Posted: August 10th, 2022

The Need to Remove ‘Article 7(1) [Ex 5(1)] of Brussels I (recast) (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012

The Need to Remove ‘Article 7(1) [Ex 5(1)] of Brussels I (recast) (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012
4- ‘Article 7(1) [Ex 5(1)] of Brussels I (recast) (EU) No 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 leads to uncertainty and increases litigation risk, it must therefore be removed from the system of Brussels I’. Critically assess this statement by reference to case law and the domicile rule.
Article 7 of Regulation (EU) 1215/2012, Brussels 1 (recast) provides the provisions that deal with contract claims. This law was previously article 5 of Regulation (EC) 44/2001, Brussels 1. The regulation recast led to various changes within the provisions. However, the multiple provisions’ interpretations pointed out different challenges, especially on how the Court of Justice interpreted them previously and how it should be done presently. There has been a call to have Brussels 1 keenly observed, especially when analyzing Article 7 of Regulation (EU) 1215/2012, Brussels 1 (recast) and its application on the ground. Article 7 of the Regulation provides a number of categories concerning particular jurisdiction, mostly on torts and contracts.
Specifically, Article 7 (1) of Regulation (EU) 1215/2012 indicates that the plaintiff will need to sue the defendant that has been domiciled in another member state in the issues that relate to a contract in the courts for the place of performance or the obligation in contention. Notably, the provision has been slightly problematic theoretically in two perspectives. The first way is that no clear or uniform definition is awarded to the words “matters relating to a contract”. While the European Court of Justice perceives it to be independent and hence a European concept, it lacks clarity considering that only definitions provided by case laws from ECJ are the only ones provided which are also very abstract. To this effect, the leaving parties are left in unclear circumstances until the Court decides on the matter. The second perspective is that “the place of performance” is lacking an independent European concept. The provision harmonizes the phrase for two categories of standard contracts: the sale of goods and services provision. Nonetheless, the regulation indicates that if the conditions for these two common contracts are not met then the standard requirement outlined in Article 5(1)a applies. This leads to having a national law that defines the “place for performance” superior since there is no uniform concept.
Generally, Article 7 (1) of Regulation (EU) 1215/2012 has its uncertainties. It has increased litigation risk opportunities in its jurisdiction line and the recognition and enforcement of judgments in civil and commercial matters. This research paper seeks to critically assess this regulation and determine why these affiliated challenges should prompt its removal from the Brussels 1 system. The research will reference both case law and domicile rules in the critical assessment.
Analysis of Article 7(1) [Ex 5(1)] of Brussels I (recast) (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 to Determine The Need for Its Removal
The Brussels recast regulations have Article 1, limiting its jurisdiction to both civil and commercial matters. This does not apply to revenue, customs or administrative issues. Other issues not covered include any state’s liability from actions or omissions while exercising its authority, natural persons’ status or legal capacities, property rights accruing from marital relationships, insolvency, social security, wills and succession. Notably, it is never straightforward when determining whether a matter falls under civil or commercial matters or instead becomes part of the exclusions. Nonetheless, the CJEU would handle several case laws on these controversial issues to provide clarifications such as the application of the insolvency exclusion. Following the decision tree, the matter in question falls either under a civil or commercial matter and thus falls under the recast Brussels Regulation scope. However, as this research will discuss, the clarifications provided by the CJEU in respective case laws concerning Article 7(1) Brussels recast regulations.
Article 7 (1) of the Brussels 1 recast states that the individual is a member state will be sued in another member state un the matters related to a contract in the courts of the place of performance of the obligation in question. It further states that for the provision and unless it has been agreed otherwise, this place of performance of the obligation in question will be for the case of the sale of goods and the case of the provision of services. For both of these cases, the member state within the contractual agreement had the goods delivered or will have the goods delivered. In case the second provision is not applicable, then the first outlined provision applies.
