In Toyota v Prolat, the High Court was asked by Toyota to confirm the existence of an agreement between parties to arbitrate. The arbitral panel, already seized by Toyota, agreed that it would be best for the Court preemptively to settle this issue since it suspects any ruling by the tribunal itself will be subject to litigation by Prolat. The agreement (existence of which is disputed by Prolat; it had employed an authorised agent, whose signings on behalf of Prolat are disputed) concerns the delivery of sugar by Toyota to Prolat. Prolat objects to the jurisdiction of the tribunal. It has itself started proceedings in Naples for damages for various alleged wrongdoing by Toyota, whether for breach of contract or tort.
The interest of the case for this blog lies in particular with the concurrent proceedings in Italy and the UK. Should the UK decline? The case is subject to Regulation 44/2001, not to the recast. Cooke J holds that ‘This Court is not being asked to interfere with the functions of the Italian court as no form of anti-suit injunction is being sought against Prolat. This Court is being asked to determine whether or not there is an arbitration agreement and to make a declaration in the light of its conclusion.‘ West Tankers is therefore distinguished. Would, had it applied, Regulation 1215/2012 made a difference? Cooke J held that it would not: ‘Article 1(2)(d) remains unchanged from the earlier Regulation but is more fully explained in paragraph 12 of the Preamble. I was also referred to Article 73 which states that the Regulation will not affect the application of the New York Convention. (…)‘ (at 16)
He concludes ibidem ‘Although it is not yet in force, it was suggested that some might regard the new Regulation as declaratory of the existing state of the law. . The jury on that, as is well-known, is out.
Cooke J further explores the issue of the applicable law to the contract per its putative law (Article 10(1) Rome I). Firm and justifiable conclusion (at 18) there, is: English law.
Ready steady, flare? The ECJ in Marktgemeinde Straßwalchen limits the scope of ‘commercial’ yet insists on strict cumulation test.
In a judgment undoubtedly with consequences for the fracking industry in the EU, the ECJ held yesterday in Marktgemeinde Straßwalchen, Case C-531/13. Rohöl-Aufsuchungs AG had obtained authorisation to undertake exploratory drilling within the territory of the Marktgemeinde Straßwalchen (Austria) up to a depth of 4 150 metres, without environmental impact assessment. The Marktgemeinde Straßwalchen and 59 other persons have challenged that decision before the Verwaltungsgerichtshof (Administrative Court).
The EIA Directive‘s key element is that not all projects are subject to mandatory EAI. Only projects listed in Annex I of the Directive are subject to a mandatory EIA. Annex I lists for example crude-oil refineries, thermal and nuclear power stations which fulfill certain production or output thresholds. Projects listed in Annex II of the Directive, are subject to a screening procedure of the Member States. Screening is commonly referred to as the process by which a decision is taken on whether or not an EIA is required for a particular project. The competent authority in the Member States can make this decision either based on a case-by-case examination or by establishing thresholds or criteria, or both.
‘Extraction of petroleum and natural gas for commercial purposes where the amount extracted exceeds 500 tonnes/day in the case of petroleum and 500 000 cubic metres/day in the case of gas’ is included in Annex I, sub 14. However the Court held that exploratory drilling even if by nature it is ‘commercial’ (lest it be carried out purely for research purposes), does not meet the conditions of Annex I entry 14, for that provision links the obligation to conduct an environmental impact assessment to the quantities of petroleum and natural gas earmarked for extraction. Prior to an exploratory drilling operation, the actual presence of hydrocarbons cannot be determined with certainty. An exploratory drilling operation is carried out in order to establish the presence of hydrocarbons and, where they are found, to determine the quantity and ascertain, through a trial production, whether or not a commercial operation is feasible. Thus, it is only on the basis of an exploratory drilling operation that the quantity of hydrocarbons that can be extracted per day can be determined. Moreover, the quantity of hydrocarbons earmarked for extraction in such a trial, as well as its duration, are restricted to the technical needs arising from the objective of establishing the feasibility of a deposit.
No mandatory EIA therefore on the basis of Annex I. However, Annex II, in entry 2 d), includes ‘Deep drillings, in particular:(i) geothermal drilling;(ii) drilling for the storage of nuclear waste material; (iii) drilling for water supplies; with the exception of drillings for investigating the stability of the soil’. Exploratory drilling falls under that entry. With reference to previous case-law, the ECJ emphasises that notwithstanding the discretion enjoyed by national authorities vis-a-vis projects included in Annex II, the characteristics of a project must be assessed, inter alia, in relation to its cumulative effects with other projects. Failure to take account of the cumulative effect of one project with other projects must not mean in practice that they all escape the obligation to carry out an assessment when, taken together, they are likely to have significant effects on the environment. With this approach the ECJ has countered the salami effect: the artificial splitting up of projects which do not individually meet EIA thresholds but which do so on a cumulative basis.
