Tag: More closely connected

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Sweden v Serwin. (Inter alia) on lex causae for (alleged) fiduciary duty and Rome II.

Kingdom of Sweden v Serwin & Ors [2022] EWHC 2706 (Comm) concerns an attempt by Sweden to gain compensation of a number of defendants whom it alleges were parties to a substantial fraud.  The fraud resulted in the misappropriation of in excess of €115m from the pension saving accounts of some 46,222 Swedish pension savers.

I may have to think one or two things through however I wanted to collect my initial thoughts at any rate.

Of note is that the application was one for summary judgment and that quite a few of the respondents did not file an acknowledgment of service or a defence. However, Sweden obtained permission from the court to obtain summary judgment on the merits even against them, rather than entering judgment in default (ia because that makes enforcement more straightforward). Other defendants are serving prison sentences in Sweden and they did enter a defence.

I do not want to turn this post into a banking and finance one however some background is required: [20] ff

The Swedish pension system has various types of pension provision, including a compulsory premium pension (PPM), in which a percentage of a pension saver’s earnings is put into an account, which is invested in investment funds selected by the pension saver from an online platform that the Swedish Pension Authority (SPA) maintains. Each pension saver has a PPM account. Among the investments which might be made were investments in so-called UCITS funds where these had been approved by the Swedish Financial Supervisory Authority (SFSA). UCITS funds are those meeting the requirements of the Undertakings for Collective Investment in Transferable Securities Directive 209/65/EC.

A company that wished to participate in the PPM was required to
enter into a cooperation agreement with the SPA. This case arises from two UCITS funds which were listed on the PPM online platform:

i)            the Optimus High Yield Fund (Optimus), managed by Optimus Fonder which entered into a co-operation agreement with the SPA on 26 March 2012; and

ii)          the Falcon Funds SICA V plc (Falcon) which entered into a co-operation agreement with the SPA in relation to three funders under its management.

The events concerning these two separate funds have been described in the evidence as the Optimus phase and the Falcon phase..

There was consensus ([38]) that the law applicable to the Swedish claims so far as they concerned the Optimus phase was Swedish law, whether by virtue of Article 4(1) or (3) Rome II. That Sweden’s claims relating to the Optimus phase were barred by the doctrine of res judicata, merger, cause of action estoppel or the allied doctrine in Henderson v Henderson, was dismissed by Foxton J [44].

Falcon then was incorporated and authorised by the Maltese Financial Services Authority as a UCITS fund on 22 November 2013. Sweden’s summary judgment claim in relation to the Falcon phase argued that its claims in delict and for breach of fiduciary duty relating to that phase are governed by Maltese law and not Swedish law.

As far as the delict issue is concerned (misappropriation), application of A4(2)  to some of the defendants was clear, and Sweden argued application of A4(1) for the remainder, seemingly arguing (judgment is a bit unclear on this point) that the damage was suffered in Malta when funds held in Falcon were applied to the various classes of loss-making investments.  Reference was made by counsel and judge to Dicey 16th ed. 35-027: “in misappropriation cases … it seems appropriate to locate damage at the place where an asset … is taken from the control of the claimant or another person with whom the claimant has a relationship” – the judge held that it is strongly arguable that this happened when Sweden’s funds became subject to the control of Falcon and the powers of its directors or those operating behind the scenes; the judge seems to locate this in Sweden, not Malta, and to some degree it does not matter for with reference ia to Avonwick and reasons listed [81] it is held that A4(3) arguably is engaged to make the lex causae Swedish law.

[86] reference is again made to Dicey for the applicable law issue as far as breach of fiduciary duties is concerned: Dicey, Morris & Collins [36-069]-[36-070]:

i)                 If equitable obligations of a fiduciary character arise in the context of a contractual relationship, there is a strong argument that the law applicable to the parties’ contractual relationship under Rome I determines whether a fiduciary relationship exists and the nature and content of the duties imposed.

ii)               If, however, the equitable obligations are characterised as incidents of a company law relationship rather than as “contractual”, common law principles determine the applicable law ( company law matters are excluded from Rome I and Rome II).

iii)             If a fiduciary duty arises where the parties were not in a prior relationship, such as in the case of a recipient of trust property, then the “better view” is that the obligation is non- contractual in nature and falls within the ambit of Rome II.

