Kaupthing: the High Court interprets (and rejects) Lugano insolvency exception viz the Icelandic Banking crisis.

Thank you Eiríkur Thorláksson (whose expert report fed substantially into the Court’s findings) for flagging and for additional insight: In Tchenguiz v Kaupthing, the High Court had to review the insolvency exception to the Lugano Convention, combined with Directive 2001/24 on the reorganisation and winding-up of credit institutions. Directive 2001/24 applies to UK /Iceland relations following the EFTA Agreement. See my earlier post on Sabena, for Lugano context. Mr Tchenguiz is a London-based property developer. He claims against Kaupthing; Johannes Johannsson, a member of Kaupthing’s winding-up committee; accountants Grant Thornton; and two of its partners.

While Directive 2001/24 evidently is lex specialis vis-a-vis the Insolvency Regulation, much of the ECJ’s case-law under the Regulation is of relevance to the Directive, too. That is because, as Carr J notes, much of the substantial content of the Regulation has been carried over into the Directive. Carr J does emphasise (at 76) that the dovetailing between the Lugano Convention /the Judgments Regulation, and the Insolvency Regulation, carried over into the 2001 Directive does not extend to matters of choice of law. [A bit of explanation: insolvency was excluded from the Judgments Regulation (and from the Convention before it) because it was envisaged to be included in what eventually became the Insolvency Regulation. Consequently the Judgments Regulation and the Insolvency Regulation clearly dovetail when it comes to their respective scope of application]. That is because neither Lugano nor the Judgments Regulation consider choice of law: they are limited to jurisdiction.

On the substance of jurisdiction, the High Court found, applying relevant precedent (German Graphics, Gourdain, etc.), that the claims against both Kaupthing and Mr Johansson are within the Lugano Convention and not excluded by Article 1(2)(b) of that Convention. That meant that Icelandic law became applicable law by virtue of Directive 2001/24, and under Icelandic law proceedings against credit institutions being wound up come not be brought before the courts in ordinary (rather, a specific procedure before the winding-up committee of the bank applies). No jurisdiction in the UK therefore for the claim aganst the bank. The claim against Mr Johansson can go ahead.

[For the purpose of this blog, the jurisdictional issues are of most relevance. For Kaupthing it was even more important that the Bankruptcy Act in Iceland was found to have extra-territorial effect. The Act on Financial Undertakings implemented the winding-up directive and the Icelandic legislator intented it to have extra-territorial effect].

A complex set of arguments was raised and the judgment consequentially is not an easy or quick read. However the above should be the gist of it. I would suggest the findings are especially crucial with respect to the relation between Lugano /Brussels I, Directive 2001/24, and the Insolvency Regulation.

Geert.

Anchor defendants in follow-up competition law cases. The ECJ in CDC confirms AG’s view on joinders. Sticks to Article 5(3 /7(1). Locus damni for purely economic loss = registered office.

Update 29 May 2018 on economic loss: Bobek AG would seem to take a similar view (that the CJEU’s finding on registered office is at odds with its case-law on Article 7(2) in his Opinions in Barclays and  flyLAL.

Update November 2017. For a contrary ruling on the scope of arbitration agreement, see Dortmund 13 September 2017, reviewed here.

In Case C-352/13 CDC, in which the ECJ held last week, at issue is among others the use of Article 6(1) of the Brussels I-Regulation (8(1) in the recast) when the claim against the anchor defendant has been settled before the trial is well and truly underway.

I reviewed JÄÄSKINEN AG’s opinion here.  The ECJ’s overall approach to Article 6 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. Like its AG, 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, Article 6’s applicability. I had expressed reservation vis-a-vis this suggestion, obviously in vain. In cases such as these, where tort is already clearly established (via the European Commission’s cartel finding), the intention of ECJ and AG seem noble. Collusion to defraud is disciplined by the non-applicability of Article 6. However this arguably serves the interests of the parties guilty of the other type of collusion involved: that of defrauding not procedural predictability, but rather consumers’ interest. 

Next, the referring court enquired about the application of Article 5(3)’s special jurisdictional rule in the event of infringement of competition law, where that infringement concerns a complex horizontal agreement, spread over a long period of time, and with varying impact in various markets. The AG had suggested dropping application of Article 5(3) (now 7(1)) altogether, both with respect to locus delicti commissi and locus damni. Here the Court disagreed. Difficult as it may be, it is not to be excluded that locus delicti commissi can be established. At 50: one cannot rule out ‘the identification, in the jurisdiction of the court seised of the matter, of a specific event during which either that cartel was definitively concluded or one agreement in particular was made which was the sole causal event giving rise to the loss allegedly inflicted on a buyer.’

