What law applies to the piercing of the corporate veil? The Supreme Court (not) in VTB Capital v Nutritek.

Postscript 1 March 2016 I already refered in my initial posting to similar issues being sub judice in Shell. In the appeals judgment on the jurisdiction issue, the Gerechtshof Den Haag, without being definitive on the issue, suggested that applicable law for considering whether merger operations inserting a new mother company were abusive (merely carried out to make Royal Dutch Shell escape its liability), had to be addressed using ‘among others’ the lex incorporationis (at 3.2).

In VTB Capital v Nutritek [[2013] UKSC 5] , the Supreme Court of the United Kingdom revisits in signature erudite fashion a number of extremely relevant conflicts issues.  Quite a few of them are tantalizingly held out to the reader, without an answer to them being given.

VTB’s case is that it was induced in London to enter into a Facility Agreement, and an accompanying interest rate swap agreement, by misrepresentations made by one of the defendants, for which it claims the other respondents are jointly and severally liable. Parties are of suitably diverse domicile (appellant incorporated in England however controlled by a State-owned bank in Moscow; defendants two British Virgin Island-based companies owned and controlled by a Moscow-based Russian businessman. Defendants not being EU-based , the Brussels-I Regulation does not apply.

The issues involved were essentially

1. Jurisdiction. Lord Neuberger made the point that settling the presence (or not) of jurisdiction, is an early procedural incident in a trial and ought not to lead to protracted legal argument, costs and time, lest the discussions centre around whether the potential other jurisdiction can guarantee a fair trial or not. In contrast with other in recent high-profile cases before the UK courts, the alternative, Russian forum, would by common agreement have also offered a fair trial. Lord Neuberger also emphasises, with reference to Lord Bingham in Lubbe v Cape, that in forum non conveniens considerations, appeal judges should defer in principle to the trial judge, and that this should be no different in proceedings concerning service out of jurisdiction. The majority therefore opted to defer to Arnold J (at the High Court) and the Court of Appeal in their finding of jurisdiction, in the absence of any error which ought to have made the former change their conclusion.

2. Applicable law for tortious misrepresentation. This the law of the jurisdiction in which they are ultimately received and relied upon (the forum connogati if you like). In the case at issue, this was held to be England.

3. Applicable law for piercing the corporate veil. The Court emphasises the foundation of individual personality of a company established in Salomon and A Salomon and Co Ltd (1897). The presumption must be against piercing. The Supreme Court did not however set out a definitive test for it was not necessary for its resolving of the case, neither did it decide what law should apply to the issue. In theory, Lord Neuberger suggested, the proper law governing the piercing of the corporate veil (may be) the lex incorporationis, the lex fori, or some other law (for example, the lex contractus, where the issue concerns who is considered to be party to a contract entered into by the company in question). However common ground among parties in the case thus far had been to apply English law.

Piercing the corporate veil was also reviewed by the (Dutch) court in Shell. Lord Neuberger’s succinct analysis of the issue in VTB makes one hungry for more.

Geert.

 

No big surprises in Dutch Shell Nigeria / Royal Dutch Shell ruling

Postscript/2015: Shell’s arguments in appeal (in Dutch) on the specfic issue of jurisdiction, may be found here

As reported earlier, Shell’s top holding has been hauled before a Dutch court by a Dutch environmental NGO (Milieudefensie), seeking (with a number of Nigerian farmers) to have the mother holding being held liable for environmental pollution caused in Nigeria. Judgment came yesterday and generally is quite comforting for Shell (and other holding companies in similar situations).

The court stuck to its decision to join the cases, hence allowing Shell Nigeria to be pursued in the Dutch Courts, together with the holding company (against which jurisdiction was easily established under the Brussels I Regulation).  On this point, one imagines, Shell might appeal.

The court held against application of the Rome II Regulation for temporal reasons and did therefore not entertain any (unlikely) options in that Regulation which may  have led to Dutch law: the events which gave rise to the damage occurred before the entry into force of that Regulation. The Court therefore applies lex loci damni. If I am not mistaken, prior to Rome II, The Netherlands applied a more or less complex conflicts rule, not necessarily leading to lex loci damni, neither to lex loci delicti commissi, which was the rule in most EU Member States prior to the entry into force of the Rome II Regulation.

Nigerian law applied and any route to apply Dutch law was rejected.  Incompatibility with Dutch ordre public, for instance, was not withheld. Nigerian law running along common law lines, the court ran through negligence in tort, applied to environmental cases, leading amongst others to the inevitable Rylands v Fletcher. The  court found that the damage occurred because of sabotage, which under Nigerian law in principle exhonerated Shell Nigeria. Only for two specific instances of damage was liability withheld, for Shell Nigeria had failed to take basic precautions.

The conditions of Chandler v Cape (2012) to establish liability for the holding company, were not found to be met in the case at issue. The court did not establish a specific duty of care under Nigerian law (with the loop to the English common law) for Royal Dutch Shell (RDS), the mother company. A general CSR committment was not found not to alter that.

No doubt to be continued in various forms of appeal.

Geert.

Negative declarations for tort are covered by Article 5(3) JR – The Court of Justice in Folien Fischer

Does Article 5(3) JR cover an action for declaration as to the non-existence of liability? This was the question in Folien Fischer and it was answered by the ECJ in the affirmative.

Article 5(3) holds a special jurisdictional rule for tort:

A person domiciled in a Member State may, in another Member State, be sued: (…)

3. in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur;

Jurisdiction is established under Article 5(3) for the court of the place where the harmful event occurred ‘or may occur’.

