Tag: Contract

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X v PayPal. Questionable Dutch compulsory settlement jurisdiction reignites discussion similar to English scheme of arrangement tourism. Also raises the question whether compulsory settlements are ‘contracts’ under Rome I.

The Dutch first instance judgment in Groningen  earlier this month, in X v PayPal (Europe) S.a.r.l. & Cie S.C.A., sees claimant debtor essentially seeking a compulsory settlement – CS. PayPal (established in Luxembourg) is the only debtor refusing the settlement proposed by claimant’s bank.

The CS is not listed in Annex I to the Insolvency Regulation 2015/848 (always check for the consolidated version, for the Annex is frequently updated by the Member States’ communication of proceedings to be included). This is where the discussion of scope of application could and should end.

Instead, the judge tests the CS against A1(1)’s abstract criteria. She decides there is neither divestment of assets, nor a temporary stay of individual enforcement proceedings.

This then raises the applicability of Brussels Ia. Seeing as the judge finds the action does not meet with the CJEU F-Tex criteria (Brussels Ia’s insolvency exception only applies to actions which derive directly from insolvency proceedings and are closely connected with them), she holds that Brussels Ia’s ‘insolvency’ exception is not triggered and that BIa applies.

The judge then cuts the corner which English courts in schemes of arrangement have often cut, namely to consider the willing debtors, domiciled in The Netherlands, as ‘defendants’ per Brussels Ia, hereby triggering Article 8(1) BIa’s anchor defendant mechanism. The judge justifies this by stating that the other creditors are interested parties and that it is in the interest of the sound administration of justice that the CS be discussed viz the interested parties as a whole. That may well be so, however in my view that is insufficient reason for A8(1) to be triggered. A8(1) requires ‘defendants’ in the forum state, not just ‘interested parties’. The suggestion that a co-ordinated approach with an eye for all interested parties, justifies jurisdiction, puts A8(1)‘s expediency cart before the A4 ‘defendant’-horse.

The judge then also cuts corners (at least in her stated reasons) on the applicable law issue, cataloguing this firmly in Rome I. She argues that even if the CS is a forced arrangement, replacing a proposed contract which party refused to enter into, it is still a contractual arrangement. That is far from convincing.

Equally not obvious is as the judge holds, that  per A4(2) Rome I, the party required to effect the ‘characteristic performance’ of a compulsory settlement, is the claimant-debtor of the underlying debt, leading to Dutch law being the lex causae.

The judgment at the very least highlights the continuing elephant in the restructuring tourism room, namely the exact nature of these proceedings under Brussels Ia, EIR and Rome I.

Geert.

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Pal v Damen. A haywire engagement with the consumer, contract section of Brussels Ia.

Pal v Damen & Anor [2022] EWHC 4697 (QB) is another application (compare Clarke v Kalecinski) of Brussels Ia’s consumer section to cosmetic surgery contracts. Respectfully, the analysis is a botched job.

Claims are both in contract and in tort, as is usual in this type of litigation. Jurisdiction on the basis of the consumer title against the Belgium-based surgeon is undisputed, as is the lack of jurisdiction under Article 7(2)’s tort gateway against the clinic where the surgery was performed, locus damni (direct damage, CJEU Marinari) and locus delicti commissi both being in Belgium. The core question is whether there is a contract between surgeon and /or the clinic and the patient, and whether this is a consumer contract.

The second question needs to be determined first. The clinic essentially provides the hardware for the surgeon, but also ensures patient flow via its website http://www.wellnesskliniek.com which without a doubt meets with the  CJEU Pammer /Alpenhof criteria and therefore ‘directs its activities’ towards the UK. Its general terms and conditions, of which it is somewhat disputed that claimant ticked the relevant box, state ia that the clinic ‘is not party to the treatment agreement between the physician and the patient.’ 

