Posts Tagged Article 5(1)
Jurisdiction re prospectus liability (misrepresentation) before the CJEU again. Bobek AG in Löber v Barclays.
Even Advocate-General Bobek has not managed to turn jurisdictional issues re prospectus liability into the prosaic type of analysis which many of us have become fond of. His Opinion in C-307/17 Löber v Barclays is a lucid, systematic and pedagogic review of the CJEU’s case-law on (now) Article 7(2)’s jurisdiction for tort in the context of ‘prospectus liability’ aka investment misrepresentation. Starting with the direct /indirect damage distinction; and focusing of course on the determination of pure economic loss.
Ms Helga Löber invested in certificates in the form of bearer bonds issued by Barclays Bank Plc. In order to acquire those certificates, the corresponding amounts were transferred from her current (personal) bank account located in Vienna, Austria to two securities accounts in Graz and Salzburg. Payment was then made from those securities accounts for the certificates at issue.
Note immediately that the jurisdictional discussion is a result of Article 7(2) not just identifying a Member State: it identifies specific courts within that Member State. Here: claimant brought her claim before a court in Vienna, the place of her domicile. This is also where her current bank account is located, from which she made the first transfer in order to make the investment. The first- and second-instance courts in Vienna however decided that they did not have jurisdiction to hear the case. The case is now pending before the Oberster Gerichtshof (Supreme Court, Austria). That court is asking, in essence, which of the bank accounts used, if any, is relevant to determine which court has jurisdiction to hear the claim at issue.
Close reference is made to Kolassa. In my posting on that case at the time, I noted that the many factual references which the Court built in in its decision, gave it dubious precedent value. Bobek AG in Löber necessarily therefore distinguishes many factual situations. The almost sole focus lies on 7(2): unlike in Kolassa, contracts neither consumer contracts are an issue.
Here are a few things of note:
First, in his review of the existing case-law the AG at 38 points out like I did at the time of the judgment, that the CJEU’s finding in CDC that locus damni for a pure economic loss, in the case of a corporation, is the place of its registered office, is at odds with precedent (he made the same remark in flyLAL).
Next, on locus delicti commissi, the AG suggests that despite Article 7(2)’s instruction, a single ldc within the Member State cannot be determined. The relevant point in his view is the moment from which the prospectus can, by operation of law, start influencing the investment behaviour of the relevant group of investors. In the present case, and considering the national segmentation of the capital market regulation at issue, that relevant group is made up of investors on secondary markets in Austria. At 65: once it became possible to offer the certificates on the Austrian secondary market, that possibility was immediately available for the whole territory of Austria. ‘The nature of the tort of misrepresentation at issue does not allow for the identification of a location within the national territory because once the author of the tort is allowed to influence the given national territory, that influence immediately covers the whole territory, irrespective of the actual means used for the publication of a specific prospectus.’ As we know from CDC, the Court does not readily accept that a single ldc cannot be determined.
Further, for locus damni, the AG suggests (at 78) ‘The place where…a legally binding investment obligation is factually assumed… The exact location of such a place is a matter for the national law considered in the light of available factual evidence. It is likely to be the premises of a branch of the bank where the respective investment contract was signed, which may correspond, as in the Kolassa case, to the place where the bank account is held.‘ That in my view first of all is not a warranted outcome. The investor in Löber is not a consumer within the protected categories of the Regulation. Suggesting the place of conclusion of the obligation leaves room for the claimant to manipulate the forum of any future suit in tort. This is exactly what the Court objected to in Universal Music. Moreover, note the reference to ‘the national law’. It is quite unusual to suggest such a role for lex fori in light of the principle of autonomous interpretation. Unless the AG in fact means the ‘lex contractus’, presumably to be determined applying Rome I.
In summary there are quite a few open questions here – not something of course which I would necessarily object to.
