PILL LJ: This is an appeal from a decision of His Honour Judge David
Wilcox, sitting in the Official Referees' Court, on 26 August 1998. On
a preliminary point the judge held that the English court did not have
jurisdiction over the plaintiffs' claim and that the proceedings should be
set aside.
The plaintiffs, M. Limited, claim damages for breach of contract. They
were subcontractors to W. Ltd on work at 'Q' Block at G., and they made
a subcontract with the defendants for the design, manufacture, supply
and delivery of rainscreen panels for G.. These panels were supplied by
the defendants but found to be faulty. The problems arose from defective
design or manufacture rather than any subsequent defects or failures in
transit or storage.
The defendants are domiciled in Germany and the plaintiffs are the
English subsidiary of a German company. For the purposes of the
application before the judge, it was accepted that English law governed
the contract and the question was whether the action could be heard in
the English courts. This turned upon the construction of Articles 2 and
5(1) of the Brussels Convention. Article 2 provides that:
"Subject to the provisions of this Convention, persons domiciled in a
Contracting State shall, whatever their nationality, be sued in the courts
of that State."
There are exceptions to that principle. One of these is set out in Article 5,
which, as an exception, is agreed should be interpreted restrictively:
"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; (...)"
The present case turns upon what is the obligation in question, within the
meaning of that Article, upon the facts of the case.
In Ets A de Bloos SPRL v Societe en commandite par actions Bouyer, Case
14/76, [1976] ECR 1497, a judgment of the European Court of Justice of
6 October 1976, the court held:
"11 (...) the word 'obligation' in the article refers to the contractual
obligation forming the basis of the legal proceedings.
12. This interpretation is, moreover, clearly confirmed by the Italian and
German versions of the article.
13. It follows that for the purposes of determining the place of
performance within the meaning of Article 5, quoted above, the obligation
to be taken into account is that which corresponds to the contractual right
on which the plaintiff's action is based.
14. In a case where the plaintiff asserts the right to be paid damages or
seeks a dissolution of the contract on the ground of the wrongful conduct
of the other party, the obligation referred to in Article 5(1) is still that
which arises under the contract and the non-performance of which is
relied upon to support such claims."
The effect of that decision was considered by the court in Custom Made
Commercial Ltd v Stawa Metallbau GmbH, Case C288/92, [1994] ECR
2913, doubt having been cast in an earlier case upon the effect of the
judgment in de Bloos. The court stated in its judgment:
"13. Article 5(1) provides in particular that a defendant may, in matters
relating to a contract, be sued in the courts 'for the place of performance
of the obligation in question'. That place usually constitutes the closest
connecting factor between the dispute and the court having jurisdiction
over it and explains why that court has jurisdiction in contractual matters
(see Case 266/85 Shenavai v Kreischer [1987] ECR 239, paragraph 18).
14. Although the connecting factor is the reason which led to the adoption
of Article 5(1) of the Convention, the criterion employed in that provision
is not the connection with the court seised but, rather, only the place
of performance of the obligation which forms the basis of the legal
proceedings.
15. The place of performance of the obligation was chosen as the criterion
of jurisdiction because, being precise and clear, it fits into the general aim
of the Convention, which is to establish rules guaranteeing certainty as
to the allocation of jurisdiction among the various national courts before
which proceedings in matters relating to a contract may be brought."
In this case the plaintiffs issued to the defendants on 5 December 1994
a 'Purchase Order'. It is in printed form with handwritten additions. The
printed form provides:
"Please supply the goods specified below subject to our conditions of
order set out overleaf and any special instructions and conditions stated
below."
There is then added in handwriting:
"To supply and deliver rainscreen panels all in accordance with our
drawing nos. 1083/03/MF53 to MF56 inclusive."
At the foot of the same first page of the Purchase Order the printed words
'Deliver to' appear, with a gap for the appropriate place to be inserted.
The words 'M.' have been inserted, with a delivery date given as the week
ending 6 January 1995. That address is in England.
The 'Conditions of Purchase' accompanied the page to which I have
referred. In the definition paragraph the 'Supplier' is said to be:
"any person, firm or company with whom the company contracts for the
supply of goods, work or work and materials."
Paragraph 3 provides that:
"All goods, work or work and materials supplied or used in pursuance of
the Contact shall be of the highest quality and suitable in every respect
for the purpose for which they are required and shall correspond in every
respect with any sample, patent, specification, description or drawing
relating thereto (...)"
Paragraphs 4 and 5 deal with approval and acceptance of:
"All goods and materials supplied (...)"
Provision is made that the goods may be inspected at the place of
production, but that approval by the company of the goods:
"(...) shall not be deemed to be acceptance of the same for the purposes
of the preceding Condition (...)"