The  expert evidence [25] ff centres around Belgian law. Expert for one of the defendants is their Belgian counsel, and Cook M dismisses his report [55] as not meeting relevant CPR requirements on expert evidence. On the basis of the remaining evidence, the judge finds [59]

the Claimant has established a good arguable case for the existence of a contract for medical treatment and /or medical services between her and the Surgeon and accordingly this Court has jurisdiction over that claim. The Claimant has failed to establish a good arguable case for the existence of a contract for medical treatment and /or medical services against the Clinic and accordingly the Court does not have jurisdiction over that claim.

With respect, the direction of analysis is entirely wrong. The first line of enquiry should have been whether there is a consumer contract with either or both of the Belgian parties, and if there is with one, whether the other party could have been caught in its jurisdictional slipstream. Á la Bonnie Lackey but then in the opposite direction: in Bonnie Lackey the question was whether persons in the immediate orbit of the undisputed ‘consumer’-claimant, may also sue under the consumer title. In current case, the question would be whether those in the immediate vicinity of the business-defendant, may be sued under the consumer title. The existence of a consumer contract is entirely an EU law question, not a Belgian law one.

Next, if the decision were taken that at least one of the parties is not caught by the consumer title, the existence of a ‘contract’ (for the provision of ‘services’) under Article 7(1) would be triggered, as would the forum contractus under Article 7(1)a, with an analysis of where the services were or should have been provided. This, too, is an analysis that requires EU law and EU law alone. [There is no trace in the judgment of a choice of court and /or law which for the former per A25 Brussels Ia may require Belgian law, with renvoi, a lex fori prorogati but even then only for the material ‘consent’ issue].

Belgian law does not come into this analysis at all, unless, potentially and most unlikely, one argues that the A7(1) analysis requires the conflicts method, should a contract for medical services not be caught by Article 7(1)’s ‘provision of services’: in that case, Rome I’s decision tree would be required to determine lex contractus and place of performance. Even then however it is not at all certain that Belgian law would be the outcome of Rome I’s matrix.

Geert.

EU Private International Law, 3rd ed. 2021, 2.222 ff, 2.385 ff.

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LOT. Place of performance under Article 7(1)a in case of multicarrier flights. The CJEU dismisses landing place of first leg of multileg flight as forum contractus.

The CJEU held yesterday in C-20/21 LOT Polish Airlines, on the place of performance (hence creation of jurisdiction in an application for flightdelay compensation) of a flight consisting of a confirmed single booking and performed in several legs by two separate air carriers. That the claim came within Article 7(1)’s gateway for contracts is a result of CJEU flightright. The Court also held in that case that both the place of departure of the first leg of the journey and the place of arrival of the last leg of the journey were forum contractus.

In the case at issue, jurisdiction is sought for the place of landing of the first leg of the journey. In CJEU Zurich Insurance, on multimodal transport, place of dispatch was added as forum contractus, with the CJEU refraining from holding explicitly whether other legs of the journey could count as such forum (Tanchev AG had opined they should not). In current case, the CJEU would seem to confirm my feeling that in Zurich Insurance it implicitly sided with a limitation of fora. Indeed it holds that the place of arrival of the first leg is not forum contractus under A7(1), however, there is a caveat: [24]:

the referring court does not indicate the elements of the contract which could justify, with a view to the efficacious conduct of proceedings, the existence of a sufficiently close link between the facts of the dispute in the main proceedings and its jurisdiction.

The CJEU’s dictum is formulated in more absolute terms:

The second indent of [A7(1) BIa] must be interpreted as meaning that, in respect of a flight consisting of a confirmed single booking for the entire journey and divided into two or more legs on which transport is performed by separate air carriers, where a claim for compensation, brought [under the flightdelay Regulation 261/2004] arises exclusively from a delay of the first leg of the journey caused by a late departure and is brought against the air carrier operating that first leg, the place of arrival for that first leg may not be classified as a ‘place of performance’ within the meaning of that provision

However given the caveat [24] it is not to be excluded that contractual terms could distinguish the finding of lack of forum contractus.

