Assignment on Law of International Trade

Analyse and explain the functioning of Art 5 (1) of Council Regulation 44/2001 on the Jurisdiction and the Recognition and Enforcement in Civil and Commercial Matters (Brussels I Regulation) in giving alternative jurisdiction in disputes concerning international sale contracts based on c-terms, f-terms and d-terms.

Coursework

Introduction

The purpose of this essay is to analyse and explain the functioning of Article 5(1) of “Council Regulation No. 44/2001 on Jurisdiction and the Recognition and Enforcement in Civil and Commercial Matters” (“Brussels I Regulation”) in giving alternative jurisdiction in disputes concerning international sale contracts based on c-terms, f-terms and d-terms. This essay can be broadly divided into three parts. The first part briefly introduces international sale contracts and the trade terms used in such contracts. The second part gives an insight into the procedural steps involved in solving disputes concerning international sale contracts, viz. applicable law and jurisdiction. It goes on to explain the impact of Article 5(1) of the Brussels I Regulation on international sale contracts, while contrasting it with the Brussels Convention of 1968. The final part of this essay analyses, with the aid of case laws, the functioning of Article 5(1) of the Brussels I Regulation in giving alternative jurisdiction in disputes concerning international sale contracts based on c-terms, f-terms and d-terms.

International sale contracts

International sale contracts involve the sale of goods by one party (the seller) in one part of the world to another party (the buyer) in a different part. Since the seller and the buyer are based in different countries, the goods have to be transported from the state of the seller to that of the buyer. The problems and disputes inherent in a sale of goods transaction become more complex in case of an international sale contract, as apart from the actual contract of sale of goods between the seller and the buyer, it involves entering into other contracts with carriers, insurers and bankers.

Trade terms used in international sale contracts

In order to cater to the particular needs of international trade, standard trade terms have been created at international level to describe the rights and duties of the contracting parties, e.g. the ‘Incoterms’. Similar trade terms also exist under the Common Law.

The International Chamber of Commerce (ICC), based at Paris, has formulated and published the International Commercial Terms (INCOTERMS) since 1936. Incoterms are a series of international trade terms widely used in international commercial transactions. They are used to divide transaction costs and responsibilities between buyer and seller and reflect modern transportation practices. The parties to international sale contracts have to specify in the contract the set of Incoterms that they choose to apply, e.g. Incoterms 2000.

Both under Common Law and the Incoterms, there are four main categories of trade terms relevant to the international sale of goods [1]:

• E-terms, where the buyer collects the goods from the seller’s premises;
• F-terms, where the seller has to load the goods on a carriage device provided by the buyer;
• C-terms, where the seller has to send the goods to the buyer; and
• D-terms, where the seller only fulfils his duties once the goods arrive at the agreed destination.

Procedural steps involved in solving disputes concerning international sale contracts

If the parties to an international trade contract get into a dispute about their respective rights and obligations, the following aspects have to be established in order to solve the dispute:

Applicable Law

Jurisdiction

Recognition and Enforcement of Judgments

“Jurisdiction” and “Applicable law” are two separate questions in international sale contracts. It is not uncommon in a contractual dispute for the courts of one country to apply the law of another.

Determining applicable law

The rules for determining the applicable law to cross-border, contractual disputes within the European Union (EU) are contained in the Rome Convention [2]  intended to establish uniform rules concerning the law applicable to contractual obligations. The parties to a contract may choose the law applicable to the whole or a part of the contract. [3] If the parties have not made an explicit choice of applicable law, the contract is governed by the law of the country with which it is most closely connected (place of habitual residence or place of central administration of the party performing the contract, principal place of business or place of business responsible for performing the contract). [4]

Rules of jurisdiction

It is a general principle of private international law [5] that the parties to a contract are free to designate a court to rule on any dispute, even though that court might not have jurisdiction on the basis of the factors objectively connecting the contract with a particular place. In the EU, the issue of jurisdiction in disputes concerning international sale contracts is governed by the Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“Brussels I Regulation”).