For locus damni, the Court again has no sympathy for either mozaik effect of Article 5(3), or indeed the often great difficulties in establishing locus damni, flagged by the AG. At 52: ‘As for loss consisting in additional costs incurred because of artificially high prices, such as the price of the hydrogen peroxide supplied by the cartel at issue in the main proceedings, that place is identifiable only for each alleged victim taken individually and is located, in general, at that victim’s registered office.

Registered office as the locus damni for purely economic loss, lest my memory fails me, has not been as such confirmed by the ECJ before. It is also currently pending in Universal. The Court is in my view a bit radical when it comes to justifying registered office as the Erfolgfort: at 53: ‘That place fully guarantees the efficacious conduct of potential proceedings, given that the assessment of a claim for damages for loss allegedly inflicted upon a specific undertaking as a result of an unlawful cartel, as already found by the Commission in a binding decision, essentially depends on factors specifically relating to the situation of that undertaking. In those circumstances, the courts in whose jurisdiction that undertaking has its registered office are manifestly best suited to adjudicate such a claim.‘ Update 29 May 2018 Bobek AG would seem to take a similar view (that the CJEU’s finding on registered office is at odds with its case-law on Article 7(2) in his Opinions in Barclays and  flyLAL.

Finally, on the issue of choice of court in the agreements between the victims of the cartel, and those guilty of the cartel, the Court follows the AG’s lead. Such clauses are not generally applicable to liability in tort (the clause would have to refer verbatim to tortious liability). Neither do they in principle bind third parties, lest of course there be subrogration (Refcomp). (The referring national court has given very little detail on the clauses at issue and hence the ECJ notes that it could not reply to all questions referred).

In the end, it is the finding with respect to economic loss for which the judgment may be most remembered.

Geert.

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

flyLAL-Lithuanian Airlines – ECJ holds on ‘civil and commercial’, ordre public and Article 22(2)’s exclusive jurisdictional rule all in the context of competition law.

Postscript 21 December 2016: it has been brought to my attention that the Latvian Supreme Court in October 2015 ultimately held that the Lithuanian judgment would not be recognised, on the grounds of ordre public. See here for an overview of the arguments.

flyLAL seeks compensation for damage resulting, first, from the abuse of a dominant position by Air Baltic on the market for flights from or to Vilnius Airport (Lithuania) and, second, from an anti-competitive agreement between the co-defendants. To that end, it applied for provisional and protective measures. The relevant Lithuanian court granted that application and issued an order for sequestration, on a provisional and protective basis, of the moveable and/or immoveable assets and property rights of Air Baltic and Starptautiskā Lidosta Rīga. A relevant Latvian court decided to recognise and enforce that judgment in Latvia, in so far as the recognition and enforcement related to the sequestration of the moveable and/or immoveable assets and property rights of  defendants. Application by flyLAL for a guarantee of enforcement of that judgment was rejected.

Defendants submit that the recognition and enforcement of the judgment are contrary to both the rules of public international law on immunity from jurisdiction and the brussels I Regulation. They argue that the present case does not fall within the scope of that regulation. Since the dispute relates to airport charges set by State rules, it does not, they submit, concern a civil or commercial matter within the meaning of that regulation.

On the scope of application issue (‘civil and commercial‘), the ECJ held with reference to previous case-law, that the provision of airport facilities in return for payment of a fee constitutes an economic activity. (This is different from the foundation judgment in Eurocontrol, which in turn was cross-referred in Sapir (to which the ECJ in current judgment refers repeatedly): Eurocontrol is a public body and the use of its services by airlines is compulsory and exclusive). The amount of shares held by government in the relevant airlines is irrelevant.

That the exclusive jurisdictional rule of Article 22(2) may be at issue (which might have led the court with whom enforcement is sought, to refuse such) was clearly a desperate attempt to rebuke jurisdiction. The national court should not have entertained it, let alone sent it to Luxemburg. (The Court replies courteously that ‘seeking legal redress for damage resulting from alleged infringements of European Union competition law, must (not) be regarded as constituting proceedings which have as their object the validity of the decisions of the organs of companies within the meaning of that provision.’) One assumes the flimsiest of arguments might have been that the board or a director would have had to approve the actions leading to the infringement.

Finally, according to Article 34(1), a judgment is not to be recognised if such recognition is manifestly contrary to public policy in the Member State in which recognition is sought. The referring court is unsure, first, as to the consequences to be drawn from the failure to state reasons for the methods of determining the amount of the sums concerned by the provisional and protective measures granted by the judgment in respect of which recognition and enforcement are sought and, second, as to the consequences linked to the amount of those sums.