The question on negative declarations for liability in tort was referred for a preliminary ruling by the German Bundesgerichtshof in the course of a dispute between, on the one hand, Folien Fischer AG (‘Folien Fischer’) and Fofitec AG (‘Fofitec’), companies established in Switzerland, and, on the other hand, Ritrama SpA, which has its registered office in Italy. Folien Fischer and Fofitec had been accused of essentially infringement of competition law in their sales practice and in Fofitec’s refusal to grant a license to Ritrama for one of its patents. Ritrama had issued a shot across the bows in sending Folien Fischer a letter alleging the incompatibility with competition law of its commercial practices.

Folien Fischer subsequently took the case to court first, in Hamburg, where it was found to be inadmissible for lack of international jurisdiction. Hamburg had taken its cue from that part of German scholarship which  argued that negative declarations are not covered by Article 5(3), thus leaving Folien Fischer no choice but to seek that declaration in Italy. Upon appeal the issue came before the ECJ.

Unlike Jaaskinen AG, the ECJ itself did not think that the reversal of roles in a negative declaration of liability, merits the non-application of Article 5(3) and the Bier formula. Jaaskinen AG had in so many words suggested that although the Court does not expressly say so in Bier, its holding in that case had a strong whiff about it of protecting the presumed victim, who is generally the claimant in the proceedings. The Court itself laid more emphasis on negative and positive declarations of liability essentially relating to the same matters of law and fact.

Post Bier, the ECJ has had to continue massaging the consequences of that seminal judgment. Bier threatened to open the floodgates to too many potential fora. I believe the Court was wrong in Bier to connect jurisdiction to applicable law (which it did when it found that a variety of fora had ‘natural’ links to the case by virtue of applicable law, or evidence). However follow-up case-law in the meantime (and as often reported on this blog) has taken on large dimensions. Bier /Mines de Potasse now has a large constituency: A complete revisit of the arguments in Bier is probably a tall order (pun intended I fear).

Geert.

The Jurisdiction Regulation, trademarks and the internet – The Court of Justice in Wintersteiger

I have already reported recently on the application of the Brussels I Regulation and the internet [see here for my confused state on the Judgment in ‘G’]. In Wintersteiger (Judgment of 19 April 2012) the applicant is the proprietor of an Austrian trade mark. The defendant was a competitor established in Germany, who had registered Wintersteiger’s name as an AdWord on Google’s German search service. Whence users of google.de entering ‘Wintersteiger’ (looking for that make’s ski and snowboarding service tools) receive a link to Wintersteiger’s website as first search result, but also as the first AdLink on the right hand side of the screen, an advert for and link to the competitor’s website – which Wintersteiger considered an abuse of its trademark.

The case once again raised the question how one applies Article 5(3)’s ‘place where the harmful event occurred’ (since Mines de Potasse split in ‘place where the event giving rise to the damage’ and ‘place where the damage’ occurred as being two alternative connecting factors)  in an internet context.

The judgment of the Court of Justice confirms that the connecting factor ‘centre of interests’ in Kylie Minogue and eDate Advertising only holds for infringement of personality rights in an internet context. Trademark violation is distinguished, on the grounds that rebus sic stantibus intellectual property rights are protected on a territorial basis. The Court confines the ‘place where the damage occurred’ as the Member State in which the trade mark is registered. For the ‘place where the event giving rise to the damage’, the Court upheld ‘place of establishment of the advertiser’ as the jurisdictional basis (the Advocate General’s ‘means necessary for producing, a priori, an actual infringement of a trade mark in another Member State’ is a  more generic criterion however the Court did not uphold this as such).

Precedent value of the judgment may be limited due to the specific facts of the case and the questions put to the Court (for non-EU readers: the Court of Justice practises judicial economy, hence questions not specifically asked are not entertained). In particular, the conclusion may only hold absolutely where there is only one trade mark held, in only one Member State (for EU readers and non-EU readers alike: EU trademark protection is a lot less harmonised than one may have assumed). The referring court moreover did not flag the many issues surrounding provisionary measures and intellectual property rights (see Article 31 of the Regulation and the Opinion of the same AG in Solvay, on which I report here).

Geert.

G v Cornelius de Visser. The Court of Justice on tort, internet and the Jurisdiction Regulation

Applying private international law in the information society is a touch tricky. Traditional PIL having relied on territorial links, applying it in an internet context may sometimes be testing. Article 5(3) of the European ‘Jurisdiction Regulation’ is a special jurisdictional rule which allows plaintiff to sue elsewhere than in the domicile of the defendant, for actions based on tort. In eDate advertising (aka Kylie Minogue), the European Court of Justice fine-tuned the Shevill criteria for application of Article 5(3) JR in an internet context, adding the ‘centre of (the victim’s) interests’  as a potential forum in the case of infringement of one’s personality rights. [see here]

In G v Cornelius de Visser, Case C-292/10, the Court was asked to provide input in the event of the defendant’s domicile being unknown (but with the defendant presumed to be an EU citisen), and the precise location of the server on which the website is stored, also unknown, although most probably in EU territory.

The Landgericht Regensburg asked no fewer than 11 questions of some complexity, with a degree of interdependence between them. The Court answered that Article 5(3) may certainly apply in such case, giving preference to legal certainty. However it expects due diligence on behalf of the national courts in making sure that a prima facie case of a link to the EU was established.

The ECJ failed subsequently to entertain the questions on the location of the harmful event given the uncertainty signalled above, for the relevant questions had been dropped by the referring court following the judgment in eDate Advertising. In my view, an answer to some of the now dropped questions on location of the harmful event (the locus delicti commissi) were certainly not nugatory, even after eDate Advertising. There is no Opinion of the Advocate General to assist.

Judgment in ‘G’

Geert.

%d bloggers like this: