Richard Schmidt Peter Gritta May 4 2021 Can a judicial error create Hungarian jurisdiction if the place of performance is abroad? SMARTLEGAL Schmidt & Partners | Litigation - Hungary Richard Schmidt, Peter Gritta Litigation IntroductionFactsFirst-instance decisionSecond-instance decisionSupreme Court decisionQuestionsCommentIntroductionThis article analyses a recent Supreme Court decision(1) and seeks to answer the following questions:Can a defendant which is domiciled abroad be sued in Hungary under the EU Brussels Recast Regulation (1215/2012/EU) in the event of defective performance of an international sales contract if the place of performance is abroad?Can the jurisdiction of a Hungarian court be established based on the fact that a lower court expressly established its jurisdiction at the beginning of the litigation?How is the Ex Works (EXW) clause to be interpreted within the meaning of the EU Brussels I Regulation?FactsA contract of sale was concluded between the applicant, as the buyer, and the defendant, as the seller, for the purchase of potatoes. The applicant, established in Hungary, delivered the goods to Hungary from the defendant's premises in Slovakia by contracting a carrier and then returned the goods with reference to a quality defect.The applicant initiated European order-for-payment proceedings against the Slovak defendant, which turned into litigation in Hungary. In the litigation, the applicant, based on its withdrawal, requested that the defendant pay the purchase price, freight and interpretation fees.The defendant raised an objection to the court's jurisdiction. In its view, the applicant's claim was governed by the EU Brussels Ia Regulation(2). According to Article 4(1) of the regulation, the Slovak courts had jurisdiction to adjudge the case.(3)First-instance decisionThe first-instance court, in its order brought at the beginning of the proceedings, held that it had jurisdiction to hear the case. However, in a later part of the lawsuit, the court found the defendant's objection to jurisdiction to be well founded and terminated the lawsuit.The court stated that its jurisdiction could not be established on the basis of the general rule of jurisdiction under Article 4(1) of the EU Brussels Ia Regulation as the defendant was not domiciled in Hungary.With regard to the special rule of jurisdiction under Article 7(1) of the EU Brussels Ia Regulation, the court found that since the applicant had undertaken to deliver the goods, the contract of sale had been performed in Slovakia and the Hungarian courts did not have jurisdiction.Second-instance decisionThe applicant appealed the decision. The second-instance court disagreed with the applicant's argument that the first-instance court had been bound by the order establishing its jurisdiction brought at the beginning of the proceedings, after which the proceedings could no longer be terminated on the ground of a lack of jurisdiction.The court of appeal emphasised that the court must detect a lack of jurisdiction at its own motion at any stage of the proceedings. An earlier order in this matter has no res iudicata effect and cannot create a ground of jurisdiction.In addition, the second-instance court confirmed that there was no special ground of jurisdiction under Article 7(1) of the EU Brussels IA Regulation that would establish the Hungarian courts' jurisdiction.The applicant applied for a judicial review of the final order. In its view, the first-instance court was bound by its earlier order which had established jurisdiction.In addition, the applicant emphasised that the Hungarian courts' jurisdiction could be established on the basis of Article 7(1)(a) of the EU Brussels Ia Regulation since the performance (ie, the delivery of the goods to the applicant) had taken place in Hungary. In connection with the court's jurisdiction, it cited the judgment brought by the European Court of Justice (ECJ) in Zurich Insurance plc.(4)The applicant argued that since its action also contained a claim for damages arising from defective performance, the Hungarian courts' jurisdiction could also be established based on Article 7(2) of the EU Brussels Ia Regulation, according to which – in matters relating to tort, delict or quasi-delict – the courts of the place where the harmful event occurred have jurisdiction.Supreme Court decisionThe Supreme Court emphasised that it had not been unlawful for the first-instance court, despite its earlier order, to later declare its lack of jurisdiction and terminate the proceedings. As the order establishing jurisdiction was not binding on the court, it could change its standpoint until the trial was closed.The court then examined whether the Hungarian court could have jurisdiction under the EU Brussels Ia Regulation. The court emphasised that since the applicant had asserted a claim based on a contractual relationship in his action, the ground of jurisdiction for the place of damage provided for in Article 7(2) of the regulation was not applicable.The court also ruled on the existence of a special ground of jurisdiction under Article 7(1)(a) of the EU Brussels Ia Regulation. In this context, the question arose as to what constituted the place of performance for the purposes of the regulation if the goods had been transported from the defendant's premises in Slovakia to Hungary by a third party.The court argued that in this case, the applicant had arranged the transport of the goods and had also indicated the related costs in its claim. The defendant had handed over the goods to the applicant's agent at its own premises in Slovakia, so the place of performance was Slovakia. Considering the above, there was no special ground of jurisdiction under Article 7(1) of the EU Brussels Ia Regulation. Therefore, the Hungarian courts did