LLOYD’S LAW REPORTS
PART 6
R.O.L. v.
G.O.I.
from the respondents, as flowing from the
negligent assurance given by them on Oct. 4.
But, in truth, the only possible relevance of a
suggestion that the appellants should or would
have repudiated the charter is that this might
have been a step which they should have taken
in order to mitigate the damage suffered by them
in entering into a fixture as a result of the
respondents’ negligent assurances on Oct. 4; and
a suggestion that the wrongful repudiation of
the charter would be a reasonable step to take in
mitigation of damage is, in my judgment, quite
unarguable.
For these reasons, in agreement with Lord
Justice Ackner, I too would allow the appeal.
Sir DAVID CAIRNS: I agree that for the
reasons given in both judgments, this appeal
should be allowed.
Appeal allo wed with costs. Applic ition for leave
to appeal to the House of Lords refused.}
539
[1985] Von. 1
COURT OF APPEAL
Jan. 14, 15 and 16, 1985
THE REPUBLIC OF LIBERIA AND
ANOTHER
GULF OCEANIC INC. AND OTHERS
Before Lord JUstice OLiVER and
Lord Justice NEiLL
Practice — Counterclaim — Plaintiffs brought
action against defendants — Defendants
coiinterclaimed
— Whether counterclaim an abuse of process of
the Court — Whether counterclaim should be
tried separately — Whether application to strike
out counterclaim should be granted.
In March, 1979, the second plaintiffs
(L.P.R.C.) entered into a contract with a third
party for the purchase of a large quantity of
crude oil to be shipped from the Gulf. L.P.R.C.
was owned and controlled by the first plaintiffs
(R.O.L.).
On Apr. 9, 1979, L.P.R.C. entered into a
contract of affreightment with the first
defendants (G.O.I.) which obliged L.P.R.C. to
provide over a period of three years cargoes of
crude oil to be carried by G.O.I. to a certain
minimum amount. The contract was to be
governed and construed in accordance with the
laws of England. By an addendum made in July,
1979, there were introduced the terms and
provisions of the Exxonvoy 1969 form of charter
which included an arbitration clause. That
arbitration clause provided for all disputes
arising out of the contract to be submitted to
arbitration in London.
Disputes arose under the contract as a result of
the alleged failure of L.P.R.C. to supply cargo of
the requisite quantity and the substantial
question between the parties was the quantum of
damages.
G.O.I. had grave doubts about whether
L.P.R.C. had any funds from which an
arbitration award could be satisfied if issued
against L.P.R.C. and since L.P.R.C. was
financially dependent on R.O.L., G.O.I. invoked
the arbitration clause against R.O.L. on the basis
that R.O.L. was party to the contract as
undisclosed principal. G.O.I. nominated the third
defendant their arbitrator and in due course
L.P.R.C. appointed the second defendant their
arbitrator. R.O.L. did not nominate any arbitrator
by the expiry of the time limited by the clause
and G.O.I. then proceeded to nominate
L.P.R.C.’s arbitrator as second arbitrator on
behalf of R.O.L. and claimed to proceed with the
arbitration.
On Nov. 17, 1983, R.O.L. and L.P.R.C. issued
a writ claiming against G.O.I. a declaration
that
L.P.R.C. and G.O.I, were the only parties to the
contract, a declaration that the appointment of
the arbitrator in the arbitration between G.O.I.
and
‹< LLOYD’S LAW REPORTS
[1985] Von. I) R.O.L. .G.OI
R.O.L. was null and void, and an injunction
restraining all the defendar.ts from taking any
further step in the arbitration.
On Jan, 31, G.O.I. served their counterclaim in
which they claimed a declaration that R.O.L.
were parties to the contract of affreightment;
they claimed against R.O.L. for damages for
breach of contract; in the alternative they
claimed damages against L.P.R.C.; finally they
claimed damages against R.O.L. in tort on the
basis that R.O.L. had wrongly procured the
breach by L.P.R.C. of its contract with G.O.I.
On Feb. 10, 1984, the plaintiffs applied for an
order striking out the defendants’ counterclaim
except insofar as it claimed a declaration that the
plaintiffs were party to the contract, on the
grounds of sovereign immunity, and pursuant to
R.S.C., 0. 15, r. 5 on the ground that the
counterclaim ought to be brought by separate
action, or was otherwise an abuse of the process
of the Court.
Held, by LLovD, J., that the plaintiffs’
application would be dismissed.
The plaintiffs appealed.
Held, by C.A. (OLIVER and NEILL, L.JJ.),
that (1) the submission of the plaintiffs that as a
matter of principle the counterclaim so far as it
related to damages for breach of contract ought
to be disposed of by a separate action (i.e., by
the arbitration) would be rejected; "action" was
defined in s. 151 of the Supreme Court Act,
1981 as “any civil proceeding commenced by
writ or in any other manner prescribed by the
rules of the Court”; an arbitration was not such a
proceeding and a party who denied the
arbitration contract could not at the same time
rely upon the submission to arbitration as
entitling him to a stay (see p. 543, col. 2; p. 547,
cols. 1 and 2);
(2) this was a perfectly ordinary action for a
declaration commenced in reliance on the
Court’s general jurisdiction to make declarations
and the mere fact that its purpose was to
ascertain whether or not an arbitration clause
was binding did not put it into some special
category of proceeding in which a counterclaim
was not to be made within the ordinary
principles applicable under O. 15 {see
p. 544, cols. 1 and 2);
(3) a person who brought an action in England
rendered himself liable to be served with a
counterclaim even though such counterclaim
could not have been made against him if he had
not himself invoked the jurisdiction of the
English Court; and there were no grounds for
saying that the learned Judge had exercised his
discretion on wrong principles {see p. 544, col.
