Calling time on ‘contract’ and ‘tort’ between contracting parties. The ECJ in Brogsitter.

When does a spat between contracting parties become a tort really? Relevant for all sorts of reasons of course. Not in the least, in C-548/12 Brogsitter, with a view to establishing jurisdiction.

Mr Brogsitter sells luxury watches. In 2005, he concluded a contract with a master watchmaker, Mr Fräβdorf, then resident in France. Fräβdorf undertook to develop movements for luxury watches, intended for mass marketing, on behalf of Mr Brogsitter. Mr Fräβdorf carried out his activity with Fabrication de Montres Normandes, company of which he was sole shareholder and manager. It appears that Mr Brogsitter paid all costs relating to the development of the two watch movements which were the subject of the contract.

Fräβdorf and his company subsequently also developed, in parallel, other watch movements, cases and watch faces, which they exhibited and market in their own names and on their own behalf, whilst advertising the products online in French and German. Mr Brogsitter submits that, by those activities, the defendants breached the terms of their contract. According to Mr Brogsitter, Mr Fräβdorf and Fabrication de Montres Normandes had undertaken to work exclusively for him and, therefore, might neither develop nor make use of, in their own names and on their own behalf, watch movements, whether or not identical to those which were the subject of the contract.

Brogsitter seeks an order that the activities in question be terminated and that damages be awarded in tort against on the basis, in German law, of the Law against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb) and Paragraph 823(2) of the Civil Code (Bürgerliches Gesetzbuch); he submits that, by their conduct, the defendants breached business confidentiality, disrupted his business and committed fraud and breach of trust.

Defendants argue that only French courts have jurisdiction, under Article 5(1) of the Brussels I Regulation, to determine all the applications made by Mr Brogsitter, as both the place of performance of the contract at issue and of the allegedly harmful event were situated in France. The Landgericht Krefeld in first instance had found against its own jurisdiction. This went straight to interim appeal, with the Oberlandesgericht Düsseldorf holding that the first instance court’s international jurisdiction derived, with regard to the dispute before it, from Article 5(3) with respect to the hearing and determination of only the civil liability claims made in tort by Mr Brogsitter. The other claims, in contrast, concerned ‘matters relating to a contract’ within the meaning of Article 5(1) of that regulation, and should be brought before a French court. Krefeld was still unsure and referred the following question to the ECJ: (I do not think the ECJ in this case rephrased it much better):

‘Must Article 5(1) of Regulation [No 44/2001] be interpreted as meaning that a claimant who purports to have suffered damage as a result of the conduct amounting to unfair competition of his contractual partner established in another Member State, which is to be regarded in German law as a tortious act, also relies on rights stemming from matters relating to a contract against that person, even if he makes his civil liability claim in tort?’

The ECJ referred to familiar lines: ‘contract’ and ‘tort’ need to be interpreted autonomously. (A European definition needs to be given, not a national one). The concept of ‘matters relating to tort, delict or quasi-delict’ within the meaning of Article 5(3) covers all actions which seek to establish the liability of a defendant and which do not concern ‘matters relating to a contract’ within the meaning of Article 5(1)(a)  (Kalfelis).

However that one contracting party brings a civil liability claim against the other is not sufficient to consider that the claim concerns ‘matters relating to a contract’ within the meaning of Article 5(1)(a) (at 23). That is the case only where the conduct complained of may be considered a breach of contract, which may be established by taking into account the purpose of the contract, which will a priori [the German grundsätzlich would have been better translated as ‘in principle’, or indeed, assuming French was the language of the original draft, ‘a priori’ should have been dropped for ‘en principe’; but I stray] be the case where the interpretation of the contract which links the defendant to the applicant is indispensable to establish the lawful or, on the contrary, unlawful nature of the conduct complained of against the former by the latter (at 24-25).

‘Where the interpretation of the contract which links the defendant to the applicant is indispensable to establish the lawful or, on the contrary, unlawful nature of the conduct complained of against the former by the latter’: these cases in other words do not lend themselves to a quick fix of jurisdiction review: some skimming of substantive law issues will be necessary.

Incidentally, the link between contracts and torts is also of immediate concern in the area of competition law. (Where the issue is often whether follow-on claims in damages are impacted by choice of court and choice of law in underlying contracts).

Geert.

 

Location of damage resulting from law firm’s alleged wrongful inducement in breach of exclusive jurisdiction clause. The High Court in AMT v Marzillier.

