Case law Developments in PIL

Ellmes Property Services – In Search of a More Explicit Interpretation of Brussels I bis Regulation

On 11 November 2020, the Court of justice issued a judgment on jurisdiction under Brussels I bis Regulation in respect of a dispute on the use of immovable property subject to co-ownership (Case C-433/19, Ellmes Property Services, already reported here and here). Both article 24, point 1, on rights in rem matters and article 7, point 1, a) on contractual matters were submitted to the interpretation of the Court.

Regarding the first provision, the Court leads a classical and very brief analysis of the jurisdictional rule, leaning on the national judge to implement it in casu. On the contrary, the interpretation of the second provision deviates from the settled caselaw and the Court is more prescriptive towards the referring judge.

All in all, the reading of the judgment gives an impression of inconsistency and unfinished work.

Facts and Issues at Stake

 A British company is co-owner of an apartment in Austria, which is designated for residential purposes. However, it was using that apartment for touristic purposes by regularly renting it out to holidaymakers. Another co-owner, SP, sought the cessation of that “touristic use” on the ground that it is contrary to the designated use of that building and, therefore, it interferes with his right of co-ownership.

The question of international jurisdiction arose. SP seized the Austrian court following the exclusive jurisdiction provided for in article 24, point 1, of Brussels I bis Regulation, in favour of the court of the Member State in which the property is situated. The British company contested the jurisdiction of that court on the basis of the forum contractus, pursuant to article 7, point 1, a). For the referring court, both grounds of jurisdiction could be admissible under Austrian civil law. Therefore, the Court of justice ruled on both provisions.

Jurisdiction in Matters Relating to Rights in rem in Immovable Property: A Self-restraint Approach?
Reasoning

The Court of justice first assessed whether the action brought by the co-owner against the British company was to be characterised as an action “in matters relating to rights in rem in immovable property” pursuant to article 24, point 1 of the Brussels I bis Regulation. This requires, in particular, that the action is based on a right in rem and not on a right in personam (see the CJEU judgment in Reitbauern, para. 45). A right in rem, existing in corporeal property, has effect erga omnes. The tricky point here was to determine whether the designated use of the building produces such effect. Is the co-owner entitled to oppose the residential purposes of his property beyond the co-ownership agreement, to third parties? For the Court of justice, it falls to the referring court to respond to this question, following its national legal framework. Therefore, the application in casu of article 24, point 1, remains unsure.

Assessment

Eventually, the national judge would have been in the same position without referring any question to the Court of justice, since its interpretation adds nothing to the settled caselaw in the field. The Advocate General Szpunar went much further in its opinion, clearly doubting of the application of this exclusive ground of jurisdiction. He stressed that “there was a considerable underlying interest at stake in the EU legislature’s decision to make the jurisdiction established by that article [24 point 1] exclusive in nature”, namely “a public interest”. It is characterised when “rights [are] capable of affecting the legal situation of any person (effect erga omnes) or of the public in general” (para. 62). No such public interest seems to be at stake here, as far as “adherence to contractual arrangements between co-owners relating to the designated use of an immovable property” is concerned (para. 68); this is a pure contractual issue, subject to private autonomy.

In that respect, despite the remaining divergence of national civil and property laws within the Member States, it was possible to give the domestic court a clearer guidance. Then I wonder why the Court of justice decided not to be more explicit in its interpretation. Did the Court exercise self-restraint to preserve national private laws? Numerous Member States are indeed still hostile to the European harmonisation in the field. If it is the Court’s motive, it is unfortunate. On the contrary, it seems necessary to reflect on what extent an approximation of core notions of private law within the EU could improve the uniform application of European PIL rules. This reflection is the natural follow-up of the “autonomous interpretation” based on EU law developed and applied by the Court of justice, including in the field of EU PIL.

Jurisdiction in Matters Relating to a Contract: A Return to Orthodoxy?
Reasoning

Given the uncertainty of application of the exclusive jurisdiction provided for in article 24, point 1, the Court of justice also interpreted article 7, point 1, on contractual matters. The Court started to recall the great flexibility of the notion of “contractual matters”. By analogy with its judgment in Kerr, it held that “the co-owners are, on account of the co-ownership agreement, in a contractual relationship freely consented to” (para. 40). Therefore, the action brought by the co-owner against the British company, itself co-owner, is an action “in matters relating to a contract”.

Then, the Court implemented the complex connecting factor laid down in article 7, point 1, a) – since the special rules in respect of the contracts on sale of goods and the contracts regarding the provision of services did not apply here, i.e. the presumptions regarding the place of performance –. Remarkably, the Court of justice removed the classical conflict-of-laws reasoning inherited from its judgment in Tessili (contrary to the Advocate General Szpunar in his opinion, para. 83 in fine). Following this settled caselaw, if the parties did not agree on the place of performance, that place must be determined by the law governing the contract in question pursuant to the PIL rules of the forum.