Geert.

EU Private International Law, 3rd ed. 2021, 2.399 ff.

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The CJEU in Hrvatske Šume on contract or tort re claims of unjust enrichment. Confirmation that not all claims need to be either one or the other.

Update 17 January 2022 see here for a series of postings on the judgment.

The CJEU held this morning in  C‑242/20 Hrvatske Šume. Gilles Cuniberti already has a summary of the judgment here and I reported on the AG Opinion here. The Opinion was in essence confirmed.

Of first note is that the CJEU unlike the AG does address the Article 24(5) Brussels Ia issue of exclusive jurisdiction for claims in ‘enforcement’ of a judgment. It holds that an action for restitution based on unjust enrichment does not come within A24(5)’s scope for [32] an action the subject matter of which is a claim for restitution based on unjust enrichment is not intended to obtain a decision in proceedings relating to recourse to force, constraint or distrain on movable or immovable property in order to ensure the effective implementation of a judgment or authentic instrument. This is the case even if that unjust enrichment arises from the fact that enforcement has been annulled.

On the A7(1)-(2) issue the Court first of all and justifiably dismisses the suggestion made ia by the European Commission that A7(1) and (2) BIa dovetail: ie that necessarily a claim which is not a contractual one, must (and in subsidiary fashion) be on in delict per A7(2): [53]: forum delicti requires a harmful event (reference in support is made to Austro-Mechana),  which is simply absent in cases of unjust enrichment.

A claim in restitution of unjust enrichment may in fact be contractual [47] if there is a pre-existing relationship that is closely linked to the claim. An obvious example [48] is that of the applicant relying as the basis of its right to restitution. on unjust enrichment closely linked to a contractual obligation which he or she regards as invalid, and which has not been performed by the defendant, or which the applicant considers he or she itself has ‘over-performed’.

Geert.

EU Private International Law, 3rd ed. 2021, 2.419 ff.

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Yet again on distinguishing contract from tort (and on enforcement jurisdiction). Saugmandsgaard Oe reigns in forum delicti and forum contractus in HRVATSKE ŠUME.

Saugmandsgaard Oe AG opined (no English version at the time of writing) last week in C‑242/20 HRVATSKE ŠUME on the classic conflict of laws issue of distinguishing contract from tort.. He, oddly perhaps, unless some technical reason for it escapes me, does not entertain the question on the scope of Article 24(5) Brussels Ia’s exclusive jurisdictional rule for ‘proceedings concerned with the enforcement of judgments’.

The Opinion is a Qualificationfest.

The case concerns actions for recovery of sums unduly paid, in other words, undue enrichment. This enrichment came about by a Croatian court having  earlier ordered Hrvatske Šume, debtor of  Futura, both of Croatia, to pay its debt to Futura directly to BP Europe SA, successor to Burmah Oil, both domiciled in Germany. Hrvatske appealed that order however that appeal did not halt the payment. Now that the appeal has turned out to be successful, Hrvatske want their money back yet so far Croatian courts have held that they do not have jurisdiction under Article 7(2) BIa (the case actually went under the the predecessor, Brussels I however there is no material difference).

As the referring court notes, there is no delicti commissi in the case of unjust enrichment: it is a non-contractual obligation in which no delict is committed. (This is the very reason Rome II includes a separate heading for unjust enrichment). One might suggest this would leave forum damni only under A7(2), however the AG correctly in my view re-emphasises the seminal statements in CJEU Kalfelis, that actions under A7(2) concern ‘all actions which seek to establish liability of a defendant  and which are not related to a ‘contract’ within the meaning of Article [7](1)’. Unjust enrichment not seeking to establish liability, A7(2) is not engaged. Along the way, note his discussion of linguistics and his seeking support in Rome II.

At 71 ff the AG distinguishes the wide interpretation of ‘establishing liability’ in CJEU Austro Mechana.