2; p. 547, col. 2; p. 548, col. 1);
(4) the submission by the plaintiffs that as the
defendants had chosen to seek arbitration in the
first place they ought not now to be allowed to
proceed with a counterclaim inconsistent with
arbitration would be rejected; here the
defendants were perfectly willing to have the
question of quantum dealt with by arbitration; as
to the claim in tort this was not a matter which
cou°l*d*h*ave been
fC.A.
[OLIVER, .J.
dealt with by the arbitrators otherwise than by
agreement and even if the claim in tort was an
afterthought, the Court was not persuaded that
G.O.I. had taken any earlier step which
disentitled them from putting forward such a
claim (see p. 545, cols. 1 and 2; p. 548, cols. 1
and 2);
(5) in the circumstances the appeal would be
dismissed (see p. 545, col. 2; p. 548, col. 2).
The following cases were referred to in the
judgments:
Derby & Co. v. Larsson, (H.L.) [1976] 1 W.L.R.
202;
Eschger Ghesquirer v. Morrison, Kekewich &
Co., (C.A.) (1890) 6 T.L.R. 145;
Factories Insurance Co. v. Anglo-Scottish
General Commercial Insurance Co., (1913)
29 T.L.R. 312;
Gogoll v. General Accident Fire & Life
Assurance Corporation Ltd., (1940) V.L.R.
455;
Hadmor Productions Ltd. v. Hamilton, (H.L.)
[1953] 1 A.C. 191 ;
South African Republic v. La Compagnie
Franco-Belge du Chemin de Fir du Nord,
[1897] 2 Ch. 487;
Toller v. Law Accident Insurance Society, (1936)
55 L1.L.Rep. 258 ;
Willcock v. Pickfords Removals Ltd., [1979] 1
Lloyd’s Rep. 245.
This was an appeal by the plaintiffs the
Republic of Liberia and their wholly owned
corporation L.R.P.C. from the judgment of Mr.
Justice Lloyd dismissing their application for an
order striking out the counterclaim of the first
defendants Gulf Oceanic Inc. on the ground that
it was an abuse of the process of the Court.
Mr. Jonathan Mance, Q.C. and Mr. Stephen
Tomlinson (instructed by Messrs. Sinclair Roche
& Temperley) for the plaintiffs; Mr. Steven Gee
and Mrs. Rosalyn Higgins (instructed by Messrs.
Middleton Lewis Lawrence Graham) for the
defendants.
The further facts are stated in the judgment of
Lord Justice Oliver.
Judgment was reserved.
Thursday, Feb. 7, 1985
JUDGMENT
Lord Justice OLIVER: This is an appeal, with
the le" ave""o‘f" the Judg"e"," fr"o"m"‘ an
order made by
 C.A.]
OLIVER, L.J.] R.O.L. v. G.O.I.
Mr. Justice Lloyd in Chambers on Mar. 29,
1984, dismissing the plaintiffs’ summons for
an order striking out the first defendants’
counterclaim, except insofar as it claimed a
declaration that the plaintiffs were a party to a
certain contract.
The relevant facts can be quite shortly stated,
and it is unnecessary to refer to the evidence
filed on behalf of both parties going to the
merits of the dispute between them.
The first plaintiff is the Republic of Liberia
(referred to throughout as “R.O.L.”), and
the second (“L.P.R.C.”) a Liberian-registered
corporation owned and controlled by R.O.L. In
March, 1979, L.P.R.C. entered into a contract
with a third party for the purchase of a large
quantity of crude oil to be shipped from the
Gulf, and shortly thereafter, on Apr. 9, 1979, it
entered into a contract of affreightment with the
first defendant (“G.O.I.”) which is also a
Liberian-registered corporation. That contract,
which was varied by a number of addenda
between 1979 and 1982, obliged L.P.R.C. to
provide, over a period of three years, cargoes of
crude oil to be carried by G.O.I. to a certain
minimum amount. The terms of the contract do
not matter for present purposes, save that it was
to be governed and construed in accordance
with the laws of England, and that by an
addendum made in July, 1979, there were
introduced the terms and provisions of the
Exxonvoy 1969 form of tanker charter-party
and, in particular, the terms of the arbitration
clause contained in that form.
That, as incorporated in this contract,
provided for “all differences and disputes of
whatsoever nature” arising out of the contract
to be submitted to arbitration in London, one
arbitrator to be nominated by each side.
Arbitration is, under this provision, to be
initiated by one party serving on the other a
notice specifying the chosen arbitrator, and
identifying the matter upon which arbitration
is sought, and it is provided that if the party so
served does not within 21 days serve on the
party calling for arbitration a notice nominating
its own arbitrator, the latter party has the right to
appoint a second arbitrator with the same effect
as if such arbitrator had been appointed by the
other party.
Disputes arose under the contract as a result
of the alleged failure of L.P.R.C. to supply
cargoes of the requisite quantity, and although
the question whether L.P.R.C. were in breach of
contract is, I think, still formally in issue, the
substantial question between the parties is the
quantum of damage, G.O.I. claiming that
damages are to be assessed at the demurrage
rates specified in the contract, and the plaintiffs’
541
[1985] Von. 1
claiming that the appropriate assessment is on
the basis of market rates. The sums involved,
even if the dispute is confined to this one
point of the different bases of assessment, is
very substantial, running into something over
$5,000,000.
