Conflict of Laws KU Summer 2009 Judith Schacherreiter. Reader I: Decisions

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1 ECJ-case: Group Josi vs UGIC Conflict of Laws KU Summer 2009 Judith Schacherreiter Reader I: Decisions ECJ , Case C-412/98, Group Josi Reinsurance Company SA v Universal General Insurance Company (UGIC), European Court reports 2000, I ECJ-case: Handte vs TMCS ECJ , Case C-26/91, Jakob Handt & Co GmbH v Traitements Mécano-chimiques des Surfaces SA, European Court reports 1992, I ECJ-case: Tessili vs Dunlop ECJ , Case 12/76, Industrie Tessili Italiana Como v Dunlop, European Court reports 1976, 1473 ECJ-case: Leathertex vs Bodetex ECJ , Case C-420/97, Leathertex Divisione Sintetici SpA v Bodetex BVBA, European Court reports 1999, I UK-case: Print Concept v GEW Print Concept GmbH v GEW (EC) Ltd [2001] EWCA Civ 351 (Court of Appeal), summary in Schacherreiter, Leading Decisions, number 127 UK-case: Land Rover v Samcrete Land Rover Exports Ltd v Samcrete Egypt Engineers and Contractors SAE, Court of Appeal, 21st December 2001, see the summary regarding article 4 (5) Rome Convention in Schacherreiter, Leading Decisions, number 152 UK-case: Land Rover v Samcrete Land Rover Exports Ltd v Samcrete Egypt Engineers and Contractors SAE, Court of Appeal, 21st December 2001, see the summary regarding the choice of law clause in Schacherreiter, Leading Decisions, number 101 UK-case: Shamil Bank of Ahreain EC v Beximco Pharamaceuticals Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd and others [2004] EWCA Civ 19, [2004] 4 All ER 1072 (Court of Appeal), see the summary regarding the choice of law clause in Schacherreiter, Leading Decisions, number 109 ECJ-case: Salotti v Ruewa ECJ , Case 24/76, Estasis Salotti ua v Ruewa Polstereimaschinen GmbH, European Court reports 1976, ECJ-case: MSG v Les Gravieres ECJ , Case C-106/95, Mainschiffahrts-Genossenschaft eg (MSG) v Les Gravières Rhénanes SARL, European Court reports 1997 I ECJ-case: Bier v Mines de potasse ECJ , Case 21-76, Handelskwekerij G. J. Bier BV v Mines de potasse d'alsace SA, European Court reports 1976 Page 01735

2 Ku Conflict of Laws - 2 Judith Schacherreiter ECJ-case: Dumez France v Hessische Landesbank ECJ , Case C-220/88, Dumez France SA and Tracoba SARL v Hessische Landesbank et. al., European Court reports 1990, I ECJ-case: Marinari v Lloyds Bank ECJ , Case C-364/93, Antonio Marinari v Lloyds Bank plc, European Court reports 1995, I ECJ-case: Kronhofer v Maier et. al. ECJ , Case C-168/02, Rudolf Kronhofer v Marianne Maier et. al., European Court reports 2004, I-06009, see summary (in German) in Schacherreiter, Leading Decisions, number 265 ECJ-case: Shevill v Presse Alliance SA ECJ , Case C-68/93, Fiona Shevill, Oxora Trading Inc. et. al. v Presse Alliance SA, European Court reports 1995, I ECJ-case: Daily Mail ECJ , Case 81/87, The Queen vs H. M. Treasury und Commissioners of Inland Revenue, Ex Parte Daily Mail and General Trust PLC, European Court reports 1988, ECJ-case: Centros ECJ , Case C-212/97, Centros Ltd vs Erhvervs- og Selskabsstyrelsen, European Court reports 1999, I (summary in German in Schacherreiter, Leading Decisions, number 339) ECJ-case: Überseering ECJ , Case C-208/00, Überseering BV vs Nordic Construction Company Baumangement GmbH (NCC), European Court reports 2002, I (summary in German in Schacherreiter, Leading Decisions, number 340) ECJ-case: Inspire Art ECJ , Case C-167/01, Kamer van Koophandel en Fabrieken vor Amsterdam vs Inspire Art Ltd, European Court reports 2003, I (summary in German in Schacherreiter, Leading Decisions, number 341) ECJ-case: Cartesio Oktató Opinion of the Advocate General of , Case C-210/06, Cartesio Oktató és Szolgáltató bt, and judgement of ECJ of (fourth preliminary question) UK-case: Re Maldonado Court of Appeal: Re Maldonado (deceased), State of Spain v. Treasury Solicitor [1954] P 223, [1953] 2 All ER 1579, [1954] 2 WLR 64, CA (summary in Schacherreiter, Leading Decisions, number 1) UK-case: Re Barnett s Trust Re Barnett s Trusts [ ] All ER Rep 515 UK-case: Adams v. National Bank National Bank of Greece and Athens v. Metliss [1958] A.C. 509 und Adams v. National Bank of Greece and Athens S.A. [1958] 2 Q.B. 59

3 Ku Conflict of Laws - 3 Judith Schacherreiter ECJ-case: Tacconi v Wagner ECJ , Case C-334/00, Fonderie Officine Meccaniche Tacconi SpA v Heinrich Wagner Sinto Maschinenfabrik GmbH, European Court reports 2002, I German case: Amtsgericht Frankfurt/Main 35 F 4153/87 Amtsgericht Frankfurt/Main , 35 F 4153/87, see the summary regarding the choice of law clause in Schacherreiter, Leading Decisions, number 50 German case: OLG München 2 UF 1696/86 OLG München , 2 UF 1696/86, IPRax 1989, 238, see the summary regarding the choice of law clause in Schacherreiter, Leading Decisions, number 53 ECJ-case: Ingmar v Eaton Leonard ECJ , Case C-381/98, Ingmar GB Ltd v Eaton Leonard Technologies Inc, European Court reports 2000, I German case: OLG München 7 U 1781/06 OLG München , 7 U 1781/06, IPRax 2007, 322

4 1 von 9 04/10/ :08 p.m. IMPORTANT LEGAL NOTICE - The information on this site is subject to a disclaimer and a copyright notice. JUDGMENT OF THE COURT (Sixth Chamber) 13 July 2000 (1) (Brussels Convention - Personal scope - Plaintiff domiciled in a non-contracting State - Material scope - Rules of jurisdiction in matters relating to insurance - Dispute concerning a reinsurance contract) In Case C-412/98, REFERENCE to the Court under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters by the Cour d'appel,versailles, France, for a preliminary ruling in the proceedings pending before that court between Group Josi Reinsurance Company SA Universal General Insurance Company (UGIC), and on the interpretation of the provisions of Title II of the Convention of 27 September 1968, cited above (OJ 1972 L 299, p. 32), as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1; amended version of the Convention at p. 77), by the Convention of 25 October 1982 on the Accession of the Hellenic Republic (OJ 1982 L 388, p. 1) and by the Convention of 26 May 1989 on the Accession of the Kingdom of Spain and the Portuguese Republic (OJ 1989 L 285, p. 1), THE COURT (Sixth Chamber), composed of: J.C. Moitinho de Almeida, President of the Chamber, R. Schintgen (Rapporteur), J.-P. Puissochet, G. Hirsch and F. Macken, Judges, Advocate General: N. Fennelly, Registrar: D. Louterman-Hubeau, Principal Administrator, after considering the written observations submitted on behalf of: - Group Josi Reinsurance Company SA, by C. Bouckaert, of the Paris Bar, - Universal General Insurance Company (UGIC), by B. Mettetal, of the Paris Bar, - the French Government, by K. Rispal-Bellanger, Head of Subdirectorate in the Legal Affairs Directorate of the Ministry of Foreign Affairs, and R. Loosli-Surrans, Chargé de Mission in the same directorate, acting as Agents, - the United Kingdom Government, by R. Magrill, of the Treasury Solicitor's Department, acting as Agent, assisted by D. Lloyd Jones, Barrister, - the Commission of the European Communities, by J.L. Iglesias Buhigues, Legal Adviser, and A.X. Lewis, of its Legal Service, acting as Agents, having regard to the Report for the Hearing, after hearing the oral observations of the French Government and the Commission at the hearing on 10 February 2000, after hearing the Opinion of the Advocate General at the sitting on 9 March 2000, gives the following Judgment 1. By judgment of 5 November 1998, received at the Court on 19 November 1998, the Cour d'appel (Court of Appeal), Versailles, referred to the Court for a preliminary ruling under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters two questions on the interpretation of the

5 2 von 9 04/10/ :08 p.m. provisions of Title II of that convention (OJ 1972 L 299, p. 32), as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1; amended version of the Convention at p. 77), by the Convention of 25 October 1982 on the Accession of the Hellenic Republic (OJ 1982 L 388, p. 1) and by the Convention of 26 May 1989 on the Accession of the Kingdom of Spain and the Portuguese Republic (OJ 1989 L 285, p. 1) (hereinafter 'the Convention). 2. Those questions were raised in proceedings between Universal General Insurance Company ('UGIC), in liquidation, an insurance company incorporated under Canadian law, having its registered office in Vancouver, Canada, and Group Josi Reinsurance Company SA ('Group Josi), a reinsurance company incorporated under Belgian law, having its registered office in Brussels, concerning a sum of money claimed by UGIC from Group Josi in its capacity as party to a reinsurance contract. The Convention The rules of jurisdiction laid down by the Convention are to be found in Title II thereof, which contains Articles 2 to 24. Article 2 of the Convention, which forms part of Section 1, entitled 'General provisions, of Title II, states: '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. Persons who are not nationals of the State in which they are domiciled shall be governed by the rules of jurisdiction applicable to nationals of that State. 5. The first paragraph of Article 3 of the Convention, which is part of the same section, provides: 'Persons domiciled in a Contracting State may be sued in the courts of another Contracting State only by virtue of the rules set out in Sections 2 to 6 of this title The second paragraph of Article 3 of the Convention prohibits a plaintiff from relying on special rules of jurisdiction in force in the Contracting States which are based, in particular, on the nationality of the parties and on the plaintiff's domicile or residence. Article 4, which also forms part of Section 1 of Title II of the Convention, states: 'If the defendant is not domiciled in a Contracting State, the jurisdiction of the courts of each Contracting State shall, subject to the provisions of Article 16, be determined by the law of that State. As against such a defendant, any person domiciled in a Contracting State may, whatever his nationality, avail himself in that State of the rules of jurisdiction there in force, and in particular those specified in the second paragraph of Article 3, in the same way as the nationals of that State In Sections 2 to 6 of Title II, the Convention lays down rules of special or exclusive jurisdiction. Thus, under Article 5, which is part of Section 2, entitled 'Special jurisdiction, of Title II of the Convention: '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; in matters relating to maintenance, in the courts for the place where the maintenance creditor is domiciled or habitually resident Articles 7 to 12a constitute Section 3, entitled 'Jurisdiction in matters relating to insurance, of Title II of the Convention. Article 7 of the Convention states:

6 3 von 9 04/10/ :08 p.m. 'In matters relating to insurance, jurisdiction shall be determined by this section Article 8 of the Convention provides: 'An insurer domiciled in a Contracting State may be sued: 1. in the courts of the State where he is domiciled, or 2. in another Contracting State, in the courts for the place where the policy-holder is domiciled, or 3. if he is a co-insurer, in the courts of a Contracting State in which proceedings are brought against the leading insurer. An insurer who is not domiciled in a Contracting State but has a branch, agency or other establishment in one of the Contracting States shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that State Section 4 of Title II of the Convention contains rules of jurisdiction over consumer contracts. The first paragraph of Article 14, which is part of that section, states: 'A consumer may bring proceedings against the other party to a contract either in the courts of the Contracting State in which that party is domiciled or in the courts of the Contracting State in which he is himself domiciled Article 16, which constitutes Section 5 of Title II of the Convention, lays down certain rules of exclusive jurisdiction and states that they are to apply 'regardless of domicile. Under the first paragraph of Article 17, which is part of Section 6, entitled 'Prorogation of jurisdiction, of Title II of the Convention: '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 Article 18, which also forms part of Section 6, states: 'Apart from jurisdiction derived from other provisions of this convention, a court of a Contracting State before whom a defendant enters an appearance shall have jurisdiction. This rule shall not apply where appearance was entered solely to contest the jurisdiction, or where another court has exclusive jurisdiction by virtue of Article 16. The main proceedings It is apparent from the documents in the case in the main proceedings that UGIC instructed its broker, Euromepa, a company incorporated under French law, having its registered office in France, to procure a reinsurance contract with effect from 1 April 1990 in relation to a portfolio of comprehensive home-occupiers' insurance polices based in Canada. By fax dated 27 March 1990, Euromepa offered Group Josi a share in that reinsurance contract, stating that 'the main reinsurers are Union Ruck with 24% and Agrippina Ruck with 20%. By fax of 6 April 1990, Group Josi agreed to acquire a 7.5% share. On 28 March 1990, Union Ruck had told Euromepa that it did not intend to retain its share after 31 May 1990 and, by letter of 30 March 1990, Agrippina Ruck had informed the same broker that it would reduce its share to 10% with effect from 1 June 1990, the reason for those withdrawals being changes in economic policy imposed by the American-based parent companies of those insurance undertakings. On 25 February 1991, Euromepa sent Group Josi first a statement of account showing a debit balance and then a final calculation showing that Group Josi owed CAD in respect of its share in the

7 4 von 9 04/10/ :08 p.m. reinsurance transaction By letter of 5 March 1991, Group Josi refused to pay that amount, essentially on the ground that it had been induced to enter into the reinsurance contract by the provision of information which subsequently turned out to be false. In those circumstances, on 6 July 1994, UGIC brought proceedings against Group Josi before the Tribunal de Commerce (Commercial Court), Nanterre, France. Group Josi argued that that court lacked jurisdiction since the Tribunal de Commerce, Brussels, within whose territorial jurisdiction it has its registered office, had jurisdiction, and it relied, first, on the Convention and, second, in the event of the general law being found to apply, on Article 1247 of the French Code Civil (Civil Code). By judgment of 27 July 1995, the Tribunal de Commerce, Nanterre, held that it had jurisdiction on the ground that UGIC is a company incorporated under Canadian law without a place of business in the Community and that the objection of lack of jurisdiction raised on the basis of the Convention cannot be applied to it. On the substance, the court ordered Group Josi to pay the sum claimed by UGIC, plus statutory interest as from 6 July Group Josi subsequently appealed against that judgment before the Cour d'appel, Versailles. In support of its appeal, Group Josi submitted that the Convention applies to any dispute in which a connecting factor with the Convention is apparent. In the present case, the Convention should apply. The main connecting factor is that specified in the first paragraph of Article 2 of the Convention, namely the defendant's domicile. Since Group Josi has its registered office in Brussels and no subsidiary place of business in France, it can, in accordance with that provision, be sued only in a Belgian court. In addition, Group Josi relied on Article 5(1) of the Convention, arguing in this respectthat the obligation in question, being payment of a contractual debt, was, in the absence of any stipulation to the contrary in the reinsurance contract, to be performed in the debtor's place of domicile, namely Brussels. UGIC, on the other hand, contended that the rules of jurisdiction established by the Convention can apply only if the plaintiff is also domiciled in a Contracting State. Since UGIC is a company incorporated under Canadian law with no subsidiary place of business in a Contracting State, the Convention is not applicable in the present case. The Cour d'appel observed, first, that, although a dispute may be regarded as sufficiently integrated into the European Community to justify jurisdiction being vested in the courts of a Contracting State where, as in the present case, the defendant is domiciled in a Contracting State, it is a different question whether the specific rules of that convention can be used against a plaintiff domiciled in a non-contracting State, which would necessarily entail extending Community law to non-member countries. Second, the Cour d'appel noted that Article 7 of the Convention simply refers to matters relating to 'insurance without specifying further, so that the question arises whether reinsurance falls within the scope of the autonomous system of jurisdiction established by Articles 7 to 12a of the Convention. In this respect, it might be considered that the purpose of those articles is to protect the insured as the weak party to the insurance contract and that there is no such characteristic in matters of reinsurance, but, on the other hand, the text of the Convention does not contain any exclusion on that point. The questions referred for preliminary ruling 32. Taking the view that, in those circumstances, the resolution of the dispute required an interpretation of the Convention, the Cour d'appel, Versailles, decided to stay proceedings and to refer the following two questions to the Court for a preliminary ruling: '1. Does the Brussels Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters apply not only to intra-community disputes but also to disputes which are integrated into the Community? More particularly, can a defendant established in a Contracting State rely on the specific rules on jurisdiction set out in that convention against a plaintiff domiciled in Canada? 2. Do the rules on jurisdiction specific to matters relating to insurance set out in Article 7 et seq. of the Brussels Convention apply to matters relating to reinsurance?

8 5 von 9 04/10/ :08 p.m. The first question By its first question, the national court essentially seeks to ascertain whether the rules of jurisdiction laid down by the Convention apply where the defendant has its domicile or seat in a Contracting State, even if the plaintiff is domiciled in a non-member country. In order to answer that question, it is important to state at the outset that the system of common rules on conferment of jurisdiction established in Title II of the Convention is based on the general rule, set out in the first paragraph of Article 2, that persons domiciled in a Contracting State are to be sued in the courts of that State, irrespective of the nationality of the parties. That jurisdictional rule is a general principle, which expresses the maxim actor sequitur forum rei, because it makes it easier, in principle, for a defendant to defend himself (see, to that effect, Case C-26/91 Handte v Traitements Mécano-chimiques des Surfaces [1992] ECR I-3967, paragraph 14; see also the Jenard Report on the Brussels Convention (OJ 1979 C 59, p. 1, 18)). It is only by way of derogation from that fundamental principle, that the courts of the Contracting State in which the defendant has its domicile or seat are to have jurisdiction, that the Convention provides, under the first paragraph of Article 3 thereof, for the cases, exhaustively listed in Sections 2 to 6 of Title II, in which a defendant domiciled or established in a Contracting State may, where the situation is covered by a rule of special jurisdiction, or must, where it is covered by a rule of exclusive jurisdiction or a prorogation of jurisdiction, be excluded from the jurisdiction of the courts of the State in which it is domiciled and sued in a court of another Contracting State. In that context, Sections 2 to 6 of Title II of the Convention include certain specific provisions which, for the purpose of determining which court has jurisdiction, depart from the general criterion of the domicile of the defendant by according, exceptionally, a certain influence to the domicile of the plaintiff. Thus, first, in order to facilitate the proceedings brought by a maintenance creditor, Article 5(2) of the Convention gives that person the option to sue the defendant, in a Contracting State other than that of the defendant's domicile, in the courts for the place where the plaintiff is domiciled or habitually resident. Similarly, also with the aim of protecting the party deemed to be weaker than the other party to the contract, point 2 of the first paragraph of Article 8 and the first paragraph of Article 14 of the Convention provide, respectively, that a holder of an insurance policy and a consumer have the right to bring proceedings against the other party to their contract in the courts of the Contracting State in which they are domiciled. Although those rules of special jurisdiction give importance, exceptionally, to the plaintiff's domicile being in a Contracting State, they none the less constitute only an additional option for the plaintiff, alongside the forum of the courts of the ContractingState where the defendant is domiciled, which constitutes the general rule underlying the Convention. Second, Article 17 of the Convention provides for the exclusive jurisdiction of a court or the courts of a Contracting State chosen by the parties, so long as one of the parties is domiciled in a Contracting State. That condition does not necessarily refer to the defendant's domicile, so that the place of the plaintiff's domicile may, where appropriate, be decisive. However, it also follows from that provision that the rule of jurisdiction set out therein is applicable if the defendant is domiciled in a Contracting State, even if the plaintiff is domiciled in a non-member country (see, to that effect, the Jenard Report, cited above, p. 38). On the other hand, the other provisions in Sections 2 to 6 of Title II of the Convention do not attach any importance to the plaintiff's domicile. Admittedly, under Article 18 of the Convention, the voluntary appearance of the defendant establishes the jurisdiction of a court of a Contracting State before which the plaintiff has brought proceedings, without the place of the defendant's domicile being relevant. However, although the court seised must be that of a Contracting State, that provision does not further

9 6 von 9 04/10/ :08 p.m. require that the plaintiff be domiciled in such a State The same conclusion can be drawn from Article 16 of the Convention, which states that the rules of exclusive jurisdiction which it lays down are to apply without the domicile of the parties being taken into consideration. The fundamental reason for those rules of exclusive jurisdiction is the existence of a particularly close connection between the dispute and a Contracting State, irrespective of the domicile both of the defendant and of the plaintiff (as regards, more specifically, in proceedings having as their object tenancies of immovable property, the exclusive jurisdiction of the courts of the Contracting State in which the property is situated, see, in particular, Case C-8/98 Dansommer v Götz [2000] ECR I-0000, paragraph 27). In the light of the foregoing, the Court finds that it is only in quite exceptional cases that Title II of the Convention accords decisive importance, for the purpose of conferring jurisdiction, to the plaintiff's domicile being in a Contracting State. That is the case only if the plaintiff exercises the option open to him under Article 5(2), point 2 of the first paragraph of Article 8 and the first paragraph of Article 14 of the Convention, and also in matters relating to prorogation of jurisdiction under Article 17 of the Convention, solely where the defendant's domicile is not situated in a Contracting State. None of those specific cases is applicable in the case in the main proceedings. Furthermore, it is settled case-law that the rules of jurisdiction which derogate from the general principle, set out in the first paragraph of Article 2 of the Convention, that the courts of the Contracting State in which the defendant is domiciled or established are to have jurisdiction, cannot give rise to an interpretation going beyond the cases expressly envisaged by the Convention (see, in particular, Handte, paragraph 14; Case C-89/91 Shearson Lehman Hutton v TVB [1993] ECR I-139, paragraphs 15 and 16; Case C-269/95 Benincasa v Dentalkit [1997] ECR I-3767, paragraph 13; and Case C-51/97 Réunion Européenne and Others [1998] ECR I-6511, paragraph 16). In addition, as is already clear from the second paragraph of Article 3 of the Convention, which prohibits a plaintiff from invoking against a defendant domiciled in a Contracting State national rules of jurisdiction based, in particular, on the plaintiff's domicile or residence, the Convention appears clearly hostile towards the attribution of jurisdiction to the courts of the plaintiff's domicile (see Case C-220/88 Dumez France and Tracoba [1990] ECR I-49, paragraph 16; and Shearson Lehman Hutton, paragraph 17). It follows that the Convention must not be interpreted as meaning that, otherwise than in the cases expressly provided for, it recognises the jurisdiction of the courts of the plaintiff's domicile and therefore enables a plaintiff to determine the court with jurisdiction by his choice of domicile (see, to that effect, Dumez France and Tracoba, paragraph 19). Article 4 of the Convention provides, admittedly, for a derogation from the rule laid down in the second paragraph of Article 3. Article 4 states that, if the defendant is not domiciled in a Contracting State, jurisdiction is to be determined by the law in force in each Contracting State, subject only to Article 16, which applies regardless of domicile, and that, as against such a defendant, a plaintiff domiciled in a Contracting State has the right to avail himself in that State of the special rules of jurisdiction there in force of which an illustrative list appears in the second paragraph of Article 3 of the Convention. However, in so far as Article 4 of the Convention provides that the rules of jurisdiction laid down by the Convention are not applicable where the defendant is not domiciled in a Contracting State, it constitutes a confirmation of the fundamental principle set out in the first paragraph of Article 2 of the Convention. In the light of all the foregoing, it must be concluded that the system of rules on conferment of jurisdiction established by the Convention is not usually based on the criterion of the plaintiff's domicile or seat. Moreover, as is clear from the wording of the second paragraph of Article 2 and the second paragraph of Article 4 of the Convention, nor is that system based on the criterion of the nationality of the parties. The Convention enshrines, on the other hand, the fundamental principle that the courts of the Contracting State in which the defendant is domiciled or established are to have jurisdiction. As is clear from paragraph 47 above, it is only by way of exception to that general rule that the Convention includes certain specific provisions which, in clearly defined cases, accord an influence to the plaintiff's

10 7 von 9 04/10/ :08 p.m. domicile It follows that, as a general rule, the place where the plaintiff is domiciled is not relevant for the purpose of applying the rules of jurisdiction laid down by the Convention, since that application is, in principle, dependent solely on the criterion of the defendant's domicile being in a Contracting State. It would be otherwise only in exceptional cases where the Convention makes that application of the rules of jurisdiction expressly dependent on the plaintiff being domiciled in a Contracting State. Consequently, the Convention does not, in principle, preclude the rules of jurisdiction which it sets out from applying to a dispute between a defendant domiciled in a Contracting State and a plaintiff domiciled in a non-member country. As the Advocate General observed in paragraph 21 of his Opinion, it is thus fully in accordance with that finding that the Court has interpreted the rules of jurisdiction laid down by the Convention in cases where the plaintiff had his domicile or seat in a non-member country, although the provisions of the Convention in question did not establish any exception to the general principle that the courts of the Contracting State in which the defendant is domiciled are to have jurisdiction (see Case C-190/89 Rich [1991] ECR I-3855; and Case C-406/92 The Tatry [1994] ECR I-5439). In those circumstances, the answer to the first question must be that Title II of the Convention is in principle applicable where the defendant has its domicile or seat in a Contracting State, even if the plaintiff is domiciled in a non-member country. It would be otherwise only in exceptional cases where an express provision of the Convention provides that the application of the rule of jurisdiction which it sets out is dependent on the plaintiff's domicile being in a Contracting State. The second question In this respect, it must be observed, first, that the rules of jurisdiction in matters relating to insurance, laid down in Section 3 of Title II of the Convention, apply expressly to certain specific types of insurance contracts, such as compulsory insurance, liability insurance, insurance of immovable property and marine and aviation insurance. Furthermore, point 3 of the first paragraph of Article 8 of the Convention expressly refers to co-insurance. On the other hand, reinsurance is not mentioned in any of the provisions of that section. First, according to settled case-law, it is apparent from a consideration of the provisions of Section 3 of Title II of the Convention in the light of the documents leading to their enactment that, in affording the insured a wider range of jurisdiction than that available to the insurer and in excluding any possibility of a clause conferring jurisdiction for the benefit of the insurer, they reflect an underlying concern to protect the insured, who in most cases is faced with a predetermined contract the clauses of which are no longer negotiable and is the weaker party economically (Case 201/82 Gerling and Others v Amministrazione del Tesoro dello Stato [1983] ECR 2503, paragraph 17). The role of protecting the party deemed to be economically weaker and less experienced in legal matters than the other party to the contract which is fulfilled by those provisions implies, however, that the application of the rules of special jurisdiction laid down to that end by the Convention should not be extended to persons for whom that protection is not justified (see, by analogy, in respect of Article 13 et seq. of the Convention in relation to jurisdiction over consumer contracts, Shearson Lehmann Hutton, paragraph 19). No particular protection is justified as regards the relationship between a reinsured and his reinsurer. Both parties to the reinsurance contract are professionals in the insurance sector, neither of whom can be presumed to be in a weak position compared with the other party to the contract. It is thus in accordance with both the letter and the spirit and purpose of the provisions in question to conclude that they do not apply to the relationship between a reinsured and his reinsurer in connection with a reinsurance contract. That interpretation is confirmed by the system of rules of jurisdiction established by the Convention.

11 8 von 9 04/10/ :08 p.m Thus Section 3 of Title II of the Convention includes rules which confer jurisdiction on courts other than those of the Contracting State in which the defendant is domiciled. In particular, point 2 of the first paragraph of Article 8 of the Convention provides that the courts for the place where the policy-holder is domiciled are to have jurisdiction. As has already been noted in paragraph 49 above, it is settled case-law that the rules of jurisdiction which derogate from the general principle, laid down in the first paragraph of Article 2 of the Convention, that the courts of the Contracting State in which the defendant is domiciled are to have jurisdiction, cannot give rise to an interpretation going beyond the cases envisaged by the Convention. That interpretation is all the more valid in the case of a rule of jurisdiction such as that laid down in point 2 of the first paragraph of Article 8 of the Convention, which enables the policy-holder to sue the defendant in the courts of the Contracting State in which the plaintiff is domiciled. For the reasons more fully set out in paragraph 50 above, the framers of the Convention demonstrated their hostility towards the attribution of jurisdiction to the courts of the plaintiff's domicile otherwise than in the cases for which it expressly provides. It follows that Section 3 of Title II of the Convention may not be regarded as applying to the relationship between a reinsured and his reinsurer in connection with a reinsurance contract. That interpretation is also supported by the Schlosser Report on the Convention of Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland to the Brussels Convention (OJ 1979 C 59, p. 71, 117), according to which '[r]einsurance contracts cannot be equated with insurance contracts. Accordingly, Articles 7 to 12 do not apply to reinsurance contracts. However, as the Commission rightly pointed out, although the rules of special jurisdiction in matters relating to insurance do not refer to disputes between a reinsured and his reinsurer in connection with a reinsurance contract, such as that at issue in the main proceedings, they are, on the other hand, fully applicable where, under the law of a Contracting State, the policy-holder, the insured or the beneficiary of an insurance contract has the option to approach directly any reinsurer of the insurer in order to assert his rights under that contract as against that reinsurer, for example in the case of the bankruptcy or liquidation of the insurer. In such a situation, the plaintiff is in a weak position compared with the professional reinsurer, so that the objective of special protection inherent in Article 7 et seq. of the Convention justifies the application of the special rules which it lays down. In the light of all the foregoing, the answer to the second question must be that the rules of special jurisdiction in matters relating to insurance set out in Articles 7 to 12a of the Convention do not cover disputes between a reinsurer and a reinsured in connection with a reinsurance contract. Costs 77. The costs incurred by the French and United Kingdom Governments and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. On those grounds, THE COURT (Sixth Chamber), in answer to the questions referred to it by the Cour d'appel, Versailles, by judgment of 5 November 1998, hereby rules: 1. Title II of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland, by the Convention of 25 October 1982 on the Accession of the Hellenic Republic and by the Convention of 26 May 1989 on the Accession of the Kingdom of Spain and the Portuguese Republic, is in principle applicable where the defendant has its domicile or seat in a Contracting State, even if the plaintiff is domiciled in a non-member country. It would be otherwise only in exceptional cases where an express provision of that convention provides that the application of the rule of jurisdiction which it sets out is dependent on the plaintiff's

12 9 von 9 04/10/ :08 p.m. domicile being in a Contracting State. 2. The rules of special jurisdiction in matters relating to insurance set out in Articles 7 to 12a of that convention do not cover disputes between a reinsurer and a reinsured in connection with a reinsurance contract. Moitinho de Almeida Schintgen Puissochet Hirsch Macken Delivered in open court in Luxembourg on 13 July R. Grass Registrar J.C. Moitinho de Almeida President of the Sixth Chamber 1: Language of the case: French.

13 celex-txt J von 4 04/10/ :07 p.m. Managed by the Avis Publications juridique important Office BG ES CS DA DE ET EL EN FR GA IT LV LT HU MT NL PL PT RO SK SL FI SV Site map LexAlert FAQ Help Contact Links 61991J0026 Judgment of the Court of 17 June Jakob Handte & Co. GmbH v Traitements Mécano-chimiques des Surfaces SA. Reference for a preliminary ruling: Cour de cassation - France. Brussels Convention - Interpretation of Article 5 (1) - Jurisdiction in matters relating to a contract - Chain of contracts - Action to establish liability brought by a sub-buyer of goods against the manufacturer. Case C-26/91. European Court reports 1992 Page I Swedish special edition Page I Finnish special edition Page I BG ES CS DA DE ET EL EN FR GA IT LVLTHUMT NL PL PT ROSKSL FI SV html htmlhtml htmlhtmlhtml html html html htmlhtml Keywords Summary Parties Grounds Decision on costs Operative part Summary ++++ Convention on Jurisdiction and the Enforcement of Judgments Special jurisdiction Jurisdiction "in matters relating to a contract" Concept Independent interpretation Chain of contracts Action to establish liability brought by a sub-buyer against the manufacturer Excluded (Convention of 27 September 1968, Arts 2 and 5(1)) Parties The phrase "matters relating to a contract" in Article 5(1) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, which must be interpreted independently, is not to be understood as covering a situation in which there is no obligation freely assumed by one party towards another. Strengthening legal protection of persons established in the Community, which is one of the objectives of the Convention, also requires that the jurisdictional rules which derogate from the general principle set out in Article 2 of the Convention should be interpreted in such a way as to enable a normally well-informed defendant reasonably to predict before which courts, other than those of the State in which he is domiciled, he may be sued. It follows that Article 5(1) of the Convention is to be understood as meaning that it does not apply to an action between a sub-buyer of goods and the manufacturer, who is not the seller, relating to defects in those goods or to their unsuitability for their intended purpose. In Case C-26/91, REFERENCE to the Court under the Protocol of 3 June 1971 on the Interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in

14 celex-txt J von 4 04/10/ :07 p.m. Grounds Civil and Commercial Matters (OJ 1978 L 304, p. 36) by the French Cour de Cassation for a preliminary ruling in the proceedings pending before that court between Jakob Handte & Co. GmbH and Traitements Mécano-chimiques des Surfaces SA (TMCS) on the interpretation of Article 5(1) of the Convention of 27 September 1968, THE COURT, composed of: O. Due, President, F. A. Schockweiler (President of Chamber), G. F. Mancini, C. N. Kakouris, J. C. Moitinho de Almeida, M. Diez de Velasco and M. Zuleeg, Judges, Advocate General: F. G. Jacobs, Registrar: H. A. Ruehl, Principal Administrator, after considering the written observations submitted on behalf of: Jakob Handte & Co. GmbH, by J. P. Desaché, of the Paris Bar, the Government of the Federal Republic of Germany, by C. Boehmer, Ministerialrat in the Federal Ministry of Justice, acting as Agent, the Commission of the European Communities, by X. Lewis, of its Legal Service, acting as Agent, having regard to the Report for the Hearing, after hearing the oral observations of the Commission at the hearing on 25 February 1992, after hearing the Opinion of the Advocate General at the sitting on 8 April 1992, gives the following Judgment 1 By judgment of 8 January 1991, received at the Court on 25 January 1991, the French Cour de Cassation (Court of Cassation) referred to the Court for a preliminary ruling under the Protocol of 3 June 1971 on the Interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (OJ 1978 L 304, p. 36), as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1) (hereinafter "the Convention"), a question concerning the interpretation of Article 5(1) of the Convention. 2 The question has arisen in proceedings between Jakob Handte & Co. GmbH, whose registered office is at Tuttlingen (Federal Republic of Germany) (hereinafter "Handte Germany"), and Traitements Mécano-chimiques des Surfaces, a limited liability company whose registered office is at Bonneville (France) (hereinafter "TMCS"). 3 It appears from the documents submitted to the Court that in 1984 and 1985 TMCS purchased from Bula et Fils (hereinafter "Bula"), which is a limited liability company governed by Swiss law, two metalpolishing machines to which TMCS had a suction system fitted that was manufactured by Handte Germany but sold and installed by Société Handte France S.à r.l. (hereinafter "Handte France"), whose registered office is at Strasbourg (France). 4 In 1987 TMCS instituted proceedings against Bula, Handte Germany and Handte France in the Tribunal de Grande Instance (Regional Court), Bonneville (France), seeking compensation for damage incurred by reason of the fact that the equipment manufactured and sold did not comply with rules on hygiene and safety at work and was unsuitable for its intended purpose. 5 By judgment of 4 May 1988, that court ruled that it had no jurisdiction ratione loci to entertain the action against Bula but that it did have jurisdiction under Article 5(1) of the Convention to rule on the claim against Handte Germany and Handte France. 6 By judgment of 20 March 1989, the Cour d' Appel (Court of Appeal), Chambéry (France), dismissed Handte Germany' s appeal on the ground that the action brought by TMCS against that company was an action to establish the manufacturer' s liability for defects in the goods sold, that such a direct action by a sub-buyer against the manufacturer related to a contractual matter under both French

15 celex-txt J von 4 04/10/ :07 p.m. law and the Convention and that the lower court was accordingly right in finding that it had jurisdiction under Article 5(1) of the Convention as the court for the place of performance of the obligation. 7 Handte Germany considered that Article 5(1) of the Convention was not applicable where there was a chain of contracts and appealed on a point of law against the judgment of the Cour d' Appel, Chambéry. 8 The French Cour de Cassation found that the dispute raised a problem concerning interpretation of the Convention and accordingly decided to stay proceedings until the Court of Justice has given a preliminary ruling on the following question: "Does Article 5(1) of the Convention, which provides for special jurisdiction in matters relating to a contract, apply to an action between a sub-buyer of goods and the manufacturer, who is not the seller, relating to defects in those goods or to their unsuitability for their intended purpose?" 9 Reference is made to the Report for the Hearing for a fuller account of the facts of the main proceedings, the course of the procedure and the written observations submitted to the Court, which are mentioned or discussed below only in so far as is necessary for the reasoning of the Court. 10 In replying to the question from the national court, it should first be observed that the Court has consistently held that the phrase "matters relating to a contract" in Article 5(1) of the Convention is to be interpreted independently, having regard primarily to the objectives and general scheme of the Convention, in order to ensure that it is applied uniformly in all the Contracting States (see the judgment in Case 34/82 Martin Peters Bauunternehmung v Zuid Nederlandse Aannemers Vereniging [1983] ECR 987, paragraphs 9 and 10, and the judgment in Case 9/87 Arcado v Haviland [1988] ECR 1539, paragraphs 10 and 11). The phrase should not therefore be taken as referring to how the legal relationship in question before the national court is classified by the relevant national law. 11 Secondly, it should be noted that, according to the preamble to the Convention, one of its objectives is to "strengthen in the Community the legal protection of persons therein established". 12 In that connection, the expert report prepared at the time when the Convention was drawn up (OJ 1979 C 59, p. 1) states that: "... the purpose of the Convention is..., by establishing common rules of jurisdiction, to achieve,... in the field which it was required to cover, a genuine legal systematization which will ensure the greatest possible degree of legal certainty. To this end, the rules of jurisdiction codified in Title II determine which State' s courts are most appropriate to assume jurisdiction, taking into account all relevant matters...". 13 The Convention achieves that objective by laying down a number of jurisdictional rules which determine the cases, exhaustively listed in Sections 2 to 6 of Title II of the Convention, in which a defendant domiciled or established in a Contracting State may, under a rule of special jurisdiction, or must, under a rule of exclusive jurisdiction or prorogation of jurisdiction, be sued before a court of another Contracting State. 14 The rules on special and exclusive jurisdiction and those relating to prorogation of jurisdiction thus derogate from the general principle, set out in the first paragraph of Article 2 of the Convention, that the courts of the Contracting State in which the defendant is domiciled are to have jurisdiction. That jurisdictional rule is a general principle because it makes it easier, in principle, for a defendant to defend himself. Consequently, the jurisdictional rules which derogate from that general principle must not lead to an interpretation going beyond the situations envisaged by the Convention. 15 It follows that the phrase "matters relating to a contract", as used in Article 5(1) of the Convention, is not to be understood as covering a situation in which there is no obligation freely assumed by one party towards another. 16 Where a sub-buyer of goods purchased from an intermediate seller brings an action against the manufacturer for damages on the ground that the goods are not in conformity, it must be observed that there is no contractual relationship between the sub-buyer and the manufacturer because the latter has not undertaken any contractual obligation towards the former. 17 Furthermore, particularly where there is a chain of international contracts, the parties' contractual obligations may vary from contract to contract, so that the contractual rights which the sub-buyer can enforce against his immediate seller will not necessarily be the same as those which the manufacturer will have accepted in his relationship with the first buyer. 18 The objective of strengthening legal protection of persons established in the Community, which is one of the objectives which the Convention is designed to achieve, also requires that the jurisdictional rules which derogate from the general principle of the Convention should be interpreted in such a

16 celex-txt J von 4 04/10/ :07 p.m. way as to enable a normally well-informed defendant reasonably to predict before which courts, other than those of the State in which he is domiciled, he may be sued. 19 However, in a situation such as that with which the main proceedings are concerned, the application of the special jurisdictional rule laid down by Article 5(1) of the Convention to an action brought by a sub-buyer of goods against the manufacturer is not foreseeable by the latter and is therefore incompatible with the principle of legal certainty. 20 Apart from the fact that the manufacturer has no contractual relationship with the sub-buyer and undertakes no contractual obligation towards that buyer, whose identity and domicile may, quite reasonably, be unknown to him, it appears that in the great majority of Contracting States the liability of a manufacturer towards a sub-buyer for defects in the goods sold is not regarded as being of a contractual nature. 21 It follows that the answer to the question submitted by the national court must be that Article 5(1) of the Convention is to be understood as meaning that it does not apply to an action between a sub-buyer of goods and the manufacturer, who is not the seller, relating to defects in those goods or to their unsuitability for their intended purpose. Decision on costs Costs 22 The costs incurred by the Government of the Federal Republic of Germany and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Operative part Haut On those grounds, THE COURT, in answer to the question referred to it by the French Cour de Cassation by judgment of 8 January 1991, hereby rules: Article 5(1) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters is to be understood as meaning that it does not apply to an action between a sub-buyer of goods and the manufacturer, who is not the seller, relating to defects in those goods or to their unsuitability for their intended purpose.

17 EUR-Lex J EN 1 von 4 05/10/ :53 p.m. Managed by the Avis Publications juridique important Office 61976J0012 Judgment of the Court of 6 October Industrie Tessili Italiana Como v Dunlop AG. - Reference for a preliminary ruling: Oberlandesgericht Frankfurt am Main - Germany. - Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, Article 5 (1). - Case European Court reports 1976 Page Greek special edition Page Portuguese special edition Page Spanish special edition Page Swedish special edition Page Finnish special edition Page Summary Parties Subject of the case Grounds Decision on costs Operative part Keywords 1. PROCEDURE - CONVENTIONS FOR WHICH PROVISION IS MADE IN ARTICLE 220 OF THE EEC TREATY - INTERPRETATION - NEW MEMBER STATES - OBSERVATIONS - PERMISSIBILITY ( ACT OF ACCESSION, ARTICLE 3 ( 2 ) 2. CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS - INTERPRETATION - GENERAL RULES. 3. CONVENTION OF 27 SEPTEMBER SPECIAL JURISDICTION - DISPUTE HAVING AN INTERNATIONAL CHARACTER - MATTER RELATING TO A CONTRACT - COURT HAVING JURISDICTION - PLACE OF PERFORMANCE OF THE OBLIGATION ( CONVENTION OF 27 SEPTEMBER 1968, ARTICLE 5 ( 1 ) Summary 1. THE NEW MEMBER STATES ARE ENTITLED TO SUBMIT OBSERVATIONS IN THE CONTEXT OF PROCEEDINGS RELATING TO THE INTER- PRETATION OF ONE OF THE CONVENTIONS, FOR WHICH PROVISION IS MADE IN ARTICLE 220 OF THE TREATY, TO WHICH THEY ARE REQUIRED BY ARTICLE 3 ( 2 ) OF THE ACT OF ACCESSION TO BECOME PARTIES. 2. THE CONVENTION OF 27 SEPTEMBER 1968 MUST BE INTERPRETED HAVING REGARD BOTH TO ITS PRINCIPLES AND OBJECTIVES AND TO ITS RELATIONSHIP WITH THE TREATY. AS REGARDS THE QUESTION WHETHER THE WORDS AND CONCEPTS USED IN THE CONVENTION MUST BE REGARDED AS HAVING THEIR OWN INDEPENDENT MEANING AND AS BEING THUS COMMON TO ALL THE MEMBER STATES OR AS REFERRING TO SUBSTANTIVE RULES OF THE LAW APPLICABLE IN EACH CASE UNDER THE RULES OF CONFLICT OF LAWS OF THE COURT BEFORE WHICH THE MATTER IS FIRST BROUGHT, THE APPROPRIATE CHOICE CAN ONLY BE MADE IN RESPECT OF EACH OF THE PROVISIONS OF THE CONVENTION TO ENSURE THAT IT IS FULLY EFFECTIVE HAVING REGARD TO THE OBJECTIVES OF ARTICLE 220 OF THE TREATY. 3. THE ' PLACE OF PERFORMANCE OF THE OBLIGATION IN QUESTION ' WITHIN THE MEANING OF ARTICLE 5 ( 1 ) OF THE CONVENTION OF 27 SEPTEMBER 1968 IS TO BE DETERMINED IN ACCORDANCE WITH THE LAW WHICH GOVERNS THE OBLIGATION IN QUESTION ACCORDING TO THE

18 EUR-Lex J EN 2 von 4 05/10/ :53 p.m. RULES OF CONFLICT OF LAWS OF THE COURT BEFORE WHICH THE MATTER IS BROUGHT. Parties IN CASE 12/76 REFERENCE UNDER ARTICLE 1 OF THE PROTOCOL OF 3 JUNE 1971 ON THE INTERPRETATION BY THE COURT OF JUSTICE OF THE CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS BY THE OBERLANDESGERICHT FRANKFURT AM MAIN FOR A PRELIMINARY RULING IN THE ACTION PENDING BEFORE THAT COURT BETWEEN INDUSTRIE TESSILI ITALIANA COMO, WHOSE REGISTERED OFFICE IS IN COMO, ITALY, AND DUNLOP AG, WHOSE REGISTERED OFFICE IS IN HANAU AM MAIN ( FEDERAL REPUBLIC OF GERMANY ), Subject of the case ON THE INTERPRETATION OF THE CONCEPT OF ' PLACE OF PERFORMANCE OF THE OBLIGATION IN QUESTION ' WITHIN THE MEANING OF ARTICLE 5 ( 1 ) OF THE CONVENTION OF 27 SEPTEMBER 1968, Grounds 1 BY ORDER DATED 14 JANUARY 1976, RECEIVED AT THE COURT REGISTRY ON 13 FEBRUARY 1976, THE OBERLANDESGERICHT FRANKFURT AM MAIN REFERRED TO THE COURT FOR A PRELIMINARY RULING UNDER THE PROTOCOL OF 3 JUNE 1971 ON THE INTERPRETATION OF THE CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS ( HEREINAFTER REFERRED TO AS ' THE CONVENTION ' ) A QUESTION ON THE INTERPRETATION OF ARTICLE 5 ( 1 ) OF THE CONVENTION. 2 IT APPEARS FROM THE ORDER OF REFERENCE THAT AT THIS STAGE THE CASE, WHICH HAS BEEN BROUGHT AS AN APPEAL TO THE OBERLANDESGERICHT, RELATES TO THE JURISDICTION OF THE COURT OF FIRST INSTANCE AT HANAU TO HEAR A CASE BROUGHT BY AN UNDERTAKING ESTABLISHED WITHIN THE JURISDICTION OF THAT COURT AGAINST AN ITALIAN UNDERTAKING WITH ITS REGISTERED OFFICE AT COMO IN CONNEXION WITH THE PERFORMANCE OF A CONTRACT RELATING TO THE DELIVERY BY THE ITALIAN UNDERTAKING TO THE GERMAN UNDERTAKING OF A CONSIGNMENT OF WOMEN ' S SKI SUITS. IT APPEARS FROM THE FILE THAT THE GOODS WERE MANUFACTURED BY THE ITALIAN UNDERTAKING IN ACCORDANCE WITH INSTRUCTIONS GIVEN BY THE GERMAN UNDERTAKING AND DELIVERED TO A CARRIER IN COMO APPOINTED BY THE GERMAN UNDERTAKING. 3 THE GERMAN UNDERTAKING AFTER TAKING DELIVERY OF THE GOODS AND SELLING SOME OF THEM CONSIDERS AS A RESULT OF COMPLAINTS FROM ITS CUSTOMERS THAT THE SUITS DELIVERED BY THE MANUFACTURER ARE DEFECTIVE AND DO NOT CORRESPOND TO THE SPECIFICATIONS AGREED BETWEEN THE PARTIES. FOR THIS REASON IT BROUGHT AN ACTION IN ITS LOCAL COURT AGAINST THE ITALIAN MANUFACTURER. 4 THE COURT BY INTERLOCUTORY JUDGMENT DATED 10 MAY 1974 DECLARED ITSELF TO HAVE JURISDICTION TO HEAR THE CASE WHEREUPON THE ITALIAN UNDERTAKING BROUGHT AN APPEAL BEFORE THE OBERLANDESGERICHT FRANKFURT AM MAIN. IN THE VIEW OF THIS LATTER COURT THE QUESTION OF JURISDICTION RAISED MUST BE SETTLED IN ACCORDANCE WITH THE PROVISIONS OF THE CONVENTION. IN ITS VIEW THERE IS NO VALID AGREEMENT BETWEEN THE PARTIES CONFERRING JURISDICTION WITHIN THE MEANING OF ARTICLE 17 OF THE CONVENTION. ON THE OTHER HAND THE OBERLANDESGERICHT DOES NOT RULE OUT THE POSSIBILITY THAT THE COURT OF FIRST INSTANCE MAY HAVE JURISDICTION UNDER ARTICLE 5 ( 1 ) OF THE CONVENTION AS BEING THE PLACE ' OF PERFORMANCE OF THE OBLIGATION IN QUESTION '. TO SETTLE THIS QUESTION IT ASKS THE COURT OF JUSTICE TO RULE ON THE INTERPRETATION OF THAT PROVISION. PROCEDURE

19 EUR-Lex J EN 3 von 4 05/10/ :53 p.m. 5 THE REPUBLIC OF IRELAND AND THE UNITED KINGDOM SUBMITTED OBSERVATIONS DURING THE WRITTEN PROCEDURE AND THE COURT THEREFORE REQUESTED THE PARTIES IN THE MAIN ACTION, THE MEMBER STATES AND THE COMMISSION TO GIVE THEIR VIEWS ON THE QUESTION WHETHER THE NEW MEMBER STATES WHICH ARE NOT YET PARTIES TO THE CONVENTION ARE ENTITLED TO PARTICIPATE IN PROCEEDINGS RELATING TO ITS INTERPRETATION. 6 ARTICLE 3 ( 2 ) OF THE ACT OF ACCESSION PROVIDES THAT ' THE NEW MEMBER STATES UNDERTAKE TO ACCEDE TO THE CONVENTIONS PROVIDED FOR IN ARTICLE 220 OF THE EEC TREATY, AND TO THE PROTOCOLS ON THE INTERPRETATION OF THOSE CONVENTIONS BY THE COURT OF JUSTICE, SIGNED BY THE ORIGINAL MEMBER STATES, AND TO THIS END THEY UNDERTAKE TO ENTER INTO NEGOTIATIONS WITH THE ORIGINAL MEMBER STATES IN ORDER TO MAKE THE NECESSARY ADJUSTMENTS THERETO '. THE FIRST PARAGRAPH OF ARTICLE 63 OF THE CONVENTION PROVIDES THAT ' THE CONTRACTING STATES RECOGNIZE THAT ANY STATE WHICH BECOMES A MEMBER OF THE EUROPEAN ECONOMIC COMMUNITY SHALL BE REQUIRED TO ACCEPT THIS CONVENTION AS A BASIS FOR THE NEGOTIATIONS BETWEEN THE CONTRACTING STATES AND THAT STATE NECESSARY TO ENSURE THE IMPLEMENTATION OF THE LAST PARAGRAPH OF ARTICLE 220 OF THE TREATY ESTABLISHING THE EUROPEAN ECONOMIC COMMUNITY '. THE NEW MEMBER STATES THUS HAVE AN INTEREST IN EXPRESSING THEIR VIEWS WHEN THE COURT IS CALLED UPON TO INTERPRET A CONVENTION TO WHICH THEY ARE REQUIRED TO BECOME PARTIES. 7 IT SHOULD FURTHER BE OBSERVED THAT ARTICLE 5 ( 1 ) OF THE PROTOCOL OF 3 JUNE 1971 STIPULATES THAT, EXCEPT AS OTHERWISE PROVIDED, ' THE PROVISIONS OF THE TREATY ESTABLISHING THE EUROPEAN ECONOMIC COMMUNITY AND THOSE OF THE PROTOCOL ON THE STATUTE OF THE COURT OF JUSTICE ANNEXED THERETO, WHICH ARE APPLICABLE WHEN THE COURT IS REQUESTED TO GIVE A PRELIMINARY RULING, SHALL ALSO APPLY TO ANY PROCEEDINGS FOR THE INTERPRETATION OF THE CONVENTION '. 8 AS A RESULT THE NEW MEMBER STATES TO WHICH ARTICLE 177 OF THE EEC TREATY AND ARTICLE 20 OF THE PROTOCOL ON THE STATUTE OF THE COURT OF JUSTICE APPLY ARE ENTITLED TO SUBMIT OBSERVATIONS IN ACCORDANCE WITH THE SAID ARTICLES IN PROCEEDINGS FOR THE INTERPRETATION OF THE CONVENTION. NO VALID OBJECTION TO THIS CONCLUSION IS CONSTITUTED BY ARTICLE 4 ( 4 ) OF THE PROTOCOL OF 3 JUNE 1971 ON A SPECIAL PROCEDURE WHICH IS NOT RELEVANT FOR THE PRESENT PURPOSES. FURTHER IN THE CONTEXT OF THAT PROTOCOL, WHICH ORIGINATED BEFORE THE ENLARGEMENT OF THE EUROPEAN COMMUNITIES, THE WORDS ' CONTRACTING STATES ' REFER TO ALL THE MEMBER STATES. THE INTERPRETATION OF THE CONVENTION IN GENERAL 9 ARTICLE 220 OF THE EEC TREATY PROVIDES THAT MEMBER STATES SHALL, SO FAR AS NECESSARY, ENTER INTO NEGOTIATIONS WITH EACH OTHER WITH A VIEW TO SECURING FOR THE BENEFIT OF THEIR NATIONALS THE ESTABLISHMENT OF RULES INTENDED TO FACILITATE THE ACHIEVEMENT OF THE COMMON MARKET IN THE VARIOUS SPHERES LISTED IN THAT PROVISION. THE CONVENTION WAS ESTABLISHED TO IMPLEMENT ARTICLE 220 AND WAS INTENDED ACCORDING TO THE EXPRESS TERMS OF ITS PREAMBLE TO IMPLEMENT THE PROVISIONS OF THAT ARTICLE ON THE SIMPLIFICATION OF FORMALITIES GOVERNING THE RECIPROCAL RECOGNITION AND ENFORCEMENT OF JUDGMENTS OF COURTS OR TRIBUNALS AND TO STRENGTHEN IN THE COMMUNITY THE LEGAL PROTECTION OF PERSONS THEREIN ESTABLISHED. IN ORDER TO ELIMINATE OBSTACLES TO LEGAL RELATIONS AND TO SETTLE DISPUTES WITHIN THE SPHERE OF INTRA-COMMUNITY RELATIONS IN CIVIL AND COMMERCIAL MATTERS THE CONVENTION CONTAINS, INTER ALIA, RULES ENABLING THE JURISDICTION IN THESE MATTERS OF COURTS OF MEMBER STATES TO BE DETERMINED AND FACILITATING THE RECOGNITION AND EXECUTION OF COURTS ' JUDGMENTS. ACCORDINGLY THE CONVENTION MUST BE INTERPRETED HAVING REGARD BOTH TO ITS PRINCIPLES AND OBJECTIVES AND TO ITS RELATIONSHIP WITH THE TREATY. 10 THE CONVENTION FREQUENTLY USES WORDS AND LEGAL CONCEPTS DRAWN FROM CIVIL, COMMERCIAL AND PROCEDURAL LAW AND CAPABLE OF A DIFFERENT MEANING FROM ONE MEMBER STATE TO ANOTHER. THE QUESTION THEREFORE ARISES WHETHER THESE WORDS AND CONCEPTS MUST BE REGARDED AS HAVING THEIR OWN INDEPENDENT MEANING AND AS BEING THUS COMMON TO ALL THE MEMBER STATES OR AS REFERRING TO SUBSTANTIVE RULES OF THE LAW APPLICABLE IN EACH CASE UNDER THE RULES OF CONFLICT OF LAWS OF THE COURT BEFORE WHICH THE MATTER IS FIRST BROUGHT. 11 NEITHER OF THESE TWO OPTIONS RULES OUT THE OTHER SINCE THE APPROPRIATE CHOICE CAN ONLY BE MADE IN RESPECT OF EACH OF THE PROVISIONS OF THE CONVENTION TO ENSURE THAT IT IS FULLY EFFECTIVE HAVING REGARD TO THE OBJECTIVES OF ARTICLE 220 OF THE TREATY. IN ANY EVENT IT SHOULD BE STRESSED THAT THE INTERPRETATION OF THE SAID WORDS AND CONCEPTS FOR THE PURPOSE OF THE CONVENTION DOES NOT PREJUDGE THE QUESTION OF THE SUBSTANTIVE RULE APPLICABLE TO THE PARTICULAR CASE. THE QUESTION RAISED BY THE NATIONAL COURT 12 ARTICLE 5 OF THE CONVENTION PROVIDES : ' A PERSON DOMICILED IN A CONTRACTING STATE MAY, IN ANOTHER CONTRACTING STATE, BE SUED : ( 1 ) IN MATTERS RELATING TO A CONTRACT,

20 EUR-Lex J EN 4 von 4 05/10/ :53 p.m. IN THE COURTS FOR THE PLACE OF PERFORMANCE OF THE OBLIGATION IN QUESTION '. THIS PROVISION 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 HAVING REGARD TO THE DIFFERENCES OBTAINING BETWEEN NATIONAL LAWS OF CONTRACT AND TO THE ABSENCE AT THIS STAGE OF LEGAL DEVELOPMENT OF ANY UNIFICATION IN THE SUBSTANTIVE LAW APPLICABLE, 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. Decision on costs COSTS 16 THE COSTS INCURRED BY THE GOVERNMENT OF THE FEDERAL REPUBLIC OF GERMANY, THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE COMMISSION OF THE EUROPEAN COMMUNITIES WHICH HAVE SUBMITTED OBSERVATIONS TO THE COURT ARE NOT RECOVERABLE AND, AS THESE PROCEEDINGS ARE, IN SO FAR AS THE PARTIES TO THE MAIN ACTION ARE CONCERNED, IN THE NATURE OF A STEP IN THE ACTION PENDING BEFORE THE OBERLANDESGERICHT FRANKFURT AM MAIN, THE DECISION AS TO COSTS IS A MATTER FOR THAT COURT. Operative part ON THOSE GROUNDS, THE COURT IN ANSWER TO THE QUESTION REFERRED TO IT BY THE OBERLANDESGERICHT FRANKFURT AM MAIN BY ORDER DATED 14 JANUARY 1976, HEREBY RULES : THE ' PLACE OF PERFORMANCE OF THE OBLIGATION IN QUESTION ' WITHIN THE MEANING OF ARTICLE 5 ( 1 ) OF THE CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS IS TO BE DETERMINED IN ACCORDANCE WITH THE LAW WHICH GOVERNS THE OBLIGATIONS IN QUESTION ACCORDING TO THE RULES OF CONFLICT OF LAWS OF THE COURT BEFORE WHICH THE MATTER IS BROUGHT.