There are roughly 30 probes for gas extraction within the area of the Marktgemeinde Straßwalchen. The ECJ does not take the final decision as to whether an EIA therefore had to be carried out, for that is for the national court to be decided, however it is quite likely that the cumulative effect of these 30 probes does lead to a requirement for EIA (which will have to look beyond municipal borders) once it started being clear that the area concerned is a hotbed for such exploratory drillings.
Mr Kolassa, as a consumer, through the Austrian bank direktanlage.at AG, invested just under Euro 70,000.00 in X1 Global EUR Index Certificates. The certificates were issued by Barclays Bank, registered in the UK, with a branch in Frankfurt. At the time of the issue of the certificates, Barclays distributed a base prospectus, ia in Austria. The portfolio was to be established and administered by X1 Fund Allocation GmbH, to which Barclays Bank had entrusted the investment of the money raised from the issue of the certificates. Most of that money has been lost.
The certificates were sold to institutional investors who sold them on, in particular, to consumers. In the present case, direktanlage.at ordered the certificates to which Mr Kolassa wished to subscribe from its German parent company, DAB Bank AG, with its seat in Munich (Germany), which in turn acquired the certificates from Barclays Bank. In each case, the orders were placed and carried out in the name of the respective bank. Direktanlage.at fulfilled Mr Kolassa’s order in accordance with its general terms and conditions ‘in securities account’, meaning that direktanlage.at holds the certificates as covering assets in its own name at Munich, on behalf of its clients.
Mr Kolassa sues in Vienna, on the basis of contractual, precontractual, tortious or delictual liability. Jurisdiction in Vienna in his view is present on the basis of Article 15 JR (consumer contracts), 5(1) (contract) or 5(3) (tort). Application of Article 15 JR is dismissed by the ECJ on the basis of there being no contract whatsoever between Barclayas and Mr Kolassa. (Judgment in Maletic distinguished given that the consumer in that case was from the outset contractually linked, inseparably, to two contracting partners). Application of Article 5(1) is in some ways more flexible because there need not be proof of a contract between the two parties: what is required, though, is proof of a legal obligation freely consented to by one person towards another and on which the claimant’s action is based. (For otherwise there is no ‘obligation’ which constitutes the connecting factor under Article 5). No such legal obligation ‘freely consented’ was apparent from the case hence Article 5(1) was dismissed, too.
That left Article 5(3). Per Kronhofer (also referred to in the Hoge Raad’s referral in Universal), the mere fact that the applicant has suffered financial consequences does not justify the attribution of jurisdiction to the courts of the applicant’s domicile if, per Kronhofer, both the events causing loss and the loss itself occurred in the territory of another Member State. On the basis of the facts of the case, the ECJ dismisses Austria as the locus delicti commissi: the decisions regarding the arrangements for the investments proposed by Barclays Bank and the contents of the relevant prospectuses, were taken in the Member State of Barclays’ seat, i.e. the UK.
The locus damni, the place where the loss occurred, is the place where the investor suffered it (at 54). ‘The loss occurred where the investor suffered it’ sounds like an abstract definition however the ECJ emphasises that that conclusion is fact-related, that is to say: it is a result of the that, first, the certificates’ loss of value was due, not to the vagaries of the market, but to the management of the funds in which the money from the issue of those certificates had been invested. Second, the actions or omissions alleged against Barclays with respect to its legal information obligations took place before the investment made by Mr Kolassa and were, in his view, decisive for that investment (at 51). If ‘the loss occurred where the investor suffered it’ is not an abstract but a fact related criterion, that puzzlingly may mean that there must be an alternative general criterion for purely financial loss if these are due to the ‘vagaries of the market’.
The Court further invites distinguishing by holding at 55 that ‘The courts where the applicant is domiciled have jurisdiction, on the basis of the place where the loss occurred, to hear and determine such an action, in particular when that loss occurred itself directly in the applicant’s bank account held with a bank established within the area of jurisdiction of those courts’. (Emphasis added).
Finally, the ECJ clarifies as much at it could, the balance between plaintiff’s allegations, and defendant’s rebuttal, at the jurisdictional level: what extent of evidence does the seized court need to review with a view to establishing its jurisdiction? The court holds ‘the national court seised is not, therefore, obliged, if the defendant contests the applicant’s allegations, to conduct a comprehensive taking of evidence at the stage of determining jurisdiction, it must be pointed out that both the objective of the sound administration of justice, which underlies Regulation No 44/2001, and respect for the independence of the national court in the exercise of its functions require the national court seised to be able to examine its international jurisdiction in the light of all the information available to it, including, where appropriate, the defendant’s allegations. (at 64). That of course is a thin line however I do not see how the ECJ can instruct otherwise.