Paragraph 8 of the Conditions of Purchase provides:
"RISKS AND TITLE
Unless otherwise agreed in writing, the Supplier shall bear the risk of loss,
destruction or damage to the goods, work and materials until, in the case
of goods, delivery is effected in accordance with Condition 9 hereof, at
the place of delivery specified in the Order or otherwise as directed by the
Company on delivery thereof or upon completion of the work as the case
may be."
Paragraph 9 provides:
"DELIVERY
Time shall be of the essence of each and every Contract and delivery
or performance must be effected within the time specified in the Order
failing which the Company reserves the right to rescind the Contract
and recover from the Supplier any direct or consequential loss thereby
incurred. Delivery to site shall only be effected under the Contract when
the goods or work are received on site by the Company's duly authorised
representative and the signature of such representative on the Supplier's
delivery advice note only shall be evidence of such delivery."
The standard form refers, as will have been seen, to work done as well
as goods supplied, but this contract is concerned only with the supply of
goods.
It is not in dispute that the Purchase Order to which I have referred was
accepted by the defendants and a binding contract was thereby made.
However, for the defendants, Mr Manzoni also draws attention to a letter
written by the defendants before the contract was made.
On 12 March 1994 the defendants, during pre-contract negotiations, had
written a letter to the plaintiffs in which they stated:
"The price for the complete supply of the panels is £ 112,649.70 plus £
2,892.45 for packing and shipment in two containers."
That price was subsequently modified. The modification is not claimed to
be material for present purposes.
The contract was for the supply of 531 panels. A delivery in England of 83
panels was rejected by the plaintiffs. They then exercised their right to
inspect a further 62 panels in Germany and rejected those. The balance
of the 531 was subsequently delivered at the appropriate address in
England. They were alleged to be defective and a claim for damages has
been made.
Having considered Article 5 of the Convention and the facts of the case,
the judge concluded:
"Such express terms as are relied upon and those derived from
specifications allegedly agreed all relate to design and manufacturing
quality. The breaches relied upon are all breaches of design and
manufacturing obligations. The particulars of those breaches condescend
to very great detail and are set out extensively making reference to each
sheet of cladding in the schedules annexed to the Statement of Claim.
In my judgment the primary obligation under the contract terms asserted
by the plaintiff essentially relate to the design and manufacture and
supply of the panels. Those are all obligations that would be performed in
Germany.
It is right that the written confirmatory purchase form makes reference to
delivery. It distinguishes supply from delivery. The delivery in this context
clearly relates to the carriage obligation of the defendants under the
contract(...).
In my judgment the place of performance of the principal obligation within
the meaning of Article 5 is Germany. In consequence Article 5(1) does
not give the English Court jurisdiction over the claim and the proceedings
should therefore be set aside."
For the plaintiffs, Mr Schaff QC submits that the contract was for the
supply of goods delivered and not ex-works. At the heart of the appeal,
he submits, is the characterisation of the contract. The fact that design
and manufacture took place in Germany should not obscure the fact
that the primary obligation under the contract was to be performed by
supply in England. He submits that the defendants confuse, on the one
hand, the nature of the obligation breached and the place at which that
obligation was to be performed with, on the other hand, the acts and
omissions of the defendant which caused the breach of that obligation.
They confuse, he submits, what is the breach of the obligation with why
that obligation is in breach. The obligation breached was the failure to
supply goods conforming with the specification at the place of delivery
in England. The obligation of the defendants was to supply goods of the
required specification at the place of delivery. It is upon that obligation
that the plaintiffs have sued.
For the defendants, Mr Manzoni, in seeking to uphold the decision of the
judge, takes two points. The first is upon the wording of the contract
and the addition of handwritten words to the standard form. The words
'supply and deliver' have been added below the printed words 'supply the
goods specified'. The effect, Mr Manzoni submits, is that if the obligation
to supply is the principal obligation, in this particular contract it means
to design, manufacture and make available in Germany. There is then
a separate obligation to deliver in England. If the primary obligation is
to supply, that obligation, by reason of the added words, is discharged
in Germany. He submits that the earlier letter of the defendants, in
which cost of delivery is put on a separate basis from the cost of supply,
supports that construction of the contract. He accepts that, subject to
his second point, the supply under the printed form of words would
take place in England. He submits that the effect of the addition of the
expression 'and deliver' is to modify the contract, so that its effect is to
require supply in Germany followed by delivery in England. Under this
form of wording, the obligation to supply is the primary obligation and it is
discharged by making the goods available in Germany.