Unlike Sweden, the judge holds there are strong arguments that Swedish law applies, by reference it seems to Dicey, above, i) and with the ‘anchor’ agreement being the one by which Falcon becomes eligible to received PPM funds. Rule ii) seems to be moved aside by the judge here, and at any rate the extent of that rule is not clear-cut (see the CJEU itself recently). It is clear and it was correct to hold that the discussion is not one for summary judgment material.

An interesting final, obiter point comes [91] ff re the ‘reflective loss’ rule (a shareholder (and some others) cannot claim for a fall in the value of their holdings due to loss suffered by the company, if and when the company has a cause of action against the same wrongdoer) under Maltese law. Falcon itself is currently asserting claims against some of the alleged wrongdoers in relation to those same misappropriations, however Sweden argues an exception to that rule on the basis of Maltese expert evidence that was not considered to be robust enough for the summary judgment stage.

I wonder though whether the suggested relevance of the reflective loss rule, does not serve as ammunition for the suggestion that Rome I and II’s corporate carve-out is engaged viz the breach of fiduciary duties claim. For is the DNA of the rule not one of clear lex incorporationis?

To be further pondered.

Geert.

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Avonwick Holdings. The High Court awkwardly on locus damni, and on ‘more closely connected’ in Rome II; more solidly on ‘implied’ choice of law in the Rome Convention.

In Avonwick Holdings Ltd v Azitio Holdings Ltd & Ors [2020] EWHC 1844 (Comm), Picken J among quite a few other claims, at 146 ff discussed a suggested defrauding by misrepresentation of the best available market price for a bundle of stocks. Toss-up was between Ukranian law and English law and, it was suggested, was only relevant with respect to the issue of statute of limitation. Counsel for both parties agreed that the material differences between Ukranian and English law were minor.

They omitted, it seems, to discuss the relationship between statute of limitations and the carve-out in Rome II for procedural issues.

At 151:

It was not in dispute…that the default applicable law under Article 4(1) is the law of Cyprus in that this was the country in which the event giving rise to the damage occurred since, although Avonwick was incorporated in the BVI and its entry into the Castlerose SPA was formally authorised in Ukraine, Avonwick’s directors were based in Cyprus and the steps necessary to transfer its shares in Castlerose to Azitio and Dargamo would, therefore, have been taken by those directors in Cyprus.

Here I am simply lost. A4(1) does not suggest locus delicti commissi (‘country in which the event giving rise to the damage occurred’) rather it instructs specifically to ignore that. Even if a locus damni consideration was at play, for purely economic loss as readers will know, there is considerable discussion on that exact location. How the judgment could have ended up identifying locus delicti commissi is a bit of a mystery.

At 153 then follows a discussion of a displacement of Cypriot law by virtue of A4(3)’s ‘manifestly more closely connected’ rule, including interesting analysis of any role which Article 12’s culpa in contrahendo provision might play.

For the reasons listed at 166 ff, the judge agrees that A4(3) applies to replace Cypriot law with Ukranian (not: English) law. Those reasons do seem to make sense – yet despite this, the A4(1) analysis should have been carried out properly.

[467] ff the judge also discusses ‘implicit’ choice of law per Article 3 Rome Convention (applicable ratione temporis), concluding [509] ff that there was no such choice. The analysis in this point is quite useful.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 4, Heading 4.5.2.

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Rome II: A manifestly closer connection overrides common habitual residence. The High Court in Marshall v MIB.

Marshall v MIB [2015] EWHC 3421 (QB) involved a road traffic accident that occurred in France. On 19th August 2012 an uninsured Peugeot motor car registered in France driven by Ms Bivard, a French national, hit Mr Marshall and Mr Pickard, both British nationals, as they were standing behind a Ford Fiesta motor car and its trailer, while it was being attended to by a breakdown recovery truck on the side of a motorway in France. The Ford Fiesta motor car was registered in the UK and insured by Royal & Sun Alliance (“RSA”), and the recovery truck was registered in France and insured by Generali France Assurances (“Generali”). The Peugeot then collided with the trailer shunting it into the Ford Fiesta which in turn was shunted into the vehicle recovery truck. Mr Pickard suffered serious injuries. Mr Marshall died at the scene.

This case raises points about among others (1) the law applicable to an accident involving a number of persons and vehicles; and (2) the application of the French Loi Badinter to the facts of this case, if French law applies: The second main issue is if French law applies, whether the Ford Fiesta motor car and recovery truck are “involved” within the meaning of the Loi Badinter, which it is common ground is the applicable French statute. If those vehicles are “involved” it is common ground that RSA, as insurer of the Ford Fiesta, and Generali, as insurer of the recovery truck, are liable to Mrs Marshall, and that Generali, as insurer of the recovery truck, is liable to Mr Pickard.

