Subrogation of Choice of court clauses: Opinion AG in Refcomp to intensify debate on harmonisation of European contract law

There are one or two issues in the application of the jurisdiction Regulation where ECJ intervention is eagerly awaited. One of those is the subrogation of choice of court clauses in contracts. Is the party subrogated into the contractual rights and obligations of another, bound by the choice of court clause in the original contract?

The answer to this question so far depends largely on national law. In the absence of common European contract law, there is no general rule.

Relevant facts. In the case at issue, SNC Doumer (‘Doumer’) had renovation work carried out on a building complex located in Courbevoie (France), and had taken out insurance with Axa Corporate Solutions Assurance SA (‘Axa Corporate’), whose registered office is at Paris, France. As part of that work, air-conditioning units each equipped with a number of compressors were installed, which had been:

–        manufactured by Refcomp SpA (‘Refcomp’), whose registered office is in Italy,

–        purchased from that company and assembled by Climaveneta SpA (‘Climaveneta’), whose registered office is also located in Italy,

–        supplied to Doumer by Liebert, to whose rights Emerson Network Power (‘Emerson’), itself insured with Axa France IARD (‘Axa France’), is subrogated, the respective registered offices of which are located in France.

Irregularities occurred in the air-conditioning system following installation. An expert’s report ordered by a court revealed that those failures were caused by a defect in the manufacturing of the compressors. Subrogated to the rights of Doumer, to which it paid compensation as its insured, Axa Corporate summoned the manufacturer Refcomp, the assembler Climaveneta and the supplier Emerson to appear before the Tribunal de grande instance de Paris (Regional Court, Paris), for the purposes of claiming from them in solidum compensation in respect of that defect.

The two Italian defendant companies contested the jurisdiction of the Tribunal de grande instance de Paris, relying, in respect of Climaveneta, on an arbitration clause which appears in the distribution contract between it and Emerson, and, in respect of Refcomp, on a clause conferring jurisdiction on an Italian court which was included in the general terms of the sales contract concluded between itself and Climaveneta.

National court’s decision. The Court of appeal, Paris held that the objection raised by Climaveneta had to be upheld: it argued it did not have jurisdiction to hear and determine the claim brought against that company on the ground that under French law, in a chain of contracts transferring ownership, an arbitration clause was automatically transferred as an appurtenance to the right of action which is itself an appurtenance to the substantive rights transferred, the homogeneous or heterogeneous nature of the chain being of little importance.

By contrast, the Cour d’appel de Paris upheld the lower court’s rejection of the objection of lack of jurisdiction raised by Refcomp. It justified its decision stating that the rules governing special jurisdiction in matters relating to a contract laid down in Article 5(1) of Regulation No 44/2001 did not apply to a dispute between the sub‑buyer of goods and the manufacturer who was not the seller, since such a dispute concerns matters relating to tort or delict, which are governed by the provisions of Article 5(3) of that Regulation, and stated that Article 23 thereof was no longer applicable since the action had no contractual basis.

The case went to the Cour de Cassation which in turn referred to the ECJ. Jaaskinen AG opined on 18 October. Precedent at the ECJ includes Handte, however only in minor aspect. The AG first of all referred to the fact that the Court of appeal’s findings are a result of French law on contracts:

‘the legal theory according to which, although the principle of privity of contract ordinarily applies, in that contracts are binding only on the parties who have signed them, an exception is nevertheless made to that principle where there is a transfer of ownership, ownership being transferred to all the subsequent purchasers of the goods concerned together with all elements appurtenant to it. It follows that, in French law, the sub-buyer of goods may bring an action for damages against the seller, or against any of the intermediaries who sold the goods or even directly against the manufacturer of those goods’ (at 22).

He then proactively distinguishes his Opinion (at 26-28), in particular that the case at issue only concerns situations where the clause is enforced against the subrogated party, not by it. He would also seem to suggest that his Opinion may only hold where the chain is entirely ‘Union’ based: i.e. not where there is a contractual element with parties outside of the EU (however that might just be me reading too much into the ‘Community chain’ reference).

Generally, however, the AG firmly pulls the harmonisation card: choice of court agreements are exempt from the Rome I Regulation; there is therefore no harmonised conflicts rule [see here for the proposals in the current review of the Regulation]; leaving it up to national conflict rules creates uncertainty and, as a method, has been abandoned by Regulation 44/2001 (under the old rules on special jurisdiction for contracts, the Court had to find in Tessili that it could not force a European approach to characteristic performance; this has now changed for a number of usual suspects among contract categories).

The issue therefore needs to be given a European interpretation which, the AG suggests on the basis of the exceptional character of Article 23 and the protection of unsuspecting third parties, needs to be that

‘a clause conferring jurisdiction agreed between the manufacturer of goods and one of the purchasers of those goods which falls within the scope of the provisions of that article does not produce binding effects against the sub-buyer of those goods who is not party to the contract containing that clause, or against the insurer who is subrogated to the rights of the sub-buyer, unless it is established that that sub-buyer agreed to the clause in accordance with the detailed rules laid down in that article.’

While the AG suggests that this is a solution along the lines of the current review of the Regulation, I disagree: that review will lead to a harmonised approach to which conflict of laws rules decide the issue, but not whether privity of contract extends to choice of court agreements. Neither and incidentally, as far as I am aware, does the European Commission proposal for a Common European Sales Law, address the issue of subrogation.

One or two things for the ECJ to ponder.

Geert.

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