Reliance Globalcom Ltd v OTE International Solutions SA [2011] EWHC 1848 (QB)

[2011] EWHC 1848 (QB)Case No HQ10X04436
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 15 July 2011
Before
THE HONOURABLE MR JUSTICE EADY
Between
Reliance Globalcom LimitedClaimantOTE International Solutions S.A.Defendant
Andrew Thomas (instructed by Charles Russell) for ClaimantMichael Lazarus (instructed by Clyde & Co LLP) for DefendantHearing Hearing date: 6 July 2011
Judgment
[1]The Claimant is a company incorporated in Bermuda and was formed following the amalgamation of several corporate entities, including FLAG Ltd. It owns, operates and maintains a fibre optic submarine cable system known as the FLAG Europe-Asia cable system (“FLAG Cable System”).[2]The Defendant is the largest telecommunications provider in Greece and is incorporated within that jurisdiction. It owns, operates and maintains cable networks throughout Europe, both submarine and terrestrial.[3]Originally, FLAG Ltd entered into a number of Capacity Right of Use Agreements (“CROU Agreements”) in 2000. These form the subject-matter of the present claim. Two such agreements were entered into with OTE Hellenic (on 10 January and 28 April respectively). A third agreement was entered into on 3 August of that year with Aurora Global Solutions S.A.[4]Under a tripartite agreement in 2001, Aurora transferred its rights and obligations under the 3 August agreement to OTE Hellenic. Thereafter, an agreement was entered into whereby OTE International agreed to assume, perform and comply with the outstanding rights and obligations of OTE Hellenic under the various CROU Agreements.[5]Broadly, the purpose of these agreements was for the purchaser to buy capacity on the Claimant’s cable network. This involved an initial payment and also annual standby operation and maintenance charges in relation to a “circuit” running between two geographically identified points known as “access points” or “landing points”. In relation to each of the three CROU Agreements, one of the identified access points was located in Porthcurno in Cornwall. Data transmitted on the Claimant’s network can only be accessed at, or re-transmitted between, access points. The Claimant commenced the present litigation in order to recover US $3,659,508 in respect of outstanding operation and maintenance charges relating to the years 2010 and 2011.[6]It is the Claimant’s contention that the courts in England and Wales have jurisdiction by reference to Article 5(1)(b) of the Judgments Regulation, whereas the Defendant argues that the basic rule under the Regulation applies in accordance with Article 2; that is to say, persons domiciled in a member state should be sued in the courts of that jurisdiction.[7]In certain circumstances, it is provided in Article 3 of the Regulation that persons domiciled in a member state may be sued elsewhere. In particular, Article 5(1) contains provisions concerning jurisdiction in relation to contractual disputes depending upon the place of performance. This may sometimes lead to a situation where a dispute is to be resolved in a jurisdiction not having the closest connection with that dispute.[8]The Claimant argues that it is appropriate for the courts of this jurisdiction to be seized of the dispute on the basis that the CROU Agreements are to be construed as contracts for services and, what is more, that those services were to be provided in England. This would bring the matter within the “special jurisdiction” governed by Articles 5-7 which comprise Section 2 of the Regulation. Reliance is placed, in particular, upon Article 5:
“A person domiciled in a Member State may, in another Member State, be sued: (1)(a) in matters relating to a contract, in the courts for the place of performance of the obligation in question; (b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be: - in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered; - in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided. (c) if subparagraph (b) does not apply then subparagraph (a) applies.” (1)(a) in matters relating to a contract, in the courts for the place of performance of the obligation in question; (b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be: - in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered; - in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided. (c) if subparagraph (b) does not apply then subparagraph (a) applies.”
[9]The Defendant now applies under CPR Part 11 seeking a declaration that this court has no jurisdiction to try the claim and, correspondingly, for orders under CPR 11(6) setting aside the claim form and service of it, as well as dismissing the claim. The primary issue which arises is whether or not the CROU Agreements were indeed contracts for the provision of services. If they were not, the Claimant would be unable to place reliance on Article 5(1)(b) and, accordingly, the general principle contained in Article 2 would apply. Jurisdiction would be exclusively that of the courts in Greece.[10]It is accepted on the Claimant’s behalf that it has the burden of satisfying the court that this court has jurisdiction to the standard of a good arguable case: see Canada Trust v Stolzenberg (No 2) [1998] 1 WLR 547. Mr Lazarus, on the Defendant’s behalf, submits that this is not the whole story. He says that this is a case which does not depend on resolving disputed issues of fact. It turns on a short point of construction which the court is capable of resolving on the materials now available. It would thus be artificial to address the matter on the basis merely of an arguable case. He derives support for this approach from the judgment of the Privy Council in Bols Distilleries BV v Superior Yacht Services Ltd [2007] 1 Lloyd’s Rep 683 at [27]:
“The rule is that the court must be satisfied, or as satisfied as it can be having regard to the limitations which an interlocutory process imposes, that factors exist which allow the court to take jurisdiction. In practice, what amounts to a ‘good arguable case’ depends on what requires to be shown in any particular situation in order to establish jurisdiction.”
[11]I am also invited by the Defendant to bear in mind the principle upheld by the European Court of Justice in Falco Privatstiftung and Thomas Rabitsch v Gisela Weller-Lindhorst, ECJ 23 April 2009, C-533/07 at [37] to the effect that:
“The broad logic and scheme of the rules governing jurisdiction laid down by [the Regulation] require … a narrow interpretation of the rules on special jurisdiction, including the rule contained, in matters relating to a contract, in Article 5(1) of that Regulation, which derogate from the general principle that jurisdiction is based on the defendant’s domicile.”
[12]The concept of “services” is not defined in the Regulation. In these circumstances, I am invited to interpret the agreements in the light of the background set out in the witness statement of Mr Rodney Riley, who is described as the Claimant’s “Head of Legal”. Furthermore, I am invited to bear in mind a general observation in Briggs & Rees, Civil Jurisdiction and Judgments (5th edn), at pp 212-213 to the following effect:
“There may seem to be few contracts for which sub-paragraph (b) will not specify the obligation in question and so identify the place whose courts have special jurisdiction. Apart from the sale of goods and the supply of services, and remembering that contracts of insurance, consumer sales and individual employment are separately dealt with, there is not very much left. Of course, not all contracts are sale (sic), and not everything supplied is goods or services. The precise demarcation will be examined at the point where it needs to be understood: that is, at the point at which it is necessary to identify the obligation in question.”
As the learned authors observe, in the end the court’s decision is likely to turn upon the terms of the particular contract. They do offer some “obvious contenders”, however, as being likely to fall outside the terms of Article 5 and cite intellectual property licensing agreements, distribution agreements, barter contracts, and contractual obligations to pay money as a contribution to general average.[13]At all events, the Defendant in this case contends that an agreement bestowing a right to use a fibre optic submarine cable system would provide another example falling outside the scope of Article 5. It contends that it would be highly artificial to construe such an agreement as being for “services”. The nub of the Defendant’s case is to be found in paragraph 17 of Mr Lazarus’ skeleton argument:
“The CROU Agreements are not contracts for the supply of services. Thus the Claimant undertook no obligation to supply any services to the Defendant. As the name implies: by the CROU Agreements the Claimant sold the Defendant the right to use part of the capacity of the FLAG Cable System for an indefinite period in return for a substantial capital sum plus annual standby operation and maintenance charges and payment of a share of any repair costs … ”