With respect to the alleged failure to state reasons, the ECJ confirms (at 51 ff) that the observance of the right to a fair trial requires that all judgments be reasoned in order to enable the defendant to understand why judgment has been pronounced against him and to bring an appropriate and effective appeal against such a judgment (see ia Trade Agency). However that was not the case at issue: there is no lack of reasoning, since it is possible to follow the line of reasoning which led to the determination of the amount of the sums at issue. Parties concerned moreover had the opportunity to bring an action against such a decision and they exercised that option.  Therefore, the basic principles of a fair trial were respected and, accordingly, there are no grounds to consider that there has been a breach of public policy.

As regards the amount of the sums, the concept of ‘public policy’ within the meaning of Article 34(1)seeks to protect legal interests which are expressed through a rule of law, and not purely economic interests. The mere invocation of serious economic consequences does not constitute an infringement of the public policy of the Member State in which recognition is sought (at 58).

Once again the Court’s emphasis is on the exceptional nature of the ordre public exception.

Geert.

 

 

The use of anchor defendants in follow-up competition law cases. JÄÄSKINEN AG in CDC questions i.a. arbitration clauses in competition cases.

Postscript 5 July 2016  Rotterdam held in DGL (involving the lift cartel) that arbitration clauses do indeed in general not apply in follow-up damages cases. Thank you Stibbe for reporting.

A particularly sticky point in competition cases, are follow-up suits for damages. I have already reported on (private international law aspects of) the issue of the piercing of the corporate veil, and on the use of a related undertaking as an anchor. [I report more extensively on competition law and conflicts in Jacques Steenbergen’s liber amicorum here. I hope to translate it into English some time soon].

In Case C-352/13 CDC (Cartel Damage Claims, in effect private anti-trust enforcement), at issue is among others the use of Article 6(1) of the Brussels I-Regulation when the claim against the anchor defendant has been settled before the trial is well and truly underway.

JÄÄSKINEN AG [whose Opinion at the time of writing was not available in English; indeed the absence of English translation of quite a few important Opinions is becoming a bit of a pattern. (That’s an observation. not an accusation)] suggests in his Opinion that only the time of service of the suit is relevant to assess the criteria of Article 6(1). This suggestion in my view finds support in the ECJ’s overall approach to Article 6: the subjective intentions of plaintiff, who often identify a suitable anchor defendant even if is not the intended target of their action, does not feature in the application criteria of Article 6. While this may lead to abuse of procedural power, establishing malicious intent is all but impossible. All but impossible: but not totally excluded. For that reason the AG does suggest that if one can prove that plaintiff and anchor defendant (in the case at issue: Evonik Degussa) had secretly agreed to settle, prior to the introduction of the suit, such collusion should be punished by non-applicability of Article 6(1), for in that case the conditions of Article 6 arguably are no longer met.

I am not sure the ECJ should follow the latter suggestion, particularly not in cases such as the one at issue, where defendants have been found to have acted illegally under EU competition law. (Misdemeanor or indeed criminal act therefore has already been established). In a way it would be an application of nemo auditur propriam turpitudinem allegans not to reward those who infringe EU competition law in the way the AG suggests. (This may be different in the event of as yet unsubstantiated claims of tort, in which case one may argue the defendant should not routinely have to defend the claims in a court other than the one identified by Article 2).

Next, the referring court enquired about the application of Article 5(3)’s special jurisdictional rule in the event of infringement of competition law, where that infringement concerns a complex horizontal agreement, spread over a long period of time, and with varying impact in various markets. One can probably not at all establish a locus delicti commissi for the tort as a whole: for such behaviour often takes shape in a variety of meetings, electronic correspondence et al. For locus damni, too, the picture would be one of a complex patchwork. Predictability and manageability of the ensuing suits would be impossible to establish in some coherent way, thus endangering some of the very foundations of the Brussels regime. In conclusion therefore the AG suggests not to apply Article 5(3) at all to current scenario, and to stick with application of Article 2, often then in conjunction with Article 6.

Although the last word on Article 6 needs to be said by the national court who alone is the judge of the risk of irreconcilable judgments, clearly in the AG’s mind there is a strong likelihood of such risk in the event of follow-up damages in the case of a cartel which has been found to be illegal by the European Commission and where all members to it have acted within one and the same intent (again, as established by the EC). Article 6(3) b Rome II [not applicable in the case but the AG suggests it would not hurt looking ahead] hints at such scenario where many defendants are sued in one and the same court.