21 celex-txt J von 7 04/10/ :06 p.m. Managed by the Avis Publications juridique important Office BG ES CS DA DE ET EL EN FR GA IT LV LT HU MT NL PL PT RO SK SL FI SV Site map LexAlert FAQ Help Contact Links 61997J0420 Judgment of the Court of 5 October Leathertex Divisione Sintetici SpA v Bodetex BVBA. Reference for a preliminary ruling: Hof van Cassatie - Belgium. Brussels Convention - Interpretation of Articles 2 and 5(1) - Commercial agency agreement - Action founded on separate obligations arising from the same contract and regarded as equal in rank - Jurisdiction of the court seised to hear the whole action. European Court reports 1999 Page I BG ES CS DA DE ET EL EN FR GA IT LVLTHUMT NL PL PT ROSKSL FI SV html htmlhtml htmlhtmlhtml html html html htmlhtml Keywords Summary Parties Grounds Decision on costs Operative part Summary 1 Convention on Jurisdiction and the Enforcement of Judgments - Protocol on the interpretation by the Court of Justice of the Convention - Preliminary rulings - Jurisdiction of the Court - Limits (Convention of 27 September 1968; Protocol of 3 June 1971, Art. 5; EC Statute of the Court of Justice, Art. 20) 2 Convention on Jurisdiction and the Enforcement of Judgments - Special jurisdiction - Court for the place of performance of the contractual obligation - Action founded on obligations of equal rank arising from the same contract - One of the obligations to be performed in the State of the court seised and the other in another Contracting State - Court seised not having jurisdiction to hear the whole action (Convention of 27 September 1968, Art. 5(1)) 1 In view of the allocation of jurisdiction under the preliminary ruling procedure provided for by the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, it is for the national court seised of an action founded on separate obligations arising from the same contract to assess the relative importance of the contractual obligations at issue for the purposes of the application of Article 5(1) of the Convention, and for the Court of Justice to interpret the Convention in the light of the findings made in this respect by the national court. To alter the substance of the question referred by the latter for a preliminary ruling would be incompatible with the Court's function under the Protocol and with its duty to ensure that the Governments of the Member States and the parties concerned are given the opportunity to submit observations pursuant to Article 5 of the Protocol and Article 20 of the Statute of the Court, bearing in mind that, under Article 20, only the order of the referring court is notified to the interested parties. 2 On a proper construction of Article 5(1) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland, the same court does not have jurisdiction to hear the whole of an action

22 celex-txt J von 7 04/10/ :06 p.m. Parties founded on two obligations of equal rank arising from the same contract when, according to the conflict rules of the State where that court is situated, one of those obligations is to be performed in that State and the other in another Contracting State. While there are disadvantages in having different courts ruling on different aspects of the same dispute, the plaintiff always has the option, under Article 2 of the Convention, of bringing his entire claim before the courts for the place where the defendant is domiciled. Grounds In Case C-420/97, REFERENCE to the Court under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters by the Hof van Cassatie, Belgium, for a preliminary ruling in the proceedings pending before that court between Leathertex Divisione Sintetici SpA and Bodetex BVBA on the interpretation of Articles 2 and 5(1) of the abovementioned Convention of 27 September 1968 (OJ 1978 L 304, p. 36), as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1 and - amended text - p. 77), THE COURT, composed of: G.C. Rodríguez Iglesias, President, P.J.G. Kapteyn, J.-P. Puissochet, G. Hirsch and P. Jann (Presidents of Chambers), J.C. Moitinho de Almeida (Rapporteur), C. Gulmann, J.L. Murray, D.A.O. Edward, H. Ragnemalm, L. Sevón, M. Wathelet and R. Schintgen, Judges, Advocate General: P. Léger, Registrar: H. von Holstein, Deputy Registrar, after considering the written observations submitted on behalf of: - Leathertex Divisione Sintetici SpA, by S. Beele and F. Busschaert, of the Courtrai Bar, - Bodetex BVBA, by D. van Poucke and B. Demeulenaere, of the Ghent Bar, - the German Government, by R. Wagner, Regierungsdirektor in the Federal Ministry of Justice, acting as Agent, - the Italian Government, by Professor U. Leanza, Head of the Legal Department of the Ministry of Foreign Affairs, acting as Agent, and O. Fiumara, Avvocato dello Stato, - the United Kingdom Government, by J.E. Collins, Assistant Treasury Solicitor, acting as Agent, and M. Hoskins, Barrister, - the Commission of the European Communities, by J.L. Iglesias Buhigues, Legal Adviser, and P. van Nuffel, of its Legal Service, acting as Agents, having regard to the Report for the Hearing, after hearing the oral observations of the Italian Government, represented by O. Fiumara, of the United Kingdom Government, represented by L. Persey QC, and of the Commission, represented by J.L. Iglesias Buhigues and P. van Nuffel, at the hearing on 15 December 1998, after hearing the Opinion of the Advocate General at the sitting on 16 March 1999, gives the following Judgment 1 By judgment of 4 December 1997, received at the Court on 11 December 1997, the Hof van Cassatie (Court of Cassation) referred to the Court for a preliminary ruling under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (hereinafter `the Protocol') a question

23 celex-txt J von 7 04/10/ :06 p.m. on the interpretation of Articles 2 and 5(1) of that Convention (OJ 1978 L 304, p. 36), as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1 and - amended text - p. 77, hereinafter `the Convention'). 2 That question was raised in proceedings between Leathertex Divisione Sintetici SpA (hereinafter `Leathertex'), whose registered office is in Montemurlo, Italy, and Bodetex BVBA (hereinafter `Bodetex'), whose registered office is in Rekkem-Menen, Belgium, concerning the payment of arrears of commission and of compensation in lieu of notice, which Bodetex, the commercial agent of Leathertex in the Belgian and Netherlands markets, is claiming from Leathertex. The Convention 3 The first paragraph of Article 2 of the Convention states: `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.' 4 The first paragraph of Article 3 provides: `Persons domiciled in a Contracting State may be sued in the courts of another Contracting State only by virtue of the rules set out in Sections 2 to 6 of this Title.' 5 Article 5 provides: `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;...' 6 Article 6(1) adds that where such a person is one of a number of defendants, he may be sued in the courts for the place where any one of them is domiciled. 7 Finally, the first paragraph of Article 22 provides: `Where related actions are brought in the courts of different Contracting States, any court other than the court first seised may, while the actions are pending at first instance, stay its proceedings.' The main proceedings 8 For a number of years Bodetex acted as commercial agent for Leathertex in the Belgian and Netherlands markets under a long-term arrangement. It received 5% commission by way of remuneration. 9 After asking Leathertex to no avail during 1987 for payment of commission which it considered to be owing to it, Bodetex regarded its commercial agency agreement as terminated and, by letter of 9 March 1988, took formal note of the termination and demanded from Leathertex payment of arrears of commission and compensation in lieu of notice. 10 Since Leathertex did not reply to that letter, on 2 November 1988 Bodetex sued it for payment in the Rechtbank van Koophandel (Commercial Court), Courtrai. 11 By judgment of 1 October 1991, the Rechtbank van Koophandel found that two separate obligations formed the basis of the action. It held that the first, namely the obligation to give a reasonable period of notice on termination of a commercial agency agreement and, in the event of failure to give such notice, to pay compensation in lieu, was to be performed in Belgium, whereas the second, namely the obligation to pay commission, was to be performed in Italy under the principle that debts are payable where the debtor is resident. The Rechtbank van Koophandel accordingly found that it had jurisdiction in respect of the obligation to pay compensation in lieu of notice, by virtue of Article 5(1) of the Convention, and then declared that it had jurisdiction over the whole proceedings given the connection between that obligation and the obligation to pay commission. It ordered Leathertex to pay Bodetex arrears of commission and compensation in lieu of notice. 12 Leathertex appealed against that judgment to the Hof van Beroep (Court of Appeal), Ghent, which, by judgment of 29 October 1993, confirmed that the Rechtbank van Koophandel had jurisdiction to hear the action brought by Bodetex. The Hof van Beroep held that two separate obligations arising from the agency agreement formed the basis of the action, that the obligation to pay commission could not be regarded as the principal obligation and that the two obligations had to be regarded as equal in rank, so that there was nothing to prevent Bodetex from bringing its action before the courts for the place of performance of either of those two obligations. It therefore ruled that the Rechtbank van Koophandel had jurisdiction to hear the main proceedings as the court for the place where the

24 celex-txt J von 7 04/10/ :06 p.m. obligation to give a reasonable period of notice was to be performed. 13 Leathertex appealed on a point of law to the Hof van Cassatie. It submitted, first, that the Hof van Beroep had misconstrued Article 5(1) of the Convention in holding that it had jurisdiction to deal with the head of claim concerning payment of the arrears of commission when the obligation to pay that commission was to be performed in Italy. According to Leathertex, if a court is unable to identify the principal obligation and the ancillary obligations from among the various obligations forming the basis of an action, it is competent to rule only on the obligations for which the place of performance is located, in accordance with its own conflict rules, in its jurisdiction. Leathertex maintained, secondly, that the Hof van Beroep had misinterpreted Article 22 of the Convention in holding that it had jurisdiction to hear the whole of the dispute, since that provision can apply only where related actions have been brought in the courts of two or more Contracting States. 14 In its order for reference, the Hof van Cassatie states first of all that Article 22 of the Convention was not applied in the judgment under appeal and rejects on this ground Leathertex's plea based on the misinterpretation of that provision. 15 So far as concerns the alleged infringement of Article 5(1) of the Convention, the Hof van Cassatie notes that, in Case 266/85 Shenavai v Kreischer [1987] ECR 239, at paragraph 19, the Court held that, in the particular case of a dispute concerned with a number of obligations arising under the same contract and forming the basis of the proceedings brought by the plaintiff, the court before which the matter is brought should, when determining whether it has jurisdiction, be guided by the maxim accessorium sequitur principale so that, where a number of obligations are at issue, it will be the principal obligation which will determine its jurisdiction. 16 The Hof van Cassatie states that, in the present case, it is common ground that the obligation to pay commission cannot be regarded as the principal obligation in the context of the action brought by Bodetex, that the Belgian courts have jurisdiction to rule on the obligation to pay compensation in lieu of notice since that obligation is contractual in nature and is to be performed in Belgium, and that the two abovementioned obligations are of equal rank. 17 The Hof van Cassatie inquires whether it is possible to disapply the general rule set out in Article 2 of the Convention in the case of a dispute concerning various obligations arising under the same agency agreement where none of the obligations is subordinate to the others and only one, having regard to its place of performance, supports the jurisdiction of the court before which the matter has been brought. 18 In those circumstances, the Hof van Cassatie decided to stay proceedings and to refer the following question to the Court for a preliminary ruling: `Are Articles 5(1) and 2 of the Brussels Convention, in the version applicable to the present case, to be interpreted as meaning that a composite claim founded on different obligations arising from the same contract may be brought before the same court, even though, according to the jurisdictional rules of the State in which the proceedings are brought, one of the contractual obligations on which the claim is based is to be performed in that State and the other is to be performed in another EC Member State, having regard to the fact that the court before which the proceedings are brought decides, on the basis of the claim brought before it, that neither of the two obligations forming the subject-matter of the claim is subordinate to the other and that they are of equal rank?' Consideration of the question submitted 19 By its question, the national court is essentially asking whether, on a proper construction of Articles 2 and 5(1) of the Convention, the same court has jurisdiction to hear the whole of an action founded on two obligations of equal rank arising from the same contract even though, according to the conflict rules of the State where that court is situated, one of those obligations is to be performed in that State and the other in another Contracting State. 20 The United Kingdom Government submits that, of the two obligations upon which the main action is founded, the obligation to pay commission forms its principal basis. According to the order for reference, the sole reason why Bodetex regarded the contract as having been terminated without notice was the failure to pay the disputed commission. So compensation in lieu of notice is to be paid only if it is established that the disputed commission is in fact due. The United Kingdom Government therefore proposes that the question referred for a preliminary ruling should be reformulated and the answer given that, in a situation such as that in the main proceedings, the contractual obligation which forms the principal basis of the legal proceedings and upon which jurisdiction may be founded under Article 5(1) of the Convention is the obligation to pay commission. 21 As to that, in view of the allocation of jurisdiction under the preliminary ruling procedure provided for by the Protocol, it is for the national court to assess the relative importance of the contractual obligations at issue in the main proceedings and for the Court of Justice to interpret the Convention in

25 celex-txt J von 7 04/10/ :06 p.m. the light of the findings made by the national court. 22 Moreover, to alter the substance of the question referred for a preliminary ruling would be incompatible with the Court's function under the Protocol and with its duty to ensure that the Governments of the Member States and the parties concerned are given the opportunity to submit observations pursuant to Article 5 of the Protocol and Article 20 of the EC Statute of the Court, bearing in mind that, under Article 20, only the order of the referring court is notified to the interested parties (see, in relation to the procedure under Article 177 of the EC Treaty (now Article 234 EC), Case C-352/95 Pytheron International v Bourdon [1997] ECR I-1729, paragraph 14, and Case C-235/95 AGS Assedic v Dumon and Froment [1998] ECR I-4531, paragraph 26). 23 The question referred for a preliminary ruling must therefore be answered on the basis that, as stated in the order for reference, the two contractual obligations on which the action is founded are of equal rank. 24 Leathertex, the German Government and the United Kingdom Government, in an alternative submission, submit that a court of a Contracting State does not have jurisdiction under Article 5(1) of the Convention to hear the whole of an action founded on several obligations of equal rank arising from the same contract when the place of performance of one or a number of those obligations is in another Member State. 25 In their view, Article 5(1) of the Convention must be interpreted strictly. Where the two obligations which form the basis of an action are regarded as equal in rank by the court before which the action has been brought, jurisdiction to deal with each of them should lie with the court of the place where each is to be performed and any resultant fragmenting of jurisdiction should be accepted. Such an interpretation of Article 5(1) of the Convention is, they argue, consistent with the rationale for that provision, which is to guarantee to each party in matters relating to a contract that claims will be considered by the courts for the place where the obligation in dispute is to be performed. 26 Bodetex maintains, first, that the agreement giving rise to the two obligations at issue in the main proceedings is analogous to a commercial representative's contract of employment. Thus, when Article 5(1) of the Convention is applied in the case of an action founded on different obligations resulting from the same agency agreement, it is appropriate, as in the case of contracts of employment, to take account of the obligation which characterises that contract, namely, in the present case, the obligation to find new customers and to distribute Leathertex's products, in particular in Belgium. In a number of Contracting States, case-law and academic legal writing have extended that solution to concession agreements, with which commercial agency agreements likewise have similarities. 27 Bodetex argues, second, that the obligation to pay commission is linked to the obligation to pay compensation in lieu of notice. Both result from the agency agreement. In addition, failure to perform the obligation to pay commission was the reason why the agreement was terminated, thereby giving rise to the obligation to pay compensation in lieu of notice. That link provides the justification for the court with jurisdiction to rule on the obligation to pay compensation in lieu of notice to have jurisdiction to rule on the obligation to pay commission as well. 28 According to Bodetex, such an interpretation of Article 5(1) of the Convention allows proceedings to be conducted effectively while avoiding a fragmenting of jurisdiction. 29 Finally, the Commission submits that, where a plaintiff brings two claims based on two obligations of equal rank, a court which has jurisdiction to hear one of the claims under Article 5(1) of the Convention also has jurisdiction to hear the other claim if there is such a close relationship between the claims that it is advantageous to hear and decide them at the same time in order to avoid the possibility of irreconcilable decisions if the cases were decided separately. 30 According to the Commission, such a solution corresponds most closely to the scheme of the Convention. First, it is comparable, mutatis mutandis, with the solution for which Article 6(1) of the Convention provides where there are a number of defendants. Second, it is called for by Article 22 of the Convention. In a dispute such as that before the national court, if the plaintiff decided, in accordance with Article 5(1) of the Convention, to bring the action for payment of compensation in one Contracting State and that for payment of the arrears of commission in another Contracting State, Article 22 of the Convention would apply because of the relation between the two actions. Article 5(1) of the Convention should therefore be interpreted in such a way as to avoid in advance situations to which Article 22 of the Convention would be applicable. 31 It should be noted first of all that, in paragraphs 8, 9 and 10 of the judgment in Case 14/76 De Bloos v Bouyer [1976] ECR 1497, after observing that the Convention was intended to determine the international jurisdiction of the courts of the Contracting States, to facilitate the recognition of judgments and to introduce an expeditious procedure for securing their enforcement, the Court held that those objectives implied the need to avoid, so far as possible, creating a situation in which a number of courts had jurisdiction in respect of one and the same contract and that Article 5(1) of the

26 celex-txt J von 7 04/10/ :06 p.m. Convention could not therefore be interpreted as referring to any obligation whatsoever arising under the contract in question. The Court concluded, in paragraphs 11 and 13 of the same judgment, that, for the purposes of determining the place of performance within the meaning of Article 5(1), the obligation to be taken into account was that which corresponded to the contractual right on which the plaintiff's action was based. It stated in paragraph 14 that, in a case where the plaintiff asserted the right to be paid damages or sought dissolution of the contract on the ground of the wrongful conduct of the other party, that obligation was still that which arose under the contract and the non-performance of which was relied upon to support such claims. 32 This interpretation was corroborated by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland, which amended certain language versions of Article 5(1) of the Convention in order to specify that the obligation whose place of performance determines which court has jurisdiction in matters relating to a contract is the obligation which forms the basis of the claim (in the English version `the obligation in question'). 33 Also, the Court has held on several occasions that the place of performance of the obligation in question is to be determined by the law governing that obligation according to the conflict rules of the court seised (Case 12/76 Tessili v Dunlop [1976] ECR 1473, paragraph 13, Case C-288/92 Custom Made Commercial v Stawa Metallbau [1994] ECR I-2913, paragraph 26, and Case C-440/97 Groupe Concorde and Others v The Master of the Vessel Suhadiwarno Panjan and Others [1999] ECR I-0000, paragraph 32). 34 In the present case, the Belgian courts have held, in accordance with the case-law cited above, that the obligation to pay compensation in lieu of notice was to be performed in Belgium while the obligation to pay commission was to be performed in Italy. 35 Furthermore, it is apparent from the order for reference and the file forwarded by the national court that the contract at issue in the main proceedings, under which the claims for payment of commission and of compensation in lieu of notice have been brought, does not constitute a contract of employment. 36 When the specific features of a contract of employment do not exist, it is neither necessary nor appropriate to identify the obligation which characterises the contract and to centralise at its place of performance all jurisdiction, based on place of performance, over disputes concerning all the obligations under the contract (Shenavai, cited above, paragraph 17). 37 Therefore, the obligation which characterises the agency agreement is not to be taken into account in the main proceedings in order to determine jurisdiction based on place of performance. 38 Nor can the court which has jurisdiction to hear the claim for payment of compensation in lieu of notice found its jurisdiction in respect of the claim for payment of commission on any relation between those two claims. As the Court has made clear, Article 22 of the Convention is intended to establish how related actions which have been brought before courts of different Contracting States are to be dealt with. It does not confer jurisdiction. In particular, it does not accord jurisdiction to a court of a Contracting State to try an action which is related to another action of which that court is seised pursuant to the rules of the Convention (see Case 150/80 Elefanten Schuh v Jacqmain [1981] ECR 1671, paragraph 19, and Case C-51/97 Réunion Européenne and Others v Spliethoff's Bevrachtingskantor and Another [1998] ECR I-6511, paragraph 39). 39 Finally, when a dispute relates to a number of obligations of equal rank arising from the same contract, the court before which the matter is brought cannot, when determining whether it has jurisdiction, be guided by the maxim accessorium sequitur principale referred to by the Court in paragraph 19 of the judgment in Shenavai, cited above. 40 The same court does not therefore have jurisdiction to hear the whole of an action founded on two obligations of equal rank arising from the same contract when, according to the conflict rules of the State where that court is situated, one of those obligations is to be performed in that State and the other in another Contracting State. 41 It should be remembered that, while there are disadvantages in having different courts ruling on different aspects of the same dispute, the plaintiff always has the option, under Article 2 of the Convention, of bringing his entire claim before the courts for the place where the defendant is domiciled. 42 The answer to be given to the question referred for a preliminary ruling must therefore be that, on a proper construction of Article 5(1) of the Convention, the same court does not have jurisdiction to hear the whole of an action founded on two obligations of equal rank arising from the same contract when, according to the conflict rules of the State where that court is situated, one of those obligations is to be performed in that State and the other in another Contracting State.

27 celex-txt J von 7 04/10/ :06 p.m. Decision on costs Costs 43 The costs incurred by the German, Italian and United Kingdom Governments and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Operative part Haut On those grounds, THE COURT, in answer to the question referred to it by the Hof van Cassatie by judgment of 4 December 1997, hereby rules: On a proper construction of Article 5(1) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland, the same court does not have jurisdiction to hear the whole of an action founded on two obligations of equal rank arising from the same contract when, according to the conflict rules of the State where that court is situated, one of those obligations is to be performed in that State and the other in another Contracting State.

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42 celex-txt J von 5 06/10/ :15 p.m. Managed by the Avis Publications juridique important Office BG ES CS DA DE ET EL EN FR GA IT LV LT HU MT NL PL PT RO SK SL FI SV Site map LexAlert FAQ Help Contact Links 61976J0024 Judgment of the Court of 14 December Estasis Salotti di Colzani Aimo e Gianmario Colzani s.n.c. v Rüwa Polstereimaschinen GmbH. Reference for a preliminary ruling: Bundesgerichtshof - Germany. Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, Article 17 (jurisdiction by consent). Case European Court reports 1976 Page Greek special edition Page Portuguese special edition Page Spanish special edition Page Swedish special edition Page Finnish special edition Page BGES CS DA DE ET EL EN FR GA IT LV LT HUMT NL PL PTROSK SL FI SV htmlhtml htmlhtml html html htmlhtml Keywords Summary Parties Subject of the case Grounds Decision on costs Operative part Summary 1. CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS - JURISDICTION BY CONSENT - EFFECT - VALIDITY - MANNER IN WHICH APPLIED - STRICT INTERPRETATION - CONSENSUS BETWEEN THE PARTIES ( CONVENTION OF 27 SEPTEMBER 1968, ARTICLE 17 ) 2. CONVENTION OF 27 SEPTEMBER COURTS HAVING JURISDICTION - JURISDICTION BY CONSENT - IN WRITING - CONTRACT SIGNED BY THE PARTIES - GENERAL CONDITIONS OF SALE PRINTED ON THE BACK - CLAUSE CONFERRING JURISDICTION - NECESSITY FOR AN EXPRESS REFERENCE TO THOSE CONDITIONS IN THE CONTRACT ( CONVENTION OF 27 SEPTEMBER 1968, ARTICLE 17 ) 3. CONVENTION OF 27 SEPTEMBER COURTS HAVING JURISDICTION - JURISDICTION BY CONSENT - IN WRITING - CONTRACT - ENTERED INTO BY REFERENCE TO PRIOR OFFERS - REFERENCE TO GENERAL CONDITIONS OF SALE - CLAUSE CONFERRING JURISDICTION - NECESSITY FOR AN EXPRESS REFERENCE ( CONVENTION OF 27 SEPTEMBER 1968, ARTICLE 17 ) 1. THE WAY IN WHICH ARTICLE 17 OF THE CONVENTION OF 27 SEPTEMBER 1968 IS TO BE APPLIED MUST BE INTERPRETED IN THE LIGHT OF THE EFFECT OF THE CONFERMENT OF JURISDICTION BY CONSENT, WHICH IS TO EXCLUDE BOTH THE JURISDICTION DETERMINED BY

43 celex-txt J von 5 06/10/ :15 p.m. Parties THE GENERAL PRINCIPLE LAID DOWN IN ARTICLE 2 AND THE SPECIAL JURISDICTIONS PROVIDED FOR IN ARTICLES 5 AND 6 OF THAT CONVENTION. IN VIEW OF THE CONSEQUENCES THAT SUCH AN OPTION MAY HAVE ON THE POSITION OF THE PARTIES TO THE ACTION, THE REQUIREMENTS SET OUT IN ARTICLE 17 GOVERNING THE VALIDITY OF CLAUSES CONFERRING JURISDICTION MUST BE STRICTLY CONSTRUED. BY MAKING THE VALIDITY OF CLAUSES CONFERRING JURISDICTION SUBJECT TO THE EXISTENCE OF AN ' AGREEMENT ' BETWEEN THE PARTIES, ARTICLE 17 IMPOSES ON THE COURT BEFORE WHICH THE MATTER IS BROUGHT THE DUTY OF EXAMINING, FIRST, WHETHER THE CLAUSE CONFERRING JURISDICTION UPON IT WAS IN FACT THE SUBJECT OF A CONSENSUS BETWEEN THE PARTIES, WHICH MUST BE CLEARLY AND PRECISELY DEMONSTRATED, FOR THE PURPOSE OF THE FORMAL REQUIREMENTS IMPOSED BY ARTICLE 17 IS TO ENSURE THAT THE CONSENSUS BETWEEN THE PARTIES IS IN FACT ESTABLISHED. 2. IN THE CASE OF A CLAUSE CONFERRING JURISDICTION, WHICH IS INCLUDED AMONG THE GENERAL CONDITIONS OF SALE OF ONE OF THE PARTIES, PRINTED ON THE BACK OF THE CONTRACT, THE REQUIREMENT OF A WRITING UNDER THE FIRST PARAGRAPH OF ARTICLE 17 OF THE CONVENTION OF 27 SEPTEMBER 1968 IS ONLY FULFILLED IF THE CONTRACT SIGNED BY THE TWO PARTIES INCLUDES AN EXPRESS REFERENCE TO THOSE GENERAL CONDITIONS. 3. IN THE CASE OF A CONTRACT CONCLUDED BY REFERENCE TO EARLIER OFFERS, WHICH WERE THEMSELVES MADE WITH REFERENCE TO THE GENERAL CONDITIONS OF ONE OF THE PARTIES INCLUDING A CLAUSE CONFERRING JURISDICTION, THE REQUIREMENT OF A WRITING UNDER THE FIRST PARAGRAPH OF ARTICLE 17 OF THE CONVENTION OF 27 SEPTEMBER 1968 IS SATISFIED ONLY IF THE REFERENCE IS EXPRESS AND CAN THEREFORE BE CHECKED BY A PARTY EXERCISING REASONABLE CARE. IN CASE 24/76 REFERENCE TO THE COURT FOR A PRELIMINARY RULING PURSUANT TO ARTICLE 1 OF THE PROTOCOL OF 3 JUNE 1971 ON THE INTERPRETATION BY THE COURT OF JUSTICE OF THE CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS BY THE BUNDESGERICHTSHOF ( FEDERAL COURT OF JUSTICE ) IN THE ACTION PENDING BEFORE THAT COURT BETWEEN ESTASIS SALOTTI DI COLZANI AIMO E GIANMARIO COLZANI, HAVING ITS REGISTERED OFFICE AT MEDA ( MILAN ), AND RUWA POLSTEREIMASCHINEN GMBH, HAVING ITS REGISTERED OFFICE AT COLOGNE, Subject of the case Grounds ON THE INTERPRETATION OF THE FIRST PARAGRAPH OF ARTICLE 17 OF THE CONVENTION OF 27 SEPTEMBER 1968, 1 BY AN ORDER OF 18 FEBRUARY 1976, RECEIVED AT THE COURT REGISTRY ON 11 MARCH 1976, THE BUNDESGERICHTSHOF REFERRED TO THE COURT OF JUSTICE PURSUANT TO THE PROTOCOL OF 3 JUNE 1971 ON THE INTERPRETATION OF THE CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS ( HEREINAFTER REFERRED TO AS ' THE CONVENTION ', CERTAIN QUESTIONS CONCERNING THE INTERPRETATION OF ARTICLE 17 OF THE SAID CONVENTION. 2 IT APPEARS FROM THE ORDER MAKING THE REFERENCE THAT AT THE PRESENT STAGE THE ACTION, WHICH WAS BROUGHT BEFORE THE BUNDESGERICHTSHOF BY WAY OF APPEAL ON A POINT OF LAW, CONCERNS THE JURISDICTION OF THE LANDGERICHT KOLN TO HEAR AN ACTION BROUGHT BY AN UNDERTAKING ESTABLISHED WITHIN THE AREA OF JURISDICTION OF THAT COURT AGAINST AN ITALIAN UNDERTAKING WHOSE REGISTERED OFFICE IS AT MEDA ( MILAN ), FOR FAILURE TO PERFORM A CONTRACT RELATING TO THE SUPPLY BY THE GERMAN UNDERTAKING TO THE ITALIAN UNDERTAKING OF MACHINES FOR THE MANUFACTURE OF UPHOLSTERED FURNITURE. 3 IT APPEARS FROM THE FACTS STATED IN THE ORDER MAKING THE REFERENCE THAT THE

44 celex-txt J von 5 06/10/ :15 p.m. DELIVERY IN QUESTION HAD BEEN AGREED IN A WRITTEN CONTRACT, SIGNED AT MILAN ON COMMERCIAL PAPER BEARING THE LETTER-HEAD OF THE GERMAN UNDERTAKING, ON THE REVERSE OF WHICH THE GENERAL CONDITIONS OF SALE OF THAT UNDERTAKING WERE PRINTED. THOSE GENERAL CONDITIONS INCLUDE A CLAUSE CONFERRING JURISDICTION ON THE COURTS OF COLOGNE TO SETTLE ANY DISPUTE WHICH MIGHT ARISE BETWEEN THE PARTIES CONCERNING THE CONTRACT. ALTHOUGH IT IS TRUE THAT THE TEXT OF THE CONTRACT DOES NOT EXPRESSLY MENTION THE SAID GENERAL CONDITIONS, IT REFERS TO PREVIOUS OFFERS MADE BY THE GERMAN UNDERTAKING WHICH CONTAINED AN EXPRESS REFERENCE TO THE SAME GENERAL CONDITIONS, WHICH WERE ALSO PRINTED ON THE REVERSE OF THE PAPERS IN QUESTION. 4 IN A JUDGMENT DELIVERED ON 9 APRIL 1974, THE LANDGERICHT KOLN, BEFORE WHICH THE MATTER WAS BROUGHT BY THE GERMAN UNDERTAKING, DECLARED THAT IT HAD NO JURISDICTION TO HEAR THE DISPUTE. IT HELD THAT THE CLAUSE CONFERRING JURISDICTION HAD NOT VALIDLY BEEN AGREED BETWEEN THE PARTIES, HAVING REGARD TO THE PROVISIONS OF ITALIAN LAW, TO WHICH, IN THE VIEW OF THAT COURT, THE CONTRACT BETWEEN THE PARTIES IS SUBJECT. THAT JUDGMENT WAS REVERSED BY A JUDGMENT OF 18 NOVEMBER 1974 OF THE OBERLANDESGERICHT KOLN WHICH, TAKING THE VIEW THAT THE CONTRACT IN QUESTION IS SUBJECT TO THE PROVISIONS OF GERMAN LAW, OVERRULED THE JUDGMENT OF THE LOWER COURT, DECLARED THAT THE LANDGERICHT HAD JURISDICTION AND REMITTED THE CASE TO IT. 5 THE ITALIAN UNDERTAKING APPEALED ON A POINT OF LAW TO THE BUNDESGERICHTSHOF, AND THAT COURT IS OF THE OPINION THAT THE QUESTION AT ISSUE MUST BE RESOLVED ON THE BASIS OF ARTICLE 17 OF THE CONVENTION. IN THIS CONNEXION, THE BUNDESGERICHTSHOF HAS REFERRED TWO QUESTIONS ON THE INTERPRETATION OF THE FIRST PARAGRAPH OF THAT ARTICLE. ON THE INTERPRETATION OF ARTICLE 17 OF THE CONVENTION IN GENERAL 6 THE FIRST PARAGRAPH OF ARTICLE 17 OF THE CONVENTION PROVIDES : ' IF THE PARTIES, ONE OR MORE OF WHOM IS DOMICILED IN A CONTRACTING STATE, HAVE, BY AGREEMENT IN WRITING OR BY AN ORAL AGREEMENT CONFIRMED IN WRITING, 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 CONNEXION WITH A PARTICULAR LEGAL RELATIONSHIP, THAT COURT OR THOSE COURTS SHALL HAVE EXCLUSIVE JURISDICTION '. 7 THE WAY IN WHICH THAT PROVISION IS TO BE APPLIED MUST BE INTERPRETED IN THE LIGHT OF THE EFFECT OF THE CONFERMENT OF JURISDICTION BY CONSENT, WHICH IS TO EXCLUDE BOTH THE JURISDICTION DETERMINED BY THE GENERAL PRINCIPLE LAID DOWN IN ARTICLE 2 AND THE SPECIAL JURISDICTIONS PROVIDED FOR IN ARTICLES 5 AND 6 OF THE CONVENTION. IN VIEW OF THE CONSEQUENCES THAT SUCH AN OPTION MAY HAVE ON THE POSITION OF THE PARTIES TO THE ACTION, THE REQUIREMENTS SET OUT IN ARTICLE 17 GOVERNING THE VALIDITY OF CLAUSES CONFERRING JURISDICTION MUST BE STRICTLY CONSTRUED. BY MAKING SUCH VALIDITY SUBJECT TO THE EXISTENCE OF AN ' AGREEMENT ' BETWEEN THE PARTIES, ARTICLE 17 IMPOSES ON THE COURT BEFORE WHICH THE MATTER IS BROUGHT THE DUTY OF EXAMINING, FIRST, WHETHER THE CLAUSE CONFERRING JURISDICTION UPON IT WAS IN FACT THE SUBJECT OF A CONSENSUS BETWEEN THE PARTIES, WHICH MUST BE CLEARLY AND PRECISELY DEMONSTRATED. THE PURPOSE OF THE FORMAL REQUIREMENTS IMPOSED BY ARTICLE 17 IS TO ENSURE THAT THE CONSENSUS BETWEEN THE PARTIES IS IN FACT ESTABLISHED. THE QUESTIONS REFERRED TO THE COURT BY THE BUNDESGERICHTSHOF MUST BE EXAMINED IN THE LIGHT OF THESE CONSIDERATIONS. ON THE QUESTION REFERRED BY THE BUNDESGERICHTSHOF 8 THE FIRST QUESTION ASKS WHETHER A CLAUSE CONFERRING JURISDICTION, WHICH IS INCLUDED AMONG GENERAL CONDITIONS OF SALE PRINTED ON THE BACK OF A CONTRACT SIGNED BY BOTH PARTIES, FULFILS THE REQUIREMENT OF A WRITING UNDER THE FIRST PARAGRAPH OF ARTICLE 17 OF THE CONVENTION.

45 celex-txt J von 5 06/10/ :15 p.m. 9 TAKING INTO ACCOUNT WHAT HAS BEEN SAID ABOVE, IT SHOULD BE STATED THAT THE MERE FACT THAT A CLAUSE CONFERRING JURISDICTION IS PRINTED AMONG THE GENERAL CONDITIONS OF ONE OF THE PARTIES ON THE REVERSE OF A CONTRACT DRAWN UP ON THE COMMERCIAL PAPER OF THAT PARTY DOES NOT OF ITSELF SATISFY THE REQUIREMENTS OF ARTICLE 17, SINCE NO GUARANTEE IS THEREBY GIVEN THAT THE OTHER PARTY HAS REALLY CONSENTED TO THE CLAUSE WAIVING THE NORMAL RULES OF JURISDICTION. IT IS OTHERWISE IN THE CASE WHERE THE TEXT OF THE CONTRACT SIGNED BY BOTH PARTIES ITSELF CONTAINS AN EXPRESS REFERENCE TO GENERAL CONDITIONS INCLUDING A CLAUSE CONFERRING JURISDICTION. 10 THUS IT SHOULD BE ANSWERED THAT WHERE A CLAUSE CONFERRING JURISDICTION IS INCLUDED AMONG THE GENERAL CONDITIONS OF SALE OF ONE OF THE PARTIES, PRINTED ON THE BACK OF A CONTRACT, THE REQUIREMENT OF A WRITING UNDER THE FIRST PARAGRAPH OF ARTICLE 17 OF THE CONVENTION IS FULFILLED ONLY IF THE CONTRACT SIGNED BY BOTH PARTIES CONTAINS AN EXPRESS REFERENCE TO THOSE GENERAL CONDITIONS. 11 THE SECOND QUESTION ASKS WHETHER THE REQUIREMENT OF A WRITING UNDER THE FIRST PARAGRAPH OF ARTICLE 17 OF THE CONVENTION IS FULFILLED IF THE PARTIES EXPRESSLY REFER IN THE CONTRACT TO A PRIOR OFFER IN WRITING IN WHICH REFERENCE WAS MADE TO GENERAL CONDITIONS OF SALE INCLUDING A CLAUSE CONFERRING JURISDICTION. 12 IN PRINCIPLE, THE REQUIREMENT OF A WRITING UNDER THE FIRST PARAGRAPH OF ARTICLE 17 IS FULFILLED IF THE PARTIES HAVE REFERRED IN THE TEXT OF THEIR CONTRACT TO AN OFFER IN WHICH REFERENCE WAS EXPRESSLY MADE TO GENERAL CONDITIONS INCLUDING A CLAUSE CONFERRING JURISDICTION. THIS VIEW OF THE MATTER, HOWEVER, IS VALID ONLY IN THE CASE OF AN EXPRESS REFERENCE, WHICH CAN BE CHECKED BY A PARTY EXERCISING REASONABLE CARE, AND ONLY IF IT IS ESTABLISHED THAT THE GENERAL CONDITIONS INCLUDING THE CLAUSE CONFERRING JURISDICTION HAVE IN FACT BEEN COMMUNICATED TO THE OTHER CONTRACTING PARTY WITH THE OFFER TO WHICH REFERENCE IS MADE. BUT THE REQUIREMENT OF A WRITING IN ARTICLE 17 WOULD NOT BE FULFILLED IN THE CASE OF INDIRECT OR IMPLIED REFERENCES TO EARLIER CORRESPONDENCE, FOR THAT WOULD NOT YIELD ANY CERTAINTY THAT THE CLAUSE CONFERRING JURISDICTION WAS IN FACT PART OF THE SUBJECT-MATTER OF THE CONTRACT PROPERLY SO-CALLED. 13 THUS IT SHOULD BE ANSWERED THAT IN THE CASE OF A CONTRACT CONCLUDED BY REFERENCE TO EARLIER OFFERS, WHICH WERE THEMSELVES MADE WITH REFERENCE TO THE GENERAL CONDITIONS OF ONE OF THE PARTIES INCLUDING A CLAUSE CONFERRING JURISDICTION, THE REQUIREMENT OF A WRITING UNDER THE FIRST PARAGRAPH OF ARTICLE 17 OF THE CONVENTION IS SATISFIED ONLY IF THE REFERENCE IS EXPRESS AND CAN THEREFORE BE CHECKED BY A PARTY EXERCISING REASONABLE CARE. Decision on costs COSTS 14 THE COSTS INCURRED BY THE GOVERNMENT OF THE FEDERAL REPUBLIC OF GERMANY, THE GOVERNMENT OF THE ITALIAN REPUBLIC AND THE COMMISSION OF THE EUROPEAN COMMUNITIES, WHICH HAVE SUBMITTED OBSERVATIONS TO THE COURT, ARE NOT RECOVERABLE. AS THESE PROCEEDINGS ARE, IN SO FAR AS THE PARTIES TO THE MAIN ACTION ARE CONCERNED, IN THE NATURE OF A STEP IN THE ACTION PENDING BEFORE THE BUNDESGERICHTSHOF, THE DECISION ON COSTS IS A MATTER FOR THAT COURT. Operative part ON THOSE GROUNDS, THE COURT IN ANSWER TO THE QUESTIONS REFERRED TO IT BY THE BUNDESGERICHTSHOF BY ORDER OF 18 FEBRUARY 1976, HEREBY RULES : WHERE A CLAUSE CONFERRING JURISDICTION IS INCLUDED AMONG THE GENERAL CONDITIONS OF SALE OF ONE OF THE PARTIES, PRINTED ON THE BACK OF A CONTRACT, THE REQUIREMENT

46 celex-txt J von 5 06/10/ :15 p.m. OF A WRITING UNDER THE FIRST PARAGRAPH OF ARTICLE 17 OF THE CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS IS FULFILLED ONLY IF THE CONTRACT SIGNED BY BOTH PARTIES CONTAINS AN EXPRESS REFERENCE TO THOSE GENERAL CONDITIONS. IN THE CASE OF A CONTRACT CONCLUDED BY REFERENCE TO EARLIER OFFERS, WHICH WERE THEMSELVES MADE WITH REFERENCE TO THE GENERAL CONDITIONS OF ONE OF THE PARTIES INCLUDING A CLAUSE CONFERRING JURISDICTION, THE REQUIREMENT OF A WRITING UNDER THE FIRST PARAGRAPH OF ARTICLE 17 OF THE CONVENTION IS SATISFIED ONLY IF THE REFERENCE IS EXPRESS AND CAN THEREFORE BE CHECKED BY A PARTY EXERCISING REASONABLE CARE. Haut

47 celex-txt J von 7 06/10/ :15 p.m. Managed by the Avis Publications juridique important Office BG ES CS DA DE ET EL EN FR GA IT LV LT HU MT NL PL PT RO SK SL FI SV Site map LexAlert FAQ Help Contact Links 61995J0106 Judgment of the Court (Sixth Chamber) of 20 February Mainschiffahrts-Genossenschaft eg (MSG) v Les Gravières Rhénanes SARL. Reference for a preliminary ruling: Bundesgerichtshof - Germany. Brussels Convention - Agreement on the place of performance of the obligation in question - Agreement conferring jurisdiction. Case C-106/95. European Court reports 1997 Page I BG ES CS DA DE ET EL EN FR GA IT LVLTHUMT NL PL PT ROSKSL FI SV html htmlhtml htmlhtmlhtml html html html htmlhtml Keywords Summary Parties Grounds Decision on costs Operative part Summary 1 Convention on Jurisdiction and the Enforcement of Judgments - Prorogation of jurisdiction - Agreement conferring jurisdiction - Conditions as to form - Agreement concluded in a form according with practices in international trade or commerce - Concept - Contract concluded orally - Clause included in a commercial letter of confirmation and in invoices paid - Unchallenged - Validity of the clause - Conditions (Convention of 27 September 1968, Art. 17, as amended by the 1978 Accession Convention) 2 Convention on Jurisdiction and the Enforcement of Judgments - Special jurisdiction - Court for the place of performance of the contractual obligation - Oral agreement between the parties on a place other than that of actual performance with the sole purpose of establishing that the courts of a particular place have jurisdiction - Inapplicability of Article 5(1) - Applicability of the conditions as to form for agreements conferring jurisdiction (Convention of 27 September 1968, Arts 5(1) and 17) 3 The third hypothesis in the second sentence of the first paragraph of Article 17 of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters must be interpreted as meaning that, under a contract concluded orally in international trade or commerce, an agreement conferring jurisdiction will be deemed to have been validly concluded under that provision by virtue of the fact that one party to the contract did not react to a commercial letter of confirmation sent to it by the other party to the contract or repeatedly paid invoices without objection where those documents contained a pre-printed reference to the courts having jurisdiction, provided that such conduct is consistent with a practice in force in the field of international trade or commerce in which the parties in question operate and the latter are aware or ought to have been aware of the practice in question. In this regard, a practice exists in a branch of international trade or commerce in particular where a particular course of conduct is generally followed by contracting parties operating in that branch when they conclude contracts of a particular type. The fact that the contracting parties were aware of that

48 celex-txt J von 7 06/10/ :15 p.m. Parties practice is made out in particular where they had previously had trade or commercial relations between themselves or with other parties operating in the branch of trade or commerce in question or where, in that branch, a particular course of conduct is generally and regularly followed when concluding a certain type of contract, with the result that it may be regarded as being a consolidated practice. 4 The Convention must be interpreted as meaning that an oral agreement on the place of performance which is designed not to determine the place where the person liable is actually to perform the obligations incumbent upon him, but solely to establish that the courts for a particular place have jurisdiction, is not governed by Article 5(1) of the Convention, but by Article 17, and is valid only if the requirements set out therein are complied with. Whilst the parties are free to agree on a place of performance for contractual obligations which differs from that which would be determined under the law applicable to the contract, without having to comply with specific conditions as to form, they are nevertheless not entitled, having regard to the system established by the Convention, to designate, with the sole aim of specifying the courts having jurisdiction, a place of performance having no real connection with the reality of the contract at which the obligations arising under the contract could not be performed in accordance with the terms of the contract. In Case C-106/95, REFERENCE to the Court by the Bundesgerichtshof under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters, for a preliminary ruling in the proceedings pending before that court between Mainschiffahrts-Genossenschaft eg (MSG) and Les Gravières Rhénanes SARL on the interpretation of Article 5(1) and the third hypothesis mentioned in the second sentence of the first paragraph of Article 17 of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters (OJ 1978 L 304, p. 36), as amended by the Convention of 9 October 1978 on the accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1; amended version of the Convention at p. 77), THE COURT (Sixth Chamber), composed of: J.L. Murray, President of the Fourth Chamber, acting for the President of the Sixth Chamber, C.N. Kakouris (Rapporteur), P.J.G. Kapteyn, G. Hirsch and H. Ragnemalm, Judges, Advocate General: G. Tesauro, Registrar: L. Hewlett, Administrator, after considering the written observations submitted on behalf of: - Mainschiffahrts-Genossenschaft eg (MSG), by Thor von Waldstein, Rechtsanwalt, Mannheim, - Les Gravières Rhénanes SARL, by Fink von Waldstein, Rechtsanwalt, Mannheim, - the German Government, by Jörg Pirrung, Ministerialrat in the Federal Ministry of Justice, acting as Agent, - the Commission of the European Communities, by Pieter van Nuffel, of its Legal Service, acting as Agent, assisted by Hans-Jürgen Rabe, Rechtsanwalt, Hamburg, having regard to the Report for the Hearing, after hearing the oral observations of Mainschiffahrts-Genossenschaft eg (MSG), represented by Thor von Waldstein; Les Gravières Rhénanes SARL, represented by Fink von Waldstein; the Greek Government, represented by Vasileios Kontolaimos, Assistant Legal Adviser in the State Legal Department, acting as Agent, and the Commission, represented by Hans-Jürgen Rabe, at the hearing on 4 July 1996, after hearing the Opinion of the Advocate General at the sitting on 26 September 1996,

49 celex-txt J von 7 06/10/ :15 p.m. Grounds gives the following Judgment 1 By order of 6 March 1995, received at the Court on 31 March 1995, the Bundesgerichtshof (Federal Court of Justice) referred to the Court for a preliminary ruling under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters (OJ 1978 L 304, p. 36), as amended by the Convention of 9 October 1978 on the accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1; amended version of the Convention at p. 77; hereinafter `the Convention'), two questions on the interpretation of Article 5(1) and the third hypothesis mentioned in the second sentence of the first paragraph of Article 17 of the Convention. 2 The questions arose in proceedings between Mainschiffahrts-Genossenschaft eg (MSG) (`MSG'), an inland-waterway transport cooperative based at Würzburg (Germany), and Les Gravières Rhénanes SARL (`Gravières Rhénanes'), whose registered office is in France, concerning compensation for damage caused to an inland-waterway vessel which MSG owned and had chartered to Gravières Rhénanes by a time charter concluded orally between the parties. 3 According to the case-file, that vessel operated a shuttle service on the Rhine between 1 June 1989 and 10 February 1991, chiefly carrying shipments of gravel. With some exceptions, the places of loading were all located in France, whilst the cargo was invariably unloaded in France. According to MSG, the handling equipment used by Gravières Rhénanes to unload the cargo damaged its vessel. The main proceedings are for the sum of DM , namely the difference between the amount paid by Gravières Rhénanes' insurers and the amount claimed by MSG. 4 MSG brought an action before the Schiffahrtsgericht (Maritime Court) Würzburg, taking the view that the third hypothesis mentioned in the second sentence of the first paragraph of Article 17 of the Convention entitled it to do so on the ground that the parties had validly designated Würzburg, MSG's principal place of business, as the place of performance and the Würzburg courts as having jurisdiction. 5 The first and second sentences of the first paragraph of Article 17 of the Convention provide as follows: `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 an agreement conferring jurisdiction shall be either in writing or evidenced in writing or, in international trade or commerce, in a form which accords with practices in that trade or commerce of which the parties are or ought to have been aware.' 6 It appears from the order for reference that, when the contractual negotiations had been completed, MSG sent Gravières Rhénanes a commercial letter of confirmation containing the following pre-printed statement: `The place of performance is Würzburg and the courts for that place have exclusive jurisdiction.' Moreover, MSG's invoices also mentioned that forum directly and by reference to the conditions of the bill of lading. Gravières Rhénanes did not challenge the commercial letter of confirmation and paid all invoices without objection. The Schiffahrtsgericht Würzburg declared the action admissible. 7 On an appeal brought by Gravières Rhénanes, the Oberlandesgericht (Higher Regional Court) Nürnberg rejected the application as inadmissible on the ground that there was no international jurisdiction. MSG appealed on a point of law to the Bundesgerichtshof. 8 The Bundesgerichtshof found, in the first place, that the jurisdiction of the French courts was borne out by the general rule set forth in the first paragraph of Article 2 of the Convention (place of the defendant's domicile), by Article 5(3) (place where the harmful event occurred) and likewise by Article 5(1) (place of performance of the obligation in question). The contractual obligations arising under the contract of carriage had to be performed in France and MSG was under an obligation to present the vessel at Gravières Rhénanes' principal place of business, which was in France. In the Bundesgerichtshof's view, this case affords two possible approaches by which the jurisdiction of the French courts might be ousted in favour of the international jurisdiction of the German courts. 9 In the first place, Würzburg might be regarded as the place of performance within the meaning of Article 5(1) of the Convention, on the ground that it was identified as such by the parties' oral

50 celex-txt J von 7 06/10/ :15 p.m. agreement. The Bundesgerichtshof observes that in this case the agreement was `abstract'. It characterizes an agreement on the place of performance as abstract where it does not set out to designate the place where the person liable has to perform his obligations, but only to determine the courts having jurisdiction, without complying with the requirements as to form set out in Article 17 of the Convention. The only aim of such an agreement, therefore, is to disguise an agreement conferring jurisdiction. In this case, the contractual obligations had to be performed in any event in France, where in all cases the place of unloading was located. 10 Whilst stressing that, under the applicable German law, the agreement at issue on the place of performance was validly concluded, the Bundesgerichtshof has doubts about whether such `abstract' agreements are valid under the Convention in so far as they involve a risk of abuse, that is to say, circumvention of the rules as to form set out in Article 17 of the Convention. 11 Secondly, in the event that an `abstract' agreement on the place of performance is regarded as invalid, the Bundesgerichtshof considers that the German courts might have jurisdiction in this case by virtue of the third hypothesis mentioned in the second sentence of the first paragraph of Article 17 of the Convention. 12 In those circumstances, the Bundesgerichtshof stayed proceedings and referred the following questions to the Court for a preliminary ruling: `1. Is an oral agreement on the place of performance (Brussels Convention, Article 5) to be recognized even if it is not intended to fix the place at which the person liable has to perform the obligations incumbent on him, but is intended solely to establish - informally - that the courts for a particular place are to have jurisdiction (a so-called "abstract" agreement on the place of performance)? 2. In the event that the Court of Justice should answer Question 1 in the negative: (a) Can an agreement conferring jurisdiction in international trade or commerce in accordance with the third hypothesis mentioned in the second sentence of the first paragraph of Article 17 of the 1978 version of the Brussels Convention also be concluded by one party's not contradicting a commercial letter of confirmation containing a pre-printed reference to the courts of the consignors' place of business having sole jurisdiction or must there have been in every case prior consensus with regard to the content of the letter of confirmation? (b) Is it sufficient in order for there to be an agreement conferring jurisdiction within the meaning of the aforesaid provision if the invoices sent by one party all contain a reference to the courts of the carrier's place of business having sole jurisdiction and to the conditions of the bill of lading used by the carrier which also stipulate the courts of the same place as having jurisdiction, and the other party invariably paid the invoices without objecting, or is prior consensus also required in this respect?' The second question 13 By its second question, which, being concerned with exclusive jurisdiction, may conveniently be considered first, the national court essentially asks whether, under a contract concluded orally, an agreement conferring jurisdiction may be deemed to have been concluded in international trade or commerce in the form required by the third hypothesis mentioned in the second sentence of the first paragraph of Article 17 of the Convention simply by virtue of the fact that one party to the contract did not react to a commercial letter of confirmation sent to him by the other party to the contract or repeatedly paid invoices without objection where those documents contained a pre-printed reference to the courts having jurisdiction, or whether there should in any event be prior consensus on the part of the persons concerned, only written confirmation of the agreement being unnecessary. 14 It should be observed in this regard that, according to the Court's case-law, the requirements laid down by Article 17 of the Convention must be strictly interpreted in so far as that article excludes both jurisdiction as determined by the general principle of the defendant's courts laid down in Article 2 and the special jurisdictions provided for in Articles 5 and 6 (see, to this effect, Case 24/76 Estasis Salotti [1976] ECR 1831, paragraph 7, and Case 25/76 Segoura [1976] ECR 1851, paragraph 6). 15 The Court has further held with regard to the initial version of Article 17 that, by making the validity of a jurisdiction clause subject to the existence of an `agreement' between the parties, Article 17 imposes on the court before which the matter is brought the duty of examining, first, whether the clause conferring jurisdiction upon it was in fact the subject of consensus between the parties, which must be clearly and precisely demonstrated, and that the purpose of the requirements as to form imposed by Article 17 is to ensure that consensus between the parties is in fact established (Estasis Salotti, paragraph 7, and Segoura, paragraph 6). 16 However, in order to take account of the specific practices and requirements of international trade, the aforementioned Accession Convention of 9 October 1978 added to the second sentence of the first paragraph of Article 17 of the Convention a third hypothesis providing that, in international trade or

51 celex-txt J von 7 06/10/ :15 p.m. commerce, a jurisdiction clause may be validly concluded in a form which accords with practices in that trade or commerce of which the parties are or ought to have been aware. 17 Yet that relaxation incorporated in Article 17 by the 1978 Accession Convention does not mean that there is not necessarily any need for consensus between the parties on a jurisdiction clause, since it is still one of the aims of that provision to ensure that there is real consent on the part of the persons concerned. The weaker party to the contract should be protected by avoiding jurisdiction clauses incorporated in a contract by one party alone going unnoticed. 18 To take the view, however, that the relaxation thus introduced relates solely to the requirements as to form laid down by Article 17 by merely eliminating the need for a written form of consent would be tantamount to disregarding the requirements of non-formalism, simplicity and speed in international trade or commerce and to depriving that provision of a major part of its effectiveness. 19 Thus, in the light of the amendment made to Article 17 by the 1978 Accession Convention, consensus on the part of the contracting parties as to a jurisdiction clause is presumed to exist where commercial practices in the relevant branch of international trade or commerce exist in this regard of which the parties are or ought to have been aware. 20 It must therefore be considered that the fact that one of the parties to the contract did not react or remained silent in the face of a commercial letter of confirmation from the other party containing a pre-printed reference to the courts having jurisdiction and that one of the parties repeatedly paid without objection invoices issued by the other party containing a similar reference may be deemed to constitute consent to the jurisdiction clause in issue, provided that such conduct is consistent with a practice in force in the area of international trade or commerce in which the parties in question are operating and the parties are or ought to have been aware of that practice. 21 Whilst it is for the national court to determine whether the contract in question comes under the head of international trade or commerce and to find whether there was a practice in the branch of international trade or commere in which the parties are operating and whether they were aware or are presumed to have been aware of that practice, the Court should nevertheless indicate the objective evidence which is needed in order to make such a determination. 22 It should first be considered that a contract concluded between two companies established in different Contracting States in a field such as navigation on the Rhine comes under the head of international trade or commerce. 23 Next, whether a practice exists must not be determined by reference to the law of one of the Contracting Parties. Furthermore, whether such a practice exists should not be determined in relation to international trade or commerce in general, but to the branch of trade or commerce in which the parties to the contract are operating. There is a practice in the branch of trade or commerce in question in particular where a particular course of conduct is generally and regularly followed by operators in that branch when concluding contracts of a particular type. 24 Lastly, actual or presumptive awareness of such practice on the part of the parties to a contract is made out where, in particular, they had previously had commercial or trade relations between themselves or with other parties operating in the sector in question or where, in that sector, a particular course of conduct is sufficiently well known because it is generally and regularly followed when a particular type of contract is concluded, with the result that it may be regarded as being a consolidated practice. 25 The answer to the second question must therefore be that the third hypothesis in the second sentence of the first paragraph of Article 17 of the Convention, as amended by the Accession Convention of 9 October 1978, must be interpreted as meaning that, under a contract concluded orally in international trade or commerce, an agreement conferring jurisdiction will be deemed to have been validly concluded under that provision by virtue of the fact that one party to the contract did not react to a commercial letter of confirmation sent to it by the other party to the contract or repeatedly paid invoices without objection where those documents contained a pre-printed reference to the courts having jurisdiction, provided that such conduct is consistent with a practice in force in the field of international trade or commerce in which the parties in question operate and the latter are aware or ought to have been aware of the practice in question. It is for the national court to determine whether such a practice exists and whether the parties to the contract were aware of it. A practice exists in a branch of international trade or commerce in particular where a particular course of conduct is generally followed by contracting parties operating in that branch when they conclude contracts of a particular type. The fact that the contracting parties were aware of that practice is made out in particular where they had previously had trade or commercial relations between themselves or with other parties operating in the branch of trade or commerce in question or where, in that branch, a particular course of conduct is generally and regularly followed when concluding a certain type of contract, with the result that it may be regarded as being a consolidated practice.

