Archive for category Conflict of Laws /Private international law
French Supreme Court on cover by Lugano of legal fees in criminal proceedings – and the proper limits of the ordre public test.
The criminal courts at Geneva have condemned claimant, domiciled at France, to pay a criminal fine of 3,600.00 Swiss Francs, a well as 36,000.00 Swiss Francs towards defendant’s legal fees. The latter were incurred given that defendant in current legal proceedings had entered a civil claim in the Swiss criminal proceedings: a claim which the Geneva judge ordered to be settled through the Swiss courts in civil cases.
Upon fighting the request for exequatur, claimant first of all argues that the French courts’ acceptance of exequatur via the Lugano Convention is outside the scope of that Convention. The matter, he argues, is not civil or commercial seeing as the civil claim was not even entertained.
This of course brings one to the discussion on the scope of application of Lugano (and Brussels Ia) and the perennial difficulty of focusing on nature of the claim v nature of the underlying facts and exercised powers. Now, for civil claims brought before criminal courts there is not so much doubt per se, seeing inter alia that Article 7(3) Brussels Ia (Article 5(4) Lugano 2007) has a specific head of jurisdiction for such civil claims. Claimant’s point of argument here evidently is that this should not cover this particular claim seeing as the legal representation at issue turned out to be without purpose. Not being privy to the discussions that took place at the Geneva court, I evidently do not know the extent of discussion having taken place there (there is no trace of it in the Supreme Court judgment) however one assumes that the Geneva proceedings in theory could have dealt with the civil side of the litigation yet for a factual or legal reason eventually did not. Over and above the intensity of discussions being difficult to employ as a decisive criterion, one can also appreciate the difficulty in separating the civil from the criminal side of the argument made by defendant’s lawyers.
Of perhaps more general interest is the Supreme Court’s rebuke of the lower courts’ treatment of ordre public. Exequatur was granted because, the lower courts had held, the judge in the substantial proceedings has the sovereign right to establish costs under the relevant national procedure. This, it was suggested by these lower courts, shields it from ordre public scrutiny – a clear misunderstanding of the ordre public test. Part of the ordre public considerations had also been that the relative slide in the strength of the Swiss Franc v the Euro, and the generally higher costs of living in Switzerland, put the cost award in perspective. Moreover the judges found that there was insufficient information on the length of the proceedings in Switserland, and the complexity of the arguments. That, however, is exactly the kind of data which the judge in an exequatur assessment ough to gauge.
(Handbook of) European Private International Law, 2n ed. 2016, Chapter 2, Heading 22.214.171.124.
Danilina v Chernukin: how a very Russian case triggers the proper law of the contract under the Rome Convention.
A little bit of factual background is required to understand  EWHC 173 (Comm) Danilina v Chernukin. It concerns a valuable site in Central Moscow (readers of the blog and students of mine will now no longer wonder why this is being litigated in England) which is, indirectly, the subject of a Shareholder Agreement dated 31 May 2005 (the “SHA”). The issue is whether Vladimir Chernukhin, who is not named as a party to the SHA is in fact party to the SHA as a disclosed principal of Lolita Danilina, who is named as a party to the SHA. Mr. Chernukhin and Mrs. Danilina had been in a relationship; it is Mr. Chernukhin’s case that she was a named party because she was acting as his nominee or agent.
That is the purely business side of the litigation – there is also a family assets angle: Ms Danilina has a claim arising out of what she argues to have been an agreement between her and Mr. Chernukhin in 2007 for the division of their assets after their relationship had come to an end.
The latter issue is the ‘2007 Agreement’ and it is this which is of interest to the blog: Teare J at 324: Mrs. Danilina seeks to prove alleges the following, quite detailed, agreement: a) TGM would remain (as it always was) as an asset belonging to Mrs. Danilina and her alone; b) the assets accumulated between them jointly and which they regarded as family assets would be distributed between them on an effectively equal basis with: i) Mrs. Danilina retaining and/or taking those residential real property assets located within Russia, ii) Mr. Chernukhin having those residential real property assets located outside of Russia and iii) save for certain chattels such as cars and the weapon collection (which were to be owned by Mr. Chernukhin) and jewellery and artwork in Russia (which were to be owned by Mrs. Danilina), the balance of their assets would be split equally and Mrs. Danilina’s 50% share held in a trust for her benefit; c) a new structure would be required to reflect these agreements; and d) Mr. Chernukhin would be responsible for taking the necessary steps to give effect to the agreement.