Brussels I Regulation

Brussels I Regulation lays down a set of rules of EU private international law governing the jurisdiction of courts and the recognition and enforcement of judgments in civil and commercial matters in EU countries. The aim of the Regulation is to unify jurisdiction rules in civil and commercial matters and simplify formalities with a view to rapid and simple recognition and enforcements of judgments given in EC Member States [6] . It supersedes the Brussels Convention [7] of 1968, which was applicable between the Member States of the European Community [8] before the Brussels I Regulation entered into force.

The Brussels I Regulation entered into force on March 1, 2002 and is binding on the legal proceedings instituted on or after March 1, 2002 for all Member States of the European Union [9] , with the exception of Denmark, which does not participate in measures adopted under Title IV of the Treaty establishing the European Community [10] . Denmark concluded a separate agreement [11] with the European Community, the effect of which is to extend the Regulation’s rules to Denmark. The Regulation is directly applicable regardless of national procedural rules of individual Member States.

Most of the rules enshrined by the Brussels I Regulation merely reproduce the rules which were already in force in accordance with the repealed Brussels Convention. Like the Brussels Convention, the Brussels I Regulation is also subject to the jurisdiction of the European Court of Justice (ECJ) [12] on questions of interpretation. Thus, the case laws developed by the ECJ, as well as by the national judiciary on the Brussels Convention, are still to be taken into consideration.

Rules of jurisdiction under Brussels I Regulation

The basic principle under Brussels I Regulation is that jurisdiction is to be exercised by the EU Member State in which the defendant is domiciled, regardless of his / her nationality [13] . Apart from the basic principle on jurisdiction, in certain circumstances a defendant may be sued in the courts of another EU Member State. Article 5 of the Brussels I Regulation contains a set of alternative grounds for jurisdiction, according to which persons domiciled in one Member State may be sued in another Member State.

Alternative Jurisdiction under Art. 5(1) of the Brussels I Regulation v. Brussels Convention

The alternative rule of jurisdiction for matters relating to a contract is contained in Article 5 of the Brussels I Regulation and provides in pertinent part:

Article 5(1):

A person domiciled in a Member State may, in another Member State, be sued:

(a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;

(b) For the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:

─ in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered,

─in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided,

(c) if subparagraph (b) does not apply then subparagraph (a) applies.

Thus, in respect of matters relating to a contract, there would also be the jurisdiction of the courts for the place of performance of the obligation in question. In this context, the Regulation provides that, in relation to the sale of goods, the place of performance of the obligation in question is the place in a Member State where, under the contract, the goods were delivered or should have been delivered. In relation to the provision of services, the place of performance of the obligation in question is deemed to be the place in a Member State where, under the contract, the services were provided or should have been provided.

This special rule for goods and services is not found in the former treaty, i.e. the Brussels Convention. The pertinent part of Brussels Convention reads as under.

Article 5: A person domiciled in a Contracting State may, in another Contracting State, be sued:

(1) in matters relating to a contract, in the courts for the place of performance of the obligation in question

Thus, it is apparent that Article 5(1) of both the Brussels Convention and the Brussels I Regulation state situations where special jurisdiction rules would be applicable “in matters relating to a contract”. Both sets of provisions state that “the courts for the place of performance of the obligation in question” would have jurisdiction. It is at this point that the Convention and the Regulation part ways.

The Regulation, in Art. 5(1)(b), provides an “autonomous” definition of “the place of performance of the obligation in question” in two specific situations [14] :

for the sale of goods: where the goods were delivered or should have been delivered; and

for the provision of services: where the services were provided or should have been provided.

The Convention left “place of performance of the obligation in question” to be determined by private international law. This inevitably resulted in the application of the appropriate foreign law as each Member State would apply its conflict of law rules.

In Tessili v. Dunlop [15] , the ECJ rejected the argument that “place of performance” for purposes of Article 5(1) had its own independent meaning common to all Member States of the European Community, and opted instead for the rule that “place of performance of the obligation in question” within the meaning of Article 5(1)… …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.” This aspect of the Tessili decision has been followed in subsequent cases. [16]

The Brussels I Regulation amends the result in Tessili, moving a step closer to an independent rule for determining place of performance of the obligation in question. It does so through a singular focus on the seller’s obligation to deliver the goods in a sales transaction. Thus, the parties to an international sale contract can now avoid the questions of the “place of performance” under the Tessili principle and the “obligation in question” under the DeBloos [17] principle, thereby avoiding the “fiendish difficulty” [18] that has characterized the intellectual activity required to resolve these questions.

