther, as party A, and Israel and his son Samuel who had represented Samuel during the arbitration as party B. Mordecai drafted the agreement in Hebrew and an agreed upon translation was entered into the record. Although Claimants named all those listed as party A as Defendants, service was had only upon the three executor brothers.
As a ground for setting aside the Compromise, the executor brothers rely on the fact that a different Beth Din sitting in New York awarded the sister, Esther (as against the executor brothers) the whole of the estate which apparently involves several million pounds. The main area of dispute thus relates to whatever assets lie outside the estate as valued for probate.
That is further confirmed by the fact that, under the Compromise, if it be valid, Israel was to receive L2.4 million. The appellate court is concerned as to how the parties could square the figures at which the estates had been valued for probate with these figures, and especially with the L4M said to be the value of the estate the New York Beth Din awarded to Esther.
The Court mentioned another disturbing term of the Compromise relied on by the executor brothers as a condition precedent to any liability as to them. This was that all documents produced during the arbitration before the Beth Din in Zurich should be destroyed or handed over to the Defendants.
Moreover, Samuel had charged that the reason for such a term was to cover up a tax fraud on Her Majesty’s Revenue and Customs (HMRC). Indeed, the Court is worried about whether the parties are asking it to legitimize a Compromise agreement, one goal of which is to hide the true facts from HMRC. As a result, the Court requested that the executors swear out affidavits and allowed Israel and Samuel a chance to respond. The question then arises as to what steps we should take. The Court of Appeal, however, discerns a key point of law which it ought to resolve on a preliminary basis, i.e. the question as to the law governing the Compromise. This is the point on which the parties focused the most time and effort.
Thus, the defense wrote a memorandum headed “Application of Jewish law”. It referred to the submissions to arbitration and pleaded that Jewish law (Halakha) was intended not only to be the lex causa as well as the lex curia but also would regulate procedure. It took the following position: “Accordingly, in addition to the matters identified herein which offend ordinary principles of fairness and natural justice, it is further alleged that the Compromise Agreement is ineffectual by reference to Halakha. These Defendants intend to seek permission from the Court to rely upon expert evidence and to serve further particulars of the breaches of Halakha that are relevant to the issues in this claim.” [¶ 15].
“Only in its written submissions for the hearing below did Appellant expressly contend that the applicable law of the Compromise Agreement was Jewish law. Even then it was not identified precisely what the effect of applying Jewish law was as compared to the application of either English law or possibly Swiss law. .... During argument, Appellant suggested that if Jewish law applied there might be differences of consequence. For example, a point was developed by reference to the statement of Rabbi Gartner, exhibited to Mordecai’s statement, ... that, under Jewish law, if duress or mistake were established that would render the Compromise void ab initio and not, as under English law, voidable.”
“This led ... to the judge referring to Shamil Bank of Bahrain EC v Beximco Pharmaceuticals [2004] 1 W. L. R. 1784, a decision of the Court of Appeal which the judge suggested, at the very least, cast doubt on the question whether Jewish law, as opposed to the law of a country, could ever be adopted, expressly or otherwise, as the law applicable to contract ...under English conflict of laws principles.”
“Appellant submitted that the Compromise contained terms which, either expressly or by implication, agreed [on] Jewish law as the applicable law. His argument ... was primarily that Shamil was distinguishable and thus English conflict of laws would recognize that since there was a body of law recognized as Halakha, i.e. Jewish law, that law could be the applicable law of the contract in a true sense.”
“Alternatively, he argued that, as a matter of construction, Halakha would, if chosen as the applicable law whether expressly or by implication, be incorporated into the contract as terms thereof similarly to the way in which the Hague Rules can be incorporated.”
“In the further alternative it was argued that Israel, by submitting the dispute to a forum (the Beth Din) applying Jewish law, was thereby representing that he would be seeking no more than Jewish law would allow him to recover and should be stopped from recovering anything that was irrecoverable as a matter of Jewish law. The judge [below] ruled against the Defendants on all these points.”
As to the applicable law of the Compromise, the Court notes, “There were, Appellant suggested, four questions (1) could the parties as a matter of English conflict of laws principles choose Jewish law as the applicable law of the Compromise? (2) Did the parties choose Jewish law expressly as the applicable law of the Compromise? (3) If they did not choose Jewish law expressly did they choose Jewish law by necessary implication? (4) If the parties did choose Jewish law, and the answer to (1) is that English conflict of laws will not allow for the choice of Jewish law as the applicable law, is there any other way in which effect could be given to the parties’ choice?”
