In this appeal from the Sheriff Principal of Lothian and Borders, the
appellants are Dieter R., a firm which has its place of business in
Münster in Germany. In about September 1995 they contracted with
the defenders, M. Transport, to provide road haulage services between
the United Kingdom and Spain; it appears that they did indeed provide
such services in the period from October 1995 until January 1996. In
April 1997 the pursuers sued the defenders in Jedburgh Sheriff Court for
payment of DM 58,183, a sum which was said to be due as rent for office
and warehouse space leased from the pursuers, apparently in Germany.
In due course the pleadings were amended so that, although the sum
sued for remained exactly the same, the claim was now made on the
basis that it was due to the pursuers as payment for their road haulage
services. That is the version in the pleadings as they stand at present.
The defenders have a counter-claim for certain sums which they say are
due to them in connexion with the haulage services. We should add that
there have been changes in the description of the pursuers in the instance
and that in April 1998 the pursuers lodged a minute of amendment which
would have inserted averments to the effect that Dieter R. are not a firm
but, rather, he is a sole trader.
In response to that minute of amendment the defenders enrolled a
motion craving the court to ordain the pursuers to find caution of £10,000
for expenses within 28 days
"in respect that the expenses of the action will be substantial, the
pursuer resides abroad and there is doubt as to the pursuer's true trading
identity".
At the hearing on 24 April the Sheriff appointed the pursuers
"to lodge with the Sheriff Clerk at Jedburgh the sum of £10,000 as
caution for expenses by 20th May 1998 or to sist a mandatory to the
cause by that date."
The pursuers failed to do either and, on 21 May, the Sheriff found them in
default and dismissed the action.
The pursuers appealed to the Sheriff Principal and argued that the
contract between the parties was governed by the Convention on the
Contract for the International Carriage of Goods by Road which has the
force of law in the United Kingdom by virtue of the Carriage of Goods
by Road Act 1965. Article 31 of the Convention provides that security
for costs is not to be required in proceedings arising out of carriage
under the Convention from nationals of contracting countries resident or
having their place of business in one of those countries. Germany is a
contracting country. The pursuers therefore argued that the Sheriff had
had no power to require the pursuers to find caution - or indeed to sist
a mandatary, since that was in substance a requirement to find security
for the expenses of the action. The initial order having been unlawful, the
interlocutor dismissing the action because of the pursuers' failure to obey
it should be recalled. Although the point was disputed before the Sheriff
Principal, in the hearing before us Mr. Sandison, who appeared for the
defenders, accepted that the Sheriff's order for caution had indeed been
unlawful. He also accepted that, in so far as any requirement to find a
mandatary was made in order, in effect, to introduce another party who
would be liable to pay any expenses, this too would amount in substance
to a requirement to find security for the expenses and would therefore be
caught by Article 31.
Mr. Sandison persuaded the Sheriff Principal, however, that the part of the
Sheriff's order requiring the pursuers to sist a mandatary was justified
on another basis and should not be recalled. In the event the Sheriff
Principal acceded to that argument and recalled only the part of the
Sheriff's interlocutor of 24 April requiring the pursuers to find caution. He
left untouched the other part, requiring the pursuers to sist a mandatary,
and he also left standing the subsequent interlocutor dismissing the action
because of the pursuers' failure to sist the necessary mandatary by the
appointed date. The pursuers appealed to this court on various grounds,
the first and most important of which was that the requirement on the
pursuers to sist a mandatary was incompatible with Article 12 of the
Treaty establishing the European Community.
At this point it is necessary to step back and to look at the pursuers'
place in the wider scheme of things. On the face of their pleadings the
pursuers are a German firm with a place of business in Germany. They
are therefore established in a Member State of the European Community
and one, moreover, which is a signatory of the Brussels Convention of 27
September 1968 on Jurisdiction and the Enforcement of Judgments. Since
the United Kingdom is also a signatory, the effect of that Convention, as
Mr. Sandison acknowledged, is to make the decrees of the Scottish courts
enforceable in Germany. As Mr. Sandison also acknowledged, in providing
the commercial haulage services in question to the defenders, the
pursuers were exercising the freedom, which is theirs under Article 49 and
any measures laid down under Title V of the European Community Treaty,
to provide services within the European Community. It is a corollary of
this freedom that the pursuers must be able, in order to resolve any
disputes arising from these services, to bring actions in the courts of the
United Kingdom, another Member State, in the same way as nationals
of that State. See, for instance, the judgments of the Court of Justice
in Data Delecta and Forsberg v. MSL Dynamics Ltd. [1996] ECR I-4661
at paragraph 13 and in Hayes and Hayes v. Kronenberger [1997] E.C.R.
I-1711 at paragraph 17.
