Droit international général

Our editor Mayela Celis has on 21 October 2022 defended her PhD thesis “El Convenio de La Haya de 1980 sobre los aspectos civiles de la sustracción internacional de menores: cuatro décadas de interpretación evolutiva – Una selección y análisis de los aspectos clave del Convenio de La Haya a la luz de la jurisprudencia de los Estados contratantes” in Madrid (UNED).

Congratulations!

Prompted by a kind invitation to participate in the International Weekend  of ABILA (American Branch of the International Law Association, NY, 20-22 October 2022), I took a moment to reflect about past achievements and future challenges for private international law (PIL) in the European Union.

We were three speakers in the panel (Karin Kizer and David W. Rivkin  also took part), introduced and moderated by Ronald A. Brand, Michael S. Coffee and Louise Ellen Teitz. The description of the panel read:

This panel will focus on the institutions, players, and issues that are important in the global development of rules of private international law. The panelists will include a global representation of institutional and practitioner perspectives. The discussion will be built around a set of questions dealing with both current practical issues raised by private international law developments and projections for the future.

We were asked to include arbitration in the presentations.

The assignment proved not easy. I confess I got stuck at the very first stage, i.e., how to define ‘achievements’ and ‘challenges’ in PIL: are they different when the ‘PIL’ under examination is of European source?  I guess the answer is that, indeed, EU instruments and case law (of the Court of Justice) in PIL exist as part of a bigger plan: they serve European integration. By way of consequence, assessing PIL developments requires evaluating whether they promote integration or, on the contrary, act as a hindrance to it.

The next question would then be what ‘integration’ entails, how to measure recent PIL contributions of the EU legislature and of the Court thereto, and what future challenges to integration, posed specifically in the area of judicial cooperation in civil and judicial matters, can be predicted at this stage.

As fascinating as (for instance) the impact on mutual trust of the threats to courts and judges’ independence in some EU countries may be, or whether imposing informational obligations to the Member States creates more transparency or is rather counterproductive, upon reflection a pure ‘European-integration’ approach seemed unfit for the purposes of the ABILA invitation. I gave it up; the topic may still be worth for further thought in another context. Considering the likely (American) audience attending the ILW of ABILA, a walk through the latest developments in EU law and the case law of the Court of Justice looked more appropriate – and already proved too much for the time I had .

From this point of departure, I was happy to report that the political attention to judicial cooperation in civil and commercial matters has not declined in the last years. The legislature has obliged adopting new regulations (Regulation 2016/1103 on matrimonial property regimes; Regulation 2016/1104 on the property consequences of registered partnerships), amending  existing ones (Regulation 2015/2421 amending the Regulations on the small claims and the order for payment procedures), and also recasting some (Regulation 2015/848 on insolvency proceedings; Regulation 2019/1111 on matrimonial matters and matters of parental responsibility; Regulation 2020/1783 on taking of evidence; Regulation 2020/1784 of the European Parliament on service of documents).

Indeed, most of the legislative activity of the last decade in the field of PIL is inward-looking. It focuses on strengthening judicial cooperation in the ‘inner circle’ composed of Member States: the task is far from being complete.

From a purely legal (as opposed to political) standpoint, a little bit more surprising is that in some legal instruments a concern for the EU-citizens is made explicit, even where the rules at hand would apply almost equally to non-EU-rooted claimants or defendants: see recital 1 of Regulation 2019/1111; or recitals 8, 32 or 35 of Regulation 2016/1103.

In comparison, the outward-looking activity of the EU lawmaker remains restricted. That is not to say that it has not progressed, both in quantity (meaning, accession to international conventions on PIL, as well as decisions on acceptance of accession of other countries), and in approach. When adopting new legal acts, in addition to resorting to laconic compatibility clauses, the EU legislature keeps an eye on being consistent with existing international conventions: Regulation 2019/1111 is a proof. A wish for judicial cooperation in civil and commercial matters appears in (some) agreements of a general scope, such as the Framework Agreement between the European Union and its member States, of the one part, and Australia, of the other part, in force since 22 October 2022: see its Article 32, comprising a specific mention to facilitating and encouraging the arbitral resolution of international civil and private commercial disputes.

That attention has been given to the civil prong of the European area of justice must be taken as good news.

Visiting the EU Parliament Legislative Train Schedule, the future looks not so promising. And yet there is much to do. There is definitely no PIL legislative overproduction in the Union; however, already with what exist it is easy to get lost.

One of the greatest difficulties in presenting European PIL as a true system to a third-State audience derives from the asymmetries of the instruments as regards geographical scope. The fact that there are several ‘Europes’ in Europe does not only impact on the practical manageability of the rules; it also jeopardizes declared valuable objectives, such as the concentration of closely related claims before the courts of a single Member State. This puzzling situation resulting from a variety of political motives affects above all family matters (in a large sense), but not only. The state of affairs is not likely to change any soon. For the future, the lawmaker should at least take care of making it visible. Sometimes he already does: because of the particular position of Denmark, Article 122, para 3, of the 2017 EU Trademark Regulation clarifies that reference to the Brussels regulation shall include, where appropriate, the Agreement between the European Community and the Kingdom of Denmark. Sometimes he does not: a provision similar to the one just referred to is missing in the GDPR.

Moving to the rules themselves, the newest ones on jurisdiction show an increasing degree of sophistication.

To ABILA I mentioned, by way of example, the provisions allowing for the limitation of proceedings (ad. ex., Article 13 of Regulation 2016/1103), which I see as a ‘distant cousin’ of the forum non conveniens doctrine. I also described the EU fora as being predictable, an assertion which was met with some skepticism in the panel. It is understandable. On paper, all grounds for jurisdiction in the European instruments obey to typical values (certainty, proximity) and reflect the outcome of balances (between the right of access to court of the claimant, and the right to a due process of defendant, with the necessary bias to protect one of the parties or to promote a particular substantive policy, as the case may be). In practice, reality beats the imagination of the legislator and puts the system continuously to a test.

Faced with a problem common to all legal systems, what still makes the European Union unique is the preliminary ruling mechanism (beyond the rightness or wrongfulness of the rulings: the Court can’t please everyone). Its very existence opens up the possibility of reacting to changes uniformly and in a relative short time. When requested by a national jurisdiction, no matter whether first instance, first or second appeal, the Court of Justice’s intervention to adjust the written rules or to shed light on their limits is not a choice – no certiorari.

In civil and commercial matters, the prototypical example of a need for constant adaptation are torts in the internet. Strings of requests for preliminary rulings get to Luxembourg based on variations of very similar facts, pushing the task of the Court of Justice to the verge of the distinction between interpretation and application of the European rules (see C-172/18, AMS Neve, and C-104/22, Lännen, as an example). That the workload of the Court does not decrease, but just the opposite, is to me a sign of trust and of good health of the system, thus an achievement.

In the area of enforcement there is much pending. The big European accomplishments in the last years remain confined to the free movement of titles from and to Member States. The (partial) abolition of exequatur, the possibility to ask for a European account preservation order, the availability of certificates and standards forms to  ease and speed the application for enforcement in a country other than that of delivery of the judgement… benefit Member States’ decisions.

Creditors should be aware that the recent ruling of the Court of Justice in C-568/20, H Limited, does not open wide a door to titles from third States. In my reading of the Court’s decision (which may be wrong), the Brussels I bis Regulation is still limited to the recognition and enforcement in a Member State of decisions of other Member States. It applies, after a foreign judgement has been recognized, to the steps following said recognition, such as an order for payment (if adopted in full compliance with the conditions set forth in the EU regime). The entry into force of the 2019 Hague Convention, when it takes place, will ease the enforcement of non-European titles only to some extent. No doubt there is room for improvement.

Finally, there was, of course, arbitration. In the panel, the discussion revolved around arbitration in the aftermath of the Achmea (C-284/16) and Komstroy (C-741/19) rulings.

I fail to see a difference for commercial arbitration in the pre- and post-Achmea scenarios (in this line, para 54 of C-284/16, resumed in C-741/19): at least, in theory. In any event, decisions such as C-700/20, London Steam-Ship Owners’ Mutual Insurance Association and earlier ones indicate that the main game is played elsewhere.

Among the many doctrinal suggestions for the recast of the Brussels I bis Regulation some focus on arbitration. Personally, I doubt the Commission wants to engage once again in the debate. Whatever the outcome of the ongoing revision of the Regulation, I presume Article 73, para 2, will remain. If this is so, a general line of reasoning of the Court regarding compatibility clauses is worth recalling: said clauses ‘cannot have a purport that conflicts with the principles underlying the legislation of which [they are] part’ (C‑533/08, TNT Express Nederland, at 51, and C- 452/12, Nipponkoa, at 37, on the relationship of the Brussels regime and the Convention on the Contract for the International Carriage of Goods by Road (CMR)). Difficult to imagine that Article 73 could constitute an exception in this regard, or the reasons why.