Teare J starts with the bootstrap /von Munchausen: at 325: it is necessary to begin by considering what would be the governing law of the 2007 agreement, if it was made on the terms alleged by Mrs. Danilina. The reason for this is that it is submitted on behalf of Mr. Chernukhin that the agreement, if made, would be governed by Russian law, and that there are provisions of Russian law that affect the admissibility of witness testimony in proving the existence of an oral agreement. Being a contract entered into prior to 16 December 2009, the proper law of the 2007 Agreement would be determined under the Rome Convention on the law applicable to contractual obligations – not the later Rome Regulation.
Was there choice of law “expressed or demonstrated with reasonable certainty by … the circumstances of the case’ (per Article 3(1) Rome Convention? [I have included Articles 3 and 4 in relevant part below]
At 327 are cited (i) the fact that “Mr. Chernukhin had fled Russia in 2004 in an effort to make a clean break from Russian law and jurisdiction”; (ii) that Mrs. Danilina assisted him in moving to England, including by sending legal documents there; (iii) in 2007 Mr. Chernukhin was seeking English matrimonial law advice in relation to his assets, prior to his marriage to Mrs. Chernukhin. With Teare J I do not think this is sufficient to amount to a choice for the purposes of article 3. They do not amount to a positive choice of law “expressed or demonstrated with reasonable certainty.”
Consequently Article 4 is engaged.
Presumption of characteristic performance. It was submitted on behalf of Mrs. Danilina (at 328) that England is the “most closely connected” country, under the presumption in article 4(2). It is said that the characteristic performance under the agreement was to create the relevant trust structure for dividing, managing and investing the assets. The performer of these obligations was Mr. Chernukhin, who was and is resident in England. Teare J agrees: at 330: the characteristic performance of the agreement was primarily to be performed by Mr. Chernukhin. On Mrs. Danilina’s case, Mr. Chernukhin was entrusted to divide, invest and structure significant liquid and illiquid assets, of which Mrs. Danilina was in large part unaware.
Displacement of the presumption? Mrs. Danilina then submits that this presumption should not lightly be displaced.
This section discusses a core challenge to Article 4, which is the continental European but mostly EU-driven quest for predictability, with the more common law oriented search for the ‘proper’ law of the contract. In Article 4 terms (similarly under the current Article Rome I): per Samcrete Egypt Engineers v Land Rover Exports Ltd  EWCA Civ 2019, at , “unless art.4(2) is regarded as a rule of thumb which requires a preponderance of contrary connecting factors to be established before that presumption can be disregarded, the intention of the Convention is likely to be subverted.” Nonetheless, “the presumption may most easily be rebutted in those cases where the place of performance differs from the place of business of the party whose performance is characteristic of the contract” (See Bank of Baroda v Vysya Bank Ltd.  2 Lloyd’s Rep 87, 93, in the context of a bank’s place of central administration).
Teare J leans on Samcrete Egypt Engineers and rejects the suggestions made (at 329) to displace the presumption. There were that “the principal subject-matter was assets based in Russia / assets acquired using money generated in Russia and while the parties were resident in Russia.” Further, the Agreement is said to be “akin” to a divorce arrangement pursuant to the Russian Family Code, and of a relationship which occurred primarily or exclusively in Russia. Finally, the Agreement as alleged would have involved performance by both Mrs. Danilina and Mr. Chernukhin, distributing (including, where relevant, by re-registration of shares and real property) their various assets. However (at 330) ‘there are indeed some factors that might otherwise point to Russia being “most closely connected” (and other factors pointing to other jurisdictions, such as the use of Channel Islands trusts and the fact that the agreement was allegedly concluded in Zurich), these factors are not, in my judgment, sufficient to displace the presumption in article.4(2).’
Proper law of the contract is English law (discussion of the Russian oral evidence issue is made obiter at 332 ff). Tear J does signal at 331 that per Article 4(3) at the merits stage, provision may have to be made for Russian law as the lex rei sitae, for some parts of the agreement. Eventually the High Court finds on the basis of English law that there was no 2007 Agreement – although there is an issue of breach of a trust agreement and that may be litigated.
Fun with Rome.
(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 3, Heading 3.2.4, Heading 3.2.6.
Article 3 Freedom of choice
1. A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract.
3. The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law at the country which cannot be derogated from by contract, hereinafter called ‘mandatory rules`.
Article 4 Applicable law in the absence of choice
1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a separable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.
2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party’s trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.