A requirement to sist a mandatary on pain of having the action dismissed
can be made only of a pursuer resident outside Scotland and indeed
outside the United Kingdom. Mr. Mitchell, Q.C., who appeared for the
pursuers, submitted that, since the pursuers had been ordered to sist a
mandatary in circumstances where no such requirement could have been
made of a British firm with its place of business in the United Kingdom,
their right under Article 12 EC to bring their action in the same way as a
national of the United Kingdom had been infringed. The law relating to
the court's power to ordain a pursuer to sist a mandatary was not directly
discriminatory since it was not formulated by reference to nationality as
such. It was, however, indirectly or covertly discriminatory since, although
the requirement could be applied to a British pursuer resident, say, in
Germany, such cases would be rare by comparison with cases where
the pursuer resident in Germany would be German. The mere fact that
the court had a discretion in deciding whether to sist a mandatary did
not matter if the exercise of the discretion resulted in discrimination on
the ground of nationality. Nor was there any objective justification for
the discrimination since the pursuers were a German firm with a place
of business in Germany and so any judgment of the Sheriff could be
enforced against them under the Brussels Convention.
In a well-argued submission Mr. Sandison urged caution. The law relating
to direct discrimination on the ground of nationality was simple: Article
12 made it unlawful. We were dealing, however, with a case of alleged
covert or indirect discrimination. That was a more difficult concept and
one which was developing. At first, the Court of Justice had identified
breaches of Article 12 in cases where deliberate attempts had been made
to disguise discrimination on the grounds of nationality under a neutral
formulation. Had the law stopped there, his task in arguing on behalf of
the defenders would have been easy since Mr. Mitchell had not suggested
that the Sheriff Principal had deliberately imposed the requirement that
the pursuers should sist a mandatary on the ground that they were
German. But Mr. Sandison recognised that the law had moved on and that
a breach of Article 12 could occur even though there was no intention
to discriminate: it could be enough that a measure had the effect of
discriminating on grounds of nationality. Admittedly, the decision of the
Court of Justice in Mund & Fester v. Hatrex International Transport [1994]
E.C.R. I-467 showed that there could be cases of indirect discrimination
arising out of a difference in the procedure applied in cases involving a
party resident in the host State and cases involving a party resident in
another Member State. But all the other judgments of the Court of Justice
cited by Mr. Mitchell had involved direct discrimination and the language
used by the Court of Justice should not be too readily transplanted
into a case involving indirect discrimination. Moreover, the Court of
Justice itself had by no means said that all cases where a difference
in treatment could be identified would amount to discrimination. That
was plain from the decision in Sotgiu v. Deutsche Bundespost [1974]
E.C.R. 153 at paragraph 12 and from the decision - controversial and
difficult to understand though it might be - in Boussac Saint-Frères
S.A. v. Gerstenmeier [1980] E.C.R. 3427 at paragraph 13. Both cases
were important for the recognition which they gave to the possibility of
indirect discrimination on the ground of nationality, but it should not be
overlooked that actually in each of them the Court of Justice had indicated
that there would not be discrimination in the circumstances envisaged in
the references.
Moreover, the court should be particularly cautious in holding that there
was indirect discrimination where, as here, the court below had had a
discretion as to whether to make the requirement of the pursuers. The
Court of Justice had never ruled on such a case. (We interpose to note
that Mr. Mitchell suggested that this submission had amounted to "an
infelicity", because the Advocate General in Hubbard v. Hamburger [1993]
E.C.R. I-3777 mentions the existence of a discretion in the procedure for
requiring security for costs in certain Member States. We are satisfied,
however, that, on the cases cited to us, the submission was in fact quite
correct.) The decision of the Court of Appeal in Fitzgerald v. Williams
[1996] Q.B. 657 was the only authority which held that a discretionary
remedy could give rise to indirect discrimination and it required to be read
subject to the subsequent decision in Chequepoint S.A.R.L. v. McClelland
[1997] Q.B. 51.
In any event, the court had to consider what the Sheriff Principal had
actually done. If his decision to require the pursuers to sist a mandatary
was objectively justified, then there had been no discrimination since it
could not be said that the treatment of the pursuers had been determined
on the grounds of their nationality. It was enough if the treatment of
the pursuers, rather than any difference in their treatment, had been
objectively justified.
Finally, even if a particular element in the treatment of a national of
another Member State were different, that would not matter if, looking
at the matter as a whole, the treatment of the foreign national and the
treatment of the national of the host State could be regarded as being in
substance the same. He referred in particular to the opinion of Advocate
General Darmon in Biehl v. Administration des contributions du grand-
duché de Luxembourg [1990] E.C.R. I-1779 at paragraphs 6 and 7.
At the outset of his submission, Mr. Sandison sought in effect to argue
that sheriffs and other judges were more reluctant to dismiss cases for
procedural failures where the pursuers were resident overseas. Instead,
they resorted to the procedure of requiring a mandatary to be sisted in
circumstances where they might have dismissed the action of a domestic
pursuer - or, at the very least, required such a pursuer to find caution for
expenses. His submission really amounted to saying that, by requiring
a pursuer resident outside the United Kingdom to sist a mandatary, the
courts were being cruel to be kind. At all events, the requirement on
a foreign pursuer to sist a mandatary under pain of dismissal was in
substance the same as, and in any event no worse than, the treatment of
a British pursuer, whose action the court might more readily dismiss.
