Posts Tagged Article 23
The CJEU has in my view taken the sensible approach in C-366/13 Profit Investment Sim, on (among others) whether choice of court included in a bond prospectus, binds not just the original transactional parties but also the buyers of such bonds on the secondary markets or via intermediaries. (An issue which many of us pondered in Kolassa but which was not sub judice there).
Parties at issue were Commerzbank (formerly Dresdner), the bond issuer; Redi, financial intermediary licensed by the UK FSA and subscriber of all relevant bonds on the primary market; and Profit, an Italian company, who bought part of the bonds of Redi, on the secondary market. Dresdner’s prospectus contains choice of court in favour of the English courts.
First, on the issue of the jurisdiction clause. The referring court asks, in essence, whether Article 23(1)(a) and (c) of Regulation 44/2001 (both now part of Article 25) must be interpreted as meaning that a jurisdiction clause, such as that at issue in the main proceedings, satisfies the formal requirements laid down in Article 23(1)(a) [‘in writing or evidenced in writing’] where (i) it is contained in a prospectus produced by the bond issuer concerning the issue of bonds, (ii) it is enforceable against third parties who acquire those bonds through a financial intermediary and (iii), in the event that the first two parts of the second question are answered in the negative, it corresponds to a usage in the field of international trade or commerce for the purpose of Article 23(1)(c).
Choice of court in the prospectus and the impact on the primary market.
The Court first of all holds that the ‘formal requirement’ of (now Article 25 a (a) ”in writing or evidenced in writing’ for the issue of choice of court between Dresdner and Redi is only met (along the lines of Colzani Case 24/76) if the contract signed by the parties upon the issue of the bonds on the primary market expressly mentions the acceptance of the clause by Redi, or contains an express reference to the prospectus. The latter in particular is quite likely.
Choice of court in the prospectus and enforceability against third parties acquiring through a financial intermediary.
Next, the Court (at 30) holds that the same two alternatives apply for the relationship between Redi and Profit. Here the court refers to Refcomp and distinguishes it, basically by pointing to the specific examples of bills of lading and choice of court in shareholders registries, cases in which the CJEU had previously accepted transferability of choice of court to third parties, in specific circumstances. (Please refer to both the Refcomp judgment and to current judgment (at 33 ff) for detail).
The Court consequently held (at 37) that choice of court contained in a prospectus produced by the bond issuer concerning the issue of bonds may be relied on against a third party who acquired those bonds from a financial intermediary if it is established, which it is for the referring court to verify, that (i) that clause is valid in the relationship between the issuer and the financial intermediary, (ii) the third party, by acquiring those bonds on the secondary market, succeeded to the financial intermediary’s rights and obligations attached to those bonds under the applicable national law, and (iii) the third party had the opportunity to acquaint himself with the prospectus containing that clause. (Emphasis added).
The emphasis I added is quite important: the CJEU does not hold that such succession is somehow part of an EU Ius Commune.
Finally, if the answer to the first two questions is negative, is there usage in international trade or commercial custom between the parties?
This, the Court holds, has to be determined by the national court. The CJEU (at 48) recalls its earlier case-law in particular C-106/95 MSG: actual or presumed awareness of a usage on the part of the parties may be made out, in particular, by showing either that the parties had previously had commercial or trade relations between themselves or with other parties operating in the sector in question, or that, in that sector, a particular course of conduct is sufficiently well known because it is generally and regularly followed when a particular type of contract is concluded, so that it may be regarded as being an established practice.
The Court does though give a few more practical things which the national court needs to look out for: at 49. In order to determine, in the main proceedings, whether the insertion into the prospectus of a jurisdiction clause constitutes a usage in the sector in which the parties operate, of which those parties were aware or ought to have been aware, the referring court must take into account, inter alia, the fact that that prospectus was approved in advance by the Irish Stock Exchange and made available to the public on the latter’s website, which does not seem to have been contested by Profit in the proceedings on the merits. In addition, the referring court must take account of the fact that it is undisputed that Profit is a company active in the field of financial investments as well as of any commercial relationships it may have had in the past with the other parties to the main proceedings. The national court must also verify whether the issue of bonds on the market is, in that sector, generally and regularly accompanied by a prospectus containing a jurisdiction clause and whether that practice is sufficiently well known to be regarded as ‘established’.
Lest one forgets, the Court’s judgment is also relevant for a more general query on the nature of (now) Article 7(1): must the action seeking the annulment of a contract and the restitution of the amounts paid on the basis of a document the nullity of which is established, be regarded as ‘matters relating to a contract’ (the existence of which plaintiff seeks to dispute)? Yes, it does: if only (at 54) to ensure that Article 7(1) cannot simply be torpedoed by one party claiming that there is no contract.
(The judgment also reviews the conditions of application of (now) Article 8(1), with respect to ‘irreconcilability’ of judgments).