In essence, the application of this regulation will follow an approach of two steps. The fist id characterization that is the contractual agreement is either “the sale of goods’ ‘ or the “provision of services’ hence falling under the ambit (b) of the law, failure to falling under these headers then it falls under the provision ambit (a). The second step is determining the appropriate place of performance. The regulation has provided an autonomous rule placing the entire contract’s performance at the delivery place of the goods or at the locations where services will be provided depending on the type of contract. Nonetheless, the situations stipulated in the ambit (a) are less clear cut. This is because of the need to identify and isolate the obligation that is causing a claim in a specific case and determining the place of performance as per the lex causae doctrine. This doctrine entails the forum court’s law from particular legal systems when it judges a global or inter-jurisdictional case. The doctrine refers to using specific local laws based on the “cause” for the ruling, encompassing a section in the referenced legal canon.
The Article does provide that the individual domiciled in a member state could be sued in another state about issues relating to a contract in the courts within the place of performance the obligation in contention. This stipulation is a clear contrast to article 24 that applies to the Proceedings whose object entails particular matters. Article 7(1) has covered the claims found in rights that arise out of a contract. However, whether the claims found in other legal bases are covered, including unjust enrichment, has connections to a present or supposed contractual agreement between parties.
The definition of “matters relating to a contract” is already challenging to determine. The Court of Justice has provided a number of elements for a definition, including the existence of a contractual relationship between the parties that could be express or tacit. Considering the principle of autonomous interpretation, this relationship is not required to be considered contractual under national laws to fall under Article 7(1( nor should it automatically be regarded as contractual for it to fall under the Article. An individual in the agreement needs to have carried out their obligation towards the other party. The contractual obligation notion is autonomous.
There are concerns on how the principles will then be applied to the unjust enrichment claims having connections to present or supposed contracts between particles. One of the themes is whether the Article will apply when the party has sought a declaration of a contract’s invalidity. The second issue is assuming the Court does tem the contract invalid, then does it mean that the Court also has jurisdiction to determine the invalidity. The third issue is whether the Article is applicable when the contract’s invalidity has not been disputed, and the Court only seeks to provide the consequences of the invalidity. The final matter to this concept is whether Article 7(1) applies to the restitution claims of mistaken payments that have happened in a contractual agreement. These matters raise uncertainties as the Court is yet to provide a clear direction on how the matter should be handled. This would also increase litigation risk with the involved parties, not understanding where they stand legally.
The steps present in this regulation will raise their own set of uncertainties, especially in this modern world with a vast number of intangible products such as in contractual agreements involving software. First, the characterization step needs different transactions to be examined as one could categorize them as sales, services or another category. This process in itself requires a degree of care. For instance, for one to be termed as the “sale of goods” under this Article. It has to meet two cumulative conditions of being good and containing the features of sale. This autonomous definition means that it needs to be interpreted within the regulation’s system’s confines and not be tailored through considerations created from the national or uniform law. This regulation will, however, not avail any guidelines to determine the sale and goods notions. The Court has yet to provide any clarifications on the uncertainties surrounding the definition. The case of Car Trim GmbH v KeySafety Systems Srl listened to by the ECJ is among cases which scholars and courts have chosen to turn towards the national and substantive laws. Particularly, the CISG clarifies what should be considered the “sales of goods”, they consider the national and uniform substantive laws. Notably, two queries arise from the matter which are whether standard software could hence be considered good and which situations that entail having software transferred could be referred to as being a sale.
