Court of Justice confirms relevance of rights of defence in Trade Agency – Exequatur can be denied but only after individual review of the case

Article 34 of the Brussels I Regulation (jurisdiction in civil and commercial matters) enables a court, by way of derogation from the principles and objectives of the Regulation, to refuse to recognize a judgment given by a court of another Member State. The whole starting point of the Regulation and its antecedents was to avoid much recourse to refusal of recognition. Free movement of judgments lies at the very core of the foundations of European private international law.

Little wonder then that the Regulation leaves limited freedom for Member States authorities (including courts) who are asked to recognise and enforce another State’s judgment.

In Case C-619/10 Trade Agency, proceedings were underway between Trade Agency Ltd (‘Trade Agency’) and Seramico Investments Ltd (‘Seramico’) concerning the recognition and enforcement in Latvia  of a judgment in default delivered by the High Court of England and Wales. Saramico had filed suit against Trade Agency for payment of a sum just under 300.000 Sterling. Trade Agency entered no defence and the sum was awarded. Saremico then sought enforcement in Latvia. The Latvian court wondered whether Article 34(1)’s public policy exception, allowed it to deny ‘enforcement’ (what is meant is really ‘exequatur’) given that under the English system, an uncontested claim is summarily granted, without the judgment reviewing and confirming the legal merits of the case.

The UK had pointed out in the hearing at the Court of Justice that a judgment given in default of appearance, such as that given by the High Court in the main proceedings, cannot be obtained until, first, the applicant serves the claim form and the particulars of claim, containing a detailed description of the pleas in law and the material facts, to which the judgment itself impliedly refers, and, second, the defendant, although he has been informed of the legal proceedings instituted against him, does not appear or does not express his intention to submit a defence within the period prescribed.

The Court of Justice refused to disallow all scope for the Member State in which enforcement is sought, to refuse such enforcement in light of what seem to be serious procedural requirements under English law. However the court in which exequatur is sought, may only refuse after review of the individual merits of the case: it has to in other words review whether in the case at issue, the defendant knew of the applicant’s statement of claim and decided not to defend himself against it. It may not decide that the English system as such as contrary to public policy in the state of enforcement.

The exequatur procedure of the Brussels I Regulation will be overhauled in the current review. However it is exactly on issues of the rights of the defence, such as those raised in Trade Agency, that a number of Member States continue to insist that exequatur can never be entirely automatic, even among EU Member States.

Geert.

Mühlleitner: To enjoy protection as ‘consumer’ contracts, contracts need not be concluded at a distance

The Court of Justice has followed the Opinion of the Advocate General (on which I reported here) in Mühlleitner: Article 15(1)(c) of Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters must be interpreted as not requiring the contract between the consumer and the trader to be concluded at a distance.

Debate on the issue had been provoked by the factual circumstances of Alpenhof. The Court of Justice however stuck to both a literal (no mention of distance contracts in the relevant provision), teleological (protection of consumers) and historical (purpose of the change in the Regulation as compared with the previous text in the Convention) interpretation. The relevant Article now only requires that the trader pursue commercial or professional activities in the Member State of the consumer’s (‘consumer’ is separately defined) domicile or, by any means, directs such activities to that Member State or to several States including that Member State and, secondly, that the contract at issue falls within the scope of such activities.

In the case at issue, Ms Mühlleitner, domiciled in Austria, searched on the internet for a car of a German make which she wished to acquire for her private use. After connecting to the German search platform http://www.mobile.de, she entered the make and type of vehicle she wanted, thereby obtaining a list of vehicles corresponding to the characteristics specified. After selecting the vehicle which corresponded best to her search criteria, she was directed to an offer from the defendants, Mr A. Yusufi and Mr W. Yusufi, who operate a motor vehicle retail business via Autohaus Yusufi GbR (‘Autohaus Yusufi’), a partnership established in Hamburg (Germany).Wishing to obtain more information about the vehicle offered on the search platform, Ms Mühlleitner contacted the defendants, using the telephone number stated on the website of Autohaus Yusufi, which included an international dialling code. As the vehicle in question was no longer available, she was offered another vehicle, details of which were subsequently sent by email. Ms Mühlleitner then went to Germany and, by a contract of sale signed on 21 September 2009 in Hamburg, bought the vehicle, taking immediate delivery of it. The contract therefore was not concluded at a distance.

The judgment is a good illustration of the need to consult the EU’s preparatory works, with reference being made to input into the legislative process by Parliament, Council and Commission alike.

Geert.