This judgment is quite relevant in yet again the CJEU having to defer to national law on the issue of transferability (see the emphasis I added, above). The Court very clearly does not wish to overplay its hand in trying to force a European Ius Commune in private law, via the use of private international law.
(Handbook of) European Private International Law Chapter 2, Heading 188.8.131.52; Heading 184.108.40.206.a; 220.127.116.11;.18.104.22.168; 2.2.12
The French Cour de Cassation’s in Banque Privee Edmond de Rothschild Europe v X held that a unilateral jurisdiction clause was invalid under (doubtful) reference to (then) Article 23 of the Brussels I Regulation. The clause was held not to be binding under the French doctrine of clauses potestatives, even though the agreed forum was Luxembourg (whence the validity of the clause was judged under the lex fori derogati, not prorogati; that will no longer be possible under the recast Jurisdiction Regulation). In Credit Suisse, it extended this view (without reference this time to clauses potestatives) to choice of court in the context of the Lugano Convention.
In Apple Sales international v eBizcuss.com, the Cour de Cassation effectively qualifies its Rotschild case-law. The Court of Appeal held as unacceptable, under the theory of clauses potestatives, choice of court obliging eBizcuss to sue in Ireland, while allowing Apple Sales International to sue either in Ireland, or the place of registered office of eBizcuss, or any place where Apple Sales would have suffered damage. The Cour de Cassation now held that this clause is perfectly acceptable under Article 23 (now 25)’s regime for it corresponds to the need of foreseeability. (Which more extreme unilateral clauses arguably do not have). As always, the judgment is scant on details of the underlying contract whence it is not entirely clear whether French law was lex contractus or whether the Cour stuck to lex fori as determining validity of choice of court.
Learn your lines, son!: the (ir)relevance of grammar for choice of court underlined in Global Maritime Investments.
“These general terms and conditions will be governed by and construed in accordance with English law.
With respect to any suit, action or proceedings relating to these general terms and conditions each party irrevocably submits to the jurisdiction of the English courts.”
In Anchorage, the High Court had already dismissed a semantic approach to choice of court agreements in contracts (and choice of court clauses) subject to English law. In Global Maritime Investments Cyprus v O.W., Teare J considered in summary judgment, sought by GMI, whether the aforementioned clause is exclusive, and if not, whether proceedings commenced by GMI in England, block any future proceedings on the same (or wider) contractual issues sought by OW in Denmark. GMI had started proceedings in England following OW’s November 2014 filing for bankruptcy in Denmark. OW had initiated proceedings in Denmark in March 2015. At issue was among others the ‘netting-out’ provisions between parties (effectively, a final settlement of reciprocal dues in different currencies, with derivatives of commodity transactions being the underlying transactions between the parties in this case).
Teare J held that the clause even if not so phrased verbatim, was meant to be exclusive, among others in line with what ‘the reasonable commercial man’ (the bonus mercator, if you like) would have understood the clause to be, especially under the lex contractus, English law. All the more so in light of the use of ‘irrevocably’. At 51 he does offer sound commercial advice to avoid disputes such as the one at issue: it is desirable to employ transitive language, such as in ‘each party agrees to submit all claims’.
I do not think there is justification for the Court not to have considered the impact of the Brussels I (and /or Recast) Regulation on the clause: the judgment keeps entirely shtum about it. Under the rules of the Regulation, all clauses are considered exclusive unless specifically stated. Saying that the clause expressis verbis amounts to non-exclusivity, would be quite a stretch. (I agree it is not clearly worded exclusively – however that is exactly where the Brussels I Regulation is of assistance).
It is quite clear to me that this judgment (issued 17 August – I have delayed reporting for exam reasons) will not be the end of the jurisdictional affair. In particular, parties I am sure will be at loggerheads as to what litigation is to be considered ‘relating to these general terms and conditions’, in particular with OW’s insolvency proceedings in the background.
Postscript 24 September 2015: the incoterm ‘ex works’ was at issue in Cimtrode The Electrode Company GmbH v Carbide BV at Gerechtshof ‘s-Hertogenbosch. Judgment (on appeal) was issued 1 September 2015. The court held inter alia that whether the incoterm was actually part of the agreement between parties, could only be judged in accordance with the lex causae. The agreement was a verbal agreement, and any choice of court which one of the parties claimed had been made, had not been confirmed in writing. Reference to relevant standard terms and conditions on the invoices sent later, following execution of the agreement, could not, the court held, be regarded as confirmation of the choice of court.
