Article 5(1) of EC Regulation 44/2001 (the “Regulation”) allows a person domiciled in a member state of the EU to be sued in another member state “in matters relating to a contract, in the courts for the place of performance of the obligation in question”, in addition to the courts of his or her domicile. This article examines the approach that the English courts take when no single place of performance can be identified, as occurred in the recent case of Canyon Offshore Ltd v GDF Suez E&P Nederland BV [2014] EWHC 3810 (Comm).

What happened in Canyon v GDF Suez?

The Canyon case concerned the development of oil and gas fields in the Dutch sector of the Orca, Sierra and Amstel fields in the North Sea. The operator of these fields, a company incorporated in the Netherlands (“GDF”), wished to develop the fields by the erection of further platforms. That in turn required the installation of subsea pipelines. In order to achieve this, GDF entered into contracts with another Dutch company (“Cecon”) for the transportation and installation of these pipelines (“the Project Agreements”). 

Cecon sub-contracted part of this work to the claimant (“Canyon”), a Scottish company with its registered office in Aberdeen. This contract (“the Trenching Contract”) was governed by English law and was subject to arbitration in Rotterdam. 

Subsequently Cecon fell behind in payments to its sub-contractors. GDF became worried that the sub-contractors, including Canyon, would cease work because they weren’t being paid. It therefore made a proposal to Cecon that GDF would pay the sub-contractors directly on the condition that GDF’s associated payment obligations to Cecon under the Project Agreements would be discharged.

Cecon passed the details of this offer onto Canyon. Canyon later claimed this had the effect that a contract was made between it and GDF, with GDF promising to pay Canyon’s invoices directly in return for a promise that Canyon would not cease work. Canyon argued that an offer had been made by GDF to Canyon, with Cecon acting as GDF’s agent, which Canyon accepted. In the alternative, it argued that the agreement between GDF and Cecon conferred a benefit on Canyon which it could enforce under the Contracts (Rights of Third Parties) Act 1999. 

Canyon continued performing the Trenching Contract, and carried out a further £3.4m of work. It then claimed this amount from GDF, in addition to £2.1m of previous work which remained unpaid. GDF failed to pay Canyon, disputing the existence of the alleged contract and denying any obligation to pay Canyon directly. Canyon commenced proceedings in England. The preliminary issue that HHJ Mackie had to decide was whether the English courts had jurisdiction to resolve the dispute. 

Could the English courts hear the claim under the Regulation?

It was common ground between the parties that English law applied to the alleged contract between Canyon and GDF. At common law, this would have been sufficient to vest the English courts with jurisdiction. However, because GDF was domiciled in the Netherlands, the Regulation applied to decide the initial jurisdictional question between the parties.

Article 2 of the Regulation provides that “persons domiciled in a Member State shall … be sued in the courts of that Member State”. This default rule is subject to certain exceptions found in Chapter II of the Regulation. The most important of these exceptions is Article 5(1), which allows a defendant to be sued:

Article 5(1)

(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 good, 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.

In order to establish jurisdiction under Article 5(1) Canyon had to show it had a good arguable case that the alleged contract existed. HHJ Mackie examined the factual background and agreed with Canyon that it had the better argument that a contract did exist between Canyon and GDF. He therefore proceeded to apply the test in Article 5(1) of the Regulation. 

Article 5(1)(b) - Was there a contract for the sale of goods or supply of services?

The first question for the court was whether the alleged contract was for the sale of goods or provision of services so as to fall under Article 5(1)(b). If it was such a contract, GDF could only be sued in the place the goods were delivered or the services provided, which would be the Netherlands.

GDF argued that under the alleged contract Canyon was to perform the same obligations it had under the Trenching Contract, and those obligations were to carry out work on the Dutch continental shelf. None of the services were to be provided in England and Wales, and so the English court could not have jurisdiction.

Against this Canyon argued that the characteristic obligation of the alleged contract, the “obligation in question”, was in fact GDF’s promise to pay Canyon, not the provision of trenching services. GDF was not stepping into Cecon’s shoes in relation to the Trenching Contract generally, but only in relation to the obligation to pay. It followed, Canyon argued, that the alleged contract was not one for the provision of services within the meaning of Article 5(1)(b).

The court agreed with Canyon, holding that the characteristic obligation of the alleged contract was the assumption by GDF of the obligation to pay what Canyon was owed under the Trenching Contract. No-one would sensibly call an assumption of an obligation to pay a contract for the provision of goods or services. Article 5(1)(b) was inapplicable. Article 5(1)(a) was instead engaged. 

