Posts Tagged Choice of law

Applicable law and arbitration. Sulamerica extensively discussed in Kabab-Ji SAL v Kout Food Group.

Thank you Filbert Lam for yet again flagging an important case. In [2020] EWCA Civ 6 Kabab-Ji SAL v Kout Food Group Flaux LJ extensively discussed the application of Sulamerica as to the governing law of an arbitration agreement which provides for arbitration in Paris but which is contained in a main agreement which is expressly governed by English law; and as to whether the respondent became a party to the main agreement and/or the arbitration agreement notwithstanding the presence of No Oral Modification provisions in the main contract.

Parties’ choice of English law for the underlying contract was found to also be an express choice of the law governing the arbitration agreement. This meant there was no need to consider the implications (particularly viz a possible implied choice of law) of a choice of Paris as seat or other aspects of the Sulamérica test. The award applying French law was set aside.

Jonathan Lim suggests here that the judgment is a departure from the understanding of separability in previous CA decisions, although the ensuing discussion on his feed also suggests that the factual interpretation of the clauses might suggest the exact opposite. I tend to agree with Jonathan: the generic nature of the clauses and the lack of (reported at least) other strong indications seem to suggest the finding of express choice of law was optimistic.

Geert.

 

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Sterling v Rand. The High Court emphasises the implications for arbitral tribunal’s powers resulting from choice of curial law in favour of Beth Din arbitration and choice of law pro Jewish law.

[2019] EWHC 2560 (Ch) Sterling v Rand concerns not so much the relationship between a Beth Din (a Jewish court) and the courts in ordinary, rather the implications for a Beth Din arbitral tribunal’s powers (here: power to transfer title in property) as a result of choice of curial law and choice of lex causae. On the various laws to be decided re arbitration, see here.

Ambrose DJ found Claimant was correct to argue that by agreeing to the application of Jewish law to the procedure of the arbitration (Jewish law as curial law), the Beth Din has power to order the transfer of the Property because Jewish law, which  gives the Beth Din power to make such an order. She dismissed the route taken by the claimant to come to this conclusion (he had suggested application of S48 of the 1996 Arbitration Act, a provision regarding remedies available in an arbitration governed by the Act), rather consequentially applying parties’ arbitration agreement. Parties had referred to the Judicial Division of the London Beth Din (Court of the Chief Rabbi) for a binding arbitration under the Arbitration Act 1996, as follows: 

“Re: Dispute over ownership of 4 Dunsmure Road N16 5PW I agree to the submission of this matter, including all claims and counterclaims arising in respect of it, to the Beth Din for a binding arbitration under the Arbitration Acts for the time being in force and under the following terms:

(1) The Beth Din will consist of three dayanim unless the parties agree to the substitute of a single dayan.

(2) The Beth Din’s rules of procedures are those of Jewish law.

(3) Each party to this matter shall have, by signing this document, indicated his assent to an arbitration under these terms. The Beth Din may continue the arbitration and conclude it ex parte if any party fails after receiving reasonable notice to attend any hearing.

(4) In the event that a vacancy arises in the Beth Din on account of the inability or refusal of any of its members to determine the arbitration, the Beth Din may appoint one or more of its own members to fill the vacancy, and may at its own discretion determine how the arbitration shall continue to be conducted. The Beth Din may determine that a single dayan may hear and receive evidence on behalf of the full Beth Din.

(6) The Beth Din has the power to make both inter partes and ex parte orders from the day upon which all parties are sent the terms of this agreement until such time as the Beth Din is functus officio under Jewish law. The Beth Din has the power to make orders under Jewish law both as to its own costs, and as to the costs incurred by any party in participating, bringing or defending any claim or counterclaim. The Beth Din may make orders as to security for costs, and in respect of claims.

(9) The Beth Din shall decide the matter under Jewish law incorporating such other laws as Jewish law deems appropriate.”

Under Jewish law, the Beth Din ordinarily has the power to order transfer of title.

Enforcement of the order was nevertheless dismissed for ordre public, following new evidence which had not been laid out to the Beth Din. At 83: ‘an order for specific performance would not be in the interests of justice, it could be contrary to public policy and it could damage the integrity (and reputation) of the Beth Din system.’

Geert.

 

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Danilina v Chernukin: how a very Russian case triggers the proper law of the contract under the Rome Convention.

A little bit of factual background is required to understand [2019] EWHC 173 (Comm) Danilina v Chernukin. It concerns a valuable site in Central Moscow (readers of the blog and students of mine will now no longer wonder why this is being litigated in England) which is, indirectly, the subject of a Shareholder Agreement dated 31 May 2005 (the “SHA”). The issue is whether Vladimir Chernukhin, who is not named as a party to the SHA is in fact party to the SHA as a disclosed principal of Lolita Danilina, who is named as a party to the SHA. Mr. Chernukhin and Mrs. Danilina had been in a relationship; it is Mr. Chernukhin’s case that she was a named party because she was acting as his nominee or agent.

That is the purely business side of the litigation – there is also a family assets angle: Ms Danilina has a claim arising out of what she argues to have been an agreement between her and Mr. Chernukhin in 2007 for the division of their assets after their relationship had come to an end.

The latter issue is the ‘2007 Agreement’ and it is this which is of interest to the blog: Teare J at 324: Mrs. Danilina seeks to prove alleges the following, quite detailed, agreement: a) TGM would remain (as it always was) as an asset belonging to Mrs. Danilina and her alone; b) the assets accumulated between them jointly and which they regarded as family assets would be distributed between them on an effectively equal basis with: i) Mrs. Danilina retaining and/or taking those residential real property assets located within Russia, ii) Mr. Chernukhin having those residential real property assets located outside of Russia and iii) save for certain chattels such as cars and the weapon collection (which were to be owned by Mr. Chernukhin) and jewellery and artwork in Russia (which were to be owned by Mrs. Danilina), the balance of their assets would be split equally and Mrs. Danilina’s 50% share held in a trust for her benefit; c) a new structure would be required to reflect these agreements; and d) Mr. Chernukhin would be responsible for taking the necessary steps to give effect to the agreement.

Teare J starts with the bootstrap /von Munchausen: at 325: it is necessary to begin by considering what would be the governing law of the 2007 agreement, if it was made on the terms alleged by Mrs. Danilina. The reason for this is that it is submitted on behalf of Mr. Chernukhin that the agreement, if made, would be governed by Russian law, and that there are provisions of Russian law that affect the admissibility of witness testimony in proving the existence of an oral agreement. Being a contract entered into prior to 16 December 2009, the proper law of the 2007 Agreement would be determined under the Rome Convention on the law applicable to contractual obligations – not the later Rome Regulation.

Was there choice of law “expressed or demonstrated with reasonable certainty by … the circumstances of the case’ (per Article 3(1) Rome Convention? [I have included Articles 3 and 4 in relevant part below]

At 327 are cited (i) the fact that “Mr. Chernukhin had fled Russia in 2004 in an effort to make a clean break from Russian law and jurisdiction”; (ii) that Mrs. Danilina assisted him in moving to England, including by sending legal documents there; (iii) in 2007 Mr. Chernukhin was seeking English matrimonial law advice in relation to his assets, prior to his marriage to Mrs. Chernukhin. With Teare J I do not think this is sufficient to amount to a choice for the purposes of article 3. They do not amount to a positive choice of law “expressed or demonstrated with reasonable certainty.”

Consequently Article 4 is engaged.

Presumption of characteristic performance. It was submitted on behalf of Mrs. Danilina (at 328) that England is the “most closely connected” country, under the presumption in article 4(2). It is said that the characteristic performance under the agreement was to create the relevant trust structure for dividing, managing and investing the assets. The performer of these obligations was Mr. Chernukhin, who was and is resident in England. Teare J agrees: at 330: the characteristic performance of the agreement was primarily to be performed by Mr. Chernukhin. On Mrs. Danilina’s case, Mr. Chernukhin was entrusted to divide, invest and structure significant liquid and illiquid assets, of which Mrs. Danilina was in large part unaware.

Displacement of the presumption? Mrs. Danilina then submits that this presumption should not lightly be displaced.

This section discusses a core challenge to Article 4, which is the continental European but mostly EU-driven quest for predictability, with the more common law oriented search for the ‘proper’ law of the contract. In Article 4 terms (similarly under the current Article  Rome I): per Samcrete Egypt Engineers v Land Rover Exports Ltd [2001] EWCA Civ 2019, at [41], “unless art.4(2) is regarded as a rule of thumb which requires a preponderance of contrary connecting factors to be established before that presumption can be disregarded, the intention of the Convention is likely to be subverted.” Nonetheless, “the presumption may most easily be rebutted in those cases where the place of performance differs from the place of business of the party whose performance is characteristic of the contract” (See Bank of Baroda v Vysya Bank Ltd. [1994] 2 Lloyd’s Rep 87, 93, in the context of a bank’s place of central administration).