In Rhoonse Recycling & Service BV v BSS Heavy Machinery GmbH, the Court at Rotterdam first of all discussed the factual circumstance of a possible choice of court agreement between parties, in favour of the courts at Eberswalde (Germany). Such choice of court is made in the general terms and conditions of seller, BSS. Whether parties had actually agreed to these, was in dispute. Roonse suggests the reference on the front page of the order form to the general terms and conditions on the backside (‘umseitiger‘) was without subject for that back page was blank. The court therefore suggests that agreement depends on whether, as was suggested, the standard terms and conditions were attached (stapled, presumably) to the order form. Whether this was the case is a factual consideration which Rotterdam does not further entertain for even if the choice of court agreement is invalid, the court found it would not have jurisdiction under the only other alternative: Article 7(1) special jurisdictional rule for ‘contracts’.
Rhoonse suggest that the parties had agreed that the contract, a delivery of good, is performed in Rotterdam for that, it argues, is where delivery took place per the Incoterm CPT (carriage paid to). The CJEU has flagged the inconclusive effect of the mere use of Incoterms for the purposes of finding an agreement between parties under Article 7, in Electrosteel Case C-87/10 (in that case with respect to the use of ‘ex works’) and has generally insisted, per Car Trim Case C-381/08 that the courts need to make reference to all relevant terms and conditions in the agreement so as to determine the place of delivery.
Rotterdam in casu held the Incoterm CPT Rotterdam as being mostly a reference to costs, not place of delivery. Where it is impossible to determine the place of delivery on that basis, without reference to the substantive law applicable to the contract, that place at least for the sale of goods, the CJEU held, is the place where the physical transfer of the goods took place, as a result of which the purchaser obtained, or should have obtained, actual power of disposal over those goods at the final destination of the sales transaction. In casu, this was found to be in the geographical jurisdiction of the courts at Den Haag. Given that Article 7(1) does not merely identify the courts of a Member State but rather a specific court within a Member State, Rotterdam has no jurisdiction.
The case is a good reminder of the limited power of Incoterms to determine jurisdiction. Better have a specific choice of court clause (which here may or may not have presented itself here in the general terms and conditions of seller).
I have delayed reporting on judgment in Case C-322/14, Jaouad El Majdoub v CarsOnTheWeb.Deutschland GmbH, held 21 May 2015, for exam reasons. I reported earlier on the due diligence required of businesses when establishing choice of court through electronic means. The ECJ has now also had its say, in a case concerning a B2B contract for the purchase of a car. [Choice of court in a B2C context tends to be covered by the consumer contracts title hence is not at stake here. [Mark Young and Philipe Bradley-Schmieg review the relevance of the case for B2C contracts here].
Choice of court allegedly had been made in favour of the courts at Leuven, Belgium, in the vicinity of which the seller’s parent company has its head office. The buyer however sued in Germany, the domicile of the German daughter company (and of the buyer, a car dealer). Buyer claims that the contract at any rate was with the daughter company, not the mother company, and that choice of court had not been validly made. He submits that the webpage containing the general terms and conditions of sale of the defendant in the main proceedings does not open automatically upon registration and upon every individual sale. Instead, a box with the indication ‘click here to open the conditions of delivery and payment in a new window’ must be clicked on (known as ‘click wrapping’).
In essence therefore the question is whether the requirements of Article 23(2) of the Brussels I Regulation (now Article 25(2)) are met only if the window containing those general conditions opens automatically, and upon every sale. That Article was added at the adoption of the Brussels I Regulation, precisely to address the then newish trend of agreeing to choice of court (and indeed choice of law; but that is not covered by Brussels I) through electronic means.
The provisions on forum clauses in the 1968 Brussels Convention, Brussels I and the recast are drafted in a way ‘not to impede commercial practice, yet at the same time to cancel out the effects of clauses in contracts which might go unread’ (Report Jenard) or otherwise ‘unnoticed’ (the ECJ in the core case Colzani). the Report Jenard also notes that in order to ensure legal certainty, the formal requirements applicable to agreements conferring jurisdiction should be expressly prescribed, but that ‘excessive formality which is incompatible with commercial practice‘ should be avoided.
The first sentence of Article 25(1) discusses the parties ‘agreement’ as to choice of court. (It leaves a large array of national law issues untouched, such as consideration, mandate, 3rd party effect. etc. On some of those issues, see also Refcomp). The remainder of Article 25(1) concerns the possible formats in which agreement is testified. Article 25(2) (and 23(2) before it) accompanies Article 25(1) a’s option of having the agreement put down ‘in writing’.
In line with the requirement not to be excessively formalistic, the ECJ essentially requires that parties be duly diligent when agreeing to choice of court. If click-wrapping makes it possible to print and save the text of those terms and conditions before the conclusion of the contract, then it can be considered a communication by electronic means which provides a durable record of the agreement.
Note that the Court does not hold on whether the agreement is actually reached between the parties: only that click-wrap may provide a durable record of such agreement, where it exists. (One could imagine choice of court having been protested, for instance, or other issues of national law having an impact on the actual existence of the agreement. and one can certainly imagine a continuing discussion on what contract was concluded between what parties in the case at issue].