The circumstances which gave rise to the
present action were these. G.O.I. evidently
entertained — and they may or may not be right
in this — grave doubts about whether, assuming
an arbitration award were to be made in their
favour, L.P.R.C. had any funds from which
such an award could be satisfied, having regard
to the fact that it was finaneially dependent upon
R.O.L. The contract is, as mentioned already, a
contract to which, on its face, only G.O.I. and
L.P.R.C. are parties, but G.O.I. have claimed
that in fact L.P.R.C. were acting as agents for an
undisclosed principal, R.O.L. They proceeded
to invoke the arbitration clause against R.O.L.
on the footing that R.O.L. was party to the
contract, and they did so by serving on R.O.L.
a notice of the appointment of the third
defendant, Mr. Baker-Harber, as arbitrator. The
response was the nomination by L.P.R.C. of the
second defendant, Mr. Harris, as the arbitrator
nominated by them — they, of course, not being
parties to the arbitration.
R.O.L. not having itself nominated any
arbitrator by the expiry of the time limited by
the clause, G.O.I. then proceeded to nominate
Mr. Harris as the second arbitrator on behalf of
R.O.L., and claimed to proceed with the
arbitration on that basis.
It is common ground that the question of
whether or not R.O.L. was a party to the
contract and thus bound by the arbitration
clause is not a matter which can be the subject
of arbitration under the clause, so that R.O.L.
was left with a limited number of options. They
could ignore the arbitration altogether and rely
upon successfully resisting the enforcement of
any award made on the ground that it was, quite
simply, a nullity. That requires both confidence
and courage because if they turned out to be
wrong in their contention, their case on the
merits would have gone by default.
An alternative course might be to proceed
with the arbitration without prejudice to their
contention that they were not parties to the
contract, but that could hardly be satisfactory
because, all other considerations apart, they
would be incurring substantial irrecoverable
costs on a void arbitration if their contention
ultimately turned out to be correct.
In the further alternative, they could await the
award and then apply to the Court for a
declaration that it was a nullity before G.O.I.
sought to enforce it. Or they could — and this is
 542
[1985] Von. 1] R.O.L uG.Ol
what they in fact did — apply to the Court
here and now for a declaration that they were
not parties to the contract.
On Nov. 17, 1983, R.O.L. and L.P.R.C.
together issued a writ naming G.O.I., Mr.
Harris and Mr. Baker-Harber as defendants,
and claiming against them a declaration that
L.P.R.C. and G.O.I. were the only parties to
the contract, a declaration that the
appointment of Mr. Harris as arbitrator in an
arbitration between G.O.I. and R.O.L. was
null and void, and an injunction to restrain all
the defendants from taking any further step in
the arbitration.
The writ, although not specially indorsed,
seems to have been treated as points of claim,
and on Jan. 31, 1984, G.O.I. served points of
defence and counterclaim. Nothing turns on
the defence, but the counterclaim did four
things. First, it adopted the defence and
claimed a declaration that R.O.L. were party
to the contract of affreightment, and no
question arises as to that. Secondly it went on
to plead a claim against R.O.L. for damages
for breach of contract (i.e. the claim which
they had sought to have dealt with by
arbitration). Thirdly, and in the event of its
being determined, contrary to their
contention, that L.P.R.C. were the principals
to the contract of affreightment, they pleaded
the same case in damages against L.P.R.C.
Finally — and this is the point of real
importance — they pleaded in that event a
claim for damages against R.O.L. in tort, on
the footing that R.O.L. had wrongfully
procured the breach by L.P.R.C. of its
contract with G.O.I.
On Feb. 10, 1984, the plaintiffs issued a
summons, expressed to be without prejudice
to their right if the matter were determined
against them, to apply for a stay under s. 1 of
the Arbitration Act, 1975, by which they
claimed that the counterclaim, except so far as
it claimed a declaration that R.O.L. were
parties to the contract, should be struck out on
the grounds, first of all, of sovereign
immunity, and secondly, pursuant to R.S.C.,
0. 15, r. 5, of the inherent jurisdiction, on the
grounds that the counterclaim ought to be
brought by separate action, or was otherwise
an abuse of the process of the Court.
They also claimed, without prejudice to
their contention that they were not party to the
contract, (a) that the action be stayed pursuant
to s. 1 of the Arbitration Act, 1975, and (b) an
order adjourning consideration of that applica-
tion until after determination of the questions
of sovereign immunity, of whether R.O.L.
was party to the contract, and of whether
G.O.I. was entitled to proceed with its
counterclaim. There
[C.A.
[OLIVER, .J.
were similar applications by L.P.R.C. for a
stay, and for striking out the counterclaim
against them.
The order in fact made by the learned Judge
on that summons was a simple order
dismissing the summons, but it is common
ground that that does not fully implement his
intentions. In fact the plaintiffs did not pursue
the question of sovereign immunity on the
hearing of the summons, and the learned
Judge took the view that he ought not to
decide that point at this stage. He did not in
fact specifically adjourn it, but it is quite clear
from his judgment that he contemplated that
the matter of sovereign immunity should be
dealt with on some further application in the
proceedings. In so far, therefore, as the order
made dismissing the summons might, on its
face, suggest that that ground had been
unsuccessfully argued by the plaintiffs so as
to raise an issue of estoppel, it is misleading.
Equally, the learned Judge was clear that
there could be no stay under s. 1 of the
Arbitration Act on R.O.L.’s application while
they were still contending that they were not
party to the arbitration agreement, and he
adjourned that part of the application. That
again is not reflected in the terms of his order
as drawn up.