Finally, the Court is asked to give input on the issue of choice of court, and arbitration clauses, in the agreements between the victims of the cartel, and those guilty of the cartel: do such clauses have any impact on the legal position of CDC, who has acquired the rights to seek damages for the cartel infringement? The AG suggests, in line with most national case-law (see more on this in my Steenbergen chapter, linked above), that such clauses cannot include follow-up damages for cartel infringement: for the latter is arguably not within the legitimate contractual expectations. This would be different for such clauses concluded after the tort has been committed: for Article 23 of the Regulation allows parties to agree on a different forum than those identified in the special jurisdictional rules. The AG finds additional support for this argument in the overall objectives of the very recent Directive 2014/104, the damages Directive. He takes the opportunity to argue that in the case of arbitration clauses, these may hinder the effet utile of Article 101 TFEU, just as choice of court clauses might, unless parties are shown beyond doubt to have consented to the clause, and provided the tribunal or court at issue, is under an obligation to apply EU competition law as matter of public policy. (Whether that is the case is subject to national law).

(It is quite likely that the Court itself will not review the last question for as the AG indicates, the referring national court has given very little detail on the clauses at issue).

This case could turn out to have quite a wide relevance for a large part of commercial practice. Or not: that depends on how far the ECJ itself will decide to entertain it.

Geert.

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

Celtic Salmon: Irish High Court holds there’s something fishy in the State of Denmarks’ lex fori

Granted, only Monday mornings arguably may excuse such lame pun in a blog’s posting.  However the slightly lousy title should not take away from the relevance of Celtic Salmon v Aller Acqua in which the Irish High Court partially refused recognition of a Danish judgment.

Hogan J summarised the issue as follows: Where a defendant in foreign proceedings governed by the Brussels Regulation (Council Regulation No. 44/2001 EC) fails to advance and maintain a counter-claim for damages for (sic) in those proceedings, is that party then barred by the doctrine of res judicata or by the provisions of the Brussels Regulation itself from re-litigating that counterclaim for damages for breach of contract and negligence in existing proceedings in this jurisdiction where it sues as plaintiff?

Celtic Salmon used Aller Ireland, the Irish subsidiary, as anchor defendant. The mother company, Aller Denmark, was duly joined to the proceedings. Vets, commissioned by Celtic Atlantic, had established a deficiency in the feed supplied by Aller Denmark.  The dispute between the parties then started with a letter sent by Celtic Atlantic in July, 2008 claiming damages for the (allegedly) defective fish feed. Aller Denmark responded by denying liability, but also claimed for unpaid invoices in respect of the fish feed. In November 2008, aller Denmark fired the first shot in litigation, suing in Denmark. There were two separate claims. First, Aller Denmark claimed in respect of certain unpaid invoices for the fish feed (“claim 1”). (It also reserved its position to make further claims in this regard. The claim taken forward only related to a fraction of the feed actually supplied). Second, it sought an order that “Celtic be ordered to admit that the delivered feed on which Aller Acqua’s claim is based is in conformity with the contract.” (“claim 2”).

Celtic’s Irish solicitors, according to the judgment, advised that it would be unwise to bring a counter-claim in the Danish proceedings, because to do so “would preclude us from bringing proceedings in Ireland for damages for breach of contract.” In May 2009, Irish proceedings were brought by Celtic. These amounted to a claim for damages for negligence and breach of contract by reason of the allegedly defective nature of the fish feed.

The Danish courts accepted jurisdiction on the basis of Article 5 based upon (whether this had been agreed was disputed between parties) delivery (incoterm) ex works /ex factory. This is the point were procedural difficulties started (hence the relevance of lexi fori). The reports earlier commissioned by Celtic, turned out not to be admissible (or at the very least would be regarded with suspicion) by the Danish courts given that under Danish civil procedure, the court appoints its own experts. However at the time this would have been carried forward, both fish and fish feed were no longer. Celtic Atlantic elected not to pursue the counterclaim in respect of the defective feed, and reserved the right to do so at a later date (without specific reference to Danish or Irish courts).

The Danish court eventually sided with Aller in respect of two claims: claim 1 for debt in respect of the two unpaid invoices in the sum €58,655 plus interest. Claim 2” that “Celtic [Atlantic] be ordered to admit that the delivered feed on which Aller [Denmark]’s claim is based is in conformity with the contract. There was subsequently discussion among Danish experts in the Irish courts, whether the Danish judgment was in default of appearance, given the absence of defence against at least part of it.