52 celex-txt J von 7 06/10/ :15 p.m. The first question 26 The first question has to be answered in case the national court concludes that there is in this case no practice in the branch of trade or commerce in question of which the parties were or ought to have been aware and that, as a result, a jurisdiction clause was not validly concluded. 27 By this question, the national court essentially asks whether an oral agreement on the place of performance, which is designed not to determine the place where the person liable is actually to perform the obligations incumbent upon him, but solely to establish that the courts for a particular place have jurisdiction, is valid under Article 5(1) of the Convention. 28 Article 5(1) of the Convention provides as follows: `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 the performance of the obligation in question.' 29 According to the case-law of the Court, jurisdiction derogating from the general rule that the defendant's courts should have jurisdiction was introduced by Article 5(1) in view of the existence in certain well-defined cases of a particularly close relationship between a dispute and the court which may be called upon to take cognizance of the matter, with a view to the effective organization of the proceedings (Case 12/76 Tessili v Dunlop [1976] ECR 1473, paragraph 13). 30 Moreover, the Court has also held that the place of performance of a contractual obligation may also be fixed by agreement between the parties and that, if the parties to the contract are permitted by the applicable law, subject to the conditions imposed thereby, to specify the place of performance without satisfying any special condition of form, an agreement on the place of performance of the obligation is sufficient to found jurisdiction in that place within the meaning of Article 5(1) of the Convention (Case 56/79 Zelger v Salinitri [1980] ECR 89, paragraph 5). 31 It should be noted, however, that whilst the parties are free to agree on a place of performance for contractual obligations which differs from that which would be determined under the law applicable to the contract, without having to comply with specific conditions as to form, they are nevertheless not entitled, having regard to the system established by the Convention, to designate, with the sole aim of specifying the courts having jurisdiction, a place of performance having no real connection with the reality of the contract at which the obligations arising under the contract could not be performed in accordance with the terms of the contract. 32 This approach is based, in the first place, on the terms of Article 5(1) of the Convention, which confers jurisdiction on the courts for the place `of performance' of the contractual obligation on which the claim is based. Consequently, that provision has in mind the place of actual performance of the obligation as the jurisdictional criterion by reason of its direct connection with the courts on which it confers jurisdiction. 33 Secondly, it should be considered that to specify a place of performance which has no actual connection with the real subject-matter of the contract becomes fictitious and has as its sole purpose the determination of the place of the courts having jurisdiction. Such agreements conferring jurisdiction are governed by Article 17 of the Convention and are therefore subject to specific requirements as to form. 34 Thus, where there is such an agreement, there is not only no direct connection between the dispute and the courts called upon to determine it, but there is also circumvention of Article 17, which, whilst providing for exclusive jurisdiction by dispensing with any objective connection between the relationship in dispute and the court designated (Zelger v Salinitri, paragraph 4), requires, for that very reason, compliance with the strict requirements as to form which it sets out. 35 The answer to the national court's first question must therefore be that the Convention must be interpreted as meaning that an oral agreement on the place of performance which is designed not to determine the place where the person liable is actually to perform the obligations incumbent upon him, but solely to establish that the courts for a particular place have jurisdiction, is not governed by Article 5(1) of the Convention, but by Article 17, and is valid only if the requirements set out therein are complied with. Decision on costs Costs 36 The costs incurred by the German and Greek Governments and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these

53 celex-txt J von 7 06/10/ :15 p.m. proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the national court, the decision on costs is a matter for that court. Operative part Haut On those grounds, THE COURT (Sixth Chamber), in answer to the questions referred to it by the Bundesgerichtshof by order of 6 March 1995, hereby rules: 1. The third hypothesis in the second sentence of the first paragraph of Article 17 of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters, as amended by the Convention of 9 October 1978 on the accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland, must be interpreted as meaning that, under a contract concluded orally in international trade or commerce, an agreement conferring jurisdiction will be deemed to have been validly concluded under that provision by virtue of the fact that one party to the contract did not react to a commercial letter of confirmation sent to it by the other party to the contract or repeatedly paid invoices without objection where those documents contained a pre-printed reference to the courts having jurisdiction, provided that such conduct is consistent with a practice in force in the field of international trade or commerce in which the parties in question operate and the latter are aware or ought to have been aware of the practice in question. It is for the national court to determine whether such a practice exists and whether the parties to the contract were aware of it. A practice exists in a branch of international trade or commerce in particular where a particular course of conduct is generally followed by contracting parties operating in that branch when they conclude contracts of a particular type. The fact that the contracting parties were aware of that practice is made out in particular where they had previously had trade or commercial relations between themselves or with other parties operating in the branch of trade or commerce in question or where, in that branch, a particular course of conduct is generally and regularly followed when concluding a certain type of contract, with the result that it may be regarded as being a consolidated practice. 2. The Convention of 27 September 1968 must be interpreted as meaning that an oral agreement on the place of performance which is designed not to determine the place where the person liable is actually to perform the obligations incumbent upon him, but solely to establish that the courts for a particular place have jurisdiction, is not governed by Article 5(1) of the Convention, but by Article 17, and is valid only if the requirements set out therein are complied with.

54 EUR-Lex J EN 1 von 4 05/10/ :48 p.m. Managed by the Avis Publications juridique important Office 61976J0021 Judgment of the Court of 30 November Handelskwekerij G. J. Bier BV v Mines de potasse d'alsace SA. - Reference for a preliminary ruling: Gerechtshof 's-gravenhage - Netherlands. - Brussels Convention on jurisdiction and the enforcement of Judgment, article 5 (3) (liability in tort, delict or quasi-delict). - Case European Court reports 1976 Page Greek special edition Page Portuguese special edition Page Spanish special edition Page Swedish special edition Page Finnish special edition Page Summary Parties Subject of the case Grounds Decision on costs Operative part Keywords ' CONVENTION ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENT, ARTICLE 5 ( 3 ) ( LIABILITY IN TORT, DELICT OR QUASI-DELICT ' ) CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS - POLLUTION OF THE ATMOSPHERE OR OF WATER - DISPUTE OF AN INTERNATIONAL CHARACTER - MATTERS RELATING TO TORT, DELICT OR QUASI-DELICT - COURTS HAVING JURISDICTION - SPECIAL JURISDICTION - PLACE WHERE THE HARMFUL EVENT OCCURRED - PLACE OF THE EVENT GIVING RISE TO THE DAMAGE AND PLACE WHERE THE DAMAGE OCCURRED - CONNECTING FACTORS OF SIGNIFICANCE AS REGARDS JURISDICTION - RIGHT OF PLAINTIFF TO ELECT ( CONVENTION OF 27 SEPTEMBER 1968, ARTICLE 5 ( 3 )) Summary WHERE THE PLACE OF THE HAPPENING OF THE EVENT WHICH MAY GIVE RISE TO LIABILITY IN TORT, DELICT OR QUASI-DELICT AND THE PLACE WHERE THAT EVENT RESULTS IN DAMAGE ARE NOT IDENTICAL, THE EXPRESSION ' PLACE WHERE THE HARMFUL EVENT OCCURRED ', IN ARTICLE 5 ( 3 ) OF THE CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS, MUST BE UNDERSTOOD AS BEING INTENDED TO COVER BOTH THE PLACE WHERE THE DAMAGE OCCURRED AND THE PLACE OF THE EVENT GIVING RISE TO IT. THE RESULT IS THAT THE DEFENDANT MAY BE SUED, AT THE OPTION OF THE PLAINTIFF, EITHER IN THE COURTS FOR THE PLACE WHERE THE DAMAGE OCCURRED OR IN THE COURTS FOR THE PLACE OF THE EVENT WHICH GIVES RISE TO AND IS AT THE ORIGIN OF THAT DAMAGE. Parties IN CASE 21/76 REFERENCE TO THE COURT PURSUANT TO ARTICLE 1 OF THE PROTOCOL OF 3 JUNE 1971 ON THE

55 EUR-Lex J EN 2 von 4 05/10/ :48 p.m. INTERPRETATION BY THE COURT OF JUSTICE OF THE CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS BY THE GERECHTSHOF ( APPEAL COURT ) OF THE HAGUE FOR A PRELIMINARY RULING IN THE ACTION PENDING BEFORE THAT COURT BETWEEN HANDELSKWEKERIJ G. J. BIER B.V., OF NIEUWERKERK AAN DEN IJSSEL ( THE NETHERLANDS ), AND THE REINWATER FOUNDATION, HAVING ITS REGISTERED OFFICE AT AMSTERDAM, AND MINES DE POTASSE D ' ALSACE S.A., HAVING ITS REGISTERED OFFICE AT MULHOUSE, Subject of the case ON THE INTERPRETATION OF THE MEANING OF ' THE PLACE WHERE THE HARMFUL EVENT OCCURRED ' IN ARTICLE 5 ( 3 ) OF THE CONVENTION OF 27 SEPTEMBER 1968, Grounds 1 BY JUDGMENT OF 27 FEBRUARY 1976, WHICH REACHED THE COURT REGISTRY ON THE FOLLOWING 2 MARCH, THE GERECHTSHOF ( APPEAL COURT ) OF THE HAGUE HAS REFERRED A QUESTION, PURSUANT TO THE PROTOCOL ON 3 JUNE 1971 ON THE INTERPRETATION OF THE CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS ( HEREINAFTER CALLED ' THE CONVENTION ' ), ON THE INTERPRETATION OF ARTICLE 5 ( 3 ) OF THE SAID CONVENTION. 2 IT APPEARS FROM THE JUDGMENT MAKING THE REFERENCE THAT AT THE PRESENT STAGE THE MAIN ACTION, WHICH HAS COME BEFORE THE GERECHTSHOF BY WAY OF APPEAL, CONCERNS THE JURISDICTION OF THE COURT OF FIRST INSTANCE AT ROTTERDAM, AND IN GENERAL, OF THE NETHERLANDS COURTS, TO ENTERTAIN AN ACTION BROUGHT BY AN UNDERTAKING ENGAGED IN HORTICULTURE, ESTABLISHED WITHIN THE AREA FOR WHICH THE COURT BEFORE WHICH THE ACTION WAS FIRST BROUGHT HAS JURISDICTION, AND BY THE REINWATER FOUNDATION, WHICH EXISTS TO PROMOTE THE IMPROVEMENT OF THE QUALITY OF THE WATER IN THE RHINE BASIN, AGAINST MINES DE POTASSE D ' ALSACE, ESTABLISHED AT MULHOUSE ( FRANCE ), CONCERNING THE POLLUTION OF THE WATERS OF THE RHINE BY THE DISCHARGE OF SALINE WASTE FROM THE OPERATIONS OF THE DEFENDANT INTO THAT INLAND WATERWAY. 3 IT APPEARS FROM THE FILE THAT AS REGARDS IRRIGATION THE HORTICULTURAL BUSINESS OF THE FIRST-NAMED APPELLANT DEPENDS MAINLY ON THE WATERS OF THE RHINE, THE HIGH SALT CONTENT OF WHICH, ACCORDING TO THE SAID APPELLANT, CAUSES DAMAGE TO ITS PLANTATIONS AND OBLIGES IT TO TAKE EXPENSIVE MEASURES IN ORDER TO LIMIT THAT DAMAGE. 4 THE APPELLANTS CONSIDER THAT THE EXCESSIVE SALINIZATION OF THE RHINE IS DUE PRINCIPALLY TO THE MASSIVE DISCHARGES CARRIED OUT BY MINES DE POTASSE D ' ALSACE AND THEY DECLARE THAT IT IS FOR THAT REASON THAT THEY HAVE CHOSEN TO BRING AN ACTION FOR THE PURPOSES OF ESTABLISHING THE LIABILITY OF THAT UNDERTAKING. 5 BY JUDGMENT DELIVERED ON 12 MAY 1975, THE COURT AT ROTTERDAM HELD THAT IT HAD NO JURISDICTION TO ENTERTAIN THE ACTION, TAKING THE VIEW THAT UNDER ARTICLE 5 ( 3 ) OF THE CONVENTION THE CLAIM DID NOT COME WITHIN ITS JURISDICTION BUT UNDER THAT OF THE FRENCH COURT FOR THE AREA IN WHICH THE DISCHARGE AT ISSUE TOOK PLACE. 6 BIER AND REINWATER BROUGHT AN APPEAL AGAINST THAT JUDGMENT BEFORE THE GERECHTSHOF, THE HAGUE, WHICH SUBSEQUENTLY REFERRED THE FOLLOWING QUESTION TO THE COURT : ' ARE THE WORDS ' ' THE PLACE WHERE THE HARMFUL EVENT OCCURRED ' ', APPEARING IN THE TEXT OF ARTICLE 5 ( 3 ) OF THE CONVENTION ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS, CONCLUDED AT BRUSSELS ON 27 SEPTEMBER 1968, TO BE UNDERSTOOD AS MEANING ' ' THE PLACE WHERE THE DAMAGE OCCURRED ( THE PLACE WHERE THE DAMAGE TOOK PLACE OR BECAME APPARENT ) ' ' OR RATHER ' ' THE PLACE WHERE THE EVENT HAVING THE DAMAGE AS ITS SEQUEL OCCURRED ( THE PLACE WHERE THE ACT WAS OR WAS NOT PERFORMED ) ' '? ' 7 ARTICLE 5 OF THE CONVENTION PROVIDES : ' A PERSON DOMICILED IN A CONTRACTING STATE MAY, IN ANOTHER CONTRACTING STATE, BE SUED :... ( 3 ) IN MATTERS RELATING TO TORT, DELICT OR QUASI-DELICT, IN THE COURTS FOR THE PLACE WHERE THE HARMFUL EVENT

56 EUR-Lex J EN 3 von 4 05/10/ :48 p.m. OCCURRED '. 8 THAT PROVISION MUST BE INTERPRETED IN THE CONTEXT OF THE SCHEME OF CONFERMENT OF JURISDICTION WHICH FORMS THE SUBJECT-MATTER OF TITLE II OF THE CONVENTION. 9 THAT SCHEME IS BASED ON A GENERAL RULE, LAID DOWN BY ARTICLE 2, THAT THE COURTS OF THE STATE IN WHICH THE DEFENDANT IS DOMICILED SHALL HAVE JURISDICTION. 10 HOWEVER, ARTICLE 5 MAKES PROVISION IN A NUMBER OF CASES FOR A SPECIAL JURISDICTION, WHICH THE PLAINTIFF MAY OPT TO CHOOSE. 11 THIS FREEDOM OF CHOICE WAS INTRODUCED HAVING REGARD TO 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. 12 THUS IN MATTERS OF TORT, DELICT OR QUASI-DELICT ARTICLE 5 ( 3 ) ALLOWS THE PLAINTIFF TO BRING HIS CASE BEFORE THE COURTS FOR ' THE PLACE WHERE THE HARMFUL EVENT OCCURRED '. 13 IN THE CONTEXT OF THE CONVENTION, THE MEANING OF THAT EXPRESSION IS UNCLEAR WHEN THE PLACE OF THE EVENT WHICH IS AT THE ORIGIN OF THE DAMAGE IS SITUATED IN A STATE OTHER THAN THE ONE IN WHICH THE PLACE WHERE THE DAMAGE OCCURRED IS SITUATED, AS IS THE CASE INTER INTER ALIA WITH ATMOSPHERIC OR WATER POLLUTION BEYOND THE FRONTIERS OF A STATE. 14 THE FORM OF WORDS ' PLACE WHERE THE HARMFUL EVENT OCCURRED ', USED IN ALL THE LANGUAGE VERSIONS OF THE CONVENTION, LEAVES OPEN THE QUESTION WHETHER, IN THE SITUATION DESCRIBED, IT IS NECESSARY, IN DETERMINING JURISDICTION, TO CHOOSE AS THE CONNECTING FACTOR THE PLACE OF THE EVENT GIVING RISE TO THE DAMAGE, OR THE PLACE WHERE THE DAMAGE OCCURRED, OR TO ACCEPT THAT THE PLAINTIFF HAS AN OPTION BETWEEN THE ONE AND THE OTHER OF THOSE TWO CONNECTING FACTORS. 15 AS REGARDS THIS, IT IS WELL TO POINT OUT THAT THE PLACE OF THE EVENT GIVING RISE TO THE DAMAGE NO LESS THAN THE PLACE WHERE THE DAMAGE OCCURRED CAN, DEPENDING ON THE CASE, CONSTITUTE A SIGNIFICANT CONNECTING FACTOR FROM THE POINT OF VIEW OF JURISDICTION. 16 LIABILITY IN TORT, DELICT OR QUASI-DELICT CAN ONLY ARISE PROVIDED THAT A CAUSAL CONNEXION CAN BE ESTABLISHED BETWEEN THE DAMAGE AND THE EVENT IN WHICH THAT DAMAGE ORIGINATES. 17 TAKING INTO ACCOUNT THE CLOSE CONNEXION BETWEEN THE COMPONENT PARTS OF EVERY SORT OF LIABILITY, IT DOES NOT APPEAR APPROPRIATE TO OPT FOR ONE OF THE TWO CONNECTING FACTORS MENTIONED TO THE EXCLUSION OF THE OTHER, SINCE EACH OF THEM CAN, DEPENDING ON THE CIRCUMSTANCES, BE PARTICULARLY HELPFUL FROM THE POINT OF VIEW OF THE EVIDENCE AND OF THE CONDUCT OF THE PROCEEDINGS. 18 TO EXCLUDE ONE OPTION APPEARS ALL THE MORE UNDESIRABLE IN THAT, BY ITS COMPREHENSIVE FORM OF WORDS, ARTICLE 5 ( 3 ) OF THE CONVENTION COVERS A WIDE DIVERSITY OF KINDS OF LIABILITY. 19 THUS THE MEANING OF THE EXPRESSION ' PLACE WHERE THE HARMFUL EVENT OCCURRED ' IN ARTICLE 5 ( 3 ) MUST BE ESTABLISHED IN SUCH A WAY AS TO ACKNOWLEDGE THAT THE PLAINTIFF HAS AN OPTION TO COMMENCE PROCEEDINGS EITHER AT THE PLACE WHERE THE DAMAGE OCCURRED OR THE PLACE OF THE EVENT GIVING RISE TO IT. 20 THIS CONCLUSION IS SUPPORTED BY THE CONSIDERATION, FIRST, THAT TO DECIDE IN FAVOUR ONLY OF THE PLACE OF THE EVENT GIVING RISE TO THE DAMAGE WOULD, IN AN APPRECIABLE NUMBER OF CASES, CAUSE CONFUSION BETWEEN THE HEADS OF JURISDICTION LAID DOWN BY ARTICLES 2 AND 5 ( 3 ) OF THE CONVENTION, SO THAT THE LATTER PROVISION WOULD, TO THAT EXTENT, LOSE ITS EFFECTIVENESS. 21 SECONDLY, A DECISION IN FAVOUR ONLY OF THE PLACE WHERE THE DAMAGE OCCURRED WOULD, IN CASES WHERE THE PLACE OF THE EVENT GIVING RISE TO THE DAMAGE DOES NOT COINCIDE WITH THE DOMICILE OF THE PERSON LIABLE, HAVE THE EFFECT OF EXCLUDING A HELPFUL CONNECTING FACTOR WITH THE JURISDICTION OF A COURT PARTICULARLY NEAR TO THE CAUSE OF THE DAMAGE. 22 MOREOVER, IT APPEARS FROM A COMPARISON OF THE NATIONAL LEGISLATIVE PROVISIONS AND NATIONAL CASE-LAW ON THE DISTRIBUTION OF JURISDICTION - BOTH AS REGARDS INTERNAL RELATIONSHIPS, AS BETWEEN COURTS FOR DIFFERENT AREAS, AND IN INTERNATIONAL RELATIONSHIPS - THAT, ALBEIT BY DIFFERING LEGAL TECHNIQUES, A PLACE IS FOUND FOR BOTH OF THE TWO CONNECTING FACTORS HERE CONSIDERED AND THAT IN SEVERAL STATES THEY ARE ACCEPTED CONCURRENTLY. 23 IN THESE CIRCUMSTANCES, THE INTERPRETATION STATED ABOVE HAS THE ADVANTAGE OF

57 EUR-Lex J EN 4 von 4 05/10/ :48 p.m. AVOIDING ANY UPHEAVAL IN THE SOLUTIONS WORKED OUT IN THE VARIOUS NATIONAL SYSTEMS OF LAW, SINCE IT LOOKS TO UNIFICATION, IN CONFORMITY WITH ARTICLE 5 ( 3 ) OF THE CONVENTION, BY WAY OF A SYSTEMATIZATION OF SOLUTIONS WHICH, AS TO THEIR PRINCIPLE, HAVE ALREADY BEEN ESTABLISHED IN MOST OF THE STATES CONCERNED. 24 THUS IT SHOULD BE ANSWERED THAT WHERE THE PLACE OF THE HAPPENING OF THE EVENT WHICH MAY GIVE RISE TO LIABLITY IN TORT, DELICT OR QUASIDELICT AND THE PLACE WHERE THAT EVENT RESULTS IN DAMAGE ARE NOT IDENTICAL, THE EXPRESSON ' PLACE WHERE THE HARMFUL EVENT OCCURRED ', IN ARTICLE 5 ( 3 ) OF THE CONVENTION, MUST BE UNDERSTOOD AS BEING INTENDED TO COVER BOTH THE PLACE WHERE THE DAMAGE OCCURRED AND THE PLACE OF THE EVENT GIVING RISE TO IT. 25 THE RESULT IS THAT THE DEFENDANT MAY BE SUED, AT THE OPTION OF THE PLAINTIFF, EITHER IN THE COURTS FOR THE PLACE WHERE THE DAMAGE OCCURRED OR IN THE COURTS FOR THE PLACE OF THE EVENT WHICH GIVES RISE TO AND IS AT THE ORIGIN OF THAT DAMAGE. Decision on costs COSTS 26 THE COSTS INCURRED BY THE GOVERNMENT OF THE FRENCH REPUBLIC, THE GOVERNMENT OF THE KINGDOM OF THE NETHERLANDS AND THE COMMISSION OF THE EUROPEAN COMMUNITIES, WHICH HAVE SUBMITTED OBSERVATIONS TO THE COURT, ARE NOT RECOVERABLE. 27 AS THESE PROCEEDINGS ARE, SO FAR AS THE PARTIES TO THE MAIN ACTION ARE CONCERNED, A STEP IN THE ACTION PENDING BEFORE THE GERECHTSHOF, THE HAGUE, THE DECISION ON COSTS IS A MATTER FOR THAT COURT. Operative part ON THOSE GROUNDS THE COURT IN ANSWER TO THE QUESTION REFERRED TO IT BY THE GERECHTSHOF, THE HAGUE, BY JUDGMENT OF 27 FEBRUARY 1976, HEREBY RULES : WHERE THE PLACE OF THE HAPPENING OF THE EVENT WHICH MAY GIVE RISE TO LIABILITY IN TORT, DELICT OR QUASIDELICT AND THE PLACE WHERE THAT EVENT RESULTS IN DAMAGE ARE NOT IDENTICAL, THE EXPRESSION ' PLACE WHERE THE HARMFUL EVENT OCCURRED ', IN ARTICLE 5 ( 3 ) OF THE CONVENTION OF 27 SEPTEMBER 1968 ON JURISDICTION AND THE ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS, MUST BE UNDERSTOOD AS BEING INTENDED TO COVER BOTH THE PLACE WHERE THE DAMAGE OCCURRED AND THE PLACE OF THE EVENT GIVING RISE TO IT. THE RESULT IS THAT THE DEFENDANT MAY BE SUED, AT THE OPTION OF THE PLAINTIFF, EITHER IN THE COURTS FOR THE PLACE WHERE THE DAMAGE OCCURRED OR IN THE COURTS FOR THE PLACE OF THE EVENT WHICH GIVES RISE TO AND IS AT THE ORIGIN OF THAT DAMAGE.

58 celex-txt J von 5 05/10/ :07 p.m. Managed by the Avis Publications juridique important Office BG ES CS DA DE ET EL EN FR GA IT LV LT HU MT NL PL PT RO SK SL FI SV Site map LexAlert FAQ Help Contact Links 61988J0220 Judgment of the Court (Sixth Chamber) of 11 January Dumez France SA and Tracoba SARL v Hessische Landesbank and others. Reference for a preliminary ruling: Cour de cassation - France. Brussels Convention - Tort, delict or quasi-delict - Interpretation of Article 5 (3) - Indirect victim - Damage suffered by a parent company through financial losses sustained by a subsidiary. Case C-220/88. European Court reports 1990 Page I BG ES CS DA DE ET EL EN FR GA IT LV LT HUMT NL PL PT RO SK SL FI SV htmlhtml htmlhtml html html Keywords Summary Parties Grounds Decision on costs Operative part Summary ++++ Convention on jurisdiction and the enforcement of judgments - Special jurisdictions - Jurisdiction in tort, delict or quasi-delict - Place where the harmful event occurred - Place where the damage occurred - Concept - Place of occurrence of damage suffered by a third party through damage sustained by the immediate victim - Exclusion ( Convention of 27 September 1968, Article 5(3 ) ) Parties The expression "place where the harmful event occurred" contained in Article 5(3 ) of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters may refer to the place where the damage occurred, but the latter concept can be understood only as indicating the place where the event giving rise to the damage, and causing tortious, delictual or quasi-delictual liability to be incurred, directly produced its harmful effects upon the person who is the victim of that event. Accordingly, the rule on jurisdiction laid down in that article cannot be interpreted as permitting a plaintiff pleading damage which he claims to be the consequence of the harm suffered by other persons who were direct victims of the harmful act to bring proceedings against the perpetrator of that act before the courts in the place in which he himself ascertained the damage to his assets. In Case C-220/88 REFERENCE to the Court for a preliminary ruling under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters by the French Cour de cassation in the proceedings pending before that court between

59 celex-txt J von 5 05/10/ :07 p.m. Grounds ( 1 ) Dumez France, formerly Dumez Bâtiment, société anonyme, whose registered office is at Nanterre, France, ( 2 ) Tracoba, société à responsabilité limitée, whose registered office is in Paris, France, whose rights are now held by Oth Infrastructure, of the same address, and ( 1 ) Hessische Landesbank ( Helaba ), whose registered office is in Frankfurt am Main, Federal Republic of Germany, ( 2 ) Salvatorplatz-Grundstuecksgesellschaft mbh & Co. ohg Saarland, whose registered office is in Munich, Federal Republic of Germany, formerly Gebrueder Roechling Bank, ( 3 ) Luebecker Hypotheken Bank, whose registered office is in Luebeck, Federal Republic of Germany, on the interpretation of Article 5(3 ) of the Convention of 27 September 1968, THE COURT ( Sixth Chamber ) composed of : C. N. Kakouris and F. A. Schockweiler ( Presidents of Chambers ), T. Koopmans, G. F. Mancini and M. Diez de Velasco, Judges, Advocate General : M. Darmon Registrar : H. A. Ruehl, Principal Administrator after considering the observations submitted on behalf of Dumez France and Tracoba, the plaintiffs in the main proceedings, by Jean-Denys Barbey, of the Paris Bar, Hessische Landesbank, defendant in the main proceedings, by Michel Wolfer, of the Paris Bar, Salvatorplatz-Grundstuecksgesellschaft mbh & Co. ohg Saarland, defendant in the main proceedings, by Richard Neuer, of the Paris Bar, the Government of the Federal Republic of Germany, by Dr Christof Boehmer, Ministerialrat im Bundesministerium der Justiz, in the written procedure only, the Government of the French Republic, by Edwige Belliard, sous-directeur, direction des affaires juridiques, ministère des Affaires étrangères, assisted by Claude Chavance, attaché principal d' administration centrale, direction des affaires juridiques, in the same Ministry, in the written procedure only, the United Kingdom, by J. A. Gensmantel, Treasury Solicitor' s Department, Queen Anne' s Chambers, assisted by M. C. L. Carpenter of the Lord Chancellor' s Department, in the written procedure only, the Commission of the European Communities by Georgios Kremlis, a member of its Legal Department, assisted by Giorgio Cherubini, an Italian official working in the Commission under the scheme for exchanges with national officials, having regard to the Report for the Hearing and further to the hearing on 14 June 1989, after hearing the Opinion of the Advocate General delivered at the sitting on 23 November 1989, gives the following Judgment 1 By judgment of 21 June 1988, which was received at the Court on 4 August 1990, the French Cour de cassation referred to the Court for a preliminary ruling under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters ( hereinafter referred to as "the Convention ") a question on the interpretation of Article 5(3 ) of the Convention. 2 That question was raised in proceedings to establish quasi-delictual liability brought before the French courts by the French companies Sceper and Tracoba, whose rights are now held by the companies Dumez France and Oth Infrastructure ( hereinafter referred to as "Dumez and Oth "), against Hessische Landesbank, Salvatorplatz-Grundstuecksgesellschaft mbh & Co. ohg Saarland, and

60 celex-txt J von 5 05/10/ :07 p.m. Luebecker Hypotheken Bank, whose registered offices are in the Federal Republic of Germany ( hereinafter referred to as "the German banks "). 3 Dumez and Oth seek compensation for the damage which they claim to have suffered owing to the insolvency of their subsidiaries established in the Federal Republic of Germany, which was brought about by the suspension of a property-development project in the Federal Republic of Germany for a German prime contractor, allegedly because of the cancellation by the German banks of the loans granted to the prime contractor. 4 By judgment of 14 May 1985 the tribunal de commerce ( Commercial Court ), Paris, upheld the objection of lack of jurisdiction raised by the German banks, on the ground that the initial damage was suffered by the subsidiaries of Dumez and Oth in the Federal Republic of Germany and that the French parent companies sustained a financial loss thereafter only indirectly. 5 By judgment of 13 December 1985, the cour d' appel, Paris, confirmed that judgment, taking the view that the financial repercussions which Dumez and Oth claimed to have experienced at their head offices in France were not of such a kind as to affect the location of the damage suffered initially by the subsidiaries in the Federal Republic of Germany. 6 In support of their appeal in cassation against that judgment, Dumez and Oth claimed that the decision of the Court in Case 21/76 G. J. Bier BV v Mines de potasse d' Alsace SA (( 1976 )) ECR 1735, according to which the expression "place where the harmful event occurred" used in Article 5(3 ) of the Convention covered both the place where the damage occurred and the place of the event giving rise to the damage, with the result that the defendant may be sued, at the option of the plaintiff, in the courts for either of those places, was also applicable to cases of indirect damage. In those circumstances, the place where the harmful event occurred was, according to Dumez and Oth, for a victim who has sustained damage as a consequence of the loss suffered by the initial victim, the place where his interests were adversely affected; the plaintiffs in this case being French companies, the place of the financial loss which they suffered following the insolvency of their subsidiaries in the Federal Republic of Germany was therefore the registered offices of Dumez and Oth in France. 7 Considering that the dispute raised a problem of interpretation of Community law, the French Cour de cassation stayed the proceedings and referred the following question to the Court of Justice for a preliminary ruling : "Is the rule on jurisdiction which allows the plaintiff, under Article 5(3 ) of the Convention, to choose between the court for the place of the event giving rise to damage and the court for the place where that damage occurs to be extended to cases in which the damage alleged is merely the consequence of the harm suffered by persons who were the immediate victims of damage occurring at a different place, which would enable the indirect victim to bring proceedings before the court of the State in which he is domiciled?" 8 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court. 9 In order to answer the question submitted, it must first be borne in mind that, in the terms of Article 5 of the Convention, "A person domiciled in a Contracting State may, in another Contracting State, be sued :... ( 3)in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred ". 10 It must then be pointed out that, in its judgment in Mines de potasse d' Alsace, cited above, the Court ruled that where the place of the happening of the event which may give rise to liability in tort, delict or quasi-delict and the place where that event results in damage are not identical, the expression "place where the harmful event occurred" which appears in Article 5(3 ) of the Convention must be understood as being intended to cover both the place where the damage occurred and the place of the event giving rise to the damage, with the result that the defendant may be sued, at the option of the plaintiff, either in the courts for the place where the damage occurred or in the courts for the place of the event which gives rise to and is at the origin of that damage. 11 Dumez and Oth observe that in that judgment the Court interpreted Article 5(3 ) of the Convention without drawing any distinction between direct and indirect victims of damage. In their view, it follows that where an indirect victim claims to have suffered personal damage the court of competent jurisdiction is the court for the place where the victim sustained that damage. 12 It must first be stated in that connection that the judgment in Mines de potasse d' Alsace related to a situation in which the damage - to crops in the Netherlands - occurred at some distance from the event giving rise to the damage - the discharge of saline waste into the Rhine by an undertaking

61 celex-txt J von 5 05/10/ :07 p.m. established in France - but by the direct effect of the causal agent, namely the saline waste which had moved physically from one place to another. 13 By contrast, in the present case, the damage allegedly suffered by Dumez and Oth through cancellation, by the German banks, of the loans granted for financing the works originated and produced its direct consequences in the same Member State, namely the one in which the lending banks, the prime contractor and the subsidiaries of Dumez and Oth, which were responsible for the building work, were all established. The harm alleged by the parent companies, Dumez and Oth, is merely the indirect consequence of the financial losses initially suffered by their subsidiaries following cancellation of the loans and the subsequent suspension of the works. 14 It follows that, in a case such as this, the damage alleged is no more than the indirect consequence of the harm initially suffered by other legal persons who were the direct victims of damage which occurred at a place different from that where the indirect victim subsequently suffered harm. 15 It is therefore necessary to consider whether the expression "place where the damage occurred" as used in the judgment in Mines de potasse d' Alsace may be interpreted as referring to the place where the indirect victims of the damage ascertain the repercussions on their own assets. 16 In that connection the Convention, in establishing the system for the attribution of jurisdiction, adopted the general rule that the courts of the defendant' s domicile would have jurisdiction ( Title II, Article 2 ). Moreover, the hostility of the Convention towards the attribution of jurisdiction to the courts of the plaintiff' s domicile was demonstrated by the fact that the second paragraph of Article 3 precluded the application of national provisions attributing jurisdiction to such courts for proceedings against defendants domiciled in the territory of a Contracting State. 17 It is only by way of exception to the general rule whereby jurisdiction is attributed to the courts of the defendant' s domicile that Title II, Section 2, attributes special jurisdiction in certain cases, including the case envisaged by Article 5(3 ) of the Convention. As the Court has already held ( Mines de potasse d' Alsace, paragraphs 10 and 11 ), those cases of special jurisdiction, the choice of which is a matter for the plaintiff, are based on the existence of a particularly close connecting factor between the dispute and courts other than those of the defendant' s domicile, which justifies the attribution of jurisdiction to those courts for reasons relating to the sound administration of justice and the efficacious conduct of proceedings. 18 In order to meet that objective, which is of fundamental importance in a convention which has essentially to promote the recognition and enforcement of judgments in States other than those in which they were delivered, it is necessary to avoid the multiplication of courts of competent jurisdiction which would heighten the risk of irreconcilable decisions, this being the reason for which recognition or an order for enforcement is withheld by virtue of Article 27(3 ) of the Convention. 19 Furthermore, that objective militates against any interpretation of the Convention which, otherwise than in the cases expressly provided for, might lead to recognition of the jurisdiction of the courts of the plaintiff' s domicile and would enable a plaintiff to determine the competent court by his choice of domicile. 20 It follows from the foregoing considerations that although, by virtue of a previous judgment of the Court ( in Mines de potasse d' Alsace, cited above ), the expression "place where the harmful event occurred" contained in Article 5(3 ) of the Convention may refer to the place where the damage occurred, the latter concept can be understood only as indicating the place where the event giving rise to the damage, and entailing tortious, delictual or quasi-delictual liability, directly produced its harmful effects upon the person who is the immediate victim of that event. 21 Moreover, whilst the place where the initial damage manifested itself is usually closely related to the other components of the liability, in most cases the domicile of the indirect victim is not so related. 22 It must therefore be stated in reply to the question submitted by the national court that the rule on jurisdiction laid down in Article 5(3 ) of the Convention cannot be interpreted as permitting a plaintiff pleading damage which he claims to be the consequence of the harm suffered by other persons who were direct victims of the harmful act to bring proceedings against the perpetrator of that act in the courts of the place in which he himself ascertained the damage to his assets. Decision on costs Costs 23 The costs incurred by the Government of the Federal Republic of Germany, the Government of the French Republic and the United Kingdom, which have submitted observations to the Court, are not recoverable. As these proceedings are, in so far as the parties to the main proceedings are

62 celex-txt J von 5 05/10/ :07 p.m. concerned, a step in the action pending before the national court, the decision on costs is a matter for that court. Operative part Haut On those grounds, THE COURT ( Sixth Chamber ), in reply to the question submitted to it by judgment of the French Cour de cassation of 21 June 1988, hereby rules : The rule on jurisdiction laid down in Article 5(3 ) of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters cannot be interpreted as permitting a plaintiff pleading damage which he claims to be the consequence of the harm suffered by other persons who were direct victims of the harmful act to bring proceedings against the perpetrator of that act in the courts of the place in which he himself ascertained the damage to his assets.

63 celex-txt J von 5 05/10/ :12 p.m. Managed by the Avis Publications juridique important Office BG ES CS DA DE ET EL EN FR GA IT LV LT HU MT NL PL PT RO SK SL FI SV Site map LexAlert FAQ Help Contact Links 61993J0364 Judgment of the Court of 19 September Antonio Marinari v Lloyds Bank plc and Zubaidi Trading Company. Reference for a preliminary ruling: Corte suprema di Cassazione - Italy. Brussels Convention - Article 5 (3) - Place where the harmful event occurred. Case C-364/93. European Court reports 1995 Page I BG ES CS DA DE ET EL EN FR GA IT LVLTHUMT NL PL PT ROSKSL FI SV html htmlhtml htmlhtmlhtml html html html htmlhtml Keywords Summary Parties Grounds Decision on costs Operative part Summary ++++ Convention on jurisdiction and the enforcement of judgments Special jurisdiction Jurisdiction in "matters relating to tort, delict or quasi-delict" Place where the harmful event occurred Plaintiff' s option Place where the damage occurred and the place of the event giving rise to it Scope Place where financial damage was suffered in consequence of initial damage arising and suffered by a victim in another Contracting State Excluded (Brussels Convention of 27 September 1968, Article 5(3)) Parties The term "place where the harmful event occurred" in Article 5(3) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters does not, on a proper interpretation, cover the place where the victim claims to have suffered financial damage folowing upon initial damage arising and suffered by him in another Contracting State. Although that term may cover both the place where the damage occurred and the place of the event giving rise to it, it cannot be construed so extensively as to encompass any place where the adverse consequences can be felt of an event which has already caused damage actually arising elsewhere. In Case C-364/93, REFERENCE to the Court under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters by the Corte Suprema di Cassazione for a preliminary ruling in the proceedings pending before that court between Antonio Marinari and

64 celex-txt J von 5 05/10/ :12 p.m. Grounds Lloyds Bank plc and Zubaidi Trading Company on the interpretation of Article 5(3) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (OJ 1978 L 304, p. 36), as amended by the Convention of 9 October 1978 on the accession of the Kingdom of Denmark, of Ireland, and of the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1, and amended text p. 77) and by the Convention of 25 October 1982 on the accession of the Hellenic Republic (OJ 1982 L 388, p. 1), THE COURT, composed of: G.C. Rodríguez Iglesias, President, F.A. Schockweiler, P.J.G. Kapteyn and P. Jann (Presidents of Chambers), G.F. Mancini, C.N. Kakouris, J.C. Moitinho de Almeida (Rapporteur), J.-P. Puissochet, G. Hirsch, H. Ragnemalm and L. Sevón, Judges, Advocate General: P. Léger, Registrar: D. Louterman-Hubeau, Principal Administrator, after considering the written observations submitted on behalf of: Antonio Marinari, the plaintiff in the main proceedings, by Francesco Vassalli, Antonio Piras and Maurizio Bonistalli, of the Pisa Bar, Francesco Olivieri, of the Florence Bar, and Laurent Mosar, of the Luxembourg Bar, Lloyds Bank plc, the defendant in the main proceedings, by Cosimo Rucellai and Enrico Adriano Raffaelli, of the Milan Bar, Zubaidi Trading Company, party joined in the main proceedings, by Professor Sergio Spadari, of the Rome Bar, the German Government, by Professor Christof Boehmer, Ministerialrat in the Federal Ministry of Justice, acting as Agent, the United Kingdom, by S. Lucinda Hudson, of the Treasury Solicitor' s Department, acing as Agent, and T.A.G. Beazley, Barrister, the Commission of the European Communities, by Pieter Van Nuffel, of its Legal Service, acting as Agent, and Alberto dal Ferro, of the Vicenza Bar, having regard to the Report for the Hearing, after hearing the oral observations of the plaintiff, the defendant and the intervener in the main proceedings and the Commission of the European Communities at the hearing on 15 June 1994 and, following the order of 25 January 1995 reopening the oral procedure, at the hearing on 3 May 1995, after hearing the Opinion of Advocate General Darmon at the sitting on 21 December 1994 and the Opinion of Advocate General Léger at the sitting on 18 May 1995, gives the following Judgment 1 By order of 21 January 1993, received at the Court on 26 July 1993, the Corte Suprema di Cassazione (Supreme Court of Cassation) referred to the Court for a preliminary ruling under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (OJ 1978 L 304, p. 36), as amended by the Convention of 9 October 1978 on the accession of the Kingdom of Denmark, of Ireland, and of the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1, and amended text p. 77) and by the Convention of 25 October 1982 on the accession of the Hellenic Republic (OJ 1982 L 388, p. 1, hereinafter "the Convention") a question on the interpretation of Article 5(3) of the Convention. 2 That question was raised in the course of proceedings between Mr Marinari, who is domiciled in Italy, and Lloyds Bank, whose registered office is in London. 3 In April 1987, Mr Marinari lodged with a Manchester branch of Lloyds Bank a bundle of promissory

65 celex-txt J von 5 05/10/ :12 p.m. notes with a face value of US (752) , issued by the Negros Oriental province of the Republic of the Philippines in favour of Zubaidi Trading Company of Beirut. The bank staff, after opening the envelope, refused to return the promissory notes and advised the police of their existence, stating them to be of dubious origin, which led to Mr Marinari' s arrest and sequestration of the promissory notes. 4 Having been released by the English authorities, Mr Marinari sued Lloyds Bank in the Tribunale di Pisa, seeking compensation for the damage caused by the conduct of its staff. The documents forwarded by the national court show that Mr Marinari is claiming not only payment of the face value of the promissory notes but also compensation for the damage he claims to have suffered as a result of his arrest, breach of several contracts and damage to his reputation. Lloyds Bank objected that the Italian court lacked jurisdiction on the ground that the damage constituting the basis of jurisdiction ratione loci had occurred in England. Mr Marinari, supported by Zubaidi Trading Company, applied to the Corte Suprema di Cassazione for a prior ruling on the question of jurisdiction. 5 In its order for reference, the Corte Suprema di Cassazione raises the issue of the jurisdiction of the Italian courts in relation to Article 5(3) of the Convention, as interpreted by the Court of Justice. 6 It observes that, in Case 21/76 Bier v Mines de Potasse d' Alsace [1976] ECR 1735, the Court considered that the term "place where the harmful event occurred" was to be understood as intended to cover both the place where the damage occurred and the place of the event giving rise to it, and that Mr Marinari contends that the expression "damage occurred" relates not only to the physical result but also to damage in the legal sense, such as a decrease in a person' s assets. 7 It also notes that in Case C-220/88 Dumez France and Tracoba v Hessische Landesbank [1990] ECR I-49, the Court held that account should not be taken, for the purpose of determining jurisdiction under Article 5(3) of the Convention, of indirect financial damage. The national court, in those circumstances, questions whether that also applies where the harmful effects alleged by the plaintiff are direct, not indirect. 8 In those circumstances, it decided to stay the proceedings pending a preliminary ruling on the following question: "In applying the jurisdiction rule laid down in Article 5(3) of the Brussels Convention of 27 September 1968, as interpreted in the judgment of the Court of Justice of the European Communities of 30 November 1976 in Case 21/76 Handelskwekerij G.J. Bier BV v Mines de Potasse d' Alsace SA [1976] ECR 1735, is the expression 'place where the harmful event occurred' to be taken to mean only the place in which physical harm was caused to persons or things, or also the place in which the damage to the plaintiff' s assets occurred?" 9 By way of derogation from the general principle laid down in the first paragraph of Article 2 of the Convention that the courts of the State where the defendant is domiciled are to have jurisdiction, Article 5 provides: "A person domiciled in a Contracting State may, in another Contracting State, be sued: in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred;...." 10 As the Court has held on several occasions (in Mines de Potasse d' Alsace, cited above, paragraph 11, Dumez France and Tracoba, cited above, paragraph 17, and Case C-68/93 Shevill and Others v Presse Alliance [1995] ECR I-415, paragraph 19), that rule of special jurisdiction, the choice of which is a matter for the plaintiff, is based on the existence of a particularly close connecting factor between the dispute and courts other than those of the State of the defendant' s domicile which justifies the attribution of jurisdiction to those courts for reasons relating to the sound administration of justice and the efficacious conduct of proceedings. 11 In Mines de Potasse d' Alsace (paragraphs 24 and 25) and Shevill (paragraph 20), the Court held that where the place of the happening of the event which may give rise to liability in tort, delict or quasi-delict and the place where that event results in damage are not identical, the expression "place where the harmful event occurred" in Article 5(3) of the Convention must be understood as being intended to cover both the place where the damage occurred and the place of the event giving rise to it, so that the defendant may be sued, at the option of the plaintiff, in the courts for either of those places. 12 In those two judgments, the Court considered that the place of the event giving rise to the damage no less than the place where the damage occurred could constitute a significant connecting

66 celex-txt J von 5 05/10/ :12 p.m. factor from the point of view of jurisdiction. It added that to decide in favour only of the place of the event giving rise to the damage would, in an appreciable number of cases, cause confusion between the heads of jurisdiction laid down by Articles 2 and 5(3) of the Convention, so that the latter provision would, to that extent, lose its effectiveness. 13 The choice thus available to the plaintiff cannot however be extended beyond the particular circumstances which justify it. Such extension would negate the general principle laid down in the first paragraph of Article 2 of the Convention that the courts of the Contracting State where the defendant is domiciled are to have jurisdiction. It would lead, in cases other than those expressly provided for, to recognition of the jurisdiction of the courts of the plaintiff' s domicile, a solution which the Convention does not favour since, in the second paragraph of Article 3, it excludes application of national provisions which make such jurisdiction available for proceedings against defendants domiciled in the territory of a Contracting State. 14 Whilst it has thus been recognized that the term "place where the harmful event occurred" within the meaning of Article 5(3) of the Convention may cover both the place where the damage occurred and the place of the event giving rise to it, that term cannot be construed so extensively as to encompass any place where the adverse consequences can be felt of an event which has already caused damage actually arising elsewhere. 15 Consequently, that term cannot be construed as including the place where, as in the present case, the victim claims to have suffered financial damage following upon initial damage arising and suffered by him in another Contracting State. 16 The German Government submits, however, that, in interpreting Article 5(3) of the Convention, the Court should take account of the applicable national law on non-contractual civil liability. Thus, where, under that law, an actual adverse effect on goods or rights is a precondition for liability (as, for instance, under paragraph 823(1) of the Buergerliches Gesetzbuch the German Civil Code), the "place where the harmful event occurred" means both the place of that adverse effect and the place of the event giving rise to it. On the other hand, it considers that where national law does not make redress conditional upon an actual adverse effect upon property or a right (as, for instance, under Article 1382 of the French Civil Code and Article 2043 of the Italian Civil Code), the victim may choose between the place of the event giving rise to the damage and the place where he suffered financial damage. 17 The German Government also considers that that interpretation would not be such as to lead to a multiplication of courts enjoying jurisdiction. Nor would it lead systematically to the result that the court for the place where the financial damage was suffered would be the same as the court of the plaintiff' s domicile. Moreover, it would not enable the victim, by moving his assets, to determine the competent court, since account would be taken of the location of his assets when the obligation of reparation arose. Finally, that interpretation has the advantage of not according preference to the laws of certain States at the expense of others. 18 It must, however, be noted that the Convention did not intend to link the rules on territorial jurisdiction with national provisions concerning the conditions under which non-contractual civil liability is incurred. Those conditions do not necessarily have any bearing on the solutions adopted by the Member States regarding the territorial jurisdiction of their courts, such jurisdiction being founded on other considerations. 19 There is no basis for interpreting Article 5(3) of the Convention by reference to the applicable rules on non-contractual civil liability, as proposed by the German Government. That interpretation is also incompatible with the objective of the Convention, which is to provide for a clear and certain attribution of jurisdiction (see Case 241/83 Roesler v Rottwinkel [1985] ECR 99, paragraph 23, and Case C-26/91 Handte v Traitments Mécano-Chimiques des Surfaces [1992] ECR II-3967, paragraph 19). The delimitation of jurisdiction would then depend on uncertain factors such as the place where the victim' s assets suffered subsequent damage and the applicable rules on civil liability. 20 Finally, as regards the argument as to the relevance of the location of the assets when the obligation to redress the damage arose, the proposed interpretation might confer jurisdiction on a court which had no connection at all with the subject-matter of the dispute, whereas it is that connection which justifies the special jurisdiction provided for in Article 5(3) of the Convention. Indeed, the expenses and losses of profit incurred as a result of the initial harmful event might be incurred elsewhere so that, as far as the efficiency of proof is concerned, that court would be entirely inappropriate. 21 The answer to the national court' s question should therefore be that the term "place where the harmful event occurred" in Article 5(3) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters does not, on a proper interpretation, cover the place where the victim claims to have suffered financial damage following upon initial damage arising and suffered by him in another Contracting State.

67 celex-txt J von 5 05/10/ :12 p.m. Decision on costs Costs 22 The costs incurred by the United Kingdom, the German Government and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Operative part Haut On those grounds, THE COURT, in answer to the question referred to it by the Italian Corte Suprema di Cassazione by order of 21 January 1993, hereby rules: The term "place where the harmful event occurred" in Article 5(3) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters does not, on a proper interpretation, cover the place where the victim claims to have suffered financial damage following upon initial damage arising and suffered by him in another Contracting State.