(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 188.8.131.52.7
I ask ergo I find out? Not necessarily so after judgment in Ergo Insurance and Gjensidige Baltic (distinguishing between contract and tort).
Is the relationship between two insurers, having covered liability for a towing vehicle cq a trailer, each subrogated in their insured’s rights and obligations, one of them currently exercising a claim against the other in partial recovery of the compensation due to the victim, non-contractual? That is the issue in Joined Cases C‑359/14 and C‑475/14 Ergo.
Like its AG, the CJEU dismisses a suggestion that Directive 2009/103 (relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability) includes a conflict of laws (applicable law) rule which is lex specialis vis-a-vis the Rome I Regulation. Indeed the Directive’s provisions do not indicate whatsoever that they can be stretched.
Then comes the core of the issue, the nature of the relationship underlying the claim. The AG had suggested this is contractual, using as I noted in my earlier posting, ‘centre of gravity’ (‘the centre of gravity of the obligation to indemnify is in the contractual obligation’); ‘rooted in’ (‘the recourse action by one insurer against the other…is rooted in the contracts of insurance’); and ‘intimately bound up’ (‘[the action] is intimately bound up with the two insurers’ contractual obligation‘). (at 62).
The Court did not repeat any of this terminology. It first suggests that the national court where the case is pending, needs to determine using Article 4 of Rome II (lex locus damni) whether the law so determined ‘provides for apportionment of the obligation to compensate for the damage’. This the AG had not expressly pondered, rather it may be implicit in her use of the conditional ‘where two or more insurers are jointly and severally liable’ ((only) used at 71 of her Opinion). Next, the Court holds, if there is such apportionment, the law applicable to the action for indemnity between the insurers of the tractor cq the trailer, needs to be determined using Article 7 of Rome I (which applies to insurance contracts).
The referring courts were looking I believe for more straightforward advice. Instead I fear the many conditions precedent expressed in the judgment may well leave plenty of room for counsel to further confuse these national courts. This arguably may have a knock-on effect given the repeated insistence by the CJEU that the provisions of Brussels I (Recast) on contract and tort, need to be applied in parallel with those of Rome I and II (not something I necessarily agree with but have come to accept as standing CJEU precedent).
Of tractors and trailers. Insurance contracts, subrogration, contracts and torts. Sharpston AG on the scope of Rome I and II.
First, a quick heads-up on precedent: the difference between ‘contract’ and tort’ in European private international law is crucial, as regular readers of this blog will have observed. Crucial, yet the concept is left undefined in the Brussels I (and Recast) Regulation (which has a different special jurisdictional rule for both), the Rome I Regulation on applicable law for contracts, and the Rome II Regulation on applicable law for torts. Undefined, for these foundational elements of private law are outside the reach of legal and political compromise in the legislative process. Yet courts of course do have to apply the rules and in doing so, have to distinguish between both.
The CJEU pushes an ‘autonomous’ EU definition of both concepts which in the past has led to the seminal findings in Jakob Handte (C-26/91) and Kalfelis. In Handte the Court held: the phrase ‘matters relating to a contract [ ] is not to be understood as covering a situation in which there is no obligation freely assumed by one party towards another.’ (the double negative exercised scholarship for some time). In Kalfelis the Court had earlier defined ‘tort’ as ‘all actions which seek to establish liability of a defendant and which are not related to a ‘contract’ within the meaning of Article 5(1).’ (5(1) has become 7(1) in the Recast).
Is the relationship between two insurers, having covered liability for a towing vehicle cq a trailer, each subrogated in their insured’s rights and obligations, one of them currently exercising a claim against the other in partial recovery of the compensation due to the victim, non-contractual?
