REPORT FOR THE in Case C-214/ 89 *

REPORT FOR THE HEARING CASE C-214/89 1. The concept of 'agreement conferring jurisdiction' in Article 17 of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters must be regarded as an independent concept. A clause contained in the statutes of a company limited by shares and adopted in accordance with the provisions of the applicable national law and those statutes themselves conferring jurisdiction on a court of a Contracting State to settle disputes between that company and its shareholders constitutes an agreement conferring jurisdiction. The formal requirements laid down in Article 17 of the Convention must be considered to be complied with in regard to any shareholder, irrespective of how the shares were acquired, if the clause conferring jurisdiction is contained in the statutes of the company and those statutes are lodged in a place to which the shareholder may have access or are contained in a public register. 2. The requirement that a dispute arise in connection with a particular legal relationship, for the solution of which Article 17 of the Convention permits the assignment of jurisdiction by agreement, is satisfied if the clause conferring jurisdiction contained in the statutes of a company may be interpreted by the national court, which has exclusive competence in that regard, as referring to the disputes between the company and its shareholders as such. REPORT FOR THE in Case C-214/ 89 * HEARING I Facts and procedure Powell Duffryn plc (hereinafter referred to as 'Powell Duffryn') is an undertaking governed by English law which subscribed for registered shares in the capital of IBH Holding AG (hereinafter referred to as 'IBH'), an undertaking governed by German law, when it increased its capital in September/October 1979. On 28 July 1980, it took part in the proceedings of a general meeting of IBH, during which, by a show of hands, the shareholders resolved to amend the statutes of the company by inserting the following provision (now contained in Article 4 of the amended Statutes): 'By subscribing for or purchasing shares or interim certificates the shareholders submits, with regard to all disputes with the company * Language of the case: German. I - 1746

POWELL DUFFRYN or its organs, to the jurisdiction of the courts ordinarily competent to entertain suits concerning the company.' In June 1981 and April 1982 Powell Duffryn subscribed for bearer shares when the capital was again increased. It received dividends in September 1981 and November 1982. IBH was declared insolvent in December 1983 and Mr Petereit, as trustee in bankruptcy, commenced proceedings before the Landgericht (Regional Court) Mainz by a writ issued on 22 January 1987 against Powell Duffryn, maintaining that the latter had not fulfilled its obligations to pay cash arising from the increases of capital because the payments made were unlawful, being disguised contributions in kind. He also sought reimbursement of the dividends which he considered to have been wrongfully paid to Powell Duffryn. Powell Duffryn contended that the Landgericht Mainz lacked jurisdiction. Powell Duffryn appealed against that judgment to the Oberlandesgericht Koblenz which, considering that the,dispute raised a question of interpretation of the Convention, stayed the proceedings by order of 1 June 1989 and referred the following questions to the Court for a preliminary ruling: '1. Does the rule contained in the statutes of a company limited by shares on the basis of which the shareholder by subscribing for or acquiring shares submits, with regard to all disputes with the company or its organs, to the jurisdiction of the courts ordinarily competent to entertain suits concerning the company constitute an agreement conferring jurisdiction within the meaning of Article 17 of the Brussels Convention which is concluded between the shareholder and the company? (Must this question be answered differently depending on whether the shareholder himself subscribes for shares on the occasion of an increase in the company's capital or acquires existing shares?) By interlocutory decision, the Landgericht declared itself to have jurisdiction: it considered that the written contract of subscription fulfilled the formal requirements of Article 17 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'), as amended by the 1978 Accession Convention, and that the dispute came within the scope of the clause conferring jurisdiction contained in Article 4 of the statutes. 2. If Question (1) is answered in the affirmative : (a) Does subscription for and acceptance of shares, by means of a written declaration of subscription, on the occasion of an increase in the capital of a company limited by shares comply with the requirement for writing laid down in the first paragraph of Article 17 of the Brussels Convention as regards a jurisdiction clause contained in the statutes of the company? I - 1747

