Turkish Supreme Court rejects choice of court agreement on basis of ‘good faith’. Accepts asymmetric clauses.

Koray Söğüt and Suha Yılmaz reported recently on Turkish Supreme Court case-law in the area of choice of court. The report is very much worth a read. On choice of court agreements, what the Supreme Court seems to say is that when choice of court is made away from Turkey,  Turkish law will make that choice subject to a de facto forum conveniens assessment: if Turkey is a suitable forum especially when the eventual judgment will be easily enforced against Turkish assets, a defendant’s insistence on exercising the clause must be seen as violating Turkey’s general provision on bad faith (a form of fraus omnia corrumpit).

It is also reported that the Supreme Court accepted a unilateral /asymmetric jurisdiction clause – the issues surrounding these clauses are a regular feature on this blog.

More cases for the comparative law class! (At least if and when I get hold of an English translation).

Geert.

 

Rincon. Overriding mandatory law or ‘lois de police’ in California.

Update 22 November 2019 for a similar case see Handoush v. Lease Financing Group.

Rincon ((2017) 8 Cal. App 5th 1) is another case suited to comparative conflicts classes. It applies California’s restrictive regime on waiver of jury trial to a contract governed by New York law and with choice of court for New York.

‘Lois de police‘, also known as lois d’application immédiate or lois d’application nécessaire,  are included in the EU’s Rome I Regulation (on applicable law for contracts) in Article 9. (I reported earlier on their application in Unamar).

Jason Grinell has background to the case. Parties had made choice of law and choice of court in favour of New York. The link with New York was real (in EU terms: this was not a ‘purely domestic’ situation), inter alia because of the involvement of New York-based banks, parties being sophisticated commercial undertakings, and the contract having been negotiated in NY. However the real estate development is located at San Francisco, giving CAL a strong link to the case. Under CAL law,  parties generally cannot waive a jury trial before the commencement of a lawsuit unless they use one of two methods approved by the legislature. New York law does not have the same provision and choice of court clauses in favour of New York do not include reference to the only options available under CAL law.

In the case at issue, the boilerplate choice of court clause was set aside by the Court of Appeal. The lower court had denied a substantial enough Californian interest in the case – the CA disagreed. The relevant part of the judgment runs until p.22.

That comparative conflicts binder is filling out nicely.

Geert.

 

Help, I am going bananas. US courts and Chiquita.

The title of this post is a result of my confusion on the state of various suits against Chiquita, on alleged collusion in or perpetration of human rights abuses in Columbia. I had reported earlier (scroll down to ‘update on linked development’; this hyperlinks to all relevant links) that the US Supreme Court had denied certiorari in a ruling of the 11th U.S. Circuit Court of Appeals in Miami. This left that ruling standing (a strict application of SCOTUS’ view in Kiobel).

End November (I had tweeted it at the time; my ledger has not left me an opportunity to post on it since) the Southern District court of Florida dismissed an application on forum non conveniens grounds in what must be related litigation. Except my limited knowledge of jurisdictional levels in the US leaves me in doubt where the link is between these two developments (US readers please assist if you can).

At any rate, the ruling reviewed here is a textbook example of forum non conveniens (motion dismissed, nota bene) and a great source for a comparative conflicts class. Such as I teach at Monash :-).

Geert.

(Handbook of) European Private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.14.5.

Sinocore International Co Ltd v RBRG Trading: The commercial court on fraus, ordre public and arbitration.

Fraus omnia corrumpit (fraud corrupts all; alternatively formulated as ex turpi causa non oritur actio) is not easily applied in conflict of laws. See an earlier post here.  In [2017] EWHC 251 (Comm) Sinocore International Co Ltd v RBRG Trading , the Commercial Court granted permission for the enforcement of a foreign arbitral award despite allegations that the transaction in question had been “tainted” by fraud: this is how the case is summarised by Mayer Brown and I am happy broadly to refer to their overview and analysis.

The Commercial Court’s relaxed attitude is another sign of strong support of the English courts for the New York Convention and its narrow application of ordre public.

An interesting case for comparative conflicts /arbitration classes.

Geert.

Hooley: Modified universalism outside the EU’s Insolvency Regulation.

Update 25 January 2019 Rubin v  Eurofinance was incorporated as precedent by the Australian Federal Courts in King (Trustee), in the matter of Zetta Jet Pte Ltd v Linkage Access Limited [2018] FCA 1979, as explained by David Walter here.

Hooley [Hooley v The Victoria Jute Company Ltd and others [2016] CSOH 14] has been sitting in my in-box for a few months. It concerns the liquidation (particularly: selling of companies’ assets by liquidators under Scots law) of companies incorporated in Scotland but with COMI (centre of main interests) outside the EU. In particular, India.

Given the presence of COMI outside the EU, the Insolvency Regulation does not apply. Indeed the Court of Session (Lord Tyre) does not refer to it at all.Findings would have been very different were the Regulation to apply: place of incorporation has to give way to COMI, where these two do not coincide, in which circumstance the place of incorporation at best may open secondary proceedings.

At issue was among others (and for the first time in a Scots court, I understand) the consideration of ‘modified universalism’: ie what is the practical impact of there being a company incorporated in Scotland, given Scots courts and administrators jurisdiction over the insolvencies, when the companies’ business is mainly carried out abroad and when proceedings are also pending abroad.

Per Rubin v Eurofinance, Universalism” means the “administration of multinational insolvencies by a leading court applying a single bankruptcy law.”  The principle of modified universalism was stated by Lord Sumption in Singularis Holdings Ltd v Pricewaterhouse Coopers [2015] AC 1675 (PC) at para 15 as being that “the court has a common law power to assist foreign winding up proceedings so far as it properly can” (see also Lord Collins at paragraph 33 and Lord Clarke of Stone‑cum‑Ebony at paragraph 112).

Essentially Lord Tyre had to decide whether the Scottish administrators’ powers were only exercisable to the extent that their exercise was recognised as legally valid by the law of the relevant non-UK jurisdiction. He held (at 36) that the proceedings taking place in India were ancillary to the administration proceedings in Scotland. The powers of a validly appointed administrator to a Scottish company were therefore not limited by the Indian winding up.

As often of course this judgment is but one side of the coin. Indian courts are at liberty to disregard the Scots findings. Any purchasers of Hooley assets therefore will have a compromised title. One assumes this has an impact on price.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.1, Heading 5.5.

Jurisdiction for libel over the internet. Ontario’s view in Goldhar v Haaretz.

The exam season is over, otherwise Goldhar v Haaretz would have made a great case for comparative analysis. Instead this can now feed into class materials. This is an interlocutory judgment on the basis of lack of jurisdiction and /or abuse of process. Plaintiff lives in Toronto.  He is a billionaire who owns i.a. Maccabi Tel Aviv. (Chelsea’s first opponent in the Champions League. But that’s obviously an aside). Mr Goldhar visits Israel about five or six times per year. Defendant is Haaretz Daily Newspaper Ltd. which publishes Haaretz, Israel’s oldest daily newspaper (market share about 7%).   It also publishes an English language print edition.  Haaretz is published online in both English and Hebrew.

Haaretz published a very critical article on Mr Goldhar in November 2011. The print version was not published in Canada, in either English or Hebrew. However, Haaretz was made available internationally on its website in Israel in both Hebrew and English – the judgment does not say so specifically however I assume this was both on the .co.il site – even if currently Haaretz’ EN site is available via a .com site.

Information provided by the defendants reveals that there were 216 unique visits to the Article in its online form in Canada. Testimony further showed that indeed a number of people in Canada read the article – this was sufficient for Faieta J to hold that a tort was committed in Ontario and thus a presumptive connecting factor exists. Presumably this means that the court (and /or Canadian /Ontario law with which I am not au fait) view the locus delicti commissi (‘a tort was committed’) as Canada – a conclusion not all that obvious to me (I would have assumed Canada is locus damni only). Per precedent, the absence of a substantial publication of the defamatory material in Canada was not found to be enough to rebut the finding of jurisdiction.