However, the Court of justice decided here to locate “directly” the place of performance, without the intermediary of the applicable law to the contract. The obligation in question is the guarantee of a “peaceful enjoyment of the property subject to co-ownership” by the owner and “must be performed in the place in which it is situated” (para. 44), i.e. in Austria.

Assessment

This solution makes the application of article 7, point 1), a), much easier in practice. The “direct” reasoning followed by the Court of justice leads to a substantial designation of the competent jurisdiction, here the Austrian judge. The two-steps reasoning, i.e. the implementation of a conflict-of-laws rule in order to apply a jurisdictional rule, has always been criticized by a large majority of scholars. It is indeed unorthodox regarding the classical PIL methodology. Issue of competence is, in principle, independent from the solution of conflict-of-laws.

The law designated by the choice of law rules has generally to be determined under the Rome I Regulation, except if the contract in question was concluded before the entering into force of this text. It seemed to be the case here (see par. 84 of the opinion, and even before the entering into force of the 1980 Rome Convention), imposing the referring court to apply its previous national choice of law rules in contractual matters. This further difficulty was probably an additional incentive for the Court to remove the Tessili reasoning.

This “streamlined” interpretation was already followed by the Court, a few years ago, in a case related to the avoidance of a contract of gift of immovable property (see the CJEU judgment in Schmidt, para. 39). However, in both judgements, the Court of justice did not bother to mention the change of approach. This is unfortunate as it makes difficult to assess the scope of the solution.

It is, most probably, only an exception in the context of immovable property, based on its strong attraction on the place where the property is situated and on the resulting proximity with the forum. In that sense, the Court of justice has stated that this solution “meets the objective of predictability of the rules of jurisdiction laid down by Regulation n° 1215/2012 since a co-owner bound by a co-ownership agreement stipulating such a designated use may, when he or she arbitrarily and unilaterally changes that designated use, reasonably expect to be sued in the courts of the place where the immovable property concerned is situated” (para. 45).

However, the “simplification” of application of article 7, point 1), a), stays unclear. The Court of justice mentions that the obligation in question “relates to the actual use of such property” (para. 44 in fine). Following an a contrario reading, would the “direct” location of the place of performance still be the solution if the obligation relates to an abstract use of property? (in that sense, see here). And how to understand and to draw the line between actual and abstract use of property?

Finally, it seems that a same “direct” approach was recently followed by the Court in the field of prorogation of jurisdiction. In its judgment in DealyFix (reported here on this blog), where the enforceability of a choice of court agreement to a third party was at stake, the Court held that it can be enforced only if, under the (substantive) legislation of the Member State whose courts are designated in that clause, the enforceability is allowed. The Court of justice did not refer to the “rules of private international law of the court” designated in the agreement, as it did before in its judgment in CDC (see para. 65, regarding the “court seised of the matter”). By analogy, the same “renvoi” to PIL rules is laid down in article 25, §1 and recital 20 of the Brussels I bis Regulation, in case of alleged substantive invalidity of a choice-of-court agreement; the question shall be decided “in accordance with the law of the Member State of the court […] including the conflict-of-laws rules of that Member State”.

I wonder whether it could illustrate a latent tendency of the Court of justice to avoid the overriding conflict-of-laws reasoning, in favour of a direct application of the jurisdictional rules concerned. Such a “material approach” is convincing, but one could call the Court to be more explicit in its judicial policy. It would make its interpretation more convincing and effective.

11 comments on “Ellmes Property Services – In Search of a More Explicit Interpretation of Brussels I bis Regulation

  1. Felix M. Wilke

    Dear Marion,
    thank you for sharing that excellent analysis! I wholeheartedly agree that the decision is at best sloppy; I have to say that I am almost shocked by it, in particular in light of the convincing Opinion by the Advocate General which the Court simply might have followed.

    What do you make of the requirement set forth by the Court that the referring court must now “verify” the place of performance? Don’t you think that this could be a (albeit strange) reference to the Tessili approach? And should we not expect a clear statement from the Court if it really wanted to overrule this long line of case law?

    Coincidentally, I myself have been struggling with these questions – and my analysis (with a different tentative conclusion) was published just today as well, over at conflictoflaws: https://conflictoflaws.net/2021/is-tessili-still-good-law/

  2. Marion Ho-Dac

    Many thanks Felix for your comments!
    Yes, you rightly pointed out that the Court of justice asked the national judge to check whether its analysis is correct (in para 44). But, from my understanding, what is subject to verification by the national judge is not the place of performance pursuant article 7, point 1 (a) but rather the obligation in question (cf. ‘’It ‘seems’ that that obligation is… ‘’, para 44).
    Is this obligation a component of a right in rem? Because it is this legal nature which justifies the direct location at the place where the property is situated. That is why I argued that the removal of Tessili is probably only an exception in the context of immovable property.
    To be continued!