In a development of that submission, Mr Manzoni challenges Mr Schaff's
submission in his skeleton argument that the plaintiffs would have had no
cause of action until the failure to supply in England occurred. Mr Manzoni
submits that, upon defective manufacturing in Germany, the plaintiffs
would have a cause of action in Germany. He has referred to building
contracts in which it has been held that the building owner has a cause of
action in certain circumstances upon defective work done by the building
contractor, even though the time by which the work is to be done has not
elapsed. Even if there is the possibility of such an action before the supply
in England in this case (and, on the present facts, I am far from satisfied
that there could be any such action), it would not, in my judgment, affect
the nature of the action in fact brought in this case. It is an action for
failure to supply goods of the required specification. In my judgment the
possibility of another cause of action does not weaken what in the event is
the cause of action espoused in this case.
In his second point Mr Manzoni makes a frontal attack, relying upon the
judge's findings, upon Mr Schaff's submission as to what is the contractual
obligation forming the basis of the legal proceedings, within the meaning
of de Bloos. Mr Manzoni refers to the statement of claim in the action and
the detailed allegations of manufacturing defects in Germany. This is a
contract, he submits, to manufacture goods and then to supply them.
The breach in this case is of the obligation to manufacture correctly.
The breach is of the manufacturing obligation in Germany and not the
subsequently arising supply obligation in England.
I add that Mr Manzoni submits that in the paragraphs of the judgment
to which I have referred the learned judge was adopting both his
submissions, though I have to express some doubt as to whether the
judge had both of them in mind in his formulation. Nothing, however,
turns on that point.
I accept the submissions of Mr Schaff. In the context of this contract, the
addition of the words 'and deliver' does not convert a contract for supply
in England into two separate contracts, one for supply in Germany and
one for subsequent delivery in England. It might have been better if the
words 'and deliver' had been left out, the obligation to deliver already
appearing in a different part of the same page of the document. The
emphasis in the contract remains, however, on supply, which is something
different from manufacture, and the unnecessary repetition in handwriting
of the word 'deliver' does not have the effect of transforming this contract
into something quite different. That is supported by the standard terms,
to which I have referred, dealing with risks, title and delivery. Mr Manzoni
goes as far as to submit that the effect of adding the words 'and deliver'
in handwriting transforms clause 8, so that the risk would pass not, as
the standard term contemplates, upon delivery in England, but upon the
making available of the goods in Germany.
I am quite unable to conclude that the addition of the handwritten words,
which are repetitious, have the dramatic effect for which Mr Manzoni
contends. The effect of the words 'supply and deliver' is, in the context of
this contract, 'to supply by delivery'. This remained a contract for supply
by delivery in England. I have already expressed my conclusion upon
the elaboration of that point on behalf of the defendants by reference to
the possible existence in Germany of a cause of action before delivery in
England.
As to the second of Mr Manzoni's points, in my judgment the contractual
right on which the plaintiffs' action is based is the right to sue for a
failure to supply goods conforming with the contractual specification.
To put it the other way round, the obligation forming the basis of the
legal proceedings is the obligation to supply goods conforming with that
specification. The place of performance of that obligation is England. It is,
in my judgment, immaterial that the acts and omissions which led to the
failure to supply appropriate goods in England occurred in Germany. The
statement of claim does, for present purposes (and no pleading point is
taken), sufficiently allege a contractual obligation to supply goods and a
breach of that obligation. The detailed pleading as to the circumstances in
which the obligation was not performed does not detract from the nature
of the right which the plaintiffs are asserting.
In my judgment Article 5(1) does apply and the defendants may be sued
upon this claim in England. For those reasons I would allow this appeal.
ALDOUS LJ: I agree. But, as we are differing from the judge, I will add a
few words.
Article 5(1) of the Convention enables suit to be brought in matters
relating to a contract in the courts for the place of performance of the
obligation in question. The European Court of Justice has made it clear
that:
"14 (...) the criterion employed in that provision is not the connection
with the court seised but, rather, only the place of performance of the
obligation which forms the basis of the legal proceedings.
15. The place of performance of the obligation was chosen as the criterion
of jurisdiction because, being precise and clear, it fits into the general aim
of the Convention, which is to establish rules guaranteeing certainty as
to the allocation of jurisdiction among the various national courts before
which proceedings in matters relating to a contract may be brought."
Per the European Court of Justice in Custom Made Commercial Ltd v
Stawa Metallbau GmbH, Case C288/92.