Forum non conveniens was dismissed on a variety of grounds, including applicable law being the law of Ontario (again Ontario is identified as the locus delicti commissi: at 48). Plaintiff will have to cover costs for the appearance, in Canada, of defendants’ witnesses. Importantly, plaintiff will also only be able to seek damages for reputational harm suffered within Canada.

I can see this case (and the follow-up in substance) doing the rounds of conflicts classes.

Geert.

Don’t leave the store without asking. Joinders, and the Aldi principle applied in Otkritie. On the shopping list for the EU?

Postscript 21 November 2017: For an application in Hong Kong see Far Wealth Ltd v Lo Ki Mou, reported here:  proceedings dismissed as an abuse of process because the plaintiffs could have protected their position by way of a counterclaim in prior proceedings commenced against them by the defendants.

A posting out off the box here, so bear with me. Neither Brussels I nor the Recast include many requirements with respect to (now) Article 8(1)’s rule on joinders. A case against a defendant, not domiciled in the court’s jurisdiction, may be joined with that against a defendant who is so domiciled, if the cases are ‘so closely connected that it is expedient to hear and determine them together in order to avoid the risk of irreconcilable judgments’. There is of course CJEU case-law on what ‘so closely connected’ means however that is outside the remit of current posting.

As I reported recently, the CJEU has introduced a limited window of abuse of  process viz Article 8(1), in CDC. The Court’s overall approach to Article 8(1) is not to take into account the subjective intentions of plaintiff, who often identify a suitable anchor defendant even if is not the intended target of their action. The Court does make exception for one particular occasion, namely if it is found that, at the time the proceedings were instituted, the applicant and that defendant had colluded to artificially fulfil, or prolong the fulfilment of, (now) Article 8’s applicability.

What if at the time the proceedings were instituted, applicant artificially ignores the fulfilment of, (now) Article 8’s applicability?

The Aldi rule of the courts of England and Wales, and its recent application in Otkritie, made me ponder whether there is merit in suggesting that the CJEU should interpret Article 8(1) to include an obligation, rather than a mere possibility, to join closely connected cases. I haven’t gotten much further than pondering, for there are undoubtedly important complications.

First, a quick look at the Aldi rule, in which the Court of Appeal considered application of the Johnson v Gore Wood principles on abuse of process of the (then) House of Lords, to an attempt to strike out a claim for abuse of process on the basis that the claim could and should have been brought in previous litigation. Aldi concerned complex commercial litigation, as does Otkritie. The result of Aldi is that plaintiffs need to consult with the court in case management, to ensure that related claims are brough in one go. Evidently, the courts need to walk a fine rope for the starting point must be that plaintiffs have wide discretion in deciding where and when to bring a claim: that would seem inherent in Article 6 ECHR’s right to a fair trial.

In Otkritie [the case nota bene does not involve the Brussels Regulation], Knowles J strikes the right balance in holding that the Aldi requirement of discussing with the court had been breached (and would have cost implications for Otkritie in current proceedings) but that otherwise this breach did not amount to abuse of process.

Now, transporting this to the EU level: to what degree could /should Article 8 include a duty to join closely related proceedings? Should such duty be imposed only on plaintiff or also on the court, proprio motu? A crazy thought perhaps for the time being, but certainly worthwhile pondering for future conflicts entertainment.

Geert.