Determination of the “place of delivery” under international sales contracts

Although Article 5(1)(b) of the Brussels I Regulation attempts to remedy the complexity and uncertainty of Article 5(1) of the Brussels Convention by providing explicit definition of “place of performance of the obligation in question”, it is not without its own shortcomings, more so, since there is no definition of the phrase “under the contract” [19] and the concept of “delivery” either in the Regulation or the Commission Proposal.

In his article [20] , Professor Koji Takahashi maintains that the “under the contract” phrase awards jurisdiction to the court of the contractually agreed place of delivery of goods. The actual place of delivery is irrelevant. In the simplest scenario, the difference would amount to a breach of contract. For example, if the contract specified a place for the delivery of goods and the seller actually delivered the goods to another place, the seller would have breached the contract. The sole consequence for the parties is to bring the suit in the place where the goods were to be delivered “under the contract,” not where actually delivered. Thus, it would not require returning full circle to a DeBloos / Tessili analysis and confronting the very private international law problem that Article 5(1)(b) was designed to avoid.

While this appears to be a rather simple rule, its application is not always clear. For instance, when a contract includes a price-delivery term (e.g., f.o.b., c.i.f., etc.), that term may or may not clearly determine the place of performance of the seller’s delivery obligation. Other provisions of the contract may alter the effect of a price-delivery term [21] . Further, the key concept of “place of delivery” is neither expressly defined in the Regulation nor can its meaning be inferred from either its legislative history or its wording. [22]

Thus, in international sale contracts involving the carriage of goods from one Member State to another, the question that is imminent is the following:

Is the place of performance the place where the goods are handed over to the buyer, or the place at which the goods were handed over to the first carrier for transmission to the buyer? [23]

Even when the international sale contracts are based on C-terms, F-terms and D-terms, the aforesaid question would arise. E.g. If the contract stipulates the terms as ‘cif (Hamburg) Incoterms 2000’, would the place of performance would be Hamburg, or the place of performance would be the port where the goods were handed over to the carrier for transmission to Hamburg?

In Aquafili Textile Yarns s.p.a. v. Updeals Ltd [24] . it was held that since by virtue of its own nature the Brussels I Regulation prevails over both domestic and international law, the concept of “delivery” contained in the Brussels I Regulation has to be interpreted autonomously.

The Tribunale di Padova, in its decision of January 10, 2006 [25] , resorted to international substantive law instruments, namely Article 31 of the CISG (United Nations Convention on Contracts for the International Sale of Goods), in order to interpret the concept of “place of delivery,” on the grounds that “recourse to the lex causae is to be avoided in favour of an autonomous interpretation.” Consequently, under Article 31 of the CISG, “if the seller is not bound to deliver the goods at any other particular place, his obligation to deliver consists: (a) if the contact of sale involves carriage of the goods—in handing the goods over to the first carrier for transmission to the buyer.” [26] In addition, Judge Rizzieri noted that the same approach has been adopted by two other autonomous but non-binding instruments, the UNIDROIT Principles of International Commercial Contracts [27] (Article 6.1.6(1)) and the Principles of European Contract Law [28] (Article 7:101(1)).

The Italian Corte Suprema di Cassazione in its decision of September 27, 2006, [29] followed the same solution and also applied CISG Article 31(a). In contrast, the Oberste Gerichtshof of Austria held in its decision of December 14, 2004, that the place of delivery “is to be understood in the actual sense of the wording. It is the place where the buyer actually accepts delivery of the conforming goods.” [30]

The conflicting views on the issue of “place of delivery” in contracts involving sale of goods under Article 5(1)(b) of the Brussels I Regulation were put to rest by the ECJ in Car Trim GmbH v. KeySafety Systems SRL [31] , on 25 February 2010. The question before the ECJ was – “In the case of sales contracts involving carriage of goods, is the place where under the contract the goods sold were delivered or should have been delivered to be determined according to the place of physical transfer to the purchaser, or according to the place at which the goods were handed over to the first carrier for transmission to the purchaser?