I did not have the time to present these thoughts in detail, nor other reflections regarding, among other, conflict of law rules. In exchange, I had the pleasure to listen to my two co-panelists on developments in the US and, quite intensively, in the already mentioned concerns of the arbitration world. A summary by S. Labi can be found in Oil-Gas-Energy-Mining-Infrastructure Dispute Management (OGEMID).

The case of the Pax Moot Court Peter Nygh round 2023 is out.

The Pax case involves an oil sale, with concerns about the quality of the oil. It concerns various aspects of civil and commercial law as well as insolvency.

The oral rounds of the competition will take place in Antwerp on 3 to 5 May 2023. The full schedule and further information are available on www.paxmoot.eu.

Whether orders for penalty payment my constitute a ‘judgment’ is an issue under Brussels Ia (A55, see also below). It is also under the EU account preservation order Regulation 655/2014 (the ‘APO’ Regulation or simply ‘APO’) and it is on the latter that Szpunar AG opined last week in C‑291/21 Starkinvest (no English version is as yet available).

Per A7 APO, confirmed in CJEU C-555/18 H.K., when the applicant for an APO  (the creditor) does not (yet) have a judgment, court settlement or authentic instrument requiring the debtor to pay the creditor’s claim, creditor must submit sufficient evidence to satisfy the court that he is likely to succeed on the substance of his claim against the debtor: that is the ‘fumus boni juris’ (literally ‘the smoke of a solid right’) requirement.

Under Belgian civil procedure rules, a creditor need not return to the court to have the final amount of a periodic penalty payment confirmed before being able to seize assets commensurate to the amount due: the judgment itself, which for that reason must clearly detail the parameters for the payment’s calculation, serves as enforceable title; the bailiff seizes following her /his own calculation, and the attachment judge confirms the final amount. The point of the exercise is to guarantee sufficient asset seizure, pending the final confirmation of the amount due.

In essence the question is whether this security also works in an international context. The discussion of course triggered discussion of A55 Brussels Ia and its relationship with APO: ‘A judgment given in a Member State which orders a payment by way of a penalty shall be enforceable in the Member State addressed only if the amount of the payment has been finally determined by the court of origin.’

The AG (and with him, the EC and the Member States that intervened) zooms in on the A7(2( APO condition: the debtor must have obtained ‘a judgment, court settlement or authentic instrument requiring the debtor to pay the creditor’s claim‘  (emphasis added): not just ‘a judgment’ as defined in A4(8) APO: “‘judgment’ means any judgment given by a court of a Member State, whatever the judgment may be called, including a decision on the determination of costs or expenses by an officer of the court”. This focus is then followed by a discussion of the word ‘claim’, for which reference is made to the relevant forms prescribed by Commission Implementing Regulation 2016/1823 . This form refers to an amount ‘awarded’ and an ‘amount set out in’ the judgment.

The AG ends his Opinion with the suggestion that the judgment which imposed the penalty payment, together with confirmation eg by a bailiff that the debtor did not meet with the requirements to escape the payment, form a sound basis for the A7(2) APO route of fumus boni iuris.

It is clear that penalty payments could have done with more specific consideration in APO, and  the spirit of the APO Regulation could in my view support a different conclusion. However the textual anchors for the AG’s Opinion would seem strong.

Geert.

Opinion Szpunar AG this morning, whether order to pay periodic penalty payment without determination of the final amount, is a judgment viz the European Account Preservation Order

Starkinvest SRLhttps://t.co/t5a7rPGnzy

— Geert Van Calster (@GAVClaw) October 20, 2022

The author of this post is Lydia Lundstedt, who is a Senior Lecturer at the Stockholm University.

On 20 October 2022, Advocate General Szpunar delivered his opinion (not yet available in English) in Grand Production (C-423/21) on the interpretation of Article 3(1) of Directive 2001/29/EC on the harmonisation of certain aspects of copyright and related rights in the information society.

Marta Requejo Isidro reported on the questions referred by Oberster Gerichtshof (Austria) here.

In essence, the first question in the case is whether a streaming platform operator that retransmits tv broadcasts can be said to communicate works contained in those broadcast to the public in the meaning of Article 3(1) when internet users circumvent geo-blocking measures that the operator put into place to block access to the EU territory. Article 3(1) reads:

Member States shall provide authors with the exclusive right to authorise or prohibit any communication to the public of their works, by wire or wireless means, including the making available to the public of their works in such a way that members of the public may access them from a place and at a time individually chosen by them.

Background

The plaintiff, Grand Production d.o.o., a company incorporated under Serbian law, produces audio-visual entertainment programmes which are broadcast on Serbian territory by a Serbian broadcaster. The third defendant, GO4YU d.o.o Beograd (hereinafter GO4YU), also incorporated under Serbian law, has an agreement with the Serbian broadcaster to retransmit the broadcasts on its streaming platform. GO4YU Belgrade does not have the right however to retransmit Grand Production’s programmes outside Serbia and Montenegro and must block access to these programmes outside these territories. GO4YU’s platform is otherwise available both inside and outside Serbia. The first and fourth defendants are Austrian companies related to GO4YO that market the platform and conclude contracts with subscribers of the platform and the second defendant is a chairman of the board and sole shareholder of one of these related companies.

Grand Production claims that the defendants are infringing its copyright because its programmes are accessible on GO4YU’s platform to users worldwide. It claims that users can circumvent GO4YO’s geo-blocking measures and that GO4YO is aware of this. Grand Production applied to the Austrian courts for world-wide interlocutory measures against all defendants but only succeeded in obtaining an order against GO4YU Belgrade limited to the territory of Austria. Grand Production appealed to the referring court.

Platform Operator Infringes if Works are Accessible in the EU …

AG Szpunar opined that concept of ‘communication to the public’ within the meaning of Article 3(1) applies to a situation where the operator of a streaming platform retransmits works contained in a television broadcast originally made outside the EU, when the works are accessible without restriction within the EU (paras 22-26).  Szpunar explained that the CJEU’s decision in ITV Broadcasting (C-607/11) made clear that Article 3(1) covers a retransmission of works in a television broadcast where the retransmission is made by an organisation other than the original broadcaster, over the internet, even though the other organization’s subscribers are within the reception area of the television broadcast and may lawfully receive the broadcast on their televisions (para 22).

Szpunar explained that the fact that the subscribers in the ITV case were in the reception area of the television broadcast did not mean that the ITV case did not apply in a situation where the subscribers were not in reception area of the television broadcast. Szpunar noted that the CJEU made this clarification to respond to the argument that there was no “new public”, that is, a public different from the public to which the original television broadcast was directed. The CJEU held that the new public criterion was not relevant where the internet retransmission was made by different technical means from the original television broadcast.

The AG concluded that if an internet retransmission is also available outside the territory in which the original television broadcast was received, it is necessarily addressed to a wider audience than that of the television broadcast in question and therefore a fortiori constitutes a communication to the public within the meaning of Article 3(1) (para 23).

Szpunar also explained that the fact that the original television broadcast is directed at a territory outside the EU does not preclude a retransmission of that broadcast on the internet from being regarded as a communication to the public within the meaning of Article 3(1), ‘in so far as that retransmission is available in the territory to which the [Infosoc] directive applies.’ (para 25).

… unless the Operator Uses Geo-blocking Measures

AG Szpunar opined however that if an operator of a streaming platform that retransmits television broadcasts containing works uses geo-blocking measures, it does not infringe the communication to the public right in Article 3(1), even though users circumvent these measures to access the works on the territory of the EU (para 45).

AG Szpunar explained that pursuant to CJEU case law, digital rights management tools which include geo-blocking can give rise to legal effects under EU law (para 31). AG Szpunar referred inter alia to the CJEU’s decisions in Svensson (C-466/12) and VG Bild-Kunst (C-392/19), where the CJEU explained that the operator of a website could use access restrictions and anti-embedding measures to limit the public to which the works contained therein are communicated and that anyone circumventing these restrictions would communicate the works to a new public. AG Szpunar maintained that similar reasoning could be applied to geo-blocking measures such as those at issue in the case at hand:

If the copyright owner (or its licensee) has applied such a blocking measure, its transmission is directed only to the circle of persons who access the protected content from the territory defined by the copyright owner (i.e. the territory where access is not blocked). The rightholder therefore does not make any communication to the public in other territories.

If Grand Production’s entertainment programmes on GO4YU Belgrade’s streaming platform are subject to geo-blocking in such a way that access to them can in principle be obtained only from Serbia and Montenegro, GO4YU Belgrade does not carry out any communication of these programmes to the public within the European Union. (para 36-37) (my translation).

AG Szpunar explained that the mere fact that the operator of the platform is aware that users might circumvent the geo-blocking measures is not sufficient for holding the operator responsible, but that the situation would be different if the operator had “deliberately applied ineffective” geo-blocking measures (42-44).

With respect to the second question which concerned whether the related companies could be directly liable for the communication to the public, AG Szpunar opined that companies that have no influence on either the content made available on the platform or on the geo-blocking measures do not themselves communicate the works to the public within the meaning of Article 3(1) (46-53).

Side-steps whether the “Centre of Interests” Basis for Jurisdiction Applies to Copyright Infringements on the Internet

AG Szpunar proposed that the referring court’s third question on the interpretation of Article 7(2) of the Brussels I bis Regulation be dismissed because it was not relevant to the outcome of the dispute in the case at hand.

In essence, the national court asked whether the CJEU’s case law on violations of personality rights on the internet should be applied to copyright infringements on the internet. The referring court noted that the CJEU’s case law on the application of Article 7(2) to copyright infringement on the internet had been criticized. Pursuant to this case law (Pinckney (C-170/12) and  Pez Hejduk (C‑441/13)), the CJEU held that given the territorial nature of copyright protection, a court seised on the basis of the occurrence of damage within its territory has jurisdiction to rule only on the damage caused within its own territory and that the courts of other Member States retain jurisdiction to rule on the damage to copyright caused in their respective territories.

This is in contrast to the Court’s case in Bolagsupplysningen and Ilsjan (C-194/16) and eDate Advertising and others (C-509/09 and C-161/10) on violations of personality right on the internet, where the courts of the Member State where the victim has its centre of interests has jurisdiction to rule on all damage and can hear actions for rectification and removal of unlawful content.

AG Szpunar explained however that Article 7(2) of the Brussels I bis Regulation is not applicable to the case at hand. The third defendant is domiciled outside the EU (in Serbia) so in accordance with Article 6(1) of the Brussels Recast, the Austrian courts are to apply their national rules on jurisdiction. The other three defendants are domiciled in Austria so in accordance with Article 4 of the Brussels Recast, the Austrian courts’ jurisdiction is not territorially limited. Moreover, AG Szpunar noted that there is no indication that Grand Production (the would-be victim) has its centre of interest in Austria.

Comment

I was surprised that AG Szpunar did not refer to the CJEU case law in Football Dataco (C‑173/11) concerning an infringement of a sui generis database right and L’Oréal (C-324/09) concerning trade mark infringement where the Court held that the mere fact that a website containing protected content (e.g. data or a trademark) is accessible in a particular Member State is not sufficient for concluding that the operator of the website is infringing in that Member State (see Football Dataco (C‑173/11), para 36-41 and L’Oréal (C-324/09), para 64-67).

The CJEU explained that if mere accessibility was sufficient, websites, although obviously targeting persons outside the territory of a Member State, but nevertheless technically accessible in that State, would wrongly be subject to the application of that Member State’s laws. The CJEU held that it was up to the national courts to assess on a case-by-case basis whether there is evidence that discloses an intention on the part of the operator to target persons in that Member State (or the EU in the case on an EU trademark).

According to the CJEU, some factors that could disclose such an intention were whether the content of the website was of particular interest to users in the Member State, whether the website operator’s renumeration was based on the number of users from that Member State, whether the Top-Level Domain was a country code of the Member State. I agree with AG Szpunar’s conclusion that an operator that uses effective geo-blocking measures does not disclose an intention to target persons in the blocked Member State. That said, the mere fact that a website operator neglects to use such measures should not automatically lead to the conclusion that the operator infringes in every Member State where the website is technically accessible.

With respect to question about the interpretation of Article 7(2), I think the CJEU’s case law is clear that the centre of interest basis of jurisdiction does not apply to infringements of intellectual property rights due to the territorial nature of protection. This is certainly the case for the economic right associated with copyright. The situation might be different however if an author alleged an infringement of moral rights. This was however not the case here. Moreover, as AG Szpunar rightly explained, Article 7(2) was not applicable to the case.

Priskila Pratita Penasthika has recently published her PhD thesis with Eleven titled Unravelling Choice of Law in International Commercial Contracts. Indonesia as an Illustrative Case Study

The abstract reads as follows:

Despite the paramount role of choice of law in international contractual relationships, its implementation in various countries remains disparate. Many countries have acknowledged and given effect to choice of law, but some other countries persist in opposing it. The lingering reluctance in enforcing choice of law remains a challenging impediment to cross-border commercial relationships.

Strict adherence to the territoriality principle, absence of special provisions or clear guidelines of choice of law, and difficulties in confirming the content of the chosen foreign law are among the reasons for the reluctance to give effect to choice of law. These circumstances are encountered by some countries, including Indonesia.

This book not only unravels the reasons for Indonesia’s reluctance and its subsequent lack of advancement on choice of law, but also examines possible solutions to the problem. Building on in-depth doctrinal research, supported by qualitative interviews, this research will serve as an essential point of reference for academics, practitioners, and policymakers interested in private international law and cross-border commercial litigation.

About the author:

Priskila Pratita Penasthika is an Assistant Professor in Private International Law at the Faculty of Law, Universitas Indonesia. She graduated with a doctorate in law from Erasmus University Rotterdam.

Banca Intesa Sanpaolo SPA & Anor v Comune Di Venezia [2022] EWHC 2586 (Comm) is an excellent illustration of the relevance of characterisation and of the international harmonisation of same. It also discusses the application of the ‘purely domestic contracts’ rule of Article 3(3) Rome Convention, carried over into the Rome Regulation.

Background is long-running litigation involving derivative transactions used by Italian municipalities to hedge their interest rate risk, as Sarah Ott summarises the context here (she discusses Dexia Crediop SpA v Provincia di Pesaro e Urbino [2022] EWHC 2410 (Comm), a case with many similar issues).

Venice contends that, for various reasons, it lacked the substantive power to enter into the Transactions as a matter of Italian law, and that, applying English conflict of law principles, that means that it did not have capacity to enter into the Transactions and that they are not valid. It also contends that the Transactions breached various rules of Italian law which have the status of “mandatory rules of law” for the purposes of A3(3) Rome Convention 1980 (which is applicable and not the Rome I Regulation) and that as a result the Transactions are void and/or unenforceable.

The Banks deny that the entry into the Transactions contravened any provisions of Italian law, on the basis of arguments as to the effect of Italian law and its application to the facts of this case, and further deny that any such contravention would deprive Venice of capacity to contract as a matter of English conflict of laws principles in any event.

Capacity to enter into contractual relationship itself is not caught by the Rome Convention as a result of the Convention’s carve-out of Article 1(2) c (most legal systems make such capacity subject to the lex incorporationis, and [115] is determined by reference to the law in force when the Transactions were entered into). Foxton J refers as authority to Credit Suisse International v Stichting Vestia Groep [2014] EWHC 3103 (Comm) [185].

Who then is to decide whether a particular issue of Italian law raises a question of capacity, or authority, or some other kind of legal challenge to the validity and efficacy of the Transactions? Here Foxton J wrongly in my view simply refers to lex fori, English law. In reality of course it is the Rome Convention that does so, although as I have pointed out before, neither the Rome Convention nor Rome I excels at clarifying.

[129] ff then follows lengthy analysis of the issues of capacity under Italian law as the lex causae, with the conclusion being that Venice did indeed so lack capacity under Italian law.

The issue of mandatory Italian law replacing the English lex contractus as a result of Article 3(3) Rome Convention’s ‘purely domestic contracts’ rule, is dealt with obiter. It fails at the first hurdle with Foxton J holding [341] that the scenario is not purely domestic. He does not much entertain the issue of whether under Italian law (lack of) a theory of contractual consideration might be of mandatory nature, referring [356] to the similar issues of consideration and privity of contracts under English law (which in effect might subsequently become relevant under the overriding mandatory rules of the forum).

An interesting judgment.

Geert.

Capacity under IT law to enter into financial transactions; Qualification whether 'capacity' is at stake is subject to lex fori, EN law
(Non)application of A3(3) Rome Convention purely domestic contracts rule

Banca Intesa Sanpaolo ea v Comune Di Venezia https://t.co/lrSv1v4E5b

— Geert Van Calster (@GAVClaw) October 14, 2022

This post was written by Hans van Loon.

As reported in this blog before the European Commission on 23 February 2022 adopted a proposal for a directive on corporate sustainability due diligence.

At its annual meeting in 2021, the European Group for Private International Law (GEDIP) had adopted a Recommendation to the EU Commission concerning the PIL aspects of corporate due diligence and corporate accountability. The EAPIL blog covered this development, too.

While some of the recommendations proposed by GEDIP are reflected in the Draft Directive, the Draft fails to take into account several crucial recommendations concerning judicial jurisdiction and applicable law. This will detract from its effectiveness.

In particular:

• The Proposal, while extending to third country companies lacks a provision on judicial jurisdiction in respect of such companies;
• The Proposal, while extending a company’s liability to the activities of its subsidiaries and to value chain co-operations carried out by entities “with which the company has a well-established business relationship”, lacks a provision dealing with the limitation of the provision on co-defendants in the Brussels I bis Regulation (Article 8(1)) to those domiciled in the EU;
• The Proposal lacks a provision allowing a victim of a violation of human rights to invoke, similar to a victim of a violation of environmental damage under Article 7 of Regulation 864/2007 (Rome II), also the law of the country in which the event giving rise to the damage occurred, and does not prevent companies from invoking a less strict rule of safety or conduct within the meaning of Article 17 of Rome II;
• The provision of the Proposal on the mandatory nature of the provisions of national law transposing the Directive (Article 22 (5)) is insufficient because (1) the words “in cases where the law applicable to actions for damages to this effect is not that of a Member State” are redundant and (2) all these provisions of national law transposing the Directive should apply irrespective of the law applicable to companies, contractual obligations or non-contractual obligations.

GEDIP therefore, on the occasion of its meeting in Oslo, 9-11 September 2022 adopted a Recommendation concerning the Proposal for a directive of 23 February 2022 on Corporate Sustainability Due Diligence, following up on its Recommendation to the Commission of 8 October 2021. The text of the Recommendation can be found here.

China’s Foreign Exchange Regulations and Illegality in Private International Law 

About this event

When: Wednesday, 23rd November 4pm

Where: Room 3.1, Third Floor, Centre for Commercial Law Studies, 67-69 Lincoln’s Inn Fields London WC2A

Format: In-person

This event is jointly hosted by QM Criminal Justice Centre and the Centre for Financial Law, Regulation & Compliance (FinReg) at the Institute of Advanced Legal Studies.

Abstract

China is one of the countries in the world enforcing the tightest foreign exchange regulations. However, it is controversial whether a commercial contract that is performed partly in China and partly in a commonwealth country would be unenforceable merely because it violates China’s foreign exchange regulations. Based on Australian and English jurisprudence, this talk will explore the intersection between China’s foreign exchange regulations and illegality in private international law. It discusses:

1. Disguised foreign exchange trading, underground banking, and fund splitting;

2. Under-invoicing in trade in goods to evade import tax and over-invoicing in trade in service to claim income tax refund in an importing country; and

3. Illegality in private international law.

Speaker Bio

Dr. Jie (Jeanne) Huang is an Associate Professor at the University of Sydney Law School in Australia. Her prize-winning research focuses on conflict of laws (private international law), especially comparative studies between the USA, the EU, Australia, and China.

She is the Co-chair of the American Society of International Law Private International Law Interest Group. She also serves as an Australian government expert on mission to the United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFACT). She is on the executive committee of the International Law Association (ILA) Australia branch, and she serves as an editor for the Asian Journal of Law and Society. At the University of Sydney, she is the inaugural director for the LLM program and the co-director of the Centre for Asian and Pacific Law. Beyond the academic, Jeanne is an Arbitrator at the Hong Kong International Arbitration Centre and Shanghai International Economic and Trade Arbitration Commission (Shanghai International Arbitration Centre).

To reserve your spot, please see here.

Choice-of-law rules can be complex, confusing, and difficult to apply. Nevertheless, they are vitally important. The application of choice-of-law rules can turn a winning case into a losing case (and vice versa). A recent decision in the U.S. Court of Appeals for the Second Circuit, Petróleos de Venezuela S.A. v. MUFG Union Bank, N.A., is a case in point. The Second Circuit was called upon to decide whether to apply the law of New York or the law of Venezuela to determine the validity of certain notes issued by a state-owned oil company in Venezuela. Billions of dollars were riding on the answer.

In this post, I first review the facts of the case. I then provide an overview of the relevant New York choice-of-law rules. Finally, I discuss the choice-of-law question that lies at the heart of the case.

The Bonds

In 2016, Venezuela’s state-owned oil company, Petróleos de Venezuela, S.A. (“PDVSA”) approved a bond exchange whereby holders of notes with principal due in 2017 (the “2017 Notes”) could exchange them for notes with principal due in 2020 (the “2020 Notes”). Unlike the 2017 Notes, the 2020 Notes were secured by a pledge of a 50.1% equity interest in CITGO Holding, Inc. (“CITGO”). CITGO is owned by PDVSA through a series of subsidiaries and is considered by many to be the “crown jewel” of Venezuela’s strategic assets abroad.

The PDVSA board formally approved the exchange of notes in 2016. The exchange was also approved by the company’s sole shareholder and by the boards of the PDVSA’s subsidiaries with oversight and control of CITGO.

The National Assembly of Venezuela refused to support the exchange. It passed two resolutions – one in May 2016 and one in September 2016 – challenging the power of the executive branch to proceed with the transaction and expressly rejecting the pledge of CITGO assets in the 2020 Notes. The National Assembly took the position that these notes were “contracts of public interest” which required legislative approval pursuant to Article 150 of the Venezuelan Constitution. These legislative objections notwithstanding, PDVSA followed through with the exchange. Creditors holding roughly $2.8 billion in 2017 Notes decided to participate and exchanged their notes for 2020 Notes.

In 2019, the United States recognized Venezuela’s Interim President Juan Guaidó as the lawful head of state. Guaidó appointed a new PDVSA board of directors, which was recognized as the legitimate board by the United States even though it does not control the company’s operations inside Venezuela. The new board of directors filed a lawsuit in the Southern District of New York against the trustee and the collateral agent for the 2020 Notes. It sought a declaration that the entire bond transaction is void and unenforceable because it was never approved by the National Assembly. It also sought a declaration that the creditors were prohibited from executing on the CITGO collateral.

Choice of Law

If the 2020 Notes were validly issued, they are binding on PDVSA, and the CITGO assets may be seized by the noteholders in the event of default. If the notes were not validly issued, they are not binding on PDVSA, and the CITGO assets may not be seized by the noteholders in the event of default. Whether the Notes were validly issued depends, in turn, on whether the court applies New York law or Venezuelan law. This is the billion-dollar choice-of-law question. If New York law applies, then the notes will almost certainly be deemed valid and the noteholders can seize the pledged collateral. If Venezuelan law is applied, then the notes may well be deemed invalid and the noteholders will be stymied. With the stakes in mind, let us now turn to the applicable choice-of-law rules.

A federal court sitting in diversity must look to the choice-of-law rules of the state in which it sits—here, New York—to decide which jurisdiction’s law to apply. N.Y. General Obligations Law 5-1401 states that a New York choice-of-law clause should be enforced whenever it appears in a business contract worth more than $250,000 in the aggregate. The 2020 Notes contain New York choice-of-law clauses. Since the aggregate value of the 2020 Notes is far greater than $250,000, and since the 2020 Notes have no relation to personal, family or household services, it may seem that the court should simply apply New York law and call it a day.

There is, however, another New York choice-of-law rule that may trump Section 5-1401. Section 5-1401 states that it shall not apply to any contract “to the extent provided to the contrary in . . . section 1-301 of the Uniform Commercial Code.” Section 1-301(c) states that if N.Y Commercial Code Section 8-110 “specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted by the law so specified.” Section 8-110(a), in turn, states that “[t]he local law of the issuer’s jurisdiction . . . governs . . . the validity of a security.”

All of this suggests that the applicable choice-of-law rule may not be the one laid down in Section 5-1401. Section 8-110 directs courts to apply the local law of the issuer’s jurisdiction—here, Venezuela—to resolve issues relating to the “validity” of the security.  The billion-dollar question is what exactly the word “validity” means in this context.

On the one hand, the term may be interpreted broadly to refer to both the corporate law of Venezuela and to Venezuelan law more broadly. Under this interpretation, the 2020 Notes may not be validly issued because they were never approved by the National Assembly as required under Article 150. On the other hand, the term “validity” may be interpreted to refer only to the corporate law of Venezuela. Under this narrower interpretation, it is irrelevant whether the National Assembly approved the 2020 Bonds because all of the corporate formalities needed to validly issue a security—approval by the board of directors, approval by the shareholders, etc.—appear to have been followed.

Interpretation in the District Court

In a lengthy decision decided on October 16, 2020, the U.S. District Court for the Southern District of New York (Judge Katherine Polk Failla) concluded that the term “validity” should be given a narrow interpretation and that New York contract law governed the issue of validity.

The court began its analysis by observing that the strongest argument in support of a broad interpretation is based on plain language. This term “validity” is not generally understood to refer solely to corporate formalities. It is understood to encompass the many reasons why a contract may not be enforceable as a matter of contract law. While this plain language reading is compelling at first glance, the court ultimately concluded that it did not mandate the application of general rules of Venezuelan law given the broader context of Article 8.

The court first quoted the following language from the Prefatory Note to Article 8:

[Article 8] deals with the mechanisms by which interests in securities are transferred, and the rights and duties of those who are involved in the transfer process. It does not deal with the process of entering into contracts for the transfer of securities or regulate the rights and duties of those involved in the contracting process (emphasis added).

