C-218/86

OPINION OF SIR GORDON SLYNN —CASE 218/86

O P I N I O N OF ADVOCATE GENERAL SIR G O R D O N SLYNN delivered on 28 October 1987

My Lords, appeared more sympathetic to the claim that the German courts had jurisdiction) referred to this Court the question:

Firma SAR Schotte GmbH ('Schotte') whose registered office is in the Federal Republic of Germany claims in the German courts from Parfums Rothschild SARL 'Does the jurisdiction conferred by Article 5 ('French Rothschild') whose registered (5) of the Convention in regard to a branch, office is in France, DM 55 507.04 as the agency or other establishment extend to the price of atomizer pumps and caps for case where a legal entity recognized by perfume containers sold and delivered to French law (a "société à responsabilité French Rothschild. The latter disputes the limitée"), whose registered office is in Paris, jurisdiction of the German courts since it is maintains no dependent establishment in domiciled in France. Schotte relies on another Contracting State (in this case, the Article 5 (5) of the 1968 Convention on Federal Republic of Germany) but where Jurisdiction and the Enforcement of there is in that other Contracting State an Judgments in Civil and Commercial Matters independent legal entity recognized by which provides that: German law (a "Gesellschaft mit beschränkter Haftung") which has the same name and identical management, which negotiates and conducts business in the name of the French legal entity and which is 'A person domiciled in a Contracting State used by the latter as an extension of itself?' may, in another Contracting State, be sued:

The Court has considered the meaning of 'a branch, agency or other establishment'. In Case 14/76 De Bloos v Bouyer [1976] ECR 1497, at p. 1510, it ruled that 'one of the In 1983, German Rothschild complained to essential characteristics of the concepts of Schotte that it had received numerous branch or agency is the fact of being subject complaints from customers that the to the direction and control of the parent atomizers were inefficient. Extensive corre- body* and that the concept of 'estab- spondence followed between Schotte and lishment' must be based on the same German Rothschild on the latter's headed essential characteristics. 'Establishment' writing-paper though 'signed by one of the must, it seems, be read ejusdem generis defendant's two directors'. Correspondence branch and agency. In Case 33/78 Somaferv before the conclusion of each individual Saar-Femgas [1978] ECR 2183, at p. 2193, contract was apparently similarly conducted it stressed that, since Article 5 (5) derogated on German company headed paper, though from the principle of jurisdiction contained similarly signed. Whether the common in Article 2 of the Convention, its interpre- director signed and, if so, whether he signed tation must 'show without difficulty the on behalf of French or German Rothschild special link justifying such derogation'. is not clear. There must be material signs enabling the local entity to be easily recognized and a connection 'between the local entity and the claim directed against the parent body established in another Contracting State'. 'The concept of branch, agency or other establishment implies a place of business which has the appearance of permanency, such as the extension of a parent body, has When sued, German Rothschild denied a management and is materially equipped to liability — it seems on the basis that it was negotiate business with third parties so that not the contracting party ('disputed its the latter, although knowing that there will capacity to be sued'). Hence the present if necessary be a legal link with the parent proceedings were begun against French body, the head office of which is abroad, do Rothschild. not have to deal directly with such parent

Article 5 (5) is beneficial to plaintiffs in that it enables them to sue in the State where a defendant has a branch with which the Such a result would give the maximum plaintiff has conducted business, rather than protection to potential defendants and in the State of domicile of the defendant. It constitute the more restrictive interpretation is beneficial to defendants in that it confers of Article 5 (5), thus making the least jurisdiction only where there is a branch, inroad into the principle enshrined in Article agency or other establishment; jurisdiction 2. It is an attractive result in that it is rela- is not conferred where there is merely a tively simple to operate. temporary presence or some connection with the State in which it is desired to bring proceedings more tenuous than the existence of a branch. However, the position of plaintiffs must also be taken into account. If proprietors of a business set up in one State can avoid having what is technically their branch, A branch (as equally I understand to be a agency or establishment in another Member 'succursale' and a 'Zweigniederlassung') is State by creating a company there as, in fact as I see it an outpost of the main business if not in law, a complete alter ego, it can be (be it owned by a company or an individual) said with no less force that the object of carrying out the affairs of the main business Article 5 (5) is frustrated. The person for the latters benefit on a continuing basis dealing through that other company with and subject to the control of the main the main business is deprived of the right to business. 'Agency* and 'establishment' I read sue, which he would have had if an office or in very much the same sense as indicating a other establishment had been opened by the place of business subsidiary to the business main proprietor as his own property and in of the main business, though 'establishment' his own name. Yet the position of the two may be somewhat wider than 'branch'. I do in reality is very similar.