“Posing the questions in this way ... risks raising points in an academic way, when what the court should be concentrating on is what the parties agreed in this case, first in relation to the applicable law of the contract and second as to the applicability of Jewish law and the extent to which effect, depending on what they agreed, can be given to that agreement.”
The Court decides to approach the matter by considering the true nature of the Compromise Agreement and its applicable law, applying English conflict of laws principles. In the course of so doing, it can address the answer to the questions posed by [Appellant] in their context. The Court first asks what have the parties agreed expressly or by implication as to the applicable law to govern their contract?
“This question must be answered by reference to English conflict of laws principles. The Contracts (Applicable Law) Act 1990, as its preamble states, makes provision as to ‘the law applicable to contractual obligations in the case of conflict of laws’. It provides by Section 2 ‘subject to subsections (2) and (3) below, the Conventions shall have the force of law in the United Kingdom.’ In the Act the Conventions mean the Rome Convention, the Luxembourg Convention and the Brussels Protocol, all of which are set out in schedules to the Act. Section 3 provides guidance as to interpretation allowing reference in relation to the Rome Convention to the reports on that convention by Professors Gillian and Lagarde.”
“By Article 1 of the Rome Convention, the rules of the Convention apply ‘to contractual obligations in any situation involving a choice between the laws of different countries’. ... First [the Court does] not accept Appellant’s submission that the Rome Convention does not apply because the dispute as to which law applies relates to a law other than one of a country. That argument would be hopeless in my view, even if the choice was simply between Jewish law and English law, for the reasons I shall express below but in fact the contest in this case is between English law, Swiss Law and Jewish law -- in other words the situation does involve a choice between the laws of different countries.”
“But the fundamental reason why the argument is hopeless is because the starting point for the Rome Convention was a point accepted by all countries party to that Convention, that laws could not exist in a vacuum; by ‘laws’ were meant laws enforceable in the courts of countries whether parties to the Convention or other states. Paragraph 32-081 of the 14th Edition of Dicey, Morris and Collins puts the matter succinctly and ... correctly:-- ‘... Article 1(1) of the Rome Convention makes it clear that the reference to the parties’ choice of ‘the law’ to govern a contract is a reference to the law of a country. It does not sanction the choice or application of a non-national system of law, such as the lex mercatoria or general principles of law.’”
“It is suggested that a choice of lex mercatoria or general principles of law is not an express choice of law under the Rome Convention . So also in Shamil Bank of Bahrain EC v. Beximico Pharmaceuticals Ltd., the Court of Appeal held that a choice of the principles of Sharia law was not a choice of law of a country for the purposes of the Rome Convention.” “Further support for the view that the Convention had in mind the laws of a country, and that it was not intended that persons should be able to contract out of the Convention, is gained from other provisions of the Convention e.g. Article 3(3) the inability to derogate from mandatory rules of a particular country and Article 7 applying mandatory rules of another country ‘when applying under this convention the law of a country’.”
“However it would seem that a compromise of an arbitration dealing with a dispute as to whether assets outside an estate should be brought into account in order that one party should gain his fair share could not be termed a contract relating to ‘wills and succession’.”
“Fourth, and finally, the use being made of Shari’a law, strict or modified by Saudi law, was to interpret the obligations under the agreement to arbitrate, which ... is a legitimate use of a body of law or rules which do not have the force of law of a country or state.” [ ¶¶ 16-22].
The Court thus concludes that the rules of the Convention do apply to the Compromise Agreement. “That being so a choice has to be made as to which is the applicable law, and the choice can only be between the laws of different countries. Article 3(1) provides:-- ‘A contract shall be governed by the law chosen by the parties. The choice must be express 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 to the whole or a part only of the contract.’”
“Three points should be noted -- (1) the choice may be express; (2) if it is to be implied, the implication must be demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case; and (3) the choice can relate to the whole contract or part of a contract.”
“The Compromise makes no express choice of the law of any country or indeed any express choice of law at all. Furthermore it cannot ... be said that any implication of a choice of law of any country can be demonstrated with any certainty. ... [thus] Article 4 [is] applicable in the absence of choice.”
“The material parts of Article 4 provide as follows:-- ‘1. To the extent that the 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. Nevertheless, a severable part of the contract which has a closer connection with another country may, by way of exception, be governed by the law of that other country.’”