Article 5(1)(a) - What was the place of performance?

The case therefore turned on what the “place of performance” of the characteristic payment obligation under Article 5(1)(a) was. This expression does not have an autonomous meaning under European law. It therefore fell to be determined in accordance with the conflict rules of the court before which proceedings had been brought, in this case, English law. 

No place of performance for payment had been expressed in the alleged contract, but the invoices sent from Canyon to Cecon under the Trenching Contract provided for payment either by bank transfer to London or by other means to Canyon’s registered office in Aberdeen. HHJ Mackie held that because GDF was taking over this payment obligation from Cecon, the place of performance of the payment obligations under the alleged contract was equally England or Scotland.

This finding gave rise to an immediate problem. Although the contract provided equally for two places of performance of the relevant obligation, the operation of the Regulation seemed dependant on the identification of a single place of performance. The vital question therefore was did the fact that there was a dual place of performance would prevent Canyon from suing GDF in England? 

Article 5(1)(a) - Did a dual place of performance mean the only competent courts were those of the defendant’s domicile?

GDF’s argument was that because the terms of the invoice did not stipulate a single place of performance, Article 5(1)(a) could not apply. It relied on the seemingly straightforward observation by the ECJ in Besix v Wasserreinigungsbau Alfred Kretzschmar [2003] 1 WLR 1113 that “a single place of performance for the obligation in question must be identified.

In Besix the parties entered into an exclusivity agreement whereby they agreed that they would act exclusively with each other and not commit themselves to other partners. As this obligation took effect globally, every member state would have been a place of performance. The ECJ held that allowing a defendant to be sued using Article 5(1)(a) in these circumstances would offend against the principle of legal certainty, and that the only option was to sue the defendant in its domicile pursuant to Article 2.

Although this ruling was made in relation to Article 5(1) in the earlier Brussels Convention, the ECJ had made clear in Falco Privatstuftung v Weller-Lindhorst [2010] Bus LR 210 that Article 5(1) of the Regulation should be construed consistently with previous interpretations of the Convention. HHJ Mackie accepted this principle and proceeded on that basis.

Canyon in turn argued that several recent cases under Article 5(1)(b) of the Regulation had made clear that more than one place of performance was not a bar to the applicability of the Regulation. It said that the general trend of recent European cases was for a more expansive interpretation of the Regulation. HHJ Mackie reviewed the three most important of these cases before coming to his decision. 

Three leading cases on place of performance

In Color Drack v Lexx International [2010] 1 WLR 1909 goods were to be delivered to multiple locations within the same member state. The ECJ held that in such circumstances a defendant could be sued in the principal place of delivery or, if such place could not be determined, in the court for the place of delivery of the claimant’s choice. The court reasoned that this decision met the objective of proximity to the dispute and allowed the defendant reasonably to foresee before which court it may be sued. The court relied on the fact that the defendant knew it could only be sued under Article 5 in the courts of a single member state. 

In Rehder v Air Baltic Corpn [2010] Bus LR 549, a passenger bought a ticket for a flight from Germany to Lithuania. The flight was cancelled and the passenger sought compensation. The court examined in which state the service was to be performed for the purposes of Article 5(1)(b). The ECJ cited the twin objectives of proximity and predictability and held that the airline could be sued in either the place where the aircraft took off or where it landed, both having a sufficient connection with the dispute. 

Finally, in Wood Floor Solutions v Silva Trade [2010] 1 WLR 1900, a commercial agency contract had been terminated under which agents had provided services in several Member States. The ECJ held that a multiplicity of places of performance was no bar to the applicability of Article 5(1)(b). The place of the main provision of services must be ascertained from the contract or, failing that, the place where in fact the services for the most part have been carried out. The importance of the objectives of proximity and predictability was repeatedly stressed by the court. 

No binding precedent, but ‘proximity and predictability’ must be respected

Having reviewed these authorities, HHJ Mackie accepted that none was directly applicable to Article 5(1)(a). However, taking into account the reasoning behind the decisions, he concluded that there had been an ‘evolution’ towards permitting claimants to have a choice within Article 5 of where to sue provided the two criteria of proximity and predictability are satisfied. 

He distinguished Besix on the grounds that it was “characterised by a multiplicity of places of performance”. No jurisdiction selected pursuant to Article 5(1) had sufficient proximity in that case, because there were no real connecting factors between the contract and the various member states. Further, the defendant could not reasonably foresee in which jurisdiction it would have to defend itself if proceedings could be commenced in any member state of the claimant’s choosing.