3. Notwithstanding the provisions of paragraph 2 of this Article, to the extent that the subject matter of the contract is a right in immovable property or a right to use immovable property it shall be presumed that the contract is most closely connected with the country where the immovable property is situated.
5. Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.
Non multa, sed multum. Sovereign debt litigation in Kuhn leads to surprising final (?) curtain in Vienna.
In C-308/17 Leo Kuhn the CJEU held that Brussels Ia was not engaged for the matter is acta iure imperii. I suggested in my review of the judgment that in solely emphasising context, the Court casts the net too wide. I also emphasised that Greece’s sovereign immunity defense, lonely an argument as it may be, is a strong argument (I referred to the German approach to same): non multa sed multum.
Thank you Stephan Walter for alerting us to, and analysing the final judgment in Vienna: Greece enjoys immunity; and even if it had not (this is how I understand Stephan’s analysis – I trust he will correct me should I be wrong), the court would have declined jurisdiction given that the ‘assets held in Austria’ head of jurisdiction, was not mentioned in the particulars of claim.
Stephan clearly is not happy with the judgment: the Supreme Court not only reverses its earlier stance on immunity; it also could be argued it should be estopped as it were (my words, not Stephan’s) from disciplining a claimant’s absence of reference to residual private international law rules, given that hitherto the Supreme Court had never strayed from steering the course of Brussels Ia applying.
(Handbook of) EU Private International Law, 2nd ed. 2016, Heading 2, Heading 2.2, Heading 2.2.9.
Ashley v Jimenez: Jurisdiction upheld despite choice of court ex-EU. No locus damni, locus delicti commissi or trust jurisdiction viz EU defendant.
In  EWHC 17 (Ch) Ashley et anon v Jimenez et anon service out of jurisdiction was granted against a Dubai-based defendant, despite choice of court pro the UEA. That clause was found by Marsh CM not to apply to the agreement at issue. Jurisdiction was found on residual English PIL, which are of less relevance to this post. Forum non conveniens was rejected.
Service out of jurisdiction was however denied against the Cyprus-based (corporate) defendant in the case. Claimants had argued jurisdiction on the basis of Brussels I Recast Articles 7(2) (tort) or (6) (trust). Note Marsh CM using the acronym BRR: Brussels Recast Regulation. As I noted earlier in the week Brussels Ia is now more likely to win the day.
Claimants (“Mr Ashley” and “St James”) allege that £3 million has been misappropriated by the defendants (“Mr Jimenez” and “South Horizon”). In summary the claimants say that: (1) Mr Ashley and Mr Jimenez orally agreed in early 2008 that upon payment of the euro equivalent of £3 million, Mr Ashley would acquire, via a shareholding in Les Bordes (Cyprus) Limited, a holding of approximately 5% in the ownership of a golf course in France called Les Bordes and that the shares would be registered in the name of St James. (2) On 13 May 2008, Mr Ashley instructed his bank to transfer the requisite sum to the bank account specified by Mr Jimenez and the transfer was made. In breach of the agreement, the shares were never registered in the name of St James. (3) The agreement and/or the payment were induced by fraudulent misrepresentations made by Mr Jimenez. The claimants say that Mr Jimenez knew South Horizon did not hold the shares and was not in a position to transfer, or procure transfer, upon payment of the agreed sum and that, in representing that South Horizon held the shares, or could procure transfer, Mr Jimenez acted dishonestly. (4) In the alternative, the payment of £3 million gave rise to a Quistclose trust (on that notion, see below) because the payment was made for an agreed purpose that only permitted use of the money for securing transfer of the shares.
(At 82) qualifying strands relevant to the jurisdictional issues, are (1) representations were made by Mr Jimenez to Mr Ashley to induce him to invest in Les Bordes which he relied on; (2) an oral contract was made between Mr Jimenez and Mr Ashley in early 2008 under which Mr Ashley invested £3 million in Les Bordes; and (3) the creation of a Quistclose trust relating to the investment. Note a Quistclose trust goes back to Barclays Bank Ltd v Quistclose Investments Ltd  UKHL 4, and is a trust created where a creditor has lent money to a debtor for a particular purpose. Should the debtor use the money for any other purpose, it is held on trust for the creditor.