68 Arrêt de la Cour 1 von 7 05/10/ :22 p.m. Case C-168/02 Rudolf Kronhofer v Marianne Maier and Others (Reference for a preliminary ruling from the Oberster Gerichtshof (Austria)) (Brussels Convention Article 5(3) Jurisdiction in matters relating to tort, delict or quasi-delict Place where the harmful event occurred Financial loss arising from capital investments in another Contracting State) Summary of the Judgment Convention on Jurisdiction and the Enforcement of Judgments Special jurisdiction Jurisdiction in matters relating to tort, delict or quasi-delict Place where the harmful event occurred Definition Place of domicile of claimant who has suffered financial loss arising from capital investments in another Contracting State Excluded (Convention of 27 September 1968, Art. 5(3)) Article 5(3) of the Convention of 27 September 1968 on Jurisdiction and the Enforcements of Judgments in Civil and Commercial Matters, as amended by the Convention of Accession of 9 October 1978 of the Kingdom of Denmark, of Ireland and of the United Kingdom of Great Britain and Northern Ireland, by the Convention of 25 October 1982 on the Accession of the Hellenic Republic, by the Convention of 26 May 1989 on the Accession of the Kingdom of Spain and the Republic of Portugal, and by the Convention of 29 November 1996 on the Accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden, must be interpreted as meaning that the expression place where the harmful event occurred does not refer to the place where the claimant is domiciled or where his assets are concentrated by reason only of the fact that he has suffered financial damage there resulting from the loss of part of his assets which arose and was incurred in another Contracting State. The term place where the harmful event occurred cannot be construed so extensively as to encompass any place where the adverse consequences can be felt of an event which has already caused damage actually arising elsewhere. First, such an interpretation would mean that the determination of the court having jurisdiction would depend on matters that were uncertain and would thus run counter to the strengthening of the legal protection of persons established in the Community which, by enabling the claimant to identify easily the court in which he may sue and the defendant reasonably to foresee in which court he may be sued, is one of the objectives of the Convention. Second, it would be liable in most cases to give jurisdiction to the courts of the place in which the claimant was domiciled. The Convention does not favour that solution except in cases where it expressly so provides. (see paras 19-21, operative part) JUDGMENT OF THE COURT (Second Chamber) 10 June 2004(1) (Brussels Convention Article 5(3) Jurisdiction in matters relating to tort, delict or quasidelict Place where the harmful event occurred Financial loss arising from capital

69 Arrêt de la Cour 2 von 7 05/10/ :22 p.m. investments in another Contracting State) In Case C-168/02 REFERENCE to the Court under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters by the Oberster Gerichtshof (Austria) for a preliminary ruling in the proceedings pending before that court between Rudolf Kronhofer and Marianne Maier,Christian Möller,Wirich Hofius,Zeki Karan, on the interpretation of Article 5(3) of the abovementioned Convention of 27 September 1968 (OJ 1978 L 304, p. 36), as amended by the Convention of Accession of 9 October 1978 of the Kingdom of Denmark, of Ireland and of the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1, and amended text p. 77), by the Convention of 25 October 1982 on the accession of the Hellenic Republic (OJ 1982 L 388, p. 1), by the Convention of 26 May 1989 on the accession of the Kingdom of Spain and the Republic of Portugal (OJ 1989 L 285, p. 1), and by the Convention of 29 November 1996 on the accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden (OJ 1997 C 15, p. 1), THE COURT (Second Chamber),, composed of: C.W.A. Timmermans, President of the Chamber, J.-P. Puissochet, J.N. Cunha Rodrigues (Rapporteur), R. Schintgen and N. Colneric, Judges, Advocate General: P. Léger, Registrar: H. von Holstein, Deputy Registrar, after considering the written observations submitted on behalf of: Mr Kronhofer, by M. Brandauer, Rechtsanwalt, Ms Maier, by M. Scherbantie, Rechtsanwältin, Mr Karan, by C. Ender, Rechtsanwalt, the Austrian Government, by C. Pesendorfer, acting as Agent, the German Government, by R. Wagner, acting as Agent, the United Kingdom Government, by K. Manji, acting as Agent, and T. Ward, Barrister,

70 Arrêt de la Cour 3 von 7 05/10/ :22 p.m. the Commission of the European Communities, by A.-M. Rouchaud and W. Bogensberger, acting as Agents, after hearing the oral observations of Mr Kronhofer, represented by M. Brandauer and R. Bickel, Rechtsanwälte, of Mr Karan, represented by C. Ender, and of the Commission, represented by A.-M. Rouchaud and W. Bogensberger, at the hearing on 20 November 2003, after hearing the Opinion of the Advocate General at the sitting on 15 January 2004, gives the following Judgment 1 By order of 9 April 2002, received at the Court on 6 May 2002, the Oberster Gerichtshof (Supreme Court) referred to the Court for a preliminary ruling under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters a question on the interpretation of Article 5(3) of that Convention (OJ 1978 L 304, p. 36), as amended by the Convention of Accession of 9 October 1978 of the Kingdom of Denmark, of Ireland and of the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1, and amended text p. 77), by the Convention of 25 October 1982 on the accession of the Hellenic Republic (OJ 1982 L 388, p. 1), by the Convention of 26 May 1989 on the accession of the Kingdom of Spain and the Republic of Portugal (OJ 1989 L 285, p. 1), and by the Convention of 29 November 1996 on the accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden (OJ 1997 C 15, p. 1) (hereinafter the Convention ). 2 That question was raised in proceedings brought by Mr Kronhofer, domiciled in Austria, against Ms Maier, Mr Möller, Mr Hofius and Mr Karan (hereinafter the defendants in the main proceedings ), each domiciled in Germany, in which Mr Kronhofer seeks to recover damages for financial loss which he claims to have suffered as a result of the wrongful conduct of the defendants in the main proceedings as directors or investment consultants of the company Protectas Vermögensverwaltungs GmbH (hereinafter Protectas ), which also has its registered office in Germany. Legal framework 3 The first paragraph of Article 2 of the Convention states: 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. 4 Under Article 5(3) of the Convention:

71 Arrêt de la Cour 4 von 7 05/10/ :22 p.m. A person domiciled in a Contracting State may, in another Contracting State, be sued:... (3) in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred. The main proceedings and the question referred 5 Mr Kronhofer brought proceedings against the defendants in the main proceedings before the Landesgericht Feldkirch (Feldkirch Regional Court) (Austria),,, seeking to recover damages for financial loss which he claims to have suffered as a result of their wrongful conduct. 6 The defendants in the main proceedings persuaded him, by telephone, to enter into a call option contract relating to shares. However, they failed to warn him of the risks involved in the transaction. As a result, Mr Kronhofer transferred a total amount of USD in November and December 1997 to an investment account with Protectas in Germany which was then used to subscribe for highly speculative call options on the London Stock Exchange. The transaction in question resulted in the loss of part of the sum transferred and Mr Kronhofer was repaid only part of the capital invested by him. 7 The jurisdiction of the Landesgericht Feldkirch was founded on Article 5(3) of the Convention as the court for the place where the harmful event occurred, in this case Mr Kronhofer s domicile. 8 When that action was dismissed, Mr Kronhofer appealed to the Oberlandesgericht Innsbruck (Innsbruck Higher Regional Court) (Austria), which declined jurisdiction on the ground that the court of domicile was not the place where the harmful event occurred, as neither the place where the event which resulted in damage occurred nor the place where the resulting damage was sustained was in Austria. 9 An application for review on a point of law was brought before the Oberster Gerichtshof, which took the view that the Court of Justice had not yet ruled on the question whether the expression the place where the harmful event occurred is to be so widely interpreted that, in cases of purely financial damage affecting part of the victim s assets invested in another Member State, it also encompasses the place of the victim s domicile and thus the place where his assets are concentrated. 10 As it considered that a decision on the interpretation of the Convention was necessary to enable it to give judgment, the Oberster Gerichtshof decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling: Is the expression place where the harmful event occurred contained in Article 5(3) of the Convention to be construed in such a way that, in the case of purely financial damage arising on the investment of part of the injured party s assets, it also encompasses in any event the place where the injured party is domiciled if the investment was made in another Member State of the Community?

72 Arrêt de la Cour 5 von 7 05/10/ :22 p.m. The question referred 11 By its question, the national court is essentially asking whether Article 5(3) of the Convention should be interpreted as meaning that the expression place where the harmful event occurred may cover the place where the claimant is domiciled and where his assets are concentrated by reason only of the fact that the claimant has suffered financial damage there resulting in the loss of part of his assets which arose and was incurred in another Contracting State. 12 It should be noted at the outset that the system of common rules of conferment of jurisdiction laid down in Title II of the Convention is based on the general rule, set out in the first paragraph of Article 2, that persons domiciled in a Contracting State are to be sued in the courts of that State, irrespective of the nationality of the parties. 13 It is only by way of derogation from that fundamental principle attributing jurisdiction to the courts of the defendant s domicile that Section 2 of Title II of the Convention makes provision for certain special jurisdictional rules, such as that laid down in Article 5(3) of the Convention. 14 Those special jurisdictional rules must be restrictively interpreted and cannot give rise to an interpretation going beyond the cases expressly envisaged by the Convention (see Case 189/87 Kalfelis [1988] ECR 5565, paragraph 19, and Case C-433/01 Blijdenstein [2004] ECR I 0000, paragraph 25). 15 According to settled case-law, the rule laid down in Article 5(3) of the Convention is based on the existence of a particularly close connecting factor between a dispute and courts other than those for the place where the defendant is domiciled, which justifies the attribution of jurisdiction to those courts for reasons relating to the sound administration of justice and the efficacious conduct of proceedings (see, inter alia, Case 21/76 Bier ( Mines de Potasse d Alsace ) [1976] ECR 1735, paragraph 11, and Case C-167/00 Henkel [2002] ECR I 8111, paragraph 46). 16 The Court has also held that where the place in which the event which may give rise to liability in tort, delict or quasi-delict occurs and the place where that event results in damage are not identical, the expression place where the harmful event occurred in Article 5(3) of the Convention must be understood as being intended to cover both the place where the damage occurred and the place of the event giving rise to it, so that the defendant may be sued, at the option of the claimant, in the courts for either of those places (see, inter alia, Mines de potasse d Alsace, paragraphs 24 and 25, and Case C-18/02 DFDS Torline [2004] ECR I-0000, paragraph 40). 17 It is clear from the order for reference that the Oberster Gerichtshof takes the view that, in the case in the main proceedings, the place where the damage occurred and the place of the event giving rise to it were both in Germany. The distinguishing feature of this case lies in the fact that the financial damage allegedly suffered by the claimant in another Contracting State is said to have affected the whole of his assets simultaneously.

73 Arrêt de la Cour 6 von 7 05/10/ :22 p.m. 18 As the Advocate General rightly noted at point 46 of his Opinion, there is nothing in such a situation to justify conferring jurisdiction to the courts of a Contracting State other than that on whose territory the event which resulted in the damage occurred and the damage was sustained, that is to say all of the elements which give rise to liability. To confer jurisdiction in that way would not meet any objective need as regards evidence or the conduct of the proceedings. 19 As the Court has held, the term place where the harmful event occurred cannot be construed so extensively as to encompass any place where the adverse consequences can be felt of an event which has already caused damage actually arising elsewhere (see Case C-364/93 Marinari [1995] ECR I-2719, paragraph 14). 20 In a situation such as that in the main proceedings, such an interpretation would mean that the determination of the court having jurisdiction would depend on matters that were uncertain, such as the place where the victim s assets are concentrated and would thus run counter to the strengthening of the legal protection of persons established in the Community which, by enabling the claimant to identify easily the court in which he may sue and the defendant reasonably to foresee in which court he may be sued, is one of the objectives of the Convention (see Case C-256/00 Besix [2002] ECR I-1699, paragraphs 25 and 26, and DFDS Torline, paragraph 36). Furthermore, it would be liable in most cases to give jurisdiction to the courts of the place in which the claimant was domiciled. As the Court found at paragraph 14 of this judgment, the Convention does not favour that solution except in cases where it expressly so provides. 21 In view of the foregoing considerations, the answer to the question referred must be that Article 5(3) of the Convention must be interpreted as meaning that the expression place where the harmful event occurred does not refer to the place where the claimant is domiciled or where his assets are concentrated by reason only of the fact that he has suffered financial damage there resulting from the loss of part of his assets which arose and was incurred in another Contracting State. Costs 22 The costs incurred by the Austrian, German and United Kingdom Governments and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the national court, the decision on costs is a matter for that court. On those grounds, THE COURT (Second Chamber), 0in answer to the question referred to it by the Oberster Gerichtshof by order of 9 April 2002, hereby rules: Article 5(3) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended by the Convention of

74 Arrêt de la Cour 7 von 7 05/10/ :22 p.m. Accession of 9 October 1978 of the Kingdom of Denmark, of Ireland and of the United Kingdom of Great Britain and Northern Ireland, by the Convention of 25 October 1982 on the accession of the Hellenic Republic, by the Convention of 26 May 1989 on the accession of the Kingdom of Spain and the Republic of Portugal, and by the Convention of 29 November 1996 on the accession of the Republic of Austria, the Republic of Finland and the Kingdom of Sweden must be interpreted as meaning that the expression place where the harmful event occurred does not refer to the place where the claimant is domiciled or where his assets are concentrated by reason only of the fact that he has suffered financial damage there resulting from the loss of part of his assets which arose and was incurred in another Contracting State. Timmermans Puissochet Cunha Rodrigues Schintgen Colneric Delivered in open court in Luxembourg on 10 June R. Grass C.W.A. Timmermans Registrar President of the Second Chamber 1 Language of the case: German.

75 celex-txt J von 7 06/10/ :20 p.m. Managed by the Avis Publications juridique important Office BG ES CS DA DE ET EL EN FR GA IT LV LT HU MT NL PL PT RO SK SL FI SV Site map LexAlert FAQ Help Contact Links 61993J0068 Judgment of the Court of 7 March Fiona Shevill, Ixora Trading Inc., Chequepoint SARL and Chequepoint International Ltd v Presse Alliance SA. Reference for a preliminary ruling: House of Lords - United Kingdom. Brussels Convention - Article 5 (3) - Place where the harmful event occurred - Libel by a newspaper article. Case C-68/93. European Court reports 1995 Page I BG ES CS DA DE ET EL EN FR GA IT LVLTHUMT NL PL PT ROSKSL FI SV html htmlhtml htmlhtmlhtml html html html htmlhtml Keywords Summary Parties Grounds Decision on costs Operative part Summary Convention on jurisdiction and the enforcement of judgments Special jurisdiction Jurisdiction "in matters relating to tort, delict or quasi-delict" Place where the harmful event occurred Crossborder defamation by the press Plaintiff' s right to choose Court of the place where the publisher is established Jurisdiction in respect of all the harm Courts of the places where the publication was distributed in each Contracting State where the reputation of the person harmed is injured Jurisdiction limited to the harm caused in the State of the court seised (Brussels Convention of 27 September 1968, Art. 5(3)) 2. Convention on jurisdiction and the enforcement of judgments Special jurisdiction Jurisdiction "in matters relating to tort, delict or quasi-delict" Defamation Assessment of the harmful character of the event in question and the evidence required of the alleged harm Application of the conflict of laws rules of the forum Limits (Brussels Convention of 27 September 1968, Art. 5(3)) 1. On a proper construction of the expression "place where the harmful event occurred" in Article 5(3) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters as amended by the Convention of 9 October 1978 on the accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland and by the Convention of 25 October 1982 on the accession of the Hellenic Republic, the victim of a libel by a newspaper article distributed in several Contracting States may bring an action for damages against the publisher either before the courts of the Contracting State of the place where the publisher of the defamatory publication is established, which have jurisdiction to award damages for all the harm caused by the defamation, or before the courts of each Contracting State in which the publication was distributed and where the victim claims to have suffered injury to his reputation, which have jurisdiction to rule solely in respect of the harm caused in the State of the court seised.

76 celex-txt J von 7 06/10/ :20 p.m. Parties 2. The criteria for assessing whether the event in question is harmful and the evidence required of the existence and extent of the harm alleged by the plaintiff in an action in tort, delict or quasi-delict are not governed by the Convention but are determined in accordance with the substantive law designated by the national conflict of laws rules of the court seised on the basis of the Convention, provided that the effectiveness of the Convention is not thereby impaired. The fact that under the national law applicable to the main proceedings damage is presumed in libel actions, so that the plaintiff does not have to adduce evidence of the existence and extent of that damage, does not therefore preclude the application of Article 5(3) of the Convention. In Case C-68/93, REFERENCE to the Court under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters by the House of Lords for a preliminary ruling in the proceedings pending before that court between Fiona Shevill, Ixora Trading Inc., Chequepoint SARL, Chequepoint International Ltd and Presse Alliance SA on the interpretation of Article 5(3) of the abovementioned Convention of 27 September 1968 (Journal Officiel 1972, L 299, p. 32) as amended by the Convention of 9 October 1978 on the accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1 and amended text p. 77) and by the Convention of 25 October 1982 on the accession of the Hellenic Republic (OJ 1982 L 388, p. 1), THE COURT, composed of: G.C. Rodríguez Iglesias, President, F.A. Schockweiler (Rapporteur), P.J.G. Kapteyn and C. Gulmann (Presidents of Chambers), G.F. Mancini, C.N. Kakouris, J.C. Moitinho de Almeida, J.L. Murray, D.A.O. Edward, J.-P. Puissochet and G. Hirsch, Judges, Advocate General: M. Darmon, and subsequently P. Léger, Registrar: Lynn Hewlett, Administrator, after considering the written observations submitted on behalf of: Miss Shevill, Ixora Trading Inc., Chequepoint SARL and Chequepoint International Limited, by H.M. Boggis-Rolfe, Barrister, instructed by P. Carter-Ruck & Partners, Solicitors, Presse Alliance SA, by M. Tugendhat QC, instructed by D.J. Freeman & Co., Solicitors, the United Kingdom, by J.D. Colahan, of the Treasury Solicitor' s Department, acting as Agent, and A. Briggs, Barrister, the Spanish Government, by A.J. Navarro González, Director General for Community Legal and Institutional Coordination at the Ministry of Foreign Affairs, and M. Bravo-Ferrer Delgado, State Attorney, acting as Agents, the French Government, by H. Renie, Deputy Principal Secretary of Foreign Affairs at the Ministry of Foreign Affairs, acting as Agent, the Commission of the European Communities, by N. Khan, of the Legal Service, acting as Agent, having regard to the Report for the Hearing, the Sixth Chamber of the Court having heard the oral observations of Miss Shevill, Ixora Trading Inc., Chequepoint SARL and Chequepoint International Limited, represented by H.M. Boggis-Rolfe, Presse Alliance SA, represented by M. Tugendhat QC, the United Kingdom, represented by S. Braviner, of the Treasury Solicitor' s Department, acting as Agent, and A. Briggs, Barrister, the German Government, represented by J. Pirrung, Ministerialrat at the Federal Ministry of Justice, acting as

77 celex-txt J von 7 06/10/ :20 p.m. Grounds Agent, the Spanish Government, represented by M. Bravo-Ferrer Delgado, and the Commission, represented by N. Khan, at the hearing on 21 April 1994, the Sixth Chamber having heard the Opinion of Advocate General Darmon at the sitting on 14 July 1994, the Sixth Chamber of 5 October 1994 having decided to refer the case back to the Court, having regard to the order of 10 October 1994 reopening the oral procedure, after hearing the oral observations of Miss Shevill, Ixora Trading Inc., Chequepoint SARL and Chequepoint International Limited, represented by H.M. Boggis-Rolfe, Presse Alliance SA, represented by M. Tugendhat QC, the United Kingdom, represented by S. Braviner and A. Briggs, the German Government, represented by M Klippstein, Richter, acting as Agent, the Spanish Government, represented by M. Bravo-Ferrer Delgado, and the Commission, represented by N. Khan, at the hearing on 22 November 1994, after hearing the Opinion of Advocate General Léger at the sitting on 10 January 1995, gives the following Judgment 1 By order of 1 March 1993, received at the Court on 15 March 1993, the House of Lords referred to the Court for a preliminary ruling under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (Journal Officiel 1972, L 299, p. 32), as amended by the Convention of 9 October 1978 on the accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1 and amended text p. 77) and by the Convention of 25 October 1982 on the accession of the Hellenic Republic (OJ 1982 L 388, p. 1), hereinafter "the Convention", seven questions on the interpretation of Article 5(3) of the Convention. 2 Those questions were raised in proceedings brought by Miss Fiona Shevill, a United Kingdom national residing in North Yorkshire, England, Chequepoint SARL, Ixora Trading Inc. and Chequepoint International Limited against Presse Alliance SA, a company incorporated under French law whose registered office is in Paris, and seek to establish which courts have jurisdiction to hear an action for damages for harm caused by the publication of a defamatory newspaper article. 3 According to the documents before the Court, on 23 September 1989 Presse Alliance SA, which publishes the newspaper France-Soir, published an article about an operation which drug squad officers of the French police had carried out at one of the bureaux de change operated in Paris by Chequepoint SARL. That article, based on information provided by the agency France Presse, mentioned the company "Chequepoint" and "a young woman by the name of Fiona Shevill-Avril". 4 Chequepoint SARL, a company incorporated under French law whose registered office is in Paris, has operated bureaux de change in France since It is not alleged to carry on business in England or Wales. 5 Fiona Shevill was temporarily employed for three months in the summer of 1989 by Chequepoint SARL in Paris. She returned to England on 26 September Ixora Trading Inc., which is not a company incorporated under the law of England and Wales, has since 1974 operated bureaux de change in England under the name "Chequepoint". 7 Chequepoint International Ltd, a holding company incorporated under Belgian law whose registered office is in Brussels, controls Chequepoint SARL and Ixora Trading Inc. 8 Miss Shevill, Chequepoint SARL, Ixora Trading Inc. and Chequepoint International Ltd considered that the abovementioned article was defamatory in that it suggested that they were part of a drug-trafficking network for which they had laundered money. On 17 October 1989 they issued a writ in the High Court of England and Wales claiming damages for libel from Presse Alliance SA in respect of the copies of France-Soir distributed in France and the other European countries including those sold in England and Wales. The plaintiffs subsequently amended their pleadings, deleting all references to the copies sold outside England and Wales. Since under English law there is a presumption of damage in libel cases, the plaintiffs did not have to adduce evidence of damage arising from the publication of the article in question. 9 It is common ground that France-Soir is mainly distributed in France and that the newspaper has a very small circulation in the United Kingdom, effected through independent distributors. It is

78 celex-txt J von 7 06/10/ :20 p.m. estimated that more than copies of the issue of France-Soir in question were sold in France and approximately copies distributed in the other European countries, of which 230 were sold in England and Wales (5 in Yorkshire). 10 On 23 November 1989 France-Soir published an apology stating that it had not intended to allege that either the owners of Chequepoint bureaux de change or Miss Shevill had been involved in drug trafficking or money laundering. 11 On 7 December 1989 Presse Alliance SA issued a summons disputing the jurisdiction of the High Court of England and Wales on the ground that no harmful event within the meaning of Article 5(3) of the Convention had occurred in England. 12 That application to strike out was dismissed by order of 10 April The appeal brought against that decision was dismissed by order of 14 May On 12 March 1991 the Court of Appeal dismissed the appeal brought by Presse Alliance SA against that decision and stayed the action brought by Chequepoint International Limited. 14 Presse Alliance SA appealed against that decision to the House of Lords pursuant to leave to appeal granted by the latter. 15 Presse Alliance SA argued essentially that under Article 2 of the Convention the French courts had jurisdiction in this dispute and that the English courts did not have jurisdiction under Article 5(3) of the Convention since the "place where the harmful event occurred" within the meaning of that provision was in France and no harmful event had occurred in England. 16 Considering that the proceedings raised problems of interpretation of the Convention, the House of Lords by order of 1 March 1993 decided to stay the proceedings pending a preliminary ruling by the Court of Justice on the following questions: "1. In a case of libel by a newspaper article, do the words 'the place where the harmful event occurred' in Article 5(3) of the Convention mean: (a) the place where the newspaper was printed and put into circulation; or (b) the place or places where the newspaper was read by particular individuals; or (c) the place or places where the plaintiff has a significant reputation? 2. If and sofar as the answer to the first question is (b), is 'the harmful event' dependent upon there being a reader or readers who knew (or knew of) the plaintiff and understood those words to refer to him? 3. If and in so far as harm is suffered in more than one country (because copies of the newspaper were distributed in at least one Member State other than the Member State where it was printed and put into circulation), does a separate harmful event or harmful events take place in each Member State where the newspaper was distributed, in respect of which such Member State has separate jurisdiction under Article 5(3), and if so, how harmful must the event be, or what proportion of the total harm must it represent? 4. Does the phrase 'harmful event' include an event actionable under national law without proof of damage, where there is no evidence of actual damage or harm? 5. In deciding under Article 5(3) whether (or where) a 'harmful event' has occurred is the local court expected to answer the question otherwise than by reference to its own rules and, if so, by reference to which other rules or substantive law, procedure or evidence? 6. If, in a defamation case, the local court concludes that there has been an actionable publication (or communication) of material, as a result of which at least some damage to reputation would be presumed, is it relevant to the acceptance of jurisdiction that other Member States might come to a different conclusion in respect of similar material published within their respective jurisdictions? 7. In deciding whether it has jurisdiction under Article 5(3) of the Convention, what standard of proof should a court require of the plaintiff that the conditions of Article 5(3) are satisfied: (a) generally; and (b) in relation to matters which (if the court takes jurisdiction) will not be re-examined at the trial of the action?" The first, second, third and sixth questions 17 The national court' s first, second, third and sixth questions, which should be considered together, essentially seek guidance from the Court as to the interpretation of the concept "the place where the

79 celex-txt J von 7 06/10/ :20 p.m. harmful event occurred" used in Article 5(3) of the Convention, with a view to establishing which courts have jurisdiction to hear an action for damages for harm caused to the victim following distribution of a defamatory newspaper article in several Contracting States. 18 In order to answer those questions, reference should first be made to Article 5(3) of the Convention, which, by way of derogation from the general principle in the first paragraph of Article 2 of the Convention that the courts of the Contracting State of the defendant' s domicile have jurisdiction, provides: "A person domiciled in a Contracting State may, in another Contracting State, be sued: [...] (3) in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred; [...]" 19 It is settled case-law (see Case 21/76 Bier v Mines de Potasse d' Alsace [1976] ECR 1735, paragraph 11, and Case C-220/88 Dumez France and Tracoba v Hessische Landesbank (Helaba) and Others [1990] ECR I-49, paragraph 17) that that rule of special jurisdiction, the choice of which is a matter for the plaintiff, is based on the existence of a particularly close connecting factor between the dispute and courts other than those of the State of the defendant' s domicile which justifies the attribution of jurisdiction to those courts for reasons relating to the sound administration of justice and the efficacious conduct of proceedings. 20 It must also be emphasized that in Mines de Potasse d' Alsace the Court held (at paragraphs 24 and 25) that, where the place of the happening of the event which may give rise to liability in tort, delict or quasi-delict and the place where that event results in damage are not identical, the expression "place where the harmful event occurred" in Article 5(3) of the Convention must be understood as being intended to cover both the place where the damage occurred and the place of the event giving rise to it, so that the defendant may be sued, at the option of the plaintiff, either in the courts for the place where the damage occurred or in the courts for the place of the event which gives rise to and is at the origin of that damage. 21 In that judgment, the Court stated (at paragraphs 15 and 17) that the place of the event giving rise to the damage no less than the place where the damage occurred could constitute a significant connecting factor from the point of view of jurisdiction, since each of them could, depending on the circumstances, be particularly helpful in relation to the evidence and the conduct of the proceedings. 22 The Court added (at paragraph 20) that to decide in favour only of the place of the event giving rise to the damage would, in an appreciable number of cases, cause confusion between the heads of jurisdiction laid down by Articles 2 and 5(3) of the Convention, so that the latter provision would, to that extent, lose its effectiveness. 23 Those observations, made in relation to physical or pecuniary loss or damage, must equally apply, for the same reasons, in the case of loss or damage other than physical or pecuniary, in particular injury to the reputation and good name of a natural or legal person due to a defamatory publication. 24 In the case of a libel by a newspaper article distributed in several Contracting States, the place of the event giving rise to the damage, within the meaning of those judgments, can only be the place where the publisher of the newspaper in question is established, since that is the place where the harmful event originated and from which the libel was issued and put into circulation. 25 The court of the place where the publisher of the defamatory publication is established must therefore have jurisdiction to hear the action for damages for all the harm caused by the unlawful act. 26 However, that forum will generally coincide with the head of jurisdiction set out in the first paragraph of Article 2 of the Convention. 27 As the Court held in Mines de Potasse d' Alsace, the plaintiff must consequently have the option to bring proceedings also in the place where the damage occurred, since otherwise Article 5(3) of the Convention would be rendered meaningless. 28 The place where the damage occurred is the place where the event giving rise to the damage, entailing tortious, delictual or quasi-delictual liability, produced its harmful effects upon the victim. 29 In the case of an international libel through the press, the injury caused by a defamatory publication to the honour, reputation and good name of a natural or legal person occurs in the places where the publication is distributed, when the victim is known in those places. 30 It follows that the courts of each Contracting State in which the defamatory publication was

80 celex-txt J von 7 06/10/ :20 p.m. distributed and in which the victim claims to have suffered injury to his reputation have jurisdiction to rule on the injury caused in that State to the victim' s reputation. 31 In accordance with the requirement of the sound administration of justice, the basis of the rule of special jurisdiction in Article 5(3), the courts of each Contracting State in which the defamatory publication was distributed and in which the victim claims to have suffered injury to his reputation are territorially the best placed to assess the libel committed in that State and to determine the extent of the corresponding damage. 32 Although there are admittedly disadvantages to having different courts ruling on various aspects of the same dispute, the plaintiff always has the option of bringing his entire claim before the courts either of the defendant' s domicile or of the place where the publisher of the defamatory publication is established. 33 In light of the foregoing, the answer to the first, second, third and sixth questions referred by the House of Lords must be that, on a proper construction of the expression "place where the harmful event occurred" in Article 5(3) of the Convention, the victim of a libel by a newspaper article distributed in several Contracting States may bring an action for damages against the publisher either before the courts of the Contracting State of the place where the publisher of the defamatory publication is established, which have jurisdiction to award damages for all the harm caused by the defamation, or before the courts of each Contracting State in which the publication was distributed and where the victim claims to have suffered injury to his reputation, which have jurisdiction to rule solely in respect of the harm caused in the State of the court seised. The fourth, fifth and seventh questions 34 The national court' s fourth, fifth and seventh questions, which should be considered together, essentially ask whether, in determining whether it has jurisdiction qua court of the place where the damage occurred pursuant to Article 5(3) of the Convention as interpreted by the Court, it is required to follow specific rules different from those laid down by its national law in relation to the criteria for assessing whether the event in question is harmful and in relation to the evidence required of the existence and extent of the harm alleged by the victim of the defamation. 35 In order to reply to those questions, it must first be noted that the object of the Convention is not to unify the rules of substantive law and of procedure of the different Contracting States, but to determine which court has jurisdiction in disputes relating to civil and commercial matters in relations between the Contracting States and to facilitate the enforcement of judgments (see Case C-365/88 Hagen v Zeehaghe [1990] ECR I-1845, paragraph 17). 36 Moreover, the Court has consistently held that, as regards procedural rules, reference must be made to the national rules applicable by the national court, provided that the application of those rules does not impair the effectiveness of the Convention (paragraphs 19 and 20 of the same judgment). 37 In the area of non-contractual liability, the context in which the questions referred have arisen, the sole object of the Convention is to determine which court or courts have jurisdiction to hear the dispute by reference to the place or places where an event considered harmful occurred. 38 It does not, however, specify the circumstances in which the event giving rise to the harm may be considered to be harmful to the victim, or the evidence which the plaintiff must adduce before the court seised to enable it to rule on the merits of the case. 39 Those questions must therefore be settled solely by the national court seised, applying the substantive law determined by its national conflict of laws rules, provided that the effectiveness of the Convention is not thereby impaired. 40 The fact that under the national law applicable to the main proceedings damage is presumed in libel actions, so that the plaintiff does not have to adduce evidence of the existence and extent of that damage, does not therefore preclude the application of Article 5(3) of the Convention in determining which courts have territorial jurisdiction to hear the action for damages for harm caused by an international libel through the press. 41 The answer to the referring court must accordingly be that the criteria for assessing whether the event in question is harmful and the evidence required of the existence and extent of the harm alleged by the victim of the defamation are not governed by the Convention but by the substantive law determined by the national conflict of laws rules of the court seised, provided that the effectiveness of the Convention is not thereby impaired. Decision on costs

81 celex-txt J von 7 06/10/ :20 p.m. Costs 42 The costs incurred by the United Kingdom, the German, Spanish and French Governments and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Operative part Haut On those grounds, THE COURT, in answer to the questions referred to it by the House of Lords, by order of 1 March 1993, hereby rules: 1. On a proper construction of the expression "place where the harmful event occurred" in Article 5(3) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended by the Convention of 9 October 1978 on the accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland and by the Convention of 25 October 1982 on the accession of the Hellenic Republic, the victim of a libel by a newspaper article distributed in several Contracting States may bring an action for damages against the publisher either before the courts of the Contracting State of the place where the publisher of the defamatory publication is established, which have jurisdiction to award damages for all the harm caused by the defamation, or before the courts of each Contracting State in which the publication was distributed and where the victim claims to have suffered injury to his reputation, which have jurisdiction to rule solely in respect of the harm caused in the State of the court seised. 2. The criteria for assessing whether the event in question is harmful and the evidence required of the existence and extent of the harm alleged by the victim of the defamation are not governed by the Convention but by the substantive law determined by the national conflict of laws rules of the court seised, provided that the effectiveness of the Convention is not thereby impaired.

82 celex-txt J von 6 06/10/ :22 p.m. Managed by the Avis Publications juridique important Office BG ES CS DA DE ET EL EN FR GA IT LV LT HU MT NL PL PT RO SK SL FI SV Site map LexAlert FAQ Help Contact Links 61987J0081 Judgment of the Court of 27 September The Queen v H. M. Treasury and Commissioners of Inland Revenue, ex parte Daily Mail and General Trust plc. Reference for a preliminary ruling: High Court of Justice, Queen's Bench Division - United Kingdom. Freedom of establishment - Right to leave the Member State of origin - Legal persons. Case 81/87. European Court reports 1988 Page Swedish special edition Page Finnish special edition Page BG ES CS DA DE ET EL EN FR GA IT LVLTHUMT NL PL PT ROSKSL FI SV html htmlhtml htmlhtmlhtml html html html htmlhtml Keywords Summary Parties Grounds Decision on costs Operative part Summary Free movement of persons - Freedom of establishment - Company incorporated under the legislation of a Member State and having its registered office there - Right to transfer the central management and control of a company to another Member State - None ( EEC Treaty, Arts 52 and 58 ) 2. Free movement of persons - Freedom of establishment - Directive 73/148 - Not applicable to legal persons ( Council Directive 73/148 ) 1. The Treaty regards the differences in national legislation concerning the connecting factor required of companies incorporated thereunder and the question whether - and if so how - the registered office or real head office of a company incorporated under national law may be transferred from one Member State to another as problems which are not resolved by the rules concerning the right of establishment but must be dealt with by future legislation or conventions, which have not yet been adopted or concluded. Therefore, in the present state of Community law, Articles 52 and 58 of the Treaty, properly construed, confer no right on a company incorporated under the legislation of a Member State and having its registered office there to transfer its central management and control to another Member State. 2. The title and provisions of Council Directive 73/148 of 21 May 1973 on the abolition of restrictions on movement and residence within the Community for nationals of Member States with regard to establishment and the provision of services refer solely to the movement and residence of natural persons, and the provisions of the directive cannot, by their nature, be applied by analogy to legal persons. Therefore, Directive 73/148, properly construed, confers no right on a company to transfer

83 celex-txt J von 6 06/10/ :22 p.m. Parties its central management and control to another Member State. Grounds In Case 81/87 REFERENCE to the Court under Article 177 of the EEC Treaty by the High Court of Justice, Queen' s Bench Division, for a preliminary ruling in the proceedings pending before that court between The Queen and HM Treasury and Commissioners of Inland Revenue ex parte Daily Mail and General Trust PLC on the interpretation of Articles 52 and 58 of the EEC Treaty and the provisions of Council Directive 73/148 of 21 May 1973 on the abolition of restrictions on movement and residence within the Community for nationals of Member States with regard to establishment and the provision of services ( Official Journal 1973, L 172, p. 14 ), THE COURT composed of : Lord Mackenzie Stuart, President, G. Bosco, O. Due and G. C. Rodríguez Iglesias ( Presidents of Chambers ), T. Koopmans, U. Everling, K. Bahlmann, Y. Galmot, R. Joliet, T. F. O' Higgins and F. A. Schockweiler, Judges, Advocate General : M. Darmon Registrar : D. Louterman, Administrator after considering the observations submitted on behalf of Daily Mail and General Trust PLC, the applicant in the main proceedings, represented by David Vaughan, QC, and Derrick Wyatt, Barrister, instructed by F. Sandison, Solicitor, of Freshfields, London, the United Kingdom, by S. J. Hay, Treasury Solicitor, Queen Anne' s Chambers, acting as Agent, assisted by R. Buxton, QC, of Gray' s Inn, and A. Moses and N. Green, Barristers, the Commission, by its Legal Adviser D. Gilmour, acting as Agent, having regard to the Report for the Hearing and further to the hearing on 22 March 1988, after hearing the Opinion of the Advocate General delivered at the sitting on 7 June 1988, gives the following Judgment 1 By an order of 6 February 1987, which was received at the Court on 19 March 1987, the High Court of Justice, Queen' s Bench Division, referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty four questions on the interpretation of Articles 52 and 58 of the Treaty and Council Directive 73/148 of 21 May 1973 on the abolition of restrictions on movement and residence within the Community for nationals of Member States with regard to establishment and the provision of services ( Official Journal 1973, L 172, p. 14 ). 2 Those questions arose in proceedings between Daily Mail and General Trust PLC, the applicant in the main proceedings ( hereinafter refered to as "the applicant "), and HM Treasury for a declaration, inter alia, that the applicant is not required to obtain consent under United Kingdom tax legislation in order to cease to be resident in the United Kingdom for the purpose of establishing its residence in the Netherlands. 3 It is apparent from the documents before the Court that under United Kingdom company legislation a company such as the defendant, incorporated under that legislation and having its registered office in the United Kingdom, may establish its central management and control outside the United Kingdom without losing legal personality or ceasing to be a company incorporated in the United Kingdom. 4 According to the relevant United Kingdom tax legislation, only companies which are resident for tax purposes in the United Kingdom are as a rule liable to United Kingdom corporation tax. A company is

84 celex-txt J von 6 06/10/ :22 p.m. resident for tax purposes in the place in which its central management and control is located. 5 Section 482 ( 1 ) ( a ) of the Income and Corporation Taxes Act 1970 prohibits companies resident for tax purposes in the United Kingdom from ceasing to be so resident without the consent of the Treasury. 6 In 1984 the applicant, which is an investment holding company, applied for consent under the abovementioned national provision in order to transfer its central management and control to the Netherlands, whose legislation does not prevent foreign companies from establishing their central management there; the company proposed, in particular, to hold board meetings and to rent offices for its management in the Netherlands. Without waiting for that consent, it subsequently decided to open an investment management office in the Netherlands with a view to providing services to third parties. 7 It is common ground that the principal reason for the proposed transfer of central management and control was to enable the applicant, after establishing its residence for tax purposes in the Netherlands, to sell a significant part of its non-permanent assets and to use the proceeds of that sale to buy its own shares, without having to pay the tax to which such transactions would make it liable under United Kingdom tax law, in regard in particular to the substantial capital gains on the assets which the applicant proposed to sell. After establishing its central management and control in the Netherlands the applicant would be subject to Netherlands corporation tax, but the transactions envisaged would be taxed only on the basis of any capital gains which accrued after the transfer of its residence for tax purposes. 8 After a long period of negotiations with the Treasury, which proposed that it should sell at least part of the assets before transferring its residence for tax purposes out of the United Kingdom, the applicant initiated proceedings before the High Court of Justice, Queen' s Bench Division, in Before that court, it claimed that Articles 52 and 58 of the EEC Treaty gave it the right to transfer its central management and control to another Member State without prior consent or the right to obtain such consent unconditionally. 9 In order to resolve that dispute, the national court stayed the proceedings and referred the following questions to the Court of Justice : ( 1 ) Do Articles 52 and 58 of the EEC Treaty preclude a Member State from prohibiting a body corporate with its central management and control in that Member State from transferring without prior consent or approval that central management and control to another Member State in one or both of the following circumstances, namely where : ( a ) payment of tax upon profits or gains which have already arisen may be avoided; ( b ) were the company to transfer its central management and control, tax that might have become chargeable had the company retained its central management and control in that Member State would be avoided? ( 2 ) Does Council Directive 73/148/EEC give a right to a corporate body with its central management and control in a Member State to transfer without prior consent or approval its central management and control to another Member State in the conditions set out in Question 1? If so, are the relevant provisions directly applicable in this case? ( 3 ) If such prior consent or approval may be required, is a Member State entitled to refuse consent on the grounds set out in Question 1? ( 4 ) What difference does it make, if any, that under the relevant law of the Member State no consent is required in the case of a change of residence to another Member State of an individual or firm? 10 Reference is made to the Report for the Hearing for a fuller account of the facts and the background to the main proceedings, the provisions of national legislation at issue and the observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court. First question 11 The first question seeks in essence to determine whether Articles 52 and 58 of the Treaty give a company incorporated under the legislation of a Member State and having its registered office there the right to transfer its central management and control to another Member State. If that is so, the national court goes on to ask whether the Member State of origin can make that right subject to the consent of national authorities, the grant of which is linked to the company' s tax position. 12 With regard to the first part of the question, the applicant claims essentially that Article 58 of the Treaty expressly confers on the companies to which it applies the same right of primary establishment

85 celex-txt J von 6 06/10/ :22 p.m. in another Member State as is conferred on natural persons by Article 52. The transfer of the central management and control of a company to another Member State amounts to the establishment of the company in that Member State because the company is locating its centre of decision-making there, which constitutes genuine and effective economic activity. 13 The United Kingdom argues essentially that the provisions of the Treaty do not give companies a general right to move their central management and control from one Member State to another. The fact that the central management and control of a company is located in a Member State does not itself necessarily imply any genuine and effective economic activity on the territory of that Member State and cannot therefore be regarded as establishment within the meaning of Article 52 of the Treaty. 14 The Commission emphasizes first of all that in the present state of Community law, the conditions under which a company may transfer its central management and control from one Member State to another are still governed by the national law of the State in which it is incorporated and of the State to which it wishes to move. In that regard, the Commission refers to the differences between the national systems of company law. Some of them permit the transfer of the central management and control of a company and, among those, certain attach no legal consequences to such a transfer, even in regard to taxation. Under other systems, the transfer of the management or the centre of decision-making of a company out of the Member State in which it is incorporated results in the loss of legal personality. However, all the systems permit the winding-up of a company in one Member State and its reincorporation in another. The Commission considers that where the transfer of central management and control is possible under national legislation, the right to transfer it to another Member State is a right protected by Article 52 of the Treaty. 15 Faced with those diverging opinions, the Court must first point out, as it has done on numerous occasions, that freedom of establishment constitutes one of the fundamental principles of the Community and that the provisions of the Treaty guaranteeing that freedom have been directly applicable since the end of the transitional period. Those provisions secure the right of establishment in another Member State not merely for Community nationals but also for the companies referred to in Article Even though those provisions are directed mainly to ensuring that foreign nationals and companies are treated in the host Member State in the same way as nationals of that State, they also prohibit the Member State of origin from hindering the establishment in another Member State of one of its nationals or of a company incorporated under its legislation which comes within the definition contained in Article 58. As the Commission rightly observed, the rights guaranteed by Articles 52 et seq. would be rendered meaningless if the Member State of origin could prohibit undertakings from leaving in order to establish themselves in another Member State. In regard to natural persons, the right to leave their territory for that purpose is expressly provided for in Directive 73/148, which is the subject of the second question referred to the Court. 17 In the case of a company, the right of establishment is generally exercised by the setting-up of agencies, branches or subsidiaries, as is expressly provided for in the second sentence of the first paragraph of Article 52. Indeed, that is the form of establishment in which the applicant engaged in this case by opening an investment management office in the Netherlands. A company may also exercise its right of establishment by taking part in the incorporation of a company in another Member State, and in that regard Article 221 of the Treaty ensures that it will receive the same treatment as nationals of that Member State as regards participation in the capital of the new company. 18 The provision of United Kingdom law at issue in the main proceedings imposes no restriction on transactions such as those described above. Nor does it stand in the way of a partial or total transfer of the activities of a company incorporated in the United Kingdom to a company newly incorporated in another Member State, if necessary after winding-up and, consequently, the settlement of the tax position of the United Kingdom company. It requires Treasury consent only where such a company seeks to transfer its central management and control out of the United Kingdom while maintaining its legal personality and its status as a United Kingdom company. 19 In that regard it should be borne in mind that, unlike natural persons, companies are creatures of the law and, in the present state of Community law, creatures of national law. They exist only by virtue of the varying national legislation which determines their incorporation and functioning. 20 As the Commission has emphasized, the legislation of the Member States varies widely in regard to both the factor providing a connection to the national territory required for the incorporation of a company and the question whether a company incorporated under the legislation of a Member State may subsequently modify that connecting factor. Certain States require that not merely the registered office but also the real head office, that is to say the central administration of the company, should be situated on their territory, and the removal of the central administration from that territory thus presupposes the winding-up of the company with all the consequences that winding-up entails in

86 celex-txt J von 6 06/10/ :22 p.m. company law and tax law. The legislation of other States permits companies to transfer their central administration to a foreign country but certain of them, such as the United Kingdom, make that right subject to certain restrictions, and the legal consequences of a transfer, particularly in regard to taxation, vary from one Member State to another. 21 The Treaty has taken account of that variety in national legislation. In defining, in Article 58, the companies which enjoy the right of establishment, the Treaty places on the same footing, as connecting factors, the registered office, central administration and principal place of business of a company. Moreover, Article 220 of the Treaty provides for the conclusion, so far as is necessary, of agreements between the Member States with a view to securing inter alia the retention of legal personality in the event of transfer of the registered office of companies from one country to another. No convention in this area has yet come into force. 22 It should be added that none of the directives on the coordination of company law adopted under Article 54 ( 3 ) ( g ) of the Treaty deal with the differences at issue here. 23 It must therefore be held that the Treaty regards the differences in national legislation concerning the required connecting factor and the question whether - and if so how - the registered office or real head office of a company incorporated under national law may be transferred from one Member State to another as problems which are not resolved by the rules concerning the right of establishment but must be dealt with by future legislation or conventions. 24 Under those circumstances, Articles 52 and 58 of the Treaty cannot be interpreted as conferring on companies incorporated under the law of a Member State a right to transfer their central management and control and their central administration to another Member State while retaining their status as companies incorporated under the legislation of the first Member State. 25 The answer to the first part of the first question must therefore be that in the present state of Community law Articles 52 and 58 of the Treaty, properly construed, confer no right on a company incorporated under the legislation of a Member State and having its registered office there to transfer its central management and control to another Member State. 26 Having regard to that answer, there is no need to reply to the second part of the first question. Second question 27 In its second question, the national court asks whether the provisions of Council Directive 73/148 of 21 May 1973 on the abolition of restrictions on movement and residence within the Community for nationals of Member States with regard to establishment and the provision of services give a company a right to transfer its central management and control to another Member State. 28 It need merely be pointed out in that regard that the title and provisions of that directive refer solely to the movement and residence of natural persons and that the provisions of the directive cannot, by their nature, be applied by analogy to legal persons. 29 The answer to the second question must therefore be that Directive 73/148, properly construed, confers no right on a company to transfer its central management and control to another Member State. Third and fourth questions 30 Having regard to the answers given to the first two questions referred by the national court, there is no need to reply to the third and fourth questions. Decision on costs Costs 31 The costs incurred by the United Kingdom and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court. Operative part On those grounds, THE COURT, in answer to the questions referred to it by the High Court of Justice, Queen' s Bench Division, by order of 6 February 1987, hereby rules :

87 celex-txt J von 6 06/10/ :22 p.m. ( 1 ) In the present state of Community law, Articles 52 and 58 of the Treaty, properly construed, confer no right on a company incorporated under the legislation of a Member State and having its registered office there to transfer its central management and control to another Member State. ( 2 ) Council Directive 73/148 of 21 May 1973 on the abolition of restrictions on movement and residence within the Community for nationals of Member States with regard to establishment and the provision of services, properly construed, confers no right on a company to transfer its central management and control to another Member State. Haut

88 EUR-Lex J EN 1 von 6 05/10/ :31 p.m. Managed by the Avis Publications juridique important Office 61997J0212 Judgment of the Court of 9 March Centros Ltd v Erhvervs- og Selskabsstyrelsen. - Reference for a preliminary ruling: Højesteret - Denmark. - Freedom of establishment - Establishment of a branch by a company not carying on any actual business - Circumvention of national law - Refusal to register. - Case C-212/97. European Court reports 1999 Page I Summary Parties Grounds Decision on costs Operative part Keywords Freedom of movement for persons - Freedom of establishment - Company formed in accordance with the law of a Member State in which it has its registered office but in which it conducts no business - Establishment of a branch in another Member State - Registration refused - Not permissible - Member States free to adopt measures to combat fraud (EC Treaty, Arts 52 and 58) Summary It is contrary to Articles 52 and 58 of the Treaty for a Member State to refuse to register a branch of a company formed in accordance with the law of another Member State in which it has its registered office but in which it conducts no business where the branch is intended to enable the company in question to carry on its entire business in the State in which that branch is to be created, while avoiding the need to form a company there, thus evading application of the rules governing the formation of companies which, in that State, are more restrictive as regards the paying up of a minimum share capital. Given that the right to form a company in accordance with the law of a Member State and to set up branches in other Member States is inherent in the exercise, in a single market, of the freedom of establishment guaranteed by the Treaty, the fact that a national of a Member State who wishes to set up a company chooses to form it in the Member State whose rules of company law seem to him the least restrictive and to set up branches in other Member States cannot, in itself, constitute an abuse of the right of establishment. That interpretation does not, however, prevent the authorities of the Member State concerned from adopting any appropriate measure for preventing or penalising fraud, either in relation to the company itself, if need be in cooperation with the Member State in which it was formed, or in relation to its members, where it has been established that they are in fact attempting, by means of the formation of a company, to evade their obligations towards private or public creditors established in the territory of the Member State concerned. Parties In Case C-212/97, REFERENCE to the Court under Article 177 of the EC Treaty by the Højesteret (Denmark) for a preliminary ruling in the proceedings pending before that court between

89 EUR-Lex J EN 2 von 6 05/10/ :31 p.m. Centros Ltd and Erhvervs- og Selskabsstyrelsen, on the interpretation of Articles 52, 56 and 58 of the EC Treaty, THE COURT, composed of: G.C. Rodríguez Iglesias, President, P.J.G. Kapteyn, J.-P. Puissochet, G. Hirsch and P. Jann (Presidents of Chambers), G.F. Mancini, J.C. Moitinho de Almeida, C. Gulmann, J.L. Murray, D.A.O. Edward, H. Ragnemalm, L. Sevón, M. Wathelet (Rapporteur), R. Schintgen and K.M. Ioannou, Judges, Advocate General: A. La Pergola, Registrar: H. von Holstein, Deputy Registrar, after considering the written observations submitted on behalf of: - Erhvervs- og Selskabsstyrelsen, by Kammeradvokaten, represented by Karsten Hagel-Sørensen, Advokat, Copenhagen, - the Danish Government, by Peter Biering, Head of Division in the Ministry of Foreign Affairs, acting as Agent, - the French Government, by Kareen Rispal-Bellanger, Deputy Director in the Legal Affairs Directorate of the Ministry of Foreign Affairs, and Gautier Mignot, Secretary for Foreign Affairs in that Directorate, acting as Agents, - the Netherlands Government, by Adriaan Bos, Legal Adviser in the Ministry of Foreign Affairs, acting as Agent, - the United Kingdom Government, by Stephanie Ridley, of the Treasury Solicitor's Department, acting as Agent, and Derrick Wyatt QC, - the Commission of the European Communities, by Antonio Caeiro, Legal Adviser, and Hans Støvlbæk, of its Legal Service, acting as Agents, having regard to the Report for the Hearing, after hearing the oral observations of Erhvervs- og Selskabsstyrelsen, represented by Karsten Hagel- Sørensen; the French Government, represented by Gautier Mignot; the Netherlands Government, represented by Marc Fiestra, Legal Adviser in the Ministry of Foreign Affairs, acting as Agent; the Swedish Government, represented by Erik Brattgård, Departementsråd in the Legal Service of the Ministry of Foreign Affairs, acting as Agent; the United Kingdom Government, represented by Derrick Wyatt; and the Commission, represented by Antonio Caeiro and Hans Støvlbæk, at the hearing on 19 May 1998, after hearing the Opinion of the Advocate General at the sitting on 16 July 1998, gives the following Judgment Grounds 1 By order of 3 June 1997, received at the Court on 5 June 1997 the Højesteret referred to the Court for a preliminary ruling under Article 177 of the EC Treaty a question on the interpretation of Articles 52, 56 and 58 of the Treaty. 2 That question was raised in proceedings between Centros Ltd, a private limited company registered on 18 May 1992 in England and Wales, and Erhvervs- og Selskabsstyrelsen (the Trade and Companies Board, `the Board') which comes under the Danish Department of Trade, concerning that authority's refusal to register a branch of Centros in Denmark. 3 It is clear from the documents in the main proceedings that Centros has never traded since its formation. Since United Kingdom law imposes no requirement on limited liability companies as to the provision for and the paying-up of a minimum share capital, Centros's share capital, which amounts to GBP 100, has been neither paid up nor made available to the company. It is divided into two shares held by Mr and Mrs Bryde, Danish nationals residing in Denmark. Mrs Bryde is the director of Centros, whose registered office is situated in the United Kingdom, at the home of a friend of Mr Bryde. 4 Under Danish law, Centros, as a `private limited company', is regarded as a foreign limited liability company. The rules governing the registration of branches (`filialer') of such companies are laid down by the Anpartsselskabslov (Law on private limited companies). 5 In particular, Article 117 of the Law provides: `1. Private limited companies and foreign companies having a similar legal form which are established in

90 EUR-Lex J EN 3 von 6 05/10/ :31 p.m. one Member State of the European Communities may do business in Denmark through a branch.'$ 6 During the summer of 1992, Mrs Bryde requested the Board to register a branch of Centros in Denmark. 7 The Board refused that registration on the grounds, inter alia, that Centros, which does not trade in the United Kingdom, was in fact seeking to establish in Denmark, not a branch, but a principal establishment, by circumventing the national rules concerning, in particular, the paying-up of minimum capital fixed at DKK by Law No 886 of 21 December Centros brought an action before the Østre Landsret against the refusal of the Board to effect that registration. 9 The Østre Landsret upheld the arguments of the Board in a judgment of 8 September 1995, whereupon Centros appealed to the Højesteret. 10 In those proceedings, Centros maintains that it satisfies the conditions imposed by the law on private limited companies relating to the registration of a branch of a foreign company. Since it was lawfully formed in the United Kingdom, it is entitled to set up a branch in Denmark pursuant to Article 52, read in conjunction with Article 58, of the Treaty. 11 According to Centros the fact that it has never traded since its formation in the United Kingdom has no bearing on its right to freedom of establishment. In its judgment in Case 79/85 Segers v Bedrijfsvereniging voor Bank- en Verzekeringswegen, Groothandel en Vrije Beroepen [1986] ECR 2375, the Court ruled that Articles 52 and 58 of the Treaty prohibited the competent authorities of a Member State from excluding the director of a company from a national sickness insurance scheme solely on the ground that the company had its registered office in another Member State, even though it did not conduct any business there. 12 The Board submits that its refusal to grant registration is not contrary to Articles 52 and 58 of the Treaty since the establishment of a branch in Denmark would seem to be a way of avoiding the national rules on the provision for and the paying-up of minimum share capital. Furthermore, its refusal to register is justified by the need to protect private or public creditors and other contracting parties and also by the need to endeavour to prevent fraudulent insolvencies. 13 In those circumstances, the Højesteret has decided to stay proceedings and to refer the following question to the Court for a preliminary ruling: `Is it compatible with Article 52 of the EC Treaty, in conjunction with Articles 56 and 58 thereof, to refuse registration of a branch of a company which has its registered office in another Member State and has been lawfully founded with company capital of GBP 100 (approximately DKK 1 000) and exists in conformity with the legislation of that Member State, where the company does not itself carry on any business but it is desired to set up the branch in order to carry on the entire business in the country in which the branch is established, and where, instead of incorporating a company in the latter Member State, that procedure must be regarded as having been employed in order to avoid paying up company capital of not less than DKK (at present DKR )?' 14 By its question, the national court is in substance asking whether it is contrary to Articles 52 and 58 of the Treaty for a Member State to refuse to register a branch of a company formed in accordance with the legislation of another Member State in which it has its registered office but where it does not carry on any business when the purpose of the branch is to enable the company concerned to carry on its entire business in the State in which that branch is to be set up, while avoiding the formation of a company in that State, thus evading application of the rules governing the formation of companies which are, in that State, more restrictive so far as minimum paid-up share capital is concerned. 15 As a preliminary point, it should be made clear that the Board does not in any way deny that a joint stock or private limited company with its registered office in another Member State may carry on business in Denmark through a branch. It therefore agrees, as a general rule, to register in Denmark a branch of a company formed in accordance with the law of another Member State. In particular, it has added that, if Centros had conducted any business in England and Wales, the Board would have agreed to register its branch in Denmark. 16 According to the Danish Government, Article 52 of the Treaty is not applicable in the case in the main proceedings, since the situation is purely internal to Denmark. Mr and Mrs Bryde, Danish nationals, have formed a company in the United Kingdom which does not carry on any actual business there with the sole purpose of carrying on business in Denmark through a branch and thus of avoiding application of Danish legislation on the formation of private limited companies. It considers that in such circumstances the formation by nationals of one Member State of a company in another Member State does not amount to a relevant external element in the light of Community law and, in particular, freedom of establishment. 17 In this respect, it should be noted that a situation in which a company formed in accordance with the law of a Member State in which it has its registered office desires to set up a branch in another Member State falls within the scope of Community law. In that regard, it is immaterial that the company was formed in the first Member State only for the purpose of establishing itself in the second, where its

91 EUR-Lex J EN 4 von 6 05/10/ :31 p.m. main, or indeed entire, business is to be conducted (see, to this effect, Segers paragraph 16). 18 That Mrs and Mrs Bryde formed the company Centros in the United Kingdom for the purpose of avoiding Danish legislation requiring that a minimum amount of share capital be paid up has not been denied either in the written observations or at the hearing. That does not, however, mean that the formation by that British company of a branch in Denmark is not covered by freedom of establishment for the purposes of Article 52 and 58 of the Treaty. The question of the application of those articles of the Treaty is different from the question whether or not a Member State may adopt measures in order to prevent attempts by certain of its nationals to evade domestic legislation by having recourse to the possibilities offered by the Treaty. 19 As to the question whether, as Mr and Mrs Bryde claim, the refusal to register in Denmark a branch of their company formed in accordance with the law of another Member State in which its has its registered office constitutes an obstacle to freedom of establishment, it must be borne in mind that that freedom, conferred by Article 52 of the Treaty on Community nationals, includes the right for them to take up and pursue activities as self-employed persons and to set up and manage undertakings under the same conditions as are laid down by the law of the Member State of establishment for its own nationals. Furthermore, under Article 58 of the Treaty companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community are to be treated in the same way as natural persons who are nationals of Member States. 20 The immediate consequence of this is that those companies are entitled to carry on their business in another Member State through an agency, branch or subsidiary. The location of their registered office, central administration or principal place of business serves as the connecting factor with the legal system of a particular State in the same way as does nationality in the case of a natural person (see, to that effect, Segers, paragraph 13, Case 270/83 Commission v France [1986] ECR 273, paragraph 18, Case C-330/91 Commerzbank [1993] ECR I-4017, paragraph 13, and Case C-264/96 ICI [1998] I-4695, paragraph 20). 21 Where it is the practice of a Member State, in certain circumstances, to refuse to register a branch of a company having its registered office in another Member State, the result is that companies formed in accordance with the law of that other Member State are prevented from exercising the freedom of establishment conferred on them by Articles 52 and 58 of the Treaty. 22 Consequently, that practice constitutes an obstacle to the exercise of the freedoms guaranteed by those provisions. 23 According to the Danish authorities, however, Mr and Mrs Bryde cannot rely on those provisions, since the sole purpose of the company formation which they have in mind is to circumvent the application of the national law governing formation of private limited companies and therefore constitutes abuse of the freedom of establishment. In their submission, the Kingdom of Denmark is therefore entitled to take steps to prevent such abuse by refusing to register the branch. 24 It is true that according to the case-law of the Court a Member State is entitled to take measures designed to prevent certain of its nationals from attempting, under cover of the rights created by the Treaty, improperly to circumvent their national legislation or to prevent individuals from improperly or fraudulently taking advantage of provisions of Community law (see, in particular, regarding freedom to supply services, Case 33/74 Van Binsbergen v Bedrijfsvereniging Metaalnijverheid [1974] ECR 1299, paragraph 13, Case C-148/91 Veronica Omroep Organisatie v Commissariaat voor de Media [1993] ECR I-487, paragraph 12, and Case C-23/93 TV 10 v Commissariaat voor de Media [1994] ECR I-4795, paragraph 21; regarding freedom of establishment, Case 115/78 Knoors [1979] ECR 399, paragraph 25, and Case C-61/89 Bouchoucha [1990] ECR I-3551, paragraph 14; regarding the free movement of goods, Case 229/83 Leclerc and Others v `Au Blé Vert' and Others [1985] ECR 1, paragraph 27; regarding social security, Case C-206/94 Brennet v Paletta [1996] ECR I-2357, `Paletta II', paragraph 24; regarding freedom of movement for workers, Case 39/86 Lair v Universität Hannover [1988] ECR 3161, paragraph 43; regarding the common agricultural policy, Case C-8/92 General Milk Products v Hauptzollamt Hamburg-Jonas [1993] ECR I-779, paragraph 21, and regarding company law, Case C-367/96 Kefalas and Others v Greece [1988] ECR I-2843, paragraph 20). 25 However, although, in such circumstances, the national courts may, case by case, take account - on the basis of objective evidence - of abuse or fraudulent conduct on the part of the persons concerned in order, where appropriate, to deny them the benefit of the provisions of Community law on which they seek to rely, they must nevertheless assess such conduct in the light of the objectives pursued by those provisions (Paletta II, paragraph 25). 26 In the present case, the provisions of national law, application of which the parties concerned have sought to avoid, are rules governing the formation of companies and not rules concerning the carrying on of certain trades, professions or businesses. The provisions of the Treaty on freedom of establishment are intended specifically to enable companies formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community to pursue activities in other Member States through an agency, branch or subsidiary.