A clear implication of the Opinion is that it confirms a disjoint in BIa /Rome II: not all non-contractual obligations for which Rome II identifies a lex causae, are caught by A7(2) BIa’s forum delicti rule.

The AG also engages with the possibility of Croatia being forum contractus  (he kicks off his Opinion with this issue) and dismisses it, seeking support inter alia in CJEU Handte and also in Rome II specifically providing for an unjust enrichment heading. This part of the Opinion is more optimistically straightforward than one might have expected. Following flightright, Wikingerhof etc., A7(1) has been (unduly, in my view) stretched and it would be good to have the CJEU further clarifying same. (C-265/21, in which I have been instructed, might be just the case).

Geert.

EU Private International Law, 3rd ed. 2021, 2.419 ff.

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Winslet & Ors v Gisel. Textbook application of De Bloos and looking over the fence to determine forum contractus.

Winslet & Ors v Gisel, The Estate of [2021] EWHC 1308 (Comm) is a brilliant example to teach the ‘looking over the fence’ method for determining forum contractus under Article 7(1), for contracts that do not fall within the default categories and whence the CJEU De Bloos place of performance bumps into the limits of harmonisation following CJEU Tessili v Dunlop. Confused?: the judgment certainly helps.

Claimants, domiciled at England, seek to recover from the estate of a late friend, a considerable sum by way of repayment of principal in respect of a number of interest-free loans between friends (the borrower domiciled at France).

At [16] Butcher J holds (despite considering the broad interpretation of ‘services’ by the AG in Corman-Collins /Maison du Whiskey) ‘In my judgment, the simple provision of money to a friend, which is not undertaken as part of a business of lending money, probably does not qualify as the provision of a service’ (per A7(2), GAVC – reference is made to C-533/07 Falco Privatstiftung v Weller-Lindhorst [29]: “The concept of services implies, at the least, that the party who provides the service carries out a particular activity in return for remuneration.”

The answer to the question ‘what is the place of performance of the obligation to repay’ therefore leads to Rome I per CJEU Tessili v Dunlop and to Article 4(2) Rome I. [26]

‘In the context of banking services, it is, at least ordinarily, the lender that renders characteristic performance of a loan agreement in providing the principal sum to the borrower’ (reference to CJEU Kareda). [27] ‘The question of which party renders the characteristic performance of a loan agreement outside the sphere of financial services has been viewed as rather less clear cut.’ [32] ‘pursuant to the contracts of loan which are in issue, claimants loaned money in return for a promise to repay.’ They, it is held, rendered characteristic performance under the Loans.

As a result, the Loans are governed by English law, as England is the place where each claimant has his or its habitual residence, and English law therefore determines the place of performance, which it does at the creditor’s place of residence or business (contrary it would seem to the position under French law.

Superbly clear analysis.

Geert.

EU private international law, 3rd ed. 2021, 2.401 ff.

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Travelport. This one’s for comparative lawyers: Covid19, Pandemics and Material Adverse Effect, the LVMH /Tiffany acquisition and English cq Delaware law.

A short note for the benefit of comparative contract lawyers who may find some interesting material when looking into the failed LVMH /Tiffany acquisition. That acquisition agreement (see SEC filing here)  is subject to the laws of Delaware other than claims against the financiers which are subject to the laws of New York (s.10.5). As readers might be aware, LVMH would seem to argue not that the Pandemic is a Material Adverse Effect which invalidates the merger. Rather, that Tiffany’s handling of its business in the pandemic is a MAE.

Of interesting comparative note therefore is Travelport Ltd & Ors v WEX Inc [2020] EWHC 2670 (Comm) where Cockerill J preliminarily discusses  the proper construction of, and burden of proof in relation to, the MAE definition contained in a Share Purchase Agreement (SPA) dated 24 January 2020. The substantive issues will be dealt with before her at a later stage.