The Court held that the first indent of Article 5(1)(b) must be interpreted as meaning that, in the case of a sale involving carriage of goods, the place where, under the contract, the goods sold were delivered or should have been delivered must be determined on the basis of the provisions of that contract. Where it is impossible to determine the place of delivery on that basis, without reference to the substantive law applicable to the contract, that place is the place where the physical transfer of the goods took place, as a result of which the purchaser obtained, or should have obtained actual power of disposal over those goods at the final destination of the sales transaction. In its reasoning, the Court referred in particular to the aims and objectives of the Brussels I Regulation and held that the place where the goods were physically transferred (or should have been physically transferred) to the purchaser at their final destination was the most consistent with the Regulation since it met the criterion of predictability as well as proximity.

The above decision of the ECJ also overrules Lord Bingham’s observation in Scottish & Newcastle International Ltd v Othon Ghalanos Ltd [32] that “the Regulation does not purport to impose a uniform concept of delivery on all member states but leaves member states to apply whatever, under their rules of private international law, is the law properly applicable to the particular contract.”

Thus, the issue is now settled that the place of performance is the place where the physical transfer of the goods takes place, giving the buyer the actual power of disposal over the goods at the final destination of the sales transaction.

Application of Art. 5(1) in contracts involving multiple places of delivery

Since under Article 5(1) of the Brussels I Regulation, in the case of sale of goods, defendants may be sued in the place where the goods were delivered or should have been delivered, it becomes confusing when defendants have multiple delivery places.

In the case of Color Drack GmbH v. Lexx International Vertriebs GmbH [33] , the issue before the ECJ was whether Article 5 (1)(b) of Brussels I Regulation is to be interpreted to mean that a seller of goods domiciled in one Member State who, as agreed, has delivered the goods to the buyer, domiciled in another Member State, at various places within that other Member State, can be sued by the buyer regarding a claim under the contract relating to all the (part) deliveries – if need be, at the plaintiff’s choice – before the court of one of those places of performance.

The ECJ held that “The first indent of Article 5(1)(b) of Council Regulation (EC) No 44/2001… …must be interpreted as applying where there are several places of delivery within a single Member State. In such a case, the court having jurisdiction to hear all the claims based on the contract for the sale of goods is the one for the principal place of delivery, which must be determined on the basis of economic criteria. In the absence of determining factors for establishing the principal place of delivery, the plaintiff may sue the defendant in the court for the place of delivery of its choice.”

Thus, according to the ECJ holding, a defendant with multiple delivery places may be sued in the place that has jurisdiction to hear all the claims based on the contract signed by the parties; usually the principal place of delivery. In the absence of determining factors to establish the principal place of delivery, the plaintiff may choose to file a lawsuit in any of the defendant’s delivery places.

Alternative jurisdiction under Art. 5(1) in disputes concerning international sale contracts based on c-terms, f-terms and d-terms.

The alternative jurisdiction available under Article 5(1) of Brussels I Regulation to parties in disputes concerning international sale contracts based on C-terms, F-terms and D-terms in the EU Member States, can be understood better by considering some of the possible circumstances in which it might be applied. The following illustrations explain the point.

Illustration (i):

Assume that the contract is between a Dutch seller and an Italian buyer, and that the contract includes a DDP price-delivery term (delivered duty paid) and expressly makes that term subject to the ICC Incoterms 2000. Here a specific designation of the place of delivery of the goods (the buyer’s place of business in Italy) is included. A dispute arises, and the Italian buyer brings suit in a court of Italy.

In this case, the “the seller is bound to deliver the goods at a particular place.” That place is now in Italy, and under Article 5(1)(b) of the Brussels I Regulation, the Italian court has jurisdiction over the case involving a Dutch defendant.

The above illustration indicates that, so long as the suit is brought in the courts of a Member State other than the Member State in which the defendant is domiciled, in the absence of an agreement to the contrary, the place of delivery of the goods is determinative of jurisdiction under Article 5(1)(b) of the Brussels I Regulation.

Illustration (ii):

In illustration (i), with all the terms remaining same, if the Italian buyer and the Dutch seller agree under the contract of sale that the place of the performance of obligation shall be Netherlands, then even on application of Article 5(1) of Brussels I Regulation and the place of delivery of goods being Italy, the Dutch courts shall have jurisdiction on the dispute involving the contract.

