Tag: applicable law

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Infrastructure Services Luxembourg v Spain, this time in the High Court. On the enforcement of ECT ICSID awards, foreign sovereign immunity, Achmea etc.

Update 26 01 2024 as Fraser LJ notes in Operafund Eco-Invest SICAV PLC & Anor v Kingdom of Spain (Re Arbitration (International Investment Disputes) Act 1966) [2024] EWHC 82 (Comm), Spain was refused permission to appeal by him but then obtained it directly from the Court of Appeal itself. That appeal will be heard on 24 June 2024.

Update 30 06 2023 further analysis by David Collins now here.

Infrastructure Services Luxembourg SARL ea v Kingdom of Spain [2023] EWHC 1226 (Comm) adds to the Smorgasbord of ECT ICSID (and other) award enforcement issues which I also signalled here, and links of course to CJEU Achmea, Komstroy and the like. (Note this point does not discuss the disclosure issues raised).

The Spanish Government is of course duty bound to fight all these awards (around 60 cases have been brought against it), and it is fighting the awards on many fronts (first by advocating for a different interpretation of the FET – Fair and Equitable Treatment standard in the ECT, further by trying internal ICSID or other review processes; subsequently by trying to have the awards annulled on a variety of grounds in the courts in ordinary of the curial seat; finally by resisting enforcement in the many jurisdictions where investors try to have the awards enforced.

The case at issue, in which Spain argues against registration of the relevant ICSID award, [56] deals with adjudicative jurisdiction: not jurisdiction for enforcement (compare the Australian decision in [2023] HCA 11, were recognition and enforcement were granted, but not execution; update 30 January 2024 on that same distinction between recognition, enforcement and execution of awards and the application of state immunity to the execution of ICSID awards in the light of Border Timbers v Zimbabwe [2024] EWHC 58 (Comm) see Ugljesa Grusic here). Fraser J first discusses Spain’s sovereign immunity argument, aptly summarising [57] ff the CJEU authority in Achmea and Komstroy. [67] he holds

Spain argued before me the questions of EU law set out above in a manner that elevated the status of these decisions of the CJEU, almost as though they were decisions of an over-arching international court that must bind all nations. For example, Spain referred to what it called “the international law aspects of the EU legal order” and also stated in its supporting documents for the application that “EU law is an inextricable part of international law.” There is no doubt that the law of the EU is correctly described as being international law, as self-evidently it governs relations between Member States which have collectively entered into international treaty obligations under the EU Treaties including the TFEU. Those treaty obligations have international effect and the institutions of the EU have primacy over domestic organs in certain important respects. However, as the claimants point out, this argument ignores the other aspects of international law that requires observance of existing express treaty obligations, and it also ignores the effect of Spain having pre-existing treaty obligations under other treaties such as the ICSID Convention and the ECT. The EU treaties do not trump these, nor do they override the relevant domestic law mechanism in the United Kingdom.

That is different for the UKSC authority in Micula. The judge here [79] concludes his recollection of the Micula principle with the observation that

The availability of defences to a foreign state faced with an application to register an arbitral award under the ICSID Convention is far narrower than those that would be available if an award were being enforced under the New York Convention.

[89] ff he further explains that the narrow set of grounds for refusal (immunity and, although he does not think these actually qualify as exception, lack of a written agreement to arbitrate and the validity of the Award itself) of an ICSID award, left open by the Supreme Court in Micula, and rejects them all. He does in my view considers this set too narrowly.

His conclusion [80]:

with the greatest of respect to the CJEU, it is not the ultimate arbiter under the ICSID Convention, nor under the ECT, and the difficulties in which Spain finds itself does not assist it here, given the United Kingdom’s own treaty obligations under the ICSID Convention, which are owed to all signatories of the ICSID Convention. The domestic mechanism established under the 1966 Act was enacted specifically in order to comply with these.

Obiter [81] ff he suggests the VCLT would lead to the same result, concluding on that point [87]

I consider that there is a clear conflict between the EU Treaties, as their application to international arbitration involving Member States has been decided by the CJEU and explained by Mr Baloch, and each (or more accurately both) of the ECT or the ICSID Convention. If intra-EU arbitration is contrary to EU law principles governing either primacy of the CJEU or EU principles generally, then this must (and can only) arise from the EU Treaties themselves. I cannot see how it can arise in any other way. Therefore, if that is the case, there must be a conflict. That conflict does not mean that the latter EU law principles as enunciated by the CJEU remove Spain from the ambit and scope of the ECT, or from the ICSID Convention. Spain’s arguments, as either amplified or further explained in submissions (including a letter to the court after distribution of the draft judgment) was that there was a conflict between articles 267 and 344 of the TFEU on the one hand, and article 26 of the ECT on the other. In those circumstances, Spain maintained that this conflict should be resolved in favour of the articles of the TFEU by what it called “the treaty conflict rule of EU primacy”. However, in my judgment that is simply a different way of Spain maintaining that both the ECT and the ICSID Convention – both of which clearly have signatories who are not Member States of the EU – should be interpreted by ignoring their clear terms regarding dispute resolution, in preference to granting the decisions of the CJEU complete primacy over those pre-existing treaty obligations of all states. I do not accept that is the correct approach, and I do not consider that such a result can be achieved by applying international law principles to conflicting treaty provisions.

His ‘overall conclusions’ on the EU law questions, are [88]

Question 1. Achmea arose out of the BIT between the Slovak Republic and Netherlands. Does Achmea‘s reasoning also apply to the ECT?

Answer: The reasoning in Achmea probably does also apply to the ECT, in terms of the applicability of EU law, as considered by the CJEU. This means that the CJEU would be most likely to reach the same conclusion on any EU law question referred to it under the ECT as it did under the BIT in the Achmea case. However, these are matters of EU law only. The conclusion does not “apply to the ECT” in the sense contended for by Spain. That conclusion is a purely EU law issue.

Question 2. Do TFEU Articles 267 and 344, as interpreted by the CJEU, have primacy over Article 26 of the ECT as a matter of international law?

Answer: No, they do not. Even if they did, this would go to the jurisdiction of the ICSID arbitral tribunal, and the ICSID Convention makes clear that this is a matter that is reserved to, and can only be resolved by, the procedure set down in the Convention, and not domestic law. This is helpfully stated in the commentary by Professor Schreuer on Article 54 which stated that “A domestic court or authority before which recognition and enforcement is sought is restricted to ascertaining the award’s authenticity. It may not re-examine the ICSID tribunal’s jurisdiction. It may not re-examine the award on the merits. Nor may it examine the fairness and propriety of the proceedings before the ICSID tribunal.” This passage was expressly approved by the Supreme Court in Micula at [68] which definitively states the approach under English law to this issue.

The answers to the series of questions that followed at sub-issues 2(a) to (e) are therefore of academic interest only and need not be addressed on this application.

[111] ff upon claimant’s appeal to these cases, the judge considers many of the cases I refer to here, and finds them largely to plea in claimant’s favour.

A stinging rebuke follows [122-123]

What Spain’s main EU law argument amounts to is this, at its heart. Spain accepts that it is a party to the ICSID Convention; it accepts that it is a party to the ECT. It freely acceded to both of those treaties. There is no doubt that the ECT expressly incorporates the ICSID arbitration provisions within it, adopting international arbitration to resolve disputes between Contracting Parties (which includes Spain) and private international investors, who are resident or domiciled in other countries. Yet Spain relies upon its membership of the EU, the EU Treaties that created that union, and the strictures imposed on those Member States by the CJEU’s rulings on the EU Treaties. These rulings have determined – again, outlined here only in summary – that there can be no valid arbitration provision adopted by Member States which grants jurisdiction to any arbitral tribunal that may touch upon matters of EU law. This is due to the primacy of the CJEU to determine all such EU law matters. Therefore Spain argues that there can be no jurisdiction, even for a properly constituted ICSID arbitral tribunal, to determine any dispute under the ECT between Spain and an investor from any other state. This is the case regardless of whether that investor is within, or without, another Member State, although it runs both lines of argument in the alternative. It also argues that any ICSID award, such as the Award in this case, must therefore have been reached without jurisdiction and so cannot be a valid award; and/or that it has immunity from recognition in the courts of the United Kingdom for what may broadly be described as the same, or similar, reasons.

The logical consequence (or extension) of this argument for it to be correct is that these decisions of the CJEU must be taken as binding all the parties to the ECT and to the ICSID Convention – whether Member States of the EU or otherwise – and take priority over all other treaty obligations entered into by any other state, even those obligations assumed by treaty prior to the creation of the EU. What this would mean, were Spain to be correct (and I am confident that it is not correct) is that by reason of the terms of the EU Treaties, and by reason of the rulings of the CJEU and its supremacy over EU law matters, the EU and the CJEU would have unilaterally changed – if not removed – all the existing treaty obligations of all the Contracting Parties to the ICSID Convention. I know of no framework of international law in which such a position could be correct. I would go further and observe that it simply cannot be correct. It would mean that the existing treaty obligations of any Contracting Party to the ICSID Convention would have been changed, without any intention or involvement on the part of that Contracting Party, a sovereign nation, as a result of rulings by the CJEU. That is not a conventional analysis of how international obligations work, and I reject Spain’s arguments. This completes my consideration of what I consider is the longer route.

I myself have argued, based on the ECT’s travaux, that the applicable law clause of Article 26 ECT includes the application of EU (State Aid) law and must be so applied by arbitration Panels applying the ECT. However we are yet to hear from the Panel in that particular case.  I would suggest that is a neater way to go about the issue.

Geert.

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Transworld Payment Solutions: consideration of applicable law under Rome II for deceit, conspiracy, equitable wrongs

I last updated the draft for this post in November….I am hoping somewhat to catch up with posts this week.

In Transworld Payment Solutions U.K. Ltd, Re [2022] EWHC 2742 (Ch) Freedman J refused an application to set aside an order to serve out of jurisdiction. Claimants’ case is that the E&W proceedings arise out of an alleged “VAT carousel fraud”, carried out in England and Wales, by English and Welsh companies. There are concurrent Curaçao proceedings.

Defendants raise a forum non conveniens jurisdictional defence. They submit that the Curaçao court is presently seised as to the issue as to whether the companies were effectively parties to a number of settlement agreements, and the effect of the same.  These Settlement Agreements are subject to Curaçao law and contain a Curaçao jurisdiction clause (which is not exclusive).  They also submit that the fraud claims will be determined as part of the applications for negative declarations in the Curaçao Proceedings.  The Claimants dispute that the fraud claims or the full scope of the fraud claims will be determined in the Curaçao Proceedings.

There are significant areas of dispute between the parties as regards what is in issue in the Curaçao Proceedings. The issue that is of most interest to the blog, is the consideration of applicable law under Rome II. [79] Freedman J notes “VTB [VTB Capital Plc v Nutritek International Corp [2013] UKSC 5] ,was a case where English law (used as a shorthand to refer to the law of England and Wales) was the proper law of the tort, but where the majority of the court nonetheless stayed the action in favour of the matter being more appropriately litigated in Russia.”

A first issue is the catchment area of Rome II’s ‘non-contractual obligations’, to typically common law equitable wrongs including dishonestly assisting breach of trust/fiduciary duty. [83] the judge holds with reference to Dicey, Morris and Collins 16th Ed. that they likely do. [84] The most likely lex causae following Rome II is English law and  ‘(I)t seems unlikely that Article 4(3) would apply given the closer connection of any tort or delict with England and Wales rather than with Curaçao or any other country. ‘

The issues will be further discussed at trial and one imagines both Rome I and Rome II will return there. But for now, jurisdiction is going ahead.

Geert.

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Quite the song and dance. Dutch TikTok class action passes jurisdictional hurdle at first instance, cutting many a((n) appealable) corner in the process.

Update 17 January 2024 see ECLI:NL:RBAMS:2023:6694 for findings ia on applicable law held under Rome I and Rome II.

I reported earlier on the ongoing collective claim against TikTok here. Thank you Xandra Kramer and Eduardo Silva de Freitas for signalling and discussing the first instance jurisdictional finding. I note already that the Court [5.28] has refused interim permission to appeal on the jurisdictional finding (as in i.a. the applicable law issue in Airbus). [5.22] it also refused a preliminary reference to the CJEU even though my concise discussion below already shows that more is at play here than the court has made out. TikTok will now first have to argue the case on the merits to then (presumably) appealing both substance and jurisdictional finding.

As I flagged earlier and as Xandra and Eduardo discuss, the issue here is firstly the relationship between GDPR and Brussels Ia at the jurisdictional level: I discuss that in this paper. Against TikTok Ireland, jurisdiction is established on the basis of A80 GDPR, with no further discussion of A79 (even if A80 partially refers to A79 for the action it establishes).

In my view the court quite carelessly muddles the various concepts used in A79-80, all too easily dismisses ia CJEU Schrems, does not clearly distinguish between assignment, subrogation, mandate etc., and certainly does not correctly delineate the authority which the collective organisations might have under the GDPR: for it is not at all clear that this authority, beyond injunctive relief,  includes a (collective) claim for damages.

[5.13] the court already announces that it may not in fact have jurisdiction for all individuals who are no longer habitually resident in The Netherlands, a concession which in my view in fact goes towards undermining its own reasoning.

[5.14] ff the court then reviews A4 and 7(2) BIa, as a supplementary jurisdictional ground for the GDPR related claims and as a stand-alone ground for the non-GDPR related claims. The court’s decision to apply CJEU Wikingerhof as leading to forum delicti and not forum contractus is in my view optimistic, and surely if A7(2) is in play then the CJEU’s authority ia in Schrems is, too. Yet the court [5.17] quite happily assimilates the harmed individuals’ COMI etc. with the collective organisation.

[5.19-20] the court summarily accepts jurisdiction against the other (non-EU) TikTok entities on the basis of Dutch residual rules for related cases.

Jurisdictional issues will most definitely return upon eventual appeal.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.8.2.5.

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The Dutch MH17 judgment and the conflict of laws. On civil claims anchored to criminal suits, and the application of Article 4(3) Rome II’s escape clause.

Their relevance is of course insignificant in light of the dreadful events that  triggered the judgments, however I thought I would flag the private international law elements in this week’s four Dutch judgments following the criminal prosecution of the suspects (now culprits) in the downing of MH17.

The judgment against Mr Pulatov was the  only one to respond to defence arguments actually made: he was the only one to have been represented (the other judgments were held in absentia). The judges extrapolate his arguments to the  other defendants to ensure some kind of proper representation, however they also explore further elements not raised by Mr Pulatov in the other judgments. This includes precisely the private international law elements for, it seems, no private claim was attached to the prosecution of Mr Pulatov while it was against the other defendants.

In this post I take the judgment against Mr Dubinskiy as the relevant text (structure and content of the other 2 judgments are essentially the same).

[12.4.1] discusses the possibility of judging the civil leg of a criminal suit. That the crimes could be prosecuted in The Netherlands is established on the basis of international criminal law of course, which is not the area of this blog. Jurisdiction for the civil leg is justified by reference to this being accepted international practice. Support (not: legal basis per se) is found by the court in Article 7(3) Brussels Ia:

A person domiciled in a Member State may be sued in another Member State:

as regards a civil claim for damages or restitution which is based on an act giving rise to criminal proceedings, in the court seised of those proceedings, to the extent that that court has jurisdiction under its own law to entertain civil proceedings;

and in the similar regime under the Lugano Convention. The court rejects a potential (this judgment as noted was issued in absentia) lis pendens argument vis-a-vis proceedings  in the United States. The court remarks that these judgments had already been issued before the Dutch criminal prosecution was initiated; that therefore there are no concurrent proceedings unto which a lis pendens argument could be raised; and that the US judgments reached the same conclusion.

Res judicata of the US judgments is dismissed as an element which would impact the Dutch judgments at this stage. The court does point out that res judicata may return at the enforcement stage of the damages part of the judgments, in that the victims will not be entitled to double compensation. Note that the US judgments included punitive damages which as readers will know is also a complicating factor for enforcement in the EU.

At 12.14.2 the court then turns to applicable law, for which it of course applies Rome II. With reference to CJEU C-350/14 Lazar, it dismisses the ‘extraordinary suffering’ of the relatives of the victims as ‘indirect damage’ under Rome II, instead exclusively taking the direct damage (the passing away) of the victims on Ukrainian territory as determinant for locus damni.

Dutch law is held not to be ‘manifestly more closely connected’ per A4(3) Rome II, despite the majority of the victims being Dutch. The court in this respect refers firstly to the link with Ukraine not being accidental (such as might be the case in ‘ordinary’ mass claims) but rather directly linked to the hostilities in Ukraine), moreover to the need to guard what it calls the ‘internal harmony’ of the judgment seeing as there are also non-Dutch relatives involved. This I find a touch unconvincing, particularly seeing as the court itself in the same para, with reference to Jan von Hein in Callies’ 2nd ed. of the Rome Regulations commentary, refers to the need to consider A4(3)’s escape clause individually, not collectively.

Geert.

Links to all 4 judgments:

https://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:RBDHA:2022:12219

https://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:RBDHA:2022:12218

https://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:RBDHA:2022:12217

https://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:RBDHA:2022:12216

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Sweden v Serwin. (Inter alia) on lex causae for (alleged) fiduciary duty and Rome II.

Kingdom of Sweden v Serwin & Ors [2022] EWHC 2706 (Comm) concerns an attempt by Sweden to gain compensation of a number of defendants whom it alleges were parties to a substantial fraud.  The fraud resulted in the misappropriation of in excess of €115m from the pension saving accounts of some 46,222 Swedish pension savers.