Applying the concepts of proximity and predictability to the case before him, HHJ Mackie held that at the time of assuming the payment obligation, GDF could readily have discovered that payment was due in Scotland or England; it could have looked at Canyon’s invoices. GDF could reasonably have foreseen that if it failed to pay it might be sued in the Netherlands where it is domiciled or in Scotland or England, where payment was to be made. The twin pillars of proximity and predictability were satisfied. The judge therefore dismissed GDF’s objections to the English courts’ jurisdiction.

Comment

This decision is a good first step in clarifying how the English courts will apply Article 5(1) in cases where there are multiple places of performance of the obligation in question. It is now clear that there is no relevant distinction between Article 5(1)(a) and Article 5(1)(b) in the test to be applied. There is no automatic bar to the application of Article 5(1) simply because there are multiple places of performance; the relevant test is always whether there is sufficient proximity and predictability.

Precisely what these two concepts mean is, however, less clear. HHJ Mackie admitted that their scope had “not as yet been much worked out”. His application of both concepts to the facts is contained in a single paragraph in his judgment. While making clear that there must be both sufficient proximity and predictability, the two concepts are seemingly applied simultaneously without distinction, in one fell swoop. 

In his short discussion of proximity and predictability, HHJ Mackie twice emphasises that the normally well informed defendant in GDF’s position would reasonably have been able to foresee that it might be sued in either of the places where payment was required to be made under the alleged contract. Because the payment obligation was “the essence of what [GDF] was required to do under the alleged contract” this was, without more, sufficient to fulfil both criteria. 

The brevity of this conclusion is perhaps a result of the unusual nature of the alleged contract in this case: an assumption, by A, of B’s obligation to pay C, in exchange for C’s promise not to stop performing its contract with B. By examining the ECJ’s interpretation of proximity and predictability it becomes clearer why HHJ Mackie applied the concepts in the way he did.

The ECJ in Color Drack stated that proximity must relate “to the material elements of the dispute”. Because the court found that this was not a contract for the provision of services, the payment obligation itself became the essence of the contract. Factors relating to the payment obligation would therefore suffice to fulfil the proximity requirement; the method of payment stated in Canyon’s invoices was a material element, and indeed one of the few material elements, in the dispute.

This conclusion is unusual, because the courts are normally loathe to classify payment as the characteristic obligation of a contract. Payments under contracts are ubiquitous. What is received in exchange for payment is what characterises a contract. The manner or method of payment will not usually constitute valid proximate factors. 

HHJ Mackie implicitly acknowledged this, stating in his judgment that cases falling under Article 5(1)(b) for the provision of goods or services will necessarily involve a degree of proximity that is likely to be greater than under Article 5(1)(a). The place of delivery of goods or provision of services will have a natural proximity to the contract because this is the place in which the characteristic obligations, as we naturally understand them, are performed. 

In contrast, an obligation under Article 5(1)(a) may have little connection with the underlying substance of the dispute between the parties or with the parties themselves, as in the current case. England had no connection with the work that Canyon had been contracted to carry out. Neither had it any connection with the domicile of the parties. The English courts ended up with jurisdiction because the transfer of money into a London bank account was chosen as one method by which payment could be made.

The English courts therefore seem willing to stretch the concept of proximity in cases where payment under a contract is the characteristic obligation. It remains to be seen how this concept will develop in more usual circumstances where there are multiple places of performance of delivery of goods or provision of services. 

The ECJ in Color Drack held that the predictability criterion is met when the parties to the contract “can easily and reasonably foresee before which member states courts they can bring their dispute”. The use of the language of reasonable foreseeability is reflected in HHJ Mackie’s judgment. He found that GDF should reasonably have foreseen that if it failed to pay under the alleged contract it could be sued in either of the places where payment was required to be made.

The fact that there were only two places of performance, Scotland or England, seems to have weighed heavily in the judge’s mind when considering what was reasonably foreseeable by GDF. He states that the Besix case, in which every member state was a place of performance, was “far removed from the facts of this case”, and the considerations contained within it applied only “to a degree”.

The number of places of performance is likely to remain the key factor in deciding whether the place of performance is sufficiently predictable for the purposes of Article 5(1). The more possible jurisdictions that a defendant might be sued in, the less likely it is it will be able to predict in which courts it will have to defend itself.

Conclusion

HHJ Mackie concluded his judgment by warning that the issues he had examined were neither straightforward nor based on principles that have been established beyond doubt. He took the prudent step of granting GDF permission to appeal. We may still receive a late Christmas present if the Court of Appeal decides to give further guidance in this nascent area of law.