In my view Kolassa invites further specification especially on the exact relevance of banks and bank accounts in cases of purely economic loss: Universal provides one such immediate opportunity.
Universal: Dutch Supreme court (Hoge Raad) quizzes the ECJ on purely economic loss and the Brussels Regulation
(Thank you to Vincent Dogan and Freerk Vermeulen for flagging the case). In Universal, the Dutch Hoge Raad has asked the ECJ for assistance in determining whether and /or how Article 5(3) of the Brussels I Regulation (now Article 7(3) in the recast) needs to be applied to cases of purely economic loss (also known as purely financial loss).
Haven’t we seen that before? Yes, we have: in Zuid-Chemie, Case C-189/08, the same Hoge Raad asked essentially the same question, however the ECJ did not answer it, for there was also physical damage (with the same victim).
Universal Music International Holding BV is the mother company of among others a Czech group of companies, who acquired a target company in the Czech Republic. A calculation error by one of the lawyers advising the parties (Ouch. All us, lawyers, sympathise), led to Universal having to pay five times what it thought it was going to pay. Arbitration and settlement ensued. This included agreement that the holding company, plaintiff in the current proceedings, would pay the amount settled for. It duly did, from a Dutch bank account. It now sues the Czech lawyers who wrongly advised the Czech subsidiary and does so in The Netherlands, as the alleged Erfolgsort in its tortious relationship with these lawyers, is The Netherlands.
Questions referred, are whether purely economic loss sustained in the Erfolgort (and without direct loss, economic or otherwise, elsewhere) lead to jurisdiction for that Erfolgort; and if so, how one determines whether the damage is direct or indirect (‘follow-up’), and where that economic loss is to be located.
I have aired my unhappiness with the Erfolgort /Handlungsort distinction on this blog before. Most recently viz Hejduk. I blame Bier (the judgment. Not the (at least as it is spelled in Dutch) drink): extension of Article 5(3) seemed good in principle but led to a continuing need to massage the consequences. The court advisors to the Hoge Raad have sympathy for the view that Bier’s main justification for accepting jurisdiction for the Erfolgort (a close link with the case leading to suitability from the point of view of evidence and conduct of the proceedings) is not present in the case of purely economic loss, particularly where events for the remainder are entirely Handlungsort related. The ECJ may well follow this reasoning, although in doing so it might yet again create another layer of distinguishing in the Bier rule.
There is an obvious downside to the European Court of Justice’s judicial economy. The Court often leaves unanswered many questions asked by national courts without an answer to them being strictly necessary for the case at hand. Evidently quite a few of those resurface in later practice. Owusu is a case in point. Many postings on this blog have entertained the unanswered questions left by the ECJ’s seminal rejection of Forum Non Conveniens. UK courts in particular have leapt on the opportunity to distinguish Owusu, effectively now leading to a fairly narrow context in which Owusu is applied. As recently as Jong v HSBC on which I reported last week, the High Court professed sympathy for vacating a case pending in the UK and having it joined to proceedings in Monaco, on ‘case management’ grounds.
In Plaza v The Law Debenture Trust, Proudman J dealt with a UK fallout of longstanding litigation inter alia in Australia, following the insolvency of the Australian Bell group in the 1990s. Curacao is COMI. Secondary or ancillary proceedings were opened in Australia. A variety of litigation mostly concerning priority of claims and timely (or not) execution of securities, led among others to a 2013 Deed of Settlement between parties to the current litigation. The Law Debenture trust (LDTC) is trustee for a number of bonds issued by Bell, some of which are held by Plaza (these bonds contain a non-exclusive choice of court in favour of England). Others are held inter alia by the Insurance Commission of Western Australia (ICWA).
The 2013 Deed contains an exclusive choice of court clause in favour of Western Australia. Plaza, incorporated in Curacao, sues LDTC, domiciled in the UK, in England, basically questioning its suitability as a trustee for the bonds, citing alleged conflicts of interest (LDTC may or may not be acting under instruction of ICWA).
Proudman J essentially had to decide whether Article 23 (now Article 25) of the Jurisdiction Regulation in its original version (the recast does not apply) ought to be applied reflexively (protecting choice of court in favour of non-EU courts); alternatively, whether Article 28 of the same Regulation (the lis alibi pendens rule) may be so applied; and what the impact of the ECJ’s rejection of forum non conveniens is on this all.
Ferrexpo in particular assisted her in holding that reflexive application of Article 23 (now 25) of the Brussels I Regulation is not barred by Owusu. The main argument for this approach lies in the judicial economy which I cite above: the ECJ was asked but did not entertain the question. Moreover Article 23 is a more dominant rule in the Regulation than Article 2 (now 4)’s rule referring to domicile of the defendant: a mandatory exception to the rule of Article 2 rather than, in the words of Proudman J, a discretionary exception such as forum non conveniens.