I may have to think one or two things through however I wanted to collect my initial thoughts at any rate.

Of note is that the application was one for summary judgment and that quite a few of the respondents did not file an acknowledgment of service or a defence. However, Sweden obtained permission from the court to obtain summary judgment on the merits even against them, rather than entering judgment in default (ia because that makes enforcement more straightforward). Other defendants are serving prison sentences in Sweden and they did enter a defence.

I do not want to turn this post into a banking and finance one however some background is required: [20] ff

The Swedish pension system has various types of pension provision, including a compulsory premium pension (PPM), in which a percentage of a pension saver’s earnings is put into an account, which is invested in investment funds selected by the pension saver from an online platform that the Swedish Pension Authority (SPA) maintains. Each pension saver has a PPM account. Among the investments which might be made were investments in so-called UCITS funds where these had been approved by the Swedish Financial Supervisory Authority (SFSA). UCITS funds are those meeting the requirements of the Undertakings for Collective Investment in Transferable Securities Directive 209/65/EC.

A company that wished to participate in the PPM was required to
enter into a cooperation agreement with the SPA. This case arises from two UCITS funds which were listed on the PPM online platform:

i)            the Optimus High Yield Fund (Optimus), managed by Optimus Fonder which entered into a co-operation agreement with the SPA on 26 March 2012; and

ii)          the Falcon Funds SICA V plc (Falcon) which entered into a co-operation agreement with the SPA in relation to three funders under its management.

The events concerning these two separate funds have been described in the evidence as the Optimus phase and the Falcon phase..

There was consensus ([38]) that the law applicable to the Swedish claims so far as they concerned the Optimus phase was Swedish law, whether by virtue of Article 4(1) or (3) Rome II. That Sweden’s claims relating to the Optimus phase were barred by the doctrine of res judicata, merger, cause of action estoppel or the allied doctrine in Henderson v Henderson, was dismissed by Foxton J [44].

Falcon then was incorporated and authorised by the Maltese Financial Services Authority as a UCITS fund on 22 November 2013. Sweden’s summary judgment claim in relation to the Falcon phase argued that its claims in delict and for breach of fiduciary duty relating to that phase are governed by Maltese law and not Swedish law.

As far as the delict issue is concerned (misappropriation), application of A4(2)  to some of the defendants was clear, and Sweden argued application of A4(1) for the remainder, seemingly arguing (judgment is a bit unclear on this point) that the damage was suffered in Malta when funds held in Falcon were applied to the various classes of loss-making investments.  Reference was made by counsel and judge to Dicey 16th ed. 35-027: “in misappropriation cases … it seems appropriate to locate damage at the place where an asset … is taken from the control of the claimant or another person with whom the claimant has a relationship” – the judge held that it is strongly arguable that this happened when Sweden’s funds became subject to the control of Falcon and the powers of its directors or those operating behind the scenes; the judge seems to locate this in Sweden, not Malta, and to some degree it does not matter for with reference ia to Avonwick and reasons listed [81] it is held that A4(3) arguably is engaged to make the lex causae Swedish law.

[86] reference is again made to Dicey for the applicable law issue as far as breach of fiduciary duties is concerned: Dicey, Morris & Collins [36-069]-[36-070]:

i)                 If equitable obligations of a fiduciary character arise in the context of a contractual relationship, there is a strong argument that the law applicable to the parties’ contractual relationship under Rome I determines whether a fiduciary relationship exists and the nature and content of the duties imposed.

ii)               If, however, the equitable obligations are characterised as incidents of a company law relationship rather than as “contractual”, common law principles determine the applicable law ( company law matters are excluded from Rome I and Rome II).

iii)             If a fiduciary duty arises where the parties were not in a prior relationship, such as in the case of a recipient of trust property, then the “better view” is that the obligation is non- contractual in nature and falls within the ambit of Rome II.

Unlike Sweden, the judge holds there are strong arguments that Swedish law applies, by reference it seems to Dicey, above, i) and with the ‘anchor’ agreement being the one by which Falcon becomes eligible to received PPM funds. Rule ii) seems to be moved aside by the judge here, and at any rate the extent of that rule is not clear-cut (see the CJEU itself recently). It is clear and it was correct to hold that the discussion is not one for summary judgment material.

An interesting final, obiter point comes [91] ff re the ‘reflective loss’ rule (a shareholder (and some others) cannot claim for a fall in the value of their holdings due to loss suffered by the company, if and when the company has a cause of action against the same wrongdoer) under Maltese law. Falcon itself is currently asserting claims against some of the alleged wrongdoers in relation to those same misappropriations, however Sweden argues an exception to that rule on the basis of Maltese expert evidence that was not considered to be robust enough for the summary judgment stage.

