JUDGMENT
PURCHAS L.J.:
[1] This is an appeal by M. P. Limited ('M.') from an order of Hidden J.
dated 26 February 1990 dismissing an action brought by them in the
Queen's Bench Division against Wolfgang L. GmbH ('L.'). The order was
made on an application by L. disputing the jurisdiction of the court under
R.S.C., Order 12, rule 8(1)(g). L. are a company incorporated according
to the laws of the Federal Republic of Germany ('German law'). M., a
company incorporated in England and Wales, served a writ endorsed with
a statement of claim certifying that the High Court of England and Wales
had power under the Civil Jurisdiction and Judgments Act 1982('the 1982
Act'). Hidden J. decided that the court did not have jurisdiction under the
1982 Act and dismissed the claim.
[2] This appeal raises an issue under Article 5(1) of the EEC Judgments
Convention 1968 as imported into the law of the United Kingdom under
section 2(1) of the 1982 Act. …[4] M. claims moneys due under a contract
entered into between it and L.. The place of the obligation to pay it
alleges is in England. L. disputes this and says that the relevant law is
German law and that the courts in which M. should pursue its remedies
are in the Federal Republic. M. now appeals against Hidden J.'s judgment
in favour of L.. L., on its part, asserts that it has a substantial claim
against M., inter aliafor the wrongful determination by M. of the contract.
It has, since the issue of the writ in England, initiated procedings in the
Düsseldorf courts.
[5] At all times material to this appeal M. was the sole exclusive
worldwide authorised representative of the proprietor of the French
newspaper Le F. and 'F. Magazines' for the sale of space in their
publications for commercial, financial and other advertising.
[6] Mr. Wolfgang L. had between 1972 and 1976 worked as the managing
director of the German branch of a large French publishing company, the
P. P. Company. Amongst its other publications, P.'s interest in Le F. and the
magazines was bought by the H. family through a company called Pu. SA,
which was a company incorporated with limited liability under the laws of
the Republic of France. In March 1977, Mr. Wolfgang L. had entered into
a contract with Pu. under which he was granted the exclusive rights to
act as agent for Le F. in the territory of the Federal Republic of Germany
for the canvassing of commercial advertising and holiday, financial and
economic advertising, classified advertisements and births, deaths and
marriages. This contract was renewable from year to year, and in fact ran
until 1982.
[7] By a contract dated 1 August 1983 between Pu. and M., M. was
granted exclusive rights relating to Le F. and Le F. Magazines abroad, that
is in respect of all countries outside France and its overseas departments
for the canvassing of:
'
Commercial advertisements
Small Advertisements
Financial Advertisements
Carnet de jour advertisements.
'
This contract was to run for a period of two years from January 1983, and
was 'renewable for yearly periods by tacit agreement, except in the event
that notice was given by recorded delivery letter three months before the
end of present contractual period.'
[8] Armed with its exclusive agency agreement M. then entered into sub-
agreements with a number of agents who, under similar contracts, had
exclusive agencies in their own particular territories. By June 1984 there
appear to have been some 15 agents distributed about the world, one
of whom was L.. In general terms the contracts were similar, if not in
standard form, and it is necessary now to turn to the specific contract
which was entered into between M. and L.. The first contract was in fact
entered into on 1 January 1983, from which date it was effective, and
was made with Mr. Wolfgang L. personally. This had a clause in it which
was not repeated in the later contracts, and was said to be 'linked to the
achievement of a goal of 2.6 million FF. for all the F. titles.'
[9] L. was incorporated on 5 August 1982. It was said by Mr. Wolfgang
L. that this made absolutely no difference to his relationship with Le
F., with which at this time he had a direct contractual relationship. The
incorporation took place for tax reasons on the advice of his accountants.
Nevertheless the contract with which this appeal is concerned and
upon which M. sues was made between M. and L. the incorporated
entity. It is now necessary to set out some of the relevant terms of this
agreement. The agreement was expressed in French but, for convenience
sake, I will use an English translation. I do not think anything requires
reference to the original French text. The contract is on M. headed paper,
and expressed to be between M. P. Limited at an address in London,
represented by Mr. Timothy U. of the one part, and Wolfgang L. GmbH
of an address in Düsseldorf, represented by Mr. Wolfgang L. of the other
part. The body of the contract provided:--
1. 'CONTRACT
M. P. Ltd. grant Wolfgang L. GmbH the sole agency for "Le F." and the
magazines of "Le F." in the territory of the German Federal Republic for
the canvassing of:
--commercial advertising
--small advertisements
--financial advertising
--carnet de jour.
2. CONTRACTUAL PERIOD
This contract is concluded for the period of one year with effect from
1st January 1984 and is tacitly renewable from year to year, unless a
three months' notice is served by registered letter before the end of the
contractual period.
3. COMMISSION
25% of the gross amount invoiced, excluding tax, regarding all orders
issued and invoiced in the German Federal Republic in respect of
commercial and financial advertising. …
4. INVOICING
Advertisements are invoiced by M. P. Ltd. to the order of Wolfgang L.
GmbH who therefore accept the del credere for all advertising orders
submitted by them, without any exception whatsoever. …
5. RESTRAINT OF TRADE
In the absence of the prior written approval of M. P. Ltd., Wolfgang L.
GmbH are not authorised throughout the entire contractual period, to
represent any French media in direct competition with "Le F." or its
magazines.
6. DOCUMENTATION
M. P. Ltd. undertake to make available to W. L. GmbH all documents
required for the purpose of their activities (pricelists, investigations,
supporting documents, etc.).'
