JUDGMENT OF 14. 12. 1977 — CASE 73/77 SANDERS v VAN DER PUTTE

In Case 73/77 Reference to the Court under Articles 2 and 3 of the Protocol of 3 June 1971 (OJ L 204 of 2. 8. 1975, p. 28) concerning the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (OJ L 299 of 31. 12. 1972, p. 32) by the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) for a preliminary ruling in the action pending before that court between

THE COURT composed of: H. Kutscher, President, M. Sørensen and G. Bosco, Presidents of Chambers, A. M. Donner, J. Mertens de Wilmars, P. Pescatore and A. O'Keeffe, Judges, Advocate-General: H. Mayras Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and issues

The facts of the action, the course of the procedure and the written observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice of the EEC may be summarized as follows:

I — Facts and written procedure

Van der Putte and Sanders agreed in 1973 that the latter would take over the running of a florist's business in a shop which the former had rented at Wuppertal-Elberfeld (Federal Republic of Germany).

Even before Sanders began to run the business a dispute arose between the parties in relation to the contract which they had concluded and even as to its existence. Sanders, who finally refused to begin to run the business, was forced to do so by judgment delivered in summary proceedings by the President of the Arrondissementsrechtbank (Regional Court), Arnhem (the Netherlands), on 14 April 1973 before consideration by the court of the substance of the action.

On appeal the Gerechtshof (Regional Court of Appeal), Arnhem, found that an agreement really existed between the parties under which Sanders is, inter alia, bound to pay to Van der Putte, in respect of various periods, a sum representing the rent due under the head-lease of the shop and a further sum representing the usufructuary lease as such of the business, and also the goodwill.

Sanders pleaded that the Gerechtshof had no jurisdiction on the basis, in particular, of Article 16 of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, the first paragraph of which provides that the following courts shall have exclusive jurisdiction, regardless of domicile:

‘1. in matters relating to rights in rem in, or tenancies of, immovable property, the courts of the Contracting State in which the property is situated;’

The Gerechtshof dismissed that argument on the ground that in the agreement in question the emphasis fell less on the rent or lease of immovable property than on the business as such and that in that connexion the justification for the exclusive jurisdiction provided for in Article 16 (1), namely that tenancies and rents of immovable property are generally governed by special legal provisions which make it preferable that they be applied by the courts of the countries in which they are in force, does not apply (cf. Commentary on the Convention by P. Jenard and the Report of the Committee of Experts who carried out the preparatory work on the Convention).

Sanders appealed on a point of law from the judgment of the Gerechtshof, Arnhem, alleging, inter alia, that Article 16 of the said Convention had been infringed and by judgment of 10 June 1977 the Hoge Raad decided, in implementation of Article 2 (3) and of Article 3 (2) of the Protocol of 3 June 1971 concerning the interpretation by the Court of Justice of the Convention of 27 September 1968, to stay the proceedings and to submit the following questions to the Court:

1) Must ‘tenancies of immovable property’ within the meaning of Article 16 down to the end of subparagraph (1) of the Convention also include an agreement to rent under a usufructuary lease a retail business carried on in immovable property rented from a third party by the lessor?

2) If so does the exclusive jurisdiction of the courts of the State where the immovable property is situated also apply to a claim on the basis of such an agreement for

a) payment of the rent of the retail premises under the usufructuary lease; or

b) payment by the tenant under the usufructuary lease of the head-rent owed by the lessor to the owner of the immovable property; or

c) payment of consideration for the goodwill of the retail business?

3) Is the answer to the questions set out above affected by the fact that in the proceedings the defendant (the tenant under the usufructuary lease) has contested the existence of the agreement?

The judgment referring the questions to the Court was received at the Court on 15 June 1977.

Upon hearing the report of the Judge-Rapporteur and the views of the Advocate-General the Court decided to open the oral procedure without any preparatory inquiry.

II — Summary of the written observations submitted to the Court under Article 5 (1) of the Protocol concerning the interpretation by the Court of Justice of the Convention and Article 20 of the Protocol on the Statute of the Court of Justice of the EEC

Sanders observes that as the provisions of Article 16 (1) of the Convention are drafted in general terms the authors of the text do not appear to have wished to make an exception as regards either tenancies of immovable property and leases of businesses or as regards actions relating to arrears or overpayments. The Convention must therefore be regarded as having provided for exclusive jurisdiction in matters relating to rights in rem and in personam attaching to immovable property.

