The CJEU’s locus damni determination in Volkswagen dismisses a US style minimum contacts rule. Like the passat, it risks picking up suits and landing them almost anywhere.

Update 26 August 2020 see Matthias Lehmann for similar as well as additional criticism here.

Update 10 July 2020 a few hours after posting: I revisited the pending, distinct reference by the Austrian Supreme Court (see Rouzbeh Moradi’s flag here) on type approval issues (which the High Court has actually dealt with as acte clair in [2020] EWHC 783 (QB), referred to here). I was hoping there might be scope in those questions for the CJEU to fill in the blanks signalled below. I fear there is not.

I earlier reviewed Sánchez-Bordona AG’ opinion in C‑343/19 Verein für Konsumenteninformation v Volkswagen. I noted then that despite attempts at seeing system in the Opinion, the ever unclearer distinction between direct and indirect aka ‘ricochet’ damage under Article 7(2) Brussels Ia is a Valhalla for reverse engineering.

The AG did not suggest a wild west of connecting factors for indirect damage (please refer to my full post for overview), instead suggesting a Universal Music style requirement of extra factors (over and above the location of damage) to establish jurisdiction. In particular he put forward a minimum contacts rule such as in US conflict of laws: at 75: ‘the defendant’s intention to sell its vehicles in the Member State whose jurisdiction is in issue (and, as far as possible, in certain districts within that State).’

The CJEU’s judgment yesterday was received as giving ‘consumers’ the right to sue Volkswagen in their state of domicile. This however is not quite correct. Firstly, the parties at issue are not ‘consumers’ at least within the meaning of European conflicts law: the suit is one in tort, not contract, let alone one that concerns a consumer contract. Further, the AG was clear and the CJEU arguably held along the same lines, that it is only if the car was purchased by a downstream (third party) buyer and the Volkswagen Dieselgate story broke after that purchase, that the damage may be considered to only then have come into existence, thus creating jurisdiction. See the CJEU at 29 ff:

29. That said, in the main proceedings, it is apparent from the documents before the Court, subject to the assessment of the facts which it is for the referring court to make, that the damage alleged by the VKI takes the form of a loss in value of the vehicles in question stemming from the difference between the price paid by the purchaser for such a vehicle and its actual value owing to the installation of software that manipulates data relating to exhaust gas emissions.

30      Consequently, while those vehicles became defective as soon as that software had been installed, the view must be taken that the damage asserted occurred only when those vehicles were purchased, as they were acquired for a price higher than their actual value.

31      Such damage, which did not exist before the purchase of the vehicle by the final purchaser who considers himself adversely affected, constitutes initial damage within the meaning of the case-law recalled in paragraph 26 of the present judgment, and not an indirect consequence of the harm initially suffered by other persons within the meaning of the case-law cited in paragraph 27 of the present judgment.

That ‘case-law cited’ is the classic lines of cases on locus damni per A7(2) BIa, with Trans Tibor as its latest expression.

The CJEU does not qualify the damage as purely financial: at 33, citing the EC’s court opinion: ‘the fact that the claim for damages is expressed in euros does not mean that the damage is purely financial.’: the car, a tangible asset, actually suffers a defect, over and above the impact on its value as an asset. That is a statement which cuts many a corner and which has relevance beyond the EU regime for all ‘money judgments’ (think of e.g. the Hague Judgments Convention). Update 10 July 2020 after initial posting: thank you Gordon Nardell QC for pointing out that the CJEU view here is at odds with the English conflicts rules (and with many other, I reckon) on characterisation of loss as pecuniary.

Predictability, which is firmly part of the Brussels Ia Regulation’s DNA, the Court holds, is secured seeing as a car manufacturer which ‘engages in unlawful tampering with vehicles sold in other Member States may reasonably expect to be sued in the courts of those States (at 36).

Finally, the Court throws consistency with Rome II in the mix, by holding at 39

Lastly, that interpretation satisfies the requirement of consistency laid down in recital 7 of the Rome II Regulation, in so far as, in accordance with Article 6(1) thereof, the place where the damage occurs in a case involving an act of unfair competition is the place where ‘competitive relations or the collective interests of consumers are, or are likely to be, affected’. An act, such as that at issue in the main proceedings, which, by being likely to affect the collective interests of consumers as a group, constitutes an act of unfair competition (judgment of 28 July 2016, Verein für Konsumenteninformation, C‑191/15, EU:C:2016:612, paragraph 42), may affect those interests in any Member State within the territory of which the defective product is purchased by consumers. Thus, under the Rome II Regulation, the place where the damage occurs is the place in which such a product is purchased (see, by analogy, judgment of 29 July 2019, Tibor-Trans, C‑451/18, EU:C:2019:635, paragraph 35).

The extent to which A6 Rome II applies to acts of unfair competition being litigated by ‘consumers’ (in the non-technical sense of the word), is however not quite clear and in my view certainly not settled by this para in the Court’s judgment.

Finally, on locus delicti commissi as I noted at the time, the AG had not in my view given a complete analysis. The CJEU is silent on it.