The substantial question with which the
learned Judge had to deal, and upon which he
rejected the plaintiffs’ contentions, was
whether the counterclaim constituted an abuse
which would embarrass or delay the trial, or
related to matters which ought properly to be
pursued in a separate action. He considered
the question simply as a matter of
convenience, and having held that G.O.I. were
prima facie entitled to raise their
counterclaim, he concluded that the
convenient course, the parties having been
unable to come to what the Judge obviously
regarded as the sensible course of having the
issue of the parties to the contract decided by
the Court and submitting both contractual and
tortious claims (if the latter arose) to
arbitration, was for the whole matter to
proceed as one before the Court. Accordingly
he expressed himself as unsatisfied that it was
inconvenient or unjust to allow the
counterclaim to be heard along with the claim,
and refused the plaintiffs the relief which they
claimed. It is against that refusal that the
plaintiffs now appeal.
Mr. Mance, who appears for the plaintiffs,
frankly accepts that the jurisdiction which the
learned Judge was exercising when he
declined to make the order which they sought
is a discretionary one, and that unless he can
demonstrate that, in exercising his discretion,
the learned Judge erred in some way in
principle,

SLIVER, L.J.] R.O.L. v. G.O.I.
or came to an obviously wrong conclusion, he is
faced with grave difficulties in prosecuting the
appeal. He submits, however, that the learned
Judge, in treating the matter simply as a
question of convenience, failed to take into
account four distinct matters of principle, and
that this failure vitiates his decision.
In the first place, he submits that the learned
Judge, although he appreciated that at some
stage there might come a point at which an
application for a stay under s. 1 of the
Arbitration Act, 1975, might have to be made,
failed to take the mandatory terms of that
section into account in considering whether it
was proper for the counterclaim to be pursued at
all. (I interpolate that, in this context, I use the
word “counterclaim” as excluding that part of
the counterclaim which relates solely to the
question of whether or not R.O.L. was party to
the contract.)
Section 1, which applies to any arbitration
agreement which is not a domestic arbitration
agreement as defined (which the agreement in
the instant case is not) entitles a party to such an
agreement who is sued “in respect of any matter
agreed to be referred”, to apply, at any time
after appearance and before taking any other
step in the proceedings, for a stay of
proceedings. Section 1 (1) continues:
. and the court, unless satisfied that the
arbitration agreement is null and void,
inoperative or incapable of being performed
or that there is not in fact any dispute between
the parties with regard to the matter agreed to
be referred, shall make an order staying the
proceedings.
Now although Mr. Mance is compelled to
agree that R.O.L. are not in a position at the
moment to make an application for a stay under
this section, since, if their contention is correct,
they are not parties to an arbitration agreement,
nevertheless if they are wrong, they would be in
a position to make such an application and
would wish to do so. It is therefore, he submits,
wrong in principle that the Court should assume
jurisdiction over a matter which is plainly
subject to the arbitration agreement and in
respect of which, were it not for the initial point
taken by R.O.L. in the action, the Court would
have no option but to grant a stay if R.O.L.
applied for one.
Order 15, r. 2, entitles, it is true, a party who
is sued to counterclaim, but that entitlement is
expressly made subject to r. 5 (2) which
provides that:
If it appears on the application of any party
against whom a counterclaim is made that the
subject-matter of the counterclaim ought for
543
[1985] Von. 1
any reason to be disposed of by a separate
action, the Court may order the counterclaim
to be struck out or may order it to be tried
separately or may make such other order as
may be expedient.
Having regard to the statutory provision
referred to, Mr. Mance submits that it is clear as
a matter of principle that the counterclaim, so
far as it relates to damages for breach of
contract, ought to be disposed of by a separate
action (i.e. by the arbitration) and that the
learned Judge, in not giving effect to this, erred
in principle.
For my part I find myself unpersuaded by this
submission, and for a number of reasons. In the
first place, I question whether an arbitration can
appropriately be classified as a “separate
action” within the rules. “Action” is defined in
s. 151 of the Supreme Court Act, 1981, as—
. any civil proceedings commenced by
Writ or in any other manner prescribed by the
rules of Court ...
and an arbitration is not such a proceeding. It
cannot, I think, be a ground for striking out or
staying a counterclaim relating to matters falling
within the ambit of an arbitration agreement but
in respect of which no stay can be granted under
the Arbitration Act, that the Court thinks that
in the future it may be more appropriate for
those matters to be dealt with by arbitration.
But this aside, the point can, in any event,
relate only to the contractual counterclaim, and
as Mr. Gee has pointed out, his clients’ attitude
has all along been that, subject to the point
regarding the parties to the contract being
decided, they are willing to have any questions
of quantum (the only questions likely to be
seriously in dispute) submitted to arbitration.
Furthermore, Mr. Gee has drawn our attention
to a number of authorities — Toller v. Law
.Accident Insurance Society Ltd., (1936) 55
L1.L.Rep. 258, Gogoll v. General AcciJeiit,
(1940) V.L.R. 455, and Willcock v. Pick./ords
Renio teals Ltd., [1979] 1 Lloyd’s Rep. 245
which establish the proposition that a party who
denies the arbitration contract cannot, in the
same breath, rely upon the submission to
arbitration as entitling him to a stay. There
being thus no immediate impediment to the
Court’s hearing the contractual claim, there can
be no reason in principle why that claim should
be flealt with in separate proceedings. Even
assuming that an arbitration qualifies as a
separate “action”, the hip•hest it could be put is
that the possibility of an applicatio n for a stay
being made is a factor which might be taken into
account in exercising a discretion under the rule.