Per Kalfelis, tort as a category is residual. Sharpston AG’s starting point in Joined Cases Ergo Insurance and AAS Gjensidige Baltic, Opinion issued yesterday, therefore is to examine whether the recourse action is essentially contractual in nature. In the negative, the action is non-contractual. The case is evidently made more complex by the underlying relationships between insurer and insured, and the presence of subrogration. In question is not therefore the relationship between the insurer and the victim: this is clearly non-contractual. The question is rather whether the action of one insurer against the other is contractual in nature, given the contractual relationship between insurer and insured, cq the non-contractual relationship between the insured and the victim.
Sharpston AG first gets two issues out of the way. Lithuania (both referred cases are pending in Lithuanian courts) is a signatory State to the Hague Convention on the law applicable to traffic accidents, which is left unaffected by Rome II by virtue of Article 28. However the Convention itself holds that it does not apply to recourse action and subrogation involving insurance companies. Further, a suggestion that Directive 2009/103 (relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability) includes a conflict of laws (applicable law) rule which is lex specialis vis-a-vis the Rome Regulation, was quickly dismissed. Indeed the Directive’s provisions do not indicate whatsoever that they can be stretched.
Then comes the core of the issue, the nature of the relationship underlying the claim. This, the AG suggests, is contractual. Relevant precedent referred to includes Brogsitter and OFAB. Essentially the AG puts forward an ancestry test: what is the ancestry of the action, without which the parties concerned would not be finding themselves pleading in a court of law?: she uses ‘centre of gravity’ (‘the centre of gravity of the obligation to indemnify is in the contractual obligation’); ‘rooted in’ (‘the recourse action by one insurer against the other…is rooted in the contracts of insurance’); and ‘intimately bound up’ (‘[the action] is intimately bound up with the two insurers’ contractual obligation‘). (at 62).
Incidentally, in para 20 of her Opinion the AG refers, in giving context, to the difference between Lithuanian and German law (the accidents both occurred in Germany) as regards the limitation periods for bringing a recourse action. In Rome II, limitation periods are included in Article 15 as being covered by the lex causae; ditto in Article 12 of Rome I. This pre-empts discussion on the matter for whether limitation periods are covered by lex fori (as a procedural issue) or the lex causae is otherwise not necessarily the same in all Member States.
If the CJEU confirms, preferably using the terminology of its AG, the tort /contract discussion in my view will have been helpfully clarified.
In particular, a contract for employment needs to be distinguished from a contract for the provision of services. ‘Contract of employment’ was addressed in the abstract by the CJEU in Shenavai, Case 266/85, where the Court identified a double requirement for it referred to the need for a contract to be qualified as a contract of employment: there must be durable relation between individual and company: a lasting bond, which brings the worker to some extent within the organisational framework of the business; and a link between the contract and the place where the activities are pursued, which determines the application of mandatory rules and collective agreements. However precedent value of Shenavai for the Brussels I and recast Regulation is necessarily incomplete, for at the time employees as a protected category did not yet exist in the Regulation and the Court’s findings on contracts of employment took place within the need to identify a ‘place of performance’ under the Brussels Convention’s special jurisdictional rule on contracts.
The Jenard and Möller report to the 1988 Lugano Convention suggested the relationship of subordination of the employee to the employer.
In Holterman the Court throws into the mix reference to its interpretation of secondary EU law on health and safety at work as well as European labour law, holding that ‘the essential feature of an employment relationship is that for a certain period of time one person performs services for and under the direction of another in return for which he receives remuneration’ (at 41).
Consequently the national courts now have quite a number of criteria which they need to apply in practice: it is not for the CJEU to do so in an individual case. In Holterman the Court does seem to suggest that once a worker finds himself qualified as an employee, for the purposes of the application of the Jurisdiction Regulation, that qualification will trump any other roles which that individual may play in the organisation (at 49: ‘the provisions of Chapter II, Section 5 (Articles 18 to 21) of Regulation No 44/2001 must be interpreted as meaning that they preclude the application of Article 5(1) and (3) of that regulation, provided that that person, in his capacity as director and manager, for a certain period of time performed services for and under the direction of that company in return for which he received remuneration, that being a matter for the referring court to determine.’).
In light of the deference to the factual assessment of the national court, the CJEU does complete the analysis with respect to (now) Article 7(1): if the contract is not one of employment, then the special jurisdictional rule of Article 7(1) needs to be applied. The director of a company, the Court holds, provides a service to the company within the meaning of Article 7(1)b. In the absence of any derogating stipulation in the articles of association of the company, or in any other document, it is for the referring court to determine the place where Mr Spies in fact, for the most part, carried out his activities in the performance of the contract, provided that the provision of services in that place is not contrary to the parties’ intentions as indicated by what was agreed. For that purpose, it is possible to take into consideration, in particular, the time spent in those places and the importance of the activities carried out there, it being a matter for the national court to determine whether it has jurisdiction in the light of the evidence submitted to it (at 64).
Finally, should national law also allow for an action in tort against the director of a company, the locus delicti commissi is the place where the director carries out his duties for the company (at 76). The locus damni is the place where the damage alleged by the company actually manifests itself; it cannot be construed so extensively as to encompass any place where the adverse consequences can be felt of an event which has already caused damage actually taking place elsewhere (at 77-78).
All in all, a useful completion of the Shenavai criterion, and in the main a referral to the national court for factual analysis.
As the holiday season now is in full swing, here’s a choice of court and choice of law clause I received. For us all to ponder on the beaches /in the mountains /whatever retreat we’ll find ourselves on:
‘LAW AND JURISDICTION
This agreement is between the holiday-maker (the renter) and the agency or property owner. Booking ltd is acting only as a representative of the agency or owner listed on the voucher and as such can not be held directly responsible for any problems concerned with the booking. The owners of Booking LTd its employees or agents shall not be liable for any damage, loss or personal injury which may be sustained by persons or property at any time during the reserved stay. In the event of controversies arising from the booking of the rental, the Irish Court only can deal with the matter and Irish law only applies. Signing the booking form and making the booking implies that the General Letting Conditions have been understood and have thereby been accepted without reserve and without exception. If any of the conditions of this contract have become invalid or were invalid or if in this contract there should be a gap, the other conditions cannot be contested.
Any and all issues regarding the property, such as damages, injury, etc, shall be a dispute between the owner or agency and the renter of the property. In such cases, with no exceptions, Irish law will apply and the jurisdiction will be the local courts in Ireland.’
Happy holidays. Geert.
Defining ’employment’. CRUZ VILLALÓN AG in Holterman on applying Brussels I to defendant with dual director/employee capacity
CRUZ VILLALÓN AG Opined yesterday in C-47/14 Holterman (no EN version of the Opinion was available at the time of writing). What if a defendant is pursued both on the basis of his capacity as a director of the company, and for alleged failure properly to have carried out his duties as employee?
Applicant Holterman is incorporated in The Netherlands. Defendant is Mr Spies, a German national, domiciled in Germany. He was employed by applicant between 2001 and 2005/06, first as employee, subsequently also as director of Holterman’s establishments in Germany. Applicant alleges that defendant has caused damage as a result of improper fulfillment of his duties, indeed intentional recklessness, as director. Application is made at the court at Arnhem, where Spies successfully argues that the court has no jurisdiction on the basis that application has to be made of the protective category of ‘individual contracts of employment’.
Questions referred, were
1. Must the provisions of Section 5 of Chapter II (Articles 18-21) of Regulation (EC) No 44/2001 1 be interpreted as precluding the application by the courts of Article 5(1)(a) or of Article 5(3) of that Regulation in a case such as that at issue here, where the defendant is held liable by the company not only in his capacity as director of that company on the basis of the improper performance of his duties or on the basis of unlawful conduct, but quite apart from that capacity, is also held liable by that company on the basis of intent or deliberate recklessness in the execution of the contract of employment entered into between him and the company?