    • Felix M. Wilke

      Thank you very much for your prompt reply (on both platforms)! Your reading of the “verification” part certainly makes sense.
      And I would also agree that if there is supposed to be an exception to Tessili it is confined for now to the context of immovable property.
      But, to my mind, Ellmes Property would then be even worse a decision, because the Court would have simply ignored both its own case law and the legislative history (which the Court used in Besix to deny changing the Tessili approach) in order to resort to the “direct approach”. I simply do not want to believe that the Court operates THAT carelessly.

  3. Dear Marion, dear Felix,

    Thanks for initiating a most interesting cross-blog debate !

    I wonder: has the court ever recognised that it had overruled a former decision and changed its case law?

    Gilles

    • Felix M. Wilke

      Off the top of my head, I must admit I cannot think of any instance. But I do remember instances of distinguishing. Hence, I would expect the Court to at least somehow mention case law it intends to overrule.
      I would be very interested as well to see if anyone has examples of the Court expressly changing course (without the pertinent statutory law having changed, of course).

      • I too can only think of instances of distinguishing previous cases (for instance Lippens and ProRail distinguishing St Paul Dairy).

        • Krzysztof Pacula

          I join the acknowledgments of Professor Cuniberti, addressed to Marion and Felix, for this interesting cross-border debate.

          Concerning the distinguishing with previous cases, while it is a question open to debate, I would think, most notably, of the judgment in Keck, point 16. Not a purely/traditional PIL example though.

          • Krzysztof Pacula

            *cross-blog of course 🙂

  4. François Mailhé

    Dear Marion and Felix,

    I thank you here for both your very interesting and stimulating comments (and Gilles for a remark much to the point…)!

    I would tend personnally to be a little more sympathetic to the decision.

    In some instances, the Court has tended to create autonomous interpretations of notions that should not, to my mind, be interpreted too autonomously : res judicata in Gothaer, a tacit contract in Granarolo, marriage (a proposition of the AG Whatelet in Coman, left aside by the Court, fortunately)… The problem is of course not that in so doing it was giving European substance to European words, but that those autonomous interpretations pretended to directly use facts and bypass the applicable laws.

    As I have contended elsewhere, I think this is, depending of the notion at stake, either not relevant or simply dangerous : for these very abstractly legal notions, one cannot overlook the implied specific regime, hence the applicable law.

    For some time now (I think of Schmidt, SCI Senior Home, to the opposite of Gaillard, for example), the Court has chosen to follow a much safer path for the notion of “right in rem” by providing the referring court with autonomous conditions that must be verified, in each case, in the characteristics of the applicable law itself.

    I understood from your analysis that we actually agree on those elements. My point is that the Court seems now more inclined to leave it to the national courts, at least in matters of immovable property rights, to verify clearly, on the basis of its applicable law, that the analysis is correct. In distinguishing with insistance between “right in rem” and its “erga omnes effect”, the Court stresses the fact that she is unsure about their association in the Austrian applicable law, and that it is not sufficient to label a right as “right in rem” in national law to give it its effect in EUPIL.

    And the following part of the judgment seems to me to verify this analysis, since the uncertainty of the Court concerning the obligation at stake actually relates to the same rule.

    Now, as to the forgotten Tessili, I would tend to follow your analysis, with a slight regret as to this waltz, with a step forward in characterizing rights in rem, and a step backward in characterizing a place of performance for a contrat on such a right…

  5. Adrian Briggs

    I agree that this is interesting, but so far as Art 7.1 is concerned it seems to me that the Court is being aspersed for being helpful. The supposed contractual obligation is, if it exists, to use the Austrian apartment (building) in a particular way, and not in an illegitimate way. The place for performance of that particular obligation can only be in Austria, indeed, in Zell am See, and one does not need to direct the national court to sit down to a plateful of Tessili before it comes to the conclusion which, in the real world, is inevitable. The Court goes on to point out how convenient this conclusion is, no doubt thinking that this was a job well done. Still, no good deed goes unpunished…

    • Felix M. Wilke

      We are in total agreement that the outcome will always be jurisdiction in Austria and particularly in Zell am See, whether
      – even by application of Art. 24 Brussels Ibis in conjunction with Austrian rules of local jurisdiction
      – by application of Art. 7(1) Brussels Ibis in this new reading by the Court or
      – by application of Art. 7(1) Brussels Ibis under Tessili.
      Thus, I suppose one could argue that there was no reason to even refer the respective questions to the Court.
      But as they were, in fact, referred to the Court, I maintain that the way they were resolved matters. Principiis obsta!
      I think, however, I will let it go for now. 🙂

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