Update May 2019 For ease of reference: confirmed by the Court of Appeal [2015] EWCA Civ 143 and by the Supreme Court  [2017] UKSC 13. Review of the latter two here.

AMT v Marzillier [2014] EWHC 1085 (Comm) concerns special jurisdiction under tort, Article 5(3) of the Brussels I-Regulation, in the event of a loss of contractual right – as well as a cursory review of the consumer title.

Here: the loss, allegedly due to wrongful inducement by defendant (a law firm) to have a contractual claim heard in England. Contractual claims (alleged precarious investment advice) by a group of individuals had been settled by AMT in Germany.  Popplewell J concisely revisits the complete history of Article 5(3), from Bier via Kalfelis and Dumez France to Marinari and Kronhofer, however, leaving out Shevill. (See also below).

On the basis of said precedents he holds that the Courts of England do indeed have jurisdiction: ‘The place where the damage occurred as a result of MMGR’s allegedly tortious conduct was England, where such conduct deprived AMT of the contractual benefit of the exclusive jurisdiction clause which ought to have been enjoyed in England. ‘ (at 46). Counsel for AMT had also put forward an alternative ground which was that the payments for the settlements and costs came from England, and that England is where management time was wasted and future business lost.  Not so: Popplewell J: ‘The unquantified heads of loss for wasted management time and loss of business are not the primary heads of claim and do not constitute the main part of the damage said to have occurred as a result of the harmful event. They are not the damage. They are not initial, direct or immediate damage, but to the extent quantifiable and recoverable, merely the remoter financial consequences of the harm suffered in Germany. ‘ (at 52).

Per Shevil, jurisdiction of the English courts will be limited to the extent of damages suffered by the loss of the contractual benefit of the exclusive jurisdiction clause which ought to have been enjoyed in England: how exactly that ought to be quantified (if liability is at all withheld, of course) will not be a straightforward matter, one assumes.

Succinct review is also made of the consumer title, with the finding that on its applicability there is an issue to be tried. At 58, Popplewell J suggests ‘wherever the dividing line is to be drawn in the case of investors, the result is likely to be heavily dependent on the circumstances of each individual and the nature and pattern of investment. At one end of the scale may be the retired dentist who makes a single investment for a modest amount by way of pension provision. At the other may be an investment banker or asset manager who plays the markets widely, regularly and for substantial amounts, for his own account. In between there are many factors which might influence the result, including the profile of the investor, the nature and extent of the investment activity, and the tax treatment of any profits or losses. The issue is fact specific.’ I do not think too much should be read in these examples – more so, the insistence that circumstances of the case do have an impact on the qualification as ‘consumer’.

Geert.

Liability for defective products and the relationship between Brussels I and Rome II. The ECJ in Kainz.

In Case C-45/13 Andreas Kainz v Pantherwerke AG, the ECJ held on the determination of locus delicti commissi, the place giving rise to the damage, in the case of defective products. It held this was the place where the product in question was manufactured. The special jurisdictional rules of Article 5 are in effect forum conveniens applications: they are intended to enable the court objectively best placed to determine whether the elements establishing the liability of the person sued are present, to assume jurisdiction. For product liability cases, this includes inter alia the possibility of gathering evidence in order to establish the defect in question.

Pantherwerke AG is an undertaking established in Germany which manufactures and sells bicycles. Mr Kainz,  resident in Salzburg, purchased a bicycle manufactured by Pantherwerke from Funbike GmbH, a company established in Austria. On 3 July 2009, while riding that bicycle in Germany, Mr Kainz suffered a fall and was thereby injured. The place of the event giving rise to the damage is, Mr Kainz claims, located in Austria as the bicycle was brought into circulation there, in the sense that the product was there made available to the end-user by way of commercial distribution.

Mr Kainz argued specifically that the Courts should take into account not only the interests of the proper administration of justice but also those of the person sustaining the damage, thereby enabling him to bring his action before a court of the Member State in which he is domiciled. The ECJ disagreed, at 20:

‘although it is apparent from recital 7 in the preamble to Regulation No 864/2007 that the European Union legislature sought to ensure consistency between Regulation No 44/2001, on the one hand, and the substantive scope and the provisions of Regulation No 864/2007, on the other, that does not mean, however, that the provisions of Regulation No 44/2001 must for that reason be interpreted in the light of the provisions of Regulation No 864/2007. The objective of consistency cannot, in any event, lead to the provisions of Regulation No 44/2001 being interpreted in a manner which is unconnected to the scheme and objectives pursued by that regulation.’

This is a statement I like a lot and have advocated for some time. In general, I find the link between applicable law and jurisdiction (often leading to Gleichlauf-type considerations; such as in Article 22’s exclusive jurisdictional rules) not very attractive.

Geert.

Pinckney: Jääskinen AG suggests ‘focus and target’ as criterion for jurisdiction

I reported  just short of a year ago on the reference in Pinckney, Case C-170/12. The Advocate General opined on 13 June.  Jääskinen AG first of all suggests the questions are inadmissible – let’s hope the ECJ will not agree for this will cut short the remainder of the discussion.

Pinckney, a resident of Toulouse (France), is the alleged author, composer and performer of 12 songs which were recorded on vinyl in the 1970s. The works have been copied in Austria, unto CD by Mediatech, registered in Austria. No permission was requested from Pinckney.  Two UK-registered companies subsequently marketed the CDs from a variety of websites, which were accessible from Toulouse.

The AG distinguishes between two different infringements – both with ample reference to previous case-law:

Firstly, for reproduction rights, he suggests the locus damni is the same as the locus delicti commissi: for there is no third party involved. In the case at issue, this leads to both the UK (were the songs were copied on a host server) and Austria (where the copies were initially made) as having jurisdiction.

Further, for distribution and communication rights, the locus delicti commissi in the AG’s view, is the place where the infringers are established: the place of upload of the online content, and the place where the online offer of the CDs was decided. The locus damni is identified by the AG with reference to L’Oreal for trademarks, and to Football Dataco for database rights. The ‘targeting’ of consumers and the ‘focus’ of a website are determinant in the view of the AG (in the case of diffuse focus and target, leading to limited jurisdiction per the Shevill rule: jurisdiction only for the damage occurred on that territory).  Mere accessibility of a site, ought not to be withheld in the view of the AG. Neither and importantly, the criterion of ‘centre of main interests’, withheld by the court in e-Date Advertising for the infringement of personality rights, and already rejected by the court in Wintersteiger for the infringement of trademarks: damage stemming from copyright infringement, the AG suggests, is not inherently related to the place of the copyright owner’s centre of interests.

Geert.

No national (tort) law, please. The ECJ in Melzer v MS Global.

In Case C-228/11 Melzer v MS Global, the court at Dusseldorf requested the Court of Justice to clarify Article 5(3) Brussels I, the special jurisdictional rule for tort: on the basis of the application of this rule in Bier, a defendant may be sued in the place where the damage occurred (locus damni) and, if different, where the action (or inaction) leading to that damage occurred (the locus delicti commissi) . Article 5(3), like Article 5(1), determines not just international jurisdiction [i.e. the courts of which Member State have jurisdiction], but also territorial jurisdiction within that State.

Mr Melzer, who is domiciled in Berlin, was solicited as a client and looked after by telephone by the company Weise Wertpapier Handelsunternehmen (‘WWH’), whose registered office is in Düsseldorf. That company opened an account for Mr Melzer with MF Global UK Ltd (‘MF Global UK’), a brokerage house located in London, which traded in stock market futures for Mr Melzer in return for corresponding fees. Mr Melzer brought proceedings before the Landgericht Düsseldorf claiming that MF Global UK should be ordered to pay him damages equivalent to the difference between what he had paid out and what he had received in the context of those transactions, namely EUR 171 075.12, with interest. W.W.H. has not been implicated in the proceedings. In support of his claims, Mr Melzer maintained that he had not been sufficiently informed about the risks involved in futures trading, so far as options contracts were concerned, either by WWH or by MF Global UK.

The court at Dusseldorf rejected its jurisdiction on the basis of locus damni, arguing that this had taken place in Berlin (Melzer’s domicile), not Dusseldorf. It does however argue that it has jurisdiction on the basis of the locus delicti commissi, based on a combination of Article 5(3) Brussels I and the German Civil Code. Under Paragraph 830 of that Code (Bürgerliches Gesetzbuch), entitled ‘Joint participants and common purpose’:

 ‘(1)      Where several persons have caused damage by the commission of an unlawful act undertaken in common, each of them shall be liable for that act. That is also the case even where it is impossible to determine which of the persons involved caused the damage by his act.

(2)      Instigators and accomplices shall be treated as joint participants of the act.

The attribution of W.W.H.’s actions to MS Global, in the view of the Dusseldorf court, gives it jurisdiction on the basis of Article 5(3). It asked the following of the Court of Justice:

‘In the context of jurisdiction in matters relating to tort or delict under Article 5(3) of Regulation [No 44/2001], where there is cross-border participation of several persons in a tort or delict, is reciprocal attribution of the place where the event occurred admissible for determining the place where the harmful event occurred?’