92 EUR-Lex J EN 5 von 6 05/10/ :31 p.m. 27 That being so, the fact that a national of a Member State who wishes to set up a company chooses to form it in the Member State whose rules of company law seem to him the least restrictive and to set up branches in other Member States cannot, in itself, constitute an abuse of the right of establishment. The right to form a company in accordance with the law of a Member State and to set up branches in other Member States is inherent in the exercise, in a single market, of the freedom of establishment guaranteed by the Treaty. 28 In this connection, the fact that company law is not completely harmonised in the Community is of little consequence. Moreover, it is always open to the Council, on the basis of the powers conferred upon it by Article 54(3)(g) of the EC Treaty, to achieve complete harmonisation. 29 In addition, it is clear from paragraph 16 of Segers that the fact that a company does not conduct any business in the Member State in which it has its registered office and pursues its activities only in the Member State where its branch is established is not sufficient to prove the existence of abuse or fraudulent conduct which would entitle the latter Member State to deny that company the benefit of the provisions of Community law relating to the right of establishment. 30 Accordingly, the refusal of a Member State to register a branch of a company formed in accordance with the law of another Member State in which it has its registered office on the grounds that the branch is intended to enable the company to carry on all its economic activity in the host State, with the result that the secondary establishment escapes national rules on the provision for and the paying-up of a minimum capital, is incompatible with Articles 52 and 58 of the Treaty, in so far as it prevents any exercise of the right freely to set up a secondary establishment which Articles 52 and 58 are specifically intended to guarantee. 31 The final question to be considered is whether the national practice in question might not be justified for the reasons put forward by the Danish authorities. 32 Referring both to Article 56 of the Treaty and to the case-law of the Court on imperative requirements in the general interest, the Board argues that the requirement that private limited companies provide for and pay up a minimum share capital pursues a dual objective: first, to reinforce the financial soundness of those companies in order to protect public creditors against the risk of seeing the public debts owing to them become irrecoverable since, unlike private creditors, they cannot secure those debts by means of guarantees and, second, and more generally, to protect all creditors, whether public or private, by anticipating the risk of fraudulent bankruptcy due to the insolvency of companies whose initial capitalisation was inadequate. 33 The Board adds that there is no less restrictive means of attaining this dual objective. The other way of protecting creditors, namely by introducing rules making it possible for shareholders to incur personal liability, under certain conditions, would be more restrictive than the requirement to provide for and pay up a minimum share capital. 34 It should be observed, first, that the reasons put forward do not fall within the ambit of Article 56 of the Treaty. Next, it should be borne in mind that, according to the Court's case-law, national measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must fulfil four conditions: they must be applied in a non-discriminatory manner; they must be justified by imperative requirements in the general interest; they must be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is necessary in order to attain it (see Case C-19/92 Kraus v Land Baden-Württemberg [1993] ECR I-1663, paragraph 32, and Case C-55/94 Gebhard v Consiglio dell'ordine degli Avvocati e Procuratori di Milano [1995] ECR I-4165, paragraph 37). 35 Those conditions are not fulfilled in the case in the main proceedings. First, the practice in question is not such as to attain the objective of protecting creditors which it purports to pursue since, if the company concerned had conducted business in the United Kingdom, its branch would have been registered in Denmark, even though Danish creditors might have been equally exposed to risk. 36 Since the company concerned in the main proceedings holds itself out as a company governed by the law of England and Wales and not as a company governed by Danish law, its creditors are on notice that it is covered by laws different from those which govern the formation of private limited companies in Denmark and they can refer to certain rules of Community law which protect them, such as the Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies (OJ 1978 L 222, p. 11), and the Eleventh Council Directive 89/666/EEC of 21 December 1989 concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State (OJ 1989 L 395, p. 36). 37 Second, contrary to the arguments of the Danish authorities, it is possible to adopt measures which are less restrictive, or which interfere less with fundamental freedoms, by, for example, making it possible in law for public creditors to obtain the necessary guarantees. 38 Lastly, the fact that a Member State may not refuse to register a branch of a company formed in accordance with the law of another Member State in which it has its registered office does not preclude that first State from adopting any appropriate measure for preventing or penalising fraud, either in

93 EUR-Lex J EN 6 von 6 05/10/ :31 p.m. relation to the company itself, if need be in cooperation with the Member State in which it was formed, or in relation to its members, where it has been established that they are in fact attempting, by means of the formation of the company, to evade their obligations towards private or public creditors established on the territory of a Member State concerned. In any event, combating fraud cannot justify a practice of refusing to register a branch of a company which has its registered office in another Member State. 39 The answer to the question referred must therefore be that it is contrary to Articles 52 and 58 of the Treaty for a Member State to refuse to register a branch of a company formed in accordance with the law of another Member State in which it has its registered office but in which it conducts no business where the branch is intended to enable the company in question to carry on its entire business in the State in which that branch is to be created, while avoiding the need to form a company there, thus evading application of the rules governing the formation of companies which, in that State, are more restrictive as regards the paying up of a minimum share capital. That interpretation does not, however, prevent the authorities of the Member State concerned from adopting any appropriate measure for preventing or penalising fraud, either in relation to the company itself, if need be in cooperation with the Member State in which it was formed, or in relation to its members, where it has been established that they are in fact attempting, by means of the formation of a company, to evade their obligations towards private or public creditors established in the territory of the Member State concerned. Decision on costs Costs 40 The costs incurred by the Danish, French, Netherlands, Swedish and United Kingdom Governments and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Operative part On those grounds, THE COURT, in answer to the question referred to it by the Højesteret by order of 3 June 1997, hereby rules: It is contrary to Articles 52 and 58 of the EC Treaty for a Member State to refuse to register a branch of a company formed in accordance with the law of another Member State in which it has its registered office but in which it conducts no business where the branch is intended to enable the company in question to carry on its entire business in the State in which that branch is to be created, while avoiding the need to form a company there, thus evading application of the rules governing the formation of companies which, in that State, are more restrictive as regards the paying up of a minimum share capital. That interpretation does not, however, prevent the authorities of the Member State concerned from adopting any appropriate measure for preventing or penalising fraud, either in relation to the company itself, if need be in cooperation with the Member State in which it was formed, or in relation to its members, where it has been established that they are in fact attempting, by means of the formation of a company, to evade their obligations towards private or public creditors established in the territory of the Member State concerned.

94 EUR-Lex J EN 1 von 11 05/10/ :33 p.m. Managed by the Avis Publications juridique important Office 62000J0208 Judgment of the Court of 5 November Überseering BV v Nordic Construction Company Baumanagement GmbH (NCC). - Reference for a preliminary ruling: Bundesgerichtshof - Germany. - Articles 43 EC and 48 EC - Company formed in accordance with the law of a Member State and having its registered office there - Company exercising its freedom of establishment in another Member State - Company deemed to have transferred its actual centre of administration to the host Member State under the law of that State - Non-recognition by the host Member State of the company's legal capacity and its capacity to be a party to legal proceedings - Restriction on freedom of establishment - Justification. - Case C-208/00. European Court reports 2002 Page I Parties Grounds Decision on costs Operative part Parties In Case C-208/00, REFERENCE to the Court under Article 234 EC by the Bundesgerichtshof (Germany) for a preliminary ruling in the proceedings pending before that court between berseering BV and Nordic Construction Company Baumanagement GmbH (NCC), on the interpretation of Articles 43 EC and 48 EC, THE COURT, composed of: G.C. Rodríguez Iglesias, President, J.-P. Puissochet, M. Wathelet (Rapporteur) and R. Schintgen (Presidents of Chambers), C. Gulmann, D.A.O. Edward, A. La Pergola, P. Jann, V. Skouris, F. Macken, N. Colneric, S. von Bahr and J.N. Cunha Rodrigues, Judges, Advocate General: D. Ruiz-Jarabo Colomer, Registrar: H.A. Rühl, Principal Administrator, after considering the written observations submitted on behalf of: - Überseering BV, by W.H. Wagenführ, Rechtsanwalt, - Nordic Construction Company Baumanagement GmbH (NCC), by F. Kösters, Rechtsanwalt, - the German Government, by A. Dittrich and B. Muttelsee-Schön, acting as Agents, - the Spanish Government, by M. López-Monís Gallego, acting as Agent, - the Italian Government, by U. Leanza, acting as Agent, assisted by F. Quadri, avvocato dello Stato, - the United Kingdom Government, by R. Magrill, acting as Agent, and by J. Stratford, barrister, - the Commission of the European Communities, by M. Patakia and C. Schmidt, acting as Agents, - the EFTA Surveillance Authority, by P. Dyrberg and J.F. Jónsson and E. Wright, acting as Agents, having regard to the Report for the Hearing, after hearing the oral observations of Überseering BV, represented by W.H. Wagenführ, of Nordic Construction Company Baumanagement GmbH (NCC), represented by F. Kösters, of the German Government, represented by A. Dittrich, of the Spanish Government, represented by N. Díaz Abad, acting as Agent, of the Netherlands Government, represented by H.G. Sevenster, acting as Agent, of the United Kingdom Government, represented by R. Magrill, assisted by J. Stratford, of the Commission, represented by C. Schmidt, and of the EFTA Surveillance Authority, represented by P. Dyrberg, at the

95 EUR-Lex J EN 2 von 11 05/10/ :33 p.m. hearing on 16 October 2001, after hearing the Opinion of the Advocate General at the sitting on 4 December 2001, gives the following Judgment Grounds 1 By order of 30 March 2000, received at the Court Registry on 25 May 2000, the Bundesgerichtshof (Federal Court of Justice) referred to the Court for a preliminary ruling under Article 234 EC two questions on the interpretation of Articles 43 EC and 48 EC. 2 Those questions were raised in proceedings between (i) Überseering BV (`Überseering'), a company incorporated under Netherlands law and registered on 22 August 1990 in the register of companies of Amsterdam and Haarlem, and (ii) Nordic Construction Company Baumanagement GmbH (`NCC'), a company established in the Federal Republic of Germany, concerning damages for defective work carried out in Germany by NCC on behalf of Überseering. National law 3 The Zivilprozessordnung (German Code of Civil Procedure) provides that an action brought by a party which does not have the capacity to bring legal proceedings must be dismissed as inadmissible. Under Paragraph 50(1) of the Zivilprozessordnung any person, including a company, having legal capacity has the capacity to be a party to legal proceedings: legal capacity is defined as the capacity to enjoy rights and to be the subject of obligations. 4 According to the settled case-law of the Bundesgerichtshof, which is approved by most German legal commentators, a company's legal capacity is determined by reference to the law applicable in the place where its actual centre of administration is established (`Sitztheorie' or company seat principle), as opposed to the `Gründungstheorie' or incorporation principle, by virtue of which legal capacity is determined in accordance with the law of the State in which the company was incorporated. That rule also applies where a company has been validly incorporated in another State and has subsequently transferred its actual centre of administration to Germany. 5 Since a company's legal capacity is determined by reference to German law, it cannot enjoy rights or be the subject of obligations or be a party to legal proceedings unless it has been reincorporated in Germany in such a way as to acquire legal capacity under German law. The main proceedings 6 In October 1990, Überseering acquired a piece of land in Düsseldorf (Germany), which it used for business purposes. By a project-management contract dated 27 November 1992, Überseering engaged NCC to refurbish a garage and a motel on the site. The contractual obligations were performed but Überseering claimed that the paint work was defective. 7 In December 1994 two German nationals residing in Düsseldorf acquired all the shares in Überseering. 8 Überseering unsuccessfully sought compensation from NCC for the defective work and in 1996 it brought an action before the Landgericht (Regional Court), Düsseldorf, on the basis of its projectmanagement contract with NCC. It claimed the sum of DEM , plus interest, in respect of the costs incurred in remedying the alleged defects and consequential damage. 9 The Landgericht dismissed the action. The Oberlandesgericht (Higher Regional Court), Düsseldorf, upheld the decision to dismiss the action. It found that Überseering had transferred its actual centre of administration to Düsseldorf once its shares had been acquired by two German nationals. The Oberlandesgericht found that, as a company incorporated under Netherlands law, Überseering did not have legal capacity in Germany and, consequently, could not bring legal proceedings there. 10 Therefore, the Oberlandesgericht held that Überseering's action was inadmissible. 11 Überseering appealed to the Bundesgerichtshof against the judgment of the Oberlandesgericht. 12 It also appears from Überseering's observations that, in parallel with the proceedings currently pending before the Bundesgerichtshof, an action was brought against Überseering before another German court based on certain unspecified provisions of German law. As a result, it was ordered by the Landgericht Düsseldorf to pay architects' fees, apparently because it was entered on 11 September 1991 in the Düsseldorf land registry as owner of the land on which the garage and the motel refurbished by NCC were built. The questions referred for a preliminary ruling 13 Although it notes that the case-law referred to at paragraphs 4 and 5 of this judgment is disputed in various respects by certain German legal commentators, the Bundesgerichtshof considers it preferable, in view of the current state of Community law and of company law within the European Union, to

96 EUR-Lex J EN 3 von 11 05/10/ :33 p.m. continue to follow that case-law for a number of reasons. 14 First, it is appropriate to discount any solution which entails (through taking account of different connecting factors) assessing a company's legal situation by reference to several legal systems. According to the Bundesgerichtshof, such a solution leads to legal uncertainty, since it is impossible to segregate clearly the areas of law to be governed by the various legal orders. 15 Second, where the connecting factor is taken to be the place of incorporation, the company's founding members are placed at an advantage, since they are able, when choosing the place of incorporation, to choose the legal system which suits them best. Therein lies the fundamental weakness of the incorporation principle, which fails to take account of the fact that a company's incorporation and activities also affect the interests of third parties and of the State in which the company has its actual centre of administration, where that is located in a State other than the one in which the company was incorporated. 16 Third, and by contrast, where the connecting factor is taken to be the actual centre of administration, that prevents the provisions of company law in the State in which the actual centre of administration is situated, which are intended to protect certain vital interests, from being circumvented by incorporating the company abroad. In the present case, the interests which German law is seeking to safeguard are notably those of the company's creditors: the legislation relating to `Gesellschaften mit beschränkter Haftung (GmbH)' (limited liability companies under German law) provides such protection by detailed rules on the initial contribution and maintenance of share capital. In the case of related companies, dependent companies and their minority shareholders also need protection. In Germany such protection is provided by rules governing groups of companies or rules providing for financial compensation and indemnification of shareholders who have been put at a disadvantage by agreements whereby one company agrees to manage another or agrees to pay its profits to another company. Finally, the rules on joint management protect the company's employees. The Bundesgerichtshof points out that not all the Member States have comparable rules. 17 The Bundesgerichtshof nevertheless wonders whether, on the basis that the company's actual centre of administration has been transferred to another country, the freedom of establishment guaranteed by Articles 43 EC and 48 EC does not preclude connecting the company's legal position with the law of the Member State in which its actual centre of administration is located. The answer to that question cannot, according to the Bundesgerichtshof, be clearly deduced from the case-law of the Court of Justice. 18 It points out, in that regard, that in Case 81/87 The Queen v Treasury and Commissioners of Inland Revenue, ex parte Daily Mail and General Trust [1988] ECR 5483 the Court, having stated that companies could exercise their right of establishment by setting up agencies, branches and subsidiaries, or by transferring all their shares to a new company in another Member State, held that, unlike natural persons, companies exist only by virtue of the national legal system which governs their incorporation and operation. It is also apparent from that judgment that the EC Treaty has taken account of the differences in national rules on the conflict of laws and has reserved resolution of the problems associated therewith to future legislation. 19 In Case C-212/97 Centros [1999] ECR I-1459, the Court took exception to a Danish authority's refusal to register a branch of a company validly incorporated in the United Kingdom. However, the Bundesgerichtshof points out that the company had not transferred its seat, since, from its incorporation, its registered office had been in the United Kingdom, whilst its actual centre of administration had been in Denmark. 20 The Bundesgerichtshof wonders whether, in view of Centros, the Treaty provisions on freedom of establishment preclude, in a situation such as that in point in the main proceedings, application of the rules on conflict of laws in force in the Member State in which the actual centre of administration of a company validly incorporated in another Member State is situated when the consequence of those rules is the refusal to recognise the company's legal capacity and, therefore, its capacity to bring legal proceedings in the first Member State to enforce rights under a contract. 21 In those circumstances, the Bundesgerichtshof decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling: `1. Are Articles 43 EC and 48 EC to be interpreted as meaning that the freedom of establishment of companies precludes the legal capacity, and capacity to be a party to legal proceedings, of a company validly incorporated under the law of one Member State from being determined according to the law of another State to which the company has moved its actual centre of administration, where, under the law of that second State, the company may no longer bring legal proceedings there in respect of claims under a contract? 2. If the Court's answer to that question is affirmative: Does the freedom of establishment of companies (Articles 43 EC and 48 EC) require that a company's legal capacity and capacity to be a party to legal proceedings is to be determined according to the law of the State where the company is incorporated?' The first question

97 EUR-Lex J EN 4 von 11 05/10/ :33 p.m. 22 By its first question, the national court is, essentially, asking whether, where a company formed in accordance with the legislation of a Member State (`A') in which it has its registered office is deemed, under the law of another Member State (`B'), to have moved its actual centre of administration to Member State B, Articles 43 EC and 48 EC preclude Member State B from denying the company legal capacity, and therefore the capacity to bring legal proceedings before its national courts in order to enforce rights under a contract with a company established in Member State B. Observations submitted to the Court 23 For NCC and the German, Spanish and Italian Governments, the Treaty provisions on freedom of establishment do not preclude the legal capacity, and the capacity to be a party to legal proceedings, of a company validly incorporated under the law of one Member State from being determined under the rules of law of another Member State, to which that company is found to have moved its centre of administration: nor, depending on the circumstances, do they preclude the company from being prevented from enforcing before the courts of the second Member State rights under a contract entered into with a company established in the second State. 24 They base their view, first, on the provisions of the third indent of Article 293 EC, which provides: `Member States shall, so far as is necessary, enter into negotiations with each other with a view to securing for the benefit of their nationals:... - the mutual recognition of companies or firms within the meaning of the second paragraph of Article 48, the retention of legal personality in the event of transfer of their seat from one country to another...'. 25 In NCC's submission, Article 293 EC is founded on the recognition by all the Member States of the fact that a company incorporated in one Member State does not automatically retain its legal personality in the event of its seat being transferred to another Member State and that it is necessary for the Member States to enter into a specific convention to that effect - a convention which has not as yet been adopted. NCC concludes that the fact that a company may lose its legal personality in the event of its transferring its actual centre of administration to another Member State is compatible with the Community rules on freedom of establishment. The refusal by one Member State to recognise the foreign legal personality of a company incorporated in another Member State, where the company has moved its actual centre of administration to the first State, does not amount to a restriction on freedom of establishment since the company is able to reincorporate itself under the law of the host State. The only rights safeguarded by the freedom of establishment are the right to reincorporation in that State and the right to establish a presence there. 26 According to the German Government, the framers of the Treaty included Articles 43 EC and 48 EC with full knowledge of the significant differences in company law between the Member States and with the intention of leaving intact national competence and the authority of national law as long as there has been no approximation of laws. Even though there are many harmonising directives in the sphere of company law adopted under Article 44 EC, there are currently no directives of that kind regarding the transfer of a company's seat and no multilateral convention has been adopted in that regard pursuant to Article 293 EC. Consequently, as Community law now stands, the application in Germany of the actual or real centre of administration principle and the implications thereof as regards recognition of a company's legal capacity and its capacity to be a party to legal proceedings are compatible with Community law. 27 Likewise, for the Italian Government, the fact that Article 293 EC contemplates the conclusion of conventions by the Member States with a view, in particular, to ensuring that a company retains its legal personality if its seat is transferred from one Member State to another, shows that the question of the retention of legal personality following the transfer of a company's seat is not conclusively dealt with by the provisions of Community law relating to freedom of establishment. 28 The Spanish Government, for its part, points out that the Convention on the Mutual Recognition of Companies and Legal Persons, signed in Brussels on 29 February 1968, has never entered into force. Therefore, in the absence of a convention concluded between the Member States on the basis of Article 293 EC, there is no harmonisation at Community level such as to settle the question whether a company retains its legal personality in the event of a transfer of its seat. Articles 43 EC and 48 EC are silent in that regard. 29 NCC and the German, Spanish and Italian Governments also submit that their view is endorsed by Daily Mail and General Trust, in particular paragraphs 23 and 24 thereof, which read as follows: `... the Treaty regards the differences in national legislation concerning the required connecting factor and the question whether - and if so how - the registered office or real head office of a company incorporated under national law may be transferred from one Member State to another as problems which are not resolved by the rules concerning the right of establishment but must be dealt with by future legislation or conventions. Under those circumstances, Article 52 [of the EEC Treaty (now, after amendment, Article 43 EC)] and

98 EUR-Lex J EN 5 von 11 05/10/ :33 p.m. Article 58 of the Treaty [(now Article 48 EC)] cannot be interpreted as conferring on companies incorporated under the law of a Member State a right to transfer their central management and control and their central administration to another Member State while retaining their status as companies incorporated under the legislation of the first Member State.' 30 The German Government submits that, although it is not disputed that Daily Mail and General Trust concerned relations between a company and the Member State under whose legislation it was incorporated in a case in which the company was moving its actual centre of administration to another Member State, the Court's reasoning in that judgment may be applied to the issue of the relations between a company validly incorporated in one Member State and another Member State (the host State as opposed to the State in which the company was incorporated) to which the company has moved its actual centre of administration. On that basis, it submits that, where a company validly incorporated in one Member State has availed itself of its right of establishment in another Member State by virtue of transferring all its shares to nationals residing in the host State, the question whether, in the host Member State, the law applicable under the rules on conflict of laws allows the company to continue to exist does not fall within the scope of the provisions on freedom of establishment. 31 The Italian Government also claims that it is apparent from Daily Mail and General Trust that the criteria by reference to which companies' identities are determined do not pertain to the exercise of the right of establishment, regulated by Articles 43 EC and 48 EC, but fall to be dealt with under national law. Consequently, the rules relating to freedom of establishment cannot be relied on for the purpose of harmonising the connecting factors, which, as Community law now stands, are determined solely by the national law of the Member States. Since there may be factors connecting a company with several States, it is important that each national legal system determines the circumstances in which companies are to be subject to its particular rules. 32 In the Spanish Government's submission, there is no conflict with Article 48 EC where a company incorporated in accordance with the law of a Member State is required to have its actual centre of administration there in order to be capable of being considered in another Member State as a company entitled to freedom of establishment. 33 The Spanish Government observes, in that regard, that the first paragraph of Article 48 EC sets out two conditions which must be met if the companies defined in the second paragraph of that article are to enjoy the right of establishment in the same way as nationals of other Member States. First, they must be formed in accordance with the law of a Member State and, second, they must have their registered office, central administration or principal place of business within the Community. It submits that the second condition has been modified by the General Programme for the abolition of restrictions on the freedom of establishment, adopted in Brussels on 18 December 1961 (OJ, English Special Edition, Second Series (IX), p. 7, `the General Programme'). 34 Title I, `Beneficiaries', of the General Programme provides: `... the persons entitled to benefit from the abolition of restrictions on freedom of establishment... are:... - companies and firms formed under the law of a Member State... and having either the seat prescribed by their statutes, or their centre of administration, or their main establishment situated within the Community or in an overseas country or territory, who wish to establish themselves in order to pursue activities as self-employed persons in a Member State;... - companies and firms as above, provided that, where only the seat prescribed by their statutes is situated within the Community or in an overseas country or territory, their activity shows a real and continuous link with the economy of a Member State or of an overseas country or territory; such link shall not be one of nationality... who wish to set up agencies, branches or subsidiaries in a Member State.' 35 The Spanish Government submits that, although the General Programme imposes the requirement for a real and continuous link only for the purpose of the exercise of the freedom to set up a secondary establishment, such a requirement should also apply in the case of the principal establishment, in order to ensure uniformity as regards the connecting factors required for the right of establishment to be enjoyed. 36 In the submission of Überseering, the Netherlands and United Kingdom Governments, the Commission and the EFTA Surveillance Authority, where a company validly incorporated under the law of one Member State (`A') is found, under the law of another Member State (`B'), to have moved its actual centre of administration to Member State B, Articles 43 EC and 48 EC, read together, preclude the conflict rules applying in Member State B from providing that the company's legal capacity, and its capacity to be a party to legal proceedings, are to be determined by reference to the law of Member State B. That would be so where, under the law of Member State B, the company is denied all possibility of enforcing before the national courts rights under a contract with a company established in Member

99 EUR-Lex J EN 6 von 11 05/10/ :33 p.m. State B. Their arguments in that regard are as follows. 37 First, the Commission argues that under Article 293 EC entry into negotiations with a view to reducing the discrepancies between national laws regarding the recognition of foreign companies is provided for by that article only `so far as is necessary'. If in 1968 there had been a relevant body of case-law, it would have not been necessary to have recourse to Article 293 EC. That explains the decisive importance of the Court's case-law today in establishing the substance and scope of the freedom of establishment conferred on companies by Articles 43 EC and 48 EC. 38 Second, Überseering, the United Kingdom Government, the Commission and the EFTA Surveillance Authority submit that Daily Mail and General Trust is irrelevant in the present case. 39 They argue that, as is apparent from the facts at issue in that judgment, the Court was considering the legal consequences, in the Member State in which a company was incorporated, of transferring the company's actual centre of administration to another Member State: accordingly, the judgment cannot form a basis for examining the legal consequences, in the host Member State, of such a transfer. 40 Daily Mail and General Trust applies only to the relationship between the Member State of incorporation and the company which wishes to leave that State whilst retaining the legal personality conferred on it by the legislation thereof. Since companies are creatures of national law, they must continue to observe the requirements laid down by the legislation of their State of incorporation. Daily Mail and General Trust therefore formally acknowledges the right of the Member State of incorporation to set rules on the incorporation and legal existence of companies in accordance with its rules of private international law. It does not, in contrast, decide the question whether a company formed under the law of one Member State must be recognised by another Member State. 41 Third, in the submission of Überseering, the United Kingdom Government, the Commission and the EFTA Surveillance Authority, to answer the question raised in this case, it is appropriate to refer not to Daily Mail and General Trust but rather to Centros, since the dispute in Centros concerned, as in the Überseering case, the treatment in the host Member State of a company incorporated under the law of another Member State, which was exercising its right of establishment. 42 They observe that Centros concerned a secondary establishment in Denmark, the host Member State, of a company, Centros Ltd, which was validly incorporated in the United Kingdom where it had its registered office but did not carry on business. Centros Ltd wished to set up a branch in Denmark in order to carry on its main business activities there. The Danish authorities did not question the company's existence under English law but denied it the right to exercise its freedom of establishment in Denmark by setting up a branch there, since it was not disputed that that form of secondary establishment was intended to avoid Danish rules on company formation, in particular the rules relating to the paying-up of a minimum share capital. 43 In Centros the Court held that a Member State (the host State) must allow a company validly incorporated in another Member State where it has its registered office to register another establishment (in that case, a branch) in the host State, from which it may develop its entire business. On that basis, the host Member State cannot impose on a company which has been properly formed in another Member State its own substantive company law, in particular the rules on share capital. The Commission submits that the position must be the same where the host Member State invokes its private international law governing companies. 44 For the Netherlands Government, the Treaty provisions on freedom of establishment do not preclude application of the company seat principle as such. However, the consequences which German law attaches to what it regards as a transfer to Germany of the seat of a company which has, moreover, legal personality by virtue of its incorporation in another Member State constitute a restriction on the freedom of establishment where they lead to a refusal to recognise that company's legal personality. 45 The Netherlands Government observes that in the Treaty the three connecting factors, namely the registered office, the actual centre of administration (central administration) and the principal place of business, are on an equal footing. There is no indication in the Treaty that, to be able to invoke the principle of freedom of establishment, the registered office and the central administration must be located in one and the same Member State. The Netherlands Government consequently contends that a company whose actual centre of administration is no longer in the State in which the company was incorporated is also entitled to the right of establishment. It is therefore contrary to the Treaty provisions on freedom of establishment for a Member State to refuse to recognise the legal capacity of a company validly incorporated in another Member State, which is exercising its freedom to set up a secondary establishment in the host Member State. 46 The United Kingdom Government submits that the provisions of German law at issue in the main proceedings are contrary to Articles 43 EC and 48 EC since their effect is to prevent a company in Überseering's position from carrying on its business through an agency or branch in Germany, if that agency or branch is regarded, under German law, as the actual centre of administration of the company, since those provisions entail the loss of legal capacity, without which a company cannot operate. 47 The EFTA Surveillance Authority adds that freedom of establishment includes not only the right to set

100 EUR-Lex J EN 7 von 11 05/10/ :33 p.m. up a secondary establishment in another Member State, but also the right, where a company moves its actual centre of administration to another Member State, to retain its original establishment in the Member State of incorporation. The effect of the provisions of German law being applied in the main proceedings is to turn freedom of establishment into an obligation of establishment if the company's legal capacity, and consequently its capacity to be a party to legal proceedings, are to be preserved. They thus constitute a restriction on the freedom of establishment enshrined in the Treaty. That conclusion does not imply that the Member States do not have the power to establish the connecting factors between a company and their territory but that they must exercise that power consistently with the Treaty. 48 Furthermore, the Netherlands and United Kingdom Governments and the EFTA Surveillance Authority stress the fact that Überseering did not intend to transfer to Germany its actual centre of administration in the sense contemplated in German law. Überseering maintains that it did not intend to wind up its activities in the Netherlands in order to reincorporate itself in Germany and that it wishes to remain a Netherlands-law limited-liability company (BV). Furthermore, it is paradoxical that German law should regard it as such for the purpose of legal proceedings brought against it for payment of architects' fees. 49 The Netherlands Government argued at the hearing that Netherlands law regards a case such as that in the main proceedings as involving the formation of a branch, hence of a secondary establishment. It is wrong to consider the present case on the premiss that Überseering's actual centre of administration has moved to Germany merely because there has been a transfer of shares to German nationals residing in Germany. Such a view is peculiar to German private law. There is nothing to suggest that Überseering intended to move its actual centre of administration to Germany. Furthermore, to argue on the basis that the case concerns a primary establishment is to seek to negate the relevance of Centros, in which secondary establishments were at issue as the result of the setting-up of a branch, and to attempt to align this case with Daily Mail and General Trust. 50 The United Kingdom Government points out that Überseering was validly incorporated in the Netherlands, has always been registered in the Amsterdam and Haarlem register of companies as a company incorporated under Netherlands law and has not attempted to move its actual centre of administration to Germany. Since 1994, following a transfer of ownership, it has simply carried on the greater part of its business in Germany and has held certain meetings there. It must therefore be regarded in practice as having acted in Germany through an agency or branch. That situation is quite different from the situation in Daily Mail and General Trust. That case concerned a deliberate attempt to transfer the registered office and management of a company incorporated under English law from the United Kingdom to another Member State, whilst preserving the company's status as a company validly incorporated in the United Kingdom but avoiding the tax-law requirements associated in the United Kingdom with the transfer to another country of a company's management and control. 51 For the EFTA Surveillance Authority, the refusal to recognise Überseering's right to be a party to legal proceedings in Germany by reason of the apparently unsolicited transfer of its actual centre of administration to Germany is indicative of the lack of certainty which may be caused in cross-border transactions when the different private international law rules of the Member States are applied. Since characterisation as a company's actual centre of administration turns, to a large extent, on the facts, it is always possible that different national legal systems and, within them, different courts may have divergent views on what is an actual centre of administration. Moreover, it is increasingly difficult to identify a company's actual centre of administration in an international, computerised economy, in which the physical presence of decision-makers becomes increasingly unnecessary. Findings of the Court As to whether the Treaty provisions on freedom of establishment apply 52 In limine and contrary to the submissions of both NCC and the German, Spanish and Italian Governments, the Court must make clear that where a company which is validly incorporated in one Member State (`A') in which it has its registered office is deemed, under the law of a second Member State (`B'), to have moved its actual centre of administration to Member State B following the transfer of all its shares to nationals of that State residing there, the rules which Member State B applies to that company do not, as Community law now stands, fall outside the scope of the Community provisions on freedom of establishment. 53 In that regard, it is appropriate to begin by rejecting the arguments based on Article 293 EC, which were put forward by NCC and the German, Spanish and Italian Governments. 54 As the Advocate General maintained at point 42 of his Opinion, Article 293 EC does not constitute a reserve of legislative competence vested in the Member States. Although Article 293 EC gives Member States the opportunity to enter into negotiations with a view, inter alia, to facilitating the resolution of problems arising from the discrepancies between the various laws relating to the mutual recognition of companies and the retention of legal personality in the event of the transfer of their seat from one country to another, it does so solely `so far as is necessary', that is to say if the provisions of the Treaty do not enable its objectives to be attained. 55 More specifically, it is important to point out that, although the conventions which may be entered

101 EUR-Lex J EN 8 von 11 05/10/ :33 p.m. into pursuant to Article 293 EC may, like the harmonising directives provided for in Article 44 EC, facilitate the attainment of freedom of establishment, the exercise of that freedom can none the less not be dependent upon the adoption of such conventions. 56 In that regard, it must be borne in mind that, as the Court has already had occasion to point out, the freedom of establishment, conferred by Article 43 EC on Community nationals, includes the right for them to take up and pursue activities as self-employed persons and to set up and manage undertakings under the same conditions as are laid down by the law of the Member State of establishment for its own nationals. Furthermore, according to the actual wording of Article 48 EC, `companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community shall, for the purposes of [the provisions of the Treaty concerning the right of establishment], be treated in the same way as natural persons who are nationals of Member States'. 57 The immediate consequence of this is that those companies or firms are entitled to carry on their business in another Member State. The location of their registered office, central administration or principal place of business constitutes the connecting factor with the legal system of a particular Member State in the same way as does nationality in the case of a natural person. 58 The Court's reasoning in Centros was founded on those premisses (paragraphs 19 and 20). 59 A necessary precondition for the exercise of the freedom of establishment is the recognition of those companies by any Member State in which they wish to establish themselves. 60 Accordingly, it is not necessary for the Member States to adopt a convention on the mutual recognition of companies in order for companies meeting the conditions set out in Article 48 EC to exercise the freedom of establishment conferred on them by Articles 43 EC and 48 EC, which have been directly applicable since the transitional period came to an end. It follows that no argument that might justify limiting the full effect of those articles can be derived from the fact that no convention on the mutual recognition of companies has as yet been adopted on the basis of Article 293 EC. 61 Second, it is important to consider the argument based on the decision in Daily Mail and General Trust, which was central to the arguments put to the Court. It was cited in order, in some way, to assimilate the situation in Daily Mail and General Trust to the situation which under German law entails the loss of legal capacity and of the capacity to be a party to legal proceedings by a company incorporated under the law of another Member State. 62 It must be stressed that, unlike Daily Mail and General Trust, which concerned relations between a company and the Member State under whose laws it had been incorporated in a situation where the company wished to transfer its actual centre of administration to another Member State whilst retaining its legal personality in the State of incorporation, the present case concerns the recognition by one Member State of a company incorporated under the law of another Member State, such a company being denied all legal capacity in the host Member State where it takes the view that the company has moved its actual centre of administration to its territory, irrespective of whether in that regard the company actually intended to transfer its seat. 63 As the Netherlands and United Kingdom Governments and the Commission and the EFTA Surveillance Authority have pointed out, Überseering never gave any indication that it intended to transfer its seat to Germany. Its legal existence was never called in question under the law of the State where it was incorporated as a result of all its shares being transferred to persons resident in Germany. In particular, the company was not subject to any winding-up measures under Netherlands law. Under Netherlands law, it did not cease to be validly incorporated. 64 Moreover, even if the dispute before the national court is seen as concerning a transfer of the actual centre of administration from one country to another, the interpretation of Daily Mail and General Trust put forward by NCC and the German, Spanish and Italian Governments is incorrect. 65 In that case, Daily Mail and General Trust Plc, a company formed in accordance with the law of the United Kingdom and having both its registered office and actual centre of administration there, wished to transfer its centre of administration to another Member State without losing its legal personality or ceasing to be a company incorporated under English law. This required the consent of the competent United Kingdom authorities, which they refused to give. The company initiated proceedings against the authorities before the High Court of Justice, Queen's Bench Division, seeking an order that Articles 52 and 58 of the EEC Treaty gave it the right to transfer its actual centre of administration to another Member State without prior consent and without loss of its legal personality. 66 Thus, unlike the case before the national court in this instance, Daily Mail and General Trust did not concern the way in which one Member State treats a company which is validly incorporated in another Member State and which is exercising its freedom of establishment in the first Member State. 67 Asked by the High Court of Justice whether the Treaty provisions on freedom of establishment conferred on a company the right to transfer its centre of management to another Member State, the Court observed, at paragraph 19 of Daily Mail and General Trust, that a company, which is a creature of national law, exists only by virtue of the national legislation which determines its incorporation and functioning.

102 EUR-Lex J EN 9 von 11 05/10/ :33 p.m. 68 At paragraph 20 of that judgment, the Court pointed out that the legislation of the Member States varies widely in regard both to the factor providing a connection to the national territory required for the incorporation of a company and to the question whether a company incorporated under the legislation of a Member State may subsequently modify that connecting factor. 69 The Court concluded, at paragraph 23 of the judgment, that the Treaty regarded those differences as problems which were not resolved by the Treaty rules concerning freedom of establishment but would have to be dealt with by legislation or conventions, which the Court found had not yet been done. 70 In so doing, the Court confined itself to holding that the question whether a company formed in accordance with the legislation of one Member State could transfer its registered office or its actual centre of administration to another Member State without losing its legal personality under the law of the Member State of incorporation and, in certain circumstances, the rules relating to that transfer were determined by the national law in accordance with which the company had been incorporated. It concluded that a Member State was able, in the case of a company incorporated under its law, to make the company's right to retain its legal personality under the law of that State subject to restrictions on the transfer of the company's actual centre of administration to a foreign country. 71 By contrast, the Court did not rule on the question whether where, as here, a company incorporated under the law of a Member State (`A') is found, under the law of another Member State (`B'), to have moved its actual centre of administration to Member State B, that State is entitled to refuse to recognise the legal personality which the company enjoys under the law of its State of incorporation (`A'). 72 Thus, despite the general terms in which paragraph 23 of Daily Mail and General Trust is cast, the Court did not intend to recognise a Member State as having the power, vis-à-vis companies validly incorporated in other Member States and found by it to have transferred their seat to its territory, to subject those companies' effective exercise in its territory of the freedom of establishment to compliance with its domestic company law. 73 There are, therefore, no grounds for concluding from Daily Mail and General Trust that, where a company formed in accordance with the law of one Member State and with legal personality in that State exercises its freedom of establishment in another Member State, the question of recognition of its legal capacity and its capacity to be a party to legal proceedings in the Member State of establishment falls outside the scope of the Treaty provisions on freedom of establishment, even when the company is found, under the law of the Member State of establishment, to have moved its actual centre of administration to that State. 74 Third, the Court rejects the Spanish Government's argument that, in a situation such as that in point before the national court, Title I of the General Programme subordinates the benefit of the freedom of establishment guaranteed by the Treaty to the requirement that there be a real and continuous link with the economy of a Member State. 75 It is apparent from the wording of the General Programme that it requires a real and continuous link solely in a case in which the company has nothing but its registered office within the Community. That is unquestionably not the position in the case of Überseering whose registered office and actual centre of administration are within the Community. As regards the situation just described, the Court found, at paragraph 19 of Centros, that under Article 58 of the Treaty companies formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community are to be treated in the same way as natural persons who are nationals of Member States. 76 It follows from the foregoing considerations that Überseering is entitled to rely on the principle of freedom of establishment in order to contest the refusal of German law to regard it as a legal person with the capacity to be a party to legal proceedings. 77 Furthermore, it must be borne in mind that as a general rule the acquisition by one or more natural persons residing in a Member State of shares in a company incorporated and established in another Member State is covered by the Treaty provisions on the free movement of capital, provided that the shareholding does not confer on those natural persons definite influence over the company's decisions and does not allow them to determine its activities. By contrast, where the acquisition involves all the shares in a company having its registered office in another Member State and the shareholding confers a definite influence over the company's decisions and allows the shareholders to determine its activities, it is the Treaty provisions on freedom of establishment which apply (see, to that effect, Case C-251/98 Baars [2000] ECR I-2787, paragraphs 21 and 22). As to whether there is a restriction on freedom of establishment 78 The Court must next consider whether the refusal by the German courts to recognise the legal capacity and capacity to be a party to legal proceedings of a company validly incorporated under the law of another Member State constitutes a restriction on freedom of establishment. 79 In that regard, in a situation such as that in point in the main proceedings, a company validly incorporated under the law of, and having its registered office in, a Member State other than the Federal Republic of Germany has under German law no alternative to reincorporation in Germany if it wishes to enforce before a German court its rights under a contract entered into with a company

103 EUR-Lex J EN 10 von 11 05/10/ :33 p.m. incorporated under German law. 80 Überseering, which is validly incorporated in the Netherlands and has its registered office there, is entitled under Articles 43 EC and 48 EC to exercise its freedom of establishment in Germany as a company incorporated under Netherlands law. It is of little significance in that regard that, after the company was formed, all its shares were acquired by German nationals residing in Germany, since that has not caused Überseering to cease to be a legal person under Netherlands law. 81 Indeed, its very existence is inseparable from its status as a company incorporated under Netherlands law since, as the Court has observed, a company exists only by virtue of the national legislation which determines its incorporation and functioning (see, to that effect, Daily Mail and General Trust, paragraph 19). The requirement of reincorporation of the same company in Germany is therefore tantamount to outright negation of freedom of establishment. 82 In those circumstances, the refusal by a host Member State (`B') to recognise the legal capacity of a company formed in accordance with the law of another Member State (`A') in which it has its registered office on the ground, in particular, that the company moved its actual centre of administration to Member State B following the acquisition of all its shares by nationals of that State residing there, with the result that the company cannot, in Member State B, bring legal proceedings to defend rights under a contract unless it is reincorporated under the law of Member State B, constitutes a restriction on freedom of establishment which is, in principle, incompatible with Articles 43 EC and 48 EC. As to whether the restriction on freedom of establishment is justified 83 Finally, it is appropriate to determine whether such a restriction on freedom of establishment can be justified on the grounds advanced by the national court and by the German Government. 84 The German Government has argued in the alternative, should the Court find that application of the company seat principle entails a restriction on freedom of establishment, that the restriction applies without discrimination, is justified by overriding requirements relating to the general interest and is proportionate to the objectives pursued. 85 In the German Government's submission, the lack of discrimination arises from the fact that the rules of law proceeding from the company seat principle apply not only to any foreign company which establishes itself in Germany by moving its actual centre of administration there but also to companies incorporated under German law which transfer their actual centre of administration out of Germany. 86 As regards the overriding requirements relating to the general interest put forward in order to justify the alleged restriction, the German Government maintains, first, that in other spheres, secondary Community law assumes that the administrative head office and the registered office are identical. Community law has thus recognised the merits, in principle, of a single registered and administrative office. 87 In the German Government's submission, the German rules of private international company law enhance legal certainty and creditor protection. There is no harmonisation at Community level of the rules for protecting the share capital of limited liability companies and such companies are subject in Member States other than the Federal Republic of Germany to requirements which are in some respects much less strict. The company seat principle as applied by German law ensures that a company whose principal place of business is in Germany has a fixed minimum share capital, something which is instrumental in protecting parties with whom it enters into contracts and its creditors. That also prevents distortions of competition since all companies whose principal place of business is in Germany are subject to the same legal requirements. 88 The German Government submits that further justification is provided by the protection of minority shareholders. In the absence of a Community standard for the protection of minority-shareholders, a Member State must be able to apply to any company whose principal place of business is within its territory the same legal requirements for the protection of minority shareholders. 89 Application of the company seat principle is also justified by employee protection through the joint management of undertakings on conditions determined by law. The German Government argues that the transfer to Germany of the actual centre of administration of a company incorporated under the law of another Member State could, if the company continued to be a company incorporated under that law, involve a risk of circumvention of the German provisions on joint management, which allow the employees, in certain circumstances, to be represented on the company's supervisory board. Companies in other Member States do not always have such a body. 90 Finally, any restriction resulting from the application of the company seat principle can be justified on fiscal grounds. The incorporation principle, to a greater extent than the company seat principle, enables companies to be created which have two places of residence and which are, as a result, subject to taxation without limits in at least two Member States. There is a risk that such companies might claim and be granted tax advantages simultaneously in several Member States. By way of example, the German Government mentions the cross-border offsetting of losses against profits between undertakings within the same group. 91 The Netherlands and United Kingdom Governments, the Commission and the EFTA Surveillance

104 EUR-Lex J EN 11 von 11 05/10/ :33 p.m. Authority submit that the restriction in question is not justified. They point out in particular that the aim of protecting creditors was also invoked by the Danish authorities in Centros to justify the refusal to register in Denmark a branch of a company which had been validly incorporated in the United Kingdom and all of whose business was to be carried on in Denmark but which did not meet the requirements of Danish law regarding the provision and paying-up of a minimum amount of share capital. They add that it is not certain that requirements associated with a minimum amount of share capital are an effective way of protecting creditors. 92 It is not inconceivable that overriding requirements relating to the general interest, such as the protection of the interests of creditors, minority shareholders, employees and even the taxation authorities, may, in certain circumstances and subject to certain conditions, justify restrictions on freedom of establishment. 93 Such objectives cannot, however, justify denying the legal capacity and, consequently, the capacity to be a party to legal proceedings of a company properly incorporated in another Member State in which it has its registered office. Such a measure is tantamount to an outright negation of the freedom of establishment conferred on companies by Articles 43 EC and 48 EC. 94 Accordingly, the answer to the first question must be that, where a company formed in accordance with the law of a Member State (`A') in which it has its registered office is deemed, under the law of another Member State (`B'), to have moved its actual centre of administration to Member State B, Articles 43 EC and 48 EC preclude Member State B from denying the company legal capacity and, consequently, the capacity to bring legal proceedings before its national courts for the purpose of enforcing rights under a contract with a company established in Member State B. The second question referred to the Court 95 It follows from the answer to the first question referred to the Court for a preliminary ruling that, where a company formed in accordance with the law of a Member State (`A') in which it has its registered office exercises its freedom of establishment in another Member State (`B'), Articles 43 EC and 48 EC require Member State B to recognise the legal capacity and, consequently, the capacity to be a party to legal proceedings which the company enjoys under the law of its State of incorporation (`A'). Decision on costs Costs 96 The costs incurred by the German, Spanish, Italian, Netherlands and United Kingdom Governments and by the Commission and by the EFTA Surveillance Authority, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Operative part On those grounds, THE COURT, in answer to the questions referred to it by the Bundesgerichtshof by order of 30 March 2000, hereby rules: 1. Where a company formed in accordance with the law of a Member State (`A') in which it has its registered office is deemed, under the law of another Member State (`B'), to have moved its actual centre of administration to Member State B, Articles 43 EC and 48 EC preclude Member State B from denying the company legal capacity and, consequently, the capacity to bring legal proceedings before its national courts for the purpose of enforcing rights under a contract with a company established in Member State B. 2. Where a company formed in accordance with the law of a Member State (`A') in which it has its registered office exercises its freedom of establishment in another Member State (`B'), Articles 43 EC and 48 EC require Member State B to recognise the legal capacity and, consequently, the capacity to be a party to legal proceedings which the company enjoys under the law of its State of incorporation (`A').

105 Arrêt de la Cour 1 von 26 05/10/ :35 p.m. Case C-167/01 Kamer van Koophandel en Fabrieken voor Amsterdam v Inspire Art Ltd (Reference for a preliminary ruling from the Kantongerecht te Amsterdam) «(Articles 43 EC, 46 EC and 48 EC Company formed in one Member State and carrying on its activities in another Member State Application of the company law of the Member State of establishment intended to protect the interests of others)» Opinion of Advocate General Alber delivered on 30 January 2003 Judgment of the Court, 30 September 2003 Summary of the Judgment 1.. Member States Obligations Obligation to penalise infringements of Community law Scope (Art. 10 EC) 2.. Freedom of movement for persons Freedom of establishment Companies Directive 89/666 Disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State Mandatory and optional disclosure requirements National legislation introducing disclosure requirements not provided for by the directive Not permissible (Council Directive 89/666, Art. 2) 3.. Freedom of movement for persons Freedom of establishment Company formed in accordance with the law of a Member State in which it has its registered office but in which it conducts no business Establishment of a branch in another Member State subjected to conditions relating to minimum capital and directors' liability Not permissible Possibility of adoption by Member States of measures to combat fraud Limits (Arts 43 EC and 48 EC) 1. Where a Community regulation does not specifically provide any penalty for an infringement or refers for that purpose to national laws, regulations and administrative provisions, Article 10 EC requires the Member States to take all measures necessary to guarantee the application and effectiveness of Community law. For that purpose, while the choice of penalties remains within their discretion, the Member States must ensure in particular that infringements of Community law are penalised in conditions, both procedural and substantive, which are analogous to those applicable to infringements of national law of a similar nature and importance and which, in any event, make the penalty effective, proportionate and dissuasive. see para It is contrary to Article 2 of the Eleventh Directive 89/666 concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State, which contains a list of the information which must be disclosed in the Member State in which the branch is established and a list of optional measures imposing disclosure requirements, for national legislation to impose on the branch of

106 Arrêt de la Cour 2 von 26 05/10/ :35 p.m. a company formed in accordance with the laws of another Member State disclosure obligations not provided for by that directive, such as recording in the commercial register the fact that the company is formally foreign, recording in the business register of the host Member State the date of first registration in the foreign business register and information relating to sole members, the compulsory filing of an auditor's certificate to the effect that the company satisfies the conditions as to minimum capital, subscribed capital and paid-up share capital or mention of the company's status of a formally foreign company on all documents it produces. Without affecting the information obligations imposed on branches under social or tax law, or in the field of statistics, harmonisation of the disclosure to be made by branches, as brought about by the Eleventh Directive, is exhausted. see paras 65, 69-70, 72, 143, operative part 1 3. It is contrary to Articles 43 EC and 48 EC for national legislation to impose on the exercise of freedom of secondary establishment in that State by a company formed in accordance with the law of another Member State certain conditions provided for in domestic law in respect of company formation relating to minimum capital and directors' liability. The reasons for which the company was formed in that other Member State, and the fact that it carries on its activities exclusively or almost exclusively in the Member State of establishment, do not deprive it of the right to invoke the freedom of establishment guaranteed by the Treaty, save where the existence of an abuse is established on a case-by-case basis. A Member State is certainly entitled to take measures designed to prevent certain of its nationals from attempting, under cover of the rights created by the Treaty, improperly to circumvent their national legislation or to prevent individuals from improperly or fraudulently taking advantage of provisions of Community law. However, the provisions of the Treaty on freedom of establishment are intended specifically to enable companies formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community to pursue activities in other Member States through an agency, branch or subsidiary. That being so, the fact that a national of a Member State who wishes to set up a company can choose to do so in the Member State the company-law rules of which seem to him the least restrictive and then set up branches in other Member States is inherent in the exercise, in a single market, of the freedom of establishment guaranteed by the Treaty. In addition, the fact that a company does not conduct any business in the Member State in which it has its registered office and pursues its activities only or principally in the Member State where its branch is established is not sufficient to prove the existence of abuse or fraudulent conduct which would entitle the latter Member State to deny that company the benefit of the provisions of Community law relating to the right of establishment. see paras 105, , 143, operative part 2 JUDGMENT OF THE COURT 30 September 2003 (1) ((Articles 43 EC, 46 EC and 48 EC Company formed in one Member State and carrying on its activities in another Member State Application of the company law of the Member State of establishment intended to protect the interests of others)) In Case C-167/01, REFERENCE to the Court under Article 234 EC by the Kantongerecht te Amsterdam

107 Arrêt de la Cour 3 von 26 05/10/ :35 p.m. (Netherlands) for a preliminary ruling in the proceedings pending before that court between Kamer van Koophandel en Fabrieken voor Amsterdam Inspire Art Ltd, and on the interpretation of Articles 43 EC, 46 EC and 48 EC, THE COURT,, composed of: G.C. Rodríguez Iglesias, President, J.-P. Puissochet, M. Wathelet (Rapporteur), R. Schintgen and C.W.A. Timmermans (Presidents of Chambers), C. Gulmann, D.A.O. Edward, A. La Pergola, P. Jann, V. Skouris, F. Macken, N. Colneric, S. von Bahr, J.N. Cunha Rodrigues and A. Rosas, Judges, Advocate General: S. Alber, Registrar: M.-F. Contet, Principal Administrator, after considering the written observations submitted on behalf of: the Kamer van Koophandel en Fabrieken voor Amsterdam, by C.J.J.C. van Nispen, advocaat, Inspire Art Ltd, by M.E. van Wissen and G. van der Wal, advocaten, the Netherlands Government. by H.G. Sevenster, acting as Agent, the German Government, by B. Muttelsee-Schön and A. Dittrich, acting as Agents, the Italian Government, by I.M. Braguglia, acting as Agent, and by M. Fiorilli, Avvocato dello Stato, the Austrian Government, by H. Dossi, acting as Agent, the United Kingdom Government, by R. Magrill, acting as Agent, and J. Stratford, Barrister, the Commission of the European Communities, by C. Schmidt and C. van der Hauwaert, acting as Agents, having regard to the Report for the Hearing,

108 Arrêt de la Cour 4 von 26 05/10/ :35 p.m. after hearing the oral observations of the Kamer van Koophandel en Fabrieken voor Amsterdam, represented by R. Hermans and E. Pijnacker Hordijk, advocaten, of Inspire Art Ltd, represented by G. van der Wal, of the Netherlands Government, represented by J.G.M. van Bakel, acting as Agent, of the German Government, represented by A. Dittrich, of the United Kingdom Government, represented by J. Stratford, and of the Commission, represented by C. Schmidt and H. van Lier, acting as Agent, at the hearing on 26 November 2002, after hearing the Opinion of the Advocate General at the sitting on 30 January 2003, gives the following Judgment 1 By order of 5 February 2001, received at the Court on 19 April 2001, the Kantongerecht te Amsterdam (Amsterdam Cantonal Court) referred to the Court for a preliminary ruling under Article 234 EC two questions on the interpretation of Articles 43 EC, 46 EC and 48 EC. 2 Those questions were raised in proceedings between the Kamer van Koophandel en Fabrieken voor Amsterdam (Amsterdam Chamber of Commerce and Industry), Netherlands ( the Chamber of Commerce) and Inspire Art Ltd, a company governed by the law of England and Wales ( Inspire Art), concerning the obligation imposed on Inspire Art's branch in the Netherlands to record, with its registration in the Dutch commercial register, its description as a formeel buitenlandse vennootschap (formally foreign company) and to use that description in its business dealings, such obligations being imposed by the Wet op de Formeel Buitenlandse Vennootschappen (Law on Formally Foreign Companies) of 17 December 1997 ( Staatsblad 1997 No 697, the WFBV). I The legal framework The relevant provisions of Community law 3 The first paragraph of Article 43 EC provides: Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State. 4 Article 48 EC extends entitlement to freedom of establishment, subject to the same conditions as those laid down for individuals who are nationals of the Member States, to companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community. 5 Article 46 EC permits the Member States to restrict the freedom of establishment of foreign nationals by adopting provisions laid down by law, regulation or administrative action, in

109 Arrêt de la Cour 5 von 26 05/10/ :35 p.m. so far as such provisions are justified on grounds of public policy, public security or public health. 6 Article 44(2)(g) EC empowers the Council of the European Union, for the purpose of giving effect to freedom of establishment, to coordinate to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies or firms within the meaning of the second paragraph of Article 48 of the EC Treaty with a view to making such safeguards equivalent throughout the Community. 7 Various directives have in that manner been adopted by the Council on that basis ( company-law directives) and, in particular, the following directives referred to in the dispute in the main proceedings. 8 The First Council Directive 68/151/EEC of 9 March 1968 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, with a view to making such safeguards equivalent throughout the Community (OJ, English Special Edition 1968 (I), p. 41, the First Directive), applies to companies with share capital. It provides for three measures calculated to protect the interests of other persons dealing with those companies: the opening of a file containing certain obligatory information for each company registered in the relevant commercial register, harmonisation of the national rules on the validity and enforceability of obligations entered into in the name of the company (including companies being formed) and the drawing up of a list exhaustively setting out the cases entailing the nullity of a company. 9 The Second Council Directive 77/91/EEC of 13 December 1976 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, with regard to the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent (OJ 1977 L 26, p. 1, the Second Directive), specifies the information which must mandatorily be given in the statutes or the instrument of incorporation of public limited companies and the minimum amount of share capital required for such companies and it provides for harmonised rules concerning contributions to assets, paying up of shares, the nominal value of shares and the distribution of dividends to shareholders. 10 The Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies (OJ 1978 L 222, p. 11, the Fourth Directive) applies to companies limited by shares. It harmonises national provisions relating to the drawing up of the annual accounts of undertakings, their content, structure and publication. 11 The Seventh Council Directive 83/349/EEC of 13 June 1983 based on Article 54(3)(g) of the Treaty on consolidated accounts (OJ 1983 L 193, p. 1, the Seventh Directive) pursues the same objective as the Fourth Directive with regard to the drawing up of consolidated accounts. 12 The Eleventh Council Directive 89/666/EEC of 21 December 1989 concerning disclosure requirements in respect of branches opened in a Member State by certain types of company

110 Arrêt de la Cour 6 von 26 05/10/ :35 p.m. governed by the law of another State (OJ 1989 L 395, p. 36, the Eleventh Directive) concerns the branches of partnerships and companies with share capital. 13 According to the third recital in the preamble to the Eleventh Directive, that act was adopted in consideration of the fact that the opening of a branch, like the creation of a subsidiary, is one of the possibilities currently open to companies in the exercise of their right of establishment in another Member State. 14 The fourth recital in the preamble to that directive recognises that in respect of branches the lack of coordination, in particular concerning disclosure, gives rise to some disparities, in the protection of shareholders and third parties, between companies which operate in other Member States by opening branches and those which operate there by creating subsidiaries. 15 According to the fifth recital in the preamble to that directive in this field the differences in the laws of the Member States may interfere with the exercise of the right of establishment... [and] it is therefore necessary to eliminate such differences in order to safeguard, inter alia, the exercise of that right. 16 The 12th recital in the preamble states that the Eleventh Directive in no way affects the disclosure requirements for branches under other provisions of, for example, employment law on the workers' right to information and tax law, or for statistical purposes. 17 Article 2(1) of the Eleventh Directive provides a list of the information which must be disclosed in the Member State in which the branch is established, namely: (a) (b) the address of the branch; the activities of the branch; (c) the register in which the company file mentioned in Article 3 of Council Directive 68/151/EEC is kept, together with the registration number in that register; (d) the name and legal form of the company and the name of the branch if that is different from the name of the company; (e) the appointment, termination of office and particulars of the persons who are authorised to represent the company in dealings with third parties and in legal proceedings; as a company organ constituted pursuant to law or as members of any such organ, in accordance with the disclosure by the company as provided for in Article 2(1)(d) of Directive 68/151/EEC, as a company organ constituted pursuant to law or as members of any such organ, in accordance with the disclosure by the company as provided for in Article 2(1)(d) of Directive 68/151/EEC,

111 Arrêt de la Cour 7 von 26 05/10/ :35 p.m. as permanent representatives of the company for the activities of the branch, with an indication of the extent of their powers; as permanent representatives of the company for the activities of the branch, with an indication of the extent of their powers; (f) the winding-up of the company, the appointment of liquidators, particulars concerning them and their powers and the termination of the liquidation in accordance with disclosure by the company as provided for in Article 2(1)(h), (j) and (k) of Directive 68/151/EEC, insolvency proceedings, arrangements, compositions, or any analogous proceedings to which the company is subject; insolvency proceedings, arrangements, compositions, or any analogous proceedings to which the company is subject; (g) (h) the accounting documents in accordance with Article 3; the closure of the branch. 18 Furthermore, Article 2(2) of the Eleventh Directive permits the Member State in which the branch has been opened to provide for additional disclosure requirements concerning the following: (a) the signature of the persons referred to in paragraph 1(e) and (f) of this Article; (b) the instruments of constitution and the memorandum and articles of association if they are contained in a separate instrument in accordance with Article 2(1)(a), (b) and (c) of Directive 68/151/EEC, together with amendments to those documents; (c) an attestation from the register referred to in paragraph 1(c) of this Article relating to the existence of the company; (d) an indication of the securities on the company's property situated in that Member State, provided such disclosure relates to the validity of those securities. 19 Article 4 of the Eleventh Directive provides that the Member State in which the branch has been opened may stipulate that another official language of the Community must be used and that the translation of the documents published must be certified, in particular in respect of the publication referred to in Article 2(2)(b) of that directive. 20 Article 6 of the Eleventh Directive provides that the Member States are to prescribe that letters and order forms used by a branch are to state, in addition to the information prescribed by Article 4 of the First Directive, the register in which the file in respect of the branch is kept together with the number of the branch in that register.