Generally, a good under Article 7(1) is typically considered the corporeal, tangible object. Therefore, software which is the intangible, machine-readable instructions, would at first glance be excluded from the goods category. Nonetheless, the context of substantive laws provides a different perspective. The CISG similar to the recast Brussels 1 Regulation has not given a precise definition to the “good” term. Therefore, the software will commonly be considered to be one. The reasons for this categorization include that no exclusion of software from the scope has ensued. While the standard software is intangible, it is still a commercially tradable commodity, hence being similar to the tangible products. The German law and the UCC incorporate similar arguments in the characterization of software as goods. However, this subject is still controversial since this reasoning becomes inapplicable when the software has not been transferred via a physical medium. Its supply over the internet is considered a service in English law. This makes up one of the uncertainties of the regulation that the Court has not been able to clarify. Also, determining the place of performance requires an adherence to the principles stipulated in Article 7.1 that is the forum being foreseeable, readily determinable and has a strong procedural link with the dispute. Therefore, even when one chooses to ignore the value of a precise determination and have software be considered a good, then the following condition of needing a contract of “sale” will hinder most of the stand software contracts from being regarded as contracts of “sales of goods” because the software\s owner retains the title.
About a licensing contract, the party that is to grant the license affects the characteristic performance. Considering the licensor in the Falco Privatstiftung v Gisela Weller-Lindhorst case was developed in Austria, the contractual licensing agreement would be governed by the Austrian law. After establishing the applicable law, the obligation in question will need to be done as per law. In the Falco case, the obligation was to have the licensee pay royalties. According to Austrian Civil Code, in case the place of performance fails to follow from the agreement between the parties or the transaction’s nature or purpose, the obligation is to be done at the place where the debtor was domiciled when the contract was created or when the responsibility was contracted when the debtor’s business was happening at the place of the relevant branch. Since the debtor in principle is responsible, then they carry the costs and risks for the money transfer into the creditor”s domicile or place of business. Nonetheless, the Austrian law has stated that his obligation’s place of performance remains at one’s domicile or place of business. To this effect, the place of business for the royalty payments in the license contract was at the debtor’s domicile or place of business, considering that the defendant who was the debtor in Falco’s case had their domicile in Germany then as per the ECJ, the Austrian courts at the plaintiff’s domicile had no jurisdiction following Article 7(1). This result would have been achieved even when the Falco case chose German law to govern their licensing contract, which indicates that the place of performance is at the debtor’s habitual residence.
According to the Falco case, it is evident that the ECJ established and emphasized on three matters; the place of performance in the sense of Article 7(1) is to be established as per lex causae which is as per the substantive law governing the contract and not having it defined autonomously, the place of performance of the obligation in question is relevant for jurisdictional purposes rather than establishing a uniform place of performance for all the obligations arising from the contractual agreement and finally, the place of performance under substantive law applicable goes on to prove jurisdiction rather than having a disconnection between the procedural place of performance and the place of performance defined by the substantive law.
Notably, situations such as those in the Falco case indicate that international jurisdiction relies on the obligation to pay the license fee is considered by the applicable substantive law as a collectable debt which is to be fulfilled at the debtor’s place of business or domicile. However, it is prudent to note that determining the location of performance lege causae is complex, raising several criticisms leading to arbitrary outcomes in international civil litigation. For instance, the Court lacks a convincing alternative to aid in establishing the place of performance autonomously. The ECJ knows that the interpretation of lege causae has never been compulsory, and it is not needed in the present version of Article 7(1). Truly, when the regulation was reformed, the legislation in Europe expected the Court to continue to apply this method in the context of ambit (q) in the provision. However, this is on;y the status quo as the courts have not yet found a better interpretation of the provision autonomous;y.