On Article 7(2), the High Court held that a breach of trust is properly seen as a tortious claim for the purposes of Brussels Ia. As for locus delicti commissi, the Court notes the question of where the harmful event occurred is less straightforward. Claimants rely on the Cypriot defendant, South Horizon, having paid away the investment money it received in breach of the relevant trust. That event took place in Cyprus where the bank account is based. There might be an obligation to restore the money in England, yet that does not make England the locus delicti commissi: at 128: ‘It seems to me, however, that the claimants in this case are seeking to conflate the remedy they seek with the tortious act which was paying away the investment. The obligation to make good the loss is the result of the wrong, not a separate wrong.‘
The High Court does not properly consider the locus damni strand of the claim against South Horizon. Given the test following from Universal Music, England’s qualification as locus damni given the location of the bank accounts is not straightforward yet not entirely mad, either. The Court did consider England to be the locus damni in its application of English residual rules for the claim between Ashley and Jimenez (who is domiciled in Dubai): at 101: ‘the dealings between Mr Ashley and Mr Jimenez concerning an investment of £3 million in Les Bordes took place in England in the early part of 2008. Loss was sustained in England because the payment was made by Mr Ashley from an account held in England’ (reference made to VTB capital).
On (a rare application of) Article 7(6): are any of the claims relating to the Quistclose trust claims brought against “… the trustee … of a trust … created orally and evidenced in writing” and which is domiciled in England and Wales?: Marsh CM at 129-130:
‘Article 7(6) does not assist the claimants. They need to show that there is (a) a dispute brought against a trustee of a trust (b) the trust was created orally and was evidenced in writing and (c) the claim is made in the place where the trust is domiciled. The difficulty for the claimants concerns the manner in which the trust came into being. As I have indicated previously, although the oral agreement between Mr Ashley and Mr Jimenez gives rise to the circumstances in which the Quistclose trust could come into being, there was (i) no express agreement that the investment would be held on trust and (ii) South Horizon was not a party to the agreement. The trust came into being only upon the payment being made by Mr Ashley to South Horizon at which point, and assuming South Horizon was fixed with knowledge of the agreement, the investment was held upon a restricted basis.
I also have real difficulty with the notion of the Quistclose trust having a domicile in England. It seems to me more likely that the domicile is the place of receipt of the money, because that is where the trust came into being, rather than the place from which the funds were despatched.’
(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 2, Heading 126.96.36.199.
Kokott AG in Kerr v Postnov(a): How house association meetings turn into a jurisdictional and applicable law potpourri.
Advocate General Kokott opined end of January in C-25/18 Brian Andrew Kerr v Pavlo Postnov and Natalia Postnova (let’s call the case Kerr v Postnov(a)). The case concerns the application of Brussels I Recast’s Articles 24(1) and (2) exclusive jurisdictional rules, cq the application of Article 7(1) jurisdictional rules on contracts, and applicable law consequences of same.
Incidentally, Ms Kokott’s use of ‘Brussels Ia’ instead of the Brussels I Recast Regulation adds to the growing chorus to employ Brussels Ia (lower case, no space between I and a) instead of Brussels I Recast, Brussels bis, or as recently seen at the High Court, BIR (BrusselsIRecast).
The Advocate General’s Opinion is a useful and succinct reminder of CJEU authority, suggesting the issue is acte clair really, except there are one or two specific issues (e.g. the enforcement issue, discussed below) which justify clarification.
The case concerns proceedings concerning claims for payment arising from resolutions made by an association of property owners without legal personality in connection with the management of the property in question. Mr Kerr, appellant in the proceedings before the referring court, is a manager of an association of owners of a property situated in the town of Bansko (Bulgaria). He brought proceedings before the Razlog District Court, Bulgaria against two property owners, Mr Postnov and Ms Postnova, concerning payment of contributions that were owed by them wholly or in part for the maintenance of communal parts of the building on the basis of resolutions made by the general meeting of the property owners in the period from 2013 to 2017. According to the appellant in the main proceedings, an action to secure enforcement of the claim pursued was brought with the application.
Address of the defendants used by the court at first instance is in the Republic of Ireland. (As the AG notes, whether service was properly given is relevant for the recognition of the eventual judgment; this however is not the subject of the current proceedings neither is it detailed in the file.)
Coming to the first issue: Article 24(1) requires strict and autonomous interpretation. The main proceedings have as their object the payment of outstanding contributions purportedly owed by two co-owners for the management and maintenance of the property concerned. At 34: It is thus a matter of obligations — to use the words of the referring court — arising from ownership of shares in the commonhold as rights in rem in immovable property. At 38: to be covered by 24(1) the right in question must have effect erga omnes and that the content or extent of that right is the object of the proceedings (reference ex multi to Schmidt and Komu).
