LORD JUSTICE EVANS:
1. The defendants applied to have this action stayed, on two grounds.
First, that under the Civil Jurisdiction and Judgment Acts 1952 which
gives effect to the Brussels Convention the English court has no
jurisdiction to hear it. Secondly, because each of the contracts under
which the plaintiffs sue contains an exclusive jurisdiction clause in favour
of a court in Germany.
2. The applications were refused by H.H.Judge McGonigal sitting as a
Judge of the High Court in the Mercantile Court at Newcastle-upon-Tyne
on 29 January 1998. The defendants appeal by leave of Lord Justice
Schiemann.
3. The first and/or second plaintiffs (it is not necessary to distinguish
between them) are manufacturers of plastic packaging products. Their
works are at S. Lane, Sedgefield, Stockton, in Cleveland. The defendants
are manufacturers and suppliers of thermoforming machines which the
plaintiffs use in their production processes. The defendants carry on
business at Freilassing in Germany.
4. How the machines work was graphically and expertly described to us
by Mary Vitoria Q.C., counsel for the plaintiffs. Raw plastic material in
what are called ´films’ passes through the machines so that it is warmed
to the moulding temperature. The temperature must be uniform, or
defects will appear in the moulded product. Precise temperatures are
maintained by sensitive and sophisticated measuring devices which
constantly adjust the heat to which different parts of the material are
exposed. Previously, the material used was PVC. The plaintiffs wished to
use non-PVC material, specifically a polystyrene known as OPS.
5. It is common ground that between 1989 and 1993 there were eight
contracts between the plaintiffs and the defendants for the sale and
delivery of eight such machines. The plaintiffs allege that there were
express representations made to them by the defendants or their United
Kingdom agent, A Plastics Machinery, that the machines would be
“suitable for thermoforming OPS on a commercial scale” for the United
Kingdom market, the defendants knowing that the machines were to be
installed for this purpose at the plaintiffs’ factory at Sedgefield (Statement
of Claim, paragraphs 3 and following).The plaintiffs further allege that
there were express or implied terms to the effect that the machines would
be reasonably suitable for use at their factory in Sedgefield producing
moulded OPS products on a commercial scale, and that the machines
proved not to be “capable of maintaining the temperature of the OPS film
sufficiently constant to produce thermoformed OPS products of acceptable
finished quality and commercially acceptable production levels and with a
commercially acceptable level of controllable scrap material” (Particulars,
Statement of Claim para.17).
6. There is evidence that these deficiencies became apparent soon after
the machines were installed, but the defendants’ initial response was that
their machines were not being properly and skilfully used. The plaintiffs
commissioned a report from experts at Durham University and their
claim is based on the conclusions in that report. These were that the heat
control units in the machines were inadequate for the plaintiffs’ purposes.
They were replaced by closed loop heat control units, and satisfactory
production levels were achieved. The damages claimed exceed £3 million.
The contracts
7. The Statement of Claim alleges that the plaintiffs ordered the first
machine in September 1989 following a discussion with A. Plastics
Machinery, the defendants’ U.K. agent, in April 1989 which had resulted
in a quotation from the defendants. It is alleged that the defendants
delivered the machine at Sedgefield and “installed and commissioned
the said machine in about January 1990” (paragraph 8). A second
machine was contracted for in May/June and likewise delivered, installed
and commissioned in September/October (paragraphs. 9-10). Six
further machines were contracted for in and between April 1991 and
October 1992 (paragraph 13) and delivered at the Sedgefield premises
(paragraph 14). But the first of these six further contracts was made at
the Birmingham Exhibition Centre where the machine in question was
being used by the defendants for demonstration purposes (para. 13(I)).
8. The defendants accept that this machine, which I shall call “the
Birmingham machine”, has to be regarded separately from the other
seven, because it was physically delivered to the plaintiffs in England.
The others, they submit, were delivered in Germany, relying upon the
standard terms of the defendants’ contract documents which were used in
every case. In each case, the Confirmation of Order read:- “In accordance
with our enclosed terms and conditions we confirm K. - [machine type]
suitable for the processing of thermoplastic roll material ...”.
9. The terms and conditions included these:-
"Terms of Prices
Our quoted prices are ex works, unpacked, excluding customs clearance,
excluding installation and commissioning at customer factory, but
including transport insurance.
Time of Delivery : ready for dispatch CW 4/93
Terms of Payment :
1/3 down payment after receipt of order confirmation
1/3 when ready for shipment
1/3 30 days from date of invoice net
Testing material
For testing the machine a sufficient quantity of your original material shall
be placed at our disposal free of charge, freight / customs duty paid 6
weeks before the date of machine acceptance......
Acceptance
The technical acceptance will be effected in the presence of your
representatives at our works in Freilassing. The purpose of this
acceptance is to demonstrate the machine function and the realization
of the promised performance date. The results of this acceptance will be
recorded in a taking over protocol, to be legally signed by both parties,
authorizing the shipment of the machine.
Assembly
If you desire, the assembly of the machine will be carried out by our
specialised staff and will be calculated according to our current rates.
Please consider that in case of incorrect assembly, caused by yourself or
other persons, we will be forced to restrict our conditions of guarantee."
There were invoices which recorded “delivery: ex works incl.. insurance
dispatch: B. Munich”. In addition, there were “Terms of Delivery and
Payment” which include:-
"II Scope of Delivery
Our written confirmation shall be decisive for the scope of delivery ....
III Failing special agreement, all prices cover delivery ex works, excluding
packing, freight and insurance."
