#5024 - Car Trim - Conflict of Laws BCL

Car Trim (2010)

Facts

KeySafety, which is established in Italy, supplies Italian car manufacturers with airbag systems. Between July 2001 and December 2003, KeySafety purchased from Car Trim components used in the manufacture of those systems, in accordance with five supply contracts ('the contracts').

KeySafety terminated the contracts with effect from the end of 2003. On the view that those contracts should have run, in part, until summer 2007, Car Trim claimed that the terminations were in breach of contract and brought an action for damages before the Landgericht Chemnitz (Regional Court, Chemnitz), which has jurisdiction for the place where the components were manufactured. The Landgericht Chemnitz held that it had no jurisdiction to rule on the action on the ground that the German courts have no international jurisdiction.

Nature of the contract: The Oberlandesgericht noted that, under the contracts, Car Trim was obliged to manufacture airbags of a certain shape, in the traditional manner of a supplier of equipment for the automobile industry, using products purchased from agreed suppliers, so as to be able to supply them to order, according to the needs of KeySafety's production process and in conformity with a large number of requirements relating to the organisation of the work, quality control, packaging, labelling, delivery orders and invoices.

It is possible for the German courts to have jurisdiction to adjudicate the action for damages only if the place of production is to be regarded as the place of performance of 'the obligation in question' within the meaning of Article 5(1) of Regulation No 44/2001.

Questions

Is Article 5(1)(b) of Council Regulation No 44/2001 to be interpreted as meaning that contracts for the supply of goods to be produced or manufactured are, notwithstanding specific requirements on the part of the customer with regard to the provision, fabrication and delivery of the components to be produced, including a guarantee of the quality of production, reliability of delivery and smooth administrative handling of the order, to be classified as a sale of goods (first indent), and not as provision of services (second indent)? What criteria are decisive for the distinction?

If a sale of goods is to be presumed: in the case of sales contracts involving carriage of goods, is the place where under the contract the goods sold were delivered or should have been delivered to be determined according to the place of physical transfer to the purchaser, or according to the place at which the goods were handed over to the first carrier for transmission to the purchaser?'

Holding

Question 1 – Distinction between sale of goods and supply of services

Classification based on the nature of the obligation: In view of that fact, it is therefore necessary to take as a basis the obligation which characterises the contracts at issue. A contract which has as its characteristic obligation the supply of a good will be classified as a 'sale of goods' within the meaning of the first indent of Article 5(1)(b) of Regulation No 44/2001. A contract which has as its characteristic obligation the provision of services will be classified as a 'provision of services' within the meaning of the second indent of Article 5(1)(b) of that regulation.

Three criteria

Manufacture is not conclusive: Court relied on CISG and European directives to hold that the fact that the goods to be delivered are to be manufactured or produced beforehand does not alter the classification of the contract at issue as a sales contract.

Who supplied the Materials: It is necessary to take into account the criterion, relied upon by the Commission of the European Communities, relating to the origin of the raw materials. Another factor which can be taken into consideration is whether or not those materials were supplied by the purchaser, for the purposes of the interpretation of Article 5(1)(b) of Regulation No 44/2001. Where all the materials from which the goods are manufactured, or most of them, have been supplied by the purchaser, that fact could be an indication that the contract should be classified as a 'contract for the provision of services'. On the other hand, where the material has not been supplied by the purchaser, that fact is a strong indication that the contract should be classified as a 'contract for the sale of goods'. It is clear from the case-file referred to the Court that, in the case before the referring court, even though KeySafety determined the suppliers from which Car Trim had to obtain certain parts, it did not provide Car Trim with any materials.

Who takes responsibility for the goods: Even though the referring court does not provide any information in that regard, it is necessary to note that the supplier's responsibility can also be a factor to consider for the purposes of classifying the characteristic obligation of the contract at issue. If the seller is responsible for the quality of the goods - the result of its activity - and their compliance with the contract, that responsibility will tip the balance in favour of a classification as a 'contract for the sale of goods'. On the other hand, if the seller is responsible only for correct implementation in accordance with the purchaser's instructions, that fact indicates rather that the contract should be classified as a 'provision of services'.

Answer to Question 1: In view of the above, the answer to Question 1 is that where the purpose of contracts is the supply of goods to be manufactured or produced and, even though the purchaser has specified certain requirements with regard to the provision, fabrication and delivery of the components to be produced, the purchaser has not supplied the materials and the supplier is responsible for the quality of the goods and their compliance with the contract, those contracts must be classified as a 'sale of goods' within the meaning of the first indent of Article 5(1)(b) of Regulation No 44/2001.

Question 2 – Contracts for sale of goods involving carriage of goods

The words 'unless otherwise agreed' in Article 5(1)(b) of Regulation No 44/2001 show that the parties can come to an agreement concerning the place of performance of the obligation for the purposes of the application of that provision. Furthermore, under the first indent of that provision, which contains the words 'under the contract', the place of delivery of the goods is in principle to be that agreed by the parties in the contract.

Autonomous definition of ‘place of delivery’

Regarding the place of performance of 'the obligation in question', the first indent of Article 5(1)(b) of Regulation No 44/2001 defines that criterion of a link autonomously in the case of the sale of goods in order to reinforce the primary objective of unification of the rules of...