The question of whether an autonomous interpretation could become practicable for different contract types, especially in Article 7(1)(a) arises. This could be seen through the contracts involving the transfer or the addict of intellectual property rights. While in Falco’s case, the substantive law would have the obligation performed at the debtor’s domicile, nonetheless the courts of the defendant’s country already have jurisdiction as per the general rule enlisted in Article 4(1) of the recast Brussels 1 Regulation. No particular jurisdiction outlined in Article (1)(a)is required for a claim related to a licensing contract. Conversely, if Article 7(1)(a) had an autonomous interpretation and the benefits accrued from the present level of understanding and knowledge concerning the independent determination of the procedural place of performance, the result is expected to be distinct. This would leave a task of determining a factual economic place of performance of the contract concerning the intellectual property rights which is can be predicted by the parties and offers a guarantee of proximity between the contract and the Court with the jurisdiction of handling the case, concerning intellectual property rights and licensing contracts among others then the place of performance would be where the rights have been granted, registered and their usage as per the contractual agreements. In case the user surpasses their contractual rights, fails to pay the required royalties, has not availed the right accounts or has violated the contractual obligations the state courts will be best positions to provide clarifications on the facts and the respective judgment. The question remains whether the ECJ will need to switch from interpreting the lege causae into having an autonomous interpretation of the procedural place of performance as per Article 7(1)(a) hence having a considerable impact on the particular case.
Conclusion
From the above discussion, Article 7(1) of the Brussels 1 recast Regulation has several concerns that bring up several uncertainties and increase litigation risk. To this effect, it would be prudent to have it removed from the Brussels regulation system since the other jurisdictions have provided guidelines to cover the different kinds of contracts.

Bibliography
Legislation
● Regulation (EU) No 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).
● United Nations Convention on Contracts for the International Sale of Goods (CISG), adopted in Vienna on 11 April 1980, 1489 UNTS 3, 19 ILM
● Uniform Commercial Code
Case Law
● Case C‑533/07 Falco Privatstiftung and Thomas Rabitsch v Gisela Weller-Lindhorst (Fourth Chamber) [2009] ECR I-03327
● Case C-147/12, ÖFAB, Östergötlands Fastigheter AB Vv Frank Koot, Evergreen Investments BV, THE COURT (Fifth Chamber), ECLI:EU:C:2013:490
● Case C-196/15, Granarolo SpA v Ambrosi Emmi France SA: ECJ 14 Jul 2016
● Case C-381/08, Car Trim GmbH v KeySafety Systems Srl [2010] 2 All E.R. (Comm) 770 (25 February 2010).
Articles
● Anno C, ‘A Critical Assessment Of The Impact That The Brussels I Recast May Have On The Use Of Forum Non-Conveniens And Anti-Suit Injunction In Europe’ (Le petit juriste, 2021) accessed 13 January 2021
● Phillips J, ‘IP Licences “Not Contracts For The Provision Of Services”, Rules ECJ’ (The IPKat, 2009) accessed 13 January 2021
● Fernández J, ‘jurisdiction And Applicable Law To Claims Related To The Payment Of Contributions To The Budget Of An Association Of Property Owners For The Maintenance Of The Communal Areas Of A Building. Comment On The Judgment Of The Court Of Justice Of The European Union Of 8 May 2019, Brian Andrew Kerr V Pavlo Postnov And Natalia Postnova, C-25/18’ [2019] Copenhagen Business School.
● Thomas K, ‘Jurisdiction Under Article 7 No. 1 Of The Recast Brussels I Regulation: Disconnecting The Procedural Place Of Performance From Its Counterpart In Substantive Law. An Analysis Of The Case Law Of The ECJ And Proposals De Lege Lata And De Lege Ferenda.’ (2015) 16 Yearbook of Private International Law
● ‘Lex Causae Definition’ (Duhaime.org, 2021) accessed 13 January 2021
● HERBERT SMITH FREEHILLS, ‘HANDY CLIENT GUIDE TO JURISDICTION UNDER RECAST BRUSSELS REGULATION’ accessed 13 January 2021
● Grusic AAM, ‘UNJUST ENRICHMENT AND THE BRUSSELS I REGULATION’ accessed 13 January 2021
● Raymond M, ‘JURISDICTION UNDER ARTICLE 7 NO. 1 OF THE RECAST BRUSSELS I REGULATION: THE CASE OF CONTRACTS FOR THE SUPPLY OF SOFTWARE’ (2021) XVI Yearbook of Private International Law accessed 13 January 2021

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