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Art. 5 no. 5 Brussels I Regulation Ten Wolde/Knot

General remarks
Article 5(5) provides an alternative ground for jurisdiction concerning disputes arising from the operation of a branch, agency or other establishment of a parent company. With regard to the operation of subsidiary companies or branches, a parent company which, in accordance with Article 59 and 60, resides within the territory of a Member State may be brought before the courts of the subsidiary’s place of business. In order for Article 5(5) to be successfully invoked, it is necessary that the subsidiary is based within the territory of a Member State as well.
In order for jurisdiction to arise on the basis of Article 5(5), it is not necessary that undertakings entered into in connection with the subsidiary’s operations are performed or are to be performed in the country in which the subsidiary is based.[1] Should this (additional) requirement be made, Article 5(5) would add little practical value to the existing jurisdictional basis provided by Article 5(1). Even if performance took or should have taken place in a different country, the court of the place where the branch is located may assume jurisdiction over the operation in dispute.
Claims against the parent company
Article 5(5) merely grants jurisdiction with regard to claims made against the subsidiary’s parent company. The underlying idea is that where a parent company participates in judicial matters within another Member State through its subsidiary, the company should be able to be sued within that particular Member State without the claimant being obliged to institute legal proceedings before the courts of the Member State in which the parent company is based. Subsequently, the parent company itself should institute proceedings against the opposing party of the subsidiary before the competent court on the basis of either Article 2(1) or one of the special grounds of Article 5.
Formal scope of application
For the record, it should be noted that in order to assume jurisdiction on the basis of Article 5(5), the formal scope of the Regulation should be met; i.e. the defendant must be domiciled within the territory of a Member State. If a company from outside the European Union has established a subsidiary in a Member State in order to participate in judicial matters, the Brussels I-Regulation does in principle not apply.[2] This is different where it concerns insurance, consumer and employment matters. By virtue of Articles 9(2), 15(2) or 18(2), it will simply suffice if the acting subsidiary is located within a Member State in order for the Brussels I-Regulation to be applied. Consequently, Article 5(5) will then be applicable without limitation.[3]
Autonomous interpretation
The need to pursue legal certainty and a uniform interpretation of the Regulation throughout all Member States requires an independent interpretation of the concepts in Article 5(5), such as ‘operations’ and ‘branch, agency or other establishment’. [4] Here, it is up to the court seised to determine in each case the actual existence of a ‘place of business’ – as branch is defined by the European Court of Justice[5] – and to determine whether the legal relation between the parties qualifies as a matter of operations under Article 5(5), as defined by the European Court of Justice[6].[7]
At what point is a company considered a branch under Article 5(5)? It is clear from the open-ended description of ‘branch, agency or other establishment’ that one should avoid applying too narrow an interpretation. Initially, the European Court of Justice stated that a subsidiary is to be regarded a branch, agency or other establishment in accordance with Article 5(5), provided that it falls under the control and direction of the parent company.[8] In the case of Somafer/Saar-Ferngas AG, the Court describes the concept of branch, agency or other establishment as ‘a place of business which has the appearance of permanency, such as the extension of a parent body, has a management and is materially equipped to negotiate business with third parties so that the latter, although knowing that there will if necessary be a legal link with the parent body the head office of which is abroad, do not have to deal directly with such parent body but may transact business at the place of business constituting the extension.[9]
Therefore, it is of great importance that the subsidiary can easily be recognised by third parties as an extension of the parent company. Generally it is therefore necessary that the subsidiary is established durably and has as such a certain degree of autonomy towards the parent company.[10] However, a subsidiary which participates in judicial matters through the use of its own name and acts on its own accord only, generally will not qualify as a branch.