[10] There has been some conflict between the evidence contained
in the affidavit of Stuart Clifford Mi. sworn on 23 January 1990, the
affidavit of Mr. L. sworn on 5 June 1991, and the affidavit of Michel André
Roland H. sworn on 17 June 1991, as to the circumstances in which the
contract came into existence. However, upon a careful comparison of
the affidavits and the contract document itself there seems little doubt
that, whilst there may have been telephone conversations in advance of
the agreement between Denise G. representing M. and Mr. L., the one in
London and the other in Düsseldorf, it is overwhelmingly probable that
there was a meeting held in London at which Mr. L. was present on 20
June 1984. It is inconceivable that the document, as signed by Mr. L. and
dated that date, did not come into existence at the offices of M. and was
either signed by him then and there or signed subsequently by him in
Germany, having first been signed by Mr. U., who was not present at the
meeting but was out of London in the West Country. For the contractual
significance of the coming into existence of this document it is difficult to
see the relevance of the minor areas of dispute. If it were relevant I would
be strongly inclined to accept the version given by Mr. H. as it seems to
be consistent with the document as it exists at the moment. Whatever
may be the true version of events there is no doubt that the contracting
parties were all present in the same room in London on 20 June 1984
and that this was both the location and the date at which the document
physically came into existence.
[11] One of the questions which must be addressed is whether this
contract created an agency agreement or whether it was a contract
providing for a relationship under which M. granted to L., as one
principal to another, the exclusive rights to canvass for the various
types of advertisements listed in the contract to be placed in the French
newspaper and magazines under the title of Le F.. L. relied upon the
'creation of a del credere agency' as supporting its contention that it was
acting as agent under a contract of agency and therefore fell within Article
5(5) of the EEC Judgments Convention. However, other features of the
relationship were quite inconsistent with the creation of such an agency
such as the total freedom of operation within the contract afforded to L.,
the individual invoicing arrangements and the freedom of engagement
afforded to L., subject only to the provisions of clause 5: Restraint of
Trade.
[12] There was a considerable body of evidence dealing with the working
out of the contract which established, inter alia, the following:
1. that L. was free to use its own initiative in the canvassing for
customers or clients wishing to take advertising space in F. and the F.
magazines;
2. that when an order for such space was obtained by L., if it was an art
advertisement, i.e. not 'announcement' e.g. births, deaths, etc., then
the order including the artwork was in most cases already designed and
approved by the customer in Germany and would frequently be sent
directly from L. in Düsseldorf to F. in Paris. However, F.'s charges were
invoiced to M. in London and M. invoiced L. in Düsseldorf --see 4. below;
3. that the small advertisements which did not involve artwork were
obtained in Düsseldorf by L. and then forwarded to London for approval
by M. and onward transmission from M. to F. in Paris;
4. that on acceptance of any advertising matter by F., F. invoiced M. in
London. M. in turn invoiced L. in Düsseldorf, making provision for L.'s
commission under the agreement;
5. that in the early stages payment by L. to M. was made by
Eurocheques. At the later stage however, at the request of M. and at
its expense, payment was made by direct transfer from L.'s bank in
Düsseldorf to M.'s bank in London. This was to achieve expedition in
payment.
[13] Although Hidden J. concluded that the proper law of the contract was
German law, in my judgment there is considerable room for argument
whether the proper law of the contract between M. and L. was English or
German law. In my judgment there is at least a good arguable case that
the proper law of the contract was English. It is significant to this extent
that in English law the debtor must seek out the creditor and pay the
creditor when he finds him, whereas under German law, as I understand
it, the creditor must seek out the debtor and make demands upon him
at his place of domicile or residence. This has obvious significance in
relation to the terms of Article 5(1) of the EEC Judgments Convention, if
the obligation being sued upon is that to make payment.
[14] Hidden J. relying upon Tessili v. Dunlop and Tesam Distribution
Ltd. v. Schuh Mode Team GmbH, correctly accepted the test that the
onus was on the plaintiff to establish a good arguable case under Article
5(1) that England was the place for performance of the obligation in
question, and that in determining this the court must apply its own rules
of conflict of laws in order to determine the proper law of the contract.
The special rule or exception in the Ivenel case was to the effect that in
contracts of 'employment' the rule in Article 5(1) that the plaintiff had
the option of suing in the courts of the place for the performance of the
obligation, e.g. payment, did not apply but that in such cases the place
where the defendant must be sued is where the party it to perform 'the
characteristic obligation of the contract or where he has his habitual
residence...'Hidden J. resolved this question in the following terms:
'...I am of the view that the contract in this case is one to which the
exceptional rule in Ivenel applies …
[15] The judge then continued to consider the position on the hypothesis
that his first decision was wrong and concluded that the end result would
still be the same. He achieved this position by considering the subsidiary
problem as to what was the proper law of the contract. I shall return to
this matter later in this judgment. Hidden J. also considered the question
of forum conveniensand the possibility of L. initiating proceedings in the
Düsseldorf courts. With respect to the learned judge these problems
do not go to the question of jurisdiction. It was not known to Hidden
J. that L. was to initiate separate proceedings arising out of the same
contract in the courts in Düsseldorf. Where such a conflict arises between
the courts in two countries each enjoying jurisdiction the matter falls to
be dealt with under Article 21. As I have said, this issue, which clearly
may be of importance at a later stage, is not critical in the determination
of the question of jurisdiction within Article 5(1) of the EEC Judgments
Convention. As was pointed out in argument, the fact that the proper law
of the contract may be other than English law does not of itself inhibit
the courts of England from assuming jurisdiction. Similarly the issue of
concurrent proceedings, but subsequently initiated by L. in Germany,
would invoke the provisions of Article 21 of the Convention so as to stay
those proceedings in Germany. Indeed I understand that steps have
already been taken by M. to achieve this end. It was submitted by Mr.
Green that if the matter proceeded in the English courts L. would be
deprived of remedies otherwise available to it in the Düsseldorf courts.
This again is not so, since the Convention makes specific provision for
counterclaiming in circumstances of this kind (see Article 6(3)).