The question now sub judice was the fate of the Irish proceedings, Hogan J justifiably concluded that Article 27 JR (the lis alibi pendens rule) no longer had any relevance, given that the Danish proceedings had come to an end. Rather, whether Celtic’s claims in the Irish courts were the same as those entertained in Denmark (and hence continuing them in Ireland, per se abusive, ia given comity) and /or whether Aller could waive the Danish judgment in defence of the Irish claims. The latter would imply recognition of the Danish judgment.

[The High court carries out a review of the Danish court’s jurisdiction under Article 5(1) and 3, with reference as for the latter inter alia to Folien Fischer however in doing so I would argue it surpassed its brief: other than for exclusive jurisdictional rules, under the current Brussels I regime, there is no room for other courts to second-guess the application of the Regulation by other courts].

Article 34(1) of the Brussels Regulation provides that “A judgment shall not be recognised: 1. If such recognition is manifestly contrary to public policy in the Member State in which recognition is sought…..” Hogan J emphasises procedural rights per Krombach, and the Charter, and concludes that by reason of the manner in which the Danish Administration of Justice Act operated in this case, the effective procedural rights of Celtic Atlantic were violated so far as claim 2 is concerned. He insisted that (only) on ‘the special and particular facts of this case, the existence and operation of the Danish law operated (…) as an “insuperable” procedural obstacle which barred the effective prosecution of its claim.’ (at 124).

A considerate judgment and one which, if only because of its rarity and the insight it offers into procedural and tactical considerations in entertaining, or not, counterclaims, stands out in national case-law on the Brussels I- Regulation.

Geert.

 

Sabbagh v Khoury. The High Court considers the ‘wills and succession’ exception, (reflexive application of) the exclusive jurisdictional rule for company matters, and anchor defendants under the Jurisdiction Regulation.

Sabbagh v Khoury is great for oral exam purposes. Hand the student a copy of the case and ipso presto, there is plenty to talk about for at least half an hour.

Sana Sabbagh, who lives in New York, claims that the Defendants have variously, since her father’s stroke, conspired against both him and her to misappropriate his assets (“the asset misappropriation claim”) and, since her father’s death, to work together to deprive her of her entitlement to shares in the group of companies which her father ran (“the share deprivation claim”). Wael, first defendant, is the anchor defendant for jurisdictional purposes. He resides and has at all material times resided in London. The other Defendants live or are based abroad.

Defendants contend in essence  (at 83):

a) that the claims against Wael (as noted, the anchor defendant) are so weak that there is no risk of irreconcilable judgments from separate proceedings and so no basis for joinder under Article 6(1) of the Brussels I Regulation (“the merits issue”);

b) that the claims fall outside the Brussels Regulation because the Regulation does not apply to “wills and succession” within the scope of Article 1(2)(a) (“the succession issue”), or challenges to the validity of CCG’s organs within the scope of Article 22(2) (“the Article 22 issue”), and the natural and appropriate forum for determining them is Lebanon (“the forum issue”);

c) that the claims are subject to an arbitration clause (or several arbitration clauses) such that a stay is required by s. 9(4) of the Arbitration Act 1996 (“the stay issue”). Any disputes against parties not bound by the arbitration clause should be stayed as a matter of discretion.

(Point c falls outside the scope of current posting).

Logically looking at point b) first (the exclusion of ‘wills and succession’, the High Court first of all considered the proposition that exceptions to the scope of application need to be applied restrictively.

To my knowledge this has not as such been held by the ECJ. Carr J expresses sympathy with the view that the findings of the ECJ in C-292/08 German Graphics in particular (that the insolvency exception not be given an interpretation broader than is required by its objective), could be given broader application, for all exceptions. I am more convinced by defendants’ argument that one needs to be careful to extend the reasoning of German Graphics outside the insolvency context, given that its ruling is inevitably influenced by the existence of the Insolvency Regulation.

However Mrs Justice Carr suggested that whether or not restrictive interpretation ought to be followed, is not quite the determinant issue: rather, that the exceptions should be applied in similar fashion as the exclusive jurisdictional rules of Article 22 (Article 24 in the recast).  Those jurisidictional rules, which are an exception to the general rule of Article 2 (4 in the recast), Carr J notes, only apply where the action is ‘principally concerned with’ the legal issue identified in the Article. ‘Have as their object’ is the term used in the Regulation, for 3 out of 5 of the Article 22 exceptions. (For the other two, including those with respect to intellectual property, the term is ‘concerned with’. In fact in other language versions the term is ‘concerned with’ throughout – which has not helped interpretation). ‘Have as their object’ was indeed applied by the ECJ as meaning ‘whose principal subject-matter comprises’ in BVG, viz the Article 22(2) exception. (Not in fact as Carr J notes, ‘principally concerned with’ , which the ECJ only referred to because it is the language used in Article 25’s rule on examination of jurisdiction).