I wonder though whether the suggested relevance of the reflective loss rule, does not serve as ammunition for the suggestion that Rome I and II’s corporate carve-out is engaged viz the breach of fiduciary duties claim. For is the DNA of the rule not one of clear lex incorporationis?

To be further pondered.

Geert.

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Airbus Investors Recovery v Airbus. Rechtbank Amsterdam unconvincingly on applicable law under Rome II in investor suits.

The blog is back from summer recess with a post on Airbus Investors Recovery Limited v Airbus SE, where the first instance court at Amsterdam by way of preliminary judgment deals with the law applicable to an investor suit. Claimant has had the investment claims of a number of Airbus investors assigned to it. The core of the claim is that Airbus has tortiously caused damage to the investors in both the act, and in the correspondence leading to, and after, settlement with various financial authorities following allegations of corruption in securing aircraft orders. 

Oddly, no reference at all is made to Petrobas, despite the issues there being similar – perhaps the court in Airbus rejected relevance of the Petrobas decision for that case was held prior to CJEU Vereniging voor Effectenbezitters (VVE v BP).

I flagged many of the issues at issue in the judgment, in my post on applicable law which followed the jurisdictional discussion by the CJEU in VVE v BP.

The judgment is in Dutch of course however non-Dutch speakers may refer to it anyway, for the extract of Airbus’ choice of law provisions in the 2019 annual accounts [2.6]. This is relevant with a view to the discussion on transparency obligations following CJEU VVE v BP. 

The court, and one assumes parties were in agreement for the issue is not discussed, first of all assumes the liability is non-contractual. I continue to be of the view that this need not necessarily be the case. Focusing the discussion on Rome II therefore, the court also accepts readily that the lex societas carve-out of Rome II does not apply (reference is made [5.3] to CJEU Treuhand). Parties are in agreement [5.6] that for Dutch investors, Dutch law applies per Article 4(2) Rome I (shared habitual residence).

[5.10] Airbus absolutely correctly in my view insist that the CJEU’s Brussels Ia application in VVE must not simply be extrapolated to the applicable law issues at stake here. The court essentially disagrees ([5.10] in fine) and in my view it is wrong to do so.

It then [5.111], not entirely convincingly in my view, dismisses application of Article 4(1), holding that this Article in its view always leads to two applicable laws in each investor-Airbus relationship: that of the market in which the shares were bought (which will have subjected the sales to information requirements), always accompanied by Dutch law for that is where in any event listing information needed to be given.

Having ruled out A4(1), it settles for Dutch law under Article 4(3) as the law of the place of the seat of the corporation that issues financial instruments, largely citing predictability. I am not convinced.

Reference to the CJEU, requested by Airbus, is dismissed, as is [5.17] immediate appeal against the applicable law finding. Airbus will no doubt appeal the final judgment to review the issue of applicable law, too. I would suggest they have plenty of reason to do so.

Geert.

EU Private International Law, 3rd ed. 2021, Chapters 2 and 4.

 

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The CJEU confirms a corporation’s general duty of care is not caught by the corporate carve-out. Judgment in ZK v BMA (Peeters Gatzen suit) impacts on business and human rights litigation, too.

The CJEU a little while back held in C‑498/20 ZK v BMA on the applicable law for the Dutch ‘Peeters Gatzen’ suit, for which I reviewed the AG Opinion here. The suit is  a tortious suit brought by a liquidator. In Nk v BNP Paribas the CJEU held at the jurisdictional level it is covered by Brussels Ia, not by the Insolvency Regulation.

A first issue of note, which I discuss at some length in my earlier post, is whether the liability is carved-out from Rome II as a result of the lex societatis provision. The CJEU confirms the AG’s contextual analysis, without repeating his general criterion, emphasises the need for restrictive interpretation, and specifically for the duty of care holds that liability resulting from a duty of care of a corporation’s bodies and the outside world, is covered by Rome II. This is important for business and human rights litigation, too: [55]

Pour ce qui concerne spécifiquement le manquement au devoir de diligence en cause au principal, il convient de distinguer selon qu’il s’agit du devoir spécifique de diligence découlant de la relation entre l’organe et la société, qui ne relève pas du champ d’application matériel du règlement Rome II, ou du devoir général de diligence  erga omnes, qui en relève. Il appartient à la seule juridiction de renvoi de l’apprécier.

