C-23/78

on the interpretation of the first paragraph of Article 17 of the Convention of 27 September 1968,

THE COURT

composed of: H. Kutscher, President, J. Mertens de Wilmars and Lord Mackenzie Stuart (Presidents of Chambers), P. Pescatore, M. Sørensen, A. O'Keeffe and G. Bosco, Judges,

Advocate General: F. Capotorti Registrar : A. Van Houtte

gives the following

JUDGMENT

Enforcement of Judgments in Civil and Meeth lodged an appeal with the Ober Commercial Matters may be summarized landesgericht (Higher Regional Court) as follows: Koblenz, which, by a judgment of 17 September 1976, reduced the sum payable by Meeth to Glacetal to DM I — Facts and written procedure 49 509.96, together with interest, since in the meantime proceedings for the By a written contract concluded in winding-up of Meeth's affairs had August 1972 Glacetal, a limited liability terminated in an agreement approved by company, whose registered office is in the courts under which the undertaking's Vienne-Estressin, France, undertook to debts were to be paid at the rate of 40 % deliver in its own lorries to the under The Oberlandesgericht ruled that a claim taking Nikolaus Meeth (hereinafter by Meeth that the sum of DM referred to as "Meeth"), window manu 157 494.03 be set off by way of damages facturers and wood processors, for delayed delivery and refusal to

dispute arose: Bundesgerichtshof, requesting a ruling "Unless provision is made to the that its claim for a set-off was contrary the sole law applicable shall be admissible, that court, by an order of its the relevant German law governing 8th Civil Senate of 1 February 1978, transaction between traders. decided to stay the proceedings, pursuant to Article 3 (1) of the Protocol of 3 June 1971 on the Interpretation by The place of performance for both the Court of Justice of the Convention parties shall be Piesport. of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in If Meeth sues Glacetal the French courts Civil and Commercial Matters, until the

Since sued only in the courts of their Glacetal was unable to obtain the respective States? balance it instituted proceedings before 2. Where an agreement permitted by the the Landgericht (Regional Court) Trier first paragraph of Article 17 of the to recover the sum due, namely DM Convention contains the clause 126 501.22. mentioned in Question 1, does it auto The Landgericht, by a judgment of 13 matically rule out any set-off which January 1975, ordered Meeth to pay one of the parties to the contract Glacetal the sum of DM 123 774.90, wishes to propose in pursuance of a together with interest at 10% to run claim arising under the said from 1 February 1975. agreement in answer to the claim

Government of the Federal Republic of According to generally-accepted prin­ Germany. ciples, such a set-off is not subject to the The Court, having heard the report of criteria for jurisdiction ratione materiae the Judge-Rapporteur and the views of and ratione loci which apply in the case the Advocate General, decided to open of independent proceedings to off-set the oral procedure without any claims (Aufrechnungsforderung). The preparatory inquiry. second paragraph of Article 11 and the third paragraph of Article 14 of the Convention of 1968 expressly authorize II — Written observation sub­ a counterclaim despite the fact that mitted to the Court exclusive jurisdiction is recognized ratione materiae; accordingly there must The Government of the Federal Republic in principle be even stronger grounds for of Germany considers that the disputed permitting a set-off without regard to agreement conferring jurisdiction is criteria of jurisdiction. lawful and that it does not automatically However, questions of jurisdiction arise rule out the setting-off of claims from the fact in the case of a set-off connected with the same contract which, against a claim the court is required in in pursuance of the jurisdiction clause, would have to be enforced before large measure to consider the same another court. matters as it would in independent proceedings to off-set claims. According (a) Article 17 of the Convention to the Bundesgerichtshof, since the confers upon the parties to a contract German courts do not have jurisdiction power to specify the courts which are to and there is no appropriate procedure have jurisdiction; saving questions of before the civil courts with regard to the form and of the limits laid down by the claim for a set-off, it is impossible for second paragraph of Article 17 with procedural reasons to pursue such a claim; because of the fundamental lack regard to the lawfulness of such agreements, the parties may freely of jurisdiction in such matters the choose the jurisdiction of the courts of requirements of German procedural law the States which are parties to the militate against a decision on the set-off Convention. The disputed clause in the having the force of res judicata. agreement is clear enough; it has been The Bundesgerichtshof furthermore judiciously drafted in that it observes the deduced from the fact that the parties principal rule for the conferring of have concluded an arbitration agreement jurisdiction laid down in Article 2 of the in respect of a specific claim that such Convention of 1968 and avoids claim cannot be relied upon as a set-off

before the ordinary courts; if this were It is for the courts to interpret not so the existence of the claim would agreements between parties and to be decided by an agency quite different decide whether or not the latter intended from that agreed on by the parties to restrict their right to claim a set-off. themselves. An arbitration clause thus Within the scope of the Convention of has the same effect as an express clause 1968 the presumption that there are close between the parties excluding a set-off; it links between each of the parties and his is accepted that such a clause is own State does not lead directly to the

parties. The Bundesgerichtshof has presumption of a prohibition of set-offs treated an international agreement and whether there are not certain conferring jurisdiction as having effects, restrictions on such a prohibition in cases with regard to the admissibility of a set of liquidation or bankruptcy or applying, off, equivalent to an arbitration clause. more generally, by the logic of pro The parties may make express provision cedural requirements where there are for claiming a set-off before a court connexions in law between the claims, which does not have jurisdiction to take where the claim for a set-off is not cognizance of an application or they may disputed or where there is a decision prohibit it in any proceedings, in the having the force of res judicata. same way as they should be entitled to exclude a counterclaim even where there It is unnecessary to settle each of these points in the present proceedings:

1. Article 17 of the Convention on before a court which lacks jurisdiction. jurisdiction and the enforcement of Such a prohibition can be inferred from the agreement between the parties judgments permits an agreement because of the nature of the interests under which the two parties to a which are assumed in Article 17. It contract of sale, who are domiciled in would appear to be possible to give a different States, can be sued only in general ruling on this point only if it the courts of their respective States. were clearly called for on the basis of a 2. The clause mentioned in Question 1 comparative study of the legal systems in does not automatically rule out any question or if in Article 17 of the set-off which one of the parties to the Convention a connexion had been contract wishes to propose in established between such claims and pursuance of a claim arising under the jurisdiction clauses. said agreement in answer to the claim

made by the other party in the court Furthermore, the agreement in dispute having jurisdiction only to hear the does not state that the courts of one latter claim. Contracting State shall have jurisdiction, but rather that it shall belong to the The essential points of the observations courts of one or other Contracting State put forward by the Commission are as depending on the nationality of the follows: defendant. Since Article 17 makes express provision for an agreement (a) An agreement conferring jur designating "a court or the courts of a isdiction, such as that concluded by the Contracting State" it does not appear parties to the main action, is not at that, on a literal interpretation, any other variance with the principle set out in the outcome is possible. second paragraph of Article 2 of the Doubtless, according to the case-law of Convention of 1968 concerning the the Court of Justice, Article 17 must be jurisdiction of the courts of the State interpreted narrowly; nevertheless it is where the person concerned is domiciled. doubtful whether a strictly literal inter The sole effect of such an agreement is pretation would be in accordance with that, where appropriate, the courts which the objective of that provision.

This condition may not be fulfilled in the present case, (b) A reply to the second question is since the agreement in dispute merely necessary only if the reply to the first refers to "the French courts" or the question is in the affirmative. "German courts" and leaves open the In general, a defence of set-off must be questions of the courts having territorial considered inadmissible in certain jurisdiction, the type of court having circumstances, in particular where jurisdiction (ordinary courts, labour binding procedural rules prevent the

MEETH v GLACETAL

the State of a particular party shall have If the claims of the plaintiff and of the exclusive international jurisdiction defendant arise from the same legal involves in addition a contractual relationship the court best suited to settle prohibition against reliance, before a claims by the defendant against the court other than that agreed upon, on a plaintiff is the court whose substantive claim for a set-off covered by the law is to be applied to the subject- agreement conferring jurisdiction. The matter of the main action. In the present question whether this also applies where case the German court before which the it has been agreed that the courts of the main claim has been brought must be defendant's State shall have jurisdiction considered as having jurisdiction. can only be settled by way of the inter­ Furthermore, it is important to avoid any pretation and consideration of all the dislocation of proceedings, in order to circumstances of the case. If this inter­ save time and expense and to avoid pretation were to lead to the conclusion superfluous procedure. This is also that, with regard to a set- off, the parties indicated by Article 6 (3) of the have also agreed as to the exclusive Convention. Finally, the remark should jurisdiction of the courts which have be made that the Convention of 1968 jurisdiction over counterclaims, such makes no provision for a stay of regard for the intentions of the parties proceedings in order to take account of does not appear to be compatible with the judgment of a court before which the the Convention of 1968. defendant subsequently institutes In the present case the parties agreed to proceedings against the plaintiff; apply German law; it must therefore be likewise, no provision is made for decided in accordance with German subs­ "judgment to be delivered conditionally" tantive law whether the claim for a pending disposal of the counterclaim set-off is valid in relation to that law. On where that claim is heard separately from the other hand, the question whether the the main action.