That is a matter which comes broadly under the
heading of con •enience, and Mr. Mance has
 LLOYD’S LAW REPORTS
[1985] VOL. 1] R.O.L. v.
G.O.I.
been compelled to recognize the difficulties
under which he labours in attacking the
learned Judge’s judgment in the absence of an
error in principle.
The second error of principle which Mr.
Mance submits vitiates the learned Judge’s
conclusion is put in this way. The High Court
has, he submits, in inherent supervisory
jurisdiction over arbitrations — exemplified, for
instance, by its jurisdiction to make
declarations as to an arbitrator’s entitlement
to hear a dispute (see Halsbury’s Laws, 4th
ed. vol. II, par. 519). One aspect of such
jurisdiction is the entitlement of the Court to
declare whether a person is or is not a party to
the agreement to arbitrate, and where such a
question is submitted to the Court for
decision, to allow a counterclaim to be raised
relating to matters outside the ambit of that
question would, as Mr. Mance puts it,
“subvert the High Court’s
supervisoryjurisdiction”.
I confess that I have found this point a
difficult one to follow. The High Court has, of
course, a general jurisdiction to entertain
actions for declarations regarding matters
which are in dispute between parties. It can
declare that a party is or is not bound by a
particular contract. It can declare what the
meaning of a contract is or determine, by
declaration, whether a particular arrangement
is or is not a binding contract. I am bound to
say that I know of no ground upon which the
question raised by the plaintiffs in this case,
namely whether they are or are not parties to
a particular contract, can be elevated to the
status of some special form of proceeding,
with special rules which cannot be
“subverted”, merely because the object of the
exercise is to determine whether the plaintiff
is bound by a contractual term of a particular
type, viz. an arbitration clause. It seems to me
to be a perfectly ordinary action for a
declaration commenced in reliance on the
Court’s general jurisdiction to make
declarations, and the mere fact that its purpose
is to ascertain whether or not an arbitration
clause is binding does not, in my judgment,
put it into some special sacrosanct category
of proceeding in which a counterclaim is not
to be permitted to be made within the ordinary
principles applicable under 0. 15.
I confess to some sympathy with the
plaintiffs, who have sought to commence
proceedings for a strictly limited purpose and
now find themselves presented with a very
much wider claim which could not otherwise
have been ventilated at aJl. But the fact is that
they have made a claim, and under 0. 15 the
defendants have a right to make a
counterclaim, subject only to the provisions of
r. 5 (2) and to the Court’s power to restrain
proceedings which are demurrable, abusive,
vexatious or will embarrass the fair trial of the
[C.A.
[OLIVER, L.J.
action. Once again, it seems to me, one comes
back to the Judge’s discretion. He concluded
that the continued pursuit of the counterclaim
would not embarrass the fair trial of the
action, and the fact that the plaintiffs’ limited
object in starting the proceedings in the first
place was not treated by him as conclusive of
the question whether the counterclaim would
embarrass the trial or was an abuse discloses,
in my judgment, no error in principle entitling
this Court to interfere.
Mr. Mance’s third point is that to permit
the counterclaim to stand infringes the
principles upon which the English Court
exercises jurisdiction over foreigners. Tf G.O.I.,
instead of counterclaiming, had attempted to
assert their claims by original action, they
would not, he submits, have obtained leave to
serve the proceedings out of the jurisdiction.
So far as the contractual claim is concerned,
the case falls within R.S.C., 0. 11, r. I (f) (iii),
but the Court would be unlikely to grant leave
having regard to the agreement that disputes
should be submitted to arbitration. So far as
the claim in tort is concerned, the case is
simply not within the rule, the tort (if any)
having been committed abroad.
Thus, Mr. Mance asks forensically, why
should the defendants be allowed to pursue,
by counterclaim, claims which they could
never have pursued by direct action? The
answer given by Mr. Gee — and it is one
which appears to me to be incontrovertible —
is that by becoming a litigant within the
jurisdiction, a plaintiff submits himself to the
incidents of such litigation, including liability
to a counterclaim.
The right of a person sued here to
counterclaim against his opponent is one
which is quite independent of 0. 11, and Mr.
Gee relies on Lord Russell’s statement in
Derby & Co. v. Larsson, [1976] 1 W.L.R. 202
at 205:
If a person chooses to commence
proceed- ings in this jurisdiction he lays
himself open to the possibility of a
counterclaim by the defendant as well as to
a defence. The rules of court permit it
subject to compliance with time
requirements.
We were referred by Mr. Mance to a
number of cases — South African Republic v. La
Com- pagnie Franco-Belge du Chemin de Fer du
Nord, [1897] 2 Ch. 487; Factories Insurance
Co. v.
Anglo-Scottish General Commercial, (1913) 29
T.L.R. 312, and Eschger Ghesquirer v.
Morrison, Kekewich & Co., (1890) 6 T.L.R. 145
— in which claims against foreigners who had
submitted to the jurisdiction as plaintiffs or, in
the last case, as party to an interpleader, was
not allowed. But I do not, for my part, find
these helpful. They merely illustrate the general
principle applicable
C.A.]
LLOYD’S LAW REPORTS
NEILL, L.J.]
R.O.L. v. G.O.I.
under R.S.C., 0. 15, r. 5 (2) that the Court will
not permit the assertion by counterclaim of a
claim which ought properly to be dealt with
by separate action. Two of the cases were
concerned with wholly independent claims
for libel, which quite obviously were not
appropri- ately raised by counterclaim, and
the third related to the rather special case of
an interpleader issue.