112 Arrêt de la Cour 8 von 26 05/10/ :35 p.m. 21 Finally, Article 12 of the Eleventh Directive requires the Member States to provide for appropriate penalties for failure to comply with the disclosure requirements laid down by that directive in respect of branches in the host State. The relevant provisions of national law 22 Article 1 of the WFBV defines a formally foreign company as a capital company formed under laws other than those of the Netherlands and having legal personality, which carries on its activities entirely or almost entirely in the Netherlands and also does not have any real connection with the State within which the law under which the company was formed applies Articles 2 to 5 of the WFBV impose on formally foreign companies various obligations concerning the company's registration in the commercial register, an indication of that status in all the documents produced by it, the minimum share capital and the drawing-up, production and publication of the annual documents. The WFBV also provides for penalties in case of non-compliance with those provisions. 24 In particular, Article 2 of the WFBV requires a company falling within the definition of a formally foreign company to be registered as such in the commercial register of the host State. An authentic copy in Dutch, French, German or English, or a copy certified by a director, of the instrument constituting the company must also be filed in the commercial register of the host State, and a copy of the memorandum and articles of association if they are contained in a separate instrument. The date of the first registration of that company, the national register in which and the number under which it is registered must also appear in the commercial register and, in the case of companies with a single member, certain information concerning that sole shareholder. 25 Article 4(4) provides for directors to be jointly and severally liable with the company for legal acts carried out in the name of the company during their directorship until the requirement of registration in the commercial register has been fulfilled. 26 Pursuant to Article 3 of the WFBV, all documents and notices in which a formally foreign company appears or which it produces, except telegrams and advertisements, must state the company's full name, legal form, registered office and chief place of business, and the registration number, the date of first registration and the register in which it is required to be registered under the legislation applicable to it. That article also requires it to be indicated that the company is formally foreign and prohibits the making of statements in documents or publications which give the false impression that the undertaking belongs to a Netherlands legal person. 27 Pursuant to Article 4(1) of the WFBV, the subscribed capital of a formally foreign company must be at least equal to the minimum amount required of Netherlands limited companies by Article 2:178 of the Burgerlijke Wetboek (Netherlands Civil Code, the BW), which was EUR on 1 September 2000 ( Staatsblad 2000, N 322). The paid-up share capital must be at least equal to the minimum capital (Article 4(2) of the WFBV, referring back to Article 2:178 of the BW). In order to ensure that formally foreign companies fulfil those conditions, an auditor's certificate must be filed in the commercial register (Article 4(3) of the

113 Arrêt de la Cour 9 von 26 05/10/ :35 p.m. WFBV). 28 Until the conditions relating to capital and paid-up share capital have been satisfied, the directors are jointly and severally liable with the company for all legal acts carried out during their directorship which are binding on the company. The directors of a formally foreign company are likewise jointly and severally responsible for the company's acts if the capital subscribed and paid up falls below the minimum required, having originally satisfied the minimum capital requirement. The directors' joint and several liability lasts only so long as the company's status is that of a formally foreign company (Article 4(4) of the WFBV). 29 Nevertheless, Article 4(5) of the WFBV states that the minimum capital provisions do not apply to a company governed by the law of a Member State or of a Member State of the European Economic Area ( the E.E.A.) to which the Second Directive is applicable. 30 Article 5(1) and (2) of the WFBV requires the directors of formally foreign companies to keep accounts and hold them for seven years. Directors must produce annual accounts and an annual report. Those documents must be published by being lodged in the commercial register and must satisfy the conditions laid down in Title 9 of Book 2 of the BW, which makes it possible to be sure that they are consistent with the annual documents produced by Netherlands companies. 31 Directors are additionally bound to lodge in the commercial register before 1 April each year proof of registration in the register determined by the law applicable to the company (Article 5(4) of the WFBV). For the application of the WFBV persons responsible for the day-to-day management of the company are treated in the same way as directors, in accordance with Article 7 of that law. 32 Articles 2:249 and 2:260 of the BW are applicable by analogy to formally foreign companies. Those articles provide for the joint and several liability of directors and auditors for damage caused to others by the publication of misleading annual documents or interim figures. 33 Article 5(3) of the WFBV provides, however, that the obligations under Article 5(1) and (2) of the WFBV relating to accounts and annual documents are not to apply to companies governed by the law of a Member State or by the law of a Member State of the E.E.A. and falling within the ambit of the Fourth and/or the Seventh Directive. II The dispute in the main proceedings and the questions referred for a preliminary ruling 34 Inspire Art was formed on 28 July 2000 in the legal form of a private company limited by shares under the law of England and Wales and it has its registered office at Folkestone (United Kingdom). Its sole director, whose domicile is in The Hague (Netherlands), is authorised to act alone and independently in the name of the company. The company, which carries on activity under the business name Inspire Art Ltd in the sphere of dealing in objets d'art, began trading on 17 August 2000 and has a branch in Amsterdam. 35 Inspire Art is registered in the commercial register of the Chamber of Commerce without any indication of the fact that it is a formally foreign company within the meaning of Article 1 of

114 Arrêt de la Cour 10 von 26 05/10/ :35 p.m. the WFBV. 36 Taking the view that that indication was mandatory on the ground that Inspire Art traded exclusively in the Netherlands, the Chamber of Commerce applied to the Kantongerecht te Amsterdam on 30 October 2000 for an order that there should be added to that company's registration in the commercial register the statement that it is a formally foreign company, in accordance with Article 1 of the WFBV, which would entail other obligations laid down by law, set out in paragraphs 22 to 33 above. 37 Inspire Art denies that its registration is incomplete, primarily because the company does not meet the conditions set out in Article 1 of the WFBV. As a secondary point, if the Kantongerecht were to decide that it met those conditions, it maintained that the WFBV was contrary to Community law, and to Articles 43 EC and 48 EC in particular. 38 In its order of 5 February 2001 the Kantongerecht held that Inspire Art was a formally foreign company within the meaning of Article 1 of the WFBV. 39 As regards the compatibility of the WFBV with Community law, it decided to stay proceedings and refer the following questions to the Court of Justice for a preliminary ruling: 1. Are Articles 43 EC and 48 EC to be interpreted as precluding the Netherlands, pursuant to the Wet op de formeel buitenlandse vennootschappen of 17 December 1997, from attaching additional conditions, such as those laid down in Articles 2 to 5 of that law, to the establishment in the Netherlands of a branch of a company which has been set up in the United Kingdom with the sole aim of securing the advantages which that offers compared to incorporation under Netherlands law, given that Netherlands law imposes stricter rules than those applying in the United Kingdom with regard to the setting-up of companies and payment for shares, and given that the Netherlands law infers that aim from the fact that the company carries on its activities entirely or almost entirely in the Netherlands and, furthermore, does not have any real connection with the State in which the law under which it was formed applies? 2. If, on a proper construction of those articles, it is held that the provisions of the Wet op de formeel buitenlandse vennootschappen are incompatible with them, must Article 46 EC be interpreted as meaning that the said Articles 43 EC and 48 EC do not affect the applicability of the Netherlands rules laid down in that law, on the ground that the provisions in question are justified for the reasons stated by the Netherlands legislature? III Preliminary observations 40 The Chamber of Commerce, the Netherlands Government and the Commission of the European Communities are of the view that the questions were too broadly framed by the national court. Since the dispute in the main proceedings concerned only the registration of a company in the commercial register, the Court must confine its analysis exclusively to the provisions of national law relating to that point. 41 Consequently they suggest that the Court should exclude from consideration Articles 3 and 6 of the WFBV entirely, and also various parts of Articles 2, 4 and 5 of that law (more specifically the end of Article 2(1), Article 2(2), Article 4(1), (2), (4) and (5), and Article 5(1) and

115 Arrêt de la Cour 11 von 26 05/10/ :35 p.m. (2) of that law). 42 In this connection, settled case-law makes it clear that the procedure provided for by Article 234 EC is an instrument for cooperation between the Court of Justice and the national courts (see, inter alia, Case C-343/90 Lourenço Dias [1992] ECR I-4673, paragraph 14). 43 In the context of that cooperation, the national court before which the dispute has been brought, which alone has direct knowledge of the facts of the case in the main proceedings and must assume responsibility for the subsequent judicial decision, is in the best position to determine, in the light of the particular circumstances of the case, both the need for a preliminary ruling in order to enable it to deliver judgment and the relevance of the questions which it submits to the Court ( Lourenço Dias, cited above, paragraph 15, and Case C-390/99 Canal Satélite Digital [2002] ECR I-607, paragraph 18). 44 Consequently, where the question submitted by the national court concerns the interpretation of Community law, the Court of Justice is, in principle, bound to give a ruling ( Lourenço Dias, paragraph 16; Case C-415/93 Bosman [1995] ECR I-4921, paragraph 59; Case C-379/98 PreussenElektra [2001] ECR I-2099, paragraph 38, and Canal Satélite Digital, cited above, paragraph 18). 45 It is nevertheless equally settled case-law that the Court considers that it may, if need be, examine the circumstances in which the case was referred to it by the national court, in order to assess whether it has jurisdiction (Case 244/80 Foglia [1981] ECR 3045, paragraph 21, and Canal Satélite Digital, paragraph 19). The spirit of cooperation which must prevail in preliminary ruling proceedings requires the national court for its part to have regard to the function entrusted to the Court of Justice, which is to contribute to the administration of justice in the Member States and not to give opinions on general or hypothetical questions (see, inter alia, Foglia, cited above, paragraphs 18 and 20; Lourenço Dias, paragraph 17; Bosman, cited above, paragraph 60, and Case C-451/99 Cura Anlagen [2002] ECR I-3193, paragraph 26). 46 Moreover, in order to enable the Court to give a useful interpretation of Community law, it is essential for the national court to explain why it considers that an answer to its questions is necessary for resolving the dispute (see, inter alia, Foglia, paragraph 17). 47 With that information in its possession, the Court will then be in a position to ascertain whether the interpretation of Community law which is sought is related to the actual nature and subject-matter of the main proceedings. If it should appear that the question raised is manifestly irrelevant for the purposes of deciding the case, the Court must declare that there is no need to proceed to judgment ( Lourenço Dias, paragraph 20). 48 Having regard to the foregoing, the Court must consider whether the questions referred by the national court in this case are relevant to resolution of the dispute. 49 Although the issue at the heart of the dispute in the main proceedings is whether or not Inspire Art must be registered as a formally foreign company in the business register, the fact remains that that registration automatically and inextricably entails a number of legal consequences provided for by Articles 2 to 5 of the WFBV.

116 Arrêt de la Cour 12 von 26 05/10/ :35 p.m. 50 The national court has thus considered that the question of compatibility with Articles 43 EC, 46 EC and 48 EC arose more particularly in respect of certain of the obligations provided for by Articles 2 to 5 of the WFBV, namely, those relating to registration as a formally foreign company, the indication of that status in all documents produced by the company, the minimum capital required and the personal liability of the directors as joint and several debtors when the company's share capital has never reached or has fallen below the minimum amount of capital required by law. 51 In order to provide the national court with a helpful answer, within the meaning of the case-law referred to above, it is in consequence necessary to examine all those provisions, having regard to freedom of establishment as guaranteed by the EC Treaty, and also to the company-law directives. Consideration of the questions referred 52 By those questions, which may appropriately be considered together, the national court seeks in substance to ascertain: whether Articles 43 EC and 48 EC must be interpreted as precluding legislation of a Member State, such as the WFBV, which attaches additional conditions, such as those laid down in Articles 2 to 5 of that law, to the establishment in that Member State of a company formed under the law of another Member State with the sole aim of securing certain advantages compared with companies formed under the law of the Member State of establishment which imposes stricter rules than those imposed by the law of the Member State of formation with regard to the setting-up of companies and paying-up of shares; whether Articles 43 EC and 48 EC must be interpreted as precluding legislation of a Member State, such as the WFBV, which attaches additional conditions, such as those laid down in Articles 2 to 5 of that law, to the establishment in that Member State of a company formed under the law of another Member State with the sole aim of securing certain advantages compared with companies formed under the law of the Member State of establishment which imposes stricter rules than those imposed by the law of the Member State of formation with regard to the setting-up of companies and paying-up of shares; whether the fact that the law of the Member State of establishment infers that aim from the circumstance of that company's carrying on its activities entirely or almost entirely in that latter Member State and of its having no genuine connection with the State in accordance with the law of which it was formed makes any difference to the Court's analysis of that question; whether the fact that the law of the Member State of establishment infers that aim from the circumstance of that company's carrying on its activities entirely or almost entirely in that latter Member State and of its having no genuine connection with the State in accordance with the law of which it was formed makes any difference to the Court's analysis of that question; and whether, if an affirmative answer is given to one or other of those questions, a national law such as the WFBV may be justified under Article 46 EC or by overriding reasons relating to the public interest. and whether, if an affirmative answer is given to one or other of those questions, a national law such as the WFBV may be justified under Article 46 EC or by overriding reasons relating to the

117 Arrêt de la Cour 13 von 26 05/10/ :35 p.m. public interest. 53 In the first place, Article 5(1) and (2) of the WFBV, mentioned in the questions referred for a preliminary ruling, concerns the keeping and filing of the annual accounts of formally foreign companies. Article 5(3) of the WFBV provides, however, that the obligations laid down in those subparagraphs are not to apply to companies governed by the law of another Member State and to which the Fourth Directive, inter alia, applies. Inspire Art is covered by that exception, since it is governed by the law of England and Wales and since it falls within the scope ratione personæ of the Fourth Directive. 54 There is therefore no longer any need for the Court to consider whether a provision such as Article 5 of the WFBV is compatible with Community law. 55 Secondly, several of the provisions of the WFBV fall within the scope of the Eleventh Directive, since that concerns disclosure requirements in respect of branches opened in a Member State by companies covered by the First Directive and governed by the law of another Member State. 56 In that connection, first, as the Commission observes, some of the obligations imposed by the WFBV concern the implementation in domestic law of the disclosure requirements laid down by the Eleventh Directive. 57 Those are, more specifically, the provisions requiring: an entry in the business register of the host Member State showing registration in a foreign business register, and the number under which the company is registered in that register (Article 2(1) of the WFBV and Article 2(1)(c) of the Eleventh Directive), filing in the Netherlands business register of a certified copy of the document creating the company and of its memorandum and articles of association in Dutch, French, English or German (Article 2(1) of the WFBV and Articles 2(2)(b) and 4 of the Eleventh Directive), and the filing every year in that business register of a certificate of registration in the foreign business register (Article 5(4) of the WFBV and Article 2(2)(c) of the Eleventh Directive). 58 Those provisions, the compatibility of which with the Eleventh Directive has not been called into question, cannot be regarded as constituting any impediment to freedom of establishment. 59 Nevertheless, even if the various disclosure measures referred to at paragraph 57 above are compatible with Community law, that does not automatically mean that the sanctions attached by the WFBV to non-compliance with those disclosure measures must also be compatible with Community law. 60 Article 4(4) of the WFBV provides for directors to be jointly and severally liable with the company for legal acts adopted in the name of the company during their directorship for so long as the requirements concerning disclosure in the business register have not been met. 61 It is true that Article 12 of the Eleventh Directive requires the Member States to provide for appropriate penalties where branches of companies fail to make the required disclosures in

118 Arrêt de la Cour 14 von 26 05/10/ :35 p.m. the host Member State. 62 The Court has consistently held that where a Community regulation does not specifically provide any penalty for an infringement or refers for that purpose to national laws, regulations and administrative provisions, Article 10 EC requires the Member States to take all measures necessary to guarantee the application and effectiveness of Community law. For that purpose, while the choice of penalties remains within their discretion, they must ensure in particular that infringements of Community law are penalised in conditions, both procedural and substantive, which are analogous to those applicable to infringements of national law of a similar nature and importance and which, in any event, make the penalty effective, proportionate and dissuasive (Case 68/88 Commission v Greece [1989] ECR 2965, paragraphs 23 and 24; Case C-326/88 Hansen [1990] ECR I-2911, paragraph 17; Case C-36/94 Siesse [1995] ECR I-3573, paragraph 20, and Case C-177/95 Ebony Maritime and Loten Navigation [1997] ECR I-1111, paragraph 35). 63 It is for the national court, which alone has jurisdiction to interpret domestic law, to establish whether the penalty provided for by Article 4(4) of the WFBV satisfies those conditions and, in particular, whether it does not put formally foreign companies at a disadvantage in comparison with Netherlands companies where there is an infringement of the disclosure requirements referred to in paragraph 56 above. 64 If the national court reaches the conclusion that Article 4(4) of the WFBV treats formally foreign companies differently from national companies, it must be concluded that that provision is contrary to Community law. 65 On the other hand, the list set out in Article 2 of the Eleventh Directive does not include the other disclosure obligations provided for by the WFBV, namely, recording in the commercial register the fact that the company is formally foreign (Articles 1 and 2(1) of the WFBV), recording in the business register of the host Member State the date of first registration in the foreign business register and information relating to sole members (Article 2(1) of the WFBV), and the compulsory filing of an auditor's certificate to the effect that the company satisfies the conditions as to minimum capital, subscribed capital and paid-up share capital (Article 4(3) of the WFBV). Similarly, mention of the company's status of a formally foreign company on all documents it produces (Article 3 of the WFBV) is not included in Article 6 of the Eleventh Directive. 66 It is therefore necessary to consider, with regard to those obligations, whether the harmonisation brought about by the Eleventh Directive, and more particularly Articles 2 and 6 thereof, is exhaustive. 67 The Eleventh Directive was adopted on the basis of Article 54(3)(g) of the EC Treaty (now, after amendment, Article 44(2)(g) EC) which provides that the Council and Commission are to carry out the duties devolving on them under that article by coordinating to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies or firms within the meaning of the second paragraph of Article 58 with a view to making such safeguards equivalent throughout the Community. 68

119 Arrêt de la Cour 15 von 26 05/10/ :35 p.m. Furthermore, it follows from the fourth and fifth recitals in the preamble to the Directive that the differences in respect of branches between the laws of the Member States, especially as regards disclosure, may interfere with the exercise of the right of establishment and must therefore be eliminated. 69 It follows that, without affecting the information obligations imposed on branches under social or tax law, or in the field of statistics, harmonisation of the disclosure to be made by branches, as brought about by the Eleventh Directive, is exhaustive, for only in that case can it attain the objective it pursues. 70 It must likewise be pointed out that Article 2(1) of the Eleventh Directive is exhaustive in formulation. Moreover, Article 2(2) contains a list of optional measures imposing disclosure requirements on branches, a measure which can have no raison d'être unless the Member States are unable to provide for disclosure measures for branches other than those laid down in the text of that directive. 71 In consequence, the various disclosure measures provided for by the WFBV and referred to in paragraph 65 above are contrary to the Eleventh Directive. 72 It must therefore be concluded on this point that it is contrary to Article 2 of the Eleventh Directive for national legislation such as the WFBV to impose on the branch of a company formed in accordance with the laws of another Member State disclosure obligations not provided for by that directive. 73 Thirdly, several of the provisions of the WFBV do not fall within the scope of the Eleventh Directive. Those are the rules relating to the minimum capital required, both at the time of registration and for so long as a formally foreign company exists, and those relating to the penalty attaching to non-compliance with the obligations laid down by the WFBV, namely, the joint and several liability of the directors with the company (Article 4(1) and (2) of the WFBV). Those provisions must therefore be considered in the light of Articles 43 EC and 48 EC. The existence of an impediment to freedom of establishment Observations submitted to the Court 74 The Chamber of Commerce and the Netherlands, German, Italian and Austrian Governments are of the view that application of provisions such as those of the WFBV is not contrary to Articles 43 EC and 48 EC. 75 In the first place, the rules laid down by the WFBV concern neither the formation of companies under the law of another Member State nor their registration (and consequently their recognition). The validity of those companies is in fact recognised and they are not refused registration, with the result that freedom of establishment is not compromised. 76 They submit that the considerations of the Court in Case C-212/97 Centros [1999] ECR I-1459 are therefore irrelevant to the present case, because the latter is concerned solely with the rule governing registration of foreign companies without affecting the Member States' freedom to lay down conditions for the carrying on of certain trades, professions or businesses.

120 Arrêt de la Cour 16 von 26 05/10/ :35 p.m. 77 The Netherlands Government maintains that for companies formed under the law of another Member State and intending to carry on their activities in the Netherlands, the system of incorporation applied in the Netherlands is extremely liberal. In accordance with that principle, as formulated in Article 2 of the Wet conflictenrecht corporaties (the Law concerning the rules on conflict of laws applicable to legal persons) of 17 December 1997 ( the rulesof-conflict Law), a company which, by virtue of its contract or instrument of incorporation, has, at the time of its formation, its registered office or, failing that, the centre of its external operations in the State under the law of which it was formed, shall be governed by the law of that State. 78 The Netherlands Government submits that the existence of companies validly formed under the law of another Member State is recognised without further formality in the Netherlands. Those companies are subject to the law of the State of formation; it is as a rule important that those companies should carry on some activity in that State. 79 It has however become apparent that that very accommodating system has in practice led to increased use of foreign companies for ends which the Netherlands legislature had not covered or even foreseen. More and more frequently companies that carry on their activity principally or even exclusively on the Netherlands market are formed abroad with the aim of evading the overriding requirements of Netherlands company law. 80 In order to tackle that development, Article 6 of the rules-of-conflict Law has established a limited exception to that liberal regime, by providing that this law is without prejudice to the provisions of the [WFBV]. 81 Next, the Chamber of Commerce and the Netherlands, German, Italian and Austrian Governments observe that the provisions of the WFBV do not concern freedom of establishment but are confined to imposing on companies with share capital formed under a law other than that of the Netherlands a limited number of additional obligations relating to the exercise of their business activities and the running of the company, with a view to ensuring that others are clearly informed that companies such as Inspire Art are formally foreign companies and that they are in addition given the same guarantees by means of the filing of certain documents and certificates when concluding contracts with those companies as they have when concluding contracts with Netherlands companies. 82 In their opinion, those conditions are non-discriminatory since they correspond to the mandatory rules of Netherlands company law applicable to limited-liability companies formed in the Netherlands. Moreover, the purpose of those conditions, which must be satisfied by Netherlands companies as well as by formally foreign companies, is to safeguard non-economic interests recognised at Community level concerning the protection of consumers and creditors. 83 Maintaining that the WFBV is applicable under private international law, the Chamber of Commerce and the Netherlands, German and Austrian Governments refer to the judgment in Case 81/87 Daily Mail and General Trust [1988] ECR 5483 and the relevant case-law. In their submission, in that case the Court held that Articles 43 EC and 48 EC did not constitute a restriction on the powers of the Member States to determine the relevant factor connecting a company to their national legal order. They infer from that judgment that those articles do not

121 Arrêt de la Cour 17 von 26 05/10/ :35 p.m. preclude the adoption under private international law of rules applying to companies falling in part within the scope of Netherlands law. In that context, the WFBV does no more than attach significance to the place in which the company carries on its activities, in addition to the connecting factor of the place of incorporation and registration. 84 In addition, the German and Austrian Governments have asserted that as a matter of principle the purpose of Articles 43 EC and 48 EC, as regards freedom to set up branches, is to enable undertakings carrying on activities in one Member State to achieve growth in another Member State, which is not so in the case of brass-plate companies. 85 The German and Austrian Governments question whether, with regard to formally foreign companies, branches ought not actually to be regarded as principal establishments and whether there ought not to be applied to them the principles of freedom of primary establishment. Following the same reasoning, the Italian Government maintains that the fact that a company established in one Member State has never carried on any activity in that State means that it cannot be considered to be a branch when it carries on activity in another Member State. By placing the sole centre of its activities in a State other than that to which it formally belongs, such a company must be considered to be primarily established in that first State. 86 Finally, the Netherlands, German and Italian Governments observe that in its case-law the Court has recognised that a Member State is entitled to take measures designed to prevent certain of its nationals from attempting, under cover of the rights created by the Treaty, improperly to circumvent their national legislation or to prevent individuals from improperly or fraudulently taking advantage of provisions of Community law ( Centros, paragraph 24, and the case-law cited therein). Whether or not there is any improper use must be determined taking into account, in particular, the objectives pursued by the provisions of Community law in question (Case C-206/94 Paletta [1996] ECR I-2357, paragraph 25). 87 Those Governments argue that, according to the judgments in Case 79/85 Segers [1986] ECR 2375, paragraph 16, and Centros, paragraph 29, the fact that a company has been formed in one Member State but carries on all its activities through its branch established in another Member State does not constitute a sufficient reason for denying the persons concerned the right to freedom of establishment by pleading abuse, deceit and/or the unacceptable evasion of national laws. 88 Nevertheless, in this case those Governments submit that, without refusing to recognise a company formed under the law of another Member State or preventing the registration of a branch, the WFBV does no more than provide for a few limited preventive measures and penalties where a company evades the overriding rules of company law applicable in the Member State in which all the activities are carried on. 89 In consequence, where, as in the main proceedings, a company goes beyond merely exercising its right to freedom of establishment and where it was formed in another Member State for the purpose of circumventing the body of rules applying to the formation and running of companies in the Member State in which it carries on all its activities, those Governments maintain that the result of allowing that company to rely on freedom of establishment would be an unacceptable evasion of national law. Adoption of measures such as those set out in the WFBV is therefore justified as Community law now stands.

122 Arrêt de la Cour 18 von 26 05/10/ :35 p.m. 90 By contrast, in the view of Inspire Art, the United Kingdom Government and the Commission the provisions of the WFBV constitute interference with the freedom of establishment guaranteed by Articles 43 EC and 48 EC, in that they impose on formally foreign companies obligations which render the right of establishment markedly less attractive for those companies. That indeed is the stated purpose of those provisions. 91 Inspire Art, the United Kingdom Government and the Commission submit that the rules on freedom of establishment are applicable to a situation such as that concerned in the main proceedings. Referring to Segers and to Centros, they argue that a company may also rely on freedom of establishment where it was formed in one Member State for the sole purpose of being able to establish itself in another Member State where it carries on the essential part, or even all, of its activities. It is immaterial that the company was formed in the first Member State solely in order to avoid the statutory provisions of the second Member State. According to that case-law, there is no abuse, merely the exercise of the freedom of establishment guaranteed by the Treaty. 92 The United Kingdom Government and the Commission maintain that Article 1 of the WFBV takes account of the place where the company's activity is carried on in order to attach to it a number of provisions mandatory in the host Member State. Use of actual activity as a connecting factor, which does not correspond to any yardstick provided for in Article 48 EC, interferes with freedom of establishment inasmuch as it makes the exercise of that freedom less attractive to companies formed abroad which intend subsequently to carry on activity in the Netherlands, on the ground that other rules have been held to be applicable, in addition to those of the State of formation. 93 Inspire Art argues for a similar interpretation of the WFBV. It states that although under the national legislation companies are as a rule governed by the law of the State in which they were formed, the Netherlands legislature sought to counter the formation, which it regarded as improper, of companies under foreign laws with the aim of carrying on activity exclusively or principally in the Netherlands by declaring that the provisions of Netherlands company law were applicable to those companies. The legislature justified that regime by invoking the protection of creditors. It follows that the WFBV cannot be seen as an application of the real head office theory according to which a company is governed by the law of the Member State in which it has its actual head office. 94 Lastly, the United Kingdom Government notes that it is of fundamental importance to the operation of the common market that it should be possible to set up secondary establishments in other Member States. It submits that in the circumstances of the case Centros is fully applicable. The Court's answer 95 The Court has held that it is immaterial, having regard to the application of the rules on freedom of establishment, that the company was formed in one Member State only for the purpose of establishing itself in a second Member State, where its main, or indeed entire, business is to be conducted ( Segers, paragraph 16, and Centros, paragraph 17). The reasons for which a company chooses to be formed in a particular Member State are, save in the case of fraud, irrelevant with regard to application of the rules on freedom of establishment ( Centros, paragraph 18).

123 Arrêt de la Cour 19 von 26 05/10/ :35 p.m. 96 The Court has also held that the fact that the company was formed in a particular Member State for the sole purpose of enjoying the benefit of more favourable legislation does not constitute abuse even if that company conducts its activities entirely or mainly in that second State ( Segers, paragraph 16, and Centros, paragraph 18). 97 It follows that those companies are entitled to carry on their business in another Member State through a branch, and that the location of their registered office, central administration or principal place of business serves as the connecting factor with the legal system of a particular Member State in the same way as does nationality in the case of a natural person (Case 270/83 Commission v France [1986] ECR 273, paragraph 18; Segers, paragraph 13, and Centros, paragraph Thus, in the main proceedings, the fact that Inspire Art was formed in the United Kingdom for the purpose of circumventing Netherlands company law which lays down stricter rules with regard in particular to minimum capital and the paying-up of shares does not mean that that company's establishment of a branch in the Netherlands is not covered by freedom of establishment as provided for by Articles 43 EC and 48 EC. As the Court held in Centros (paragraph 18), the question of the application of those articles is different from the question whether or not a Member State may adopt measures in order to prevent attempts by certain of its nationals improperly to evade domestic legislation by having recourse to the possibilities offered by the Treaty. 99 The argument that freedom of establishment is not in any way infringed by the WFBV inasmuch as foreign companies are fully recognised in the Netherlands and are not refused registration in that Member State's business register, that law having the effect simply of laying down a number of additional obligations classified as administrative, cannot be accepted. 100 The effect of the WFBV is, in fact, that the Netherlands company-law rules on minimum capital and directors' liability are applied mandatorily to foreign companies such as Inspire Art when they carry on their activities exclusively, or almost exclusively, in the Netherlands. 101 Creation of a branch in the Netherlands by companies of that kind is therefore subject to certain rules provided for by that State in respect of the formation of a limited-liability company. The legislation at issue in the case in the main proceedings, which requires the branch of such a company formed in accordance with the legislation of a Member State to comply with the rules of the State of establishment on share capital and directors' liability, has the effect of impeding the exercise by those companies of the freedom of establishment conferred by the Treaty. 102 The last issue for consideration concerns the arguments based on the judgment in Daily Mail and General Trust, namely, that the Member States remain free to determine the law applicable to a company since the rules relating to freedom of establishment have not led to harmonisation of the provisions of the private international law of the Member States. In this respect it is argued that the Member States retain the right to take action against brass-plate companies, that classification being in the circumstances of the case inferred from the lack of any real connection with the State of formation. 103

124 Arrêt de la Cour 20 von 26 05/10/ :35 p.m. It must be stressed that, unlike the case at issue in the main proceedings, Daily Mail and General Trust concerned relations between a company and the Member State under the laws of which it had been incorporated in a situation where the company wished to transfer its actual centre of administration to another Member State whilst retaining its legal personality in the State of incorporation. In the main proceedings the national court has asked the Court of Justice whether the legislation of the State where a company actually carries on its activities applies to that company when it was formed under the law of another Member State (Case C-208/00 Überseering [2002] ECR I-9919, paragraph 62). 104 It follows from the foregoing that the provisions of the WFBV relating to minimum capital (both at the time of formation and during the life of the company) and to directors' liability constitute restrictions on freedom of establishment as guaranteed by Articles 43 EC and 48 EC. 105 It must therefore be concluded that Articles 43 EC and 48 EC preclude national legislation such as the WFBV which imposes on the exercise of freedom of secondary establishment in that State by a company formed in accordance with the law of another Member State certain conditions provided for in domestic law in respect of company formation relating to minimum capital and directors' liability. The reasons for which the company was formed in that other Member State, and the fact that it carries on its activities exclusively or almost exclusively in the Member State of establishment, do not deprive it of the right to invoke the freedom of establishment guaranteed by the Treaty, save where abuse is established on a case-by-case basis. Whether there is any justification 106 As a preliminary point, there can be no justification for the disclosure provisions of the WFBV, which have been found to be contrary to the Eleventh Directive (see paragraphs 71 and 72 above). As a result, only the arguments concerning the provisions of the WFBV relating to minimum capital and directors' liability will be considered below. 107 Given that those rules constitute an impediment to freedom of establishment, it must be considered whether they can be justified on one of the grounds set out in Article 46 EC or, failing that, by an overriding reason relating to the public interest. Observations submitted to the Court 108 According to the Chamber of Commerce and the Netherlands, German and Austrian Governments, the provisions of the WFBV are justified both by Article 46 EC and by overriding reasons relating to the public interest. 109 They maintain that the purpose of the WFBV is to counter fraud, protect creditors and ensure that tax inspections are effective and that business dealings are fair. Those aims have been recognised in the Court's decisions to be legitimate sources of justification. 110 According to the Chamber of Commerce and the Netherlands, German and Austrian Governments, the rule in Article 4 of the WFBV concerning minimum capital, its paying-up and its maintenance serves to protect creditors and others. Thus, the importance of minimum capital is expressly recognised in Article 6 of the Second Directive. The purpose of the rules on minimum capital is above all to strengthen the financial capacity of companies and thus to

125 Arrêt de la Cour 21 von 26 05/10/ :35 p.m. provide greater protection of private and public creditors. In a general way they help to protect all creditors against the risk of fraudulent insolvency connected to the formation of companies which have insufficient capital from the outset. 111 The Netherlands Government submits that directors' liability constitutes an appropriate sanction for non-compliance with the provisions of the WFBV. In the absence of Community harmonisation measures, the Member States enjoy a wide margin of discretion in determining the penalties to be applied in the case of non-compliance with their national rules (Case C-265/95 Commission v France [1997] ECR I-6959, paragraph 33). The choice of that penalty is on the one hand motivated by the wish to apply the same rule as that laid down for directors of a Netherlands company. Nor is it unknown to Community law, as may be seen from Article 51 of Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) (OJ 2001 L 294, p. 1). 112 On the other hand, the Netherlands Government maintains that, since directors are responsible for the proper conduct of company matters, it is to be expected that they should incur liability if the company does not comply with the provisions of the WFBV. 113 Finally, Article 4(1) of the Second Directive permits the Member States to adopt suitable liability rules in respect of obligations entered into by the company or in its name, where the company cannot be wound up. 114 The Chamber of Commerce adds that the provisions of the WFBV are not discriminatory. In its view, they lead instead to the application to foreign companies of the rules applicable to companies governed by Netherlands law. 115 The Netherlands Government submits that the provisions of the WFBV concerning minimum capital and directors' liability are appropriate for the purpose of attaining the sought-after objective. In this regard it emphasises the point that that assessment cannot be made without taking into account the fundamental and central objective of the WFBV, namely, to combat improper use of foreign companies and abuse of freedom of establishment. 116 In addition, the Austrian Government observes that the rules on minimum capital are an appropriate and proportionate means, as is recognised by Community law. As regards joint-stock companies, the Second Directive itself established the importance of minimum capital. There is however no such rule for limited-liability companies. Nevertheless, all the Member States, except Ireland and the United Kingdom of Great Britain and Northern Ireland, have rules on the minimum capital to be guaranteed by those companies. Unlike members' personal liability, which would frequently be of no use in the event of compulsory liquidation, company capital offers greater security. 117 The Chamber of Commerce submits that those measures do not go beyond what is necessary if the objective pursued is to be attained. Non-compliance with the obligations imposed by the WFBV does not result in refusal to recognise the foreign company but only in the joint and several liability of its directors. In that regard the Chamber of Commerce maintains that the fact that a company does not satisfy, or no longer satisfies, the rules on minimum capital is clear evidence that there is a risk of abuse or fraud, where moreover that company has no real connection to its State of formation.

126 Arrêt de la Cour 22 von 26 05/10/ :35 p.m. 118 Inspire Art, the United Kingdom Government and the Commission put forward the opposite argument and are of the view that the provisions of the WFBV are not justified. 119 In the first place, there is no justification for the WFBV to be found in Article 46 EC. 120 As regards abuse of the law, it follows from Centros that the mere fact that a company does not carry on any activity in the State of formation cannot constitute such abuse. It is instead for the national authorities and courts to establish in every case whether the conditions on which such a restriction might be justified have been satisfied. Legislation as general as the WFBV does not meet that condition. 121 In their submission, Centros recognised that it was possible for a Member State to restrict freedom of establishment where it pleaded non-compliance with provisions concerning the carrying on of certain trades, professions or businesses. That is not so in the circumstances of this case. So far as Inspire Art is concerned, the issue is not regulation of the conduct of its activities in the Netherlands but whether or not the rules of Netherlands company law, such as those on minimum capital, must be observed on setting up a secondary establishment in the Netherlands. The Court held in that judgment that taking advantage of the more favourable rules of another Member State cannot, in itself, constitute an abuse of the right of establishment but is a right inherent in the exercise of freedom of establishment. 122 Inspire Art, the United Kingdom Government and the Commission also note that the Court held in Centros that the protection of creditors does not in theory fall within the ambit of the system of derogations under Article 46 EC. 123 Nor, in their submission, can the provisions of the WFBV concerning minimum capital and directors' liability be justified by the imperative public-interest requirement of protection of creditors, because those provisions are not such as to guarantee that protection. 124 In that context, Inspire Art and the Commission observe that the company holds itself out as a company governed by the law of England and Wales and that creditors cannot therefore be deceived on that subject. 125 Furthermore, creditors must take some measure of responsibility for their own actions. If the assurances given them by the law of England and Wales do not satisfy them, they can either insist on additional security or refuse to conclude contracts with a company governed by foreign law. 126 The United Kingdom Government and the Commission maintain that the WFBV would not have been applicable if Inspire Art had carried out even minor activity in another Member State. In that case the risk run by creditors would, however, have been as great as it would have been if the activities were carried out in the Netherlands exclusively, or indeed greater. 127 According to Inspire Art, the minimum capital requirements do not guarantee any protection for creditors. Thus, the minimum capital might, for example, be converted into a loan immediately once it had been contributed and the company registered, even if the company

127 Arrêt de la Cour 23 von 26 05/10/ :35 p.m. was governed by Netherlands law. It would not therefore satisfy the creditors. Consequently, the provisions of the WFBV concerning minimum capital are not such as to achieve the intended purpose of protecting creditors. 128 Inspire Art and the Commission maintain that the rules on the joint and several liability of directors are discriminatory. Article 4(4) of the WFBV makes them jointly and severally liable where, after the company has been registered in the business register, minimum capital falls below the limit set. By contrast, the directors of a limited liability company governed by Netherlands law are not subject to that strict liability. Moreover, as opposed to companies governed by Netherlands law, the circle of potentially liable persons is extended to those who actually conduct the company's activities. 129 Inspire Art, the United Kingdom Government and the Commission submit that the provisions of Article 4(1), (2) and (4) of the WFBV are disproportionate because Inspire Art holds itself out as a company governed by the law of England and Wales. 130 Furthermore, less radical measures could in their view be envisaged. For example, as the Court has acknowledged in Centros, it could be made possible in law for public creditors to obtain the necessary guarantees from those foreign establishments, in so far as they feel that they are insufficiently protected by the company law of the State of formation. The Court's answer 131 It must first of all be stated that none of the arguments put forward by the Netherlands Government with a view to justifying the legislation at issue in the main proceedings falls within the ambit of Article 46 EC. 132 The justifications put forward by the Netherlands Government, namely, the aims of protecting creditors, combating improper recourse to freedom of establishment, and protecting both effective tax inspections and fairness in business dealings, fall therefore to be evaluated by reference to overriding reasons related to the public interest. 133 It must be borne in mind that, according to the Court's case-law, national measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must, if they are to be justified, fulfil four conditions: they must be applied in a non-discriminatory manner; they must be justified by imperative requirements in the public interest; they must be suitable for securing the attainment of the objective which they pursue, and they must not go beyond what is necessary in order to attain it (see, in particular, Case C-19/92 Kraus [1993] ECR I-1663, paragraph 32; Case C-55/94 Gebhard [1995] ECR I-4165, paragraph 37, and Centros, paragraph 34). 134 In consequence, it is necessary to consider whether those conditions are fulfilled by provisions relating to minimum capital such as those at issue in the main proceedings. 135 First, with regard to protection of creditors, and there being no need for the Court to consider whether the rules on minimum share capital constitute in themselves an appropriate protection measure, it is clear that Inspire Art holds itself out as a company governed by the law of England and Wales and not as a Netherlands company. Its potential creditors are put on

128 Arrêt de la Cour 24 von 26 05/10/ :35 p.m. sufficient notice that it is covered by legislation other than that regulating the formation in the Netherlands of limited liability companies and, in particular, laying down rules in respect of minimum capital and directors' liability. They can also refer, as the Court pointed out in Centros, paragraph 36, to certain rules of Community law which protect them, such as the Fourth and Eleventh Directives. 136 Second, with regard to combating improper recourse to freedom of establishment, it must be borne in mind that a Member State is entitled to take measures designed to prevent certain of its nationals from attempting, under cover of the rights created by the Treaty, improperly to circumvent their national legislation or to prevent individuals from improperly or fraudulently taking advantage of provisions of Community law ( Centros, paragraph 24, and the decisions cited therein). 137 However, while in this case Inspire Art was formed under the company law of a Member State, in the case in point the United Kingdom, for the purpose in particular of evading the application of Netherlands company law, which was considered to be more severe, the fact remains that the provisions of the Treaty on freedom of establishment are intended specifically to enable companies formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community to pursue activities in other Member States through an agency, branch or subsidiary ( Centros, paragraph 26). 138 That being so, as the Court confirmed in paragraph 27 of Centros, the fact that a national of a Member State who wishes to set up a company can choose to do so in the Member State the company-law rules of which seem to him the least restrictive and then set up branches in other Member States is inherent in the exercise, in a single market, of the freedom of establishment guaranteed by the Treaty. 139 In addition, it is clear from settled case-law ( Segers, paragraph 16, and Centros, paragraph 29) that the fact that a company does not conduct any business in the Member State in which it has its registered office and pursues its activities only or principally in the Member State where its branch is established is not sufficient to prove the existence of abuse or fraudulent conduct which would entitle the latter Member State to deny that company the benefit of the provisions of Community law relating to the right of establishment. 140 Last, as regards possible justification of the WFBV on grounds of protection of fairness in business dealings and the efficiency of tax inspections, it is clear that neither the Chamber of Commerce nor the Netherlands Government has adduced any evidence to prove that the measure in question satisfies the criteria of efficacy, proportionality and non-discrimination mentioned in paragraph 132 above. 141 To the extent that the provisions concerning minium capital are incompatible with freedom of establishment, as guaranteed by the Treaty, the same must necessarily be true of the penalties attached to non-compliance with those obligations, that is to say, the personal joint and several liability of directors where the amount of capital does not reach the minimum provided for by the national legislation or where during the company's activities it falls below that amount. 142

129 Arrêt de la Cour 25 von 26 05/10/ :35 p.m. The answer to be given to the second question referred by the national court must therefore be that the impediment to the freedom of establishment guaranteed by the Treaty constituted by provisions of national law, such as those at issue, relating to minimum capital and the personal joint and several liability of directors cannot be justified under Article 46 EC, or on grounds of protecting creditors, or combating improper recourse to freedom of establishment or safeguarding fairness in business dealings or the efficiency of tax inspections. 143 In light of all the foregoing considerations, the answers to be given to the questions referred for a preliminary ruling must be: It is contrary to Article 2 of the Eleventh Directive for national legislation such as the WFBV to impose on the branch of a company formed in accordance with the laws of another Member State disclosure obligations not provided for by that directive. It is contrary to Article 2 of the Eleventh Directive for national legislation such as the WFBV to impose on the branch of a company formed in accordance with the laws of another Member State disclosure obligations not provided for by that directive. It is contrary to Articles 43 EC and 48 EC for national legislation such as the WFBV to impose on the exercise of freedom of secondary establishment in that State by a company formed in accordance with the law of another Member State certain conditions provided for in domestic company law in respect of company formation relating to minimum capital and directors' liability. The reasons for which the company was formed in that other Member State, and the fact that it carries on its activities exclusively or almost exclusively in the Member State of establishment, do not deprive it of the right to invoke the freedom of establishment guaranteed by the EC Treaty, save where the existence of an abuse is established on a case-by-case basis. It is contrary to Articles 43 EC and 48 EC for national legislation such as the WFBV to impose on the exercise of freedom of secondary establishment in that State by a company formed in accordance with the law of another Member State certain conditions provided for in domestic company law in respect of company formation relating to minimum capital and directors' liability. The reasons for which the company was formed in that other Member State, and the fact that it carries on its activities exclusively or almost exclusively in the Member State of establishment, do not deprive it of the right to invoke the freedom of establishment guaranteed by the EC Treaty, save where the existence of an abuse is established on a case-by-case basis. Costs 144 The costs incurred by the Netherlands, German, Italian, Austrian and United Kingdom Governments and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. On those grounds, THE COURT, in answer to the questions referred to it by the Kantongerecht te Amsterdam by order of 5 February 2001, hereby rules:

130 Arrêt de la Cour 26 von 26 05/10/ :35 p.m. 1. It is contrary to Article 2 of the Eleventh Council Directive 89/666/EEC of 21 December 1989 concerning disclosure requirements in respect of branches opened in a Member State by certain types of company governed by the law of another State for national legislation such as the Wet op de Formeel Buitenlandse Vennootschappen (Law on Formally Foreign Companies) of 17 December 1997 to impose on the branch of a company formed in accordance with the laws of another Member State disclosure obligations not provided for by that directive. 2. It is contrary to Articles 43 EC and 48 EC for national legislation such as the Wet op de Formeel Buitenlandse Vennootschappen to impose on the exercise of freedom of secondary establishment in that State by a company formed in accordance with the law of another Member State certain conditions provided for in domestic company law in respect of company formation relating to minimum capital and directors' liability. The reasons for which the company was formed in that other Member State, and the fact that it carries on its activities exclusively or almost exclusively in the Member State of establishment, do not deprive it of the right to invoke the freedom of establishment guaranteed by the EC Treaty, save where the existence of an abuse is established on a case-by-case basis. Rodríguez Iglesias Puissochet Wathelet Schintgen Timmermans Gulmann Edward La Pergola Jann Skouris Macken Colneric von Bahr Cunha Rodrigues Rosas Delivered in open court in Luxembourg on 30 September R. Grass G.C. Rodríguez Iglesias Registrar President 1 Language of the case: Dutch.