Reference is made to the opening words of Article 10 and paragraph (3) of the draft Hague Convention on the recognition and enforcement of foreign judgments in civil and commercial matters which provides for the court of the State in which judgment was given to have jurisdiction ‘where the action concerns a dispute relating to immovable property situated in the State in which judgment was given’.

Van der Putte maintains that the Convention in question represents a clear break with the past and, notwithstanding a well-established tradition, contractual relationships are now also subject to the jurisdiction of the court of the place where the immovable property is situated. Such a development in the international rules governing jurisdiction must, however, lead to a restrictive interpretation of the new provisions, which must result in application being made to the court of the place where the immovable property is situated only where it is necessary as a result of the public policy nature of those provisions. That is in accordance with the aforementioned Commentary by P. Jenard, according to which preference must be given to the application by the local court of ‘specific legal provisions’. As regards an action for the payment of rents, the said Commentary states that the rules in Article 16 do not apply since ‘those actions are regarded as separate from the immovable property rented’.

The provisions of the Convention envisage disputes between a tenant and the lessor, who is the landlord. The main action, on the other hand, concerns a dispute between a tenant and a subtenant. The fact that Van der Putte ‘requires’ Sanders to ‘bear’ the rent is irrelevant for the purposes of German law: it is a ‘res inter alios’, a private matter ‘separate’ from the immovable property. Furthermore, the whole proceedings are taking place between two Dutch nationals and concern a relationship entered into by the parties in the Netherlands. It is clear that the Netherlands court accepted that point of view.

Van der Putte therefore proposes that the following replies be given to the questions raised:

1) The concept of tenancies of immovable property within the meaning of Article 16 down to the end of subparagraph (1) of the Convention does not include an agreement to ‘rent’ under a usufructuary lease a retail business carried on in immovable property rented from a third party by the lessor;

2) If the Court replies to the first question in the affirmative, the exclusive jurisdiction of the courts of the State where the immovable property is situated does not apply also to a claim based on such an agreement for

a) payment of the ‘rent of the retail premises under the usufructuary lease’; or

b) payment by the ‘tenant under the usufructuary lease’ of the headent owed by the lessor to the owner of the immovable property; or

c) payment of consideration for the goodwill of the retail business;

3) If the ‘tenant under the usufructuary lease’ contests the existence of the agreement, the court of the State in which the defendant is domiciled shall have jurisdiction.

The Government of the United Kingdom considers that the court of the situs must have exclusive jurisdiction if, in an action arising from the lease of a business, a substantial issue concerned the interpretation of the tenancy agreement of the premises, or the right to possession of business premises, or forfeiture of the lease of the premises, or breaches of the terms of the tenancy (the laws of real property in the Member States differ substantially from one another and the exercise of exclusive jurisdiction in such circumstances would accord with the purpose of Article 16 of the Convention as expressed in the Jenard Commentary). If, however, such an action concerned other aspects of the business relationship unconnected with rights under the tenancy of the premises or consisted simply in a money claim for rent of the business without any claim for forfeiture of the tenancy, the reasoning on which Article 16 (1) is based does not require jurisdiction to be reserved exclusively to the court where the property lies.

The Commission observes that agreements such as that at issue in the main action do not concern a tenancy in the strict sense of the term but rather the transfer of an undertaking as such. To bring such agreements within the ambit of Article 16 (1) of the Convention would amount to taking no account of the ratio legis of that provision. Furthermore, the Committee of Experts who carried out the preparatory work on the Convention intended to limit the scope of that article by excluding ‘actions which may be regarded as separate from the immovable property rented’.

It is only in the case in which the implementation of an agreement gives rise to specific problems concerning relationships between tenants and lessors that such problems are covered by the exclusive jurisdiction rule in Article 16. However, in the main action, no specific relationship existed.