Finally, the ´Venue’ clause relied upon by the defendants in their
alternative (contractual) claim reads as follows:-
"XI VENUE
"In all disputes arising out of the contract, provided the buyer is a
merchant who has been entered in the Commercial Register, or a public
law entity, or a separate estate under public law, action shall be brought
at the court having venue over the principal place of the manufacturing
works. We shall also be authorized to institute legal proceedings at the
buyer’s principal place of business. It is herewith agreed that this contract
and all future transactions shall be governed by and construed according
to the law of the Federal Republic of Germany.”
Jurisdiction
10. Three further matters should be noted. First, the plaintiffs placed their
orders, not with the defendants (apart possibly from the Birmingham
machine), but with the defendants’ U.K. agents, A. Plastics Machinery
(hereinafter “A.”), who forwarded them to the defendants in Germany.
Similarly, the defendants’ Order Confirmations and subsequent invoices
were addressed and sent to A. and forwarded by them to the plaintiffs.
It is common ground, however, that sales contracts incorporating the
defendants’ Terms and Conditions were made between the plaintiffs and
defendants in this way.
11. Secondly, the plaintiffs allege in the Statement of Claim that the
machines were installed at the plaintiffs’ Sedgefield factory by A. as
agents for the defendants. The defendants’ Terms and Conditions provide
that the machines may be installed at the customers premises by their
specialised staff (see “Assembly” above). We have no evidence of the
contractual arrangements under which this was done, but it is not
suggested on behalf of the plaintiffs that the express terms as to delivery
ex works in Germany were modified by whatever was agreed.
12. Finally, there is evidence that six of the machines were tested before
delivery at the defendants’ works in the presence of representatives of
the plaintiffs, who on each of these occasions signed a “Certificate of
Satisfaction” as required by the “Acceptance” term. It seems, however,
that this is not relevant to the present dispute. The plaintiffs accept
that the machines were manufactured to the contractual specification
and complied with it. They contend that the machines as delivered
were unsuitable for the purpose of producing mouldings in commercial
quantities, meaning without excessive waste and at commercially
acceptable rates, in their Sedgefield works. These deficiencies were due
to the specification being inadequate and they would not be exposed by
the acceptance tests or before the machines were installed and operated
in commercial conditions at their own works.
13. Thus the claim as pleaded is that express representations were made
by the defendants and by A. on their behalf before any of the orders were
placed, and that there was in consequence an “express and/or implied
term of each of the contracts that each said machine and its associated
equipment would be reasonably fit for the stated purpose” (Statement of
Claim, paragraph 16). Although a separate claim is made in paragraph 19
for loss and damage caused by the falsity of such representations, Miss
Vitoria acknowledged that this is no more than a variant of the contractual
claim, and in particular that no claim is made under the Misrepresentation
Act 1967 or otherwise in tort.
The proceedings
14. The plaintiffs’ solicitors sought leave on their behalf to serve the Writ
on the defendants in Germany under Order 11 Rule 1(1)(d) of the Rules
of the Supreme Court, on the ground that the contracts are governed by
English law. This was because the contracts were thought to incorporate
different terms and conditions from those which the plaintiffs now accept.
15. The defendants’ Summons, dated 6 June 1997, was for an order
setting aside the Writ by reference to the ´Venue’ (exclusive jurisdiction)
clause alone (see the defendants’ solicitor’s affidavit, paragraph 12).
The plaintiffs’ solicitor responded, claiming inter alia that the appropriate
jurisdiction is in the English courts (paragraph 11), again on Order 11
grounds, but he correctly identified the central issue as follows:-
"13. The fundamental issue in the action is whether or not the
thermoforming machines and associated equipment supplied by the
Defendant were fit for the purpose of commercial production in the
United Kingdom of plastic packaging products made by thermoforming
from non-pvc film and, particularly, OPS films to a commercially
acceptable quality and in commercially acceptable quantities and with
a commercially acceptable quantity and with a commercially acceptable
level of controllable scrap material"
16. The defendants’ solicitor then produced an opinion from their German
lawyer, Gerd Burck, in connection with the venue (exclusive jurisdiction)
clause. The plaintiffs obtained an opinion from their expert, Andreas
Klug. This prompted the defendants to obtain a further opinion from Gerd
Burck, dated 23rd October 1997, in which he raised for the first time
the contention that the English Courts are precluded from exercising
jurisdiction under the Brussels Convention, specifically Arts. 2 and 5(1).
Both grounds therefore were argued when the Summons was heard on 29
January 1998.
17. The defendants of course are domiciled in Germany. They are
entitled therefore to be sued in Germany under Article 2 of the Brussels
Convention unless the English court has jurisdiction under Article 5(1):-
"A person domiciled in a Contracting State may, in another Contracting
State be sued:
1. In matters relating to a contract, in the courts for the place of
performance of the obligation in question .....".
18. The defendants’ case is straightforward. Their relevant obligation
was to supply machines under contracts which provided for delivery
“ex works” in Germany. If there was a breach of contract with regard to
the suitability of the machines for a particular purpose, then the breach
occurred when and at the place where the machines were delivered. The
goods then were prospectively unfit for the intended purpose.
19. The judge rejected this submission. He held that, as a matter of
impression, “the place of performance is in England, which is where the
machines should have worked or been made to work properly so that they
were suitable for the processing of thermoplastic roll material” (judgment
page 3D).
20. The correct approach to the interpretation of Article 5(1)(c) is set
out in the speeches in the House of Lords in Kleinwort Benson Ltd v.