Prima facie this would mean that Article 24(1) must be ruled out: at 39: in the main proceedings, the action brought by the manager is based on claims in personam of the association of owners for payment of contributions for the maintenance of communal areas of the property. The rights in rem of the defendant co-owners of the commonhold — in the form of intangible ownership shares — initially remain unaffected. However, at 40 Ms Kokott signals the enforcement issue: that action could affect the defendants’ rights in rem arising from their ownership shares, for example by restricting their powers of disposal – an assessment subject to the applicable law, which is for the referring court to make. In footnote the Advocate General suggests the potential involvement in that case of Article 8(4)’s combined actio in rem and in personam.
The case therefore illustrates the potential for engineering even in Article 24 cases: firstly, by varying the claim (the content or extent of the rights contained in Article 24 has to be the ‘object’ of the proceedings; claimant can manipulate the claim to that effect); second, the prospect of adding an enforcement claim to an otherwise contractual action. This engineering evidently clashes with the objective and forum-shopping averse interpretation of Article 24, however as I have repeatedly discussed on this blog, abusive forum shopping is a difficult call for the CJEU and indeed national courts to make.
The discussion of Article 24(2) does lead to a clear conclusion: the forum societatis is not engaged. Article 24(2) covers only proceedings which have as their object the legal validity of a decision, not proceedings which have as their object the enforcement of such decisions, like the action at issue seeking payment of contributions based on such a decision (at 44).
As for Article 7(1) forum contractus the usual Handte et al suspects feature in the Opinion as does Case 34/82 Peters Bauunternehmung. The association is joined through voluntary acquisition of an apartment together with ownership shares of the communal areas of the property (at 54): there is a ‘contract’. [Advocate General Kokott already pre-empts similar discussion in Case C‑421/18, where the Court will have to clarify whether these considerations can also be applied to a case in which a bar association is taking legal acion to assert claims for payment of fees against one of its members].
The AG makes a brief outing into Rome I to point out that Rome I has a lex societatis exception. Under the conflict-of-law rules, claims for payment made by a legal association against its members are not to be assessed on the basis of the Rome I Regulation, even though such claims are to be regarded as ‘matters relating to a contract’ within the meaning of Article 7(1) of the Brussels Ia Regulation (at 60).
However for the purposes of Article 7(1), where the CJEU to find that it is engaged, place of performance needs to be decided. If none of the default categories of Article 7(1) apply, the conflicts method kicks in and Rome I’s lex societatis exception is triggered (residual conflict of laws will determine the applicable law which in turn will determine place of obligation; see also at 74 and the reference to the Tessili rule).
Is the management activity itself is carried out for remuneration (as required per Falco Privatstiftung and also Granarolo) or at least an economic value per Cormans-Collins? The facts of the case do not clearly lay out that they are but even if that were the case (appointment of a specialist commercial party to carry out maintenance etc.), the contributions to be paid to the association by the co-owners are intended in no small part to cover taxes and duties, and not therefore to fulfil contractual obligations towards third parties which were entered into on behalf of and for the account of the association of owners (at 71). All in all, the AG opines, the non-uniform nature of these contributions leads to non-application of the service rule of Article 7(1)b and therefore a resurrection of the classic Tessili formula.
Not so acte clair perhaps after all.
(Handbook of) EU private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.6, 188.8.131.52
In Case C-18/18, Eva Glawischnig-Piesczek v Facebook, the Austrian Supreme Court has referred a ‘hate speech’ case to Luxembourg – hearing will be tomorrow, 12 February. The Case revolves around Article 15 of the E-Commerce Directive: one sentence Twitter summary comes courtesy of Tito Rendas: does Article 15 prohibit the imposition on a hosting provider (Facebook, in this case) of an obligation to remove not only notified illegal content, but also identical and similar content, at a national or worldwide level?
Mirko Brüß has more extensive analysis here. I used the case in my class with American University (my students will be at the hearing tomorrow), to illustrate the relationship between secondary and primary law, but also the art in reading EU secondary law (here: A15 which limits what can be imposed upon a provider; and the recitals of the Directive which seem to leave more leeway to the Member States; particularly in the light of the scant harmonisation of tort law in the EU). To readers of the blog the case is probably more relevant in light of the questions on territorial scope: if a duty to remove may be imposed, how wide may the order reach? It is in this respect that the case is reminiscent of the Google etc. cases.
Yet another one to look out for.
(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 184.108.40.206, Heading 220.127.116.11.5.