Of tractors and trailers. Insurance contracts, subrogration, contracts and torts. Sharpston AG on the scope of Rome I and II.

Update 22 January 2016 The CJEU held today. More on that judgment soon.

First, a quick heads-up on precedent: the difference between ‘contract’ and tort’ in European private international law is crucial, as regular readers of this blog will have observed. Crucial, yet the concept is left undefined in the Brussels I (and Recast) Regulation (which has a different special jurisdictional rule for both), the Rome I Regulation on applicable law for contracts, and the Rome II Regulation on applicable law for torts. Undefined, for these foundational elements of private law are outside the reach of legal and political compromise in the legislative process. Yet courts of course do have to apply the rules and in doing so, have to distinguish between both.

The CJEU pushes an ‘autonomous’ EU definition of both concepts which in the past has led to the seminal findings in Jakob Handte (C-26/91) and Kalfelis. In Handte the Court held: the phrase ‘matters relating to a contract [ ] is not to be understood as covering a situation in which there is no obligation freely assumed by one party towards another.’ (the double negative exercised scholarship for some time). In Kalfelis the Court had earlier defined ‘tort’ as ‘all actions which seek to establish liability of a defendant and which are not related to a ‘contract’ within the meaning of Article 5(1).’ (5(1) has become 7(1) in the Recast).

Is the relationship between two insurers, having covered liability for a towing vehicle cq a trailer, each subrogated in their insured’s rights and obligations, one of them currently exercising a claim against the other in partial recovery of the compensation due to the victim, non-contractual?

Per Kalfelis, tort as a category is residual. Sharpston AG’s starting point in Joined Cases Ergo Insurance and AAS Gjensidige Baltic, Opinion issued yesterday, therefore is to examine whether the recourse action is essentially contractual in nature. In the negative, the action is non-contractual. The case is evidently made more complex by the underlying relationships between insurer and insured, and the presence of subrogration. In question is not therefore the relationship between the insurer and the victim: this is clearly non-contractual. The question is rather whether the action of one insurer against the other is contractual in nature, given the contractual relationship between insurer and insured, cq the non-contractual relationship between the insured and the victim.

Sharpston AG first gets two issues out of the way. Lithuania (both referred cases are pending in Lithuanian courts) is a signatory State to the Hague Convention on the law applicable to traffic accidents, which is left unaffected by Rome II by virtue of Article 28. However the Convention itself holds that it does not apply to recourse action and subrogation involving insurance companies. Further, a suggestion that Directive 2009/103 (relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability) includes a conflict of laws (applicable law) rule which is lex specialis vis-a-vis the Rome Regulation, was quickly dismissed. Indeed the Directive’s provisions do not indicate whatsoever that they can be stretched.

Then comes the core of the issue, the nature of the relationship underlying the claim. This, the AG suggests, is contractual. Relevant precedent referred to includes Brogsitter and OFAB. Essentially the AG puts forward an ancestry test: what is the ancestry of the action, without which the parties concerned would not be finding themselves pleading in a court of law?: she uses ‘centre of gravity’ (‘the centre of gravity of the obligation to indemnify is in the contractual obligation’); ‘rooted in’ (‘the recourse action by one insurer against the other…is rooted in the contracts of insurance’); and ‘intimately bound up’ (‘[the action] is intimately bound up with the two insurers’ contractual obligation‘). (at 62).

Incidentally, in para 20 of her Opinion the AG refers, in giving context, to the difference between Lithuanian and German law (the accidents both occurred in Germany) as regards the limitation periods for bringing a recourse action. In Rome II, limitation periods are included in Article 15 as being covered by the lex causae; ditto in Article 12 of Rome I. This pre-empts discussion on the matter for whether limitation periods are covered by lex fori (as a procedural issue) or the lex causae is otherwise not necessarily the same in all Member States.

If the CJEU confirms, preferably using the terminology of its AG, the tort /contract discussion in my view will have been helpfully clarified.


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