[14]Mr Lazarus went on to develop the argument by reference to particular provisions to be found in one of the agreements (by way of example). In the light of these, he argues that a deliberate decision must have been taken by the parties to structure their relationship on the basis of the sale and purchase of rights to use – not the provision of services. He submits that where a contract is intended to provide services, it will normally be clear from its terms what those services are. By contrast, the contractual obligations of the Claimant in the present agreements emerge from a number of passages which he cites by way of illustration: a) The Recitals record the parties’ intentions to sell and purchase a right to use part of the capacity of the FLAG Cable System (“the Capacity”). b) Clause 1(a) refers to the purchase price for the right to use the Capacity as being $16.5m. c) Clause 1(c) provides that what the purchaser is acquiring is the exclusive right to use the Capacity (until the System is decommissioned). d) Clause 5(b) contains the representations made and warranties given by FLAG as the original contracting party. They contain no reference to the provision of services or as to quality of service. e) Clause 5(c) excludes other representations or warranties regarding the Capacity, including as to merchantability or fitness for a particular use. This is said to be more consistent with sale and purchase than with a contract for services. f) Clause 9(a) excludes any liability on the Claimant’s part for a failure of the FLAG Cable System – provided any such failure was not caused by gross negligence or wilful misconduct. g) Clause 9(b) excludes any right on the part of the purchaser to terminate the agreement save in respect of fundamental breach. It is to be noted that the concept of “fundamental breach” in this context is defined as the inability of the Capacity to carry traffic for a period greater than would normally be expected – combined with a failure on the part of the Claimant to take reasonable steps in the circumstances. h) Clause 14(a) grants the purchaser an option to participate in joint ownership of the submarine segments of the System on its decommissioning. i) Clause 14(d) entitles the purchaser to a share of the proceeds and obliges it to share in the cost of disposing of the submarine segments of the FLAG Cable System upon disposal of those assets. j) A note in Schedule 1, Part 1, describes the Price payable for the Capacity as the “purchase price”. k) Schedule 2, paragraph 1, provides that the purchaser will pay annual standby operation and maintenance charges and a share of repair costs, but makes no reference to any obligation on the Claimant’s part to perform any services in return.[15]These provisions are highlighted by Mr Lazarus in support of his submission that the terms of the contract would appear to be inconsistent with an obligation on the part of the Claimant to provide any defined service or services. None is identified. In this context, it is important to remember that Article 5(1)(b) contemplates that the provision of services must be “under the contract”. That is to say, the relevant services must not merely be provided incidentally but pursuant to a direct contractual obligation.[16]As I have noted, Mr Riley’s witness statement refers to certain aspects of the contractual arrangements in support of the Claimant’s contention that it was indeed providing services (albeit not mentioned in the Agreements).[17]First, there is reference to the operation and maintenance of the relevant part of the cable network. There is day to day monitoring and management of the system, and the management of repairs, which are said to be conducted through the Claimant’s network operation centres, of which one is located in this jurisdiction.[18]Despite this, it is significant that the agreements themselves do not contain any reference to an obligation on the Claimant’s part to carry out any of the activities described. Since the agreements are silent as to any such obligation, Mr Lazarus submits that it is difficult to see how any of those activities could reflect or represent “the obligation in question” under Article 5.[19]Mr Lazarus also draws a distinction between the provision of services to the Defendant, on the one hand, and matters which are merely by way of background or preparation. It is obviously necessary to have a system available before anyone can purchase the right to use it, but that in itself does not entail a contractual obligation to provide services. Reference was made to the case of Rehder v Air Baltic, ECJ 9 July 2009, C-204/08 at [39]. A national court had held that the airline provided services to a passenger at the place where its head office was located. This was thought to be unduly artificial, however, and the court held as follows:
“The operations and activities undertaken from that place, such as, in particular, the provision of an adequate aircraft and crew, are logistical and preparatory measures for the purpose of carrying out the contract relating to air transport and are not services the provision of which is linked to the actual content of the contract.”