Geert.

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Aspen Underwriting: The Supreme Court overrules on the issue of economically weaker parties in the insurance section.

I wrote earlier on the judgments at the High Court and the Court of Appeal in Aspen Underwriting v Kairos Shipping. The Supreme Court held yesterday and largely upheld the lower courts’ decisions, except for the issue of whether an economically equal party may nevertheless enjoy the benefit of the insurance section of Brussels Ia.

Reference is best made to my earlier posting for full assessment of the facts. The Supreme Court considered four issues.

Issue 1: Does the High Court have jurisdiction pursuant to the exclusive English jurisdiction clause contained in the Policy? This was mostly a factual assessment (is there a clear demonstration of consent to choice of court) which Lord Hodge for the SC held Teare J and the Court of Appeal both had absolutely right. Lord Hodge refers in support to a wealth of CJEU and English (as well as Singapore) courts on assignment and contractual rights v contractual obligations.

Issues 2 and 3: Are the Insurers’ claims against the Bank matters ‘relating to insurance’ (issue 2) within section 3 of the Regulation and if so, is the Bank entitled to rely on that section (issue 3)?

On issue 2, Teare J and the Court of Appeal had held that the Insurers’ claim against the Bank was so closely connected with the question of the Insurers’ liability to indemnify for the loss of the Vessel under the Policy that the subject matter of the claim can fairly be said to relate to insurance.

On this issue the insurers had appealed for they argued that a claim can be regarded as a matter relating to insurance only if the subject matter of the claim is, at least in substance, a breach of an obligation contained in, and required to be performed by, an insurance contract. They referred in particular to Brogsitter and also to Granarolo and Bosworth.

Lord Hodge disagreed with claimant, upholding Teare J and the CA: the need for restrictive interpretation is mentioned (at 38) and at 35 it transpires that of particular relevance in his analysis, is the very wording of the title of the insurance section: unlike all other special jurisdictional rules of interest, it does not include ‘contracts’. Further (at 36),

‘the scheme of section 3 is concerned with the rights not only of parties to an insurance contract, who are the insurer and the policyholder, but also  beneficiaries of insurance and, in the context of liability insurance, the injured party, who will generally not be parties to the insurance contract.’

At 40 he holds that in any event the Brogsitter test is met:

‘The Insurers’ claim is that there has been an insurance fraud by the Owners and the Managers for which the Bank is vicariously liable. Such a fraud would inevitably entail a breach of the insurance contract as the obligation of utmost good faith applies not only in the making of the contract but in the course of its performance.’

[Of note is that the ‘related to’ issue was discussed in Hutchinson and is at the CJEU as C-814/19, AC et al v ABC Sl as I flag in my review of Hutchinson].

However (issue 3) both Teare J and the CA eventually held that the insurance title failed to provide the bank with protection for they argued (as I noted with reference in particular to CJEU Voralsberger) that protection was available only to the weaker party in circumstances of economic imbalance between the claimant insurer and the defendant.

Here the SC disagrees and overrules. Lord Hodge’s reasons are mentioned at 43 ff, and I will not repeat them fully here. They include his view on which he is entirely right and as I have pointed out repeatedly, that recitals may be explanatory but only the rules in the Regulation have legal effect). Bobek AG’s Opinion in C-340/16 Kabeg features with force. Hofsoe is distinguished for, at 56,

‘In none of these cases where the CJEU has relied on the “weaker party” criterion to rule on applications to extend the scope of the section 3 protections beyond those parties who were clearly the policyholder, the insured, the beneficiary or the injured party, did the court call into question the entitlement of those expressly-named persons to that protection by reason of their economic power.’

That assessment is not entirely consistent for as Lord Hodge himself notes, and the CJEU acknowledges, in KABEG, Vorarlberger, Group Josi and GIE the jurisdiction of the forum actoris had been extended under articles 11(1)(b) and 13(2) to include the heirs of an injured party and also the employer who continues to pay the salary of the injured party while he was on sick leave.