Illustration (iii):

Suppose in an international sale contract in the EU, based on either the C-terms, F-terms or D-terms, a dispute arises with respect to the payment obligation being due in another State. In such a case, the obligation in question is not the failure to deliver goods, but the failure to pay. Although the place of payment is different from the place of delivery, Article 5(1)(b) would still apply and the courts in the Member State of the place of delivery shall have jurisdiction over such a dispute.

Thus, Article 5(1)(b) gives the parties to an international sale contract in the EU, the possibility to sue in the courts of another Member State of the European Community, other than that has general jurisdiction in disputes arising out of such contract.

In cases where Article 5(1)(b) is not applicable, because the place of delivery is not mentioned and the delivery has not occurred, and no agreement exists on the place of performance, one has to fall back upon subparagraph (a) by virtue of subparagraph (c) and therefore still resort to national private international law. Where there are several places of delivery for the goods, the place of performance is to be understood as the place with the closest linking factor between the contract and the court having jurisdiction. [34]

Conclusion

One of the main objectives of the Brussels I Regulation is legal certainty [35] . As the ECJ has stressed, this objective requires “that the jurisdictional rules which derogate from the basic principle of the Brussels Convention, such as Article 5(1), should be interpreted in such a way as to enable a normally well-informed defendant reasonably to foresee before which courts, other than those of the State in which he is domiciled, he may be sued.” [36]

As seen in the analysis of the post-Brussels I Regulation case laws of ECJ and the aforementioned illustrations, it can be inferred that Article 5(1) of the Brussels I Regulation, which was created on the rationale of “a close link between the court and the action” [37] — confers alternative grounds of jurisdiction in disputes concerning international sale contracts based on C-terms, F-terms and D-terms within the EU, giving to the plaintiff the possibility to choose where to start court proceedings. The absence of express definitions of key concepts of the Regulation leads to different interpretations by the various courts of the Member States, causing uncertainty and allowing a certain amount of forum shopping within the jurisdictional parameters imposed by the Regulation. [38]

Word Count: 3961 words

Bibliography

Cases

• Car Trim GmbH v. KeySafety Systems SRL[2010] All ER (D) 286 (Feb)
• Scottish & Newcastle International Ltd v Othon Ghalanos Ltd[2008] UKHL 11, [4]
• Color Drack GmbH v. Lexx International Vertriebs GmbH2007 E.C.R. I-3699, ¶ 45
• Owens Bank Ltd. v. Fulvio Bracco and Bracco Industria Chimica SpA, 1994 E.C.R. I-117, ¶ 32
• Jakob Handte & Co. GmbH v. Traitements Mécano-chimiques des Surfaces SA, 1992 E.C.R. I-3967, ¶ 18
• Industrie Tessili Italiana Como v. Dunlop AG, 1976 E.C.R. 1473
• Custom Made Commercial v. Stawa Metallbau, 1994 E.C.R. I-2913
• GIE Groupe Concorde v. The Master of the vessel “Suhadiwarno Panjan,” 1999 E.C.R. I-6307
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• Comptoir D’Achat et de Vente du Boerenbond Belge S/A v. Luis De Ridder, Ltda.(The Julia), [1949] A.C. 293 (H.L.)
• Aquafili Textile Yarns s.p.a. v. Updeals Ltd., Tribunale di Rovereto, Italy, 28 Aug. 2004, available at http://cisgw3.law.pace.edu/cases/040828i3.html.
• Trib. di Padova, sez. este, 10 jan. 2006, available at http://cisgw3.law.pace.edu/cases/060110i3.html.
• Cass., sez. un, 27 sept. 2006, n.20887.
• Oberlandesgericht Wien [OLG Wein] [Provincial Appellate Court] June 1, 2004, 3 R 68/04y (Austria)
• Maxi Miliaan B.V./Baby Pushchairs, S.L., Arrondissementsrechtbank [Rb.] [District Court], Hertongenbosch, 12 May 2004 (Neth.).
• Oberster Gerichtshof [OGH] [Supreme Court] Dec. 14, 2004, 1 Ob 94/04m (Austria).
• Besix SA v. Wasserreinigungsbau Alfred Kretzschmar GmbH & Co. KG (WABAG), 2002 E.C.R. I-1699, ¶¶ 26, 54.