[16] The central issue on the appeal was whether the place for
performance of the obligation within the meaning of Article 5(1) of the
Convention was in London, since under English law the place for the
payment was to be in London, or whether the place for the performance
of the obligation was Germany either because German law was the
proper law of the contract, in which case under that law the creditor must
seek out the debtor or, alternatively, because the terms of the contract
amounted to an engagement or employment within the Ivenel exception
and the general character of the engagement involved performance in
Germany rather than in England. Having described the issues in broad
terms, it is necessary however to add that in order to establish jurisdiction
all the plaintiff has to do is to show that it has a 'good arguable case'that
the English courts have jurisdiction.
[17] In arriving at the nature of the engagement, the starting point must
always be the terms of the contract itself. First of all, as originally drafted;
secondly, as to the circumstances surrounding its creation; and, thirdly, as
to any subsequent agreement or requirement as to the working out of the
obligations created by the contract.
[18] There was a considerable amount of evidence laid before the judge
in the form of affidavits and exhibits. On the appeal substantial cross
applications to adduce further evidence were filed. …The extracts from
the affidavit of Denise G. traced the history of the granting to M. of the
exclusive worldwide advertising agency for F. Publications under the
agreement with Pu. SA dated 1 August 1983. The contract between M.
and Wolfgang L. of 20 December 1981, to which I have already referred,
provided for a’target' of orders of 2.6 million FF. Similar terms were
apparently included in other agency contracts which had been made
in respect of other countries. However, in 1984, the general form of
contracts for agents was changed and this minimal target level of sales
was omitted. Similar provision for commission levels was included in
all the new agency agreements as well as the provision appointing the
agents concerned 'del credere agents.' The affidavit also emphasised that
L. was free to, and did, produce advertising for other publishers, provided
this did not compete with the Le F. Group. The general picture created by
this additional evidence, in association with the evidence already before
the judge, established a background against which the formal contractual
relationship governing L. and M. could be considered, including the
important fact that this was one of a number of similar contracts with 14
or 15 other exclusive agents, each with its own exclusive territory in other
parts of the world. There was no minimim obligation of performance upon
L. or upon any of the others nor any exclusive condition other than that
they should not deal with publishers who were in competition with F.. …
The Ivenel case
[21] In construing the Articles of the Convention certain propositions are
well established. The Articleis to be construed purposively in accordance
with European law rather than domestic law. In doing this the broad
objectives of the Convention and the individual article in question must be
taken into account: Tessili v. Dunlop and the 'Deichland '.
[22] A plaintiff claiming for breach of contract has an option under Article
2 and Article 5(1) to sue the defendant either in the place of his domicile
or in the place of performance of the obligation in question under Article
2or Article 5(1) respectively. Mr. Green, relying upon the reference to
Kalfelis v. Hema, by the European Court in six Constructions Ltd. v.
Kreischer submitted that Article 5(1) was in some sense in derogation
from the rights in Article 2, so that unless a clear and positive case was
established under Article 5 in a situation of ambiguity or uncertainty,
Article 2 would prevail. I am not convinced that European law supports
this submission to the extent suggested by Mr. Green. Mr. Burton
submitted that there was a freedom of choice in the plaintiff to choose
between the two options--see the judgment of the court in Tessili v.
Dunlop:
'The question raised by the national court.
[12] Article 5 …must be interpreted within the framework of the system of
conferment of jurisdiction under Title II of the Convention. In accordance
with Article 2 the basis of this system is the general conferment of
jurisdiction on the court of the defendant's domicile. Article 5 however
provides for a number of cases of special jurisdiction at the option of the
plaintiff.
[13] This freedom of choice was introduced in view of the existence in
certain well-defined cases of a particularly close relationship between
a dispute and the court which may be most conveniently called upon
to take cognizance of the matter. Thus in the case of an action relating
to contractual obligations Article 5(1) allows a plaintiff to bring the
matter before the court for the place "of performance" of the obligation
in question. It is for the court before which the matter is brought to
establish under the Convention whether the place of performance is
situate within its territorial jurisdiction. For this purpose it must determine
in accordance with its own rules of conflict of laws what is the law
applicable to the legal relationship in question and define in accordance
with that law the place of performance of the contractual obligation in
question.
[14] …it does not appear possible to give any more substantial guide to
the interpretation of the reference made by Article 5(1) to the "place of
performance" of contractual obligations. This is all the more true since the
determination of the place of performance of obligations depends on the
contractual context to which these obligations belong.
[15] In these circumstances the reference in the Convention to the place
of performance of contractual obligations cannot be understood otherwise
than by reference to the substantive law applicable under the rules of
conflict of laws of the court before which the matter is brought.'
[23] M. has exercised its option to found jurisdiction upon Article 5(1).
In order to do this it does not have to establish finally or absolutely that
the place for the performance of the obligation in question, namely the
payments due to M. in respect of the advertising placed by L., was in
London, but only that there is a good arguable case that this was so. This
matter was considered by the Court of Appeal in tesam Distribution Ltd. v.
Schuh Mode Team GmbH and commerzbank ag. In the leading judgment
delivered by Nicholls L.J. (as he then was) the function of the national
court was considered in the context of a dispute as to the existence and
content of a contract in deciding whether to exercise jurisdiction under
Article 5(1). Counsel for the defendants submitted that before the court
could entertain such a claim it had to be satisfied of the contractual
jurisdictional basis within the Convention. Nicholls L.J. referred to the case
of Effer SpA v. Kantner. Counsel for the defendant relied upon a quotation
from the judgment of the European Court of Justice:
'...On the contrary, respect for the aims and spirit of the convention
demands that that provision should be construed as meaning that the
court called upon to decide a dispute arising out of a contract may
examine, of its own motion even, the essential preconditions for its
jurisdiction, having regard to conclusive and relevant evidence adduced
by the party concerned, establishing the existence or the inexistence of
the contract...'
A serious question to be tried
This is not to say that the bare assertion of the existence of a contract
is the end of the matter on an interlocutory application such as this.
Far from it. The English court has ample powers of its own to see that
the jurisdiction which it is given by Article 5(1) of the Convention is not
abused. When leave to serve a writ out of the territorial jurisdiction of the
English court is needed under Order 11, rule 1(1), leave is not granted
unless it is made sufficiently to appear to the court that the case is a
proper one for service out of the jurisdiction (see Order 11, rule 4). To
satisfy that requirement a good arguable case must be made out: see
Lord Simonds in Vitkovice v. Korner [1951] A.C. 869, 879 and 880. Order
11, rule 1(1) does not apply in the present case. Jurisdiction under the
Convention is not a matter of discretion. Nevertheless, bearing in mind
that jurisdiction under Article 5 is an exception to the general rule under
Article 2, the English court will be astute to see that frivolous or vexatious
claims for the existence of a contract are stopped summarily at the
outset, either under Order 18, rule 19, or under the inherent jurisdiction
of the court. There must be evidence establishing a genuine and real
dispute. The court should be satisfied that there is a serious question
which calls for a trial for its proper determination.'
[24] If the matter ended at this stage I would have no doubt that there
was a good arguable case or a serious question to be tried as to whether
the proper law of the contract was English law, bearing in mind all the
circumstances in which the contract was made, and the manner in which
it was to be performed. In this respect I regretfully find myself unable to
support the view formed by Hidden J. when dealing with what was the
secondary part of his judgment. It is however necessary to look more
closely whether under European law and the Ivenel exception to Article
5(1)the relationship between M. and L. was such as to fall within the
exception recognised in that case and the cases which followed upon it.
Mr. Green submitted that the principle had an application much wider
than contracts of employment in the master and servant sense and
extended to embrace contracts of employment of a commercial agent,
notwithstanding that the latter was an incorporated entity.
Ivenel v. Schwab
…
Adoption of the special rules of jurisdiction as contained in Articles 5 and
6 of the Convention is justified inter alia by the fact that there must be a
close connecting factor between the dispute and the court with jurisdiction
to resolve it. The report drawn up by the committee of experts (Official
Journal 1979, C. 59, p. 1) which drafted the text of the Convention
stresses that connection by stating inter alia that the court for the use
of performance of the obligations will be useful in proceedings for the
recovery of fees since the creditor will have a choice between the courts
of the State where the defendant is ordinarily resident by virtue of the
general provisions contained in Article 2 of the Convention and the courts
of another State within whose jurisdiction the services were provided,
particularly where, according to the appropriate law, the obligation to pay
must be performed where the services were provided.' …
[15] It follows from the foregoing account that in the matter of contracts
Article 5(1) of the Convention is particularly concerned to attribute
jurisdiction to the court of the country which has a close connection with
the case, that in the case of a contract of employment the connection lies
particularly in the law applicable to the contract; and that according to the
trend in the conflict rules in regard to this matter that law is determined
by the obligation characterising the contract in question and is normally
the obligation to carry out work.
[16] It emerges from an examination of the provisions of the Convention
that, in establishing special or even exclusive jurisdiction for insurance,
instalment sales and tenancies of immovable property those provisions
recognise that the rules on jurisdiction, too, are inspired by concern to
afford proper protection to the party to the contract who is the weaker
from the social point of view.'
[28] The court was clearly distinguishing the special attributes including
inequality of bargaining power arising out of a normal contract of
employment. In this regard they were following the opinion of Advocate
General Reischl. Having referred to the case of De bloos the Advocate
General submitted in relation to Article 5(1) as follows:
'(a) In that judgment it was held, following my Opinion in which I had set
out the conclusive arguments therefor, that Article 5(1) was not based
on the notion of a single place of performance which had to apply to the
contract as a whole and was to be determined according to the obligation
characterising the contract. On the contrary the term "obligation" within
the meaning of Article 5(1) was that contractual obligation which formed
the basis of the legal proceedings; the relevant obligation was therefore
that which corresponded to the contractual right on which the action was
based.
That must be stressed in view of certain references in the very brief
judgment making the reference which give the impression that in the
view of the Cour de Cassation it may suffice for the purposes of the
application of Article 5(1)that some of the obligations mutually entered
into in the contract at issue have to be performed in France even though
they themselves are not at issue....
In conclusion, however, I would like to return, as I previously mentioned,
to the question whether at least for contracts of employment a very clear
modification of the law as laid down in the judgment in Case 14/76 does
not appear to be appropriate.
The Commission has evolved a line of thought which points in that
direction. It obviously has in mind to ascertain in the case of legal
relationships of this kind one focal point (namely the area in which the
work has to be done and whose mandatory legal provisions require
application) which alone would determine the place of performance for
the purposes of Article 5(1),that is to say, there would be one place
of performance only for the whole contract. In that way the argument
that the determinant factor is the obligation characterising a contract
and that the venue of the place of performance is to be ascertained
accordingly would be recognised as least as far as the law of employment
is concerned.
That, however, seems to me a difficult case to argue in the present state
of the law.
It must be admitted that in the Jenard Report which is unquestionably
of importance in interpreting the Convention on Jurisdiction it is stated
that in drafting the Convention the special problems of contracts of
employment were seen and that it emphasises that "it is desirable that
disputes over contracts of employment should as far as possible be
brought before the courts of the State whose law governs the contract."