City of Glasgow D.C. [1997] 3 W.L.R. 923. We were referred to previous
judgments of the European Court and of the Court of Appeal, but not to
the authoritative summary of their effect which is found in the speech of
Lord Goff. The following paragraphs are directly relevant to the present
case:-
"(3) Next in considering the function of the various provisions of Article
5, it is to be remembered that these provisions exist “because of the
existence, in certain clearly defined situations, of a particularly close
connecting factor between a dispute and the court which may be
called upon to hear it, with a view to the efficacious conduct of the
proceedings”: see the Martin Peters case at p.1002 (par.11). In the case
Article 5(1), the relevant court is specified as being the court “for the
place of performance of the obligation in question” which is described
in the Jenard Report as the court of the place of performance of the
obligation on which the claim is based. It is between the dispute and that
court that a particular close connecting factor is recognised to exist. "
"(4) It follows that, in order to identify the relevant court, it is necessary
first to identify the obligation in question. This was made plain in
the case of de Bloos v. Bouyer (Ets A. de Bloos S.P.R.L v. Society en
commandite par action Bouyer Case 14/76 [1976] E.C.R. 1497, in which
the European Court of Justice held that the word “obligation” in Article
5(1) refers to “the contractual obligation forming the basis of the legal
proceedings” (see page 1508, para 11). The Court of Justice subsequently
affirmed that “the obligation” cannot be interpreted as referring to any
obligation whatsoever arising under the contract in question, but is rather
that which corresponds to the contractual right on which the plaintiff’s
action is based”: see Custom Made Commercial Ltd. v. Stawa Metallbau
GmbH Case C-288/92 [1994] E.C.R. I-2913, 2957 (para. 23).
After quoting from the judgment of the European Court in Shenevai v.
Kreischer Case 266/85 [1987] E.C.R. 239 Lord Goff said this:-
"I have taken the unusual course of quoting these paragraphs in full,
because they demonstrate that the Court of Justice has returned to, and
indeed has reinforced, the reasoning and conclusion in de Bloos v. Bouyer
that the “obligation” in Article 45(1) is the contractual obligation on which
the claim is based. It is the courts of the place of performance of that
obligation in which jurisdiction is vested under Article 5(1).
Finally, in Kalfelis v. Schroder Case 189/97 [1988] E.C.R. 5565 the Court
held that the scope of Article 5(3) (“matters relating to tort, delict or
quasi-delict”) must be regarded as an independent concept from Article
5(1), and stressed that the special jurisdiction in Articles 5 and 6 must
be interpreted restrictively; and further stressed (see para.20) that,
while disadvantages may arise from different aspects of the same dispute
being adjudicated upon by different courts, the plaintiff is always entitled
to bring his action in its entirety before the courts of the defendant’s
domicile.
21. In the present case, Mr Julian Flaux Q.C. for the defendants submitted
that jurisdiction may only be exercised under Article 5(1)(c) when
the obligation in question, meaning the contractual obligation which
the defendant is alleged to have broken or failed to perform, fell for
performance in England. If more than one obligation is involved, then it
is the principal obligation which determines the issue (cf. Union Transport
Plc v. Continental Lines S.A. [1992] 1 W.L.R. (H.L.)). Miss Vitoria for the
plaintiffs did not challenge these submissions, which in my view were
clearly justified by the previous authorities and have now been endorsed
by the speeches in Kleinwort Benson Ltd . The issue is whether the place
for performance of the relevant obligation was in England rather than
Germany, and this makes it necessary to identify the obligation, or if
relevant the principal obligation, upon which the plaintiffs rely.
22. The “obligation in question” was defined by Mr Flaux in his skeleton
argument as “the Defendant’s obligation to supply machines which
were suitable [i.e. reasonably fit] for their purpose .... . By the terms
of the contracts, the place for performance of that obligation was at the
Defendant’s works in Germany, not in England...”. After referring to the
contractual terms which identify the defendant’s works in Germany as the
place for delivery and acceptance, the written submission concludes “The
subsequent installation of the machines in England after delivery cannot
alter the nature of the obligation or the place for its performance .... the
obligation is one which crystallises upon delivery ....”.
23. Miss Vitoria for the plaintiffs submits, first, that the relevant
contractual obligation arises under “a warranty that the machines would
be suitable for processing OPS” and that “the place where the obligation
was in substance to be performed was England”. Notwithstanding the
restrictive interpretation which should be given to Article 5(1)(c), there
should not be a technical (meaning a legalistic) analysis of where delivery
under the contract took place; the underlying purpose was to give to the
court having a close connecting factor with the dispute the jurisdiction to
resolve it. This submission, or at least the latter part of it, is supported by
paragraph (3) of Lord Goff’s summary which I have quoted above.
24. Alternatively, Miss Vitoria submitted that the implied warranty for
fitness under what is now section 14(3) of the Sale of Goods Act, 1979,
is a continuing warranty which continues for the commercial life of the
machine, citing Leximead (Basingstoke) Ltd v. Lewis [1982] A.C. 225 per
Lord Diplock at 276E, and Cullinane v. British “Rema” Manufacturing Co.
Ltd [1954] 1 Q.B. 292.