One comes back once again, as it seems to
me, to the simple question of whether the
Judge was wrong not to strike out the
counterclaim under
0. 15, r. 5 (2). The mere fact that the
substance of the counterclaim could not have
been pursued by direct action because of an
inability to effect service is not in my
judgment a ground of principle compelling
the Court to conclude that the matter ought to
be dealt with in separate proceedings.
The plaintiffs’ submission to the
jurisdiction gets over the difficulty of service,
and the question is then, as it seems to me,
exactly the same as it would be in an action
between parties resident here.
Mr. Mance’s final submission is based
upon what he described as the “principle of
consistency” which, he submitted, the Judge
wrongly failed to observe. On analysis this
turned out to be simply a submission that the
defendants, having chosen to seek arbitration
in the first place, ought not now to be allowed
to proceed with a counterclaim inconsistent
with arbitration.
There seem to me to be two very short
answers to this. The first is that, as already
stated, the defendants are perfectly willing to
have the question of quantum dealt with by
arbitration, if that is what the plaintiffs
desire. The second is that, even if the
contractual counterclaim is inconsistent with
the continuance of the arbitration, that cannot
apply to the alternative claim in tort, and it is
that alternative claim which really lies at the
root of this case. It is said that that claim
was never mentioned before service of the
counterclaim, and that it is an afterthought.
That may be so, but there is nothing to
suggest that, on the hypothesis that there is (as
the plaintiffs’ aver) no contractual relationship
between R.O.L. and G.O.I., the claim in tort is
incapable of being sustained in law, or
otherwise constitutes an abuse. The sole
question is whether it ought to be dealt with
by separate action. It is evident that there is a
great deal of common ground in the evidential
material which is going to be required in
relation to R.O.L.’s claim, the contractual
counterclaim and the tortious counterclaim.
There are manifest disadvantages to the
defendants in having them
545
[1985] Von. 1
dealt with separately. Equally, it would, no
doubt, be of advantage to the plaintiffs to
have them dealt with separately. The learned
Judge had to make a balance. He did so, and I
can detect no error in principle in his
approach. The matter was one for his
discretion and I can, for my part, see no
ground upon which this Court can properly
interfere with his conclusion.
In my judgment, therefore, this appeal
ought to be dismissed.
There is one final matter which ought to be
mentioned. As I have said, the learned Judge,
without specifically adjourning the question,
allowed the plaintiffs to reserve their position
as regards sovereign immunity. In their cross-
notice, the defendants have sought to pray that
in aid as an additional reason for the learned
Judge’s conclusion, although they have not
cross-appealed against his permitting the
question to be reserved. I accept that it might
perhaps have been difficult for them to do so,
since that was not reflected in the order
actually made. When one analyses the
position, however, the question of sovereign
immunity is, as it were, a parallel point. It
cannot be said to be an additional reason for
the Judge to have decided not to strike out the
counterclaim. What Mrs. Higgins suggested
to us was that it was a point which ought to be
decided at this stage, and she urged us to
decide it.
There are, in fact, two quite separate
questions, namely, whether there could in any
event bG any immunity having regard to the
nature of the claim and counterclaim, and the
provisions of s. 2 (6) of the State Immunity
Act, 1978, (a question which could be
determined on the evidence as it stands) and
whether, assuming that immunity is not
destroyed by s. 2 (6), it is nevertheless lost by
virtue of the provisions of
s. 3 (1) (a) (a question upon which further
evidence may be necessary).
On one view of the matter, a decision at this
stage could be conclusive of the question. On
the other hand, to proceed to hear the matter
now when the evidence required for any
argument as regards the application of s. 3 is
incomplete could prove a waste of both the
Court’s and Counsels’ time. Accordingly,
after considera- tion, and despite Mrs. Higgins’
able submissions, we declined to hear further
argument on the question. Obviously, however,
it is of importance that the question should be
determined at as early a stage as possible in
the proceedings. If the plaintiffs’ point is a
good one, there may be questions of waiver if
they continue with the point undecided.
Equally, from the defendants’ point of view, it
would be a dreadful waste of time and energy
to proceed with preparations for a trial which
might prove abortive because of
546
LLOYD’S LAW REPORTS
[1985] VOL. l)
R.O.L.r.G.O.I.
a jurisdictional point. The matter is, however,
one for the Commercial Court to decide, and I
do not think that there is more that this Court
can do at this stage than to say that the
question ought to be raised and decided at the
earliest moment, and to suggest that one or
other party should apply to the Court for the
determination of the point as a preliminary
issue, even if in the event evidential
considerations compel such an issue to be
confined solely to that which arises under s. 2
(6).
Lord Justice NEILL: I agree. The facts
giving rise to the application before Mr.
Justice Lloyd (as he then was) are set out in
the judgment of my Lord. I need not repeat
them. I shall attempt, however, to state in my
own words the reasons which have led me to
the conclusion that this appeal should be
dismissed.
The main submission advanced by Mr.
