Viskase Ltd Anor v Kiefal GmbH

Factual and Procedural Background

The Appellant, a German manufacturer and supplier of thermoforming machines, contracted with the Respondents, manufacturers of plastic packaging products in England, for the sale and delivery of eight thermoforming machines between 1989 and 1993. The Respondents alleged that the machines were not fit for the stated purpose of producing packaging products from non-PVC films, specifically OPS, at commercially acceptable quality and quantities in their English factory. The Respondents claimed damages exceeding £3 million for breach of contract based on express representations and/or implied terms regarding the machines' fitness for purpose.

The Appellant applied to stay the action on grounds that the English courts lacked jurisdiction under the Brussels Convention and due to an exclusive jurisdiction clause in the contracts favoring German courts. The High Court Judge refused the stay, and the Appellant appealed by leave granted.

Legal Issues Presented

1. Whether the English courts have jurisdiction to hear the claim under the Brussels Convention and the Civil Jurisdiction and Judgments Act 1982, specifically under Article 5(1)(c) concerning the place of performance of the contractual obligation.
2. Whether the exclusive jurisdiction clause in the contracts, favoring German courts, is valid and applicable to exclude English jurisdiction under Article 17 of the Brussels Convention.
3. The proper identification of the "obligation in question" and the place of its performance for jurisdictional purposes.
4. Whether the contractual obligation to supply machines fit for purpose is a continuing warranty with performance in England or a single performance obligation at the place of delivery in Germany.

Arguments of the Parties

Appellant's Arguments

• The English courts lack jurisdiction under the Brussels Convention because the place of performance of the contractual obligations was Germany, where the machines were delivered "ex works".
• The exclusive jurisdiction clause in the contracts, favoring German courts, is valid and should be enforced, thereby excluding English jurisdiction.
• The obligation to supply fit machines crystallizes at delivery in Germany; subsequent installation or operation in England does not alter the place of performance.
• The statutory implied warranty under the Sale of Goods Act 1979 (section 14(3)) does not impose a continuing obligation requiring performance in England.

Respondent's Arguments

• The contractual obligation relied upon is an express undertaking that the machines would be suitable for commercial production in England, which can only be performed or breached at the place where the machines operate—i.e., England.
• The exclusive jurisdiction clause does not apply to the Respondents because they are not entered in the German Commercial Register as required by the clause.
• The implied warranty for fitness for purpose is a continuing warranty, supporting jurisdiction in England where the machines were installed and operated.
• The underlying purpose of Article 5(1)(c) is to confer jurisdiction on the court with the closest connection to the dispute, which is the English court given the place of performance.

Table of Precedents Cited

Court's Reasoning and Analysis

The court examined the jurisdictional question under the Brussels Convention, focusing on Article 5(1)(c), which confers jurisdiction on the courts of the place of performance of the contractual obligation in question. It was necessary to identify the precise obligation forming the basis of the claim and where it was to be performed.

The Respondents’ claim was based on an express or implied term that the machines supplied would be fit for the purpose of commercial production of OPS-based packaging at their factory in England. The court found that this express undertaking, if made, could only be performed or breached where the machines were operated—i.e., in England. This was characterized as a performance guarantee, and the court held that the place of performance for this obligation was England.

Although the Appellant contended that the obligation crystallized at delivery in Germany (the place of delivery under the contracts), the court distinguished this by focusing on the express undertaking that performance would be achieved in England. The court rejected the Appellant’s argument that the statutory implied warranty under the Sale of Goods Act 1979 imposed a continuing obligation for performance in England, concluding that the obligation was to supply fit goods at delivery.

The court also considered the exclusive jurisdiction clause in the contracts, which purported to confer jurisdiction on German courts provided the buyer was entered in the German Commercial Register. The Respondents were not so registered, and the court held that the clause did not apply to them, thereby not excluding English jurisdiction.

However, the court’s analysis was not unanimous. One Lord Justice agreed with the principal reasoning but held that for seven of the eight machines, the place of performance was Germany, as delivery was there, and only for one machine (delivered in England) was jurisdiction in England proper. This resulted in a partial allowance of the appeal, striking out claims except for the one machine delivered in England.

Holding and Implications

The court delivered a split decision:

• Lord Justice Evans and Lord Justice Chadwick: Held that the English courts have jurisdiction over the claim based on the express undertaking that the machines would perform in England, making England the place of performance under Article 5(1)(c) of the Brussels Convention. The exclusive jurisdiction clause was held inapplicable as the Respondents were not registered in the German Commercial Register.
• Lord Justice Morritt: Agreed the exclusive jurisdiction clause was inapplicable but held that jurisdiction in England was proper only for the machine delivered in England. For the other seven machines delivered in Germany, jurisdiction lay in Germany, and the claims relating to those machines should be struck out for want of jurisdiction.

Final Outcome: The appeal was allowed in part with the claim struck out except as to the single machine delivered in England. The Respondents retained the right to pursue their claim in England only in respect of that machine. Costs were awarded to the Appellant for the appeal. Leave to appeal to the House of Lords was refused.

The decision clarifies the application of Article 5(1)(c) of the Brussels Convention regarding the place of performance of contractual obligations that involve performance guarantees dependent on operation at a particular location. It also limits the application of exclusive jurisdiction clauses conditioned on registration in a foreign commercial register. No new precedent was established beyond the application of existing principles to the facts.