25. Partly because this alternative submission, which was challenged by
Mr Flaux, involved reference to the statutory implied term under section
14(3), formerly section 14(1), of the Sale of Goods Act, the arguments
before us centred upon that term as being the relevant contractual
obligation in the present case. So regarded, Mr Flaux’s contentions have
obvious force. The goods as supplied are unfit for the purpose for which
they are acquired, notwithstanding that the fact of their unfitness does
not and maybe cannot become apparent until some later time and at
some other place. The breach occurs for limitation purposes when they
are supplied in that defective state, and it follows, he submits, that the
obligation to supply fit rather than unfit goods has to be performed at the
place where they are supplied. Lord Diplock’s reference to a continuing
warranty, he submits, does not imply that there is a continuing obligation
for performance wherever the goods may happen to be, until the warranty
expires. If Lord Diplock did mean that, then Mr Flaux respectfully submits
that he was wrong.
26. These are difficult questions and of considerable general importance.
But in my judgment they do not have to be decided in the present case.
This is because the plaintiffs base their claim on what they allege was an
express undertaking by the defendants, or by their U.K. agent A. Line
Ltd. on their behalf, that machines manufactured by the defendant, to the
specification which was later incorporated in the contracts, would achieve
certain results when they were put into use at the Sedgefield factory.
That promise, if it was made, could only be performed there; conversely,
it could only be broken when the alleged failures occurred in production
conditions.
27. There is a conceptual difficulty in ascribing a place of performance
to an obligation which does not require any act of performance by the
contracting party, but is rather an acceptance of responsibility upon the
occurrence or non-occurrence of an event. But this has to be done for the
purposes of Article 5(1)(c), and in my judgment the alleged undertaking
by the defendants that their machines would achieve certain production
levels and efficiencies at the plaintiffs’ factory in England can properly be
regarded as a contractual obligation whose place of performance was in
England . It is akin to a performance guarantee which in my judgment
is “performed” or broken where the subject-matter is situated at the
relevant time.
28. The plaintiffs rely in the alternative on an implied term, which it was
assumed before us corresponds to the statutory term as regards fitness
for purposes implied by section 14(3) when the necessary conditions
are satisfied. (The appellants objected inter alia that any such term is
precluded by the express terms of the contracts.) As stated above, the
argument centred on the question whether this implied term imposed an
obligation on the defendant for performance in England, within Article
5(1)(c). But that issue does not arise if the express term which is also
alleged is the principal obligation relied upon, and in my judgment it is.
The essential part of the plaintiffs’ case is that the defendants undertook
that machines built to the agreed specification would achieve certain
results in practice. If no such undertaking was given, then it is difficult to
see how the defendants could be in breach of the statutory implied term
as to fitness for use by the plaintiffs at their factory. It is not alleged that
the machines were unfit, except by reference to what the plaintiffs alleged
was an agreed standard.
29. The matter can be tested in this way. If the plaintiffs alleged an
undertaking by the defendant that the machines would achieve a certain
output - so many pieces per hour, if that is the appropriate standard -
then it would be clear in my judgment that the place for performance of
that obligation was England rather than Germany where the machines
were supplied. The plaintiffs do not allege a fixed or easily measured
standard, but it has not been suggested that the term on which they rely
is insufficiently certain to be given contractual effect.
30. For these reasons, I agree with the judge’s conclusion (quoted in
paragraph 19 above) although his was expressed in rather wider terms.
In my judgment, the English court has jurisdiction in this case because
the principal contractual obligation, which the plaintiffs allege was broken,
had its place for performance in England, for the purposes of Article 5(1)
(c).
31. I do not dissent from Chadwick L.J.’s analysis of what the position
would be if the sole or principal obligation was the statutory implied term
under section 14(3) or, strictly, its equivalent under German law. The key
issue, in my judgment, is whether the express promise alleged by the
plaintiffs gave rise to an obligation which was for performance in England.
If there was a performance guarantee, then subject to the conceptual
difficulty to which I have referred, the position in my judgment would
clear. The guarantee, if performance fell below the agreed standard,
would be broken in England. Similarly with a guarantee against defects
not necessarily present in the machines as delivered. There is such a
guarantee in these contracts (clause VII), although it is not relied upon
because, as I understand the position, the stringent time-limit was not
complied with. If there was such a claim, then it would be artificial, in my
view, to regard that obligation as being performed or broken in England,
whilst an undertaking that the machines would perform to an acceptable
commercial standard in the actual conditions encountered in the plaintiffs
factory in England was not. For these reasons, in my judgment the alleged
express term was complied with or broken in England. The proof of the
pudding was in the eating. Whether the machines would so perform could
not be determined at the time and place of delivery in Germany, but
only when they were installed and operated in England. I agree with the
Judge’s common-sense view (para.19 above).
VENUE
32. The clause upon which the defendants rely is quoted above
(paragraph 9). They contend that properly construed it is an exclusive
jurisdiction clause to which the court should give effect under Article 17 of
the Brussels Convention.
33. The arguments owe much to the way in which the issue arose and
was developed by the parties’ respective German law advisers (see
paragraph 16). In brief, Mr Klug suggested three possible meanings of the
requirement “provided the buyer is a merchant who has been entered in
the Commercial Register”. The first is that the words mean what they say:
if the buyer is not entered in the appropriate German register, which he
identifies as one which excludes “small traders” (which the plaintiffs are
not, and therefore if they were German companies they would be required
to be entered in the Register), then the jurisdiction clause does not apply.
Secondly, “Commercial Register” may mean the appropriate foreign
Register when the contracting party is not German. Here, the plaintiffs
of course are entered in the English Register. Thirdly, the clause applies
when the foreign party would, if a German company, be required to be
entered in the German Register; again, this would include the plaintiffs.