Jonathan Mance, Q.C., on behalf of the
appellants was to the effect that, whereas they
had invoked the assistance of the High Court
in England for the limited purpose of
resolving the question whether the only
parties to the relevant contract of
affreightment (as amended) and the
arbitration agreement contained therein were
Gulf Oceanic Inc. (G.O.I.) and Liberian
Petroleum Refining Co. (L.P.R.C.) G.O.I.
had attempted to widen the scope of the
action to an impermissible extent and had
served a counter- claim which contained a
great deal of material which should be struck
out. In its amended form the relevant part of
the summons issued by the appellants asked
for the following relief:
an order pursuant to RSC Order 15
Rule 5 and/or RSC Order 18 Rule 19 or the
inherent jurisdiction of the Court striking
out (GOI’s) counterclaim against (ROL)
save in so far as the same claims a
declaration that (ROL) was a principal
to the contract of affreightment on the
grounds that (GOI’s) counterclaim ought to
be brought by separate action and/or is an
abuse of the process of the Court.
In support of his submission that much of
the counterclaim should be struck out, Mr.
Mance argued that the inclusion of this
material in the circumstances of the instant
case offended against four legal principles. I
shall have to examine these principles and
their application in this case a little later.
First, however, I propose to say something
about the ambit of the present appeal.
At one time in the course of the hearing it
appeared as though Mr. Mance was
attempting to argue that as the appellants had
come before the Court seeking limited forms
of relief, they had some right, as a matter of
law, to restrict the
(C.A.
EILL, L.J.
scope of the counterclaim to forms of relief
which were in effect the obverse of those
sought by the appellants.
As the argument developed, however, it
became clear that the real question in issue
was whether or not parts of the counterclaim
should be struck out under R.S.C., 0. 15, r. 5
(2), being a paragraph of r. 5 which
reproduces in an amended form the earlier
R.S.C., 0. 21, r. 15.
Attention was therefore focussed on this
aspect of the case, though reliance was also
placed on R.S.C., 0. 18, r. 19 and on the
inherent jurisdiction of the Court to strike out
claims or counterclaims which constitute an
abuse of the process of the Court. It will
therefore be apparent that the present appeal
is concerned with the exercise by Mr. Justice
Lloyd of a discretion vested in the Judge of
first instance by Rules of Court and as part of
the inherent jurisdiction of the Court.
The action by the plaintiffs was
commenced by writ on Nov. 17, 1983. The
endorsement, which was in a general form,
was apparently treated as the points of claim.
By these pleadings the plaintiffs claimed
declarations and an injunction against the
three defendants, including G.O.I. Prima facie
therefore G.O.I. were entitled to take
advantage of the general right to make a
counterclaim provided by R.S.C., 0. 15, r. 2
(1).
But O. 15, r. 2 (1) is, by its opening words,
to be read subject to 0. 15, r. 5 (2). Rule 5 (2)
provides as follows:
If it appears on the application of any
party against whom a counterclaim is made
that the subject-matter of the counterclaim
ought for any reason to be disposed of by a
separate action, the Court may order the
counterclaim to be struck out or may order
it to be tried separately or make such other
order as may be expedient.
The matters for our consideration therefore
include both the proper application of R.S.C.,
O. 15, r. 5 (2) to the facts of the present case,
and the question whether there are grounds
for concluding that the Judge exercised his
discretion in dismissing the application by
G.O.I. on some wrong principle so as to
entitle this Court, if so minded, to exercise a
fresh discretion of its own in accordance with
the principles recently reaffirmed by the
House of Lords in Hadmor Productions v.
Hamilton, [1983] 1 A.C. 191.
The essence of the case for G.O.I. as
developed by Mr. Mance was that the Judge
had exercised his discretion mistakenly and
on a wrong basis by failing to take account of
the fact
 .L. LO.. .YD...’S. . L.A... W. R.E. P.O. RTS ..
R.O.L. .G.OI
that the inclusion of much of the material in
the counterclaim offended against all or some
of four important legal principles. I shall
consider Mr. Mance’s arguments in respect of
these four principles in turn.
Mr. Mance’s first argument was that the
inclusion in the counterclaim of the claims in
contract against R.O.L. and L.P.R.C. was
contrary to the principle underlying s. 1 of the
Arbitration Act, 1975. Thus that section
provides in general terms that where there is
an arbitration agreement between foreign
corporations and one of those parties brings
an action in the English Courts despite the
agreement, and the other party makes a
timeous application for a stay, the Court is
obliged to grant the application.
In the present case, said Mr. Mance, though
an immediate stay could not be sought
because of the dispute as to the correct party
to the contract of affreightment (C.O.A.), the
matter should be approached on the basis that
whichever of the plaintiffs was found to be a
party to the C.O.A. would then be entitled to
apply for a stay under s. 1 in respect of the
claim in contract. Moreover, the other party
would be absolved from any possible liability
in contract as not being a party at all.
Accordingly, it was submitted, this part of the
counterclaim would not be tried in an English
Court and should therefore be struck out at
this stage.
For my part, however, though I see the
force of the submission that the Court should
not assume a jurisdiction which in the end it is
unlikely to exercise, I am not persuaded that
the Judge was wrong not to strike out this part
of the counterclaim on this ground. In the first
place there are a number of authorities for the
proposition that a party who denies that he is
bound by an arbitration agreement cannot at
the same time, and while that matter is
unresolved, rely on the existence of the
agreement as a basis for the ouster of the
jurisdiction of the Court. Furthermore, in the
present case the defendants have made it clear
that they are willing to have all questions as to
the quantum of damages (which is likely to be
the only live issue in contract) submitted to
arbitration in any event.
Mr. Mance’s second argument was that the
inclusion of the counterclaim for, more
accurately, the relevant parts) offended
against the principle that the Courts should be
freely available to assist parties to an
arbitration agreement to obtain declarations
and other appropriate relief which could not
be granted by the arbitrators themselves.
