Droit international général

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.

 

On Tuesday, November 1, 2022, the Hamburg Max Planck Institute will host its 27th monthly virtual workshop Current Research in Private International Law at 5:00 p.m. – 6:30 p.m. (CET). Symeon C. Symeonides (Willamette University College of Law) will speak, in English, about the topic

Infringement of personality rights via the internet: Jurisdiction and applicable law

Conflicts of laws arising from infringement of personality rights have always been difficult, if only because they implicate conflicting societal values, such as freedom of speech and access to information, on the one hand, and protection of reputation and privacy, on the other hand. The ubiquity of the internet has dramatically increased the frequency and intensity of these conflicts. The speaker will present a proposed international model law that aspires to facilitate the resolution of these conflicts in a practical, efficient, and balanced way.

The presentation will be followed by open discussion. All are welcome. More information and sign-up here.

If you want to be invited to these events in the future, please write to veranstaltungen@mpipriv.de.

The University of Milan, on behalf of the DIGinLaw consortium (also comprising Josip Juraj Strossmayer, the University of Osijek, the University of Aberdeen, and the University of Zagreb – University Computing Centre (SRCE)), is organising an International Conference on ‘Law in the Age of Modern Technologies’, hosted in Milan on 10 February 2023.

Digitalization strongly affects society, science, and the transfer of knowledge. While taking advantage of modern technologies, the DIGinLaw Project aims to raise awareness of digital demands in higher education and research in law and fosters the creation of digital literacy and digital competence that is needed in the law labour market. The Project aims to create an open and inclusive society of legal knowledge and to open access to the scientific areas dealing with the effects of digitalization on law and legal education.

The Conference is the culmination of scientific research on the digitalization of legal education and the digitalization of law. It provides a venue for the presentation and discussion of scientific research focusing on such and related themes. For these purposes, the Organizing Committee is pleased to invite (i) abstract submissions that address specific aspects of the impact of modern technologies on the law, and (ii) abstracts focusing on the digital transformation processes in the legal domain and welcomes the participation of a prosperous community crossing different disciplines beside law, including computer science and legal informatics.

Abstract Submission

Abstracts of 250-500 words (max) should specify the main arguments, the structure of the paper, and the methodology. If the proposal is accepted, authors will be expected to deliver a full paper of no more than 15.000 words (footnotes included) by 28 February 2023. Depending on the topics, the selected papers will be published in a peer-reviewed international journal or in a particular volume by an international publisher.

Deadlines

Submission deadline for abstracts: 15 November 2022

Notification of acceptance of abstracts: 25 November 2022

Submission deadline for papers: 28 February 2023

The Conference is organized within the framework of the project ‘Time to Become Digital in Law’ (DIGinLaw), co-funded by Erasmus+ Programme of the European Union. Additional information on the event is available here.

 

Luís de Lima Pinheiro (University of Lisbon) has posted The Spatial Reach of Injunctions for Privacy and Personal Data Protection on the Internet Revisited on SSRN.

The abstract reads:

This study deals with the spatial reach of injunctions addressed to online intermediaries for removal, blocking or delisting of content for the protection of the right of privacy, including data protection. It complements a previous essay published in Ius Vivum: Kunst – Internationales – Persönlichkeit. Festschrift für Haimo Schack zum 70. Geburtstag, summarizing its conclusions, providing the clarification of some issues and adding further comments.

It is advocated that while the limits set by Public International Law to the jurisdiction of the States must be taken into account, the spatial reach of these injunctions should be mainly determined through a Private International Law approach, based upon a substantive characterization of the issue.

EFFORTS (Towards more EFfective enFORcemenT of claimS in civil and commercial matters within the EU) is an EU-funded Project conducted by the University of Milan (coord.), the Max Planck Institute Luxembourg for Procedural Law, the University of Heidelberg, the Free University of Brussels, the University of Zagreb, and the University of Vilnius.

The tenth EFFORTS Newsletter has just been released, giving access to up-to-date information about the Project, save-the-dates on forthcoming events, conferences and webinars, and news from the area of international and comparative civil procedural law.

Finally, regular updates are available via the Project website and the Project’s LinkedIn and Facebook pages.