The court observed that if the term “validity” were given a broad scope, it would “swallow whole any choice of law analysis involving the formation of a contract for securities.” The court cited state legislative history indicating that the term “validity” in Article 8 referred merely to whether a security “ha[d] been issued pursuant to appropriate corporate or similar action.” The court also quoted the authors of a leading treatise on Article 8 as saying that:

Obviously, the concept of “invalidity” as used in this section must have a narrower scope than one might encounter in other legal contexts, e.g., in a dispute about whether the obligation represented by the security is “enforceable” or “legal, valid, and binding.”

Finally, the district court noted the virtual absence of any New York case law supporting the broad interpretation of the validity favored by the plaintiffs. If the term was as sweeping as the plaintiff claimed, the court reasoned, there would be more cases where the courts had applied Section 8-110. The lack of any such cases cut against giving the term a broad interpretation. The district court’s analysis of this issue has attracted support from some commentators and criticism from others.

After concluding that the term “validity” in Section 8-110 should be interpreted narrowly to select only Venezuelan corporate law, the district court applied New York contract law. It held that the 2020 Notes were valid and enforceable and that the defendant trustee was entitled to judgment in the amount of $1.68 billion. The plaintiffs appealed.

Interpretation in the Second Circuit

On October 13, 2022, the U.S. Court of Appeals for the Second Circuit declined to provide a definitive answer as to the interpretive question discussed above. After reviewing the various arguments for and against a broad interpretation of “validity,” the court certified the question to the New York Court of Appeals. In so doing, the court commented on the issue’s importance to “the State’s choice-of-law regime and status as a commercial center.” It also noted the importance of the choice-of-law issue to the ultimate outcome in the case:

If the court concludes New York choice-of-law principles require the application of New York law on the issue of the validity of the 2020 Notes, and that Article 150 and the resolutions have no effect on the validity of the contract under New York law, then we would affirm the district court’s decision to apply New York law and uphold the validity of the bonds. On the other hand, if the court concludes Venezuelan law applies to the particular issue of PDVSA’s legal authority to execute the Exchange Offer, then we would likely remand for an assessment of Venezuelan law on that question and, if necessary, for consideration of the Creditors’ equitable and warranty claims.

The fate of the 2020 Notes—and the billions of dollars those notes represent—is now in the hands of the New York Court of Appeals.

Conclusion

There will be additional updates and commentary on Petróleos de Venezuela S.A. v. MUFG Union Bank, N.A. at Transnational Litigation Blog in the weeks and months ahead. In the meantime, please feel free to mention this case the next time a student or a colleague questions the importance of choice-of-law rules. These rules matter. A lot.

[This post is cross-posted at Transnational Litigation Blog.]

The Institute for Private International and Comparative Law of the University of Cologne (Professor Mansel) is looking to appoint one Research Assistant (Wissenschaftliche/r Mitarbeiter/in) on fixed-term contracts for 2 years, with contract extension possible, based in Cologne. This is a part-time position (19.92 hrs./week), possibility of PhD is given. In case of a post-doc application, it can be extended to a full-time position (39.83 hrs./week) within short time, provided that the requirements are met. A German state law examination (1. Prüfung) with clearly above-average grades and a command of written and spoken German are required. In addition, knowledge of Dutch, Italian,
Spanish or French is an advantage, but not a requirement. Remuneration is based on pay group 13 TV- L.

The University of Cologne promotes equal opportunities and diversity in its employment relationships. Women are expressly invited to apply and will be given preferential treatment in accordance with the LGG NRW. Applications from severely disabled persons are very welcome. They will be given preferential consideration if suitable for the position.

Interested candidates are invited to send their detailed application including the usual documents in a single .pdf file by November 12, 2022 to ipr-institut@uni-koeln.de, for the attention of Professor Mansel.

Jonathan Harris and Campbell McLachlan are the editors of Essays in International Litigation for Lord Collins (OUP, 2022). As its title makes clear, this is a collection of essays written to honour Lawrence Collins, who was a leading practitioner (partner at Herbert Smith, then judge, eventually on the UK Supreme Court), but also the general editor of the leading English work on private international law, Dicey, Morris and Collins on the Conflict of Laws.

This book contains a collection of essays written by many jurists who have been privileged to count Lawrence Collins as friend, mentor, and colleague over the course of a remarkable career of more than fifty years in practice and at the Bench. Lawrence’s own contribution is coincident with the rising importance in practice of issues in the conduct of international litigation. It also considers cross-border litigation as it is developing globally and the role of the national judiciary in international cases. The book highlights the reshaping of English private international law, particularly following the withdrawal of the United Kingdom from the European Union. It also discusses the development of international arbitration and the impact of public international law.

The contributors include Jonathan Harris, Horatia Muir Watt, Fausto Pocar, Hans van Loon, Elizabeth Gloster, Campbell McLachlan, David Lloyd Jones, Richard Aikens, Andrew Dickinson, Trevor Hartley, Alex Mills, Jonathan Mance, Linda Silberman, Frank Iacobucci, David McClean and Peter North.

More information can be found here.

The following comment has been kindly provided by Sarah Ott, a doctoral student and research assistant at the University of Freiburg (Germany), Institute for Comparative and Private International Law, Dept. III.

On 27 September 2022, the English High Court granted summary judgment and declaratory relief in favour of the Italian bank Dexia Crediop SpA (“Dexia“) in its lawsuit against the Province of Pesaro and Urbino (“Pesaro”), a municipal authority in the Marche region of Italy. This judgement marks the latest development in a long-running dispute involving derivative transactions used by Italian municipalities to hedge their interest rate risk. Reportedly, hundreds of Italian communities entered into interest rate swaps between 2001 and 2008 having billions of Euros in aggregate notional amount. It is also a continuation of the English courts’ case law on contractual choice of law clauses. Although the judgments discussed in this article were, for intertemporal reasons, founded still on Art. 3(3) of the Rome Convention, their central statements remain noteworthy. The Rome Convention was replaced in almost all EU member states, which at the time included the United Kingdom, by Regulation (EC) No 593/2008 (“Rome I”), which came into effect on 17 December 2009. Article 3 Rome I Regulation contains only editorial changes compared to Article 3 of the Rome Convention. As a matter of fact, Recital 15 of the Rome 1 Regulation explicitly states that despite the difference in wording, no substantive change was intended compared to Article 3(3) of the Rome Convention.

In the case at hand, Pesaro and Dexia entered into two interest rate swap transactions in 2003 and 2005. Each of the transactions was subject to the 1992 International Swap Dealers Association (“ISDA”) Master Agreement, Multicurrency – Cross Border and a Schedule therto. During the 2008 financial crisis, the swaps led to significant financial burdens for Pesaro. In June 2021, Pesaro commenced legal proceedings in Italy seeking to unwind or set aside these transactions. Dexia then brought an action in England to establish the transactions were valid, lawful and binding on the parties.

A central question of the dispute was the law applicable to the contract. Pesaro claimed breaches of Italian civil law in its proceedings, while Dexia argued that only English law applies. As correctly stated by the court, the applicable law is determined by the Rome Convention, as the transactions between the parties took place in 2003 and 2005. According to Article 3(1) Rome Convention, a contract is governed by the law chosen by the parties. The ISDA Master Agreement in conjunction with the Schedule contained an express choice of law clause stating that the contract is to be governed by and construed in accordance with English law. Of particular importance therefore was whether mandatory provisions of Italian law could nevertheless be applied via Article 3(3) Rome Convention. This is the case if “all the [other] elements relevant to the situation at the time of the choice are connected with one country only […]”. In order to establish weather Article 3(3) applied, the court referred to two decisions of the English Court of Appeal. Both cases also concerned similar interest rate swap transactions made pursuant to an ISDA Master Agreement with an expressed choice of English law.

In Banco Santander Totta SA v Companhia de Carris de Ferro de Lisboa SA [2016] EWCA Civ 1267, the Court of Appeal extensively discussed the scope of this provision in connection with the principle of free choice of law, more precisely, which factors are to be considered as “elements relevant to the situation”. This was a legal dispute between the Portuguese Santander Bank and various public transport companies in Portugal. First, the Court of Appeal emphasised that Article 3(3) Rome Convention is an exception to the fundamental principle of party autonomy and therefore is to be construed narrowly. Therefore, “elements relevant to the situation” should not be confined to factors of a kind which connect the contract to a particular country in a conflict of laws sense. Instead, the Court stated that it is sufficient if a matter is not purely domestic but rather contains international elements. Subsequently the court assessed the individual factors of the specific case. In so far, the Court of Appeal confirmed all factors the previous instance had taken into account. Relevant in the case was the use of the “Multi-Cross Border” form of the 1992 ISDA Master Agreement instead of the “Local Currency-Single Jurisdiction” form, that the contract included the right to assign to a foreign bank and the practical necessity for a foreign credit institution to be involved, as well as the foreseeability of the conclusion of hedging arrangements with foreign counterparties and the international nature of the swap market. These factors were found sufficient to establish an international situation.