The referring judge will have to decide whether the case engages the duty of care vis-a-vis the wider community (including the collectivity of creditors) however it would seem most likely that it does. If it does, locus damni is held, confirming the AG view, to be The Netherlands if the referring judge finds that the insolvent corporation’s seat is based there. The financial damage with the creditors is indirect only and does not establish jurisdiction.

[44] Should a judge decide that they do not have jurisdiction over the main claim, they also and necessarily have to relinquish jurisdiction over the warranty /guarantee claim against a third party under A8(2) BIa. CJEU Sovag is referred to in support.

Geert.

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Abu Dhabi Commercial Bank v Shetty. Rome II applicable law for fraud, misrepresentation, instructs forum non conveniens stay.

Abu Dhabi Commercial Bank Pjsc v Shetty & Ors [2022] EWHC 529 (Comm) engages Rome II by way of the applicable law to the claim playing a role in the forum non conveniens challenge. (Compare BRG Noal v Kowski for a similar discussion under Rome I). The case confirms the importance of retained Rome I and II discussion. The stage is set at [7]

at the heart of the jurisdiction challenge is an assertion that England is manifestly not the most suitable forum for the resolution of this dispute which all defendants maintain should be resolved by the UAE courts. Unsurprisingly, ADCB places significant reliance for its case that England is the most suitable forum for resolution of this dispute on the fact that Plc was a FTSE 100 quoted company, that the contracts by which the two most important of the Core Facilities were given contractual effect (the Syndicated Facility Agreement and the Club Facility Agreement) were drafted and completed in London by a prominent London law firm and were subject to London arbitration clauses and on its contention that England is the governing law of the dispute. Equally unsurprisingly the defendants emphasise that Plc was a holding company that carried on no active business activity, that the activity in London was essentially administrative in nature, that the lending which it is alleged lies at the heart of the scheme was lending by ADCB (a UAE registered entity trading in the UAE) to entities within the Group including principally Healthcare, all of which were based elsewhere than England and Wales. They maintain that if what is alleged is true then this was from first to last a conspiracy that was conceived and carried into effect in the UAE. They maintain that the governing law is beyond argument UAE law.

I shall limit the post to the Rome II element: Pelling J discusses this [64] ff, with the core element [68-69]:

the damage occurred when a UAE based company drew down against or otherwise benefitted from the Core Facilities offered by a UAE based bank. …ADCB … ultimately acted upon the representations in Abu Dhabi, from where the relevant loan funds were drawn down by NMC Healthcare“.

In the case of a misrepresentation or fraud, the locus damni is held to be the place where that misrepresentation is acted upon. UAE law as lex causae is in fact also and primarily confirmed by A4(2) Rome II: joint place of habitual residence, held [71] to be the UAE. Application of the A4(3) escape clause is dismissed [77], and a passing reference to a potential for A12 Rome II’s culpa in contrahendo leading to English law as the lex contractus, is summarily dismissed [78].

A stay is granted.

Geert.

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BRG NOAL v Kowski. A debatable applicable law consideration under A4 Rome I decides a forum non stay.

BRG NOAL GP SARL & Anor v Kowski & Anor [2022] EWHC 867 (Ch) continues the current trend of forum non conveniens applications galore, following Brexit. In the case at issue, with Luxembourg suggested as the appropriate forum, applicable law determination, under (retained) Rome I’s ‘characteristic performance’ rule plays a core role.

Applicable law needs to be determined essentially viz an undertaking as I understand it, by a, validly removed, investment fund General Partner, not to torpedo the subsequent orderly continuation of the fund. The core commitment reads

“I, [name], hereby acknowledge that [NOAL GP] is the managing general partner (“General partner”) of [the Fund] with effect from 27 August 2021 and unconditionally and irrevocably undertake (a) not to assert otherwise, or to induce or procure an assertion to the contrary or otherwise challenge or question the validity of its appointment or induce or produce such challenge or question, in any applicable forum and (b) to cooperate with and assist the General Partner in completing a full, orderly and timely transfer of the control of the Partnership and all of its assets and any obligations to the General Partner”.

Claimant [57] suggests the specific Undertaking in and of itself meets the CJEU Handte definition of a stand alone contractual obligation, however Smith J does not specifically hold on this for in her view even if this were correct, the overall contractual construction would have an impact on the applicable law consideration, seeing as in her view:

no choice of law was made; no default ‘passe partout’ contract as listed in A4(1) Rome I applies; A4(2) Rome I’s ‘characteristic performance’ test does not lead to an answer ([61]: there is no ‘characteristic performance’] and at any rate even if there were, the judge would have applied A4(3)’s escape clause to lead to Luxembourg law; and the ‘proper law of the contract’ per A4(4) Rome I ‘clearly’ [63-64] leads to Luxembourgish law.