The stronger argument for siding with the High Court’s conclusion lies in my view not in the perceived symmetry between Article 22 (exclusive jurisdictional rules) and Article 1 (scope), but rather in the High Court’s reference in passing to the Jenard report. At C/59/10: ‘matters falling outside the scope of the Convention do so only if they constitute the principal subject-matter of the proceedings. They are thus not excluded when they come before the court as a subsidiary matter either in the main proceedings or in preliminary proceedings.’ Granted, the result is the same, however the interpretative route is neater. Like other things in life (it’s single Malt, not so much general tidiness I am referring to), I like my statutory interpretation neat.

Eventually Carr J held that Ms Sabbagh’s action is principally concerned with assets and share misappropriation, in short, with conspiracy to defraud. If successful, the action will of course impact on Ms Sabbagh’s inheritance. However that does not justify the exclusion of Brussels I to her claim.

[The court was also taken on a short comparative tour of the Succession Regulation, with a view to interpreting the succession exception in Brussels I. Interestingly, Carr J noted that indeed that Regulation may serve as a supplementary means of interpretation of the Jurisdiction Regulation, even though the UK is not bound by the Succession Regulation.]

 

Next came the potential application of Article 22(2). This issue not only raised the question of whether the action would at all fall within the Article 22(2) remit; but also, whether in that case that Article needs to be applied reflexively, given that the companies concerned are incorporated in Lebanon. Here inevitably reference was made to Ferrexpo. The High Court however held that no question of reflexive application arises, under the same reasoning as above, with respect to the succession exception: the challenge to the corporate decisions was not one of ultra vires or other ‘corporate’ validity: rather, one of their proper characterisation or correctness. They are not therefore substantially concerned with the Article 22(2) exceptions.

 

The High Court preceded its application of Article 6(1) (joinders /use of an anchor defendant: first defendant is domiciled in London) with a very thorough review of the merits of each of the cases. (At 5, the Court notes that the other defendants live ‘abroad’, most of them seemingly in Greece. However the relevant companies at least seem to be domiciled in Lebanon. Article 6 can only be used against defendants already domiciled in another Member State. For those outside, national conflicts law decides the possibility of joinder).

Article 6 requires that “the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.”  ECJ Case-law (in particular Roche Nederland, C-539/03) has it that it is not sufficient that there be a divergence in the outcome of the dispute: that divergence must also arise in the context of the same situation of law and fact (Case C‑539/03 Roche Nederland and Others [2006] ECR I‑6535, paragraph 26). In Freeport, Case C-98/09, the ECJ added that It is for the national court to assess whether there is a connection between the different claims brought before it, that is to say, a risk of irreconcilable judgments if those claims were determined separately and, in that regard, to take account of all the necessary factors in the case-file, which may, if appropriate yet without its being necessary for the assessment, lead it to take into consideration the legal bases of the actions brought before that court. (at 41). It added that where claims brought against different defendants are connected when the proceedings are instituted, (which implies that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings), there is no further need to establish separately that the claims were not brought with the sole object of ousting the jurisdiction of the courts of the Member State where one of the defendants is domiciled (Freeport, at 54).

Whether the likelihood of success of an action against a party before the courts of the State where he is domiciled is relevant in the determination of whether there is a risk of irreconcilable judgments for the purposes of Article 6(1), was raised in Freeport but not answered by the ECJ for such answer was eventually not necessary for the preliminary review at issue. In Sabbagh, with reference to precedent in the English courts, the High Court does carry out a rather thorough merits review, effectively to review whether the claim against Wael might not be abusive: ie invented simply to allow him to be used as anchor defendant. Carr J’s extensive merits review hinges on ‘to take account of all the necessary factors in the case-file‘ per Freeport. Whether such detailed review might exceed what is required under Article 6(1) is simply not easily ascertained. (The High Court eventually did decide that Article 6(1) applied on account of one of the pursued claims).

Did I say ‘half an hour’ in the opening line of this posting? An exam using this judgment might take a bit longer…

Geert.

Nickel & Goeldner: Not the procedural context but the legal basis of the action determines the insolvency exception.

It is always useful to have the Court of Justice remind us of (some might say: fine-tune) what it has decided in precedent. This is no different in Nickel & Goeldner– Case C-157/13. (Which also deals with Article 71’s rule on the relation between Brussels I and the Convention for the International Carriage of Goods by Road (CMRT)).