REPORT FOR THE HEARING CASE C-214/89 (b) Does the jurisdiction clause satisfy the requirement that the dispute must arise in connection with a particular legal relationship within the meaning of Article 17 of the Brussels Convention? (c) Does the jurisdiction clause in the statutes also cover claims for payment arising out of a contract relating to the subscription of shares and claims for repayment of wrongly paid dividends?' On 9 May 1990, it decided to assign case to the Fifth Chamber. the Following the public hearing of 2 October 1990 and having regard to the Opinion of the Advocate General delivered on 13 November 1990, the Fifth Chamber considered that it was appropriate to apply Article 95(4) of the Rules of Procedure. By decision of 28 May 1991, the Court (Fifth Chamber) referred the case to the full Court. The order for reference was received at the Court Registry on 10 July 1989. By order of 19 June 1991, after hearing the views of the Advocate General, the Court decided to reopen the oral procedure. 1. Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the European Economic Community, written observations were submitted on 16 October 1989 by Powell Duffryn, represented by Eckart Wilcke, Rechtsanwalt Frankfurt, on 16 October 1989 by Wolfgang Petereit, represented by Karl Otto Armbrüster, Rechtsanwalt Mainz, on 17 October 1989 by the Government of the Federal Republic of Germany, represented by Professor Christof Böhmer, acting as Agent, and on 12 October 1989 by the Commission of the European Communities, represented by its Legal Adviser, Friedrich-Wilhelm Albrecht, acting as Agent, assisted by Wolf-Dietrich Krause-Ablass, Rechtsanwalt Dusseldorf. Upon hearing the Report of the Judge- Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without any preparatory inquiry. II Summary of the written observations submitted to the Court Question 1 Powell Duffryn considers that in the present economic context, in which there is substantial cross-frontier investment, increasing internationalization of share transactions and a growing number of cross-frontier company mergers, it is unjust for a public limited company to include in its statutes a jurisdiction clause by virtue of which the courts of competent jurisdiction are those of a State which is not necessarily the one where the company has its registered office or the one where the foreign shareholder is established. Access to the jurisdiction thus designated might be very difficult for a shareholder but entail no problems of accessibility for the company I-1748

POWELL DUFFRYN because, for example, it had a subsidiary there. Moreover, in general shareholders are not aware that such jurisdiction is provided for. Referring to the programme for the harmonization of company law and more particularly the law governing public limited companies, Powell Duffryn considers that it is no longer necessary, in view of the fact that the national court is familiar with the law in force at the location of the registered office of the public limited company concerned, for that location to provide the basis for jurisdiction for disputes between that company and any shareholder. In any event, the familiarity of the courts with the matter at issue cannot be relied on to support the validity of jurisdiction clauses since such clauses may specify any jurisdiction. Powell Duffryn is of the opinion that the first question raised by the Oberlandesgericht calls for a negative reply, irrespective of whether the shareholder himself subscribes for shares on an increase of capital or purchases existing shares. Article 17 of the Convention provides that an agreement conferring jurisdiction 'shall be either in writing or evidenced in writing... '. In so far as it constitutes an exception to the general principle of jurisdiction, Article 17 is to be interpreted strictly: the Court has held that the parties must have expressed their consent in a clear and precise manner (see judgment in Case 24/76 Estasis Salotti v RÜWA [1976] ECR 1831). By virtue of its very terms, Article 4 of IBH's statutes does not, in Duffryn's view, constitute an agreement conferring jurisdiction on the contrary, it involves the fiction of a shareholder's 'submitting' to the jurisdiction of the courts ordinarily competent for proceedings concerning the company. That fiction reflects the prescriptive character of company statutes, against which an individual shareholder has no recourse. For that reason, a provision in company statutes cannot be described as an agreement since the shareholder has no opportunity of agreeing upon anything else. The only possibility open to him is to join with other shareholders to constitute the majority required to secure an amendment of the statutes. Even if a shareholder votes against the insertion of a clause conferring jurisdiction, that clause is applied against him. The statutes of a company cannot therefore be regarded as the expression of the will of the parties and of their freedom of decision. Moreover, a distinction cannot be drawn according to whether or not the shareholder took part in the discussions as to the insertion in the