Two actions were commenced. The first by Mrs Marshall (Mr Marshall’s widow) against the Motor Insurers’ Bureau (“the MIB”). Mrs Marshall relied on relevant English 2003 Regulations. The 2003 Regulations make the MIB liable in respect of liabilities of compensation bodies in other EEA states for losses caused by uninsured drivers. The relevant compensation body in France responsible for such losses is the Fonds de Garantie (“FdG”). The MIB denied liability, contending that the FdG would not be liable to Mrs Marshall because under the Loi Badinter Mr Pickard and RSA, as driver and insurer of the Ford Fiesta, and Generali, as insurers of the recovery truck, were liable. The second action was brought by Mr Pickard against the Motor Insurers’ Bureau relying on the 2003 Regulations. The MIB deny liability and contend that Generali, as insurers of the recovery truck, are liable to Mr Pickard.

The High Court was asked (1) what law applies per Article 4 Rome II, and (2) whether under the circumstances, Article 4(3) Rome II might have any relevance.

Save for Mrs Marshall’s claim for dependency which if English law applies is under the Fatal Accidents Act 1976 (“FAA 1976”), it is common ground that the direct damage occurred in France for all of the claims, including Mrs Marshall’s claim on behalf of Mr Marshall’s estate. In respect of the FAA 1976 claim, RSA (Mr Marshall’s insurers) submits that the direct damage occurred in the location where Mrs Marshall has suffered her loss of dependency, which is in England and Wales. Dingemans J resolves this issue of ricochet damage with reference to the AG’s Opinion in Lazar: the CJEU’s judgment in same was issued about a month after the High Court’s judgment in Marshall. The Advocate General, having regard to the relevant principles of consistency, foreseeability and certainty, in his opinion considered that “the damage occurs” for the purposes of a claim such as an FAA 1976 claim where the relevant death occurs. The AG noted that different EEA states took different approaches to the characterisation of a dependency claim. For example in both England and Italy it is considered that the damage for a loss of dependency occurs in the country where the dependant is situated, but that this is not a European wide approach. The opinion, Dingemans J notes, shows that the Advocate General was influenced by the need to avoid different Courts in different EEA states adopting different solutions to applicable law in fatal accident cases, which would lead to a diversity of approach in different jurisdictions.

The action between Mrs Marshall and Mr Pickard triggers Article 4(2) of the Rome II Regulation, identifying as applicable law the law of the country were both the ‘person’ claimed to be liable and the ‘person’ sustaining damage, are habitually resident at the time the damage occurs. Dingemans J rightly (at 17) dismisses the suggestion (made in scholarship) that the moment more than two ‘persons’ are involved, Article 4(2) becomes inoperable.

Turning then to Article 4(3), the escape clause of a ‘manifestly closer connection’. Dingemans J entertains the interesting proposition that Article 4(3) has to lead to a law different from the law which would be applicable per Article 4(1) or (2). This in particular would mean that once Article 4(2) is engaged, it cannot be undone by recourse to Article 4(3). Dingemans J insists that Article 4(3) must be employed generally, even if it leads to a resurrection of Article 4(1), and goes on to find French law to be applicable (at 19-20):

In my judgment this case provides an illustration of when French law is provided as the governing law under article 4(1), excluded (for part of the claims) under article 4(2), and then required again under article 4(3).

It is also common ground that article 4(3) imposes a “high hurdle” in the path of a party seeking to displace the law indicated by articles 4(1) or 4(2), and that it is necessary to show that the “centre of gravity” of the case is with the suggested applicable law. In this case there are a number of circumstances which, in my judgment, make it clear that the tort/delict is manifestly more closely connected with France than England and Wales. These are: first that both Mr Marshall and Mr Pickard were hit by the French car driven by Ms Bivard, a national of France, on a French motorway. Any claims made by Mr Marshall and Mr Pickard against Ms Bivard, her insurers (or the FdG as she had no insurers) are governed by the laws of France; secondly the collision by Ms Bivard with Mr Marshall and Mr Pickard was, as a matter of fact and regardless of issues of fault or applicable law, the cause of the accident, the injuries suffered by Mr Marshall and Mr Pickard and the subsequent collisions; and thirdly any claims that Mr Marshall and Mr Pickard have against Generali, as insurers of the vehicle recovery truck, are also governed by the laws of France.