Fraus omnia corrumpit or accidental oversight? New South Wales Supreme Court goes full throttle in Proactive Building Solutions

Fraus omnia corrumpit (fraud corrupts all) is not easily applied in conflict of laws.  Both forum shopping and choice of law ought not prima facie to be regarded with much suspicion, especially in a B2B context. States typically employ mandatory law provisions, sometimes restricted to ‘overriding mandatory law’ (such as in the EU’s Rome I Regulation for choice of law in contracts) to ring-fence parts of national law not capable of being avoided by choice of law in purely domestic situations, and ‘public order’ provisions to trump choice for foreign law even in not purely domestic contexts, but then only for the most essential parts of a State’s legal fabric.

In Proactive Building Solutions, McDougall J held ex tempore that a choice of court and choice of law clause in favour of the English courts cq English law, was void in its entirety for it negated the working of a provision of the New South Wales Building and Construction Industry (Security of Payment) Act 1999 (NSW) (SOP Act). The object of this Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.

Section 34 of that Act reads

34 No contracting out

(1) The provisions of this Act have effect despite any provision to the contrary in any contract.

(2) A provision of any agreement (whether in writing or not):

(a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or

(b) that may reasonably be construed as an attempt to deter a person from taking action under this Act, is void.

Section 7(1) of the Act, not referred to in judgment, reads

Subject to this section, this Act applies to any construction contract, whether written or oral, or partly written and partly oral, and so applies even if the contract is expressed to be governed by the law of a jurisdiction other than New South Wales.

As pointed out by Leigh Duthie and his colleagues,  while Section 7(1) may have normally allowed the Court to void only the SOP relevant aspects of choice of law, the trouble in the current case was that the contract had thrown choice of court and choice of law into one clause (a very common contractual occurrence), with a foreign court adjudicating.  McDougall J found it highly unlikely that the English courts would uphold the provisions of the SOP Act, hence giving the NSWSC no choice but making the clause void in its entirety. Consequently the whole contractual arrangement became subject to choice of court and choice of law as if no express clause had been inserted, even if the workings of the SOP Act would have had only a minor impact on parties’ contractual relations.

An obvious remedy is to lift SOP relevant parts of the contract out of the choice of court clause, however even in such case some uncertainty persists: for the recalcitrant party, suing in NSW in spite of a choice of court elsewhere, could attempt to raise the SOP flag if only to delay proceedings.

An interesting case for comparative conflicts classes.

Geert.

Applicable law and arbitration clauses – lex arbitri, lex curia, lex contractus – The English view in Sulamerica

Update 22 June 2020 see Inghams Enterprises Pty Ltd v Hannigan [2020] NSWCA 82 for a view from Australia, particularly Andre Bell J’s dissenting opinion.

Update 16 January 2020 the grounds in [2019] SGCA 84 BNA v BNB are finally out– thank you again Filbert Lam for letting me know. I shall post separately on the issues.

(Note see various 2017, 2016, 2015 and 2014 postscripts at the end of this posting)

Update 24 October 2019 Thank you Filbert Lam for alerting me to the Singapore Court of Appeal reversing the High Court Update- I have no access to the CA judgment yet – reasons and analysis to follow.

Update 7 July 2019 for review of a recent Austrian SC decision adopting a favor validitas approach see here. For a view from Singapore see BNA v BNB [2019] SGHC 142 reviewed here: the High Court interpreted an express provision for “arbitration in Shanghai” to be an agreement to Singapore-seated arbitration with hearings in Shanghai, thereby upholding the validity of the arbitration clause and the jurisdiction of the tribunal.

Update 15 May 2019 Whether Fiona Trust is good authority in Australia might have been, but ultimately was not considered in [2019] HCA 13 Rinehart v Hancock Prospecting Pty Ltd. For review see here update 12 November 2019 and Michael Douglas case-note here. The High Court found it unnecessary to consider whether Fiona Trust is good law in Australia. According to the plurality (Kiefel CJ, Gageler, Nettle and Gordon JJ), the appeals could be resolved by application of orthodox principles of contract interpretation, without reference to Fiona Trust: para 18.