131 1 von 12 05/10/ :44 p.m. OPINION OF ADVOCATE GENERAL Poiares Maduro delivered on 22 May 2008 (1) Case C 210/06 Cartesio Oktató és Szolgáltató bt (Reference for a preliminary ruling from the Szegedi Ítélőtábla (Hungary)) 1. The reference for a preliminary ruling arises out of an appeal against a decision of the Bács Kiskun Megyei Bíróság (Regional Court, Bács Kiskun) (Hungary), sitting as a commercial court. It concerns a limited partnership that seeks to transfer its operational headquarters from Hungary to Italy, but wishes to remain registered in Hungary, so that its legal status may continue to be governed by Hungarian law. However, the commercial court, in the exercise of its task of maintaining the commercial register, refused to enter the new address in the local register on the ground that the transfer was not possible under Hungarian law. It held that a firm that wishes to transfer its operational headquarters to another Member State must first be wound up in Hungary and then reconstituted under the law of that Member State. In the framework of the appeal proceedings, the Szegedi Ítélőtábla (Court of Appeal, Szeged) has asked this Court for guidance in order to determine whether the relevant Hungarian legislation is compatible with the right to freedom of establishment. In addition, the referring court raises several questions regarding the application of Article 234 EC. I Facts and reference for a preliminary ruling 2. Cartesio is a betéti társaság (limited partnership) constituted in accordance with Hungarian law and registered in Baja (Hungary). It has two partners who are resident in Hungary and have Hungarian nationality: the limited partner, who is obliged to contribute a stipulated amount of capital and is liable only for that amount, and the general partner, who is liable for all debts of the limited partnership.(2) 3. On 11 November 2005, Cartesio submitted an application to the commercial court to amend its registration in the local commercial register so as to record the following address as its new operational headquarters: Gallarate (Italy), Via Roma No 16. The commercial court, however, rejected Cartesio s application. It held that Hungarian law did not offer companies the possibility of transferring their operational headquarters to another Member State while retaining their legal status as a company governed by Hungarian law. Therefore, in order to change its operational headquarters, Cartesio would first have to be dissolved in Hungary and then reconstituted under Italian law. 4. Cartesio brought an appeal against the decision of the commercial court before the Szegedi Ítélőtábla (Court of Appeal, Szeged). That court referred the following questions to the Court of Justice for a preliminary ruling:

132 2 von 12 05/10/ :44 p.m. (1) Is a court of second instance which has to give a decision on an appeal against a decision of a commercial court (cégbíróság) in proceedings to amend a registration, entitled to make a reference for a preliminary ruling under Article 234 [EC], where neither the action before the commercial court nor the appeal procedure is inter partes? (2) In so far as an appeal court is included in the concept of court or tribunal which is entitled to make a reference for a preliminary ruling under Article 234 [EC], must that court be regarded as a court against whose decisions there is no judicial remedy, which has an obligation, under Article 234 [EC], to submit questions on the interpretation of community law to the Court of Justice of the European Communities? (3) Does a national measure which, in accordance with domestic law, confers a right to bring an appeal against an order making a reference for a preliminary ruling, limit the power of the Hungarian courts to refer questions for a preliminary ruling or could it limit that power derived directly from Article 234 [EC] if, in appeal proceedings the national superior court may amend the order, render the request for a preliminary ruling inoperative and order the court which issued the order for reference to resume the national proceedings which had been suspended? (4(a)) If a company, constituted in Hungary under Hungarian company law and entered in the Hungarian commercial register, wishes to transfer its seat to another Member State of the European Union, is the regulation of this field within the scope of Community law or, in the absence of the harmonisation of laws, is national law exclusively applicable? (b) (c) May a Hungarian company request transfer of its seat to another Member State of the European Union relying directly on community law (Articles 43 [EC] and 48 [EC])? If the answer is affirmative, may the transfer of the seat be made subject to any kind of condition or authorisation by the Member State of origin or the host Member State? May Articles 43 [EC] and 48 [EC] be interpreted as meaning that national rules or national practices which differentiate between commercial companies with respect to the exercise of their rights, according to the Member State in which their seat is situated, is incompatible with Community law? May Articles 43 [EC] and 48 [EC] be interpreted as meaning that, in accordance with those articles, national rules or practices which prevent a Hungarian company from transferring its seat to another Member State of the European Union, are incompatible with Community law? II Assessment A The first question 5. By its first question, the referring court asks whether a reference for a preliminary ruling is admissible in proceedings on appeal against a decision from a lower court, where neither the proceedings before the lower court nor the appeal proceedings are inter partes. Thus, in a sense, the referring court begins by asking whether it may ask this Court a question. (3) The answer follows clearly from the case law. In the context of the present case, the commercial court merely fulfilled a registry function: it made an administrative decision without being required to resolve a legal dispute. (4) For the purposes of Article 234 EC, this must be classified as a non judicial function, in the framework of which the commercial court is not entitled to request a reference for a preliminary ruling. (5) By contrast, the appeal proceedings against the decision of the commercial court are, from the perspective of Article 234 EC, judicial proceedings, notwithstanding the fact that they are ex parte. (6) A court seized in the framework of such proceedings is consequently entitled to request a reference for a preliminary ruling from the Court of Justice. (7) The conclusion, therefore, is that the first question referred by the national court is admissible and, moreover, must be answered in the affirmative. B The second question

133 3 von 12 05/10/ :44 p.m. 6. Second, the referring court asks whether it must be regarded as a court or tribunal against whose decisions there is no judicial remedy under national law and which is under the obligation referred to in the third paragraph of Article 234 EC. It might be argued that that question is inadmissible, because the answer to it is not necessary to resolve the dispute in the main proceedings after all, the referring court has decided to submit its other questions for a preliminary ruling regardless. However, when a question is clearly of wider practical significance for the uniform interpretation and application of Community law and is not artificially related to the facts, (8) the rules of admissibility should not be applied in a manner that renders them virtually insurmountable. Thus, when the only realistic option for a national court is to submit such a question in the framework of proceedings where the answer might not be strictly necessary for the resolution of the case before it, the threshold of admissibility should, in my opinion, not be placed too high. (9) 7. As to the question currently at issue, it is difficult to see any alternative means by which it might realistically reach the Court, despite its obvious relevance for the functioning of the preliminary reference procedure and given that its relationship with the facts of the case cannot be described as being an artificial one. It would be excessively burdensome to require a national court, as a first step, to submit a reference for a preliminary ruling only to ask whether it is under the obligation referred to in Article 234 EC and then, as a second step if the answer turns out to be a positive one, to refer its actual questions for a preliminary ruling. (10) Therefore, I suggest that the Court provide assistance in this matter, as it did in a similar context in the case of Lyckeskog. (11) 8. According to the order for reference, in cases such as the one currently at issue, the party concerned may bring an appeal against the decision of the Ítélőtábla before the Legfelsőbb Bíróság (Supreme Court). The referring court notes, however, that an appeal to the Legfelsőbb Bíróság is limited to points of law. In that regard, the referring court mentions Article 270(2) of the Polgári perrendtartásról szóló évi III. törvény (Law III of 1952 on Civil Procedure), which provides: the parties, interveners and persons affected by the decision may, in respect of the part of that decision which refers to them, bring an appeal on a point of law only before the Legfelsőbb Bíróság against final judgments and orders which bring proceedings to an end, pleading infringement of the law. In addition, the referring court points out that appeal proceedings do not have automatic suspensory effect. The first sentence of Article 273(3) of the same law states: the institution of appeal proceedings shall not have suspensory effect but, where a party so requests, the Legfelsőbb Bíróság may exceptionally suspend enforcement of a judgment. 9. Yet, these limitations do not warrant the conclusion that the Ítélőtábla must be regarded as a court or tribunal against whose decisions there is no judicial remedy under national law. Presumably, any issue relating to the validity or interpretation of Community law constitutes a point of law and could therefore be subject to appeal. Moreover, national procedural rules according to which such an appeal has suspensory effect only in exceptional circumstances are in principle compatible with Community law, provided, first, that such rules are not applied in a manner that treats appeals on points of Community law less favourably than those based on points of domestic law (principle of equivalence) and, second, that they do not, in practice, render the exercise of rights conferred by Community law impossible or excessively difficult (principle of effectiveness). (12) 10. Thus, the fact that an appeal against a decision of a national court or tribunal is limited to points of law and lacks automatic suspensory effect does not imply that that court or tribunal is under the obligation referred to in the third paragraph of Article 234 EC. C The third question 11. The third question referred for a preliminary ruling relates to the possibility, existing under Hungarian civil procedural law, to bring a separate appeal against a decision to make a reference for a preliminary ruling. Article 155/A of Law III of 1952 on Civil Procedure provides: a separate appeal may be brought against a decision to make a reference for a preliminary ruling. A separate appeal cannot be brought against a decision dismissing a request for a reference for a preliminary ruling. (13) It would appear that, in this context, the general rules concerning the suspensory effect of an appeal apply. (14) The referring court explains in its order for reference that, if an appeal is brought against an order for reference for a preliminary ruling, the court which hears the appeal may amend the order for reference, or render the request for a preliminary ruling inoperative and order the

134 4 von 12 05/10/ :44 p.m. court which made the order for reference to resume the national proceedings which had been suspended. By its third question, the referring court asks whether such national procedural rules are compatible with the preliminary ruling procedure established under the Treaty. 12. Again, it may be argued that this question is inadmissible given the fact that, in the present case, no appeal seems to have been brought against the order for reference. (15) None the less, the possibility of an appeal is a point of national law which is for the national court to determine. Moreover, I believe that in the present case the Court should be particularly respectful of the wishes of the national court and benefit from the opportunity to provide guidance on the matter. The reasons for this are the same as the reasons for which I would consider the second question to be admissible. 13. First, this question is not strictly hypothetical. It is closely related to the facts of the case (the reality of which is undisputed) and the answer to be provided to the national court might certainly be relevant to its decision if there were to be an appeal a reality which the national court deemed to be relevant when drafting the order. In my view, there is a hypothetical question, justifying a judgement of inadmissibility, only when either the facts are themselves artificial or it is the relationship of the question with the facts that is artificial. It is only in such cases that the reasons which justify the inadmissibility of hypothetical questions (misconception of the facts, prejudging and the risk of abuse) are at play. (16) In the present case, however, the Court would not be providing a legal answer on the basis of a hypothetical factual context which could, by bypassing the actual context surrounding the interpretation and application of a legal rule, affect the quality and legitimacy of the judicial ruling. The only so called hypothetical aspect in this case is, in reality, better qualified as an element of contingency: the fact that the answer to be provided by the Court might end up not being determinant for the resolution of the dispute in the main proceedings if no appeal is, in fact, to be brought against the order to refer. However, such a contingent element is not absent from other legal questions that the Court routinely answers. The Court can never be absolutely certain that the answer it is providing will, in fact, be relevant to the outcome of the dispute in the main proceedings. The national court may, for example, end up deciding the case on the basis of a national procedural point of law without ever applying the Community law answer provided by the Court of Justice. That does not mean that the Court has answered a hypothetical question, so long as the question arose from genuine facts whose relationship with Community law was not artificial. One must distinguish between a question based on artificial facts or unrelated to the facts of the case (which, in my view, is hypothetical and inadmissible) and a question that is related to the facts of the case but might prove not to be determinant in its final outcome (which, in my view, is not hypothetical and ought to be admissible). 14. Second, in spite of its obvious relevance for the functioning of the preliminary reference procedure, it is difficult to see how the issue might otherwise reach the Court. Of course, it is theoretically conceivable that a party in national proceedings before a lower court might bring an appeal against an order for reference before a superior court and that, notwithstanding national procedural rules according to which the appeal has suspensory effect, the lower court might maintain its order for reference. In such circumstances, the issue of the effect of the appeal would certainly be of immediate relevance. However, this scenario would also require the lower court to disobey its domestic rules of procedure without knowing whether Community law gives it the power to do so. Clearly, that would put the lower court in a very uncomfortable situation. (17) This is probably what explains why such a question has never been expressly raised before the Court even if some previous cases and well known national laws and practices might indicate that it is indeed of considerable relevance in the day to day application of Community law by national courts. (18) My suggestion to the Court, therefore, would be to defer to the judgment of the national court on the relevance of such question for the national proceedings by answering the third question of the Szegedi Ítélőtábla, using this opportunity to address this issue of great practical importance for Community law. In this way, the Court may be able to forestall obstacles that may arise in the future as regards the cooperation between itself and those national courts whose orders for reference could become subject to appeal. 15. Article 234 EC provides that any court or tribunal of a Member State is entitled to make a reference to the Court whenever it considers that a preliminary ruling on a question of interpretation or validity relating to Community law is necessary to enable it to give judgment. (19) Hence, national courts derive the power to make a reference for a preliminary ruling from the Treaty itself. Moreover, they enjoy the widest discretion in referring matters to the Court of Justice. (20)

135 5 von 12 05/10/ :44 p.m. 16. Naturally, a decision of a lower court that contains a reference for a preliminary ruling is not, by virtue of Community law, exempt from remedies normally available under national law. (21) Nonetheless, where an appeal has been lodged against a decision containing an order for reference, the Court of Justice will in principle abide by the request for a preliminary ruling, so long as the referring court has not revoked its questions. (22) The Court of Justice may suspend the preliminary ruling proceedings pending the outcome of the national appellate proceedings if the appeal has suspensory effect and if the Court of Justice has been notified thereof by the referring court: the notification is regarded as an implicit request to suspend the preliminary ruling proceedings. (23) However, the Court of Justice will simply proceed with the preliminary ruling procedure, despite the effects that an appeal might have under national law, if the referring court has expressly requested the Court of Justice to do so. (24) 17. The crucial question is whether national procedural rules may oblige lower courts to suspend or even revoke a request for a preliminary ruling in circumstances where an appeal has been brought against an order for reference. That question has, in fact, been addressed by Advocate General Warner in his Opinion in Rheinmühlen (25) and I would almost be tempted merely to refer to that Opinion, in which he argued that no fetter can be placed by national law on the power of a lower court in any Member State to refer questions to this Court. I shall not even attempt to emulate the force and clarity with which he set out the arguments that brought him to this conclusion. Instead, I shall limit myself to expressing my agreement with his Opinion and making a few additional remarks. 18. There may be several reasons why a lower court might want to revoke its request for a preliminary ruling after an appeal has been lodged against the decision containing the order for reference. For instance, the parties may have found an alternative way to settle their dispute during the appellate proceedings. (26) It may also be the case that the judgment on appeal has rendered the questions referred for a preliminary ruling moot, because it has turned out, for instance, that the action brought before the lower court was inadmissible. Hence, appellate proceedings and their outcome may very well prompt a lower court to ask for a suspension of its request for a preliminary ruling or even to revoke that request. However, this should not lead us to conclude that there are circumstances in which a judgment of an appellate court may oblige a lower court to do so. 19. The possibility for a lower court in any Member State to interact directly with the Court of Justice is vital to the uniform interpretation and the effective application of Community law. It is also the instrument that makes of all national courts Community law courts. Through the request for a preliminary ruling, the national court becomes part of a Community law discourse without depending on other national powers or judicial instances. (27) The Treaty did not intend that such a dialogue should be filtered by any other national courts, no matter what the judicial hierarchy in a State may be. As stated by the Irish Supreme Court (in refusing to hear an appeal against an order for reference): the power is conferred on [the lower court] by the Treaty without any qualification, express or implied, to the effect that it is capable of being overruled by any other national court. (28) 20. Therefore, the issue of the necessity for a request for a preliminary ruling is a matter that falls to be decided between the referring court and the Court of Justice. Indeed, that is why, ultimately, the admissibility of a request for a preliminary ruling is determined by the Court of Justice and not by domestic courts which, within the national procedural framework, are superior to the referring court. If the opposite were true, it could happen that, by virtue of a national rule or practice, orders for reference by lower courts would systematically become subject to appeal, giving rise to a situation in which at least de facto national law allowed only courts of last instance to refer questions for a preliminary ruling. The risk of treating such question as a question of national procedural law and not Community law is highlighted by the present case in which the national law permits a separate appeal against a decision to make a reference for a preliminary ruling. It would be tantamount to allowing national procedural law to alter the conditions set out in Article 234 EC for a reference to the Court of Justice. 21. In short, Community law gives any court in any Member State the authority to refer questions for a preliminary ruling to the Court of Justice. That authority cannot be qualified by national law. I accordingly conclude that Article 234 EC precludes the application of national rules according to which national courts may be obliged to suspend or revoke a request for a preliminary ruling.

136 6 von 12 05/10/ :44 p.m. D The fourth question 22. The fourth question concerns the right of establishment. Pursuant to Hungarian company law, as set out in the order for reference, the seat of a company constituted under Hungarian law is the place where its operational headquarters ( központi ügyintézés helye ) are situated. (29) In other words, the place where a company has its operational headquarters is supposed to coincide with its place of incorporation. A transfer of the operational headquarters of a company constituted under Hungarian law will normally be entered into the commercial register if the transfer takes place within Hungary. (30) It follows from the facts as they are stated in the order for reference that Cartesio seeks to transfer its operational headquarters to Italy. However, instead of reconstituting itself as an Italian company, Cartesio wishes to remain incorporated in Hungary and thus subject to Hungarian company law. 23. Hungarian company law, so it would appear, is grounded in the real seat theory, according to which a company must comply with the full requirements of company law applicable in the State where it has its real seat. (31) Indeed, the real seat theory inextricably entwines a company s nationality and residence. (32) Taking this theory to its full extent, Hungarian company law as interpreted and applied by the commercial court prohibits the export of a Hungarian legal person to the territory of another Member State. While it may be possible for a company constituted under Hungarian company law to pursue economic activities in another Member State or establish a subsidiary there, the operational headquarters must remain in Hungary. By its fourth question, the referring court essentially asks whether Articles 43 EC and 48 EC preclude national rules which make it impossible for a company constituted under national law to transfer its operational headquarters to another Member State. 24. The Hungarian Government argues that the present case falls outside the scope of Articles 43 EC and 48 EC. Ireland and the governments of Poland, Slovenia and the United Kingdom take the same view. On the other hand, Cartesio, the Commission and the Netherlands Government submit that there has been a restriction on the right of establishment and that, accordingly, Articles 43 EC and 48 EC apply. 25. The view that the present case falls outside to scope of the Treaty rules on the right of establishment is, in my opinion, incorrect. National rules that allow a company to transfer its operational headquarters only within the national territory clearly treat cross border situations less favourably than purely national situations. (33) In effect, such rules amount to discrimination against the exercise of freedom of movement. (34) Cartesio seeks to transfer its operational headquarters to Italy. It appears, therefore, that what Cartesio proposes is the actual pursuit of an economic activity through a fixed establishment in another Member State for an indefinite period. (35) In those circumstances, the Treaty rules on the right of establishment clearly apply. (36) 26. It is true that, in its judgment in Daily Mail and General Trust, the Court held that a company could not rely on the right to freedom of establishment in order to transfer its central management and control to another Member State (the Netherlands) for the purpose of selling a significant part of its non permanent assets and using the proceeds of that sale to buy its own shares without having to pay the tax normally due on such transactions in the Member State of origin (the United Kingdom). (37) Under United Kingdom company law, companies were allowed subject to authorisation by the tax authorities to move their central management and control to another Member State without losing their legal personality or ceasing to be a company incorporated in the United Kingdom. (38) Yet, in the circumstances at issue, the tax authorities objected to the transfer and maintained that the company should sell at least part of the assets before transferring its residence for tax purposes out of the United Kingdom. (39) The Court rejected the company s view that the tax authorities had infringed the right of establishment. Mindful of the differences between the company laws of the Member States, the Court stated that companies exist only by virtue of national law and that the Treaty cannot be interpreted as conferring on companies incorporated under the law of a Member State a right to transfer their central management and control and their central administration to another Member State while retaining their status as companies incorporated under the legislation of the first Member State. (40) The suggestion, therefore, is that the terms of the life and death of a company are determined solely by the State under whose laws that company was created. (41) The State gave; and so we must acquiesce when the State hath taken away.

137 7 von 12 05/10/ :44 p.m. 27. However, the case law on the right of establishment of companies has developed since the ruling in Daily Mail and General Trust and the Court s approach has become more refined. (42) Admittedly, this development has been accompanied by a number of contradictory signals in the case law. In particular as a result of the judgments in Centros, (43)Überseering, (44) and Inspire Art, (45) the case law appeared to be moving in precisely the opposite direction to the one the Court had followed in Daily Mail and General Trust. That is to say, the Court consistently rejected the argument that rules of national company law should fall outside the scope of the Treaty provisions on the right of establishment. For instance, in Inspire Art, the Court stated: the fact that Inspire Art was formed in the United Kingdom for the purpose of circumventing Netherlands company law which lays down stricter rules with regard in particular to minimum capital and the paying up of shares does not mean that that company s establishment of a branch in the Netherlands is not covered by freedom of establishment as provided for by Articles 43 EC and 48 EC. (46) Such a statement is fundamentally at odds with the idea that the incorporation and functioning of companies is determined exclusively by the varying national legislation of the Member States. 28. Several efforts were made including by the Court itself to distinguish Daily Mail and General Trust on the facts from Centros, Überseering and Inspire Art, by focusing on aspects such as primary as opposed to secondary establishment, and inbound versus outbound establishment. Not surprisingly, however, these efforts were never entirely convincing. (47) In particular, the distinction between situations in which a Member States prevents or dissuades companies that are constituted under its own company law from seeking establishment abroad, and situations in which the host Member State restricts the freedom of establishment, never fitted the Court s general analytical framework for Articles 43 and 48 EC. (48) Besides, that distinction departed from the Court s reasoning in Daily Mail and General Trust itself. (49) As Advocate General Tizzano rightly observed in his Opinion in SEVIC Systems: It is evident from [the] case law that Article 43 EC does not merely prohibit a Member State from impeding or restricting the establishment of foreign operators in its territory, it also precludes it from hindering the establishment of national operators in another Member State. In other words, restrictions on entering or on leaving national territory are prohibited. (50) 29. The problem, in my opinion, is that the statements cited above from Daily Mail and General Trust and Inspire Art do not represent the case law and its underlying logic accurately. On the one hand, despite what the rulings in Inspire Art and Centros suggest, it may not always be possible to rely successfully on the right of establishment in order to establish a company nominally in another Member State for the sole purpose of circumventing one s own national company law. In its recent judgment in Cadbury Schweppes, the Court reiterated that the fact that [a] company was established in a Member State for the purpose of benefiting from more favourable legislation does not in itself suffice to constitute abuse of [the freedom of establishment]. (51) However, it also emphasised that Member States may take measures to prevent wholly artificial arrangements, which do not reflect economic reality and which are aimed at circumventing national legislation. (52) In particular, the right of establishment does not preclude Member States from being wary of letter box or front companies. (53) In my view, this represents a significant qualification of the rulings in Centros and Inspire Art, as well as a reaffirmation of established case law on the principle of abuse of Community law, (54) even though the Court continues to use the notion of abuse with considerable restraint and rightly so. (55) 30. On the other hand, despite what the ruling in Daily Mail and General Trust seems to suggest, the Court does not, a priori, exclude particular segments of the laws of the Member States from the scope of the right of establishment. (56) Rather, the Court concentrates on the effects that national rules or practices may have on the freedom of establishment and assesses the conformity of those effects with the right of establishment as guaranteed by the Treaty. As regards national rules relating to the incorporation of companies, the Court s approach is inspired by two concerns. First, in the present state of Community law, Member States are free to choose whether they want to have a system of rules grounded in the real seat theory or in the incorporation theory, and indeed, various Member States have opted for profoundly different rules of incorporation. Second, the effective exercise of the freedom of establishment requires at least some degree of mutual recognition and coordination of these various systems of rules. The result of this approach is that the case law typically respects national rules relating to companies regardless of whether they are based on the

138 8 von 12 05/10/ :44 p.m. real seat theory or on the incorporation theory. However, at the same time, the effective exercise of the right of establishment implies that neither theory can be applied to its fullest logical extension the best example to date perhaps being the case of Überseering. (57) 31. In sum, it is impossible, in my view, to argue on the basis of the current state of Community law that Member States enjoy an absolute freedom to determine the life and death of companies constituted under their domestic law, irrespective of the consequences for the freedom of establishment. Otherwise, Member States would have carte blanche to impose a death sentence on a company constituted under its laws just because it had decided to exercise the freedom of establishment. Especially for small and medium sized companies, an intra Community transfer of operational headquarters may be a simple and effective form of taking up genuine economic activities in another Member State without having to face the costs and the administrative burdens inherent in first having to wind up the company in its country of origin and then having to resurrect it completely in the Member State of destination. Moreover, as the Commission rightly emphasised, the process of winding up a company in one Member State and then reconstituting it under the law of another Member State can take considerable time, during which the company at issue may be prevented from operating altogether. 32. Consequently, even though the restriction on the right to freedom of establishment at issue in the present case arises directly from national rules on the incorporation and functioning of companies, the question has to be asked whether they can be justified on grounds of general public interest, (58) such as the prevention of abuse or fraudulent conduct, (59) or the protection of the interests of, for instance, creditors, minority shareholders, employees or the tax authorities. (60) 33. In the light of these interests, it may be acceptable for a Member State to set certain conditions before a company constituted under its own national company law can transfer its operational headquarters abroad. (61) It might, for instance, be possible for the Member State to consider that it will no longer be able to exercise any effective control over the company and, therefore, to require that the company amends its constitution and ceases to be governed by the full measure of the company law under which it was constituted. (62) 34. However, that is not the situation here. The rules currently under consideration completely deny the possibility for a company constituted under Hungarian law to transfer its operational headquarters to another Member State. Hungarian law, as applied by the commercial court, does not merely set conditions for such a transfer, but instead requires that the company be dissolved. Especially since the Hungarian Government has not put forward any grounds of justification, it is difficult to see how such an outright negation of the freedom of establishment (63) could be necessary for reasons of public interest. (64) 35. Therefore, I suggest that the Court give the following reply to the fourth question referred by the national court: Articles 43 EC and 48 EC preclude national rules which make it impossible for a company constituted under national law to transfer its operational headquarters to another Member State. III Conclusion 36. In the light of the foregoing observations, I propose that the Court should give the following answer to the questions referred by the Szegedi Ítélőtábla: (1) In a situation such as the one at issue in the present proceedings, an appeal court may refer questions for a preliminary ruling to the Court of Justice in proceedings on appeal against a decision from a lower court, notwithstanding the fact that neither the proceedings before the lower court nor the appeal proceedings are inter partes. (2) The fact that an appeal against a decision of a national court or tribunal is limited to points of law and lacks automatic suspensory effect does not imply that that court or tribunal is under the obligation referred to in the third paragraph of Article 234 EC. (3) Article 234 EC precludes the application of national rules according to which national courts

139 9 von 12 05/10/ :44 p.m. may be obliged to suspend or revoke a request for a preliminary ruling. (4) Articles 43 EC and 48 EC preclude national rules which make it impossible for a company constituted under national law to transfer its operational headquarters to another Member State. 1 Original language: English. 2 Despite Cartesio s legal status of partnership, the questions referred concern both partnerships and companies under Hungarian law. Therefore, the interpretative issues raised and Cartesio itself will be referred to under the broad description of company. In the same way, references to incorporation should, where appropriate, be construed as including references to the registration or constitution of a partnership. 3 See also, for instance, Case 102/81 Nordsee v Reederei Mond [1982] ECR Case C 182/00 Lutz and Others [2002] ECR I 547, paragraph Lutz and Others, cited in footnote 4, paragraph 13. See also: Case C 178/99 Salzmann [2001] ECR I 4421, paragraph 15; order in Case C 111/94 Job Centre [1995] ECR I 3361, paragraph 11; order in Case C 447/00 Holto [2002] ECR I 735, paragraphs 17 and 18; Case C 165/03 Längst [2005] ECR I 5637, paragraph 25; and Case C 96/04 Standesamt Stadt Niebüll [2006] ECR I 3561, paragraph Job Centre, cited in footnote 5, paragraph 11; Holto, cited in footnote 5, paragraph See also, by implication, Case C 411/03 SEVIC Systems [2005] ECR I See Case C 195/98 Österreichischer Gewerkschaftsbund [2000] ECR I 10497, where the Court recognises questions of general importance which are only abstractly connected to a set of facts. See also the analysis of Advocate General Jacobs in this case, arguing for a restrictive interpretation of the concept of hypothetical questions. 9 The case law of the Court appears to confirm that the admissibility rules have to be interpreted bearing in mind the absence of a viable alternative to bring such questions before the Court, in the light of national procedural rules, litigation costs and concerns for procedural economy. See, for instance, Case C 415/93 Bosman [1995] ECR I 4921, in particular the questions concerning the nationality clauses. This point is treated below in more detail in relation to the third question. 10 Alternative paths through which the question might reach the Court would appear to be even more onerous: see, for instance, Case C 224/01 Köbler [2003] ECR I Case C 99/00 [2002] ECR I See, by analogy, Case 33/76 Rewe [1976] ECR 1989; Joined Cases C 430/93 and C 431/93 Van Schijndel and van Veen [1995] ECR I 4705, paragraph 17; and Joined Cases C 222/05 to C 225/05 Van der Weerd and Others [2007] ECR I 4233, paragraph In addition, Article 249/A provides that a separate appeal may also be brought against a decision made at second instance dismissing a request for a preliminary ruling (emphasis added). 14 According to the provision governing references for a preliminary ruling in Article 259 of Law III of 1952 on Civil Procedure. 15 The Commission has raised the point of the order for reference having become final. However, this aspect is not part of the order for reference and, in my view, it ought not be determinant in deciding the admissibility of the question.

140 0 von 12 05/10/ :44 p.m. 16 See the Opinion of Advocate General Jacobs in ÖsterreichischerGewerkschaftbund, cited in footnote 8, at points 53 to One might also consider the reverse alternative: that the superior court, to which an appeal is made against the order requesting a preliminary ruling, might first stay the proceedings in order to ask the Court of Justice for a preliminary ruling on the compatibility of such an appeal with Community law. However, the likelihood of such a hypothesis also seems doubtful. Moreover, if the national superior court were indeed to decide to request a preliminary ruling from the Court of Justice, it is reasonable to assume that it would, for reasons of procedural economy simply, do so on the substantive questions of Community law initially raised by the lower national court (as happened in Case 19/84 Pharmon v Hoechst [1985] ECR 2281, which was originally a reference from a lower court, registered as Case 271/80, and which was appealed against and subsequently removed from the register) or, at least, by including the latter (with the consequence that the initial procedural question might, itself, be challenged as hypothetical in the light of the referral of the substantive questions). This would amount in effect to placing national courts in a kind of Catch 22 situation and might, again, explain why such a question has never expressly been raised before the Court (see O Keeffe, D., Appeals against an Order to Refer under Article 177 of the EEC Treaty, 9 European Law Review (1984) 87, at p.101). 18 In his Opinion in Cases 146/73 and 166/73 Rheinmühlen [1974] ECR 40, Advocate General Warner notes at page 44 that such a right of appeal, which he considered contrary to Community law, was in force in, at least, several Member States by virtue of national procedural rules. 19 See also Case 106/77 Simmenthal [1978] ECR 629, paragraph Case 166/73 Rheinmühlen I [1974] ECR 33, paragraph Case 146/73 Rheinmühlen II [1974] ECR 139, paragraph Rheinmühlen II, cited in footnote 21, paragraph 3; Case 13/61 De Geus [1962] ECR 45, paragraph 50; and Joined Cases 2/82 to 4/82 Delhaize [1983] ECR 2973, paragraph See, for instance, order of 3 June 1969 in Case 31/68 Chanel [1970] ECR 403 and order of 14 July 1992 in Case C 269/92 Bosman (not published in the European Court Reports). 24 Case 127/73 BRT v SABAM [1974] ECR 51, paragraph 3. See also O Keeffe, D., Appeals against an Order to Refer under Article 177 of the EEC Treaty, 9 European Law Review (1984) Opinion of 12 December 1973 in Cases 146/73 and 166/73 [1974] ECR See, for example, Chanel, cited in footnote Sarmiento, D., Poder Judicial e integración europea, Thomson Civitas, Madrid, 2004, p Campus Oil Ltd and Others v. The Minister for Industry and Energy, Ireland, The Attorney General, and the Irish National Petroleum Co. Ltd, judgment of the Irish Supreme Court of 17 June 1983 [1984] 1 CMLR Article 16(1) of the cégnyilvántartásról, a cégnyilvánosságról és a bírosági cégeljárásról szóló évi CXLV. törvény (Law CXLV of 1997 on the commercial register, company advertising and legal procedures in commercial matters). According to that provision: The seat shall be the place in which the operational headquarters are situated and must be indicated by means of a plate. 30 Article 34(1) of Law CXLV of 1997: Every transfer of the seat of a company to a place that falls within the jurisdiction of another court having responsibility for maintaining the register of companies must be registered, as a change, with the court having jurisdiction in the area of the former seat. The latter will examine the applications relating to changes occurring prior to the change of the seat and will endorse

141 1 von 12 05/10/ :44 p.m. the transfer. 31 Edwards, V., EC Company Law, Oxford: Clarendon Press 1999, p Ibid. 33 See, to the same effect: Case C 200/98 X and Y [1999] ECR I 8261, paragraphs 26 to 28; Case C 9/02 Hughes de Lasteyrie du Saillant [2004] ECR I 2409, paragraphs 42 and 46; SEVIC Systems, cited in footnote 7, paragraphs 14, 22 and 23; and Case C 231/05 Oy [2007] ECR I 6373, paragraphs 31 to See also my Opinion in Joined Cases C 158/04 and C 159/04 Alfa Vita Vassilopoulos and Carrefour Marinopoulos [2006] ECR I 8135, at points 41 and Case C 221/89 Factortame and Others [1991] ECR I 3905, paragraph 20. See also Case C 246/89 Commission v United Kingdom [1991] ECR I 4585, paragraph 21, and Case C 196/04 Cadbury Schweppes [2006] ECR I 7995, paragraphs 54 and See, for example, Case C 442/02 CaixaBank France [2004] ECR I 8961, paragraph 11 and the case law cited therein. 37 Case 81/87 [1988] ECR 5483, paragraph Daily Mail and General Trust, paragraphs 3 and Daily Mail and General Trust, paragraph Daily Mail and General Trust, paragraph Daily Mail and General Trust, paragraph 19: It should be borne in mind that, unlike natural persons, companies are creatures of the law and, in the present state of Community law, creatures of national law. They exist only by virtue of the varying national legislation which determines their incorporation and functioning. 42 In fact, the Court s approach has come to resemble the approach of Advocate General Darmon in his Opinion in Daily Mail and General Trust. 43 Case C 212/97 [1999] ECR I Case C 208/00 [2002] ECR I Case C 167/01 [2003] ECR I Inspire Art, cited in footnote 45, paragraph For an overview and a critical assessment of theories that try to explain the differences between, on the one hand, Daily Mail and General Trust and, on the other, Centros and Überseering, see: Ringe, W. G., No Freedom of Emigration for Companies?, 2005 European Business Law Review See Centros, cited in footnote 43; Überseering, cited in footnote 44; Inspire Art, cited in footnote 45; Case C 251/98 Baars [2000] ECR I 2787, paragraph 28; and Hughes de Lasteyrie du Saillant, cited in footnote 33, paragraph Daily Mail and General Trust, cited in footnote 37, paragraph 16.

142 2 von 12 05/10/ :44 p.m. 50 Opinion of Advocate General Tizzano in SEVIC Systems, cited in footnote 7, at point 45. The Advocate General s views were confirmed by the Court in paragraphs 22 and 23 of its judgment. 51 Cadbury Schweppes, cited in footnote 35, paragraph 37 (emphasis added). Note that the Court referred to paragraph 96 of the judgment in Inspire Art, but chose to use a slightly different wording ( purpose instead of sole purpose ). 52 Cadbury Schweppes, cited in footnote 35, paragraphs 51 to Cadbury Schweppes, cited in footnote 35, paragraph See point 9 of the Opinion of Advocate General Darmon in Daily Mail and General Trust, cited in footnote 37, and the case law cited there. I have discussed the principle prohibiting abuse of Community law in detail in my Opinion in Case C 255/02 Halifax and Others [2006] ECR I See also R. de la Feria, Prohibition of abuse of (Community) law: The creation of a new general principle of EC Law through tax, [2008] 45 CMLR The abuse of rights principle has been described as a drug which at first appears to be innocuous, but may be followed by very disagreeable after effects (Gutteridge, H.C., Abuse of Rights, 5 Cambridge Law Journal, 22, 44, ). It would appear wise, therefore, to apply it with great caution. 56 There is no nucleus of sovereignty that Member States can invoke as such against the Community (Lenaerts, K., Constitutionalism and the many faces of federalism, 38 American Journal of Comparative law [1990], p. 205 et seq., p. 220). See, for instance: Case C 446/03 Marks & Spencer [2005] ECR I 10837, paragraph 29, and Case C 524/04 Test Claimants in the Thin Cap Group litigation [2007] ECR I 2107, paragraph 25 (in the field of taxation); Case C 124/95 Centro Com [1997] ECR I 81, paragraph 25 (in the field of foreign security policy); and C 438/05 Viking Line [2008] ECR I 0000, paragraph 40 (in the field of social policy). To the extent that these areas fall within their competence, Member States must none the less exercise that competence consistently with Community law. 57 Cited in footnote 44. That case concerned German provisions according to which only parties with legal capacity could bring legal proceedings, whereas in strict conformity with the Sitztheorie companies were considered to have legal capacity only if they had their actual centre of administration in Germany. According to paragraph 93 of the Court s ruling, the denial of the capacity to be a party to legal proceedings of a company properly incorporated in another Member State in which it has its registered office is tantamount to an outright negation of the freedom of establishment that cannot be justified on grounds relating to the general interest. 58 Case C 55/94 Gebhard [1995] ECR I 4165, paragraph 37; CaixaBank France, cited in footnote 37, paragraph 11; Case C 293/06 Deutsche Shell [2008] ECR I 0000, paragraph Cadbury Schweppes, cited in footnote 35, paragraphs 51 to Überseering, cited in footnote 44, paragraph 92; SEVIC Systems, cited in footnote 7, paragraph See, by analogy, Article 8 of Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) (OJ 2001 L 294, p. 1). 62 As is the case, for instance, under the system established by Regulation No 2157/ Überseering, cited in footnote 44, paragraph See also SEVIC Systems, cited in footnote 7, paragraphs 29 and 30.

143 1 von 16 07/01/ :44 p.m. JUDGMENT OF THE COURT (Grand Chamber) 16 December 2008(*) (Transfer of a company seat to a Member State other than the Member State of incorporation Application for amendment of the entry regarding the company seat in the commercial register Refusal Appeal against a decision of a court entrusted with keeping the commercial register Article 234 EC Reference for a preliminary ruling Admissibility Definition of court or tribunal Definition of a court or tribunal against whose decisions there is no judicial remedy under national law Appeal against a decision making a reference for a preliminary ruling Jurisdiction of appellate courts to order revocation of such a decision Freedom of establishment Articles 43 EC and 48 EC) In Case C-210/06, REFERENCE for a preliminary ruling under Article 234 EC from the Szegedi Ítélőtábla (Hungary), made by decision of 20 April 2006, received at the Court on 5 May 2006, in the proceedings in the case of CARTESIO Oktató és Szolgáltató bt, THE COURT (Grand Chamber), composed of V. Skouris, President, P. Jann, C.W.A. Timmermans (Rapporteur), A. Rosas, K. Lenaerts, A. Ó Caoimh and J. C. Bonichot, Presidents of Chambers, K. Schiemann, J. Makarczyk, P. Kūris, E. Juhász, L. Bay Larsen and P. Lindh, Judges, Advocate General: M. Poiares Maduro, Registrar: B. Fülöp, Administrator, having regard to the written procedure and further to the hearing on 10 July 2007, after considering the observations submitted on behalf of: CARTESIO Oktató és Szolgáltató bt, by G. Zettwitz and P. Metzinger, ügyvédek, the Hungarian Government, by J. Fazekas and P. Szabó, acting as Agents, the Czech Government, by T. Boček, acting as Agent, Ireland, by D. O Hagan, acting as Agent, A. Collins, SC, and N. Travers, BL, the Government of the Netherlands, by H.G. Sevenster and M. de Grave, acting as Agents, the Polish Government, by E. Ośniecka Tamecka, acting as Agent, the Slovenian Government, by M. Remic, acting as Agent, the United Kingdom Government, by T. Harris, acting as Agent, and J. Stratford, barrister, the Commission of the European Communities, by G. Braun and V. Kreuschitz, acting as Agents, after hearing the Opinion of the Advocate General at the sitting on 22 May 2008, gives the following

144 2 von 16 07/01/ :44 p.m. Judgment 1 This reference for a preliminary ruling concerns the interpretation of Articles 43 EC, 48 EC and 234 EC. 2 The reference has been made in the context of proceedings brought by CARTESIO Oktató és Szolgáltató bt ( Cartesio ), a limited partnership established in Baja (Hungary), against the decision rejecting its application for registration in the commercial register of the transfer of its company seat to Italy. National legal context The law relating to civil procedure 3 Article 10(2) of Law III of 1952 on civil procedure (a Polgári perrendtartásról szóló évi III. törvény, the Law on civil procedure ), states: At second instance: (b) appeals arising from cases dealt with by regional courts or courts of Budapest shall be heard by appeal courts 4 Article 115/A of the Law on civil procedure provides that: (1) The court may ask the Court of Justice of the European Communities for a preliminary ruling in accordance with the rules laid down in the Treaty establishing the European Community. (2) The court shall make the reference for a preliminary ruling by order and shall stay the proceedings (3) An appeal may be brought against a decision to make a reference for a preliminary ruling. An appeal cannot be brought against a decision dismissing a request for a reference for a preliminary ruling. 5 Under Article 233(1) of the Law on civil procedure: Save as otherwise provided, appeal proceedings may be brought against the decisions of courts of first instance 6 Article 233/A of that Law provides that: An appeal may be brought against orders made at second instance in respect of which a right of appeal exists under the rules applicable proceedings at first instance. 7 Article 249/A of the Law on civil procedure states that: Appeal proceedings may also be brought against a decision made at second instance dismissing a request for a reference for a preliminary ruling (Article 155/A). 8 Article 270 of the Law on civil procedure is worded as follows: (1) Save as otherwise provided, the Legfelsőbb Bíroság [Supreme Court] shall hear appeals on points of law. The general rules shall apply mutatis mutandis.

145 3 von 16 07/01/ :44 p.m. (2) The parties, interveners and persons affected by the decision may, in respect of the part of that decision which refers to them, bring an appeal on a point of law before the Legfelsőbb Bíroság against final judgments and orders which bring proceedings an end, pleading infringement of the law. 9 Article 271(1) of the Law on civil procedure provides that: No appeal shall lie: (a) (b) against decisions which have become final at first instance, except in cases which are permitted by law; where one party has failed to exercise the right to bring an appeal and the court of second instance, hearing the appeal brought by the other party, confirms the decision at first instance; 10 Under Article 273(3) of that law: The institution of appeal proceedings shall not have suspensory effect but, where a party so requests, the Legfelsőbb Bíroság may exceptionally suspend enforcement of the judgment Company law 11 Article 1(1) of Law No CXLIV of 1997 on commercial companies (a gazdasági társaságokról szóló évi CXLIV. törvény), provides that: This Law shall govern the incorporation, organisation and functioning of commercial companies which have their seat in Hungary; the rights, duties and responsibilities of the founders and members (shareholders) of those companies; and the conversion, merger and demerger of commercial companies and their liquidation. 12 Under Article 11 of that law: The articles of association (the instrument of incorporation, the statutes of the company) shall specify: (a) the name and seat of the commercial company 13 Article 1(1) of Law No CXLV of 1997 on the commercial register, company advertising and legal procedures in commercial registration matters (a cégnyilvántartásról, a cégnyilvánosságról és a bírósági cégeljárásról szóló évi CXLV. törvény, the Law on the commercial register ), provides that: A company is a commercial organisation or other legal entity of a commercial nature which, save where a law or government order provides otherwise, is incorporated through its registration in the commercial register for the purpose of carrying on a commercial activity for financial gain 14 Under Article 2(1) of that law: The legal entities referred to in Article 1 may be entered on the commercial register only if their registration is possible or compulsory under [Hungarian] law. 15 Article 11 of the Law on the commercial register provides that: (1) The regional courts or the courts of Budapest, acting as commercial courts, shall register companies in the commercial registers which they are responsible for maintaining

146 4 von 16 07/01/ :44 p.m. (2) the courts within the jurisdiction of which a company has its seat shall have jurisdiction to register that company and to deal with any proceedings concerning such companies provided for by statute. 16 Article 12(1) of that Law provides that: The information on companies referred to in this Law shall be entered in the commercial register. For all companies, the register shall specify:... (d) the company seat 17 Under Article 16(1) of the Law on the commercial register: The seat shall be the place where [the company s] central administration is situated 18 Article 29(1) of that Law provides that: Save as otherwise provided, any application for registration of amendments to information registered in relation to companies must be presented to the commercial court within 30 days of the event giving rise to the amendment. 19 Article 34(1) of the Law provides that: Every transfer of a company seat to the jurisdiction of another court responsible for maintaining the commercial register must, by reason of the change entailed, be submitted to the court with jurisdiction in respect of the former seat. After examining the applications for amendment of the information on the register prior to the change of company seat, the latter court shall endorse the transfer. Private international law 20 Article 18 of Decree Law No 13 of 1979 on private international law rules (a nemzetközi magánjogról szóló évi 13. törvényerejű rendelet) provides that: (1) The legal capacity of a legal person, its commercial status, the rights derived from its personality and the legal relationships between its members shall be determined in accordance with its personal law. (2) The personal law of a legal person shall be the law of the State in the territory of which it is registered. (3) If a legal person has been lawfully registered in accordance with the laws of several States or if, under the rules applicable in the place where the seat designated in its articles of association is situated, registration is not required, its personal law shall be that applicable in the State of the seat. (4) If a legal person has no seat designated in its articles of association or has seats in several States, and, in accordance with the law of one of those States, registration is not required, its personal law shall be the law of the State in which its central administration is situated. The dispute in the main proceedings and the questions referred for a preliminary ruling 21 Cartesio was formed on 20 May 2004 as a betéti társaság (a limited partnership) under Hungarian law. Its seat was established in Baja (Hungary). Cartesio was registered in the commercial register on 11 June Cartesio has two partners both of whom are natural persons resident in Hungary and holding

147 5 von 16 07/01/ :44 p.m. Hungarian nationality: a limited partner, whose only commitment is to invest capital, and an unlimited partner, with unlimited liability for the company s debts. Cartesio is active, inter alia, in the field of human resources, secretarial activities, translation, teaching and training. 23 On 11 November 2005, Cartesio filed an application with the Bács Kiskun Megyei Bíróság (Regional Court of Bács Kiskun), sitting as a Cégbíróság (commercial court), for registration of the transfer of its seat to Gallarate (Italy) and, in consequence, for amendment of the entry regarding Cartesio s company seat in the commercial register. 24 By decision of 24 January 2006, that application was rejected on the ground that the Hungarian law in force did not allow a company incorporated in Hungary to transfer its seat abroad while continuing to be subject to Hungarian law as its personal law. 25 Cartesio lodged an appeal against that decision with the Szegedi Ítélőtábla (Court of Appeal of Szeged). 26 Relying on the judgment in Case C 411/03 SEVIC Systems [2005] ECR I 10805, Cartesio claimed before the Szegedi Ítélőtábla that, to the extent that Hungarian law draws a distinction between commercial companies according to the Member State in which they have their seat, that law is contrary to Articles 43 EC and 48 EC. It follows from those articles that Hungarian law cannot require Hungarian companies to choose to establish their seat in Hungary. 27 Cartesio also maintained that the Szegedi Ítélőtábla was required to refer that question for a preliminary ruling, since it constitutes a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law. 28 The Szegedi Ítélőtábla points out that, under Hungarian law, proceedings before the courts responsible for maintaining the commercial register and before courts hearing appeals against decisions of the commercial register courts are not inter partes. It therefore wishes to know whether it may be classified as a court or tribunal within the meaning of Article 234 EC. 29 Moreover, if the answer to this question is in the affirmative, the Szegedi Ítélőtábla is of the view that is still unclear whether, for the purposes of the third paragraph of Article 234 EC, it should be classified as a court or tribunal against whose decisions there is no judicial remedy under national law. 30 It states in that regard that although, according to Hungarian law, its decisions on appeal are final and enforceable, they may nevertheless be the subject of an extraordinary appeal an appeal on a point of law before the Legfelsőbb Bíróság. 31 However, as the purpose of an appeal on a point of law is to ensure the consistency of case law, the possibility of bringing such an appeal is limited, in particular by the condition governing the admissibility of pleas, which is linked to the obligation to allege a breach of law. 32 The Szegedi Ítélőtábla further notes that, in Hungarian academic legal writing and case law, questions have been raised as to the compatibility with Article 234 EC of the provisions laid down in Articles 155/A and 249/A of the Law on civil procedure concerning appeals against decisions by which a preliminary question is referred to the Court. 33 In that regard, the Szegedi Ítélőtábla points out that those provisions might result in an appellate court preventing a court which has decided to make a reference to the Court from doing so, even though an interpretation by the Court of a provision of Community law is needed to resolve the dispute in the main proceedings. 34 As regards the merits of the case before it, the Szegedi Ítélőtábla, referring to the judgment in Case 81/87 Daily Mail and General Trust [1988] ECR 5483, notes that the freedom of establishment laid down in Articles 43 EC and 48 EC does not include the right, for a company incorporated under the legislation of a Member State and registered therein, to transfer its central administration, and thus its principal place of business, to another Member State whilst retaining its legal personality and

148 6 von 16 07/01/ :44 p.m. nationality of origin, should the competent authorities object to this. 35 However, according to the Szegedi Ítélőtábla, this principle may have been further refined in the later case law of the Court. 36 In that regard, the Szegedi Ítélőtábla points out that, according to the case law of the Court, all measures which prohibit, impede or render less attractive the exercise of the freedom of establishment constitute a restriction on that freedom, and it refers in that regard, inter alia, to the judgment in Case C-442/02 CaixaBank France [2004] ECR I 8961, paragraphs 11 and 12). 37 The Szegedi Ítélőtábla moreover points out that, in SEVIC Systems, the Court ruled that Articles 43 EC and 48 EC preclude registration in the national commercial register of the merger by dissolution without liquidation of one company and transfer of the whole of its assets to another company from being refused in general in a Member State where one of the two companies is established in another Member State, whereas such registration is possible, on compliance with certain conditions, where the two companies participating in the merger are both established in the territory of the first Member State. 38 Moreover, it is settled case law of the Court that national laws cannot differentiate between companies according to the nationality of the person seeking their registration in the commercial register. 39 Lastly, the Szegedi Ítélőtábla states that Council Regulation (EEC) No 2137/85 of 25 July 1985 on the European Economic Interest Grouping (EEIG) (OJ 1985 L 199, p. 1) and Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) (OJ 2001 L 294, p. 1) lay down, for the forms of Community undertaking which they introduce, more flexible and less costly provisions which enable those undertakings to transfer their seat or establishment from one Member State to another without first going into liquidation. 40 In those circumstances, on the view that resolution of the dispute before it depended on the interpretation of Community law, the Szegedi Ítélőtábla decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling: (1) Is a court of second instance which has to give a decision on an appeal against a decision of a commercial court (cégbíróság) in proceedings to amend a registration [of a company], entitled to make a reference for a preliminary ruling under Article 234 [EC], where neither the action before the commercial court nor the appeal procedure is inter partes? (2) In so far as an appeal court is included in the concept of a court or tribunal which is entitled to make a reference for a preliminary ruling under Article 234 [EC], must that court be regarded as a court against whose decisions there is no judicial remedy, which has an obligation, under Article 234 [EC], to submit questions on the interpretation of Community law to the Court of Justice of the European Communities? (3) Does a national measure which, in accordance with domestic law, confers a right to bring an appeal against an order making a reference for a preliminary ruling limit the power of the Hungarian courts to refer questions for a preliminary ruling or could it limit that power derived directly from Article 234 [EC] if, in appeal proceedings, the national superior court may amend the order, render the request for a preliminary ruling inoperative and order the court which issued the order for reference to resume the national proceedings which had been suspended? (4) (a) If a company, [incorporated] in Hungary under Hungarian company law and entered in the Hungarian commercial register, wishes to transfer its seat to another Member State of the European Union, is the regulation of this field within the scope of Community law or, in the absence of the harmonisation of laws, is national law exclusively applicable? (b) May a Hungarian company request transfer of its seat to another Member State of the European Union relying directly on Community law (Articles 43 [EC] and 48 [EC])? If the

149 7 von 16 07/01/ :44 p.m. answer is affirmative, may the transfer of the seat be made subject to any kind of condition or authorisation by the Member State of origin or the host Member State? (c) May Articles 43 and 48 of the Treaty of Rome be interpreted as meaning that national rules or national practices which differentiate between commercial companies with respect to the exercise of their rights, according to the Member State in which their seat is situated, are incompatible with Community law? [(d)] May Articles 43 [EC] and 48 [EC] be interpreted as meaning that, in accordance with those articles, national rules or practices which prevent a Hungarian company from transferring its seat to another Member State of the European Union, are incompatible with Community law? The application to have the oral procedure re-opened 41 By document lodged at the Registry of the Court of Justice on 9 September 2008, Ireland requested the Court to order that the oral procedure be re opened, pursuant to Article 61 of the Rules of Procedure, with regard to the fourth question referred for a preliminary ruling. 42 In support of its request, Ireland states that, contrary to the view adopted by the Advocate General in his Opinion, the fourth question in the order for reference should not be understood as relating to the transfer of the seat, defined by Hungarian law as the place where the company has its central administration, and thus the real seat (siège réel) of the company. 43 According to Ireland, it follows from the English translation of the order for reference that that question concerns the transfer of the registered office (siège statutaire). 44 Thus, Ireland claims essentially that one of the factual premisses on which the Advocate General s analysis is based is incorrect. 45 Ireland is, moreover, of the view that, if the Court relies on the same premiss, it should re-open the oral procedure in order to give the interested parties an opportunity to submit observations on the basis of that premiss. 46 It is clear from the case-law that the Court may of its own motion, or on a proposal from the Advocate General, or at the request of the parties, order the re-opening of the oral procedure in accordance with Article 61 of the Rules of Procedure if it considers that it lacks sufficient information or that the case must be dealt with on the basis of an argument which has not been debated between the parties (see, inter alia, Case C 284/06 Burda [2008] ECR I 0000, paragraph 37 and the case law cited). 47 In that regard, it should be pointed out, first, that it is apparent from the order for reference as a whole that the fourth question relates not to the transfer of the registered office of the company concerned in the main proceedings but to the transfer of its real seat. 48 As stated in the order for reference, it follows from the Hungarian legislation on company registration that, for the purposes of applying that legislation, a company s seat is defined as the place where it has its central administration. 49 Moreover, the referring court placed the case before it in the context of the situation at issue in Daily Mail and General Trust, which it describes as relating to a company, incorporated in accordance with the legislation of a Member State and registered therein, wishing to transfer its central administration, and thus its principal place of business, to another Member State whilst retaining its legal personality and nationality of origin, where the competent authorities object to this. More specifically, the referring court asks whether the principle laid down in that judgment that Articles 43 EC and 48 EC do not confer on companies the right to transfer their central administration in such a way, whilst retaining their legal personality as conferred on them in the State under whose laws they were incorporated has been further refined in the later case law of the Court.