This judgment to my knowledge, with Winrow v Hemphill  is one of few discussing Article 4(3)’s escape clause in such detail. (The add-on being that in Marshall Article 4(3) was found as being able to override Article 4(2). A judgment which, like Winrow, does justice to both the exceptional nature of the provision, and the need to consider all relevant factors.

Geert.

Ps very soon the Supreme Court will hear further argument on the application of the Rome II Regulation in Moreno v MIB.

European private international law, second ed. 2016, Chapter 4, Headings 4.5.1 and 4.5.2

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Happy days!: ‘closest and most real connection’ for identifying lex contractus. Ontario CA in Lilydale v Meyn.

Lilydale v Meyn at the Ontario Court of Appeal (held April 2015 but only reaching me now – thank you to Michael Shafler and colleagues for flagging) is a useful reminder of the common law approach to determining lex contractus in the absence of choice of law. (Here of course an inter-State conflicts issue between Ontario and Alberta). Laskin JA refers in support to english precedent, summarised in quoted passage of Cheshire’s Private International Law:

The court must take into account, for instance, the following matters: the domicil and even the residence of the parties; the national character of a corporation and the place where its principal place of business is situated; the place where the contract is made and the place where it is to be performed; the style in which the contract is drafted, as, for instance, whether the language is appropriate to one system of law, but inappropriate to another; the fact that a certain stipulation is valid under one law but void under another … the economic connexion of the contract with some other transaction … the nature of the subject matter or its situs; the head office of an insurance company, whose activities range over many countries; and, in short, any other fact which serves to localize the contract.

The motion judge’s findings on the relevant criteria were held to be reasonable, as was her overall conclusion that the closest and most real connection to the contract was Ontario.

The case is an interesting reminder of what in the Rome I Regulation is now the final resort, should none of the relevant presumptions in Article 4 apply.

An interesting point in the judgment is the main reason why parties prefer one law over the other: at 3: ‘The issue is important because Alberta and Ontario have different ultimate limitation periods. Even taking into account discoverability, Alberta’s ultimate limitation period is 10 years; Ontario’s is 15 years. The parties agreed that Lilydale’s cause of action arose no later than August 31, 1994. Therefore, as Lilydale did not sue until January 2006, if Alberta law applied, its action was statute-barred; if Ontario law applied, it was not.’

Aren’t statutes of limitation under Canadian conflict of laws, covered by lex fori, as procedural issues, and not, as is seemingly accepted here, lex causae?

Geert.

 

 

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Winrow v Hemphill: The High Court emphasises exceptional nature of ‘manifestly closer connected’ in Rome II. Clarifies ‘habitual residence’.

Winrow v Hemphill ([2014] EWHC 3164), involved a road traffic accident that occurred in Germany on 16 November 2009. The claimant was a rear seat passenger in a vehicle driven by Mrs Hemphill (‘the first defendant’), which collided head on with a German vehicle. The defendant admitted fault for the collision. As a result of the collision, the claimant sustained personal injury, for which she received some treatment in Germany and further ongoing treatment in England. She and her husband returned to live in England in June 2011, earlier than planned. ‘Second defendant’ was the German insurer of the first defendant.

The following was agreed between the parties:

  • iii) Since the claimant’s husband was due to leave the army in February 2014 after twenty-two years’ service he would have returned to England one and a half to two years before that date to undertake re-settlement training. It was always their intention to return to live in England.
  • ii) At the time of the accident the claimant was living in Germany, having moved there in January 2001 with her husband who was a member of Her Majesty’s Armed Services. Germany was not the preferred posting of the claimant’s husband, it was his second choice. He had four separate three year postings in Germany.
  • i) The claimant was a UK national.
  • iv) Whilst in Germany, the claimant and her family lived on a British Army base where schools provided an English education.
  • v) While in Germany, the claimant was employed on a full-time basis as an Early Years Practitioner by Service Children’s Education, (UK Government Agency).
  • vi) The claimant claimed continuing loss and damage including care and assistance and loss of earnings. She asserted that the majority of her loss has been and will be incurred in England. The claimant alleged continuing pain, suffering and loss of amenity.
  • vii) The first defendant was a UK national and an army wife, with her husband serving with the Army in Germany. She had been in Germany for between eighteen months and two years before the accident. She returned to England soon afterwards.

The High Court was asked (1) what law applies per Article 4 Rome II, and (2) whether under the circumstances, Article 4(3) Rome II might have any relevance.

 

On the habitual residence issue, Rome II corrects the overall lex loci damni rule in cases of joint habitual residence between tortfeasor and victim (which was argued to be the case here). Habitual residence was also argued to play a role in the ‘closer connection’ test (see below).

Rome II, the Regulation of the law applicable to non-contractual obligations, does not define ‘habitual residence’ for individuals acting in their personal capacity. The matter therefore is one of national conflicts law. The habitual residence for a natural person is only defined by ht Regulation when it comes to his acting in the course of his business activity. ‘Habitual residence’ is a concept which is not used in Brussels I, however it is used in the Brussels II bis Regulation on jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matter of parental responsibility, where it is left undefined, and in the Rome III Regulation (an instrument of enhanced co-operation and hence not applicable in all Member States) implementing enhanced cooperation in the area of applicable law to divorce and legal separation, where, too, somewhat oddly given its date of adoption (after Rome I and II) it is left undefined.

The Court of Justice has defined ‘habitual residence’ in Swaddling, Case C-90/97, within the context of social security law (entitlement of benefits subject to a residence requirement) as the place  ‘where the habitual centre of their interests is to be found. In that context, account should be taken in particular of the employed person’s family situation; the reasons which have led him to move; the length and continuity of his residence; the fact (where this is the case) that he is in stable employment; and his intention as it appears from all the circumstances.’

Undoubtedly the context of the adjudication needs to be taken into account, such as in Swaddling, a social security case, in which the seeking of holding of employment is likely to have a much greater relevance for determining habitual residence than in the context of, say, maintenance or parental responsibility (where, for instance, the interest and ‘anchorage’ of the child is likely to be much more relevant). [See also House of Lords M v M, [2007] EWHC 2047 (Fam), a case referred to in Winrow]. Moreover, the Court of Justice itself has warned that its case-law on habitual residence in one area, cannot be directly transposed in the context of any other (Case C-523/07, A).

It is obvious however that the ‘centre of interest’ test which in one way or another finds its way into habitual residence in all relevant EU law, includes a subjective  element: the intention of a person to be anchored in a particular place.  This was argued to be relevant in the case at issue, because both victim and tortfeasor were resident in Germany on account of their husbands’ military posting there.

Slade J in my view justifiably held that having regard to the length of stay in the country, its purpose and the establishing of a life there, habitual residence of the Claimant at the time of her accident was Germany. It is not because she followed her husband who was posted in Germany on Army business, that she was in Germany involuntarily.

 

On the issue of manifestly closer connected per Article 4(3) Rome II, the High Court first of all confirmed the exceptional character of the escape clause, however emphasises, and I have great sympathy for this view, that in reviewing that exceptional possibility, there should be no limitation in principle of factors that can be taken into account: Article 4(3) clearly is an exception to the EU’s mantra of predictability in EU private international law, however one which even the European Commission foresaw and which is inherent to the very nature of the exception. Hence the High Court considered inter alia the joint nationality of the victims (with an interesting discussion on whether United Kingdom nationality may be relevant for the consideration of English law being applicable – there is no such thing as ‘English’ nationality); habitual residence at the time of the accident and subsequently; location of subsequent consequences (the victim now suffering those in England; loss of earning occurring in England), etc.: even what a particular court in a particular Member State may consider to be relevant for the application of 4(3) may be very unpredictable indeed may also be disparate across the EU.

However on balance Slade J held that the balance was in favour of not applying the escape clause, particularly in view of the period of time of habitual residence in Germany, and subsequent continuing residence in that country (ia for follow-up treatment). Final holding therefore was

 

  • Factors weighing against displacement of German law as the applicable law of the tort by reason of Article 4(1) are that the road traffic accident caused by the negligence of the First Defendant took place in Germany. The Claimant sustained her injury in Germany. At the time of the accident both the Claimant and the First Defendant were habitually resident there. The Claimant had lived in Germany for about eight and a half years and remained living there for eighteen months after the accident.
  • Under Article 4(3) the court must be satisfied that the tort is manifestly more closely connected with English law than German law. Article 4(3) places a high hurdle in the path of a party seeking to displace the law indicated by Article 4(1) or 4(2). Taking into account all the circumstances, the relevant factors do not indicate a manifestly closer connection of the tort with England than with Germany. The law indicated by Article 4(1) is not displaced by Article 4(3). The law applicable to the claim in tort is therefore German law.

This judgment to my knowledge is one of few discussing Article 4(3)’s escape clause in such detail. A judgment which does justice to both the exceptional nature of the provision, and the need to consider all relevant factors.

Geert.

 

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