There is no trace in the Jurisdiction Regulation of any rule on attribution for acts committed in tort. There are however many arguments against allowing such attribution from creating extra fora:

The JR’s general rule determines jurisdiction in the domicile of the defendant. This principle may be subject to many exceptions, and to many a jurisdictional rule which trumps it, however it remains the principle. As emphasised repeatedly by the ECJ, exceptions to Article 2’s general rule must be interpreted strictly, for the exceptions would otherwise lead to too many potential jurisdictions. All the more so in the case at issue. Allegations of attributions are easily made, and it is not clear how far the Court can go in reviewing the merits of the argument at the jurisdictional stage.

A restrictive interpretation also serves the Regulation’s purpose, as emphasised by the ECJ, of predictability and reliability. A party may otherwise end up being pursued in courts in which it could not reasonably have foreseen to be sued.

Furthermore of course, the attributive rule at issue superimposes national law unto Article 5(3) JR. The Court’s emphasis on autonomous interpretation sits uneasily with that.

Alternative jurisdictional rules would have been possible to establish jurisdiction: Article 6’s rule on joinders (which would have required plaintiff to use WWH as an anchor defendant) comes to mind; as does Article 5(1)’s rule on contracts (although it may not have been easy to establish that the services under contract were or should have been provided in Dusseldorf).

The Court held on 16 May. It referred inter alia to Refcomp to emphasise the presumption against letting national law infiltrate the concepts used by the Regulation, and to many of the arguments referred to above, and held

Accordingly, the answer to the question referred is that Article 5(3) of Regulation No 44/2001 must be interpreted as meaning that it does not allow the courts of the place where a harmful event occurred which is imputed to one of the presumed perpetrators of damage, who is not a party to the dispute, to take jurisdiction over another presumed perpetrator of that damage who has not acted within the jurisdiction of the court seised.

Geert.

Negative declarations for tort are covered by Article 5(3) JR – The Court of Justice in Folien Fischer

Does Article 5(3) JR cover an action for declaration as to the non-existence of liability? This was the question in Folien Fischer and it was answered by the ECJ in the affirmative.

Article 5(3) holds a special jurisdictional rule for tort:

A person domiciled in a Member State may, in another Member State, be sued: (…)

3. in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur;

Jurisdiction is established under Article 5(3) for the court of the place where the harmful event occurred ‘or may occur’.

The question on negative declarations for liability in tort was referred for a preliminary ruling by the German Bundesgerichtshof in the course of a dispute between, on the one hand, Folien Fischer AG (‘Folien Fischer’) and Fofitec AG (‘Fofitec’), companies established in Switzerland, and, on the other hand, Ritrama SpA, which has its registered office in Italy. Folien Fischer and Fofitec had been accused of essentially infringement of competition law in their sales practice and in Fofitec’s refusal to grant a license to Ritrama for one of its patents. Ritrama had issued a shot across the bows in sending Folien Fischer a letter alleging the incompatibility with competition law of its commercial practices.

Folien Fischer subsequently took the case to court first, in Hamburg, where it was found to be inadmissible for lack of international jurisdiction. Hamburg had taken its cue from that part of German scholarship which  argued that negative declarations are not covered by Article 5(3), thus leaving Folien Fischer no choice but to seek that declaration in Italy. Upon appeal the issue came before the ECJ.

Unlike Jaaskinen AG, the ECJ itself did not think that the reversal of roles in a negative declaration of liability, merits the non-application of Article 5(3) and the Bier formula. Jaaskinen AG had in so many words suggested that although the Court does not expressly say so in Bier, its holding in that case had a strong whiff about it of protecting the presumed victim, who is generally the claimant in the proceedings. The Court itself laid more emphasis on negative and positive declarations of liability essentially relating to the same matters of law and fact.

Post Bier, the ECJ has had to continue massaging the consequences of that seminal judgment. Bier threatened to open the floodgates to too many potential fora. I believe the Court was wrong in Bier to connect jurisdiction to applicable law (which it did when it found that a variety of fora had ‘natural’ links to the case by virtue of applicable law, or evidence). However follow-up case-law in the meantime (and as often reported on this blog) has taken on large dimensions. Bier /Mines de Potasse now has a large constituency: A complete revisit of the arguments in Bier is probably a tall order (pun intended I fear).

Geert.