Since it seems to me that Article 5 (5) was This kind of situation may well arise where drafted with the interests of both plaintiffs a company sets up for whatever reason a and defendants in mind, these divergent wholly-owned subsidiary in another interests have, if possible, to be reconciled. Contracting State. I do not, however, consider that the concept of 'branch' or 'establishment' is to be looked at in terms of formal company structure or shareholding. It depends on whether the owner of the main business has held out the place of business of the other company to be a place at which third parties can deal with the In Somafir the Court saw two elements as owner of the main business, and third being necessary to create a branch, agency parties have relied on that. or other establishment — first, there must be a place of business with an appearance of permanency and a management which is equipped to conduct business (thus protecting defendants from suit as a result of transient or temporary presence) and, This could readily happen not only with a secondly, there must be awareness on the wholly-owned subsidiary but also with an part of third parties that they do not have to associated company; it could happen, deal directly with the parent body but may though no doubt more rarely, where the transact business at the place constituting parent company dealt on behalf of the the extension. subsidiary (as, for example, where they were principally engaged in the production of different items, each dealing for the other to a small degree in respect of the other's major product). If the test is 'holding out' rather than 'shareholding' there is nothing unduly disturbing about such a conse- quence. The principle cannot, however, be limited to the situation where companies are In the ordinary way it seems to me that this involved. It must be capable of applying, if second test will normally be satisfied where it applies at all, to individuals; the degree of the branch or other establishment is owned factual control of one proprietor over an by (and perhaps bears the name of) the individual may indeed be no less than that proprietor of the main business. On the exercised by a parent over a wholly-owned other hand, if the proprietor causes another subsidiary. person or company to act in such a way that third parties are led to believe that they may deal with that other person or company as an extension or outpost of the proprietor, 'knowing that there will if necessary be a legal link with the parent body 5 , then it This test is not lightly satisfied. There must seems to me that the place of business of be 'material signs enabling the existence of that other person or company is capable of the b r a n c h . . . to be easily recognized' being a branch, agency or other estab- (Soma/er, p. 2193). It must 'appear to third lishment of the proprietor with whom the parties as an easily discernable extension of contract is made, who may be sued pursuant the parent body* (Blanckaert, p. 829). It is to Article 5 (5) in the State where that place obviously more difficult for a national court of business is to be found. to resolve this question than mere legal

Despite the force and attraction of the contrary arguments (which unfortunately have not been developed before the Court) Since a ruling is not requested on it, it is in favour of adopting the more limited view perhaps better not to deal with the question. that the status of a 'branch, agency or other In case the Court takes the other view I establishment' depends on ownership, I comment briefly. would accordingly take the view that if a place of business in one Member State is treated by the owner of a business who is domiciled in another Member State as if it were an integral part of his business under his direction and control, and is clearly seen to be so treated by third parties, then that place of business is capable of being a branch, agency or other establishment for the purposes of Article 5 (5) even if it is T h e concept of 'a dispute arising out of the owned and managed by another person or operations o f a branch, etc. has not been company. This seems to me not to be in investigated, save in Somafer. The words conflict with, indeed to be closer in used in the judgment appear to indicate that principle to, the statement in the Jenard the contractual undertaking must have been Report that 'adoption of the "special" rules entered into at the branch in the name of of jurisdiction is also justified by the fact the parent company. That would seem to that there must be a close connecting factor exclude a case where the branch conducts between the dispute and the court with all the negotiations but the final contract is jurisdiction to resolve it'. signed by the parent company. But for that passage I would have read the preceding paragraph of the judgment, paragraph 12, as wide enough to cover the case where all negotiations were fully conducted by the branch on behalf of the parent body but the French Rothschild's second argument is that final contract ('if necessary a legal link') was the dispute does not arise out of 'the oper- signed by the latter. For my part, but for

The costs of the Commission and of the German Government are not recoverable. The costs of the parties to the main action fall to be dealt with by the national court.