This blog has reported earlier on the difficulties in applying the ‘insolvency exception’. (E.g. in Sabena and Enascarco). In Nickel & Goeldner, the insolvency administrator of Kintra applied to the relevant Lithuaian courts for an order that Nickel & Goeldner Spedition, which has its registered office in Germany, pay its debt in respect of services comprising the international carriage of goods provided by Kintra for Nickel & Goeldner Spedition, inter alia in France and in Germany. According to the insolvency administrator of Kintra, the jurisdiction of the Lithuanian courts was based on Article 14(3) of the Lithuanian Law on the insolvency of undertakings. Nickel & Goeldner Spedition disputed that jurisdiction claiming that the dispute fell within the scope of Article 31 of the CMR and of the Brussels I Regulation.

The Courts instructs how its earlier case-law (Gourdain; Seagon; German Graphics; F-Tex) needs to be applied (at 26-27):

It is apparent from that case-law that it is true that, in its assessment, the Court has taken into account the fact that the various types of actions which it heard were brought in connection with insolvency proceedings. However, it has mainly concerned itself with determining on each occasion whether the action at issue derived from insolvency law or from other rules.

It follows that the decisive criterion adopted by the Court to identify the area within which an action falls is not the procedural context of which that action is part, but the legal basis thereof. According to that approach, it must be determined whether the right or the obligation which respects the basis of the action finds its source in the common rules of civil and commercial law or in the derogating rules specific to insolvency proceedings.

The action at issue is an action for the payment of a debt arising out of the provision of services in implementation of a contract for carriage. That action could have been brought by the creditor itself before its divestment by the opening of insolvency proceedings relating to it and, in that situation, the action would have been governed by the rules concerning jurisdiction applicable in civil and commercial matters.  The fact that, after the opening of insolvency proceedings against a service provider, the action for payment is taken by the insolvency administrator appointed in the course of those proceedings and that the latter acts in the interest of the creditors does not substantially amend the nature of the debt relied on which continues to be subject, in terms of the substance of the matter, to the rules of law which remain unchanged.

Hence, there is no direct link with the insolvency proceedings and the Brussels-I Regulation continues to apply.

(On the application of Article 71, the Court holds that, in a situation where a dispute falls within the scope of both the regulation and the CMR, a Member State may, in accordance with Article 71(1) of the Regulation, apply the rules concerning jurisdiction laid down in Article 31(1) of the CMR.).

Not the procedural context (in particular, whether the liquidator takes the action) but the legal basis of the action determines the insolvency exception. A useful alternative formulation of the Gourdain et al case-law.

Geert.

 

Anglo American: The Court of Appeal on ‘Central Administration’ in Brussels-I

In Anglo-American South Africa, the Court of Appeal held mid July on the application of the definition of corporate ‘domicile’ in the Brussels I-Regulation. Specific context was the use of the English courts under the Brussels I Regulation, by a Botswana-born plaintiff, against a South Africa incorporated company, part of the Anglo-American PLC group of companies. Anglo-American itself are incorporated in England, hence a case against them would have been straightforward (under Article 2 of the Regulation) however would not have had any merit: there was no suggestion that Anglo-American were in any way at fault for the behaviour of one of the employees of one of their corporate affiliates.

For a company, legal person or association of natural persons, Article 60 of the Regulation (in contrast with the provision for natural persons, which refers to national conflicts law to determine the concept) aims to encourage harmonisation by listing three possible locations only, for the determination of corporate domicile: statutory seat (a term not known in English or Irish law: hence Article 60(2) refers to registered office or place of incorporation; central administration; and principal place of business.

Evidently this troika of criteria does not rule out positive jurisdiction conflicts – it does help address negative ones (ie where no court claims jurisdiction).

It was for the Court of Appeal to decide whether under the rules of the Brussels I-Regulation, AASA could be found to have their central administration in England (place of incorporation and principal place of business not having any calling). Justifiable reference was made to the fact that the concept needs to be given an EU (‘autonomous’) meaning. ECJ case-law on the exact issue is however, non-existent (reference in the judgment was made to Daily Mail, ECJ case-law on the freedom of establishment, and to relevant German case-law).

Aikens LJ essentially agreed with the analysis in first instance by Smith J, that ‘the correct interpretation of “central administration” in Article 60(1)(b), when applied to a company, is that it is the place where the company concerned, through its relevant organs according to its own constitutional provisions, takes the decisions that are essential for that company’s operations. That is, to my mind, the same thing as saying it is the place where the company, through its relevant organs, conducts its entrepreneurial management; for that management must involve making decisions that are essential for that company’s operation’. (at 45).

This is in contrast with (at 39) both place of incorporation, and principal place of business: ‘the first is the domicile for the purpose of the internal laws of the state where the company is incorporated. It will usually be identified in its Memorandum and Articles of Association or equivalent. The third is the place where the company does its principal “business”. Where that is must be a question of fact in each case.

