Print Concept GmbH v GEW (EC) Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LONGMORE,SIR CHRISTOPHER SLADE,LORD JUSTICE TUCKEY |
| Judgment Date | 02 March 2001 |
| Neutral Citation | [2001] EWCA Civ 352 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | A3/00/2371 |
| Date | 02 March 2001 |
[2001] EWCA Civ 352
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr Justice David Steel)
Royal Courts of Justice
Lord Justice Tuckey
Lord Justice Longmore
Sir Christopher Slade
A3/00/2371
MR. M. BRIGGS Q.C. (instructed by Messrs Fladgate Fielder, London, W1) appeared on behalf of the Appellant/Claimant.
MR. R. PLENDER Q.C. and MR. P. INFIELD (instructed by Messrs Morrisons, Redhill) appeared on behalf of the Respondent/Defendant.
If parties to what is often called a distributorship agreement do business in different countries but do not expressly agree what law is to govern their contractual relationship, it is often difficult to decide what that law should be. That is the problem which arises in this case where the parties agree that they entered into a binding contract in November 1995 for the exclusive distribution in Germany, Switzerland and Austria by the German claimants ("Print Concept") of air-cooled drying systems to be made and supplied by the defendants, G.E.W. (EC) Ltd ("GEW"), who carry on business in England. The answer to the problem is said to be of importance because the contract has now terminated and, if German law governs the contract, GEW will have to pay an indemnity assessed as a proportion of the average contractual turnover while the contract lasted, whereas no such indemnity is said to be payable if the contract is governed by English law.
An English court, like a German court, must answer the question "which law applies to the contract?" by reference to the Rome Convention, which was introduced into English law by the Contracts (Applicable Law) Act 1990. Article 4 of the Convention is headed "Applicable law in the absence of choice". It relevantly provides:
"1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.
2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party's trade or profession, that country shall be the country in which the principal place of business is situated.5. Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country."
Section 3(3) of the 1990 Act encourages the court to have regard to the Giuliano-Lagarde report on the Convention in the Official Journal of the Communities of 31st October 1980. That report makes it clear at page 20 that the law of characteristic performance
"defines the connecting factor of the contract from the inside, and not from the outside by elements unrelated to the essence of the obligation such as the nationality of the contracting parties or the place where the contract was concluded."
The authors, having observed that the concept of characteristic performance gives rise to no difficulty with unilateral contracts, state that in bilateral contracts the counter-performance of one of the parties in a modern economy usually takes the form of payment of money; the authors then say that that counter-performance will not be the characteristic performance and continue:
"It is the performance for which the payment is due, i.e. depending on the type of contract, the delivery of goods the provision of a service etc which usually constitutes the centre of gravity and the socio-economic function of the contractual transaction."
For this reason the parties in this case have agreed that in an ordinary sale and purchase contract the law governing the contract will be that of the vendor's central administration or place of business. Nothing turns in the present appeal on the difference between the place of central administration or the place of business of either party. Since we are concerned here with a contract entered into in the course of trade, I will refer to the principal place of business of the relevant party, viz Germany or England, as the case may be.
The 13th edition of Dicey and Morris, edited by Sir Lawrence Collins and others, informs its readers (page 1237) that the source of the expression "characteristic performance" is Swiss doctrine and develops the discussion of the concept by reference to examples to be found in Article 117 of the Swiss Private International Law Act of 1987. In paragraph 32-115 on page 1238, the editors say:
"Swiss case-law provides more examples, including the case of a distribution agreement, where the characteristic performance has been held to be that of the vendor. But distribution agreements commonly involve reciprocal obligations other than the payment of money: the distributor of the goods may have an obligation to build up the market by advertising the goods, and using its best endeavours to market them. Such a case demonstrates the fragility of the concept of characteristic performance, and provides an example of a case where it may not be possible to determine it, or where it may be disregarded."
Mr Justice David Steel, who was invited to decide the question of the applicable law as a preliminary issue in the court below, correctly observed that in this passage Sir Lawrence Collins had identified the fence which, by the time he came to page 16 of his judgment, that learned judge could no longer straddle.
The judge determined two preliminary issues ordered to be tried by Langley J, but it is only the question of the applicable law which arises on this appeal. The agreement between the parties was an oral agreement and related to the manufacture, sale and distribution of drying systems which are used to dry printed material on printing presses. The particular system to which the agreement applies was called a narrow web system, and the products manufactured by GEW are thus sometimes called narrow web products as opposed to wide web products, which are also manufactured by GEW but are not the subject of the particular oral agreement with which this appeal is concerned.
As it happened, the majority of the narrow web drying systems supplied pursuant to the oral agreement of 1995 were ultimately supplied to a manufacturer of printing presses in Germany called Arsoma Druckmaschinen GmbH. This supply was made pursuant to a tripartite written delivery and purchase agreement made on 24th June 1996 between Print Concept, GEW and Arsoma. It is, however, not the law of that agreement but the law of the antecedent oral agreement which has to be determined for the purpose of this appeal.
Outline Submissions
For Print Concept Mr Michael Briggs QC's main submission was that the antecedent oral agreement was a contract whereby, in return for GEW agreeing that Print Concept were to have exclusive rights of distribution in Germany, Switzerland and Austria, Print Concept impliedly agreed to use their best endeavours to promote GEW's products in those territories. He then submitted that the performance of that "best endeavours" obligation was the performance which was characteristic of the contract, and that it was Print Concept who were to effect that performance. Print Concept's principal place of business was Germany so the contract was governed by the law of Germany.
Mr. Plender QC for GEW accepted that there was an oral distribution agreement which was antecedent to the Arsoma agreement, and that that was a binding contract between GEW and Print Concept. He also accepted that there was a promise by GEW that Print Concept was to have exclusive rights of distribution in Germany, Switzerland and Austria and, probably, that there was an implied obligation on Print Concept to use their best endeavours to promote GEW's product in the territories. But he submitted that that was not the sum total of the parties' obligations because there was also an agreement that if Print Concept could find customers who wanted the product and were prepared to order it, at any rate in a not excessive quantity, GEW agreed that they would supply the product to Print Concept and Print Concept agreed that they would pay for it at a reasonable price. He therefore supported the judge's conclusion that the real substance of the contract (and thus the characteristic performance) was the sale and delivery of the systems for which Print Concept had been given exclusive distribution rights.
The Contract
In order to determine the performance which is characteristic of a contract one has to know what the terms of the contract are. When a contract is an informal and oral but nevertheless binding agreement, it may be difficult to discover the terms. Much may well be implied rather than express and the parties may intend that any gap be...
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