34. Mr Burck for the defendants was firmly of the view that the first
suggested meaning “cannot be correct in the case of an international
business transaction such as the present” (Appellants’ Skeleton Argument
para. 19). He prefers the second of Mr Klug’s suggested meanings;
the Registrar referred to is the appropriate one for a foreign company
in its own country. This would turn the clause on its head if the party
was a foreign company which, if German, would fall within the “small
trader” exception. It would be bound to submit to the jurisdiction of the
defendants’ local court, even though a corresponding German company
would not.
35. The judge rejected this submission for the above among other
reasons, and I agree with him. There are many practical objections to
both the second and the third suggested meanings. The first meaning
gives effect to the express words of the clause. There are good practical
reasons why the clause should apply between German companies
and why jurisdiction in the case of a foreign (European) purchaser
from the defendant should be established by the Brussels Convention,
independently of the clause. I therefore would uphold the judge’s
conclusion on this issue also.
Conclusion
36. I would dismiss the appeal.
LORD JUSTICE MORRITT:
1. I agree with Evans L.J. that the Venue clause on which P. K. relies
is not an exclusive jurisdiction clause within Article 17 of the Brussels
Convention. Thus the fate of this appeal depends on the proper
construction and application of Article 5(1) of the Convention to the facts
of this case. Evans LJ has set out those facts in detail and I need not
repeat them.
2. Article 5(1) provides that
"A person domiciled in a Contracting State may, in another Contracting
State, be sued -
...........
1. In matters relating to a contract in the courts for the place of
performance of the obligation in question;"
Thus it is necessary too ascertain “the obligation in question” and “the
place of performance” of that obligation.
3. The obligation in question is that averred in paragraph 16 of the
Statement of Claim, supplemented as necessary by paragraph 15,
namely:
“a term that each machine (and its associated equipment) would be
reasonably fit for the purpose of the commercial production in the
United Kingdom of plastics packaging products ... to a commercially
acceptable quality and/or in commercially acceptable quantities and with
a commercially acceptable level of controllable scrap material."
That term reflected the express undertaking to which Evans LJ has
referred and which is averred in paragraph 12 of the Statement of Claim.
It is clear from paragraphs 17 and 18 that it is for the alleged breach of
that term that V. sues for damages.
4. I agree with Evans LJ that regarded in isolation it is difficult, if not
impossible, to ascribe any place for the performance of that obligation
for, in isolation, it does not require P. K. to do anything. But if no place
for performance can be ascertained then Article 5(1) does not provide for
any jurisdiction alternative to that of the domicil of the defendant and the
appeal should be allowed on that ground alone.
5. For my part I do not think that it is appropriate to analyse the
obligation in isolation from the other terms of the contract. The term on
which V. relies is one of the terms of a series of contracts for the sale and
delivery of machinery by P. K. to V.. Thus the reference in paragraph 16 of
the Statement of Claim to “each machine” must be read as each machine
to be sold and delivered in accordance with the contractual provisions
previously referred to. This necessary implication at once clarifies the
nature of the obligation sued on and denotes the place of its performance.
6. I agree with Chadwick LJ, whose judgment I have read in draft, that
the place of performance must be the place of delivery and that, in the
case of seven out of the eight machines, that place was Germany. For
these and the other reasons given by Chadwick LJ, with which I agree,
I would allow the appeal and strike out these proceedings for want of
jurisdiction save in respect of machine 34.22/153.
LORD JUSTICE CHADWICK:
1. Article 2 of the 1968 Convention on jurisdiction and the enforcement of
rights in civil and commercial matters (the Brussels Convention) requires
that, subject to the provisions of the Convention, persons domiciled in
a Contracting State shall be sued in the courts of that State. Article 3 of
the Convention provides that persons domiciled in a Contracting State
may be sued in the courts of another Contacting State only by virtue
of the rules set out in Sections 2 to 6 of Title 1 of the Convention. The
United Kingdom is a Contracting State for the purposes of the Convention
by reason of the Accession Convention signed in 1978. Section 2(1)
of the Civil Jurisdiction and Judgments Act 1982 gives to the Brussels
Convention the force of law in the United Kingdom.
2. The defendant to these proceedings, P. K. GmbH, is a German
corporation domiciled in Germany. Germany is a Contracting State for
the purposes of the Brussels Convention, having been one of the original
parties to that Convention. It follows that, unless there is some provision
in the Convention which permits the plaintiffs to bring this claim against
this defendant in the English courts, these proceedings must be struck out
for want of jurisdiction.
3. The provision upon which the plaintiffs rely is found in Article 5, in
Section 2 of Title 1 of the Convention:
"Article 5
A person domiciled in a Contracting State may, in another Contracting
State, be sued -
1 In matters relating to a contract, in the courts for the place of
performance of the obligation in question;
4. That provision is, itself, subject to Article 17, in Section 6 of Title 1:
"Article 17
If the parties, one or more of whom is domiciled in a Contracting State,
have agreed that a court or the courts of a Contracting State are to have
jurisdiction to settle any disputes which have arisen or which may arise in
connection with a particular legal relationship, that court or those courts
shall have exclusive jurisdiction. Such agreement shall be . . . - (a) in
writing or evidenced in writing, . . . "
5. The defendant submits that Article 17 is applicable in the present
case, to the exclusion of Article 5(1). In support of that submission the
defendant relies upon the jurisdiction and choice of law clause in its
standard terms of delivery and payment:
"XI. VENUE
In all disputes arising out of the contract, provided the buyer is a
merchant who has been entered in the Commercial Register, or a
public law entity, or a separate estate under public law, action shall
be brought at the court having venue over the principal place of the
manufacturing works. . . . It is hereby agreed that this contract and all
future transactions shall be governed by and construed according to the
law of the Federal Republic of Germany.