[20]Mr Lazarus argues that, if the Claimant’s case is taken to its conclusion in this respect, any court could be seized of the dispute if the Claimant had chosen to locate one of its network operation centres in that jurisdiction. It would lead to confusion and complicate any decision over jurisdiction. It is necessary to focus in that context only on activities carried out by the Claimant which can be said to reflect obligations under the contract.[21]Secondly, Mr Riley places reliance upon the operation and maintenance of landing station equipment. In particular, in Cornwall, it appears that Cable & Wireless operates and maintains the landing station for the FLAG Cable System, on the Claimant’s behalf. Again, however, the Claimant undertook no obligation in any of its CROU Agreements to carry out the activities cited by Mr Riley. A supplier of goods will no doubt have to maintain and repair its vehicles in order to supply the customers. That does not mean that it provides them with services.[22]Furthermore, it is contemplated in Schedule 2, paragraph 2, of the agreement that the landing station is provided by the “landing party” rather than the Claimant. There is nothing which suggests that the Claimant is to be accorded responsibility in that respect. It is again suggested by Mr Lazarus that these are to be regarded as background or preparatory matters, rather than the provision of services to the Defendant.[23]I would rule that the contracts were for the purpose of making available the use of capacity and it is artificial to regard them as creating an obligation to provide services – especially where the court is required to apply a “narrow interpretation” to Article 5(1). No services are identified in any of these agreements. I therefore uphold the Defendant’s submissions in this respect. I have gone beyond applying a test of mere arguability and determined the point, as Mr Lazarus invited me to do, as it is unnecessary to resolve any factual disputes. I should make clear, however, that even if I were confined to arguability, I would still have ruled against the Claimant. The contract seems clear on its face.[24]I turn to the remaining, alternative, arguments in case I am wrong in that primary conclusion. It is thus now to be assumed that the Claimant was obliged to provide services at the landing stations. In this context, it is pointed out that the CROU Agreements only identify the initial landing points and the purchaser has a right to change at any time. (I understand that this Defendant exercised that right in 2006, opting to change from Porthcurno-Palermo to London-New York.)[25]There is no limit imposed on the purchaser’s option to choose and thus Mr Lazarus characterises the place of performance of the (hypothetical) services as potentially “peripatetic”. He suggests that such a fluid structure is inconsistent with the ECJ’s policy of striving for certainty on issues of jurisdiction. It might lead to a situation where jurisdiction would be accorded, from time to time, to different member states. It is generally thought desirable, where there is the possibility of derogation from the Article 2 principle, that it should be possible reasonably to foresee in which courts a party may be sued other than those of his domicile. So far as possible, the situation should be avoided where a multiplicity of courts have jurisdiction with regard to a contract.[26]On the other hand, in the Rehder case, it was recognised that the airline was required to perform services both at the point of departure and where disembarkation took place. Correspondingly, jurisdiction could be accepted in the courts at either end of the journey. This did not exclude the “special jurisdiction”. Mr Lazarus argues, however, in the light of its decision in Besix S.A. v Wasserreinigungsbau Kretzschmar GmbH [2003] 1 WLR 1113, that the ECJ would reject a solution whereby jurisdiction would change as the purchaser exercised its option to change the place where the services were to be performed. Accordingly, the default position under Article 2 should apply.[27]I am not persuaded that this argument is valid. The place(s) of performance may change from time to time (at one party’s option), but if the parties know that this possibility is built into the contract, they will equally appreciate that the available jurisdictions may also change.[28]Whenever the option is exercised, it is likely that there will be a process of negotiation about the terms of the contract and, in particular, as to pricing. Effectively there will be a new contractual regime between the parties. In respect of that contract, as varied, there will be no uncertainty as to jurisdiction. In so far as the new bargain would involve a change in the place(s) of performance, each party would understand that there would be a corresponding change as to the courts which could potentially be seized of any dispute. Thus, at any given time, it cannot be said that the party supposedly providing the services can choose where to perform them, or that the party receiving the benefit of those services can change the place of performance without effectively renegotiating the contractual terms.[29]If, contrary to my earlier conclusion, the CROU Agreements are indeed contracts for the provision of services, I would not hold that the place of performance would be so uncertain that Article 2 would come into play. The Defendant therefore succeeds in its primary argument but not on the alternative.[30]In my judgment, the English court does not have jurisdiction by reason of Article 5.