Project JUST-JCOO-AG-2019-881802
With financial support from the Civil Justice Programme of the European Union

 

Społeczna Inicjatywa Narkopolityki – SIN (Civil Society Drug Policy Initiative) is a A Polish association that conducts educational activities on the consequences of drugs use. In 2018 SIN’s Facebook and Instagram accounts were removed as “in violation of Community Standards”.

In May 2019 SIN filed a lawsuit against Facebook (namely, Facebook Ireland Limited seated in Ireland, which later changed its name to Metaplatforms Ireland Limited) demanding inter alia restoration of the removed accounts, as well as granting interim measures in that respect.

The case, which is still pending before Polish courts, has interesting private international law aspects.

Jurisdiction

In its decision of June 2019 Sąd Okręgowy w Warszawie (Regional Court in Warsaw) granted interim measures by ordering Facebook to restore and stop blocking / removing SIN’ accounts while the case is pending. Facebook appealed the decision. It was upheld by the decision of May 2021.

In the decision on interim measures of June 2019, the Court discussed the existence of its jurisdiction as to the merits of the case. The Court referred to Article 7(2) of the Brussels I bis Regulation and the jurisprudence of the Court of Justice of the EU in eDate case (C-509/09) and explained that

Although the present case does not concern infringement of personal rights by posting infringing content online, but – infringement of personal rights by removing content from the internet, the existance of the jurisdiction of the Polish court based on Article 7(2) is justified by the following reasons.

Both parties have their seats in EU Member States, the claimant conducts its business activity in Poland, thus the center of its interests lies within the jurisdiction of this Court. The widespread availability of content posted online means that this content is also available at the claimant’s center of interest. Moreover, the claimant directs the content to persons residing in Poland, as the content is posted mainly in the Polish language. Therefore, the removal of content uploaded by the claimant with the suggestion that the content is harmful and poses a threat to the safety of users means that the effects of the infringement of the freedom of expression in the form of blocking sites and groups also occurred at the claimant’s place of business and the effects of the infringement of the reputation of the uploader also occurred at the claimant’s place of business.

The above led the Court to the conclusion that it does have jurisdiction to hear SIN’s claim.

In its appeal agains this decision, Facebook raised lack of jurisdiction of Polish courts pursuant to Article 25 of the Brussels I bis Regulation pointing to the existence of a prorogation clause, which covers also claims based on violation of personality rights. In its response to the appeal, SIN submitted that the jurisdiction to grant interim measures exists on the basis of Article 35 of the Brussels I bis Regulation, and therefore, Facebook might not ask for lifting of the interim measures submitting lack of jurisdiction.

In the decision of May 2021 in which the first decision on interim measures was upheld, the Court analysed the existence of jurisdiction as to the merits of the case and as to interim measures. Interestingly, it first cited the provisions on jurisdiction contained in domestic law (namely, Article 11037(2) of the Code of Civil Procedure), to later conclude that  Article 7(2) of the Brussels I bis Regulation “is similar to 11037(2) of the Code of Civil Procedure”. The Court then referred to the jurisprudence of the Court of Justice of the EU, in particular in e-Date case and stated that

(…) Undoubtedly, the infringement of personal rights in the form described by the claimant took place in Poland (…)

Indeed, infringement of personal rights on the Internet is a so-called  multi-state tort, the effects of which arise not only at the place where the server containing the data is located or where the company infringing personal rights is established, but also at the center of the life interests of the recipient of such infringement and of the more broadly, the public who may come into contact with such a violation of personal rights by using the portal in question.

There is no doubt that the public debate on Polish public affairs that takes place on the Internet, despite its virtual character, takes place on the territory of Poland. Therefore, it should be considered that the consequences of infringement of personal rights also take place in Poland.

When it comes to jurisdiction to grant interim measures the Court confirmed that it does exist, referring only to domestic law (Article 1110³(2) of the Code of Civil Procedure), instead of Brussels I bis Regulation.   

Applicable Law

In Poland, Article 16(1) of the 2011 Act on Private International Law, provides that the personal rights of a natural person are governed by the law of his / her nationality. Pursuant to Article 16(2) of this Act, natural person whose personal rights were threatened or infringed may claim protection under the law of the state where the event giving rise to a threat or infringement has occurred, or under the law of the state where the consequences of the infringement occurred. In accordance with Article 20, the above mutatis mutandis applies to the protection of the personal rights of legal persons.