 

Preferring to settle issues by arbitration (often preceded by mediation) continues to be a preferred method of dispute settlement in commercial transactions. It is most probable that the best results in arbitration are reached for contracts of a sizeable value, between companies with pedigree, with a certain amount of contractual history between them. However even then, lack of attention to detail may land parties in a pickle. In [2012] EWHC 42 (Comm) Sulamerica, the claimant insurers seek the continuation of an interim anti-suit injunction against the defendant insureds. Parties are at loggerheads over the validity of an arbitration agreement between them, which may be found in the policy. Express choice of law for the policy has been made for Brazil. Express and exclusive choice of court has also been made for Brasil. Parties are all Brazilian (incidentally, the re-insurers were not). The subject matter of the insurance is located in Brazil (Jirau, one of the world’s largest hydro-electric facilities). However the arbitration agreement in the contract concludes with appointing London as the seat of the arbitration. Arbitration was agreed to be held under ARIAS rules.

(Not just) under English law [see the House of Lords in Fiona Trust], an arbitration agreement is treated distinct from the substantive agreement in which it is included, for the purpose of assessment of its validity, existence, and effectiveness. This leads one to have to ascertain

lex arbitri (the law of the arbitration agreement, per the preceding sentence);

the curial law or the ‘law of the seat’ (the procedural law which will guide the arbitration proceedings; despite the latin curia not commonly referred to as lex curia);

the ‘proper law’, the law that governs the actual contract (lex contractus); and

the locus arbitri and the lex loci arbitri: the venue of the arbitration and its laws, which may or may not interact with the proceedings. Update 8 January 2018 see for an example of such impact the new Chinese approach to optional arbitration proceedings, applicable as of 1 January 2018).

In the EU, the issue is not covered by the Rome I Regulation, for arbitration is excluded from that Regulation. Whence the courts apply their national conflict of laws rules. In England, this implies identifying the law with which the arbitration agreement has its ‘closest and most real connection’. In Sulamerica, Cooke J held that this was, in this case, England, given London having been assigned as the seat of arbitration.  Indeed in Abuja International Hotels, Hamblen J came to the same conclusion with respect to an underlying agreement that was governed by Nigerian law.

The lesson here is clear. With three sets of applicable law having to be identified, one had better consider them specifically, in writing, in the agreement.

Geert.

Postscript: Cooke J held in January 2012. In May 2012, the Court of Appeal confirmed the decision.

Postscript 2, 3 July 2014: In First Link Investments, the Singapore High Court took a radically different approach in May 2014, noting that “it cannot always be assumed that commercial parties want the same system of law to govern their relationship of performing the substantive obligations under the contract, and the quite separate (and often unhappy) relationship of resolving disputes” and that “the natural inference would instead be to the contrary”. (Case come to my attention thanks to Alistair Henderson and Daniel Waldek). Postscript 4, 2 December 2016. In BCY v BCZ the High Court would seem to have entirely altered that position, reverting back to Sulamerica.

Postscript 3, 2 June 2015:In Trust Risk Group SpA v AmTrust Europe Limited, the Court of Appeal further considered the House of Lords’ presumption of the one shop principle and decided it did not apply to the case at issue. The CA, upon detailed analysis of the agreements at stake, decided in effect that the later agreement was lex specialis vis-a-vis the overall business agreement between parties and hence that choice of law and choice of court of the later agreement prevailed. (Davina Given and Ed Holmes posted on the RPC blog with full review of the case). The Court’s analysis highlights among others the often less than clear language used in commercial agreements, whether or not caused by the fog of closing. In particular, the agreements under consideration used often confusing and not clearly defined concepts to denote the various agreements at stake.

Postscript 5, 25 October 2017: in Roger Shashoua v Mukesh Sharma CIVIL APPEAL NOS. 2841-2843 of 2017 the Indian Supreme Court once again had to emphasise the difference between venue (lex loci arbitri if you like; potentially only the place where hearings are held) and the seat of arbitration (which determines procedural issues; the lex curia). See review by Herbert Smith here.

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