The crucial difference between the parties turns upon where that place
was. Mr Manzoni, who appeared for the respondents, submitted that the
contract was for the supply of the panels in Germany, with the result
that the property passed in Germany. There was under the contract a
separate obligation to deliver. That, he submitted, was the conclusion
that the judge reached. I believe that he was right that that was the
conclusion that the judge reached. The judge drew attention to five points
of guidance which he derived from the speech of Lord Goff in Kleinwort
Benson Ltd v City of Glasgow [1999] AC 153, [1997] 4 All ER 641. He
then turned to the statement of claim and came to the conclusion that the
result was:
"In my judgment the primary obligation under the contract terms
asserted by the plaintiff essentially relate to the design and manufacture
and supply of the panels. Those are all obligations that would be
performed in Germany."
In my view the judge wrongly understood the obligation which would
found the basis of the claim. It was an obligation to supply in England
by delivery to the required address. I need not set out the terms of the
contractual documents, which have been read by my Lord. In my view
the obligation was clear. It was to supply the panels in England. I reject
the submission of Mr Manzoni to the contrary for four reasons. First,
there is nothing in the documents which suggests that the supply was
to be in Germany. There is no mention of Germany in the contractual
documents and the words used in them are to the contrary. Secondly,
there is nothing in the contractual documents which appears to alter
the standard conditions of purchase set out on the back of the order, in
particular the provisions in clauses 4, 5, 8 and 9, which my Lord has read.
They negative the submission that the property in the goods should pass
in Germany as they make it clear that supply was to take place in England
and it was in England that the property should pass. Thirdly, Mr Manzoni's
submission leads to uncertainty. What does supply involve if the supply is
to be in Germany? There was no provision for making anything available
in Germany, nor how that would happen, although there was provision for
inspection if the plaintiffs wished. If the contract is to have certainty, then
the supply had to take place in England where there would be delivery.
Fourthly, on the facts, the contract was operated in that way. The panels
were supplied in England and it was at that stage that the contract was
deemed to be complete.
I turn to the second way in which Mr Manzoni puts his case. He says that,
even if the contract was for the supply in England, the principal obligation
was to manufacture the panels in an appropriate way. In my view that
submission can be demonstrated to be misconceived by considering
two cases: first, where the panels were delivered in England but were
damaged in transit, and second, where delivery took place in England
but the damage took place during manufacture. If Mr Manzoni is right,
then the principal obligation would be broken in one case in one country
and in the other in another country, depending upon where the damage
took place. The contract was for the supply in England. That was the
principal obligation. It mattered not to the plaintiffs how the goods came
to be defective. What they ordered and what they required was panels
made to the appropriate specification and that is the reason why they
complain in the statement of claim of breach of the obligation to supply in
England. They allege that they did not obtain that which they contracted
to acquire. Based upon the pleading and upon the contract, it is clear that
the principal obligation occurred in this country.
I therefore, for those reasons and those given by my Lord, would allow
this appeal.
WARD LJ: This was a contract to supply and deliver certain cladding
panels to the factory in Birmingham. Panels were duly supplied and
delivered by the defendants. They were said to be defective. So the
plaintiffs brought this action for damages and for an indemnity, and
the question which arises is this (adopting the language in paragraph
14 of Shenavai v Kreischer, Case 266/85, [1987] ECR 239): what
was the contractual obligation whose performance is sought in the
judicial proceedings? The appellant says the contractual obligation is
the obligation to supply and deliver conforming panels. The respondent
submits that there are separate obligations: that there is the first
obligation to supply (that is to say, to make available) which involves
design and manufacture of the panels, which is performed in Germany,
and the second obligation to deliver, which is performed by carriage to
England.
In my judgment they are not separate obligations, though they may be
separate parts of a composite obligation. It is composite because, if there
has been no delivery at all, then the goods cannot have been supplied.
One can have a contract to supply without delivery to the purchaser's
place of business, which is performed by furnishing the goods and making
them available at the supplier's place of business. But if the contract is,
as it is here, to supply and deliver to the purchaser's place of business,
then the contract is not performed unless and until that delivery has taken
place, and the breach of performance occurs in England.
The alternative submission is that the primary contractual obligation was
to manufacture the goods which conformed to the specification. As I
understand the submission, Mr Manzoni relies on the allegations in the
statement of claim that the relevant breaches were breaches of design
and manufacture and it is in respect of those breaches that complaint is
made and so the failure to conform with the specification would then have
taken place in Germany. The error there seems to me to confuse what he
is in breach of with the reasons for the breach.
In my judgment the respondent is in error, an error made clear by
Custom Made Commercial Ltd v Stawa Metallbau GmbH, Case 288/92,
in characterising the nature of the contract and not the contractual
obligation founding the action. What the plaintiff complains of in this case
is quite clear: 'That which you delivered to me was defective.' The breach
of performance, therefore, occurred in this country.
I also would allow the appeal.