150 8 von 16 07/01/ :44 p.m. 50 Secondly, the interested parties, including Ireland, were expressly requested by the Court to focus their pleadings on the premiss that the issue raised in the main proceedings related to the transfer to another Member State of the real seat of the company concerned, in other words, of the place where it has its administrative seat. 51 Although Ireland nevertheless focused in its pleadings on the premiss that the issue in the case before the referring court concerned the transfer of a company s registered office, it also set out its position albeit briefly on the basis that that issue concerned the transfer of the company s real seat, a position which, moreover, it set out again in its request that the oral procedure be re-opened. 52 Against that background, the Court, having heard the Advocate General, considers that it has all the evidence necessary to enable it to reply to the questions referred and that the present case does not thereby fall to be decided on the basis of an argument which has not been debated between the parties. 53 Accordingly, it is not necessary to order that the oral procedure be re opened. The questions referred for a preliminary ruling The first question 54 By this question, the Court is essentially asked whether a court such as the referring court, hearing an appeal against a decision of a lower court, responsible for maintaining the commercial register, rejecting an application for amendment of information entered in that register, must be classified as a court or tribunal which is entitled to make a reference for a preliminary ruling under Article 234 EC, regardless of the fact that neither the decision of the lower court nor the consideration by the referring court of the appeal against that decision takes place in the context of inter partes proceedings. 55 In that regard, it should be borne in mind that, according to settled case law, in order to determine whether the body making a reference is a court or tribunal for the purposes of Article 234 EC, which is a question governed by Community law alone, the Court takes account of a number of factors, such as whether the body is established by law, whether it is permanent, whether its jurisdiction is compulsory, whether its procedure is inter partes, whether it applies rules of law and whether it is independent (see, inter alia, Case C 96/04 Standesamt Stadt Niebüll [2006] ECR I 3561, paragraph 12 and the case law cited). 56 With regard to the inter partes nature of the proceedings before the national court, Article 234 EC does not make reference to the Court subject to those proceedings being inter partes. None the less, it follows from that article that a national court may make a reference to the Court only if there is a case pending before it and if it is called upon to give judgment in proceedings intended to lead to a decision of a judicial nature (see to that effect, inter alia, Case C 182/00 Lutz and Others [2002] ECR I 547, paragraph 13 and the case law cited). 57 Thus, where a court responsible for maintaining a register makes an administrative decision without being required to resolve a legal dispute, it cannot be regarded as exercising a judicial function. Such is the case, for example, where it decides an application for registration of a company in proceedings which do not have as their object the annulment of a measure which allegedly adversely affects the applicant (see to that effect, inter alia, Lutz and Others, cited above, paragraph 14 and the case law cited). 58 In contrast, a court hearing an appeal which has been brought against a decision of a lower court responsible for maintaining a register, rejecting such an application, and which seeks the setting aside of that decision, which allegedly adversely affects the rights of the applicant, is called upon to give judgment in a dispute and is exercising a judicial function. 59 Accordingly, in such a case, the appellate court must, in principle, be regarded as a court or tribunal within the meaning of Article 234 EC, with jurisdiction to refer a question to the Court for a preliminary ruling (see for similar situations, inter alia, Case C 300/01 Salzmann [2003] ECR I 4899; SEVIC

151 9 von 16 07/01/ :44 p.m. Systems; and Case C 117/06 Möllendorf and Others [2007] ECR I 8361). 60 It is apparent from the court-file that, in the main proceedings, the referring court is sitting in an appellate capacity in an action for the setting aside of a decision by which a lower court, responsible for maintaining the commercial register, rejected an application by a company for registration of the transfer of its seat, requiring the amendment of an entry in that register. 61 Accordingly, in the main proceedings, the referring court is hearing a dispute and is exercising a judicial function, regardless of the fact that the proceedings before that court are not inter partes. 62 Consequently, in the light of the case law cited in paragraphs 55 and 56 above, the referring court must be regarded as a court or tribunal for the purposes of Article 234 EC. 63 In the light of the foregoing, the answer to the first question must be that a court such as the referring court, hearing an appeal against a decision of a lower court, responsible for maintaining the commercial register, rejecting an application for amendment of information entered in that register, must be classified as a court or tribunal which is entitled to make a reference for a preliminary ruling under Article 234 EC, regardless of the fact that neither the decision of the lower court nor the consideration of that appeal by the referring court takes place in the context of interpartes proceedings. The second question 64 By this question, the Court is essentially being asked whether a court such as the referring court, whose decisions in disputes such as that in the main proceedings may be appealed on points of law, falls to be classified as a court or tribunal against whose decisions there is no judicial remedy under national law, within the meaning of the third paragraph of Article 234 EC. Admissibility 65 The Commission of the European Communities contends that this question is inadmissible as it is manifestly irrelevant to the resolution of the dispute in the main proceedings, since the order for reference has already been submitted to the Court, rendering any examination of whether there is an obligation to make a reference devoid of interest. 66 That objection must be rejected. 67 According to settled case-law, there is a presumption of relevance in favour of questions on the interpretation of Community law referred by a national court, and it is a matter for the national court to define, and not for the Court to verify, in which factual and legislative context they operate. The Court declines to rule on a reference for a preliminary ruling from a national court only where it is quite obvious that the interpretation of Community law that is sought is unrelated to the actual facts of the main action or to its purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary to give a useful answer to the questions submitted to it (see, to that effect, Joined Cases C-222/05 to C-225/05 van der Weerd and Others [2007] ECR I-4233, paragraph 22 and the case law cited). 68 As stated in paragraph 27 above, Cartesio claimed before the referring court that that court was required to make a reference to the Court for a preliminary ruling, since it fell to be classified as a court or tribunal against whose decisions there is no judicial remedy under national law, within the meaning of the third paragraph of Article 234 EC. 69 As the referring court had doubts concerning that plea, it decided to refer a question on that issue to the Court for a preliminary ruling. 70 It would be contrary to the spirit of cooperation which must guide all relations between national courts and the Court of Justice, and contrary also to the requirements of procedural economy, to require a national court first to seek a preliminary ruling on the sole question whether that court is one of those referred to in the third paragraph of Article 234 EC, before, where appropriate, having to formulate

152 10 von 16 07/01/ :44 p.m. not until then and by a second reference for a preliminary ruling the questions concerning the provisions of Community law relating to the substance of the dispute before it. 71 Moreover, the Court has already replied to a question relating to the characteristics of national courts in the light of the third paragraph of Article 234 CE in a context offering certain similarities with that of the present reference for a preliminary ruling, without the admissibility of that question being disputed (Case C 99/00 Lyckeskog [2002] ECR I 4839). 72 In those circumstances, it does not appear at least not prima facie that the interpretation of Community law sought is unrelated to the actual facts of the main action or to its purpose. 73 Accordingly, the presumption of relevance in favour of references for a preliminary ruling is not, as regards the present question, rebutted by the objection put forward by the Commission (see, inter alia, van der Weerd and Others, paragraphs 22 and 23). 74 It follows that the second question is admissible. Substance 75 The issue raised by this question is thus whether the referring court falls to be classified as a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, within the meaning of the third paragraph of Article 234 EC. It is clear from the order for reference that this question is raised in view of the fact, referred to in paragraphs 30 and 31 above, that, although Hungarian law provides that decisions delivered on appeal by the referring court may be the subject of an extraordinary appeal in other words, an appeal on a point of law before the Legfelsőbb Bíróság, the purpose of which is to ensure the consistency of case-law the possibilities of bringing such an appeal are limited, in particular, by the condition governing the admissibility of pleas, which is linked to the obligation to allege a breach of law, and in view of the fact, also pointed out in the order for reference, that under Hungarian law an appeal on a point of law does not, in principle, have the effect of suspending enforcement of the decision delivered on appeal. 76 The Court has already held that decisions of a national appellate court which can be challenged by the parties before a supreme court are not decisions of a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law within the meaning of Article 234 EC. The fact that the examination of the merits of such challenges is conditional upon a preliminary declaration of admissibility by the supreme court does not have the effect of depriving the parties of a judicial remedy (Lyckeskog, paragraph 16). 77 That is true a fortiori in the case of a procedural system such as that under which the case before the referring court must be decided, since that system makes no provision for a preliminary declaration by the supreme court that the appeal is admissible and, instead, merely imposes restrictions with regard, in particular, to the nature of the pleas which may be raised before such a court, which must allege a breach of law. 78 In common with the lack of suspensory effect of appeals on a point of law before the Legfelsőbb Bíróság, such restrictions do not have the effect of depriving the parties in a case before a court whose decisions are amenable to an appeal on a point of law of the possibility of exercising effectively their right to appeal the decision handed down by that court in a dispute such as that in the main proceedings. It does not follow, therefore, from those restrictions or from the lack of suspensory effect that that court falls to be classified as a court handing down a decision against which there is no judicial remedy. 79 In the light of the foregoing, the answer to the second question must be that a court such as the referring court, whose decisions in disputes such as that in the main proceedings may be appealed on points of law, cannot be classified as a national court or tribunal against whose decisions there is no judicial remedy under national law, within the meaning of the third paragraph of Article 234 EC. The third question

153 11 von 16 07/01/ :44 p.m. Admissibility 80 Ireland argues that this question is hypothetical, hence inadmissible, since no appeal on a point of law has been brought against the order for reference and, in consequence, an answer to that question would be of no use to the referring court. 81 The Commission also asks the Court to declare that it is not appropriate to give a reply to the third question because, given that the order for reference has the authority of res judicata and has reached the Court, that question is hypothetical. 82 Those objections cannot be upheld. 83 As was pointed out in paragraph 67 above, the presumption of relevance enjoyed by references for a preliminary ruling may, in certain circumstances, be rebutted, in particular where the Court holds that the problem is hypothetical. 84 Ireland and the Commission maintain that the problem raised by this question the possible incompatibility with the second paragraph of Article 234 EC of national rules governing appeals against a decision making a reference to the Court is hypothetical, since, in fact, the order for reference has not been appealed against and now has the authority of res judicata. 85 However, neither that decision nor the file sent to the Court permit the inference that there has been no appeal against that decision or that there can no longer be any appeal against it. 86 In the light of the settled case-law cited in paragraph 67 above, since, in such a situation of uncertainty, responsibility for defining and verifying the factual and legislative context in which the question referred arises lies with the national court, the presumption of relevance which this question enjoys has not been rebutted. 87 It follows that the third question is admissible. Substance 88 Article 234 EC gives national courts the right and, where appropriate, imposes on them the obligation to make a reference for a preliminary ruling, as soon as the national court perceives either of its own motion or at the request of the parties that the substance of the dispute raises one of the points referred to in the first paragraph of Article 234. It follows that national courts have the widest discretion in referring matters to the Court if they consider that a case pending before them raises questions involving interpretation of provisions of Community law, or consideration of their validity, necessitating a decision on their part (Case 166/73 Rheinmühlen Düsseldorf [1974] ECR 33, paragraph 3). 89 It is also clear from the case law of the Court that, in the case of a court or tribunal against whose decisions there is a judicial remedy under national law, Article 234 EC does not preclude decisions of such a court by which questions are referred to the Court for a preliminary ruling from remaining subject to the remedies normally available under national law. Nevertheless, in the interests of clarity and legal certainty, the Court must abide by the decision to refer, which must have its full effect so long as it has not been revoked (Case 146/73 Rheinmühlen Düsseldorf [1974] ECR 139, paragraph 3). 90 Moreover, the Court has already held that the system established by Article 234 EC with a view to ensuring that Community law is interpreted uniformly throughout the Member States instituted direct cooperation between the Court of Justice and the national courts by means of a procedure which is completely independent of any initiative by the parties (Case C 2/06 Kempter [2008] ECR I 0000, paragraph 41). 91 The system of references for a preliminary ruling is based on a dialogue between one court and another, the initiation of which depends entirely on the national court s assessment as to whether a reference is appropriate and necessary (Kempter, paragraph 42).

154 12 von 16 07/01/ :44 p.m. 92 It is clear from the order for reference that, under Hungarian law, a separate appeal may be brought against a decision making a reference to the Court for a preliminary ruling, although the main proceedings remain pending in their entirety before the referring court, proceedings being stayed until the Court gives a ruling. The appellate court thus seised has, under Hungarian law, power to vary that decision, to set aside the reference for a preliminary ruling and to order the first court to resume the domestic law proceedings. 93 As is clear from the case-law cited in paragraphs 88 and 89 above, concerning a national court or tribunal against whose decisions there is a judicial remedy under national law, Article 234 EC does not preclude a decision of such a court, making a reference to the Court, from remaining subject to the remedies normally available under national law. Nevertheless, the outcome of such an appeal cannot limit the jurisdiction conferred by Article 234 EC on that court to make a reference to the Court if it considers that a case pending before it raises questions on the interpretation of provisions of Community law necessitating a ruling by the Court. 94 It should be pointed out, moreover, that the Court has already held that, in a situation where a case is pending, for the second time, before a court sitting at first instance after a judgment originally delivered by that court has been quashed by a supreme court, the court at first instance remains free to refer questions to the Court pursuant to Article 234 EC, regardless of the existence of a rule of national law whereby a court is bound on points of law by the rulings of a superior court (Case 146/73 Rheinmühlen Düsseldorf). 95 Where rules of national law apply which relate to the right of appeal against a decision making a reference for a preliminary ruling, and under those rules the main proceedings remain pending before the referring court in their entirety, the order for reference alone being the subject of a limited appeal, the autonomous jurisdiction which Article 234 EC confers on the referring court to make a reference to the Court would be called into question, if by varying the order for reference, by setting it aside and by ordering the referring court to resume the proceedings the appellate court could prevent the referring court from exercising the right, conferred on it by the EC Treaty, to make a reference to the Court. 96 In accordance with Article 234 EC, the assessment of the relevance and necessity of the question referred for a preliminary ruling is, in principle, the responsibility of the referring court alone, subject to the limited verification made by the Court in accordance with the case law cited in paragraph 67 above. Thus, it is for the referring court to draw the proper inferences from a judgment delivered on an appeal against its decision to refer and, in particular, to come to a conclusion as to whether it is appropriate to maintain the reference for a preliminary ruling, or to amend it or to withdraw it. 97 It follows that, in a situation such as that in the case before the referring court, the Court must also in the interests of clarity and legal certainty abide by the decision to make a reference for a preliminary ruling, which must have its full effect so long as it has not been revoked or amended by the referring court, such revocation or amendment being matters on which that court alone is able to take a decision. 98 In the light of the foregoing, the answer to the third question must be that, where rules of national law apply which relate to the right of appeal against a decision making a reference for a preliminary ruling, and under those rules the main proceedings remain pending before the referring court in their entirety, the order for reference alone being the subject of a limited appeal, the second paragraph of Article 234 EC is to be interpreted as meaning that the jurisdiction conferred by that provision of the Treaty on any national court or tribunal to make a reference to the Court for a preliminary ruling cannot be called into question by the application of those rules, where they permit the appellate court to vary the order for reference, to set aside the reference and to order the referring court to resume the domestic law proceedings. The fourth question 99 By its fourth question, the referring court essentially asks whether Articles 43 EC and 48 EC are to be interpreted as precluding legislation of a Member State under which a company incorporated under the law of that Member State may not transfer its seat to another Member State whilst retaining

155 13 von 16 07/01/ :44 p.m. its status as a company governed by the law of the Member State of incorporation. 100 It is clear from the order for reference that Cartesio a company which was incorporated in accordance with Hungarian legislation and which, at the time of its incorporation, established its seat in Hungary transferred its seat to Italy but wished to retain its status as a company governed by Hungarian law. 101 Under the Hungarian Law on the commercial register, the seat of a company governed by Hungarian law is to be the place where its central administration is situated. 102 The referring court states that the application filed by Cartesio for amendment of the entry in the commercial register regarding its company seat was rejected by the court responsible for maintaining that register on the ground that, under Hungarian law, a company incorporated in Hungary may not transfer its seat, as defined by that Law, abroad while continuing to be subject to Hungarian law as the law governing its articles of association. 103 Such a transfer would require, first, that the company cease to exist and, then, that the company re-incorporate itself in compliance with the law of the country where it wishes to establish its new seat. 104 In that regard, the Court observed at paragraph 19 of the judgment in Daily Mail and General Trust that companies are creatures of national law and exist only by virtue of the national legislation which determines its incorporation and functioning. 105 At paragraph 20 of Daily Mail and General Trust, the Court stated that the legislation of the Member States varies widely in regard to both the factor providing a connection to the national territory required for the incorporation of a company and the question whether a company incorporated under the legislation of a Member State may subsequently modify that connecting factor. Certain States require that not merely the registered office but also the real head office (siège réel) that is to say, the central administration of the company should be situated on their territory, and the removal of the central administration from that territory thus presupposes the winding-up of the company with all the consequences that winding-up entails under company law. The legislation of other States permits companies to transfer their central administration to a foreign country but certain of them make that right subject to certain restrictions, and the legal consequences of a transfer vary from one Member State to another. 106 The Court added, at paragraph 21 of Daily Mail and General Trust, that the EEC Treaty had taken account of that variety in national legislation. In defining, in Article 58 of that Treaty (later Article 58 of the EC Treaty, now Article 48 EC), the companies which enjoy the right of establishment, the EEC Treaty placed on the same footing, as connecting factors, the registered office, central administration and principal place of business of a company. 107 In Case C-208/00 Überseering [2002] ECR I 9919, paragraph 70, the Court, whilst confirming those dicta, inferred from them that the question whether a company formed in accordance with the legislation of one Member State can transfer its registered office or its actual centre of administration to another Member State without losing its legal personality under the law of the Member State of incorporation, and, in certain circumstances, the rules relating to that transfer, are determined by the national law in accordance with which the company was incorporated. The Court concluded that a Member State is able, in the case of a company incorporated under its law, to make the company s right to retain its legal personality under the law of that Member State subject to restrictions on the transfer to a foreign country of the company s actual centre of administration. 108 It should be pointed out, moreover, that the Court also reached that conclusion on the basis of the wording of Article 58 of the EEC Treaty. In defining, in that article, the companies which enjoy the right of establishment, the EEC Treaty regarded the differences in the legislation of the various Member States both as regards the required connecting factor for companies subject to that legislation and as regards the question whether and, if so, how the registered office (siège statutaire) or real head office (siège réel) of a company incorporated under national law may be transferred from one Member State to another as problems which are not resolved by the rules

156 14 von 16 07/01/ :44 p.m. concerning the right of establishment, but which must be dealt with by future legislation or conventions (see, to that effect, Daily Mail and General Trust, paragraphs 21 to 23, and Überseering, paragraph 69). 109 Consequently, in accordance with Article 48 EC, in the absence of a uniform Community law definition of the companies which may enjoy the right of establishment on the basis of a single connecting factor determining the national law applicable to a company, the question whether Article 43 EC applies to a company which seeks to rely on the fundamental freedom enshrined in that article like the question whether a natural person is a national of a Member State, hence entitled to enjoy that freedom is a preliminary matter which, as Community law now stands, can only be resolved by the applicable national law. In consequence, the question whether the company is faced with a restriction on the freedom of establishment, within the meaning of Article 43 EC, can arise only if it has been established, in the light of the conditions laid down in Article 48 EC, that the company actually has a right to that freedom. 110 Thus a Member State has the power to define both the connecting factor required of a company if it is to be regarded as incorporated under the law of that Member State and, as such, capable of enjoying the right of establishment, and that required if the company is to be able subsequently to maintain that status. That power includes the possibility for that Member State not to permit a company governed by its law to retain that status if the company intends to reorganise itself in another Member State by moving its seat to the territory of the latter, thereby breaking the connecting factor required under the national law of the Member State of incorporation. 111 Nevertheless, the situation where the seat of a company incorporated under the law of one Member State is transferred to another Member State with no change as regards the law which governs that company falls to be distinguished from the situation where a company governed by the law of one Member State moves to another Member State with an attendant change as regards the national law applicable, since in the latter situation the company is converted into a form of company which is governed by the law of the Member State to which it has moved. 112 In fact, in that latter case, the power referred to in paragraph 110 above, far from implying that national legislation on the incorporation and winding-up of companies enjoys any form of immunity from the rules of the EC Treaty on freedom of establishment, cannot, in particular, justify the Member State of incorporation, by requiring the winding-up or liquidation of the company, in preventing that company from converting itself into a company governed by the law of the other Member State, to the extent that it is permitted under that law to do so. 113 Such a barrier to the actual conversion of such a company, without prior winding-up or liquidation, into a company governed by the law of the Member State to which it wishes to relocate constitutes a restriction on the freedom of establishment of the company concerned which, unless it serves overriding requirements in the public interest, is prohibited under Article 43 EC (see, to that effect, inter alia, CaixaBank France, paragraphs 11 and 17). 114 It should also be noted that, following the judgments in Daily Mail and General Trust and Überseering, the developments in the field of company law envisaged in Articles 44(2)(g) EC and 293 EC, respectively, as pursued by means of legislation and agreements, have not as yet addressed the differences, referred to in those judgments, between the legislation of the various Member States and, accordingly, have not yet eradicated those differences. 115 The Commission maintains, however, that the absence of Community legislation in this field noted by the Court in paragraph 23 of the judgment in Daily Mail and General Trust was remedied by the Community rules, governing the transfer of the company seat to another Member State, laid down in regulations such as Regulation No 2137/85 on the EEIG and Regulation No 2157/2001 on the SE or, moreover, Council Regulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE) (OJ 2003 L 207, p. 1), as well as by the Hungarian legislation adopted subsequent to those regulations. 116 The Commission argues that those rules may and should be applied mutatis mutandis to the cross border transfer of the real seat of a company incorporated under the law of a Member State.

157 15 von 16 07/01/ :44 p.m. 117 In that regard, it should be noted that although those regulations, adopted on the basis of Article 308 EC, in fact lay down a set of rules under which it is possible for the new legal entities which they establish to transfer their registered office (siège statutaire) and, accordingly, also their real seat (siège réel) both of which must, in effect, be situated in the same Member State to another Member State without it being compulsory to wind up the original legal person or to create a new legal person, such a transfer nevertheless necessarily entails a change as regards the national law applicable to the entity making such a transfer. 118 That is clear, for example, in the case of a European Company, from Articles 7 to 9(1)(c)(ii) of Regulation No 2157/ As it is, in the case before the referring court, Cartesio merely wishes to transfer its real seat from Hungary to Italy, while remaining a company governed by Hungarian law, hence without any change as to the national law applicable. 120 Accordingly, the application mutatis mutandis of the Community legislation to which the Commission refers even if it were to govern the cross-border transfer of the seat of a company governed by the law of a Member State cannot in any event lead to the predicted result in circumstances such as those of the case before the referring court. 121 Further, as regards the implications of SEVIC Systems for the principle established in Daily Mail and General Trust and Überseering, it should be pointed out that those judgments do not relate to the same problem and that, consequently, SEVIC Systems cannot be said to have qualified the scope of Daily Mail and General Trust or Überseering. 122 The case which gave rise to the judgment in SEVIC Systems concerned the recognition, in the Member State of incorporation of a company, of an establishment operation carried out by that company in another Member State by means of a cross border merger, which is a situation fundamentally different from the circumstances at issue in the case which gave rise to Daily Mail and General Trust, but similar to the situations considered in other judgments of the Court (see Case C 212/97 Centros [1999] ECR I 1459; Überseering; and Case C 167/01 InspireArt [2003] ECR I 10155). 123 In such situations, the issue which must first be decided is not the question, referred to in paragraph 109 above, whether the company concerned may be regarded as a company which possesses the nationality of the Member State under whose legislation it was incorporated but, rather, the question whether or not that company which, it is common ground, is a company governed by the law of a Member State is faced with a restriction in the exercise of its right of establishment in another Member State. 124 In the light of all the foregoing, the answer to the fourth question must be that, as Community law now stands, Articles 43 EC and 48 EC are to be interpreted as not precluding legislation of a Member State under which a company incorporated under the law of that Member State may not transfer its seat to another Member State whilst retaining its status as a company governed by the law of the Member State of incorporation. Costs 125 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable. On those grounds, the Court (Grand Chamber) hereby rules: (1) A court such as the referring court, hearing an appeal against a decision of a lower court, responsible for maintaining the commercial register, rejecting an application for amendment of information entered in that register, must be classified as a court or

158 16 von 16 07/01/ :44 p.m. tribunal which is entitled to make a reference for a preliminary ruling under Article 234 EC, regardless of the fact that neither the decision of the lower court nor the consideration of the appeal by the referring court takes place in the context of inter partes proceedings. (2) A court such as the referring court, whose decisions in disputes such as that in the main proceedings may be appealed on points of law, cannot be classified as a court or tribunal against whose decisions there is no judicial remedy under national law, within the meaning of the third paragraph of Article 234 EC. (3) Where rules of national law apply which relate to the right of appeal against a decision making a reference for a preliminary ruling, and under those rules the main proceedings remain pending before the referring court in their entirety, the order for reference alone being the subject of a limited appeal, the second paragraph of Article 234 EC is to be interpreted as meaning that the jurisdiction conferred on any national court or tribunal by that provision of the Treaty to make a reference to the Court for a preliminary ruling cannot be called into question by the application of those rules, where they permit the appellate court to vary the order for reference, to set aside the reference and to order the referring court to resume the domestic law proceedings. (4) As Community law now stands, Articles 43 EC and 48 EC are to be interpreted as not precluding legislation of a Member State under which a company incorporated under the law of that Member State may not transfer its seat to another Member State whilst retaining its status as a company governed by the law of the Member State of incorporation. [Signatures] * Language of the case: Hungarian.

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163 2 von 6 06/10/ :32 p.m. 51 of 59 DOCUMENTS Re Barnett's Trusts CHANCERY DIVISION [ ] All ER Rep 515; [ ] All ER Rep 515 HEARING-DATES: 19 MARCH March 1902 CATCHWORDS: Conflict of Laws - Intestate succession - Personal property in this country - Bona vacantia - No one entitled by lex domicilii - Claim by government of country of domicil. Crown - Bona vacantia - Intestate domiciled abroad without next-of-kin - Personal property in this country. HEADNOTE: On 9 March 1883, a domiciled Austrian died in Vienna, intestate, without heir or next-of-kin. He was entitled to personal estate in England consisting of a fund in court. The Treasury Solicitor, as administrator of the personal estate, petitioned for payment out of the fund and the Crown claimed it as bona vacantia. The Austrian government claimed the property relying on the maxim mobilia sequuntur personam. Held: the maxim mobilia sequuntur personam did not apply as there was no distribution and no persona to follow, and, therefore, the Crown took the property as bona vacantia. Petition by the Treasury Solicitor, as administrator of the personal estate of Aloysius (otherwise Louis) Heller, deceased, for payment out of court of a sum of consols, representing the residuary personal estate in England of William Barnett, deceased. William Barnett by his will gave the residue of his personal estate in England, subject to certain annuities which had ceased, to Aloysius Heller who died on 9 March 1883, in Vienna, intestate, without leaving a widow, and without kindred. At the date of his death he was a domiciled Austrian. The trustees of the will of William Barnett paid the money into court. On 27 April 1900, letters of administration were granted to the Treasury Solicitor of the personal estate in England of Aloysius Heller. It appeared from an affidavit of an Austrian lawyer that the disposition of the movable property of Austrian citizens was regulated by the General Civil Code for all the German hereditary provinces of the Austrian Monarchy. By that code the right of inheritance was limited to certain degrees of relationship; the right of succession to an illegitimate child belonged to the mother only; if no relations existed within the prescribed degrees, the whole inheritance fell to the spouse. By art 760, if the spouse was no longer alive, the succession was confiscated as heirless property, either by the fiscus or by those persons who according to the political ordinances were justified in confiscating heirless estates. In the course of the hearing of the petition the Attorney-General was added as respondent. NOTES: Notes As to the residuary estate of an intestate belonging to the Crown as bona vacantia, see s. 46(1)(vi) of the Administration of Estates Act, 1925 (9 HALSBURY'S STATUTES (2nd Edn) 752). Considered: Re Maldonado, State of Spain v Treasury Solicitor, [1953] 2 All ER Referred to: In the Estate of Musurus, [1936] 2 All ER As to intestate succession where there is no one entitled by the lex domicilii of the deceased, see 7 HALSBURY'S LAWS (3RD Edn) 397, 398, and for cases see 11 DIGEST (Repl) 397, 398. CASES-REF-TO: Case referred to: (1) Dyke v Watford (1848) 5 MooPCC 434; 6 State TrNS 699; 6 Notes of Cases 309; 12 Jur 839; 13 ER 557, PC; 24 Digest

164 von /10/ :32 p.m. (Repl) 958, Also referred to in argument: Re Higginson and Dean, Ex parte A-G, [1899] 1 QB 325; 68 LJQB 198; 79 LT 673; 47 WR 285; 15 TLR 135; 43 Sol Jo 153; 5 Mans 289, DC; 4 Digest (Repl) 370, Aspinwall v Queen's Proctor (1839) 2 Curt 241; 163 ER 398; 11 Digest (Repl) 398, 547. In the Goods of Beggia (1822) 1 Add 340; 162 ER 119; 11 Digest (Repl) 398, 545. Doe d Birtwhistle v Vardill (1826) 5 B & C 438; on appeal (1835) 2 Cl & Fin 571; 9 Bli (NS) 32; 6 ER 1270; 3 Digest (Repl) 424, 204. Re Ewin (1830) 1 Cr & J 151; 1 Tyr 91; 9 LJOSEx 37; 148 ER 1371; 21 Digest (Repl) 111, 560. Bremer v Freeman (1857) 10 MooPCC 306; 29 LTOS 251; 5 WR 618; 14 ER 508, PC; 71 Digest (Repl) 336, 85. Enohin v Wylie (1862) 10 HL Cas 1; 31 LJ Ch 402; 2 LT 263; 8 Jur NS 897; 10 WR 467; 11 ER 924, HL; 11 Digest (Repl) 394, 508. Cooper v Cooper (1888) 13 App Cas 88; 59 LT 1, HL; 11 Digest (Repl) 491, COUNSEL: The Attorney General (Sir Robert Finlay KC) the Solicitor General (Sir Edward Carson KC) and RJ Parker for the Crown.; Warrington KC and A Adams for the Finance Minister of Austria. ; TT Methold for the official solicitor. ; Herbert Robertson for the legal personal representative of William Barnett. Solicitors: Treasury Solicitor; Tatham & Lousada; Official Solicitor; Francis Fearon. Reported by FRANCIS E ADY, Esq, Barrister-at-Law. PANEL: KEKEWICH J JUDGMENTBY-1: KEKEWICH J: JUDGMENT-1: KEKEWICH J: We have had a very interesting discussion, and reference has been made to many authorities, including some decided cases, and I think rather more text writers. None of those are out of place as tending to throw considerable light on the discussion, which I agree has been of an interesting character; but, after all, it seems to me we are brought back to questions of English law, which must be decided in the absence of direct authority according to principle, and that principle which governs English law on this particular subject. Reference has been made to many writers, both English and foreign, on what is termed private international law. What those writers have said is apposite, because in dealing with a question of this kind one is thrown back on maxims and principles, and the exposition of them by text writers is important, and is always accepted as a guide, but it is admitted on all hands that they fail to deal in an authoritative manner with the particular question which I am called upon to decide. There is no doubt the dicta go to this, that in a case where a man dies hairless (I naturally use the expression in the affidavit for the respondents) his personal property must go in the manner indicated by the law of the deceased's domicil. There are dicta, and sometimes dicta that are probably clear on that point, but those dicta do not profess to lay down general propositions. In each case that has been cited to me, I think it true to say it is given with a modification, and a possibility of an application of a different rule elsewhere. The respondents' argument is that this case is governed by the old maxim which is embodied in our English law and which is to be found repeated in one form and another by all the text writers, mobilia sequuntur personam, and the respondents' point is that that maxim is applicable to the case of a man dying heirless and leaving personalty, or, strictly speaking, movable property, outside his domicil. That is the position. Mobilia sequuntur personam is translated over and over again by text writers, as well by foreign as English, and reduced to definition and rules, and they are all, more or less, in the same form and to the same extent. I do not know that one can find anything better than the rule from DICEY'S CONFLICT OF LAWS (1st Edn) r 179, p 677 (see now (7th Edn) p 592 et seq) which is cited on behalf of the respondents. You cannot read that rule so as to understand it without reading the preceding rule, r 178, which deals with the payment of debts, with which we are now concerned, it being admitted on all hands that the debts of the intestate would have to be paid according to the law of the country in which the property was found.

165 4 von 6 06/10/ :32 p.m. The debts being out of the way, you have to deal with what MR DICEY calls the distributable residue, and there be lays down this rule: "The distribution of the distributable residue of the movables of the deceased is (in general) governed by the law of the deceased's domicil (lex domicilii) at the time of his death." On the next page he describes what he means by "the law of the deceased's domicil." I need not read the passage, because I think it may be taken we all mean the same thing by that term. That seems to me to exactly illustrate the meaning and extent of the rule. It is the distribution of the distributable residue. When you come to distribute the deceased's property then you must follow the law of the deceased's domicil; whether it is according to some statute, whether it is according to what the English call common law, whether it is among relations, because they claim in that character, or among persons who are entitled under the will - in whatever aspect you look at it, the distribution must follow the law of the domicil; but that is distributing it exactly as is meant, or rather part of what is meant, by mobilia sequuntur personam. We have to deal with a case here where there is no distribution at all - where there is really no persons to follow. Counsel for the Finance Minister of Austria argues that the Crown or any other person, his own client, for instance, coming in and obtaining administration to the deceased's estate is for all intents and purposes the deceased's personal representative. He says that he is so, and that we call him the "legal personal representative" of the deceased. But that is only the language of our law. He does not represent him at all, except that by our law he is put in his place to defend actions brought by creditors, or it may be by persons who are claiming the estate against him. In no other sense does he claim any estate. He does not claim through the persona, through the deceased. He claims what in some old authorities is called the glans caduca - the acorn which has fallen from the tree, and not the acorn on the tree or connected with the tree. It is the acorn which has fallen on to the ground, from the tree. There is no possibility of getting at this property through the deceased. It is because there is nobody who can claim through the deceased, no one who can be entitled, that the Crown steps in and takes the property. In other words, the Crown takes it because it is, as described in the cases, bona vacantia - it is property which no one claims. It is property at large. There is no succession, The Crown does not claim it by succession at all. It claims it because there is no succession. All the learning on this subject of the bona vacantia is to be found in Dyke v Walford (1) in the Privy Council which was cited in argument, and to which I need not refer. It was there, no doubt, a contest of a peculiar character, and the judgment delivered by LORD KINGSDOWN goes into the duties and the powers of the ordinary, and goes to got rid of any claim on the part of the Church, but the principle was that the Crown comes and claims it as jura regalia, the right to take that which belonged to no one; and if that is really the sound view I cannot see how, according to English law, there can be a right in anyone else to say that this maxim applies, and there should be an administration and distribution and settlement of rights according to the domicil of the deceased person, who in effect by dying lost the claim not only for himself, but those left behind, to his domicil. If that is the sound view, it seems to me that concludes the question. I am not dealing here with any case in which another claimant may be desirous to enforce a different rule. It may be - I do not say it will be, but it may be - that hereafter, if a case arises where there is a conflict between the two countries respecting the law on the subject, a more difficult question may have, to be decided, and decided on the ground of international comity, but with that I have not to deal at all, because it seeing to me perfectly clear on the statement of law in this affidavit which states the code, that as between Austria and England there is no real difference on this subject. I have not forgotten the previous paragraphs, which have been referred to in argument, but it is really No 760 which is directly applicable. The words with which it commences, "If the spouse is no longer alive," must be read in connection with the immediate preceding clause, which gives the whole inheritance to the spouse with certain conditions there mentioned. Reading art 760 alone, those words, "If the spouse is no longer alive," were equivalent to this, that if there be, no person to claim as heir, then the succession is confiscated as heirless property. The great difficulty in the case, to my mind, is in dealing with the poverty of language, the poverty, at any rate, of the English language. The word "confiscated" is a word capable of being used in many senses. In the ordinary sense it is where the Crown intervenes, not to take up as belonging to it a thing because it is vacant, but to take up by way of penalty in exercise of sovereign rights different from those which are asserted in a case like this, and which must be the meaning, I think, of "confiscated" here. It does not mean "confiscated" in the sense of taking by way of penalty. It is taken to the Crown, assumed by the Crown, as its own property. What the code says is it is confiscated as heirless property - that is, as property which we call in England bona vacantia. That is the same thing - property to which there is no heir because neither country admits the right of the passing traveller, and therefore, the property must fall to the Crown as a matter of right in the exercise of its sovereign power. The rest of it is really of no importance for this purpose. It only says: "Either by the fiscus, or those persons who, according to the political ordinances, are justified in confiscating heirless estates" - that is to say, by the person appointed for the purpose, whether it be the Minister of Finance in one country, or the Solicitor to the Treasury in another, is immaterial - it is as heirless property. That seems to me to be precisely on our lines - that when there is no heir, then some paramount authority steps in and claims it - not as against anyone else, because there is nobody to claim it at all. But then it is said, "You must remember the law is different as regards succession in Austria from what it is here, that there is a limit to the persons to take, and that makes a difference." I notice that argument because it was urged, but I confess I fail to see the force of it. What matters it, looking at it from an Austrian point of view, to them, that according to English law those related by half blood are allowed to come in? What would it

166 5 von 6 06/10/ :32 p.m. matter if the relation of half blood was excluded? It must come back to this: Under what circumstances does the succession stop, or, rather, perhaps that is inaccurate, I should say under what circumstances does no succession arise; under what circumstances is the paramount authority entitled to come in and say, "I take because there is nobody else to take"? That seems to me to be the whole question, and it matters not in the least whether any description of person is allowed to come in or not, or whether there is a limit or no limit to those entitled to claim. It seems to me to be all upon the same lines, and that really when once you have got at the principle which I have endeavoured to express, if not all, by far the large majority of the passages which have been quoted of the dicta, can all be construed by reference to that principle, raving regard to the unfortunate poverty of language, which makes you speak of "succession" when there is no succession, simply because there is no other expression which fits in so well with ordinary parlance. An excellent illustration was given of that by the Attorney-General in opening the case, and which is to be found in several of the books (I think in Dyke v Walford (1) in the Privy Council more than once) which speaks of the Crown as ultimus hoeres. It is not only not English, it is a Latin expression, but it is perfectly inaccurate - as inaccurate really as an expression could well be, and yet like many other inaccurate expressions, it is thoroughly well understood, and is very convenient. Only when you come to use convenient expressions which are inaccurate technically and deduced from principles, and thereon found a rule, you are almost sure to be led into error. I think the principle is that which I have stated, and that it must govern this case. There must be a declaration of the Crown's rights. The costs of the Crown, the official solicitor, and the trustee must come out of the fund in court; but the costs of the Austrian Government, as an adverse claimant, cannot be allowed. DISPOSITION: Order accordingly.

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172 EUR-Lex J EN 1 von 5 05/10/ :49 p.m. Managed by the Avis Publications juridique important Office 62000J0334 Judgment of the Court of 17 September Fonderie Officine Meccaniche Tacconi SpA v Heinrich Wagner Sinto Maschinenfabrik GmbH (HWS). - Reference for a preliminary ruling: Corte suprema di cassazione - Italy. - Brussels Convention - Article 5(1) and (3) - Special jurisdiction - Pre-contractual liability. - Case C-334/00. European Court reports 2002 Page I Summary Parties Grounds Decision on costs Operative part Keywords Convention on Jurisdiction and the Enforcement of Judgments - Special jurisdiction - Jurisdiction in matters relating to tort, delict or quasi-delict - Definition - Action in pre-contractual liability founded on breach of rules of law during negotiations with a view to the formation of a contract - Included (Brussels Convention of 27 September 1968, Art. 5(3)) Summary $$In circumstances characterised by the absence of obligations freely assumed by one party towards another on the occasion of negotiations with a view to the formation of a contract and by a possible breach of rules of law, in particular the rule which requires the parties to act in good faith in such negotiations, an action founded on the pre-contractual liability of the defendant is a matter relating to tort, delict or quasi-delict within the meaning of Article 5(3) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland, by the Convention of 25 October 1982 on the Accession of the Hellenic Republic and by the Convention of 26 May 1989 on the Accession of the Kingdom of Spain and the Portuguese Republic. ( see para. 27, operative part ) Parties In Case C-334/00, REFERENCE to the Court under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters by the Corte suprema di cassazione (Italy) for a preliminary ruling in the proceedings pending before that court between Fonderie Officine Meccaniche Tacconi SpA and Heinrich Wagner Sinto Maschinenfabrik GmbH (HWS), on the interpretation of Article 5(1) and (3) of the abovementioned Convention of 27 September 1968 (OJ 1978 L 304, p. 36), as amended by the Convention of 9 October 1978 on the Accession of the

173 EUR-Lex J EN 2 von 5 05/10/ :49 p.m. Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1 and - amended version - p. 77), by the Convention of 25 October 1982 on the Accession of the Hellenic Republic (OJ 1982 L 388, p. 1) and by the Convention of 26 May 1989 on the Accession of the Kingdom of Spain and the Portuguese Republic (OJ 1989 L 285, p. 1), THE COURT, composed of: G.C. Rodríguez Iglesias, President, N. Colneric and S. von Bahr (Presidents of Chambers), C. Gulmann, D.A.O. Edward, A. La Pergola, J.-P. Puissochet, M. Wathelet, R. Schintgen, J.N. Cunha Rodrigues (Rapporteur) and C.W.A. Timmermans, Judges, Advocate General: L.A. Geelhoed, Registrar: R. Grass, after considering the written observations submitted on behalf of: - Fonderie Officine Meccaniche Tacconi SpA, by F. Franchi, avvocato, - Heinrich Wagner Sinto Maschinenfabrik GmbH (HWS), by M.P. Ginelli, avvocato, and R. Rudek, Rechtsanwalt, - the Commission of the European Communities, by A.-M. Rouchaud and G. Bisogni, acting as Agents, having regard to the report of the Judge-Rapporteur, after hearing the Opinion of the Advocate General at the sitting on 31 January 2002, gives the following Judgment Grounds 1 By order of 9 June 2000, received at the Court on 11 September 2000, the Corte suprema di cassazione (Court of Cassation) referred to the Court for a preliminary ruling under the Protocol of 3 June 1971 on the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (OJ 1978 L 304, p. 36) three questions on the interpretation of Article 5(1) and (3) of that convention, as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland (OJ 1978 L 304, p. 1 and - amended version - p. 77), by the Convention of 25 October 1982 on the Accession of the Hellenic Republic (OJ 1982 L 388, p. 1) and by the Convention of 26 May 1989 on the Accession of the Kingdom of Spain and the Portuguese Republic (OJ 1989 L 285, p. 1) (hereinafter the Brussels Convention). 2 Those questions were raised in proceedings between Fonderie Officine Meccaniche Tacconi SpA (Tacconi), a company incorporated under Italian law, established in Perugia (Italy), and Heinrich Wagner Sinto Maschinenfabrik GmbH (HWS), a company incorporated under German law, established in the Federal Republic of Germany, concerning compensation claimed from HWS by Tacconi to make good the damage allegedly caused to Tacconi by HWS's breach of its duty to act honestly and in good faith on the occasion of negotiations with a view to the formation of a contract. Legal background The Brussels Convention 3 The first paragraph of Article 2 of the Brussels Convention provides: 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. 4 Article 5(1) and (3) of the Brussels Convention provides: 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; in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred. National law 5 Article 1337 of the Italian Codice Civile (Civil Code) provides that, in the context of the negotiation and formation of a contract, the parties must act in good faith. The main proceedings and the questions referred for a preliminary ruling 6 On 23 January 1996 Tacconi brought an action against HWS in the Tribunale di Perugia (District Court,

174 EUR-Lex J EN 3 von 5 05/10/ :49 p.m. Perugia) for a declaration that a contract between HWS and a leasing company B.N. Commercio e Finanza SpA (BN) for the sale of a moulding plant, in respect of which BN and Tacconi had already, with the agreement of HWS, concluded a leasing contract, had not been concluded because of HWS's unjustified refusal to carry out the sale, and hence its breach of its duty to act honestly and in good faith. HWS thereby infringed the legitimate expectations of Tacconi, which had relied on the contract of sale being concluded. Tacconi therefore asked the court to order HWS to make good all the damage allegedly caused, which was calculated at ITL In its defence, HWS pleaded that the Italian court lacked jurisdiction because of the existence of an arbitration clause and, in the alternative, because Article 5(1) of the Brussels Convention was applicable. On the substance, it contended that Tacconi's claim should be dismissed and, strictly in the alternative and as a counterclaim, that Tacconi should be ordered to pay it DEM By application served on 16 March 1999, Tacconi applied, pursuant to Article 41 of the Italian Codice di Procedura Civile (Code of Civil Procedure) concerning preliminary decisions on jurisdiction, to the Corte suprema di cassazione for a declaration that the Italian courts had jurisdiction over the main proceedings. Tacconi claimed that no agreement had been reached between it and HWS because its proposals had all been met by counter-proposals. It therefore relied on the pre-contractual liability of HWS on the basis of Article 1337 of the Italian Civil Code and submitted that under Article 5(3) of the Brussels Convention the place where the harmful event occurred must also be understood as the place where the person claiming to have been harmed has sustained loss. The loss at issue in the main proceedings was incurred in Perugia, where Tacconi has its office. 9 In its order for reference, the national court considered that the criterion for special jurisdiction in Article 5(1) of the Brussels Convention does not appear to apply to pre-contractual liability, which does not result from the non-performance of a contractual obligation. No such obligation existed in the case at issue in the main proceedings, since no contract was concluded. 10 Since it considered that an interpretation of the Brussels Convention was thus needed in order to decide the issue of jurisdiction, the Corte suprema di cassazione decided to stay proceedings and refer the following questions to the Court for a preliminary ruling: 1. Does an action against a defendant seeking to establish pre-contractual liability fall within the scope of matters relating to tort, delict or quasi-delict (Article 5(3) of the Brussels Convention)? 2. If not, does it fall within the scope of matters relating to a contract (Article 5(1) of the Brussels Convention), and if it does, what is "the obligation in question"? 3. If not, is the general criterion of the domicile of the defendant the only criterion applicable? Question 1 11 By its first question the national court asks whether an action founded on the pre-contractual liability of the defendant is a matter relating to tort, delict or quasi-delict within the meaning of Article 5(3) of the Brussels Convention. Observations submitted to the Court 12 Tacconi and the Commission submit, citing the case-law of the Court (Case 189/87 Kalfelis [1988] ECR 5565, Case C-261/90 Reichert and Kockler [1992] ECR I-2149, and Case C-26/91 Handte [1992] ECR I-3967), that since pre-contractual liability does not derive from obligations freely assumed by one party towards another, it is a matter relating to tort, delict or quasi-delict. 13 According to Tacconi, it is quite plain that at the pre-contractual stage, since the contract has not yet been concluded, there is no contractual link which could bind the parties to each other. 14 The Commission submits that, on the basis of the Court's case-law, it is possible to state a general principle that all claims referred to by the Brussels Convention seeking to establish the liability of a defendant give rise, in any event, to the application of one of the two criteria of special jurisdiction in Article 5(1) and (3) of the convention. 15 The Commission concludes that disputes concerning pre-contractual liability fall within the scope of Article 5(3) of the Brussels Convention, since, first, an action founded on the defendant's pre-contractual liability is by definition a claim seeking to establish liability on the part of the defendant and, second, that liability is not based on obligations freely assumed by the defendant towards the claimant, but on duties as to conduct imposed, more or less specifically, by a source external to the parties involved in the pre-contractual relationship. 16 HWS submits, on the other hand, that pre-contractual liability is of a different nature from liability in tort, delict or quasi-delict. The latter applies to any person who breaches the general rule against causing harm to others and infringes absolute rights. 17 Pre-contractual liability, however, may be imputed only to a person who has a special relationship with the person who has suffered harm, namely that resulting from the negotiation of a contract. Consequently, by contrast with the principles applicable to matters relating to tort, delict or quasi-delict, pre-contractual liability cannot be assessed except by reference to the content of the negotiations. 18 Moreover, submitting that Article 5(1) of the Brussels Convention cannot be applied either in this

175 EUR-Lex J EN 4 von 5 05/10/ :49 p.m. case, since Tacconi's claim rests on the hypothesis that no contract was concluded, HWS argues that pre-contractual liability is neither liability in tort, delict or quasi-delict nor liability in contract, and that the German courts therefore have jurisdiction to hear the case in accordance with the general provision in Article 2 of the Convention. Findings of the Court 19 It should be observed at the outset that the Court has consistently held (see Case 34/82 Martin Peters Bauunternehmung [1983] ECR 987, paragraphs 9 and 10, Reichert and Kockler, paragraph 15, and Handte, paragraph 10) that the expressions matters relating to a contract and matters relating to tort, delict or quasi-delict in Article 5(1) and (3) of the Brussels Convention are to be interpreted independently, having regard primarily to the objectives and general scheme of the Convention. Those expressions cannot therefore be taken as simple references to the national law of one or the other of the Contracting States concerned. 20 Only such an interpretation is capable of ensuring the uniform application of the Brussels Convention, which is intended in particular to lay down common rules on jurisdiction for the courts of the Contracting States and to strengthen the legal protection of persons established in the Community by enabling the claimant to identify easily the court in which he may sue and the defendant reasonably to foresee in which court he may be sued (see Case C-295/95 Farrell [1997] ECR I-1683, paragraph 13, and Case C-256/00 Besix [2002] ECR I-1737, paragraphs 25 and 26). 21 As the Court has held, the concept of matters relating to tort, delict or quasi-delict within the meaning of Article 5(3) of the Brussels Convention covers all actions which seek to establish the liability of a defendant and which are not related to a contract within the meaning of Article 5(1) of the Convention (Kalfelis, paragraph 18, Reichert and Kockler, paragraph 16, and Case C-51/97 Réunion Européenne and Others [1998] ECR I-6511, paragraph 22). 22 Moreover, while Article 5(1) of the Brussels Convention does not require a contract to have been concluded, it is nevertheless essential, for that provision to apply, to identify an obligation, since the jurisdiction of the national court is determined, in matters relating to a contract, by the place of performance of the obligation in question. 23 Furthermore, it should be noted that, according to the Court's case-law, the expression matters relating to contract within the meaning of Article 5(1) of the Brussels Convention is not to be understood as covering a situation in which there is no obligation freely assumed by one party towards another (Handte, paragraph 15, and Réunion Européenne and Others, paragraph 17). 24 It does not appear from the documents in the case that there was any obligation freely assumed by HWS towards Tacconi. 25 In view of the circumstances of the main proceedings, the obligation to make good the damage allegedly caused by the unjustified breaking off of negotiations could derive only from breach of rules of law, in particular the rule which requires the parties to act in good faith in negotiations with a view to the formation of a contract. 26 In those circumstances, it is clear that any liability which may follow from the failure to conclude the contract referred to in the main proceedings cannot be contractual. 27 In the light of all the foregoing, the answer to the first question must be that, in circumstances such as those of the main proceedings, characterised by the absence of obligations freely assumed by one party towards another on the occasion of negotiations with a view to the formation of a contract and by a possible breach of rules of law, in particular the rule which requires the parties to act in good faith in such negotiations, an action founded on the pre-contractual liability of the defendant is a matter relating to tort, delict or quasi-delict within the meaning of Article 5(3) of the Brussels Convention. Questions 2 and 3 28 As the first question has been answered in the affirmative, there is no need to answer the other questions put by the national court. Decision on costs Costs 29 The costs incurred by the Commission, which has submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Operative part

176 EUR-Lex J EN 5 von 5 05/10/ :49 p.m. On those grounds, THE COURT, in answer to the questions referred to it by the Corte suprema di cassazione by order of 9 June 2000, hereby rules: In circumstances such as those of the main proceedings, characterised by the absence of obligations freely assumed by one party towards another on the occasion of negotiations with a view to the formation of a contract and by a possible breach of rules of law, in particular the rule which requires the parties to act in good faith in such negotiations, an action founded on the pre-contractual liability of the defendant is a matter relating to tort, delict or quasi-delict within the meaning of Article 5(3) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended by the Convention of 9 October 1978 on the Accession of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland, by the Convention of 25 October 1982 on the Accession of the Hellenic Republic and by the Convention of 26 May 1989 on the Accession of the Kingdom of Spain and the Portuguese Republic.

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183 1 von 4 06/10/ :24 p.m. IMPORTANT LEGAL NOTICE - The information on this site is subject to a disclaimer and a copyright notice. JUDGMENT OF THE COURT (Fifth Chamber) 9 November 2000 (1) (Directive 86/653/EEC - Self-employed commercial agent carrying on his activity in a Member State - Principal established in a non-member country - Clause submitting the agency contract to the law of the country of establishment of the principal) In Case C-381/98, REFERENCE to the Court under Article 177 of the EC Treaty (now Article 234 EC) by the Court of Appeal of England and Wales (Civil Division), United Kingdom, for a preliminary ruling in the proceedings pending before that court between Ingmar GB Ltd Eaton Leonard Technologies Inc. and on the interpretation of Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents (OJ 1986 L 382, p. 17), THE COURT (Fifth Chamber), composed of: M. Wathelet, President of the First Chamber, acting as President of the Fifth Chamber, D.A.O. Edward and P. Jann (Rapporteur), Judges, Advocate General: P. Léger, Registrar: L. Hewlett, Administrator, after considering the written observations submitted on behalf of: - Ingmar GB Ltd, by F. Randolph and R. O'Donoghue, Barristers, instructed by Fladgate Fielder, Solicitors, - Eaton Leonard Technologies Inc., by M. Pooles, Barrister, instructed by Clifford Chance, Solicitors, - the United Kingdom Government, by J.E. Collins, Assistant Treasury Solicitor, acting as Agent, assisted by S. Moore, Barrister, - the German Government, by W.-D. Plessing, Ministerialrat in the Federal Ministry of Finance, and A. Dittrich, Ministerialrat in the Federal Ministry of Justice, acting as Agents, - the Commission of the European Communities, by M. Patakia and K. Banks, of its Legal Service, acting as Agents, having regard to the Report for the Hearing, after hearing the oral observations of Ingmar GB Ltd, Eaton Leonard Technologies Inc., the United Kingdom Government and the Commission at the hearing on 26 January 2000, after hearing the Opinion of the Advocate General at the sitting on 11 May 2000, gives the following Judgment By order of 31 July 1998, received at the Court on 26 October 1998, the Court of Appeal of England and Wales (Civil Division) referred to the Court for a preliminary ruling under Article 177 of the EC Treaty (now Article 234 EC) a question on the interpretation of Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents (OJ 1986 L 382, p. 17; 'the Directive). That question has been raised in proceedings between Ingmar GB Ltd ('Ingmar), a company established in

184 2 von 4 06/10/ :24 p.m. the United Kingdom, and Eaton Leonard Technologies Inc. ('Eaton), a company established in California, concerning the payment of sums claimed to be due on account, in particular, of the termination of an agency contract. Legal framework Community legislation In the second recital in its preamble it is stated that the Directive was adopted in the light of the fact that 'the differences in national laws concerning commercial representation substantially affect the conditions of competition and the carrying-on of that activity within the Community and are detrimental both to the protection available to commercial agents vis-à-vis their principals and to the security of commercial transactions. Articles 17 and 18 of the Directive specify the circumstances in which the commercial agent is entitled, on termination of the contract, to an indemnity or to compensation for the damage he suffers as a result of the termination of his relations with the principal. Article 17(1) of the Directive provides: '[M]ember States shall take the measures necessary to ensure that the commercial agent is, after termination of the agency contract, indemnified in accordance with paragraph 2 or compensated for damage in accordance with paragraph Article 19 of the Directive provides: '[T]he parties may not derogate from Articles 17 and 18 to the detriment of the commercial agent before the agency contract expires. 7. Under Article 22(1) and (3) thereof, the Directive was to be implemented before 1 January 1990 and, with regard to the United Kingdom, before 1 January Under Article 22(1), the national provisions implementing the Directive must apply at least to contracts concluded after their entry into force and, in any event, to contracts in operation by 1 January 1994 at the latest. National legislation In the United Kingdom, the Directive was implemented by the Commercial Agents (Council Directive) Regulations 1993, which entered into force on 1 January 1994 ('the Regulations). Regulation 1(2) and (3) provides: '2. These Regulations govern the relations between commercial agents and their principals and, subject to paragraph 3, apply in relation to the activities of commercial agents in Great Britain. 3. Regulations 3 to 22 do not apply where the parties have agreed that the agency contract is to be governed by the law of another Member State. The main proceedings In 1989, Ingmar and Eaton concluded a contract under which Ingmar was appointed as Eaton's commercial agent in the United Kingdom. A clause of the contract stipulated that the contract was governed by the law of the State of California. The contract was terminated in Ingmar instituted proceedings before the High Court of Justice of England and Wales, Queen's Bench Division, seeking payment of commission and, pursuant to Regulation 17, compensation for damage suffered as a result of the termination of its relations with Eaton. By judgment of 23 October 1997, the High Court held that the Regulations did not apply, since the contract was governed by the law of the State of California. Ingmar appealed against that judgment to the Court of Appeal of England and Wales (Civil Division), which decided to stay proceedings and to refer the following question to the Court for a preliminary ruling:

185 3 von 4 06/10/ :24 p.m. 'Under English law, effect will be given to the applicable law as chosen by the parties, unless there is a public policy reason, such as an overriding provision, for not so doing. In such circumstances, are the provisions of Council Directive 86/653/EEC, as implemented in the laws of the Member States, and in particular those provisions relating to the payment of compensation to agents on termination of their agreements with their principals, applicable when: (a) a principal appoints an exclusive agent in the United Kingdom and the Republic of Ireland for the sale of its products therein; and (b) in so far as sales of the products in the United Kingdom are concerned, the agent carries out its activities in the United Kingdom; and (c) the principal is a company incorporated in a non-eu State, and in particular in the State of California, USA, and situated there; and (d) the express applicable law of the contract between the parties is that of the State of California, USA? The question referred for preliminary ruling By its question, the national court seeks to ascertain, essentially, whether Articles 17 and 18 of the Directive, which guarantee certain rights to commercial agents after termination of agency contracts, must be applied where the commercial agent carried on his activity in a Member State although the principal is established in a non-member country and a clause of the contract stipulates that the contract is to be governed by the law of that country. The parties to the main proceedings, the United Kingdom and German Governments and the Commission agree that the freedom of contracting parties to choose the system of law by which they wish their contractual relations to be governed is a basic tenet of private international law and that that freedom is removed only by rules that are mandatory. However, their submissions differ as to the conditions which a legal rule must satisfy in order to be classified as a mandatory rule for the purposes of private international law. Eaton contends that such mandatory rules can arise only in extremely limited circumstances and that, in the present case, there is no reason to apply the Directive, which is intended to harmonise the domestic laws of the Member States, to parties established outside the European Union. Ingmar, the United Kingdom Government and the Commission submit that the question of the territorial scope of the Directive is a question of Community law. In their submission, the objectives pursued by the Directive require that its provisions be applied to all commercial agents established in a Member State, irrespective of the nationality or the place of establishment of their principal. According to the German Government, in the absence of any express provision in the Directive as regards its territorial scope, it is for the court of a Member State seised of a dispute concerning a commercial agent's entitlement to indemnity or compensation to examine the question whether the applicable national rules are to be regarded as mandatory rules for the purposes of private international law. In that respect, it should be borne in mind, first, that the Directive is designed to protect commercial agents, as defined in the Directive (Case C-215/97 Bellone v Yokohama [1998] ECR I-2191, paragraph 13). The purpose of Articles 17 to 19 of the Directive, in particular, is to protect the commercial agent after termination of the contract. The regime established by the Directive for that purpose is mandatory in nature. Article 17 requires Member States to put in place a mechanism for providing reparation to the commercial agent after termination of the contract. Admittedly, that article allows the Member States to choose between indemnification and compensation for damage. However, Articles 17 and 18 prescribe a precise framework within which the Member States may exercise their discretion as to the choice of methods for calculating the indemnity or compensation to be granted. The mandatory nature of those articles is confirmed by the fact that, under Article 19 of the Directive, the parties may not derogate from them to the detriment of the commercial agent before the contract expires. It is also borne out by the fact that, with regard to the United Kingdom, Article 22 of the Directive provides for the immediate application of the national provisions implementing the Directive to contracts in operation.

186 4 von 4 06/10/ :24 p.m Second, it should be borne in mind that, as is apparent from the second recital in the preamble to the Directive, the harmonising measures laid down by the Directive are intended, inter alia, to eliminate restrictions on the carrying-on of the activities of commercial agents, to make the conditions of competition within the Community uniform and to increase the security of commercial transactions (see, to that effect, Bellone, paragraph 17). The purpose of the regime established in Articles 17 to 19 of the Directive is thus to protect, for all commercial agents, freedom of establishment and the operation of undistorted competition in the internal market. Those provisions must therefore be observed throughout the Community if those Treaty objectives are to be attained. It must therefore be held that it is essential for the Community legal order that a principal established in a non-member country, whose commercial agent carries on his activity within the Community, cannot evade those provisions by the simple expedient of a choice-of-law clause. The purpose served by the provisions in question requires that they be applied where the situation is closely connected with the Community, in particular where the commercial agent carries on his activity in the territory of a Member State, irrespective of the law by which the parties intended the contract to be governed. In the light of those considerations, the answer to the question must be that Articles 17 and 18 of the Directive, which guarantee certain rights to commercial agents after termination of agency contracts, must be applied where the commercial agent carried on his activity in a Member State although the principal is established in a non-membercountry and a clause of the contract stipulates that the contract is to be governed by the law of that country. Costs 27. The costs incurred by the United Kingdom and German Governments and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. On those grounds, THE COURT (Fifth Chamber), in answer to the question referred to it by the Court of Appeal of England and Wales (Civil Division) by order of 31 July 1998, hereby rules: Articles 17 and 18 of Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents, which guarantee certain rights to commercial agents after termination of agency contracts, must be applied where the commercial agent carried on his activity in a Member State although the principal is established in a non-member country and a clause of the contract stipulates that the contract is to be governed by the law of that country. Wathelet Edward Jann Delivered in open court in Luxembourg on 9 November R. Grass Registrar A. La Pergola President of the Fifth Chamber 1: Language of the case: English.

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