not have jurisdiction in the matter. Thus, the Supreme Court upheld the second-instance decision.QuestionsDoes a decision on the objection of jurisdiction have binding force during proceedings or can a court differ from its own decision?In this regard, the Supreme Court correctly applied the principles previously developed by domestic case law in relation to the adjudication of objections concerning local court competence.It has long been standard practice in Hungarian civil procedure law cases that the courts need not make a formal decision on the rejection of an objection of court competence during the proceedings; rather, it is enough to adjudicate the objection in the decision of merits closing the proceedings.However, if the court nevertheless made a separate order on the objection of jurisdiction and, as in the present case, established its competence separately, there is no separate appeal against that decision.(5)Since it is not possible to appeal such a procedural order, it follows a contrario that the order is not legally binding, so the court may change its stance throughout the first-instance procedure.The Supreme Court correctly applied the above principles by way of an analogy to determine jurisdiction under the EU Brussels Ia Regulation.If the applicant's position had prevailed, a judicial error could also have justified the court's jurisdiction under the EU Brussels Ia Regulation. However, according to ECJ case law, one of the main objectives of the regulation is to ensure legal certainty and predictability in the application of the jurisdiction rules so that an adequately informed defendant can foresee in which country proceedings against it may be brought.(6)In light of the above, it is easy to understand that an ad hoc judicial error cannot create jurisdiction as it would be incompatible with legal certainty and predictability.What constitutes 'place of performance' within the meaning of Article 7(1) of the EU Brussels Ia Regulation?The EU Brussels Ia Regulation must be interpreted autonomously in this regard. Therefore, instead of the rules of national law, the decisions of the ECJ, which has the sole power to interpret EU law, must be considered.The Supreme Court correctly disregarded the judgment in Zurich Insurance plc, on which the applicant had relied, on the ground that it interpreted the regulation in the context of multimodal transport, which is a provision of services (in the present case, the legal relationship was the sale of goods).In the present case, the applicant's argument also implicitly relied on the judgment in Car Trim,(7) according to which, in case of a sale involving carriage of goods where it is impossible to determine the place of delivery based on the contract, the place of performance 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 the present case, the parties agreed on EXW parity as the transport had been arranged by the buyer.In cases where parties have relied on a standard, such as the widely used International Commercial Terms (INCOTERMS),(8) national courts have not always found the place of performance to be determined on the basis of parity, as some parities were intended to determine the allocation of costs or the mode of transport rather than the actual place of the final delivery.(9)However, in Electrosteel,(10) the ECJ ruled that the EXW INCOTERMS parity stipulated in the contract constituted an agreement between the parties as to the place of performance.Therefore, the Supreme Court applied the EU Brussels Ia Regulation in accordance with the aforementioned ECJ case law and, by considering the clear stipulation of the place of delivery in Slovakia as an EXW parity, correctly found that in the absence of a domestic place of performance, the Hungarian courts did not have jurisdiction to decide the dispute arising from the international sales contract.CommentThe Supreme Court's decision is important for two reasons:The Supreme Court used an analogy to apply the procedural practice previously used in connection with the competence of local courts to the question of jurisdiction and made it clear that a possible judicial error could not establish a Hungarian court's jurisdiction under the EU Brussels Ia Regulation.The Supreme Court, in accordance with ECJ case law, established that in the absence of a domestic place of performance, the Hungarian courts do not have jurisdiction over a dispute arising from an international sales contract.For further information on this topic please contact Richard Schmidt or Peter Gritta at SMARTLEGAL Schmidt & Partners by telephone (+36 1 490 09 49) or email ([email protected] or [email protected]). The SMARTLEGAL Schmidt & Partners website can be accessed at smartlegal.hu.Endnotes (1) This article focuses on Judicial Decision BH 2021.2.48.(2) EU Regulation (1215/2012) of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast).(3) Subject to this Brussels regulation, persons domiciled in a member state must, whatever their nationality, be sued in the courts of that member state.(4) ECJ, 11 July 2018, Zurich Insurance plc v Abnormal Load Services (International) Ltd, Case C-88/17.(5) Judicial Decisions BH 1987.13.7 and BH 1996.55.(6) For example, Andrew Owusu v Villa Holidays Bal-Inn Villas (ECLI:EU:C:2005:120), C-281/02, Section 40.(7) 25 February 2010, Car Trim GmbH v KeySafety Systems Srl, Case C-381/08.(8) Collection of rules published by the International Chamber of Commerce.(9) Rotterdam Court, 15 July 2015, Rhoonse Recycling & Service BV v BSS Heavy Machinery GmbH, C/10/473788 / HA ZA 15-350, NL: RBROT: 2015: 5292; 's-Hertogenbosch Court of Appeal, 1 September 2015, Cimtrode The Electrode Company GmbH v Carbide BV, HD 200.133.747 / 01, NL:GHSHE  3396.(10) 9 June 2011, Electrosteel Europe SA v Edil Centro SpA, Case C-87/10.