6. It is not suggested that the plaintiffs or either of them, as buyers
under the relevant contracts, are public law entities or separate estates
under public law. It is common ground that the plaintiffs have not, in
fact, been entered in the relevant Commercial Register in Germany. I
agree with Lord Justice Evans, for the reasons which he gives, that, in
the context of a provision which (on the evidence of German lawyers)
clearly derives from the German Commercial Code, the phrase “the
Commercial Register” cannot be taken to mean some comparable register
in England - even if such a register could be identified. I agree, also,
that the provision does not require an investigation into the question
whether a foreign buyer would, if it were a German entity, be entered
in the relevant German Commercial Register. There is no reason to give
the words used in clause XI any extended meaning beyond that which
they naturally bear. If, as is the case, the plaintiffs are not entered in the
relevant Commercial Register, the exclusive jurisdiction provision in that
clause has no application; and the parties are not to be taken to have
excluded, by agreement, the jurisdiction of a foreign court which would
otherwise have jurisdiction under the Brussels Convention.
7. The question in this appeal turns, therefore, on the existence or
otherwise of special jurisdiction under Article 5(1) of the Convention. It
is accepted that the matters in dispute relate to a contract or contracts.
What then, in the context of these proceedings, is “the obligation in
question”; and where is the place of performance of that obligation?
Those questions have to be approached in the light of the guidance given
by Lord Goff in Kleinwort Benson Ltd v City of Glasgow Council [1997] 3
WLR 923, at page 928B-F, to which Lord Justice Evans has referred. The
obligation is the contractual obligation on which the claim is based. In
order to identify the obligation on which the claim is based it is necessary,
first, to examine the plaintiffs’ pleaded case.
8. The writ, issued on 2 May 1996, seeks (i) damages for breach of eight
contacts made between 25 September 1989 and 7 October 1992 - each
for the supply of a single K.-Automatic Thermoforming Machine - on the
basis that the machines were not fit for their purpose and (ii) damages
for misrepresentations that the machines were capable of processing non-
PVC films - in particular, biaxial oriented polystyrene (“OPS”) films - for
the commercial production of packaging products. The statement of claim
was served on 10 March 1997. It is alleged (and it is not in dispute) that
the plaintiffs carried on the business of manufacturing plastics packaging
products at Sedgefield, Cleveland and that the defendant was at all
material times the manufacturer and supplier of thermoforming machines.
It is alleged that there were discussions between the first named plaintiff
and the defendant’s United Kingdom agent, in or about April 1989, as to
that plaintiff’s requirements for thermoforming machines for operation at
its premises in the commercial production of plastic packaging products
made from OPS films. It is further alleged that the plaintiff was told by
the defendant’s agent - and subsequently by the defendant - that two
of the machines manufactured by the defendant, under specifications
KL 1SH/50 and KL 2SH/76, were suitable for thermoforming OPS on a
commercial scale; and that the relevant specifications and quotations
were provided. It is alleged that the representations were made for
the purpose of inducing the plaintiff to purchase machines from the
defendant; and that, in reliance on the representations the plaintiff
entered into a contract on 25 September 1989 for sale and supply by the
defendant of a K.-Automatic Thermoforming Machine Type KL 1SH/50.
A further machine was supplied, under a second contract, in or about
September 1990.
9. Paragraph 12 of the statement of claim is in these terms:
"12. In the premises there was a continuing representation by
the Defendant throughout 1990 to 1993 that the K.-Automatic
Thermoforming Machines and associated equipment supplied and\or to be
supplied by the Defendant to the First and\or Second Plaintiff was\would
be suitable for producing OPS thermoformed products to a commercially
acceptable quality and\or in commercially acceptable quantities and with
a commercially acceptable level of controllable scrap material."
10. Six further machines were supplied to the second plaintiff between
May 1991 and October 1992, each under a separate contract. Each of the
contracts was for the sale and supply by the defendant of a machine and
associated equipment as specified in the defendant’s Order Confirmation.
11. Paragraphs 15, 16 and 17 of the statement of claim are in these
terms
"15. At the time of each of the said contracts the First or Second
Plaintiffs as the case may be expressly and/or by implication made
known to the Defendant as aforesaid that each said machine and its
associated equipment was bought for the purpose of the commercial
production in the United Kingdom of plastics packaging products made
by thermoforming from non-PVC films and in particular from OPS films
and in particular for the production of OPS thermoformed products to
a commercially acceptable quality and/or in commercially acceptable
quantities and with a commercially acceptable level of controllable scrap
material.
16. In the premises it was an express and\or implied term of each of the
said contracts that each said machine and its associated equipment would
be reasonably fit for the said purpose.
17. In breach of the aforesaid term the goods were not suitable or fit for
the purposes set out in paragraph 15 above.
PARTICULARS
None of the said machines and its associated equipment was capable
of maintaining the temperature of the OPS film sufficiently constant
to produce thermoformed OPS products of acceptable finished quality
at commercially acceptable production levels and with a commercially
acceptable level of controllable scrap material.
The plaintiffs’ claim for damage, in respect of which particulars are given
under paragraph 18, is in an amount in excess of £3.5 million.
12. Paragraph 19 of the statement of claim is in these terms:
" 19. Further or in the alternative the Defendant’s said representations
were false whereby the First and Second Plaintiffs have suffered loss and
damage.
PARTICULARS OF FALSITY
"None of the said machines and its associated equipment was capable
of maintaining the temperature of the OPS film sufficiently constant
to produce thermoformed OPS products of acceptable finished quality
at commercially acceptable production levels and with a commercially
acceptable level of controllable scrap material.
PARTICULARS OF DAMAGE
The Plaintiffs will rely on the Particulars given under paragraph 18 above."
13. I have set out the pleading more fully than I would otherwise have
thought necessary or appropriate because, at first sight, it was not clear
(or, at the least, not clear to me) whether the plaintiffs’ claim was only
in contract, for breach of the contractual obligation alleged in paragraph
16, or was, in addition, in tort (or delict) in respect of misrepresentations
inducing contract. If there were a claim in tort then it seemed to me that
the relevant special jurisdiction under Article 5 of the Brussels Convention
was that conferred by Article 5(3): so that proceedings could be brought
in the courts for the place where the harmful event occurred. But if there
were a claim in tort, then it was difficult to see what that claim added
to the claim in contract, in that the loss said to have been incurred as
the result of misrepresentations which induced the plaintiffs to enter
into the contracts was the same loss as that said to be recoverable
as damages for breach of those contracts. But this apparent difficulty
was laid to rest when, in the course of the hearing of this appeal, Dr
Vitoria QC, counsel for the plaintiffs, acknowledged that the claim under
paragraph 19 of the statement of claim was intended to be no more than
a variant of the contractual claim; and in particular that no claim was
made under the Misrepresentation Act 1967 or otherwise in tort. In the
light of that clarification I have approached the matter on the basis that
the only claim with which we are concerned on this appeal is the claim
for breach of the contractual term pleaded in paragraph 16; that is to
say, for breach of a term (whether express or implied) that each machine
and its associated equipment would be reasonable fit for the purpose
of commercial production in the United Kingdom of plastic packaging
products made by thermoforming from OPS films to a commercially
acceptable quality, in commercially acceptable quantities and with a
commercially acceptable level of controllable scrap material.
14. It is difficult to find in the contractual documentation any expressed
warranty as to fitness to purpose; although, as Lord Justice Evans
has pointed out, the machines are described in the defendant’s Order
Confirmations as “suitable for the processing of thermoplastic roll material
by means of compressed air, especially suitable for the production of
packaging parts”. The language of paragraph 16 of the statement of claim
is, of course, closely similar to that in section 14(3) of the Sale of Goods
Act 1979:
14(3) Where the seller sells goods in the course of a business and the
buyer, expressly or by implication, makes known - (a) to the seller . . .
any particular purpose for which the goods are being bought, there is
an implied condition that the goods supplied under the contract are
reasonably fit for that purpose, . . .
15. But it is necessary to keep in mind that the parties have agreed that
their contracts shall be governed by German law; and there is no reason
to think that the provisions of an English statute would be recognised
under that law. Be that as it may, I accept that, for the purposes of
this appeal, we must assume that, if this action proceeded to trial, the
plaintiffs would establish a contractual obligation in the terms alleged.
That, then, is the “obligation in question” for the purposes of Article 5(1)
of the Brussels Convention.
16. That leads to the question: in what place is that obligation to be
performed? In the absence of authority I would take the view that there
is only one answer to that question. The obligation is to supply a machine
which is reasonably fit for the known purpose. That obligation has to be
performed at the time when the machine is supplied. There is no other
opportunity to perform it. The seller has not undertaken an obligation to
do whatever is necessary from time to time to ensure that the machine
fulfills the purpose for which it has been purchased. That is not alleged.
As Lord Justice Evans has pointed out, no reliance is placed on the limited
contractual guarantee in clause VII of the standard terms. . The position,
as it seems to me, is that the seller is in breach of the obligation to supply
a machine fit for the known purpose if the machine fails subsequently
because, as supplied, it was not fit for use in commercial production. But
the breach is the breach of the obligation to supply a machine fit for the
known purpose; there is no other or subsequent breach. A subsequent
failure of the machine in the course of commercial production is evidence
of the antecedent breach in supplying a machine which was not fit for
such use. If the obligation has to be performed at the time when the
machine is supplied, then the place at which it has to be performed is the
place of delivery under the contract.
17. Dr Vitoria QC placed reliance on observations of Lord Diplock in
Lexmead (Basingstoke) Ltd v Lewis and others [1982] AC 225. The facts
of the case, so far as material, may be summarised as follows. The action
was brought by the wife and daughter of the driver of a car who (with
his son) had been killed in a road accident. The accident had occurred
because a trailer, towed by a Land Rover owned by the first defendant
and driven by his employee, the second defendant, had become detached
from the towing hitch and careered across the road into the car. The
defendants to the action were the owner of the Land Rover, his employee,
the manufacturers of the towing hitch and the retailers who had supplied
and fitted the hitch to the Land Rover. The owner brought third party
proceedings against the retailers, alleging that they had supplied a towing
hitch which was not fit for the purpose for which it had been supplied.