The opinion of the Committee of Experts is disputed by G. Droz (in Competence Judiciaire et Effets des Jugements dans le Marché Commun, Paris 1972). He observes that usually the tenant of immovable property resides at the place where the property leased is situated and that the lessor is also on the spot or has an agent in that country. There is, furthermore, the disadvantage that counterclaims relating to an action concerning a tenancy cannot always be brought before the same court as provided for in Article 6 (3).

The rule contained in Article 16 (1) is applicable to the case of an action arising out of a dispute as to the content and enforcement of a tenancy agreement but not in the case of an independent action for the payment of rent. As regards the terms ‘lease’ and ‘goodwill’ the corresponding actions have nothing to do with the right of possession or the lease of immovable property. The rule in Article 16 (1) is thus inapplicable to the case described by the Hoge Raad, in which there is not even any conflict in the relationships between tenant and lessor.

The consequences of having one legal relationship classified in different ways are particularly serious in the present case for the reason that the rule in Article 16 concerns exclusive jurisdiction. The case-law of the national courts of which the Commission is aware appears to be somewhat divided.

The Commission therefore proposes that the following replies be given to the questions raised:

1) Actions arising out of the implementation of a tenancy agreement drawn up as an agreement under which one party allows another party to run a business for an agreed period against payment of consideration, as well as actions for the payment of such consideration, are not covered by the rule in Article 16 (1) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, unless the said actions concern specifically a relationship between the lessor and the tenant of immovable property which results from such a tenancy agreement;

2) Article 16 (1) is also inapplicable to the case of a dispute over whether or not an agreement has been concluded, unless the said dispute concerns the question whether a relationship between the lessor and the tenant of immovable property or between the lessor and the tenant of immovable property or between the lessor and the tenant of agricultural property has been established;

3) Provided that an action for the payment of rent is independent and is not related to a dispute arising out of the implementation of a tenancy agreement, it is not covered by the rule in Article 16 (1).

The parties to the main action and the Commission submitted oral observations at the hearing on 10 November 1977.

The Advocate-General delivered his opinion at the hearing on 23 November 1977.

Decision

1. By judgment of 10 June 1977, received at the Court on 15 June 1977, the Hoge Raad der Nederlanden referred for a preliminary ruling under Articles 2 and 3 of the Protocol of 3 June 1971 (OJ L 204 of 2. 8. 1975, p. 28) concerning the interpretation by the Court of Justice of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (OJ L 299 of 31. 12. 1972, p. 32) certain questions concerning the interpretation of Article 16 down to the end of subparagraph (1) of the said Convention.

2. The questions were raised within the context of a dispute between two Netherlands citizens, at present domiciled in the Netherlands, in relation to an agreement made in 1973 by which they arranged that one would take over from the other the running of a florist's business in a shop which the latter had leased at Wuppertal-Elberfeld in the Federal Republic of Germany.

3. A dispute having arisen between the parties to the main action as regards the agreement which they had concluded and even as regards its existence the ‘subtenant’, Sanders, who had refused to start running the business, was ordered to do so by judgment delivered in summary proceedings by the President of the Arrondissementsrechtbank, Arnhem.

4. On appeal, the Gerechtshof, Arnhem, found that the agreement in dispute did exist and that Sanders owed to his lessor, Van der Putte, a sum representing the rent due under the head-lease of the shop and a further sum representing the usufructuary lease as such of the business, and also the ‘goodwill’ (the intangible elements of the business).

5. Sanders pleaded that the Gerechtshof had no jurisdiction on the basis, in particular, of Article 16 of the Convention of 27 September 1968, the first paragraph of which provides that the following courts shall have exclusive jurisdiction, regardless of domicile:

‘(1). in matters relating to rights in rem in, or tenancies of, immovable property, the courts of the Contracting State in which the property is situated;’

6. Sanders was unsuccessful on the ground that in the agreement in question the emphasis fell less on the rent or lease of immovable property than on the running of a business and that in that connexion the justification for the exclusive jurisdiction provided for in Article 16 (1), namely that tenancies and rents of immovable property are generally governed by special legal provisions and it is preferable that such provisions should be applied by the courts of the State in which they are in force, does not apply.