I cannot, however, disregard the fact that the provision contained in the
preliminary draft of the Convention to the effect that in matters relating
to contracts of employment the courts of the Contracting State in which
the undertaking concerned was situated or in which the work was to have
been performed was not included in the Convention. It is expressly stated
in the Report that it was decided not to insert in the Convention any
special provisions on jurisdiction in the matter of the law on employment,
obviously having regard to the work undertaken by the EEC Commission
in harmonising the provisions on employment law in the member-States;
further it is expressly stated that the general rulesof the Convention will
apply to contracts of employment and, as has been shown in Case 14/76,
with regard to Article 5(1), the theory that the determinant factor is the
obligation characterising a contract is not compatible with those rules.
Finally there can also be no question of departing from this because in the
meantime the Convention, which has not yet entered into force, on the
law applicable to contractual obligations has come into existence, for it is
stated quite clearly in the Jenard Report (Official Journal C 59, 5 March
1979, page 24):
"Once the work of the Commission in this field has been completed,
it will always be possible to amendthe provisions of the Convention,
either by means of an additional protocol or by the drafting of a
convention governing the whole range of problems relating to contracts of
employment..."'
[29] At the risk of over-generalisation, the burden of the Ivenel case
may possibly be summarised as saying that where there is a contract of
employment in which one contracting party may be at a disadvantage to
the other, i.e. employer/employee relationship, then the court will not look
to determining individual obligations under the contract for the purposes
of deciding questions of jurisdiction under Article 5(1) but will look at the
whole contract and the place where it is substantially to be performed
(the characteristics of the contract), so as to ensure that the employee's
position is properly protected under the laws of the place where he will
habitually be discharging his duties under the contract of employment.
The Shenavai case
…
[31] The following paragraphs of the judgment should be noted:
[6] 'It should be recalled that Article 2 of the Convention lays down the
general rule that jurisdiction is to be based on the defendant's domicile,
but that Article 5(1) therof further provides that, in matters relating to a
contract, the defendant may also be sued "in the courts for the place of
performance of the obligation in question." As the Court observed in Case
12/76, Tessili v. Dunlop, that freedom of choice was introduced in view of
the existence in certain cases of a particularly close relationship between
a dispute and the court which may be most conveniently called upon to
take cognizance of the matter....
[10] The general rule thereby defined admits, however, of certain
exceptions on the ground that "matters relating to a contract" cover
relationships of widely differing kinds, both from the viewpoint of their
social importance and from that of the obligations entered into. The
Convention takes account of that diversity by laying down certain special
rules which apply to specific contractual relationships. For example,
Article 16 of the Convention provides for exclusive jurisdiction in cases
concerning tenancies of immovable property....
[16] In that connection it should first be observed that contracts of
employment, like other contracts for work other than on a self-employed
basis, differ from other contracts--even those for the provision of
services--by virtue of certain particularities: they create a lasting
bond which brings the worker to some extent within the organisational
framework of the business of the undertaking or employer, and they are
linked to the place where the activities are pursued, which determines
the application of mandatory rules and collective agreements. It is on
account of those particularities that the court of the place in which the
characteristic obligation of such contracts is to be performed is considered
best suited to resolving the disputes to which one or more obligations
under such contracts may give rise.
[17] When no such particularities exist, it is neither necessary nor
appropriate to identify the obligation which characterises the contract and
to centralise at the place of performance thereof jurisdiction, based on
place of performance, over disputes concerning all the obligations under
the contract. The variety and multiplicity of contracts as a whole are such
that the above criterion might in those other cases create uncertainty
as to jurisdiction, whereas it is precisely such uncertainty which the
Convention is designed to reduce.'
The emphasis in this case can, I think, fairly be summarised as being
one dependant upon special characteristics arising out of 'a contract of
employment,' which calls for a specific distinction from the basis De bloos
principle. I would particularly emphasise the references in paragraph 16
to the bond bringing the worker within the organisational framework of
the undertaking or employer, to the link to the place where the work is to
be performed and to 'mandatory rules and collective agreements.' It was
to this paragraph that Hidden J. made specific reference in his judgment.
The Six Constructions Ltd. Case
…
[11] On the basis that in this case the employer carried out work not
in Brussels where, according to the documents before the Court, he
regularly returned to make reports, but only in African and Arab countries
to which he was posted to take part there in certain construction work,
the national court asked how it should apply the criterion of the place
where the work is carried out in order to determine which courts have
jurisdiction....
[13] That argument was contested by the Italian Government and the
Commission. According to the latter, the interpretation put forward
by those three governments has the twofold weakness of departing
significantly from the actual terms of Article 5(1) of the Convention and
of not taking account of the need to ensure adequate protection to the
socially weaker contracting party, namely the employee. In that regard,
the Commission argues that the effect of the criterion of the place of
business through which the employee was engaged is to give jurisdiction
to the courts for the place where the employer's registered office is
located, even if the employer is the plaintiff, and to establish thereby a
forum actoris whereas the underlying idea of the Convention, as is clearly
stated in Articles 2 and 3, is precisely to limit the number of cases in
which a person may be used in the courts of the plaintiff's domicile.
[14] The Commission's arguments on that point must be accepted. As
the Court held in its judgments of 26 March 1982 and 15 January 1987,
cited above, on account of the particularities of contracts of employment,
it is the courts of the place in which the work is to be carried out which
are best suited to resolving disputes to which one or more obligations
under such contracts may give rise. Those particularities of contracts
of employment do not justify an interpretation of Article 5(1) of the
Convention which would permit account to be taken of the place of
business through which the employee was engaged if it is difficult or
impossible to determine in which State the work was performed.
[15] The reply to the first question should therefore be that Article 5(1) of
the Convention must be interpreted as meaning that, as regards contracts
of employment, the obligation to be taken into account is that which
characterises such contracts, in particular the obligation to carry out the
agreed work.
Second question
[16] The second question concerns how to apply, in regard to contracts
of employment, the criterion of the characteristic obligation when the
employee carries out all his work outside the territory of the Community.