The trial judge held that the manufacturers had made a towing hitch
which was faulty in design. But he also held that the owner ought to have
noticed that hitch had become damaged (the handle had broken) and
ought to have had it inspected or repaired. He apportioned damages
in the action between the owner and the manufacturers. In the third
party proceedings he held that the retailers had supplied a towing hitch
which was not fit for the purpose for which it was to be used; but that the
owner’s own negligence was an intervening cause which could not have
been in contemplation at the time that the contract was made. The Court
of Appeal allowed the owner’s appeal in the third party proceedings. The
retailers appealed to the House of Lords. Lord Diplock, with whose speech
the other members of the House agreed, pointed out that the warranty
under section 14(1) of the Sale of Goods Act 1893 (now section 14(3) of
the 1979 Act) required that the towing hitch should be reasonably fit for
towing trailers upon a public highway without danger to other road users.
He went on, at page 276E-H:
"The implied warranty of fitness for a particular purpose relates to the
goods at the time of delivery under the contract of sale in the state in
which they are delivered. I do not doubt that it is a continuing warranty
that the goods will continue to be fit for that purpose for a reasonable
time after delivery, so long as they remain in the same apparent state
as that in which they were delivered, apart from normal wear and tear.
What is a reasonable time will depend upon the nature of the goods but
I would accept that in the case of the coupling the warranty was still
continuing up to the date, some three to six months before the accident,
when it first became known to the farmer that the handle of the locking
mechanism was missing. Up to that time the farmer would have had a
right to rely upon the dealers’ warranty as excusing him from making
his own examination of the coupling to see if it were safe; but if the
accident had happened before then the farmer would not have been held
guilty of any negligence to the plaintiff. After it had become apparent to
the farmer that the locking mechanism of the coupling was broken, and
consequently that it was no longer in the same state as it was when it was
delivered, the only implied warranty which could justify his failure to take
the precaution either to get it mended or at least to find out whether it
was safe to use it in that condition, would be a warranty that the coupling
could continue to be safely used to tow a trailer on a public highway
notwithstanding it was in an obviously damaged state. My Lords, any
implication of a warranty in these terms needs only to be stated to be
rejected. So the farmer’s claim against the dealers fails in limine."
18. Dr Vitoria QC points to the phrase “a continuing warranty that the
goods will continue to be fit for that purpose”. She submits that that
phrase is consistent with her contention that the warranty of fitness for
purpose continues after delivery, in the sense that seller continues to
have obligations to perform. I am not persuaded that that is a fair reading
of the phrase in the context of the question which Lord Diplock was
addressing. He was not concerned, directly, with the question: when had
the breach occurred? It is, I think, reasonably clear, if the passage is read
as a whole, that he was assuming that the breach had occurred at the
time of delivery. The question to which he was addressing his remarks in
that passage was not when the obligation arose, but what was its scope.
He pointed out that the obligation was to deliver goods which were fit
for the purpose at the time of delivery and which (as delivered) could be
relied upon to remain fit for that purpose for a reasonable time thereafter;
but he said nothing to suggest that that was an obligation which required
the retailer to do anything in relation to the goods once they had been
delivered. Indeed, it is difficult to see what the retailer could do in the
circumstances. In my view the plaintiffs obtain no assistance from the
observations in Lexmead (Basingstoke) Ltd v Lewis.
19. We were referred, also, to the decision of this Court in Cullinane v
British “Rema” Manufacturing Co Ltd [1954] 1 QB 292. The only issue in
that appeal was as to the calculation of the damages which the plaintiff
was entitled to recover for breach of a warranty as to fitness for purpose
- see Lord Justice Jenkins at page 308. Sir Raymond Evershed, Master
of the Rolls, expressed the principle at pages 301-2: the plaintiff, who
got a machine which in the event failed to live up to the performance
warranted, should be put in the same position (so far as that could be
done by money) as he would have been in if the machine had been as
warranted. The Court held that the plaintiff could not recover both capital
expenditure and loss of profits. If he were to claim for loss of profits he
had to bear, or give credit for, the capital expenditure which had been, or
would have had to be, laid out in order to earn those profits. For my part I
find nothing in that decision which assists in the present case.
20. In those circumstances I can no reason to reject the view, already
expressed, that the obligation to supply machines which were fit for
the known purpose was an obligation which was to be performed,
once and for all, at the time of delivery. The plaintiffs submissions, as
it seems to me, seek to elevate a warranty as to fitness for purpose
into an undertaking to guarantee future performance. I find nothing
in the pleaded case which suggests that the plaintiffs seek to rely on
a guarantee of future performance; and nothing in the documentation
which has been put before us which would justify a conclusion that the
plaintiffs have any prospect of establishing that this defendant undertook
to guarantee future performance. The obligation relied upon is, in my
view, the obligation which arose (if at all) under an implied warranty that
the machines would be fit for the known purpose.
21. In relation to the machines supplied under seven of the eight
contracts, delivery was to take place at the defendant’s factory in
Germany. That was the place at which the obligation was to be performed.
But under one of the eight contracts - that made in or about June 1991
for the supply to the second plaintiff of a machine having serial number
34.22/153 - delivery was to be from the National Exhibition Centre in
Birmingham. The documentation in relation to that contract appears
incomplete; but it is, I think, sufficient to justify the conclusion that, in
relation to that machine, the obligation on which the second plaintiff
bases its claim fell to be performed at the place of delivery in England.
22. For those reasons I would allow this appeal. I would order that these
proceedings be struck out for want of jurisdiction, save in so far as the
claim relates to machine 34.22/153.
ORDER: Appeal allowed. Order striking out the Statement of Claim,
except as regards one machine, in terms to be agreed with liberty to
apply. Appellants awarded 60% of their costs overall. Leave to appeal to
the House of Lords refused.
(Order not part of approved judgment)