Thus it was important, said Mr. Mance, that
where there was an arbitration agreement
which was subject to English law, the parties
and other
....
persons who might be affected by the
agreement should be able to obtain
declarations as to, for example, the proper
parties to the agreement without exposing
themselves to the risk of a counterclaim which
covered matters outside the ambit of the
claim.
I am unable to accept so wide a proposition.
There may well be cases where, as 0. 15, r. 5
(2) contemplates, the matters in the
counterclaim “ought to be disposed of by a
separate action”, but I know of no general
principle which entitles a party to invoke the
assistance of the Court but at the same time to
seek to confine the Court’s jurisdiction to the
single question which he himself wishes to
have decided.
In my judgment the fact that the Court’s
opinion was sought in the context of an
arbitration agreement does not mean that the
proceedings have some special characteristic
which limits the ambit of the counterclaim.
The ambit of the counterclaim is a matter for
the discretion of the Judge.
In coming to this conclusion I have not
overlooked the fact that in one of the cases
to which Mr. Mance referred us, Eschger,
Ghesquirer & Co. v. Morrison, Kekewich &
Co., (1890) 6 T.L.R. 145, the Court refused to
allow a party to introduce a cross-claim in
inter-pleader proceedings. It seems to me,
however, that inter-pleader proceedings do not
provide a satisfactory parallel to the present
case where, though the action arose in the
context of arbitration proceedings, the claims
were for declarations as to contractual rights.
I turn to Mr. Mance’s third argument,
which was directed to the claim in tort against
R.O.L. Mr. Mance submitted that this part of
the counterclaim was plainly objectionable
because it offended against the principle that
foreign nationals who are resident abroad
should in general only be made amenable to
the jurisdiction of the English Courts if one or
more of the conditions set out in R.S.C., 0. 11,
r. 1 was satisfied.
In the present case, said Mr. Mance, the
claim in tort was an afterthought and clearly
could not have been brought before an
English Court in any proceedings initiated by
G.O.I. The tort, if any, took place abroad.
It seems to me, however, that there is a
simple answer to this submission. A person
who brings an action in England thereby
renders himself liable to be served with a
counterclaim even though such counterclaim
could not have been made against him if he
had not himself invoked the jurisdiction of the
English Court. Lord Russell of Killowen put
the matter succinctly in his speech in Derb y
& Co. v’. Larsson, [1976] I W.I...R. 202 at p.
205 as follows:
 5. 48 ...
f%8lj voi. q R.O.L. v. G.O.I.

If a person chooses to commence

proceedings in this jurisdiction he lays As to the claim in tort, this is not a matter
himself open to the possibility of a which could have been dealt with by the
counterclaim by the defendant as well as to a arbitrators otherwise than by agreement and,
defence. The rules of court permit it subject even if the claim in tort was an afterthought, I
to compliance with time requirements. am not persuaded that G.O.I. have taken any
earlier step which disentitles them from putting
There may of course be cases where, for forward such a claim.
example, a foreign sovereign is involved, where For these reasons, despite Mr. Mance’s
the general rule is subject to a special exception. persuasive arguments, I agree that this appeal
There may also be cases where the nature of the should be dismissed. It may be that on these
counterclaim entitles the plaintiff to argue that facts another Judge might have been disposed to
the counterclaim should be dealt with in exercise his discretion differently, but I can find
separate proceedings. The authorities relied no error of principle or any other ground which
upon by Mr. Mance, however, to show that would justify the intervention of this Court.
counterclaims in tort against foreign plaintiffs
can be struck out proved, on examination, to be On the issue of sovereign immunity, though
actions where the proposed counterclaim was we felt unable to deal with this matter at this
based on an alleged libel: see South African stage ourselves, I would urge the parties to give
Republic v. La Compagnie Franco-Belge du careful consideration to making an application
Chem.in de Fer du Nord, [1897] 2 Ch. 487; to the Commercial Court so that if possible a
Factories Insurance Co. v. The Anglo-Scottish question which might result in the saving of
General Commercial Insurance Co., (1913) 29 costs can be disposed of prior to the main trial.
T.L.R. 312. [Order. Appeal dismissed with costs. Leave to
On the facts of the present ease I am unable to appeal to the House of Lords refused.}
find any grounds for saying that the Judge
exercised his discretion on this part of the case
on any wrong principle.
I come finally to Mr. Mance’s fourth
argument. Mr. Mance submitted that there was
a general principle that the Court should require
a party to litigation to act in a consistent
manner. In the present case, it was suggested,
G.O.I. had instituted arbitration proceedings
against R.O.L. which, in practical terms, had
obliged R.O.L. and L.P.R.C. to seek the
assistance of the Court. G.O.I. had then,
without any warning whatever, adopted an
attitude which was wholly inconsistent with that
adopted earlier by serving a counterclaim which
(a) sought to have the dispute between the
parties resolved by the Court rather than by
arbitration; and (b) sought to introduce a claim
in tort on the inconsistent hypothesis that
R.O.L. had nor been parties to the arbitration
agreement but had induced a breach of the
C.O.A. by L.P.R.C.
The principle of consistency, which could be
described as a form of quasi-estoppel, should be
used to prevent such a change of front. For my
part, however, I am unable to see that any
doctrine of consistency or quasi-estoppel can be
of any assistance to the plaintiffs on the facts of
the present case, at any rate in this Court.
As to the claim in contract, I have already
drawn attention to the fact that G.O.I. have
indicated that they are willing that all questions
of quantum should be dealt with by arbitration.