2 (a) If the answer to question 1 is in the negative, must the term ‘matters relating to a contract’ in Article 5(1)(a) of Regulation (EC) No 44/2001 then be interpreted as also applying to a case such as that at issue here, where a company holds a person liable in his capacity as director of that company on the basis of the breach of his obligation to properly perform his duties under company law?
(b) If the answer to question 2(a) is in the affirmative, must the term ‘place of performance of the obligation in question’ in Article 5(1)(a) of Regulation (EC) No 44/2001 then be interpreted as referring to the place where the director performed or should have performed his duties under company law, which, as a rule, will be the place where the company concerned has its central administration or its principal place of business, as referred to in Article 60(1)(b) and (c) of that Regulation?
3 (a) If the answer to question 1 is in the negative, must the term ‘matters relating to tort, delict or quasi-delict’ in Article 5(3) of Regulation (EC) No 44/2001 then be interpreted as also applying to a case such as that at issue here, where a company holds a person liable in his capacity as director of that company on the basis of the improper performance of his duties under company law or on the basis of unlawful conduct?
(b) If the answer to question 3(a) is in the affirmative, must the term ‘place where the harmful event occurred or may occur’ in Article 5(3) of Regulation (EC) No 44/2001 be interpreted as referring to the place where the director performed or should have performed his duties under company law, which, as a rule, will be the place where the company concerned has its central administration or its principal place of business, as referred to in Article 60(1)(b) and (c) of that Regulation?
Spies essentially argues that the employment section of the Regulation trumps concurrent jurisdiction on the basis of contract. ‘Contract of employment’ so far has not been addressed in the abstract by the ECJ, other than incompletely in Shenavai Case 266/85, where it referred to the need for a durable relation between individual and company. In particular of course, a contract for employment needs to be distinguished from a contract for the provision of services. The Advocate General takes inspiration from the protective intent of the employment contracts heading, to suggest that supervision and instruction, jointly summarised as ‘subordination’, are determining factors for positions of employment. Even higher management can find itself in such position, given that and provided its actions, notwithstanding a wide independent remit, are subject to control and direction of the companies’ bodies. Review of the company’s by-laws should reveal the existence of such control vis-a-vis higher management, read together with the terms and conditions of the contract of employment at issue (at 32). It is only, per Asscher, C‑107/94, if management itself through its shareholding, exercises control over those bodies, that the position of subordination disappears.
Once the national court, on the basis of ad hoc analysis, holds that there is a position of employment, the national court has to apply Brogsitter per analogia: namely whether the action concerned follows from an alleged improper fulfillment of that agreement (as opposed to an improper fulfillment of duties as a director).
In subsidiary fashion only, does the AG entertain the questions relating to Article 5(1) and 5(3) (now 7(1) and 7(2) respectively). Spies’ duties as a director (again, should the ECJ find against applicability of the employment section) have to be considered ‘contractual’ within the meaning of the Regulation. The place of performance of the obligation in the view of the AG needs to be determined using Article 7(1)b, ‘the place in a Member State where, under the contract, the services were provided or should have been provided;’. Using Car Trim and Wood Floor Solutions and quoting Stephanie Francq, the AG suggests the national court identify the location where the service was mainly provided.
The AG’s views on the employment heading, however, seem solid and I would be surprised were the ECJ to have to go into the subsidiary questions.
Mr Kolassa, as a consumer, through the Austrian bank direktanlage.at AG, invested just under Euro 70,000.00 in X1 Global EUR Index Certificates. The certificates were issued by Barclays Bank, registered in the UK, with a branch in Frankfurt. At the time of the issue of the certificates, Barclays distributed a base prospectus, ia in Austria. The portfolio was to be established and administered by X1 Fund Allocation GmbH, to which Barclays Bank had entrusted the investment of the money raised from the issue of the certificates. Most of that money has been lost.