Not many will feel much sympathy for Volkswagen facing cluster litigation across the EU given its intention to cheat. However the rejection of a minimum contacts approach under A7(2) will have implications reaching small corporations, too. The Volkswagen ruling has many loose ends and will need distinguishing, with intention to defraud the consumer arguably a relevant criterion for distinction given the Court’s finding in para 36.

It is to be feared that many national judges will fail to see the need for distinguishing, adding to the ever expanding ripple effect of locus damni following the Court’s epic Bier judgment.

Geert.

Ps reference to the Passat in the title is of course to the VW Passat, named after the Germanic name for one of the Trade winds.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.11.2.7

 

Sánchez-Bordona AG in Volkswagen. The locus damni engine is clearly revving. Locus delicti commissi in my view left underdiscussed.

Update 8 June 2020 Matthias Lehmann flags a challenging court ruling in Germany here, which not only, as Matthias points out, is questionable from a Rome II point of view but it would seem to me, also challengeable from an EFTA free movement of services angle.

Sánchez-Bordona AG issued his opinion in C‑343/19 Verein für Konsumenteninformation v Volkswagen last Thursday. He relies heavily of course on CJEU authority almost all of which is reviewed on the blog – with Tibor Trans making a star appearance given its recent nature as well as its focus, like in Volkswagen, on financial damage.

Not long after, yesterday, the High Court in England in [2020] EWHC 783 (QB) held on a first preliminary issue in the class action suit pending there. Matthias Weller has already reviewed that judgment here and Matthias Lehmann adds a slightly different focus (on mutual recognition of administrative decisions) here. In that judgment, a lex causae argument on the binding authority of a German public body’s decision was advanced by claimants in subsidiary fashion. This was not entertained by the High Court for it had already found a binding effect on other grounds. Incidentally, the nature and timing of the High Court’s ruling suggest that there is no contestation of jurisdiction being brought forward by Volkswagen – I am enquiring with counsel in the case. Update 10 April 2020 VW are indeed not constesting jurisdiction in the UK.

Returning to CJEU C-343/19, though: Raphael de Barros Fritz has analysis here and I am happy to refer, for timing for the release of my own ponderings on the Opinion suffered from a Friday afternoon call on injunctive relief and jurisdiction. A few additional notes of interest and subject to further pondering:

Firstly, the AG is too kind when he suggests that the Brussels Convention had left open the (now) Article 7(2) question. The Court’s locus damni /locus delicti commissi distinction was not at all required by then Article 5(3). Much as the distinction may have been clear to make in the Bier case itself, it was not at all advanced by the text of the Brussels Convention. Many of us have been pointing out the fallacy, including Cruz Villalon AG in his Opinion in Pez Hejduk, case C-441/13 which I reviewed here and Szpunar AG in his Opinion in Universal Music reviewed here. As Sánchez-Bordona AG points out in Volkswagen, the distinction has become a paradigm (at 2); ‘obstinance’ might also be a good word for it. The result of the CJEU refusing formally to reverse its Bier distinction, means itself and the national courts have been having to conjure up all sorts of distinguishing to respect both the Handlungsort /Erfolgort distinction, and the predictability of Brussels Ia as well as the need to interpret special jurisdictional rules restrictively.

Raphael makes a most valiant effort to do justice to the AG’s attempt at systemisation, yet the reality remains that most certainly on the locus damni front, the ever unclearer distinction between direct and indirect aka ‘ricochet’ damage is a Valhalla for reverse engineering – and we have not even thrown Lazar into the mix.

The AG suggests that not only the first purchasers of the vehicle may be direct victims, but also downstream purchasers of second-hand vehicles, however in each case constrained (if I understand the Opinion properly) to those purchasers, first or not, where the loss of value of the vehicles did not become a reality until the manipulation of the engines was made public: at 41; ‘ The loss of value of the vehicles did not become a reality until the manipulation of the engines was made public. In some instances, the applicants may be end users who obtained the vehicle from another, previous buyer; however, the latter did not experience any loss because, at that time, the damage was latent and was not disclosed until later when it affected the then owner. Therefore, it is not possible to describe the damage as being passed on from the original buyers to successive buyers.’

Further, given that the location of the vehicle is unforeseeable, the Advocate General considers that the place where the damage occurred is the place where that transaction was concluded, pursuant to which the product became part of the assets of the person concerned and caused the damage. However even for these cases other elements (per Universal Music) will have to be shown to avoid forum shopping and for these other elements, the AG suggests in particular a minimum contacts rule such as in US conflict of laws: at 75: ‘the defendant’s intention to sell its vehicles in the Member State whose jurisdiction is in issue (and, as far as possible, in certain districts within that State).’

On locus delicti commissi, the AG suggests at 34 that the event giving rise to the damage in this case consists of the installation, during the vehicle manufacturing process, of software which alters the vehicle’s emissions data. I do not think that is the only possible Handlungsort: other events in the Dieselgate chain arguably may qualify as Handlungsort, too: the executive decision to go ahead with the program, for instance. Or the regulatory steps (including type approval under EU law such as discussed in [2020] EWHC 783 (QB), above; or other steps required under EU or national law) needed to market the product in the country.

The last words on this Opinion have far from been said.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.11.2.7