Subsidiarily, the High Court also suggests Article 28’s lis alibi pendens rule ought to apply reflexively, although it expressly suggests more discussion of that point is needed and the Article need not be laboured in the case at issue, given its finding on Article 23.
To heap further pressure on the Owusu pile, a further potential for undermining finding in Owusu is suggested in the shape of ‘case management powers’, also suggested in Jong and hinted at as potentially introducing forum non conveniens through the back door.
With Plaza v Debenture, application of Owusu by the English courts now is so distinguished, arguably little is left of the ECJ’s original intentions. One assumes: for as I noted above, judicial economy allowed national courts to be creative in their application of the rule. The issue is bound to end up again at the ECJ at some point.
Jong v HSBC. Unilateral jurisdiction clauses, anchor defendants viz parties ex-EU and evading Owusu.
Often, progress is assisted by assimilation hence I shall not repeat the excellent review of Jong v HSBC by Andy McGregor and Daniel Hemming. (It will be posted here soon, I imagine). Nor indeed will I simply regurgitate how Purle J eloquently dealt with the various jurisdictional issues in the case. Let me instead highlight the main issues:
Plaintiff, Ms Jong, has a contractual dispute with HSBC Monaco SA concerning the proper execution of foreign exchange orders. That the law of Monaco applies does not seem under dispute. HSBC Monaco’s standard terms and conditions, which may or may not apply, contain inter alia a classic unilateral jurisdiction clause: “Any litigation between the client and the bank shall be submitted to the exclusive jurisdiction of the competent Monaco courts at the offices of the bank location where the account is open. Nevertheless the bank reserves the right to take action at the place of the client’s residence or in any other court which would have been competent in the absence of the preceding election of jurisdiction“.
The bank so far has not exercised the clause. (No proceedings are as yet pending in Monaco). Monaco evidently is not covered by the Brussels I Regulation (nor indeed by the Lugano Convention).
Co-defendants are the HSBC Holding and HSBC Private Bank. Ms Jong did have contact with these over the alleged level of service. Perhaps unusually, Ms Jong (or rather, her lawyers) decided to issue proceedings against HSBC Monaco first. The English co-defendants were only added later, quite clearly in an effort to support the exercise of jurisdiction over HSBC Monaco.
The Brussels I-Regulation’s rules on anchor defendants (Article 6; now Article 8 in the recast. Note that the recast does not apply to the case at issue) do not apply to non-EU defendants: whether or not these can be drawn into the procedural bath with the EU defendants, depends therefore on residual national conflicts law. Purle J takes parties and readers through the relevant case-law and holds that while there may be objections to Monaco as a jurisdiction, none of them carries enough weight to override the exclusive choice of court clause.
Of particular note is that Purle J considers (at 26), again with reference to precedent, whether the case against the English defendants may potentially be stayed in favour of having them joined to proceedings in Monaco. (In that precedent, it was suggested that the clear rejection of forum non conveniens in Owusu, may not stand in the way of a stay on ‘sensible case management’ grounds, rather than forum non conveniens grounds). Purle J justifiably hesitates (‘the court must be careful not to evade the impact of Owusu v Jackson through the back door’), before dismissing the suggestion given that no case is as yet pending in Monaco. It is noteworthy that the latter would, incidentally, be a condition for the (strictly choreographed) lis alibi pendens rule of the Brussels I recast to apply (Article 33). I would certainly argue that Owusu and the ECJ’s reasoning behind it, would exclude such recourse to a de facto forum non conveniens rule.
I have reviewed the AG’s opinion in Hejduk here. The AG’s Opinion was exciting for it cited, even if only in a specific (IP; more specifically copyright) context, the difficulty in identifying locus damni. This, I suggested (realistically optimistic) flagged an obvious concern with the ECJ’s ruling in Bier. However the ECJ in its judgment, issued yesterday, was not having any of this. It applied relevant precedent (all recalled in my earlier posting), did not at all entertain the AG’s concerns with the locus damni assessment, and held that in the event of an allegation of infringement of copyright and rights related to copyright guaranteed by the Member State of the court seised, that court has jurisdiction, on the basis of the place where the damage occurred, to hear an action for damages in respect of an infringement of those rights resulting from the placing of protected photographs online on a website accessible in its territorial jurisdiction. That court has jurisdiction only to rule on the damage caused in the Member State within which the court is situated.
Plaintiff’s difficulties were of no concern to the ECJ. No surprise perhaps given the Brussels I Regulation’s near-exclusive concern for the position of the defendant.