The certificates were sold to institutional investors who sold them on, in particular, to consumers. In the present case, direktanlage.at ordered the certificates to which Mr Kolassa wished to subscribe from its German parent company, DAB Bank AG, with its seat in Munich (Germany), which in turn acquired the certificates from Barclays Bank. In each case, the orders were placed and carried out in the name of the respective bank. Direktanlage.at fulfilled Mr Kolassa’s order in accordance with its general terms and conditions ‘in securities account’, meaning that direktanlage.at holds the certificates as covering assets in its own name at Munich, on behalf of its clients.
Mr Kolassa sues Barclays in Vienna, on the basis of contractual, precontractual, tortious or delictual liability. Jurisdiction in Vienna in his view is present on the basis of Article 15 JR (consumer contracts), 5(1) (contract) or 5(3) (tort). Application of Article 15 JR is dismissed by the ECJ on the basis of there being no contract whatsoever between Barclays and Mr Kolassa. (Judgment in Maletic distinguished given that the consumer in that case was from the outset contractually linked, inseparably, to two contracting partners). Application of Article 5(1) is in some ways more flexible because there need not be proof of a contract between the two parties: what is required, though, is proof of a legal obligation freely consented to by one person towards another and on which the claimant’s action is based. (For otherwise there is no ‘obligation’ which constitutes the connecting factor under Article 5). No such legal obligation ‘freely consented’ was apparent from the case hence Article 5(1) was dismissed, too.
That left Article 5(3). Per Kronhofer (also referred to in the Hoge Raad’s referral in Universal), the mere fact that the applicant has suffered financial consequences does not justify the attribution of jurisdiction to the courts of the applicant’s domicile if, per Kronhofer, both the events causing loss and the loss itself occurred in the territory of another Member State. On the basis of the facts of the case, the ECJ dismisses Austria as the locus delicti commissi: the decisions regarding the arrangements for the investments proposed by Barclays Bank and the contents of the relevant prospectuses, were taken in the Member State of Barclays’ seat, i.e. the UK.
The locus damni, the place where the loss occurred, is the place where the investor suffered it (at 54). ‘The loss occurred where the investor suffered it’ sounds like an abstract definition however the ECJ emphasises that that conclusion is fact-related, that is to say: it is a result of the that, first, the certificates’ loss of value was due, not to the vagaries of the market, but to the management of the funds in which the money from the issue of those certificates had been invested. Second, the actions or omissions alleged against Barclays with respect to its legal information obligations took place before the investment made by Mr Kolassa and were, in his view, decisive for that investment (at 51). If ‘the loss occurred where the investor suffered it’ is not an abstract but a fact related criterion, that puzzlingly may mean that there must be an alternative general criterion for purely financial loss if these are due to the ‘vagaries of the market’.
The Court further invites distinguishing by holding at 55 that ‘The courts where the applicant is domiciled have jurisdiction, on the basis of the place where the loss occurred, to hear and determine such an action, in particular when that loss occurred itself directly in the applicant’s bank account held with a bank established within the area of jurisdiction of those courts’. (Emphasis added).
Finally, the ECJ clarifies as much at it could, the balance between plaintiff’s allegations, and defendant’s rebuttal, at the jurisdictional level: what extent of evidence does the seized court need to review with a view to establishing its jurisdiction? The court holds ‘the national court seised is not, therefore, obliged, if the defendant contests the applicant’s allegations, to conduct a comprehensive taking of evidence at the stage of determining jurisdiction, it must be pointed out that both the objective of the sound administration of justice, which underlies Regulation No 44/2001, and respect for the independence of the national court in the exercise of its functions require the national court seised to be able to examine its international jurisdiction in the light of all the information available to it, including, where appropriate, the defendant’s allegations. (at 64). That of course is a thin line however I do not see how the ECJ can instruct otherwise.
In my view Kolassa invites further specification especially on the exact relevance of banks and bank accounts in cases of purely economic loss: Universal provides one such immediate opportunity.