7. Sanders appealed from that judgment on a point of law to the Hoge Raad, which asks the following questions: 1. Must ‘tenancies of immovable property’ within the meaning of Article 16 down to the end of subparagraph (1) of the Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters also include an agreement to rent under a usufructuary lease a retail business carried on in immovable property rented from a third person by the lessor? 2. If so does the exclusive jurisdiction of the courts of the State where the immovable property is situated also apply to a claim on the basis of such an agreement for (a) payment of the rent of the retail premises under the usufructuary lease; or (b) payment by the tenant under the usufructuary lease of the head-rent owed by the lessor to the owner of the immovable property; or (c) payment of consideration for the goodwill of the retail business? 3. Is the answer to the questions set out above affected by the fact that in the proceedings the defendant (the tenant under the usufructuary lease (pachter)) has contested the existence of the agreement?

The first two questions

8. Under the terms of Article 2 of the Convention and subject to any other provisions thereof, persons domiciled in a Contracting State shall, whatever their nationality, be sued in the courts of that State.

9. The Convention admits of exceptions to the general rule by allowing the plaintiff in certain cases to sue the defendant before the court of the State in which the latter is domiciled or before the court of another Contracting State, according to the special provisions in Articles 5, 6, 8, 9, 10, 13 and 14 of the Convention.

10. On the other hand, Article 16 of the Convention provides for exclusive jurisdiction, regardless of domicile.

11. As regards the matters listed under subparagraphs (2), (3), (4) and (5) of that article it is clear that the courts which are given exclusive jurisdiction are those which are the best placed to deal with the disputes in question.

12. The same applies to the assignment of exclusive jurisdiction to the courts of the Contracting State in which the property is situated in matters relating to rights in rem in, or tenancies of, immovable property.

13. In fact, actions concerning rights in rem in immovable property are to be judged according to the rules of the State in which the immovable property is situated since the disputes which arise result frequently in checks, inquiries and expert assessments which must be carried out on the spot, with the result that the assignment of exclusive jurisdiction satisfies the need for the proper administration of justice.

14. Tenancies of immovable property are generally governed by special rules and it is preferable, in the light of their complexity, that they be applied only by the courts of the States in which they are in force.

15. The foregoing considerations explain the assignment of exclusive jurisdiction to the courts of the State in which the immovable property is situated in the case of disputes relating to tenancies of immovable property properly so-called, that is to say, in particular, disputes between lessors and tenants as to the existence or interpretation of leases or to compensation for damage caused by the tenant and to giving up possession of the premises.

16. The same considerations do not apply where the principal aim of the agreement is of a different nature, in particular, where it concerns the operation of a business.

17. Furthermore, the assignment, in the interests of the proper administration of justice, of exclusive jurisdiction to the courts of one Contracting State in accordance with Article 16 of the Convention results in depriving the parties of the choice of the forum which would otherwise be theirs and, in certain cases, results in their being brought before a court which is not that of the domicile of any of them.

18. Having regard to that consideration the provisions of Article 16 must not be given a wider interpretation than is required by their objective.

19. Therefore, the concept of ‘matters relating to … tenancies of immovable property’ within the context of Article 16 of the Convention must not be interpreted as including an agreement to rent under a usufructuary lease a retail business (verpachting van een winkelbedrijf) carried on in immovable property rented from a third person by the lessor.

20. In the light of the reply to the first question, the second question does not call for an answer.

The third question

21. The third question asks whether the reply to the questions set out above is affected by the fact that in the proceedings the defendant (the tenant under the usufructuary lease (pachter)) has contested the existence of the agreement.

22. It emerges from the clear terms of Article 16 of the Convention that the fact that there is a dispute as to the existence of the agreement which forms the subject of the action does not affect the reply given as regards the applicability of that article.

Costs

23. The costs incurred by the Government of the United Kingdom and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable and as these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds, THE COURT in answer to the questions referred to it by the Hoge Raad der Nederlanden by order of 10 June 1977, hereby rules:

1 The concept of ‘matters relating to tenancies of immovable property’ within the context of Article 16 of the Convention must not be interpreted as including an agreement to rent under a usufructuary lease a retail business (verpachting van een winkelbedrijf) carried on in immovable property rented from a third person by the lessor;

2 The fact that there is a dispute as to the existence of the agreement which forms the subject of the action does not affect the reply given as regards the applicability of Article 16 of the Convention.