The Council on the validity of choice of court agreements

The Council in June issued its ‘General Approach‘ on the review of the Brussels I Regulation /the Jurisdiction Regulation . The General Approach is the backbone of what will be the Council Common Position, once the European Parliament has held its ‘first reading’ (which is now scheduled for November 2012, after having been postponed twice: from January 2012 it had already been moved to June). I commented here on the arbitration exception and here on the protected categories.

In its General Approach on the review of the Brussels I Regulation, the Council of the EU proposes the following with respect to choice of court agreements:

If the parties, regardless of domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State.

The Commission had proposed ‘substance’ rather than the words ‘substantive validity’. The Council also suggest inserting a recital as follows:

The question as to whether a choice of court agreement in favour of a court or the courts of a Member State is null and void as to its substantive validity should be decided in accordance with the law of that Member State. The reference to the law of the Member State of the chosen court should include the conflict of laws rules of that State.

Finally, the Council prooses to add a fifht para to Article 23 as follows:

5. An agreement conferring jurisdiction which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.

The validity of the agreement conferring jurisdiction cannot be contested solely on the ground that the contract is not valid.’

Both the Council and the Commission proposal address the elephant in the room: Article 23 of the Jurisdiction Regulation lists a number of requirements establishing consent to choice of court agreements, however it does not address any conditions for the validity of the underlying agreement. The majority of ECJ authority would seem to favour having the validity of the forum clause to be exclusively determined by the conditions of Article 23. I would however submit that the material validity of the forum clause under the curent version of the JR ought to be determined by the lex contractus.

The result of the discussion is unsatisfactory, as in practice it leaves it up to the Member States to decide how to address the substantive validity of choice of court agreements. This is now addressed by the Commission in its proposal for review of the JR: the proposal introduces a harmonised conflict of law rule on the substantive validity of choice of court agreements, thus ensuring a similar outcome on this matter whatever the court seized. The Council amendment aims at making the solution clearer still.

Oddly, the Council adds renvoi to the mix (see ‘The reference to the law of the Member State of the chosen court should include the conflict of laws rules of that State.’). EU private international law, for good (mostly practical) reasons typically excludes renvoi. I am not entirely sure that adding it here has any merit.

Note that in line with the Hague Convention on Choice of Court Agreements, it will no longer be necessary for at least one of the parties to be domiciled in the EU, for an agreement giving jurisdiction to a court in the EU to be covered by the JR.

Geert.

The Council on the review of the Brussels I Regulation – Confusing proposals on the ‘protected categories’

The Council in June issued its ‘General Approach‘ on the review of the Brussels I Regulation /the Jurisdiction Regulation. The General Approach is the backbone of what will be the Council Common Position, once the European Parliament has held its ‘first reading’ (which is now scheduled for November 2012, after having been postponed twice: from January 2012 it had already been moved to June). I commented here on the arbitration exception.

The Council’s view on the extension of the ‘protected categories’ is relevant for the general issue of the ‘extraterritorial’ working of the Regulation. The protected categories are contracts where the EU gives specific protection to consumers, employees, and insureds, allowing the ‘weaker’ party additional fora to sue, and limiting forum choice for the stronger party.

The Commission proposal generally makes the protective jurisdiction rules available for consumers, employees and insured also applicable if the defendant is domiciled outside the EU.

The Council, by contrast, reinstates the domicile condition for the protective jurisdictional rules with respect to insurance, however then inserts a slightly confusing section for consumer contracts, and a rather mixed regime for employment contracts.

With respect to consumer contracts, the Council re-inserted the reference to Article 4 of the Regulation (albeit in a renumbered 4a fashion). Article 4 suggests that against defendants not domiciled in the EU, the EU Regulation (with one or two exceptions, which are not of interest here) does not apply, and national conflict rules take over. However the Council then oddly inserts in Article 16(1):

 ‘A consumer may bring proceedings against the other party to a contract either in the courts of the Member State in which that party is domiciled or, regardless of the domicile of the other party, in the courts for the place where the consumer is domiciled.’

(the extract in bold is the Council’s addition to the Commission proposal)

One assumes that this insertion in Article 16(1) does not trump the Council’s re-insertion of Article 4 (now as noted, 4(a)), hence the counterparty would still have to be domiciled in the EU, for the consumer contracts section to apply.

As far as employment contracts are concerned, here, too, the Council refers to Article 4 (4a), in Article 18(1), however then adds in Article 19(2), that an employer not domiciled in a Member State may be sued in a court of a Member State, either in the courts for the place where or from where the employee habitually carries out his work or in the courts for the last place where he did so, or if the employee does not or did not habitually carry out his work in any one country, in the courts for the place where the business which engaged the employee is or was situated.

This raises a contradiction with respect to employers located outside the EU. Either one follows the Article 4a cue and decides they are out of reach of the JR, or one assumes the new Article 19(2) takes priority.

The latter interpretation would mean that only for employment contracts, the Council follows the Commission’s view and brings non-EU based employers within the reach of the JR. Might that be because in carrying out the contract in the EU, these issues have a stronger territorial EU link?

Geert.

note: I have in a later entry clarified that proposed recital 11f confirms that in fact the consumer title is meant to apply to companies not domiciled in the EU.

The arbitration exception and the review of the Brussels I Regulation – The Council in denial

The Council in June issued its ‘General Approach‘ on the review of the Brussels I Regulation /the Jurisdiction Regulation – just in time as it happened for June exams . The General Approach is the backbone of what will be the Council Common Position, once the European Parliament has held its ‘first reading’ (which is now scheduled for November 2012, after having been postponed twice: from January 2012 it had already been moved to June). I will be posting one or two comments on the General Approach on this blog, starting with the arbitration exception. For background reading please search the blog for ‘West Tankers’.

Pro memoria: The European Parliaments rapporteur and the EP in full afterwards suggested no movement on the issue at all, other than a clearer proviso on the arbitration exclusion, specifying that

not only arbitration proceedings, but also judicial procedures ruling on the validity or extent of arbitral competence as a principal issue or as an incidental or preliminary question, are excluded from the scope of the Regulation.

Consequently the rapporteur called for a more robust protection of arbitration, by ring-fencing arbitration in a more aggressive way.

In its eventual proposal on the review of the JR, COM(2010) 748, the European Commission proposed the specific inclusion of a jurisdictional ground for arbitration:

———————————————————————

This Regulation shall not apply to (…)

Arbitration, save as provided for in Articles 29, paragraph 4, and 33, paragraph 3.

 Article 29, paragraph 4, new:

4. Where the agreed or designated seat of an arbitration is in a Member State, the courts of another Member State whose jurisdiction is contested on the basis of an arbitration agreements shall stay proceedings once the courts of the Member State where the seat of the arbitration is located or the arbitral tribunal have been seised of proceedings to determine, as their main object or as an incidental question, the existence, validity or effects of that arbitration agreement.

This paragraph does not prevent the court whose jurisdiction is contested from declining jurisdiction in the situation referred to above if its national law so prescribes.

Where the existence, validity or effects of the arbitration agreements are established, the court seised shall decline jurisdiction.

This paragraph does not apply in disputes concerning matters referred to in Sections 3, 4, and 5 of Chapter II.

 

Article 33:

For the purpose of this Section, a court shall be deemed to be seised (…)

3. For the purpose of this Section, an arbitral tribunal is deemed to be seised when a party has nominated an arbitrator of when a party has requested the support of an institution, authority or a court for the tribunal’s constitution.

 

[author’s note: Sections 3, 4 and 5 referred to in the newly proposed Article 29(4), are the sections dealing with the protected parties: insurance contracts; consumers; employment contracts].

————————————————————————

The June 2012 ‘General Approach’ document by the Council in my view adopts the worst possible scenario. With respect to arbitration, the Council suggests

–       Not to adopt the aforementioned Articles 29, paragraph 4, and 33, paragraph 3 (these suggested amendments would therefore be deleted in their entirety).

–       To include the following in Article 84:

2. This Regulation shall not affect the application of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1985.

–       Finally, to include a recital as follows:

  • “This Regulation should not apply to arbitration. Nothing in this Regulation should prevent the courts of a Member State, when seised of an action in a matter in respect of which the parties have made an arbitration agreement, from referring the parties to arbitration of from staying or dismissing the proceedings and from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law.
  • A ruling given by a court of a Member State as to whether or not an arbitration agreement is null and void, inoperative of incapable of being performed should not be subject to the rules of recognition and enforcement of this Regulation, regardless of whether the court decided on this as a principal issue or as an incidental question. On the other hand, where a court, exercising jurisdiction under this Regulation or under national law, has determined that an arbitration agreement is null and void, inoperative or incapable of being performed, this should not prevent that the court’s judgment on the substance of the matter be recognised and, as the case may be, enforced in accordance with this Regulation. This should be without prejudice to the competence of the courts of the Member States to decide on the recognition and enforcement of arbitral awards in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958, which takes precedence over this Regulation.
  • This Regulation should not apply to any action or ancillary proceedings relating to, in particular, the establishment of the arbitral tribunal, the powers of the arbitrators, the conduct of the arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition and enforcement of an arbitral award.”

The Council would therefore maintain the principal exclusion for arbitration, and emphasise the priority of the New York Convention. However it also maintains the confusion over the exact scope of the arbitration exclusion. Its curious use of an extended recital basically re-iterates all the points of discussion resulting from the current text and the case-law applying it. Any party wanting to stall, torpedo, or otherwise sabotage proceedings with even a hint of arbitration elements in them, will find itself well served with the proposed recital which ― rather adroitly, it has to be said ― manages to integrate all unsettled points of discussion in a matter-of-factly way which amounts to sheer denial of the problems that arise in practice.

Council reports that it has been in consultation with the Parliament, in the run-up to the General Approach. However one hopes that this recital is not one that the EP would be happy to sign off on.

Geert.

Of rocks and hard stones for national courts – Villalon AG in Mühlleitner: No need for restrictive approach to the protective jurisdictional grounds for consumers in Brussels I

Villalon AG has opined in Case C-190/11 Mühlleitner [Opinion as yet not available in English].

Article 15 of the Brussels I ‘Jurisdiction’ Regulation, offers protective jurisdictional rules for consumers, provided one or two conditions are met. Article 15(1)(c) [statutory law likes its subdivisions) offers the generic criterion for application:

‘Article 15

1.      In matters relating to a contract concluded by a person, the consumer, for a purpose which can be regarded as being outside his trade or profession, jurisdiction shall be determined by this Section, without prejudice to Article 4 and point 5 of Article 5, if: (…)

(c)      in all other cases, the contract has been concluded with a person who pursues commercial or professional activities in the Member State of the consumer’s domicile or, by any means, directs such activities to that Member State or to several States including that Member State, and the contract falls within the scope of such activities.’

In Pammer /Alpenhof,   Alpenhof had argued amongst others that that its contract with the consumer is concluded on the spot and not at a distance, as the room keys are handed over and payment is made on the spot, and that accordingly Article 15(1)(c) of Regulation No 44/2001 cannot apply. The Court of Justice had answered this with the very paragraph which has now tempted the Oberster Gerichtshof – Austria, into the preliminary review, para 87:

‘ In that regard, the fact that the keys are handed over to the consumer and that payment is made by him in the Member State in which the trader is established does not prevent that provision from applying if the reservation was made and confirmed at a distance, so that the consumer became contractually bound at a distance.’

This paragraph seemed to suggest ‘at a distance’ as the trigger for the application of Article 15(1)(c) which in turn led to the preliminary question:

Does the application of Article 15(1)(c) [   ] presuppose that the contract between the consumer and the undertaking has been concluded at a distance?

Villalon AG replied on 24 May, making specific reference to the history of Article 15, in particular with reference to the old text, under the Brussels Convention. That old provision seemed to imply that where the consumer’s contracting party had encouraged him to leave his Member State of domicile so as to conclude the contract elsewhere, the consumer could not make recourse to the protective regime. Other changes to the relevant title, too, suggested if anything that Council and Commission’s intention with the new provisions was definitely not to limit their scope of application: had they intended to do so, the AG suggests, the Institutions would have limited Article 15’s scope to contracts concluded at a distance. Court of Justice case-law hints at the same need for a wide approach [in particular, Ilsinger, where the Court of Justice held that the scope of Article 15(1)(c) appears ‘to be no longer being limited to those situations in which the parties have assumed reciprocal obligations.’]

The AG concludes with the suggestion that the reference to ‘distance’ in para 87 of Alpenhof refers to a factual circumstance, rather than a condition for application.

To many the conclusion may seem obvious, and the issue covered by acte clair (meaning the national court could have referred to the arguably obvious meaning of the provision, not to have to refer to the Court of Justice). In particular, the COJ has repeatedly emphasised the relevance of the consumer title in the Jurisdiction Regulation. On the other hand, however, the same Court has been quite anxious to give national courts detailled and specific instructions on the application of tiny details in the Regulation, making application of the acte clair doctrine quite difficult: many things one thought were clear, have been answered by the Court in unexpected ways.

National courts therefore are caught between the proverbial rock and the hard stone. Either they refer profusely, thereby feeding the cycle of micromanagement. Or they make extended use of acte clair, thereby risking unequal application of the Regulation (and potentially European Commission irk). On the issue of Article 15(1)(c) at least, the former would seem to prevail: in Slot, Case C-98/12 (hitherto still pending), the German Bundesgerichtshof has asked essentially the same question.

Geert.

 
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