The case is an interesting attempt at forum shopping, with a certain relevance for the corporate social responsibility debate: by suggesting that the place of central administration is the very head of the corporate spider web, plaintiffs can sue directly in Europe. This case shows however that such suggestion is not easily substantiated. Neither would it necessarily assist much at the applicable law stage.

Geert.

Insolvency, Brussels I and Lugano: Enasarco v Lehman Brothers upholds strong defence of choice of court

In Enasarco v Lehman Brothers, the High Court was asked to stay English proceedings following jurisdictional issues of a derivative agreement between Enasarco and Lehman Brothers Finance (LBF). Swiss liquidators of LBF had already rejected a claim under the agreement, rejection which is being challenged in the Swiss courts. The derivative agreement is subject to English law and to choice of court exclusively in favour of the English courts.

Are the claims with respect to the derivative agreement so closely connected to the insolvency that they are covered by the insolvency exception to the Lugano Convention (identical to the exception in the Brussels I Regulation) consequently freeing the English courts from that Convention’s strict lis alibi pendens rule? (Similar questions were at issue recently in the Sabena recognition and enforcement issue – albeit evidently not re lis alibi pendens).

Richards J held they were – allowing the contractual issues under the derivative agreement to be settled by the English courts, and the insolvency matters by the Swiss courts.

LBF submitted that the Lugano Convention applies to the present proceedings and also to the proceedings in Switzerland whereby Enasarco challenges the rejection of its claim and, accordingly, that article 27 (lis alibi pendens) required the court to stay the English proceedings in favour of the Swiss proceedings. It was common ground that, if article 27 applies, the Swiss court was the court first seised. Alternatively, LBF submitted that the court should exercise its discretion under article 28 (re related, but not identical actions) to stay the English proceedings. In the further alternative, it submitted that the High Court should have granted a stay, on case management grounds, of the English claim pursuant to section 49(3) of the Senior Courts Act 1981 (SCA 1981). (In other words, were Lugano found not to apply).

Richards J of course referred to Gourdain and German Graphics, and found that the Swiss proceedings could not exist, nor have any relevance, outside the Swiss litigation: (at 42):

First, they are proceedings which arise, and can only arise, under Swiss insolvency law. Secondly, they form an integral part of the liquidation proceedings, designed to achieve the primary purpose of such proceedings, which is the distribution of the assets available to the liquidators among those creditors whose claims are admitted. The proceedings must take place in the court dealing with the liquidation. Thirdly, the purpose of the proceedings is not simply to establish whether the claimant has a good contractual or other claim, but to determine the amount and the ranking of the claim for the purposes of the liquidation. The ranking of claims is a matter arising exclusively under the relevant insolvency law. (…). Fourthly, the self-contained and special character of the Swiss proceedings is well illustrated by the fact that it does not give rise to res judicata as between the parties in relation to the underlying contractual dispute.

As for the discretionary stay under English civil procedure, Richards J held against it, for the following reasons (at 56 ff):

First, the Derivative Agreement contains an exclusive jurisdiction clause, as regards states which are parties to the Lugano Convention, in favour of the English courts. (Here reference was made to the Supreme Court’s decision in The Alexandros).

Secondly, as noted by the Court of Appeal in the AWB (Geneva) case when refusing a stay of English proceedings in favour of insolvency proceedings in Canada, and also by Rimer J in UBS AG v Omni Holding AG when refusing a stay of English proceedings in favour of insolvency proceedings in Switzerland, it is likely that the Swiss court will be greatly assisted by having the judgment of the English court on the rights and liabilities of the parties under the Derivative Agreement, given that it is governed by English law.

Thirdly, the Swiss proceedings were, practically speaking, not as far advanced as to make concurrent English proceedings nugatory. (Given the governing law of the contract, for instance, the Swiss courts might well be tempted to await the outcome of the English proceedings and take relevant conclusions for their own proceedings).

Fourthly, the merits of having issues arising under the Derivative Agreement determined by the English court have in fact been recognised by the liquidators of LBF in the past.

Finally, Enasarco had not chosen to commence proceedings in Switzerland. The liquidators chose to deal with Enasarco’s claims only in the Swiss insolvency proceedings and not through further proceedings in the English courts. It was the liquidators’ choice in this respect that forced Enasarco to issue the Swiss proceedings.

 

In summary, where issues are of a mixed nature, to the degree the mix can be undone, that is what must be carried out. The case highlights once again the strong defence raised by the English courts for choice of court clauses.

Geert.

 

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.

 

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