“The choice lies between Swiss and English law and, since no one has suggested that Swiss law is any different from English law, a decision as to which law is the applicable law is actually unnecessary. But if the issue did arise, Article 4(2) would seem to indicate that since Mordecai and the executor brothers resided in England that English law should be the applicable law. Again ... different laws may apply to different parts of the contract.”
“It follows that, as a matter of English conflict of laws principles, there can be no question of Jewish law being agreed either expressly or by implication as the applicable law of the contract. The applicable law is English law.”
The next question is whether Jewish law has any relevance here? “It seems to me that the answer is that it may have. By Article 10 of the Convention the applicable law, English law, will govern ‘(a) interpretation, (b) performance, (c) within the limits of the powers conferred on the court by its procedural law, the consequences of breach, including the assessment of damages, insofar as it is governed by rules of law; (d) the various ways of extinguishing obligations, and prescription and limitation of actions.’ ...”
English law does make it possible to incorporate some provisions of foreign law as a term or terms of the contract. It was this aspect which the Court addressed in some detail in Shamil. That Court reasoned as follows:-- “49. [Counsel] thus opts for a construction that the wording is apt, and intended, to incorporate into English law for the purposes of its application to the contract, the ‘principles of ... Sharia’. In this respect, and no doubt to avoid the difficulty that the principles of Sharia, generally stated, are of broad nature and application ..., [Counsel] argues that the clause should be read as incorporating simply those specific rules of Sharia which relate to interest and to the nature of Morabaha and Ijarah contracts, thus qualifying the choice of English law as the governing law only to that extent.” [¶¶ 25-31].
“Points which are said to arise outside questions of interpretation e.g. duress, mistake, frustration and the consequences thereof will be a matter of English law as the applicable law of the contract. But as an aid to interpretation ... , the context of the Compromise, including the fact that it was settling disputes, the subject of an arbitration, which was applying Jewish law, could make Jewish law material. [The Court says] ‘could’ only because apart from two matters -- the interpretation of Clause 4 and the question whether the executor brothers were taking on personal responsibility -- no question of interpretation has been identified as arising and even in those areas there has not been any evidence or pleading suggesting that Jewish law would dictate any different interpretation than English law.”
“This solution under which matters of interpretation can be assisted by rules or a law different from the applicable law of the contract, but matters affecting the contract as a whole must be dealt with by the applicable law is, as it seems to me, consistent with the Convention. ... If the applicable law of the contract is A but law B is expressed to cover some aspect of the contract, there has to be only one law which can cover matters such as mistake, repudiation of the whole contract etc and that must be the applicable law of the contract as a whole. The different law can only apply to that part of the contract. ...” [¶¶ 34-35]
“Thus, if parties wish some form of rules or law not of a country to apply to their contract, then it is open to them to so agree, provided that there is an arbitration clause. The court will give effect to the parties’ agreement in that way.” [¶ 38].
“In that respect, [Appellant] seeks to rely upon the passage in Dicey & Morris at paragraph 32- 086, which expounds the distinction between reference to a foreign law as a choice of law to govern the contract (or part of a contract) on the one hand and incorporation of some provisions of a foreign law as a term or terms of the contract in question. While observing that it is sometimes difficult to draw the distinction in practice, it is there stated that: ‘... it is open to the parties to an English contract to agree, e.g., that the liability of an agent to his principal shall be determined in accordance with the relevant articles of the French Civil Code.”
“In such a case, the foreign law becomes a source of law upon which the governing law may draw. The effect is not to make French law the governing law of the contract but rather to incorporate the French articles as contractual terms into an English contract. This is a convenient ‘shorthand’ alternative to setting out the French articles verbatim. The court will then have to construe the English contract, ‘reading into it as if they were written into it the words’ of the French statute. 32-087.”
“It often happens that statutes governing the liability of a sea carrier, such as the former Harter Act in the United States, or statutes implementing the Hague Rules ... are thus ‘incorporated’ in a contract governed by a law other than that of which the statute forms part. The statute then operates not as a statute but as a set of contractual terms agreed upon between the parties. The parties may make an express choice of one law (e.g. English law) and then incorporate the terms of a foreign statute. In such a case the incorporation of the foreign statute would only have effect as a matter of contract.”
“[The Court] cannot ...see why, in a context such as exists in this case, compromising disputes between Orthodox Jews under Jewish law, where it seems to be common ground [that] there is a distinct body of law, Jewish law may not be relied on as part of the contractual framework.” [¶ 50].
Citation: Halpern v. Halpern, 2007 WL 919472. [2007] E. W. C. A. Civ. 291 (Ct. App. (Civ. Div.) April 3, 1007).