We are, it has to be said, extremely doubtful whether a rule of practice
as opposed to a rule of law could ever be a basis for saying that the
nationals of another Member State were in no less favourable a position
than nationals of the host State. But we need not decide that point in the
present case. In making his submission Mr. Sandison called upon his own
experience of the attitude of courts to foreign pursuers; he recognised,
however, that different people might have different experiences and
that at the heart of any such submission lay a question of fact as to
the practice of courts in dealing with such pursuers. He also accepted
that there was no evidence on the point. By the end of his submission,
therefore, he was content simply to suggest that, in certain situations, an
argument of this kind would be open, while acknowledging that it was not
open to the defenders in the present case.
In considering the question before us we start from the statement by the
Court of Justice in Biehl which, under reference to Sotgiu, summarises the
law on indirect discrimination in this way (at paragraph 13):
"According to the case-law of the Court, the rules regarding equality of
treatment forbid not only overt discrimination by reason of nationality but
also all covert forms of discrimination which, by the application of other
criteria of differentiation, lead to the same result."
As Mr. Mitchell submitted, such an approach is clearly intended to promote
the objectives of the Community in areas such as the development of
the common market by ensuring that arrangements which have the
practical, even if unintended, effect of discriminating between Community
nationals on the ground of nationality are made unlawful. Here we are
considering a requirement which applies to pursuers resident outside the
United Kingdom only. In the absence of any evidence to the contrary, we
take the view that, although such a requirement can, of course, apply to
United Kingdom nationals resident in other Member States, in practice
it will apply far more often to nationals of those other Member States.
In particular, a requirement on a trader who is resident or has a place
of business in Germany and has contracted to provide a commercial
service in Scotland to sist a mandatary in an action for payment under
the contract is much more likely to apply to German nationals than to
nationals of the United Kingdom. We are accordingly satisfied that the
requirement to sist a mandatary, based on residence, does in fact have
the same result as a requirement based on nationality. Cf. Mund & Fester
[1994] E.C.R. I at paragraph 16 of the judgment and Fitzgerald [1996]
Q.B. at p. 674F-G per Sir Thomas Bingham M.R.
We are equally satisfied that the requirement on pursuers resident in
another Member State to sist a mandatary does involve a difference in
treatment. One need only imagine two pursuers, one resident in Germany
and one resident in the United Kingdom, both of whom have conducted
their litigation in an unsatisfactory way, failing to give timely instructions
to their agents, failing to meet deadlines, constantly changing the nature
of their case and frustrating the efficient progress of the litigation. In the
case involving the German pursuer, the court could require the pursuer to
sist a mandatary and, if he failed to do so, his action would be dismissed.
In the case involving the British pursuer, no such requirement could be
made and so he would not be under the same threat of having his action
dismissed. Of course, before the Brussels Convention made judgments of
the courts of Scotland enforceable in Germany, the requirement to sist a
mandatary served the useful purpose of ensuring that there was someone
within the jurisdiction who would be responsible for the proper conduct
of the case and against whom the court could enforce its orders about
the conduct of the case. Now, however, the relevant orders of the court
can be enforced against a German pursuer in Germany just as they can
be enforced against a British pursuer in Scotland and other parts of the
United Kingdom. From the time of the Judgments Extension Act 1868 this
court has recognized that, since its judgments can be enforced throughout
the United Kingdom, there is no justification for requiring a pursuer who
is resident in England and Wales or Northern Ireland to sist a mandatary:
Lawson's Trustees v. The British Linen Company (1874) 1 R. 1065. By
parity of reasoning, now that the Brussels Convention applies, there is no
justification for requiring a pursuer who is resident in Germany to sist a
mandatary.
Mr. Sandison sought to persuade us that we should look at the reasons
which the Sheriff Principal had given to justify the requirement in this
particular case that the pursuers should sist a mandatary. They all
related to the unsatisfactory way in which the pursuers had conducted
the proceedings. There was no hint that the Sheriff Principal had made
the requirement on the ground that the pursuers were a German
firm. In that situation, he said, the Sheriff Principal's order had been
objectively justified and there had been no discrimination on the ground
of nationality. In our view that submission is unsound. We accept, of
course, that the Sheriff Principal did not make his order because the
pursuers were German and we accept that the factors which he took
into account could be relevant to the exercise of a discretion to sist a
mandatary in an appropriate case. The fact remains, however, that no
such requirement can be made of a British pursuer in an equivalent
position and so the exercise of the power involves treating different
pursuers differently. Cf. Fitzgerald [1996] Q.B. at p. 674E per Sir Thomas
Bingham M.R. That will amount to discrimination under Article 12 unless
this difference in treatment can be shown to be capable of being justified
by objective circumstances: Pastoors and Trans-Cap GmbH v. Belgian
State [1996] E.C.R. I - 285 at paragraphs 19 - 22. Since the Brussels
Convention would apply to any orders of the court as to the conduct of
the litigation, we are satisfied that the requirement to sist a mandatary
cannot be objectively justified in this case. More generally, a Scottish
court should not exercise its discretion to require a pursuer, who is a
national of and resident in another Member State which is a party to the
Brussels Convention, to sist a mandatary.
For these reasons we allow the appeal and remit to the Sheriff to proceed
as accords. There is no need to deal with the other grounds of appeal.