In Dexia Crediop S.P.A. v. Comune di Prato [2017] EWCA Civ 428, the Court of Appeal addressed the issue again and concluded that already the fact that the parties had used the “Multi-Cross Border” form of the 1992 ISDA Master Agreement in English, although this was not the native language of either party, and the conclusion of back-to-back hedging contracts in connection with the international nature of the derivatives market was sufficient.

In the present case, Dexia again relied on the use of the ISDA Master Agreement, Multicurrency – Cross Border and on the fact that Dexia hedged its risk from the transactions through back-to-back swaps with market participants outside Italy. But as the relevant documents were not available, the second circumstance could not be taken into account by the court. Nevertheless, the court considered that the international element was sufficient and Article 3(3) of the Rome Convention was not engaged.

Thus, this new decision not only continues the very broad interpretation of the Court of Appeal as to which elements are relevant to the situation, but also lowers the requirements even further. This British approach appears to be unique. By contrast, according to the hitherto prevailing opinion in other Member States, using a foreign model contract form and English as the contract language alone was not sufficient to establish an international element (see, e.g., Ostendorf IPRax 2018, p. 630; Thorn/Thon in Festschrift Kronke, 2020, p. 569; von Hein in Festschrift Hopt, 2020, p. 1405). Relying solely on the Master Agreement in order to affirm an international element seems unconvincing, especially when taking Recital 15 of the Rome I Regulation into account. Recital 15 Rome I states that, even if a choice of law clause is accompanied by a choice of court or tribunal, Article 3(3) of the Rome I Regulation is still engaged.  This shows that it is the purpose of this provision to remove the applicability of mandatory law in domestic matters from the party’s disposition. The international element must rather be determined according to objective criteria. With this interpretation, Article 3(3) of the Rome I Regulation also loses its effet utile to a large extent.

Unfortunately, the Court of Appeal considered its interpretation to be an acte clair and therefore refrained from referring the case to the CJEU. Since Brexit became effective, the Rome I Regulation continues to apply in the United Kingdom in an “anglicised” form as part of national law, but the English courts are no longer bound by CJEU rulings. As a result, a divergence between the English and the Continental European assessment of a choice of law in domestic situations is exacerbated.

This also becomes relevant in the context of jurisdiction agreements. In the United Kingdom, these are now governed by the HCCH 2005 Choice of Court Convention which is also not applicable according to article 1(2) if, “the parties are resident in the same Contracting State and the relationship of the parties and all other elements relevant to the dispute, regardless of the location of the chosen court, are connected only with that State”. As there is a great interest in maintaining the attractiveness of London as a the “jurisdiction of choice”, it is very likely that the Court of Appeal will also apply the standards that it has developed for Article 3(3) Rome I to the interpretation of the Choice of Court Convention as well.

One can only hope that in order to achieve legal certainty, at least within the European Union, the opportunity for a request for referral to the CJEU will present itself to a Member State court as soon as possible. This would allow the Court of Justice to establish more differentiated standards for determining under which circumstances a relevant foreign connection applies.

In an interesting judgment, the CJEU yesterday held (no English edition yet) in C-604/20 ROI Land Investments Ltd v FD on protected categories suing a defendant not formally associated with the claimant by a clear contract of employment. That the defendant is not domiciled in the EU is in fact of less relevance to the issues.  I had somehow missed Richard de la Tour AG’s Opinion on same (it happens to the best of us).

Claimant in the main proceedings is FD, domiciled in Germany. Defendant is not his current employer and is not domiciled in a Member State. Yet by virtue of a letter of comfort it is directly liable to the employee for claims arising from an individual contract of employment with a third party. The gist of the case is whether an employee can sue this legal person under the employment title if the contract of employment with the third party would not have come into being in the absence of the letter of comfort.

The slightly complex three part construction, transferring relationships of employment, essentially is one of tax optimisation via Switserland. FD used to be employed by ROI Investment, a Canadian corporation, before his contract was transferred to R Swiss, a Swiss SPV created for the very purpose of the operation. ROI Investment via a letter of comfort effectively guaranteed the outstanding wages due to FD. FD’s contract with Swiss was ended, a German court held this to have been done illegally and ordered Swiss to pay a substantial sum whereupon Swiss went into insolvency. FD now wishes to sue the Canadian ’employer’.

CJEU Bosworth is the most recent case which extensively discusses the existence of ’employment’, referring to CJEU Shenavai and Holterman. In ROI Land the CJEU [34] instructs the national court in particular to assess whether there is a relationship of subordination between individual and corporation, even if subordination is actually only one of the Shenavai /Holterman criteria.

Erik Sinander has already noted here (his post came in as I was writing up mine) that this is a different emphasis from the AG: he had suggested a third party who was directly benefitting from the work performed by the employee (“un intérêt direct à la bonne exécution dudit contrat”) should be considered an employer. That to my mind is way too large a criterion and the CJEU is right to stick to the earlier ones.

[35] the CJEU suggests relevant circumstances in the case most probably confirming the relationship of subordination hence of employment: the activities which FD carried out for his two respective employers stayed the same, and the construction via the  SPV would not have been entered into by FD had it not been for his original employer’s guarantee.

The forum laboris in the case at issue is then I assume (it is not discussed quite so clearly in the judgment) determined by the place of habitual performance of the activities for the third party, the formal (now insolvent) employer, not the activities carried out for the issuer of the letter of comfort: for there are (no longer) such activities.

[37] ff the Court entirely correctly holds that more protective national rules cannot trump Brussels Ia’s jurisdictional provisions for the  protected categories: both clear statutory language and statutory purpose support that  conclusion.

[52] ff the CJEU entertains the subsidiary issue raised in the national proceedings as to whether the contract may be considered a consumer contract. It holds that the concept of ‘a purpose outside (a natural person’s) trade or profession’ does not just apply to a natural person in a self-employed capacity but may also apply to an employee. [56] seeing as FD would not have signed the new employment agreement without the letter of comfort, the employment agreement cannot be considered to be outside FD’s profession. Therefore it cannot qualify as a consumer contract.

Geert.

 

#CJEU this morning on the application of the protective rules for employees, both in Brussels Ia and Rome I, in the event of an employer not domiciled in the EU

ROI Land Investments v FDhttps://t.co/Ne7LQalAFJ

— Geert Van Calster (@GAVClaw) October 20, 2022

 

In its judgment in the case of ROI Land Investments, C-604/20, rendered on 20 October 2022, the CJEU discussed two key features of the employment protection mechanisms of the Brussels I bis Regulation.

Firstly the Court clarified who is to be considered an employer by holding that the employer is not necessarily the entity that formally concluded the employment contract with the employee. Secondly, the CJEU held that the Regulation’s rules on jurisdiction over defendants domiciled outside the EU are mandatory and exclusive. More favourable national jurisdictional rules for the employee do not trump the rules of the Brussels I bis Regulation.

Legal Background

Employment contracts are subject to special jurisdiction rules in the Brussels I bis Regulation in order to protect the employee as being the typically weaker party. The employment protection mechanisms of the Regulation give an employee more forum shopping opportunities than an employer as well as limit the possibility to include forum selection clauses in employment contracts. Also, the special jurisdictional rule that gives the employee a chance to initiate proceedings in the member state where he or she habitually carries out work is one of the extraordinary rules of the Regulation that applies regardless of whether the defendant is domiciled in an EU member state or elsewhere.

Facts

In November 2016, a German labour court held that the termination of an employment contract between a German employee and a Swiss company was unlawful. According to the judgment, the employer should pay the former employee outstanding remuneration amounting to 442 500 USD. Shortly after the judgment, the Swiss company went bankrupt.

As the former employee had not received the outstanding remuneration from the Swiss company, he filed a lawsuit against the Canadian parent company, ROI Land Investments, on the grounds of a “patron agreement”. In the patron agreement, the Canadian parent company had assured liability for the obligations of the Swiss subsidiary. In addition to the patron agreement, the employee had actually initially been hired directly by the Canadian parent company before his employment contract was transferred to the Swiss subsidiary.

When suing the Canadian company in German courts, issues of how the patron agreement was to be characterized under the Brussels I bis Regulation arose. The former employee argued that German courts should have jurisdiction under the Brussels I bis Regulation’s rules on either employment contracts or the rules on consumer contracts. Whereas the court of first instance concluded that there was German jurisdiction, the court of appeal came to a contrary conclusion even if the patron agreement was characterized as a consumer contract.

In its request for a preliminary ruling from the CJEU, the German Supreme Labour Court (Bundesarbeitsgericht) presented a third way of characterizing the patron agreement by noting that it under German law, it would be considered a surety bond (Bürgschaft). On the other hand, the Bundesarbeitsgericht noted that no employment contract would have been made without the patron agreement from the Canadian parent company. In essence, the main legal issues can be summarized as regarding whether the patron agreement should be characterized as an employment contract and if the jurisdictional rules of the Brussels I bis Regulation must be applied in relation to a defendant domiciled outside the EU.

Who is an Employer?

The first question that the CJEU interpreted in its judgment was whether the patron agreement could consitute an employment relation that triggers the special jursidictional rules for such contracts found in section 5 of the regulation. In the case at hand, the answer to that question boiled down to whether the Canadian mother company could be seen as an “employer”.

Previously, the CJEU has ruled on the employee notion under the Brussels I bis Regulation. First, in Holterman Ferho Exploitate, C-47/14, the Court held that also a CEO could be considered an employee if he “for a certain period of time performed services for and under the direction of that company in return for which he received remuneration”. According to the CJEU, the subordination prerequisite (“for and under the direction of that company”), could be met also for persons in management positions as long as their ability to influence the actual governing body of the employer corporation is “not negligible” (Holterman Ferho Exploitate, p. 47).

A few years after the Holterman Ferho Exploitate judgment, the CJEU was given an opportunity to develop what was meant by a not negligible influence under the equivalent rules in the Lugano II Convention in Bosworth and Hurley, C-603/17. Here, the CJEU held that even if the shareholders of the employer company have the power to terminate the contract for a CEO, the CEO is not to be considered an employee if “that person is able to determine or does determine the terms of that contract and has control and autonomy over the day-to-day operation of that company’s business and the performance of his own duties”.

ROI Land Investments, completes the notion of employment relation under EU private international law by clarifying that not only the formal employer, but also the actual employer may be sought under the special jurisdictional rules for employment contracts. Both the court and the Advocate General came to the same conclusion in this part, but their arguments differ. Advocate General Jean Richard de la Tour proposed in his opinion, which is not yet available in English, that a third party who was directly benefitting from the work performed by the employee (“un intérêt direct à la bonne exécution dudit contrat”) should be considered an employer. In practice, the Advocate General’s and the Court’s solutions are probably not very different, but from a system-logical perspective, it is satisfactory that the Court sticks to the existing employee notion instead of inventing a new prerequiste. Now, the chosen employer notion mirrors the employee notion by focusing on the subordination relation.

According to the judgment, a patron agreement is not not necessarily in itself enough to stretch the employer notion (p. 33). To assess actual subordination between the presumptive employer and the employee, a national court must look into the employment history and, if there is e.g. a patron agreement, consider what that has meant for the employment relation (p. 35). In the case at hand, the patron agreement was a presumption for the entrance of the employment contract. Such a situation indicates that there is an employment relation.

Must the Jurisdictional Rules Apply when the Defendant is Domiciled Outside the EU?

Regarding the application of the Brussels I bis Regulation in relation to a defendant domiciled outside the EU, the CJEU noted that the clear exceptions in Article 6 trump national jurisdictional rules. As the rule in Article 21 p. 2 stating that an employee may initiate proceedings in the Member State where he or she habitually works is one of those, it shall be applied in the member states regardless of whether national rules would have been more favourable to the employee.

Consumer Contract?

As there had also been doubts in the national procedure if the patron agreement could be characterized as a consumer contract, the CJEU ruled also over this issue. Just in line with the wording of the consumer notion in Article 17 of the Brussels I bis Regulation, the court held that a prerequisite is that the contract is entered for purposes outside someone’s trade or profession. The court stressed that this is not only applicable for self-employed business owners, but also for employees (p. 55). According to the court, a patron agreement entered into between an employee and a third party not mentioned in the formal employment contract, cannot be considered to be outside the employee’s profession.

Conclusion

In a world where complex employment contract relations are common, the judgment may possibly hinder bad faith international outsourcing by giving employees the chance to claim liability from the actual employer. Still, the very special circumstances in the case make it a little hard to generalize how far the employer notion can be drawn in the future.

The fourth issue of RabelsZ 2022 has just been released. It contains the following articles:

Moritz Renner / Torsten Kindt: Internationales Gesellschaftsrecht und Investitionsschutzrecht, pp. 787–840, DOI: 10.1628/rabelsz-2022-0078

Conflict of Corporate Laws and International Investment Law. – The withdrawal of the United Kingdom from the EU has revived the debate on the conflict of corporate laws. Much attention has recently been given to the new generation of EU free trade agreements, such as the EU-UK Trade and Cooperation Agreement, but their impact on conflicts in the field of corporate law remains unclear. This article proposes that the conflict-of-law effects of these agreements can be fully understood only in the light of their common background in international investment law. Building upon an analysis of the role of treaties in Germany’s conflict-of-law system and of the multiple intersections between the conflict of corporate laws and international investment law in general, the article demonstrates that the newest EU free trade agreements imply in particular the application of a restricted conflict-of-law theory of incorporation on foreign corporations originating from the respective signatory states. While the agreements’ effects on conflicts in the corporate law arena are not as far reaching as those of the EU’s freedom of establishment, they nevertheless further narrow the remaining scope of application of the traditional seat theory underlying Germany’s autonomous rules on conflicts vis-à-vis corporate law.

Tobias Lutzi / Felix M. Wilke: Brüssel Ia extendenda est? – Zur Zukunft der internationalen Zuständigkeit deutscher Gerichte in Zivil- und Handelssachen nach Ausweitung der EuGVVO, pp. 841–875, DOI: 10.1628/rabelsz-2022-0079

Brussels I bis extendenda est? On the Future of the International Jurisdiction of German Courts in Civil and Commercial Matters after an Extension of the Regulation. – With the expiry of the deadline of art. 79 Brussels I bis, the academic debate on a possible further extension of the Regulation to situations involving non-EU defendants is (again) gaining momentum. The present study aims to contribute to this discussion. It compares the relevant German rules on international jurisdiction over non-EU defendants with those of the Brussels I bis Regulation in order to be able to assess the consequences of a possible extension from a German perspective. The study reveals that even replacing the national rules in their entirety would not amount to a radical change. In particular, the addition of typified places of performance under art. 7 no. 1 lit. b Brussels I bis to the forum contractus and the availability of a common forum for joint defendants under art. 8 no. 1 Brussels I bis would constitute welcome improvements of the current framework. The loss of jurisdiction based on the presence of assets under § 23 ZPO would arguably be a disadvantage if not properly compensated for, e.g. through a forum necessitatis provision. The biggest advantage, though, would most likely be the harmonization of the law of international jurisdiction across the EU – which, from a German perspective, would come at a rather reasonable price.

Ulla Liukkunen: Decent Work and Private International Law, pp. 876–904, DOI: 10.1628/rabelsz-2022-0080 [Open Access]

This article examines the decent work objective set by the ILO and UN Agenda 2030 from the point of view of private international law. It conceptualizes decent work, arguing that inclusivity of protective safeguards and structures in cross-border situations is essential to achieving the objective, and that the need for inclusivity draws attention to the relationship between labour law and private international law. The analysis offered also introduces a migration law-related perspective on decent work and the private international law of employment contracts and labour relations more generally. It is argued that understanding that the idea of inclusivity is embedded in the decent work objective brings up a global dimension which calls for uniform regulatory solutions at the international level. Decent work could be coupled relatively easily with the need for a revival of the private international law of labour relations and for developing a labour rights-based approach in private international law. It also connects private international law’s protective normative frameworks to the body of international labour standards.

Adrian Hemler: Virtuelle Verfahrensteilnahme aus dem Ausland und Souveränität des fremden Aufenthaltsstaats – Zugleich ein Beitrag zum Verhältnis des Völkerrechts zum Kollisionsrecht, pp. 905–934, DOI: 10.1628/rabelsz-2022-0081

Virtual Participation in Court Proceedings from Abroad and Its Effects on the Sovereignty of the Foreign State of Residence – With Consideration of the Relationship Between Public International Law and the Conflict of Laws. – Most German-speaking scholars and some German courts consider participation in virtual court proceedings from a foreign state of residence to be a violation of foreign sovereignty. This essay stakes out a contrary position. In reaching this conclusion, it focuses on the distinction between the exercise of state power abroad and the exercise of state power regarding foreign facts. Especially with regards to extraterritorial legislation, it is argued that the law’s scope of sovereign validity remains territorial even if its scope of application covers facts abroad. The discussion also shows how this distinction is equally applicable to court judgments that concern foreign elements. Furthermore, the article discusses the nature of public international law principles regarding extraterritorial legislation and their relationship to national conflict of laws provisions. Also considered is how the sovereignty principle ought to be understood in cyberspace. Having established this theoretical foundation, it is concluded that regardless of the procedural role of the respective party, participation in virtual court proceedings from a foreign state of residence does not amount to a violation of foreign sovereignty.

Corinna Coupette / Dirk Hartung: Rechtsstrukturvergleichung, pp. 935–975, DOI: 10.1628/rabelsz-2022-0082 [Open Access]

Structural Comparative Law. – Structural comparative law explores the similarities and differences between the structures of legal systems. Theoretically grounded in systems theory and complexity science, it models legal systems as networks of documents, organizations, and individuals. Using methods from network analysis, structural comparative law measures these networks, assesses how they change over time, and draws quantitative comparisons between multiple legal systems. It differs from other approaches in its assumptions, its methods, and its goals, in that it acknowledges the relevance of dependencies between system entities and borrows more heavily from data science than from econometrics. Structural comparative law constitutes a novel addition to the comparatist’s toolbox, and it opens myriad opportunities for further research at the intersection of comparative law and data science.

Arseny Shevelev / Georgy Shevelev: Proprietary Status of the Whole Body of a Living Person, pp. 976–997, DOI: 10.1628/rabelsz-2022-0083

This article is a reaction to the growing economic significance of the living human body as well as its legal status. In this paper, we argue that ownership in the human body most effectively guarantees the autonomy of the human will as to the use and disposal of one’s own body, but classical ownership theory is unable to fully ensure the autonomy of the human will, since it risks reviving the institution of slavery. We will demonstrate that theories establishing rights to the body other than ownership rights are limited in content and are inherently inconsistent. At the end of the article, we will propose an abstract ownership theory that allows for the exercise of maximum freedom to dispose of the human body while one is alive and which will be devoid of the flaws of the preceding theories.

The infamous Wirecard scandal, which involved a German public limited company (AG) reporting non-existing assets and earnings to the tune of several billions of euros, has triggered a wave of litigation not only in Germany, but in several countries.

Facts

One such action was brought in an Austrian court by an Austrian investor against the German auditor of Wirecard AG. Simultaneously, he sued a member of Wirecard’s supervisory board domiciled in Austria (the Aufsichtsrat in the two-tier system of German corporate law). This happened to be the only member of the supervisory board living in the court’s district; the action did not include any other of the board members, who lived elsewhere.

Issue

Absent any other connection to Austria, it was disputed whether the Austrian court had jurisdiction over the German auditor of Wirecard on the basis of Article 8(1) of the Brussels I bis Regulation, which allows to combine several actions in one court. This presupposes that “the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments”.

Holding

The Austrian Supreme Court (OGH) held that the conditions of Article 8(1) of the Brussels I bis Regulation were met, and that consequently the Austrian court had jurisdiction over both the member of Wirecard’s supervisory board and the German auditor.

Rationale

The OGH underlines that the damage suffered by the claimant was allegedly caused through violations of duties by both defendants. It also stresses that the same remedy is sought against both of them.

In the eyes of the OGH, the fact that both actions are based on very different legal foundations would not matter. In this respect, the OGH refers to the CJEU‘s decision in Freeport, where the Court ruled that Article 8(1) of the Brussels I bis Regulation allows bringing two claims with different legal bases in the same forum (id., para 47).

The auditor alleged that the claimant had artificially created a situation to fulfil the conditions for the applicability of Article 8(1) and that the court should therefore reject the provision’s application in line with CJEU, Cartel Damage Claims (CDC) Hydrogen Peroxide, paras 32–33. However, the OGH held that the defendant did not provide any evidence for such fraus legis, and therefore considered Article 8(1) to apply.

Assessment

The decision stretches Article 8(1) of the Brussels I bis Regulation way beyond its limits.

The two actions barely had any connection with each other. The auditor and the supervisory board are not only entirely independent of each other and have very different relationships with the Wirecard AG and the claimant, they also have entirely different duties: While the auditor is required to provide a report about the financial situation of the client, the board has a duty to supervise the board of directors. The auditor’s report helps it in the exercise of this function and provides factual data for it. While it is true that both the auditor and the supervisory board must check the financial condition of the company, the supervisory board can generally rely on the auditor’s work and only has to check its overall soundness and consistency; on the other hand, it must also take into account other information than the report provided by the auditor. The court could thus come to the conclusion that the auditor is liable, but the supervisory board not, or vice versa. There is thus no danger of irreconcilable judgments, as required by Article 8(1).

Even more worrying is that the OGH closes its eyes to the claimant’s manipulation to fulfil the conditions of the provision. That the OGH requires concrete evidence from the claimant seems overly demanding; the facts already known speak for themselves. The action was directed against the only board member that was domiciled in Austria, and not against any other. Bringing this action was thus quite obviously nothing more than a thinly veiled scheme to drag the German auditor into an Austrian court. Nevertheless, the OGH chooses to ignore this reality and even refuses to submit a preliminary question to the CJEU as the Austrian court’s jurisdiction seems so clear.

The decision is an extreme example but may be illustrative of similar developments in other Member States. It is to be feared that Article 8(1) of the Brussels I bis Regulation may be abused for more schemes to create artificial bases of jurisdiction where none exists. The CJEU must close this door to such manipulations by making the conditions of the provision and the requirements for their disproof more explicit.

The Sydney Centre for International Law is hosting a ‘Works in Progress (WIP) Conference and a student writing competition in association with its annual International Year in Review Conference.

WIP proposals are due by 1 November 2022, and the student writing submissions are due by 9 January 2023.  The first place prize in the writing competition is $1000 and an offer of publication.

Questions should be directed to:

• Dr. S.I. Strong
• Co-Director, SCIL
• stacie.strong@sydney.edu.au

For more, see https://law-events.sydney.edu.au/events/scil_yearinreview

Symeon Symeonides (Alex L. Parks Distinguished Professor of Law at Willamette University – College of Law) has made available on SSRN a draft of his paper on Choice of Law in Torts Arising from Infringement of Personality Rights that is being published in the 6th issue of the Revue de droit des affaires internationales/ International Business Law Journal.

The abstract of the article reads as follows:

This Article is a contribution to a conference held at the University of Paris-V on the localization of injuries in international or multistate torts, including those arising from cross-border infringements of personality rights, such as defamation or invasion of privacy.

The Article necessarily takes for granted the European Union’s rules on jurisdiction and choice-of-law and proposes a new choice-of-law rule for infringement of personality conflicts, which were excluded from the scope of the Rome II Regulation of 2007.

The proposed rule would amend Article 7 of Rome II, which at present covers only environmental torts. The amendment would reverse the starting point of the choice-of-law process by making the lex loci commissi the default rule, calling for the application of the law of the state of the injurious conduct or omission. However, the amendment would also authorize the application of the law of the state of the resulting injury (lex loci damni) if: (a) the occurrence in that state was objectively foreseeable, and (b) the claimant formally and timely requests the application of that law.

The paper focuses particularly on infringements committed through the internet. These are seen as difficult because of the ubiquity and borderlessness of the internet and a number of additional factors, which include considerable differences among various countries substantive law, jurisdiction, and choice of law.

Symeonides is arguing that in the localization of damage in cross-border torts concerning infringement of personality rights the localization of the injury should not be the only determinative factor in choice-of-law decisions in these conflicts. According to the author a number of additional factors besides the locus of the injury should guide these decisions. These are the place of the injurious conduct, the parties’ domiciles, the place of their relationship if any, and the content of the laws of each contact state (for more sophisticated enquiries). Several objections can be raised against these additional factors given that they cannot be easily compressed into simple black-letter rules that would be in line with the aim of the Rome II to deliver legal certainty and predictability in the EU. The author discusses them in relation to each additional factor. However, the approach followed by Article 7 Rome II for environmental damages may present the legislator with this possibility given that several EU Member States follow it for choice-of-law rules concerning infringement of personality rights giving the victim the possibility to choose between two to four applicable laws. For the time being, Rome II expressly excluded from its scope non-contractual obligations arising out of “violations of privacy and rights relating to personality, including defamation” (Article 1(2) letter (g) Rome II).

The last part of the paper provides suggestion for replacing the present wording of Article 7 Rome II with a provision that would be broader and would cover cross-border torts such as human rights violations, infringement of personality rights as well as all other torts not covered by special provisions of Rome II.

As previously reported on conflictoflaws (inter alia), on 1 December 2020, the Grand Chamber of the CJEU ruled in the FNV/Van Den Bosch case. It ruled that the highly mobile labour activities in the road transport sector fall within the scope the Posting of Workers Directive (C-815/18; see also the conclusion of AG Bobek). As regards to the specific circumstances to which the directive applies, the CJEU sees merit in the principle of the ‘sufficient connection’. To establish sufficient connection between the place of performance of the work and a Member State’s territory, ‘an overall assessment of all the factors that characterise the activity of the worker concerned is carried out.’ (CJEU at [43]).
With this guidance at hand, on 14 October 2022, the Supreme Courts of the Netherlands has ruled on the initial cassation claim, which had led to the questions for preliminary rulings (see also the conclusion of AG Drijber). The Dutch Supreme Court had referred the assessment of the ‘sufficient connection’ on the facts of the case back to the lower courts.
Although the Dutch Supreme Court’s ruling is not surprising, the eventual application the CJEU’s preliminary ruling to the facts of this dispute (and its further follow-up in lower courts) might still provide food for thought for companies in the transnational transport sector, which use similar business models.