Teare J leans on Samcrete Egypt Engineers and rejects the suggestions made (at 329) to displace the presumption. There were that “the principal subject-matter was assets based in Russia / assets acquired using money generated in Russia and while the parties were resident in Russia.” Further, the Agreement is said to be “akin” to a divorce arrangement pursuant to the Russian Family Code, and of a relationship which occurred primarily or exclusively in Russia. Finally, the Agreement as alleged would have involved performance by both Mrs. Danilina and Mr. Chernukhin, distributing (including, where relevant, by re-registration of shares and real property) their various assets. However (at 330) ‘there are indeed some factors that might otherwise point to Russia being “most closely connected” (and other factors pointing to other jurisdictions, such as the use of Channel Islands trusts and the fact that the agreement was allegedly concluded in Zurich), these factors are not, in my judgment, sufficient to displace the presumption in article.4(2).’

Proper law of the contract is English law (discussion of the Russian oral evidence issue is made obiter at 332 ff). Tear J does signal at 331 that per Article 4(3) at the merits stage, provision may have to be made for Russian law as the lex rei sitae, for some parts of the agreement. Eventually the High Court finds on the basis of English law that there was no 2007 Agreement – although there is an issue of breach of a trust agreement and that may be litigated.

Fun with Rome.

Geert.

(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 3, Heading 3.2.4, Heading 3.2.6.

 

 

Article 3 Freedom of choice

1. A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract.

2. …

3. The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law at the country which cannot be derogated from by contract, hereinafter called ‘mandatory rules`.

4. …

Article 4 Applicable law in the absence of choice

1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a separable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.

2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party’s trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.

3. Notwithstanding the provisions of paragraph 2 of this Article, to the extent that the subject matter of the contract is a right in immovable property or a right to use immovable property it shall be presumed that the contract is most closely connected with the country where the immovable property is situated.

4. …

5. Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.

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Heller v Uber at the Ontario Court of Appeal: arbitration clause requiring arbitration in the Netherlands of disputes between drivers and Uber invalid.

Update 30 March 2020 Heller is now before the SC, and the British Colombia  distinguished it in Williams v Amazon [2019] BCSC 1807, holding as McCarthy Tétrault LLP report that the arbitration clause provided for a refund of costs in many cases. Further, the arbitration could be conducted through flexible options, and as such, this was not a substantially unfair bargain so as to meet the test for unconscionability.

Thank you Christopher Burkett for alerting me to Heller v. Uber Technologies Inc., 2019 ONCA 1.  The case is reminiscent of California’s Senate Bill 1241 (review here) and of an article that I co-authored with Jutta Gangsted [‘Protected parties in European and American conflict of laws: a comparative analysis of individual employment contracts]. The starting point of the California, the EU rules, and the Canadian judgment is the same: employees cannot be considered to really consent to either choice of law or choice of court /dispute resolution hence any clause doing same will be subject to mandatory limitations.

Here, an arbitration clause requiring arbitration in the Netherlands of disputes between drivers and Uber was held to be invalid and unenforceable, because it deprives an employee of the benefit of making a complaint to the Ministry of Labour under relevant Ontarian law.

Of note is that the judgment applies assuming the contract is one of employment – which remains to be determined under Ontarian law. Of note is also that the Court of appeal rejected Uber’s position that the validity is an issue for the arbitrator to determine because it is an issue going to the jurisdiction of the arbitrator. Uber invoked the “competence-competence” /kompetenz kompetenz principle (recently illustrated e.g. by the Brisilian Supreme Court in Petrobas) in support of its position.

Geert.

(Handbook of) European Private international law, 2nd ed. 2016. Chapter 2, Heading 2.2.8.3, Chapter 3, Heading 3.2.5.

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Floating/Invalid Choice of Law Clauses. The Singapore High Court in Shanghai Turbo.

Marcus Teo has excellent analysis of Shanghai Turbo Enterprises Ltd v Liu Ming [2018] SGHC 172. The issue is well-known in contract law as such and takes one or two special forms in conflicts: what is the fate of a contract as a whole, and /or of contractual clauses individually, when part of a clause is defective.

In the case at issue, the relevant contractual clause read

This Agreement shall be governed by the laws of Singapore/or People’s Republic of China and each of the parties hereto submits to the non-exclusive jurisdiction of the Courts of Singapore/or People’s Republic of China.”

As far as the choice of court part of this clause is concerned, non-exclusive choice of court comes with strings attached, depending on the laws of the States concerned: under the editorship of Mary Keyes, Michiel Poesen and I have contributed to an extensive comparative volume on same wich is forthcoming. However for choice of law one need not look at the specific laws of a State to appreciate that this clause thus formulated is simply a lame duck. No clear choice of law is made at all. The pragmatic solution is to ignore the useless clause and determine the proper law of the contract in the absence of a valid expression of parties’ autonomy. Yet conceptually an argument can, and has been made that to do so ignores the very high relevance of the lex contractus in the very contract formation – a conceptual quagmire which in EU law is addressed by Rome I’s ‘bootstrap’ principle.

In the case at issue, the High Court follows a pro-validation approach (favor contractus): the invalidity of the choice of law clause does not affect the formation of the main contract. A commercially sensible solution which Marcus analysis critically in excellent detail.

Geert.

(Handbook of) EU Private international law, 2nd ed. 2016, Chapter 3, Heading 3.2.7.

 

 

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Dutch Supreme Court refers conflicts relevant questions on posted workers Directive to CJEU.

Update 4 December 2018 thank you to his Grace der Graf von Luxemburg for additionally pointing out pending case C-16/18 Dobersberger dealing with workers employed on international trains which also travel through the host Member State – Update January 2020 the Court held 19 December 2019 after Opinion Szpunar AG in July 2019. – and see scholarly review of similar Dutch cases here.

Thank you MPI’s Veerle Van Den Eeckhout for pointing out a highly relevant reference to the CJEU by the Dutch Supreme Court /Hoge Raad. The link between the posted workers Directive and conflict of laws is clear, as I have also explained here. The most interesting part of the reference for conflicts lawyers, are the questions relating to ‘cabotage’, particularly where a driver carries out work in a country where (s)he is not habitually employed (international trade lawyers will recognise the issue from i.a. NAFTA). Update January 2019 the reference is now here, the case is C-815/18.

One to keep an eye on.

Geert.

(Handbook of) EU Private International Law, 2nd ed 2016, Chapter 3, Heading 3.2.5.

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Apple v eBizcuss. CJEU leaves open all options on choice of court and anti-trust, particularly for abuse of dominant position.

Update 12 February 2019 Thank you Hélène Péroz for flagging that the French Supreme Court held on 30 January last (case number 16-25259)and upheld the choice of court in favour of Irish courts: ‘Qu’il s’avère que les pratiques anticoncurrentielles alléguées, qui se seraient matérialisées dans les relations contractuelles nouées entre les sociétés eBizcuss et Apple Sales International, au moyen des conditions contractuelles convenues avec elle, ne sont donc pas étrangères au rapport contractuel à l’occasion duquel la clause attributive de juridiction a été conclue ; que cette clause doit, donc, recevoir application.’ The Court holds that given that the very contractual terms and conditions form the means by which Apple has allegedly infringed competition law, that infringement is not foreign to the contract and therefore the contractual choice of court must stand.

 

My review of Wahl AG’s Opinion gives readers necessary detail on C-595/17 Apple v eBizcuss. In 2012 eBizcuss started suing Apple for alleged anti-competitive behaviour, arguing Apple systematically favours its own, vertically integrated distribution network. Can choice of court in their original contract cover the action (meaning the French courts would not have jurisdiction).

The Court says it can, both for Article 101 TFEU (cartels) and for 102 TFEU actions (abuse of dominant position), but particularly for the latter. In both cases the final say rests with the national courts who are best placed to appreciate the choice of court provisions in their entire context.

For Article 101 TFEU actions, the window is a narrow one (at 28: ‘the anti‑competitive conduct covered by Article 101 TFEU, namely an unlawful cartel, is in principle not directly linked to the contractual relationship between a member of that cartel and a third party which is affected by the cartel’). For Article 102 TFEU, as noted by other, it is wider (‘the anti‑competitive conduct covered by Article 102 TFEU, namely the abuse of a dominant position, can materialise in contractual relations that an undertaking in a dominant position establishes and by means of contractual terms’). The overall context of appreciation is that of predictability: at 29 (referring to CDC): ‘in the context of an action based on Article 102 TFEU, taking account of a jurisdiction clause that refers to a contract and ‘the corresponding relationship’ cannot be regarded as surprising one of the parties.’

Geert.

(Handbook of) European Private International Law. 2nd ed. 2016, Chapter 2, Heading 2.2.12, Heading 2.2.12.1.

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