2 The file shows that the undertaking Nikolaus Meeth, window manufacturers and wood processors, established in Piesport/Mosel, Federal Republic of Germany, the defendant in the main action and appellant on a point of law, entered into a contract with Glacetal S. à R. L., the plaintiff in the main action and respondent to the appeal, for the supply of glass by the French company to the German undertaking.

The parties agreed that the contract should be governed by German law, that the place of performance of the contract was Piesport and that "if Meeth sues Glacetal the French courts alone shall have jurisdiction. If Glacetal sues Meeth the German courts alone shall have jurisdiction".

When Meeth failed to pay for certain deliveries effected by Glacetal the latter commenced proceedings to obtain payment of the sums due before the Landgericht Trier — the court having jurisdiction on the basis of the defendant's domicile — which ordered the German undertaking to make payment.

3 In the course of that procedure Meeth raised against Glacetal's claim a defence of set-off relating to the damage which it claimed to have suffered owing to delay or default on the pan of the French company in performing its obligations under the contract.

The court of first instance, however, refused to allow that sum to be set off against the sale-price claimed by the French company since it considered that Meeth had failed to adduce sufficient proof in support of its claim for damages.

Meeth appealed against that judgment to the Oberlandesgericht Koblenz, which in turn found that the French undertaking was entitled to the payments it claimed, subject, however, to the effects of a composition in bankruptcy which had in the meantime been arranged.

5 According to the first paragraph of Article 17 "if the parties . . . 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 connexion with a particular legal relationship, that court or those courts shall have exclusive jurisdiction".

With regard to an agreement conferring reciprocal jurisdiction in the form in which it appears in the contract whose implementation forms the subject- matter of the dispute, the interpretation of that provision gives rise to difficulty because of the fact that Article 17, as it is worded, refers to the choice by the parties to the contract of a single court or the courts of a single State.

That wording, which is based on the most widespread business practice, cannot, however, be interpreted as intending to exclude the right of the parties to agree on two or more courts for the purpose of settling any disputes which may arise.

This interpretation is justified on the ground that Article 17 is based on a recognition of the independent will of the parties to a contract in deciding which courts are to have jurisdiction to settle disputes falling within the scope of the Convention, other than those which are expressly excluded pursuant to the second paragraph of Article 17.

JUDGMENT OF 9. 11. 1978 — CASE 23/78

This applies particularly where the parties have by such an agreement reciprocally conferred jurisdiction on the courts specified in the general rule laid down by Article 2 of the Convention.

The question of the extent to which a court before which a case is brought pursuant to a reciprocal jurisdiction clause, such as that appearing in the contract between the parties, has jurisdiction to decide on a set-off claimed by one of the parties on the basis of the disputed contractual obligation must be determined with regard both to the need to respect individuals' right of independence, upon which Article 17, as has been noted above, is based, and the need to avoid superfluous procedure, which forms the basis of the Convention as a whole of which Article 17 is part.

MEETH v GLACETAL

In the light of both of these objectives Article 17 cannot be interpreted as preventing a court before which proceedings have been instituted pursuant to a clause conferring jurisdiction of the type described above from taking into account a claim for a set-off connected with the legal relationship in dispute if such court considers that course to be compatible with the letter and spirit of the clause conferring jurisdiction.

9 Accordingly the reply to the second question must be that where there is a clause conferring jurisdiction such as that described in the reply to the first question the first paragraph of Article 17 of the Convention cannot be interpreted as prohibiting the court before which a dispute has been brought in pursuance of such a clause from taking into account a set-off connected with the legal relationship in dispute.

Costs

10 The costs incurred by the Government of the Federal Republic of Germany and by the Commission, which have submitted observations to the Court, are not recoverable.

2. Where there is a clause conferrring jurisdiction such as that described in the reply to the first question the first paragraph of Article 17 of the Convention of 27 September 1968 cannot be interpreted as prohibiting the court before which a dispute has been brought in pursuance of such a clause from taking into account a set-off connected with the legal relationship in dispute.

Kutscher Mertens de Wilmars Mackenzie Stuart

Pescatore Sørensen O'Keeffe Bosco

Delivered in open court in Luxembourg on 9 November 1978

A. Van Houtte H. Kutscher

Registrar President