statutes of a clause conferring jurisdiction. The statutes also apply to a shareholder who purchased his shares on the open market, without knowing that the statutes contained a clause conferring jurisdiction. Powell Duffryn contends that, even though in its judgment in Case 34/82 Peters v ZNAV [1983] ECR 987, the Court, in a ruling on a question concerning Article 5(1) of the Convention, took the view that the links between an association and its members might give rise to contractual obligations, that interpretation cannot be applied to large companies with several thousand members. Even if the obligations imposed by the statutes may be regarded as contractual obligations, the conditions laid down in Article 17 must nevertheless be satisfied. Since the purpose of those conditions is precisely to ensure that a clause conferring jurisdiction does not pass unnoticed, they are manifestly not satisfied I - 1749

REPORT FOR THE HEARING CASE C-214/89 where there is no more than a reference to a text of which the shareholder does not necessarily have any knowledge. As regards the question supplementary to the first question, Powell Duffryn considers that the fact that a shareholder acquires his shares by subscription upon an increase of capital does not change the legal position in any way. To treat persons who subscribe for shares differently from other purchasers would infringe the principle that shareholders must be treated equally. Mr Petereit states, in the first place, that IBH was a 'family-type' company, which implies that all the shareholders knew each other and participated actively in the resolutions adopted by the general meeting. Powell Duffryn therefore expressly consented to the insertion of Article 4 in the statutes. Mr Petereit considers that the consensual process of adopting the resolution, the subscription of the shares, and above all, the signing of the notarial instruments and the subscription forms are factors which support his view that Article 4 constitutes a written agreement conferring jurisdiction. Mr Petereit draws attention to the fact that under German law statutes constitute a contractual act-in-the-law. They must therefore be recorded in a notarized statement (Article 23 of the Aktiengesetz [German law on public limited companies)]. Similarly, the subscription form is a written contract between the subscriber and the company, which is perfected by the company's statement of acceptance (Article 185 of the Aktiengesetz). One of the purposes of the Convention is to ensure greater legal certainty in procedural law and therefore everyone must be placed in a position to determine with certainty the court within whose jurisdiction he falls. The nature of statutes and subscription forms is such that they fulfil that function. Mr Petereit contends that the purpose of Article 17 of the Convention is to enable the parties to change the rules of jurisdiction aid down by the Convention itself (with the exception of the provisions of Article 16), whilst at the same time guaranteeing that an agreement conferring jurisdiction is actually made and is expressed clearly and precisely. Article 4 of IBH's statutes fulfils those conditions. Since Powell Duffryn never expressed any doubts as to the validity of the statutes, it is in conformity with the principles of fairness and reciprocal trust to require it to maintain that attitude. Moreover, Powell Duffryn cannot claim inequality of economic strength in order to avoid the effects of the agreement conferring jurisdiction. In Mr Petereit's view, the statutes and the subscription forms fulfil the formal requirements laid down by Article 17. It has been consistently held that the requirement of writing is intended to guarantee that a consensus between the parties is actually established. Article 17 does not require an agreement: it is sufficient, for example, in the case of the general conditions of commercial contracts for there to be an express reference to general conditions which contain a jurisdiction clause. I-1750

POWELL DUFFRYN The notarial instrument of 28 July 1980 fulfils that condition since the statutes form an integral part of it and the text mentions them expressly. Moreover, Powell Duffryn had notice of the agreement conferring jurisdiction through its proxy, who attended the general meeting of 28 July 1980 at which Article 4 of the statutes was adopted. The proxy expressed no reservations as to the validity of Article 4 and, at each of the following general meetings, reaffirmed his consent to the statutes. A bilateral contractual declaration is not, in Mr Petereit's view, the only type of act capable of constituting an agreement within the meaning of Article 17. The Court confirmed in its judgment in Case 201/82 Gerling v Amministrazione del Tesoro dello Stato [1983] ECR 2503, that a clause conferring jurisdiction stipulated for the benefit of a third party was valid. Such a conclusion is all the more justified in the case of the relationship between shareholders and their companies, which constitute