In contrast, it need not necessarily concern a dependent branch. Article 5(5) applies even where a legal entity maintains no dependent branch, agency or other establishment, but nevertheless pursues its activities through a formally independent company with the same name and identical management, which negotiates and conducts business in its name and which it uses as an extension of itself.[11] Even if the branch of a company domiciled abroad factually is its sole establishment, it may nevertheless qualify as an establishment in terms of Article 5(5) and thus ground jurisdiction at the domicile of the establishment.[12]
Business Agent
According to the European Court of Justice, an independent commercial agent who merely negotiates business, inasmuch as his legal status leaves him basically free to arrange his own work and decide what proportion of his time to devote to the interests of the undertaking which he agrees to represent and whom that undertaking may not prevent from representing at the same time several firms competing in the same manufacturing or marketing sector, and who, moreover, merely transmits orders to the parent undertaking without being involved in either their terms or their execution, does not have the character of a branch, agency or other establishment within the meaning of Article 5(5).[13] Such an agent cannot be regarded as being subject to control and direction by the parent company and is therefore no extension of that company.[14]
External appearance
In some circumstances third parties, who frequently have no insight in the internal structure of a multinational organisation, are able to rely on the appearance of dependence created by subsidiaries of the parent company in relation to their mutual legal status. If a company creates the impression that it acts under the control and direction and as an extension of another (foreign) company, a third party may do business with that company under the reasonable impression that by doing so, it enters into business with the parent company. The protection entails that third parties doing business with the company posing as an extension of another company must be able to rely on the appearance thus created and regard the company as a branch of the other (foreign) company under Article 5(5) even if the aforementioned objective requirements for the establishment of a branch have not been fulfilled.[15] It is apparent that the subsidiary companies which have created the appearance of dependence will not be able to avert jurisdiction on the basis of Article 5(5) by invoking the absence of one or more of the objective requirements.[16]
According to autonomous interpretation of the concept of “operations” by the European Court of Justice, disputes concerning “operations” within the meaning of Article 5(5) may concern:
a) A dispute relating to rights and contractual or non-contractual obligations concerning the management of the branch, agency or other establishment; or
b) A dispute concerning the obligations assumed by the subsidiary on the parent company’s behalf in the Member State in which the subsidiary is domiciled; or
c) A dispute concerning non-contractual obligations arising from the activities in which the branch, agency or other establishment has engaged at the place in which it is established on behalf of the parent body.[17]
The European Court of Justice cites two examples of the disputes referred to under a), being disputes relating to the situation of the building in which the entity is established or the local engagement of staff to work there.[18]
For clarity, it bears repeating that, in disputes as cited under b), it is not presupposed that the undertakings entered into by a branch in the name of its parent company are to be performed in the Member State in which the subsidiary is established.[19] Nor is it relevant for the assumption of jurisdiction on the basis of Article 5(5) that, in disputes as cited under c), the place where the harmful event occurred lies within the State in which the subsidiary is located.[20]
Disputes between the owner of a branch and the parent company do not qualify as a dispute arising out of the operations of a branch and therefore fall outside the scope of Article 5(5).[21]
Time of existence of the establishment
Because of the fact that Article 5(5) sees to disputes arising out of the operations of a branch, for the application of this article the branch already needs to exist at the time the contractual or non-contractual obligations at hand were entered into.[22] Moreover, for a successful appeal to Article 5(5) the branch still needs to exist at the time the court is seised in terms of Article 30.[23] If the branch subsequently is liquidated, the originally competent court continues to have jurisdiction (perpetuatio fori).[24]
Insurances, consumer and employment contracts
In matters relating to insurance, consumer contracts and individual contracts of employment, as dealt with in Sections 3, 4 and 5 of the Regulation respectively, the special jurisdiction rules of Article 5 generally do not apply. With regard to Article 5(5), however, an exception is made.[25] As a consequence, courts may well accept jurisdiction under Article 5(5), even if the case regards one of the aforementioned specific subject matters.[26]
Lugano Convention
Article 5(5) Brussels I corresponds with the provisions of Article 5(5) of both the Lugano Convention of 1988 and the Lugano Convention of 2007.
The current proposal to reform the Brussels I-Regulation[27] does not provide for any substantive change of Article 5(5).