In conclusion, a stay is ordered and the forum non application is successful. In my view the judge jumped too easily to Articles 4(3) and (4), denying Article 4(2)’s or even Article 3 choice of law’s effet utile. It is not unusual for judges to let their predetermination to apply A4(3) and /or (4) determine their A4(2) search for a lex contractus. Yet that frequency does not make the judgment right.

Geert.

EU Private International Law, 3rd ed, 2021, Heading 3.2.6.2.

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Clarke v Kalecinski. On rules of safety and conduct under Rome II, but also on the implications of marketing language for duty of care.

Update 20 April 2022 Daniel Clarke reviews the issue of proof of foreign law here.

Clarke v Kalecinski & Ors [2022] EWHC 488 (QB) concerns a claim for damages for personal injury sustained during cosmetic surgery undergone by claimant on 7 January 2015. Claims is against the surgeon (domiciled and habitually resident in Poland; but also registered with the UK General Medical Council) who performed the breast and thigh procedures in Poland, and against the Clinic (a company incorporated in Poland in which  the surgeon and his wife are the sole shareholders and directors), where the operations were carried out and she received pre-and post-operative treatment. Claimant also sues the insurer of the Clinic.

Jurisdiction is not disputed. Both surgeon and clinic are being sued under the consumer title of Brussels Ia. The insurance company is being sued under CJEU Odenbreit: subject to the applicable law of the tort and the existence under same of a direct right of action against an insurer, section 3 BIa gives claimant a right to sue in claimant’s domicile.

Claimant sues both surgeon and clinic, both in contract and in tort. She seeks to hold the clinic either directly or vicariously liable for the failures of the surgeons who treated her – one other Polish surgeon was involved in her care – and the nurses who cared for her at the clinic in Poland. Total potential liability for the insurance company, under the indemnity of the clinic (they do not insure the surgeon) is limited to approximately £38,500.

Proper law of the contract is English law, per A6(1) of the consumer title of Rome I. This is not disputed. It had been anticipated by claimant until trial that it was also a matter of agreement that the proper law of the claim in tort was Polish law, per Rome II. However in its skeleton argument, for the first time, the insurer raised an issue about the adequacy of claimant’s pleading arguing they had failed to plead the Polish law upon which they relied, so the proper law of the tortious claim was by default, English law.  That was rejected by the judge on the basis of the exchange between parties.

At [104] ff Foster J discussed the application of A17 Rome II: the judge must take into account as a matter of fact, the rules of safety and conduct in force at the place and time of the event, i.e. Poland. However [107] the judge insists on the importance of the English standard of care

where it is a term of the contract that the first defendant would operate to the same standard as a UK surgeon, skilled in this specialism, and registered with the GMC, it is that standard, that applied to the activities in issue here. The care offered by the clinic likewise. [emphasis in the original]

Those terms of the contract were deduced by the judge [77]:

[claimant] does not allege that she signed any contract or document, save for a consent form which the court has not seen. However, in my judgement the substance of the representations on the website upon which Ms Clarke clearly relied, were incorporated into the contract between her and the clinic together with Mr Kaleciński. In my judgement this was one contract but involving both parties: the surgeon and all the other care givers at the clinic, by means of the clinic (Noa Clinic Uslugi Sp. z o.o), those incorporated representations were to the following effect. The first defendant would carry out the surgery and he would carry it out to the standard to be expected of a GMC registered surgeon proficient in plastic surgery.

This emphasis by the judge imparts once again the relevance of language, no doubt for marketing purposes, for the consequential legal obligations. Foster J moreover holds [108]

That standard applies to the tortious duty also by reason of the  representations made to which reference is made above.

and [109] she holds

the findings of [the expert] are couched in such stringent terms that they cover any surgical and indeed clinical practice whether governed by local Polish customs or not. The conclusions of [the expert] put paid to any subtlety of distinction between local custom and English practice that might … in other circumstances be considered relevant. What took place fell so far below acceptable standards I cannot accept the contention that local standards or practices might have rendered the egregious failings in this case acceptable as a matter of contractual or tortious obligation.

The judge’s findings on A17 Rome II are interesting. Yet I find her conclusions on website representations even more relevant.

Geert.