a single whole. Moreover, in the light of the judgment in Peters, above, in which the Court classified the links between an association and its members as 'contractual', it is obvious that the statutes of a company limited by shares, its specific resolutions and the declarations made by shareholders to the company are to be regarded as agreements within the meaning of Article 17. In Mr Petereit's view, the distinction between a shareholder who subscribes for shares upon an increase of capital and one who acquires existing shares is irrelevant to the present dispute since Powell Duffryn acquired its shares only by subscribing for them. Nevertheless, he considers that the answer to the first question is still affirmative: a shareholder who contracts with the company accepts the effects of the statutes. Tim Federal German Government is of the opinion that a clause contained in the statutes of the company may be regarded as an agreement conferring jurisdiction within the meaning of Article 17 of the Convention, provided that the shareholder in question participated in the adoption of the clause and approved it. It is apparent from the Jenard and Schlosser reports that only an agreement expressing coinciding intentions as between the parties falls within the concept of an 'agreement conferring jurisdiction'. In that connection, the German Government emphasizes that any amendment of the statutes of the company requires, under German law, a resolution of the general meeting (Articles 119, 133 and 179 of the Aktiengesetz), authenticated by a notary (Article 130 of the Aktiengesetz). The amendment is then recorded at the commercial registry for the registered office of the company. The statutes of the company and any amendments thereto are legally classified as a contract (Article 2 of the Aktiengesetz) and the notarial authentication of the amendments fulfils under German civil law, the requirement of writing. In the German Government's view, it follows that Article 4 of IBH's statutes be seen as an agreement conferring jurisdiction as regards all those who voted for its insertion in the statutes. No agreement exists as regards as a shareholder who voted against the adoption of Article 4 or did not take part in the vote. Moreover, such a clause cannot be relied upon as against a shareholder who acquired his shares from another shareholder because I-1751

REPORT FOR THE HEARING CASE C-2H/89 an agreement conferring jurisdiction must not be introduced into the contractual relationship in a covert manner, without the express agreement of the shareholder. The German Government therefore suggests the following answer to the first question: 'A provision in the statutes of a public limited company pursuant to which a shareholder, by subscribing for or purchasing shares, submits, with regard to all disputes with the company or its organs, to the jurisdiction of the courts ordinarily competent to entertain suits concerning the company constitutes an agreement conferring jurisdiction concluded in accordance with the first paragraph of Article 17 of the Brussels Convention for all those who voted in favour of the insertion of that clause in the statutes. The requirement of writing is fulfilled by the notarial authentication of the resolution relating thereto.' The Commission, basing its views on German law, also takes as its starting point the principle that the statutes of a public limited company constitute a notarially attested contract concluded between members (Articles 2 and 23 of the Aktiengesetz). Any subsequent amendment of the statutes must be authenticated by a notary (Article 130 of the Aktiengesetz). However, since the Oberlandesgericht is seised of a dispute between a shareholder and the company itself, the Commission adds that the statutes also govern rights and obligations as between the company and its shareholders. Some of those rights and obligations are specifically laid down by law and others derive from supplementary provisions. The latter include clauses conferring jurisdiction, which are often found in company law practice. In the Commission's opinion, even if the company were regarded as not being a direct party to the agreement conferring jurisdiction, the requirement of writing laid down by Article 17 would be fulfilled. As the Court held in Gerling, above, a person not a party to the contract, benefiting from a requirement imposed on others, may rely on a jurisdiction clause stipulated for his benefit provided that the requirement of writing has been complied with as between the parties. That legal analysis applies in the same way where the shareholder in question did not participate in the drawing up of the agreement conferring jurisdiction contained in the statutes but purchased his share at a later date. In the Commission's view, the new shareholder acquires all the rights and becomes subject to all the obligations of the shareholder whose share he has acquired, including the rights and obligations deriving from a jurisdiction clause inserted in the statutes. That conclusion is, in the Commission's opinion, in conformity with the judgment in Case 71/83 Tilly Russ v Nova [1984] ECR 2417, in which the Court held that a jurisdiction clause contained in a bill of lading could be relied upon as against its holder. The Commission also maintains that, even though the resolution of the general meeting amending the statutes cannot be regarded as an agreement between the shareholders and the company, the effects of the resolution derive from the original contract establishing the company. By adopting the contract establishing the company or by subsequently purchasing shares, each shareholder agreed to be bound by the provisions of the Aktiengesetz or of the statutes concerning any amendments to the statutes. Every shareholder therefore takes the risk that an amendment may be made to the statutes. I - 1752

POWELL DUFFRYN Finally, even though it is apparent from the order for reference that the amendment of the statutes inserting the new Article 4 was adopted by a show of hands, the requirement of writing laid down in Article 17 is fulfilled by the official recording of the amendment in a notarial instrument and registration thereof at the commercial registry. Question 2(a) Powell Duffryn considers that this question must be answered in the negative. Whilst it is true that German law imposes the requirement of writing for the subscription of shares, that does not extend to the provisions of the statutes to which no reference is made. Mr Petereit takes the opposite view. Under German law, the subscription of shares on an increase of capital only takes place where the resolution amending the statutes is validly adopted (Articles 182 and 23 of the Aktiengesetz). Since an amendment to the statutes is required for that purpose, there is a necessary link between the resolution to increase the capital, the statutes and the subscription form. Thus, by subscribing for its shares, Powell Duffryn renewed its consent to the clause conferring jurisdiction contained in Article 4. The Government of the Federal Republic of Germany states that under German law the subscription of new shares is effected by written declaration (Anicie 185 of the Aktiengesetz). It is also true that by purchasing shares a shareholder agrees to be bound by the statutes of the company. However, the aim of Article 17 of the Convention would be circumvented by the surreptitious appearance of a clause conferring jurisdiction; to avoid such a situation, the subscription form itself should contain a clause to that effect. The legal situation of the statutes of the companies is therefore different from that which prevails as far as general conditions of sale are concerned. In the latter case, the Court has taken the view that an overall reference to general sales conditions was sufficient where the other party accepted those conditions in writing. However, whilst it is possible, in the context of a bilateral contract, to reject an offer including general conditions of sale in the contract, the statutes of the company cannot be rejected when shares are purchased. The Commission considers that this question calls for an affirmative answer. It states that the written statement referred to by Article 185 of the Aktiengesetz does not amount to an agreement conferring jurisdiction. However, as a result of recording the increase of capital in the commercial registry, the subscriber becomes a shareholder and thus enjoys and becomes subject to all the rights and obligations arising from the contract establishing the company. His situation is therefore similar to that of a purchaser of shares. The formal requirement laid down in Article 17 is in all cases fulfilled by authentication of the statutes by a notary and the possibility of examining them at the commercial registry. Moreover, by his written declaration, the subscriber expresses his consent to all the rights and obligations contained in the statutes. For the Commission, the situation is comparable to that with which the Tilly Russ judgment cited above was concerned, I - 1753

REPORT FOR THE HEARING CASE C-214/89 where the Court held that a clause conferring jurisdiction contained in the general conditions printed on a bill of lading not signed by the loader was nevertheless enforceable against him where the bill of lading formed part of his normal commercial relations with the carrier and those relations were governed by general conditions containing the clause in question. In both situations, it would be contrary to good faith to deny the existence of an agreement conferring jurisdiction. Question 2(b) Powell Duffryn considers that this question calls for a negative answer. Article 17 of the Convention requires the agreement conferring jurisdiction to refer disputes which have arisen or subsequently arise concerning a particular legal relationship, in order to ensure that a party with greater economic strength does not force the other party to accept the jurisdiction of a court by means of a general clause. Powell Duffryn states that, in the present case, it is 'all disputes with the company or its organs' which are covered by the provision conferring jurisdiction; it follows that the provision extends not only to disputes arising from the corporate relationship between the company and shareholders but also to any other dispute, whatever its legal basis, such as, for example, a dispute arising from a supply of goods. The jurisdiction clause also extends to disputes between shareholders and the organs of the company which, as a general rule, do not arise from any corporate relationship. The legal relationship in connection with which such disputes might arise is therefore not a 'particular legal relationship'. Mr Petereit considers that Article 4 of IBH's statutes identifies with sufficient provision the disputes to which it applies: it extends to all disputes arising from the legal relationship that derives from the status of shareholder of the company. In the German Government's view, the requirement of specificity is fulfilled if the disputes to which the clause relates are foreseeable. That would apply to Article 4 of IBH's statutes if it were interpreted as relating to disputes arising between shareholders and the company by reason of their having that status. However, the German Government considers that the actual interpretation of Article 4 is a matter for the national courts and, therefore, suggests the following answer to the question: 'The clause conferring jurisdiction satisfies the requirement that the legal relationship in connection with which the disputes arise must be adequately identified if it can be interpreted as applying to all disputes likely to arise between a shareholder and the company by reason of the corporate relationship between them.' The Commission considers that the protection of the weaker contracting party would be jeopardized if Article 4 related not only to disputes arising from the corporate legal relationship but also to other disputes between the company and the shareholder. However, the Commission tends towards the view that Article 4 is limited to disputes arising from the corporate relationship and therefore satisfies the requirement laid down by Article 17 of the Convention. However, the interpretation of Article 4 is, ultimately, a matter for the national court. I - 1754

POWELL DUEERYN For those reasons, the Commission proposes the following answer to question 2(b): 'A clause conferring jurisdiction contained in the statutes of a public limited company pursuant to which shareholders submit to the jurisdiction of the courts ordinarily competent to entertain actions concerning the company for all disputes arising between shareholders and the company is sufficiently specific for the purposes of Article 17 of the Convention where it is limited to disputes arising from the legal relationship created by the incorporation of the company.' Question 2(c) Powell Diiffryn and the Government of the Federal Republic of Germany consider that the answer to this question must be provided by the law which is applicable to the agreement conferring jurisdiction. In that regard, the Commission states that there is nothing to prevent an agreement conferring jurisdiction from taking effect retroactively. Article 4, which was adopted in July 1980, could therefore be applied to the subscription of shares in 1979. Finally, the Commission considers that, in principle, Article 4 applies only to actions for recovery brought by the company itself (first paragraph of Article 62 of the Aktiengesetz) and not to those brought by creditors of the company (second paragraph of Article 62 of the Aktiengesetz). Where, as in the present case, the action is brought by the trustee, the question arises whether he is exercising the rights of the creditors or those of the company. If the national court decides that the trustee is acting on behalf of the company, the clause conferring jurisdiction applies to the claims pursued by him. The Commission suggests the following answer to question 2(c): In Mr Petereit's opinion, it is clear that the clause conferring jurisdiction also covers contractual obligations and those resulting from the invalidity of the subscriptions. The Commission observes that this question primarily relates to the interpretation of the clause at issue, which is a matter for the national court. However, the Commission is of the opinion that the national court wishes to reply to this question in the affirmative and therefore asked the related question whether Article 4 of IBH's statutes, thus interpreted, is in conformity with Article 17 of the Convention. 'Article 17 of the Convention does not prevent the inclusion in the statutes of a public limited company of a provision pursuant to which disputes concerning the recovery of sums due to the company under a contract for the subscription of shares or to the repayment to the company of dividends wrongfully paid are subject to the jurisdiction to which the company is subject'. Gordon Slynn Judge-Rapporteur I - 1755