It asks in particular whether, in such a case, jurisdiction is determined by
reference to the place of business in which the employee was engaged or
whether it must be determined pursuant to Article 2 of the Convention.
[17] The possible choice of the criterion of the place of business in which
the employee was engaged has already been considered in regard to the
first question.
[18] It should be added in that regard that, as the Court pointed out in its
judgment of 27 September 1988 in Case 189/87 Kalfelis v. Hema [1988]
E.C.R. 5565, the provisions on "special jurisdiction" in Articles 5 and 6 of
the Convention constitute derogations from the principle that jurisdiction
is vested in the courts of the State of the defendant's domicile, laid
down in the general provisions of Articles 2 and 3 and, therefore, those
provisions on special jurisdiction must be interpreted restrictively.'
[34] There was no dispute about the nature of the contract under which
Mr. Humbert was engaged. He was clearly a servant who could be sent
wherever the employer required upon whatever work the employer
wished. He was therefore a party whose lack of bargaining power required
protection within the Ivenel principle.
[35] However, Mr. Green, who appeared for the respondents, submitted
that the Ivenel rule was applicable in a wider sense that merely an
employee in the English sense of the relationship of master and
servant. He contended that the principle would be extended to 'a
trade representative' who had to some extent been brought within the
organisational framework of the employer. In support of this submission
Mr. Green referred to the provisions of the Treaty of Rome, Article 85.
[36] Mr. Green referred to the Commission notice of 24 December
1962, relating to contracts with commercial agents. He submitted that
the expression 'undertaking'would embrace an employer and agent
combination, such as that between M. and L. in which the agent was
engaged within the concept of paragraph 1 of the Commission notice,
namely:
1. 'The Commission considers that contracts made with commercial
agents in which those agents undertake, for a specified part of the
territory of the common market,
--to negotiate transactions on behalf of an enterprise,
or
to conclude transactions in the name and on behalf of an enterprise,
or
--to conclude transactions in their own name and on behalf of this
enterprise,
do not fall under the prohibition of Article 85(1) of the Treaty.
It is essential in this case that the contracting party, described as a
commercial agent, should, in fact, be such, by the nature of his functions,
and that he should neither undertake nor engage in activities proper
to an independent trader in the course of commercial operations.
The Commission regards as the decisive criterion which distinguishes
the commercial agent from the independent trader, the agreement--
express or implied--which deals with responsibility for the financial risks
bound up with the sale or with the performance of the contract. Thus
the Commission's assessment is not governed by the name used to
describe the representative. Except for the usual del credere guarantee, a
commercial agent must not by the nature of his functions assume any risk
resulting from the transaction. If he does assume such risks, his function
becomes economically akin to that of an independent trader and he must
therefore be treated as such for the purposes of the rules of competition.
In such a situation, the exclusive dealing contracts, must be regarded as
agreements made with independent traders.
The Commission considers that there is particular reason to assume
that the function performed is that of an independent trader where the
contracting party described as a commercial agent:
--is required to keep or does in fact keep, as his own property, a
considerable stock of the products covered by the contract, or
--is required to organise, maintain or ensure at his own expense a
substantial service to customers free of charge, or does in fact organise,
maintain or ensure such a service, or
--can determine or does in fact determine prices or terms of business.'
Without citing the whole of this particular notice, the burden of it is
that the relationship between a principal and a commercial agent is
one recognised in European law as an enterprise and is not vulnerable
to the competition rules stemming from Article 85. Mr. Green relied
on the following facts which he submitted established a relationship of
commercial agency between M. and L.:
(1) It was described in the French context of the agreement
as’representation pour Le F. exclusively within the Federal Republic of
Germany which established a degree of closeness and integration within
the organisational framework of M..
(2) In order not to offend against Article 85 as a contract in restraint
of trade, the engagement had to be considered as one of commercial
agency.
--The provision of documentation by M. for use by L.; the fixing of prices
and the rates of commission was done by M., which also distributed
results of research which had been carried out by it. …
[478] However, for the purpose of applying Articles 85 and 86 of
the Treaty the relationship between an economic operator and his
intermediaries must only be determined in the light of Community law, so
that the fact that a trade representative contract, which imposes upon the
representative a prohibition of competition, complies with the national law
governing this contract or that this law even imposes a similar prohibition
is not determinative when considering whether such a contract is not
caught by Article 86.'
[39] The facts which are clearly established not only by the contract of
engagement between M. and L. but also by the manner in which the
parties in fact operated under the agreement are clearly distinguishable
from the relationship described in paragraph [476] above, and paragraphs
[479] and [480] below:
[479] 'However, it must be admitted, independently of the content of the
applicable laws of the member-States, that, in general, the fact that a
producer or an association of producers forbids its agents, who sell in its
name and for its consent, corresponds to the nature and spirit of a legal
and economic relationship of the kind in question.
[480] In fact, if such an agent works for the benefit of his principal he
may in principle be treated as an auxiliary organ forming an integral part
of the latter's undertaking, who must carry out his principal's instructions
and this, like a commercial employee forms an economic unit with this
undertaking....
[482] The position is different if the agreements entered into between
the principal and his agents, whom the contracting parties call "trade
representatives," confer upon these agents or allow them to perform
duties which from an economic point of view are approximately the same
as those carried out by an independent dealer, because they provide
for the said agents accepting the financial risks of the sales or of the
performance of contracts entered into with third parties.
[483] In fact in such a case the agents cannot be regarded as auxiliary
organs forming an integral part of the principal's undertaking with the
result that, if a clause prohibiting competition is agreed between principal
and agent and the principal is an undertaking occupying a dominant
position, that clause may constitute an abuse within the meaning of
Article 86 as it is likely to consolidate that dominant position.'
The expression in paragraph [480] has assumed an importance in the
consideration of the Ivenel principle, that is the concept of whether or not
the employee or agent forms part of an economic unit with the principal
and becomes part of his own commercial structure. However, for the
reasons I am about to set out, in my opinion, the two provisions, namely
Article 85(1) of the Treaty and Article 5(1) of the European Judgments
Convention, involve quite different concepts and cannot be considered as
analogous for the purposes of considering the Ivenel exception to Article
5(1).
[40] The burden of Mr. Green's submissions, based upon the approach to
Article 85 and the restriction of competition provisions, was to extend the
Ivenel principle, beyond that of an employee in the master and servant
sense, to embrace a commercial agent as forming part of an economic
unit with the principal. He submitted that in Community law principal
and agent were treated as one and that therefore, for the purpose
of Article 5(1) and the Ivenelprinciple, the latter should be extended
to embrace the sort of commercial agency created by the agreement
between M. and L.. Before importing the concept of treating the employer
and his commercial agent as one unit for the purposes of establishing an
exception to Article 85 into the Ivenel exception, it must be remembered
that the rationale behind the latter is the protection of the position of the
weaker of two contracting parties. The protection to be afforded under
Article 85 is to third parties against the concerted action of the contracting
parties involved. The exception to Article 85, extended to the relationship
between employer and commercial agent, is justified because they may
be considered as a single unit from the point of view of competing third
parties.
[41] Notwithstanding the attractive way in which Mr. Green presented
this submission, after careful consideration I am not persuaded that the
Community law would go this far. The Ivenel principle and the cases
decided in the European Court of Justice by reference to it do not, in
my judgment, support such a contention. In the case of Ivenel itself the
judicial decision relating to the 'employment' was taken by the French
Industrial Tribunal and was never challenged or discussed at a higher
level. By the same token I do not think that the judgments and the
opinions expressed in the Six Constructions Ltd. case assist in extending
the Ivenel principle to one of a commercial agent. The jurisprudential
approach underlying the Ivenel principle and that underlying the
exception to the provisions of Article 85 of the Treaty are, in the case of
commercial agents, quite different. Basically the former is to protect 'the
weaker contracting party,' whilst the latter is to identify a commercial
association between two contracting parties, which, in the absence of
a special relationship between them, would offend against the anti-
cartel concept of Article 85. It is in this sense that the cases referred
to the integration of the commercial agent into the framework of the
principle thereby avoiding the necessity to prevent anti-competitive
agreements. Of course the degree to which the agent becomes involved in
the organisational framework of the employer will nevertheless be a valid
criterion against which to test the true contractual relationship established
by the contract of 'employment.' However, where the employee is itself a
corporate entity, the concept of the’weaker socio-economic' personality as
envisaged in the Ivenel principle seems to be less appropriate. Nor does
the argument that L. GmbH is in reality an individual named Wolfgang L.
detract from this approach in the context of the present case.
[42] Can it therefore be said that the contractual arrangement between
M. and L., which were two corporations constituted under their respective
national provisions as entities with limited liability, is to be brought within
the special concepts underlying the Ivenel principle? I have come to
the conclusion that it cannot. I do so, for the following reasons. In the
first instance, one must look at the contractual obligations created by
the document itself. There is no doubt in my mind, that it imposed no
minimum performance upon L., in the sense of obtaining advertising
material for the F. publications. This may appear at first sight to be a
highly theoretical approach; but nevertheless it gives an indication of
the contractual position. I do not place the weight that Mr. Green would
invite the Court to place upon those concepts of 'control' such as the
fixing of prices to be charged for advertising. In reality these were not
fixed by either of the contracting parties, but were fixed in the long
term by F. or the company with whom M. itself had its own contractual
arrangements. I do not consider the provision of 'documents' to be of any
material significance. I doubt that L. and, before the Corporation took
over from the principal, Mr. Wolfgang L. himself, considered themselves
anything other than quite independent in and about the exercise of
'drumming-up' advertising clients. Of course there was a place for a
special commercial relationship between them in the carrying out of
the contract, such as business visits and so on, to which I have already
referred in this judgment. This cannot be described as bringing L. within
the organisational framework of M..
[43] The working out of the contract cannot in any definitive way affect
the interpretation of the contract itself. In any event, I see nothing in
the evidence which has been adduced to strike at the concept for which
Mr. Burton contends, namely that this was a purely commercial contract
between two commercial entities, for the exclusive rights to canvass for
advertising custom in Germany. In my judgment there is no element
of inequality of bargaining power or absorption into the organisational
framework of M., so as to affect the method of operating by L., in and
about its execution of the contract, so as to invoke the special provisions
of the Ivenel case.
[44] Turning to the other side of this coin, for the reasons I have already
stated, I see no justification for saying that Community law would extend
the principle in Ivenel's case beyond the special characteristics out of
which it arose in relation to the Treaty itself as set out in the Court's
judgment in Suiker Unie v. E.C. Commission, which I have already cited
in this judgment. As a matter of history the Ivenel exception has now
been recognised in the European Convention on the law applicable to
contractual obligations of 14 June 1980 (the Rome Convention 1980) as
an exception to Article 3 ('Freedom of Choice') in Article 6 (Individual
Employment Contracts):
1. 'Notwithstanding the provisions of Article 3, in a contract of
employment a choice of law clause made by the parties shall not have the
result of depriving the employee of the protection affordable to him by the
mandatory rules of the law which would be applicable under paragraph 2
in the absence of choice.
2. Notwithstanding the provisions of Article 4, a contract of employment
shall, in the absence of choice in accordance with Article 3, be governed:
(a) by the law of the country in which the employee habitually carries
out his work in performance of the contract, even if he is temporarily
employed in another country; or
(b) if the employee does not habitually carry out his work in any one
country, by the law of the country in which the place of business through
which he was engaged is situated;
unless it appears from the circumstances as a whole that the contract is
more closely connected with another country, in which case the contract
shall be governed by the law of that country.'
[45] Finally if, assuming contrary to his contention that the Ivenel
exception did not apply, Mr. Green submitted that the proper law of the
contract was German and that therefore the place of performance of the
obligation under Article 5(1) was Düsseldorf, not London; alternatively,
if there was doubt or ambiguity, then the provisions of Article 2 would
prevail to the exclusion of Article 5(1) with the effect that L. could only be
sued in the Düsseldorf courts. On this aspect of the case Mr. Green has
supported the judgment. It was common ground that the relevant system
of law is the one with which the contract has its closest and most real
connection: Amin Rasheed Shipping Corporation v. Kuwait Insurance Co.
Lord Diplock adopted the definition of 'proper law of the contract' given by
Lord Simonds in Bonython v. Commonwealth of Australia
'The substance of the obligation must be determined by the proper law
of the contract, i.e. "the system of law by reference to which the contract
was made; or that with which the transaction has its closest and most real
connection".'
[46] As Lord Diplock pointed out the second part of the sentence is
disjunctive and is relevant to contracts made without express reference to
any particular system of law.
[47] Hidden J. set out in his judgment the rival contentions of the parties:
'Mr. Cox places stress upon England as the place where the contract was
created and where the plaintiff carries on business and the fact that the
agent sought out the principal here in coming to the conclusion that
English law applies. As part of that submission it is significant that Mr.
Cox had to move from an earlier submission that the relationship between
the parties was one of two equal bargaining parties to an argument that
abandoned that stance with the principal as clearly the dominant party.
This had relevance to a previous submission in relation to Ivenel and
was rather arguing against the position earlier taken, but was one relied
on heavily in seeking to show that the contract in this case concerned
authority and money and that the plaintiff had authority, had power
and had dominance. The dominance relied upon is that the defendant
came to the plaintiff to seek out business and that the contract was
made in London. I have already given my ruling on my approach to that
dominance in relation to Ivenel. …
[48] As appears from this extract, Hidden J., with two exceptions which
are not relevant to the appeal, accepted the submissions of Mr. Green. I
have with regret to say that I find myself unable to support this part of
the judgment. With great respect to the learned judge, it appears that
he has overlooked important factors and perhaps misunderstood some
others. In particular his approach to the case of Mauroux v. Fonseca, in
the context of the Ivenel exception, was not justified. The significance
of the agent going from his intended area of operation to the place of
business of the principal is not one of dominance in the Ivenel sense,
but is an indicator of the 'hub and spoke'aspect of the contract. Megarry
J. held that as there were multiple jurisdictions in the British Isles, e.g.
Scotland, Ireland, the Channel Islands, as well as England, in a finely
balanced situation the proper law was Portuguese rather than English
law, notwithstanding that the agent came from Portugal to London, which
was the place of business of the principal. This authority supported the
case presented by Mr. Cox, namely that where the agent comes to the
place of business of the employer, leaving the area in which he resides
and in which he intends to operate his agency, this is a factor supporting
the contention that the proper law of the contract will be that of the
country where the employer has his place of business and where the
contract is made. It was the 'multiplicity' of laws in the United Kingdom
that determined Megarry J.'s decision against English law. With respect
to the judge, in my opinion, Hidden J. fell into error at this point of his
judgment. …
[51] I have in this judgment recorded my view that there was a good
arguable case that the proper law of the contract was English. Having
rehearsed the findings of the learned judge, out of respect for his careful
analysis, my opinion remains unchanged. It must be remembered that we
had evidence on this topic which was not available to Hidden J. Finally,
I do not think that there is such a degree of doubt on the question of
the proper law of the contract as to exclude the operation of Article 5(1)
and drive the plaintiff back to Article 2. Mr. Burton has only to establish a
good arguable case under Article 5(1) in order to avoid being relegated to
Article 2.
[52] I have, after careful consideration of the helpful submissions made
by both Mr. Burton and Mr. Green, come firmly to the conclusion that Mr.
Burton has established that at the least he has a good arguable case on
which to base the following propositions:
(1) That the relationship between M. and L. established by the contract
was an independent relationship wholly different from that of 'employer
and employee' in the Ivenelsense.
(2) That the principle in the Ivenel case in Community law should be
restricted, and is restricted, to those cases of a personal nature in the
relationship of master and servant where inequality of bargaining power
may well become critical, and in which to allow jurisdiction in a court
other than the place in which the main execution of the work is to take
place might well deprive the employee or agent of the protection of
restrictive agreements and other statutory and union protections which
have been negotiated for his benefit. This rationale is of course wholly
absent from this case.
(3) That taking the context and purpose of the contract and its execution
into account, the law most closely connected with the performance of the
contract is English law.
[53] It only remains to mention the submission made by Mr. Green
based upon the action stated in the Düsseldorf courts, in which L. claims
substantial damages for the wrongful determination of the contract and
also compensation under statutory provisions contained in the civil code
of the Federal Republic. I have no doubt that under the provisions of
Article 6(3)these matters can be brought by way of counterclaim in the
action brought by M.. However, as we are here dealing with a question of
jurisdiction, as opposed to exercising discretion in the context of forum
conveniens, I cannot see that these matters are relevant to the present
consideration. If Mr. Burton succeeds in establishing a good arguable case
on the three headings listed above, then the whole matter can be litigated
in the action in the English courts. Under the provisions of Article 21 the
proceedings in the German court will have been stayed.
[54] In all these circumstances, with respect to the skilful judgment of
Hidden J., who clearly did not have anything like the assistance that we
have received in this Court, I have regretfully come to the conclusion that
I cannot uphold his decision to strike out the action. I would therefore
allow the appeal and order that the action can proceed.
STOCKER L.J.:
[55] I agree.
RUSSELL L.J.:
[56] I also agree.
Appeal allowed. Leave to appeal to House of Lords refused.