All in all, it agree following Lord Hodge’s convincing review of the cases, that it is acte clair that a person which is correctly categorised as a policyholder, insured or beneficiary is entitled to the protection of section 3 of the Regulation, whatever its economic power relative to the insurer. (Even if particularly following Hofsoe the application of the section as a whole might need a more structured revisit by the CJEU). In the case at hand the Bank is the named loss payee under the Policy and therefore the “beneficiary” of that Policy (at 60).

In conclusion: Under A14 BIa the Bank must be sued in The Netherlands.

Finally, whether claims in unjust enrichment fall within article 7(2) (answered by Teare J in the negative) ‘does not arise’ (at 60). I am not entirely sure what this means: was it no longer challenged or was Teare J’s analysis on this straightforward? A different reply than that of Teare J would have required overruling Kleinwort Benson Ltd v. Glasgow City Council (No. 2) [1999] 1 AC 153 (HL), that a claim in unjust enrichment for mistake was neither a matter ‘relating to contract’ nor a matter ‘relating to tort’ for the purposes of EU private international law – an issue I discussed in my earlier posting in particular in its relationship with Rome I and II. With the SC’s refusal to entertain it, that authority therefore stands.

One does wish that the CJEU at some point have an opportunity further to clarify the insurance section and will do so in a holistic manner. The SC judgment here is one big step in the good direction.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.11.1, Heading 2.2.11.2.

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CJEU confirms Saugmandsgaard ØE in Libuše Králová v Primera Air Scandinavia: ‘contractual relation’ broadly interpreted, restraint on the consumer section, even for package travel.

The CJEU last week confirmed Saugmandsgaard ØE AG’s Opinion in C-215/18 Libuše Králová v Primera Air Scandinavia. In a package of services acquired from a travel agent, where there is no direct agreement with the airline carrying out the flight part of the package, there is a ‘contract’ between the individual and the airline within the meaning of Article 7(1) BIa. However the consumer section of BIa must be interpreted less extensively. Only the direct relationship between the travel agent and the consumer is covered by that section, not the relationship with the airline who merely carries out the transport side of the arrangement. (Note again the different balance struck by the AG and now the CJEU as opposed to e.g. the High Court in Bonnie Lackey).

Geert.

(Handbook of) European private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.8.2.

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Dinant Bar v maître JN. CJEU confirms Bar membership fees are in principle neither civil and commercial nor contractual.

The CJEU on Thursday last week largely confirmed Saugmansdgaard ØE’s Opinion which I reviewed here, in C-421/18 Dinant Bar v maître JN, however with different emphasis than the AG. The Court insists that in accordance with Belgian law, registration with the bar association constitutes a legal obligation to which practising as a professional lawyer is subject, and that individuals wishing to practise that profession must be a member of a bar association and must comply with decisions taken by that association, notably as regards the payment of fees.

Disputes concerning those fees then are not civil and commercial and therefore not covered by Brussels I a, unless,

‘in so far as those fees constitute consideration for services freely consented to, including insurance services, which that bar association may have negotiated with a third party with a view to obtaining more advantageous terms for its lawyer members, the obligation to pay those fees would be of a contractual nature and, therefore, an action initiated with a view to ensuring that that obligation is performed would come within the scope of Article 7(1)(a) of Regulation No 1215/2012. It is for the referring court to ascertain whether that is the case in the dispute in the main proceedings’.

The AG had emphasised the factual circumstances of the case, in which the Bar had lowered the fees for maître JN to the very insurance premium only. In most cases of course Bar fees disputes probably will be about more than that and the Court’s approach may lead to split (non)applicability of Brussels Ia, in which payments for services freely consented to will have to be distinguished from those due in return for public service obligations. (Bar councils may wish to split these sums in their yearly invoice).

Geert.

Handbook of) EU private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.2.2

 

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