Having cited these provisions, the Court very briefly concluded in the decision of June 2019 that

Since the claimant links the effects of the infringement of personal rights to the territory of Poland, the applicable law is Polish law.

Please note that English translation of Polish 2011 Act on PIL is available online in volume XIII of the Yearbook of Private International Law at p. 641.

Service of Documents

Facebook refused to accept SIN’s claim which was written in Polish language. Hence, the Court decided on translation of court documents into English and summoned SIN to pay an advanced payment for this translation.

Referring to Service Regulation SIN appealed this decision, arguing that Facebook directs its services to Polish users. There are approximately 16 000 000 Polish users of Facebook. All documents regulating the use of the platform are available in Polish language. After their acceptance they constitute contracts which are concluded by Facebook with its customers. This means that Facebook is party to millions of contracts written in Polish language. As a result, one might not argue that Facebook does not understand this language.

Irrespective of SIN’s arguments an appeal to the decision on advanced payment for translation was dismissed by a decision of March 2022. Hence, SIN had to pay for the translation.

News on SIN’s case are published in Polish and English and may be followed here.

Soleymani v Nifty Gateway LLC [2022] EWCA Civ 1297 is the appeal against [2022] EWHC 773 (Comm) which I reviewed here. That post will give readers the necessary background. The Court of Appeal partially overturned. The judge had issued a stay of English proceedings under s9 Arbitration Act 1996, effectively allowing a US arbitrator to decide the validity of the arbitration agreement. That stay has now been lifted and E&W proceedings on that issue will go ahead.

Of note is that the discussion takes place under retained EU law, with the relevant provisions in ia s15b of the Civil Jurisdiction and Judgments Act 1982 (as amended) mirroring the consumer section of Brussels Ia and Directive 93/13 on unfair terms in consumer contracts, as amended.

A first ground of appeal concerned the core of the Brussels Ia issue: whether the Court had jurisdiction under s. 15B CJJA because the exception for arbitration under Article 1(2)(d) of the Recast Regulation did not apply to the Arbitration Claim. In other words whether the exclusion for arbitration is engaged when a consumer, ordinarily protected by the forum actoris provisions in A17 ff BIa, calls upon that protection to seize a UK court.

The first instance judge held that the principal focus and subject matter of Mr Soleymani’s claim is whether he is legally obliged to arbitrate, hence engaging the arbitration exception. The Court of Appeal agrees for largely the same reasons as the judge, and with Popplewell J [89] indicating no change in his views following CJEU Prestige. The CA’s own finding in [2021] EWCA Civ 1589 The Prestige is recalled:  “the question is whether a principal focus of the proceedings is arbitration, the essential subject matter of the claim concerns arbitration, or the relief sought can be said to be ancillary to the arbitration process, these being alternative ways of expressing the same idea”.

The Court of Appeal’s focus seems to be on avoiding abuse by the consumer, who could circumvent the arbitration exception by bringing his claim within the scope of BIa hence characterising it as a claim to enforce his consumer rights.

I continue to find the alternative more convincing: that the consumer section could be easily circumvented, particularly by non-EU based traders and /or in the event of arbitration outside the EU, simply by inserting an ADR clause in the contract, depriving the consumer of the forum actoris. Claimant’s counsel’s nine reasons [51] in my view have convincing appeal, and not Popplewell J’s suggestion [93] ff that in practice the consumer would be protected anyways, either by the ability to sue in the UK and have the ADR clause declared void under consumer protection law, or by the ability to have any foreign award declared unenforceable under the New York Convention’s ordre public exception. The very case at hand show the real difficulties (and costs) the consumer will be put through if and when the business party to the transaction decides to pursue the arbitration proceedings abroad.

The second ground of appeal was dismissed for it relied on s. 15D(1) being construed as invalidating the arbitration clause, which the Court had already held it did not, however ground 3 was accepted, for reasons formulated by Birss LJ.

Mr Soleymani’s claim consisted of claims for three distinct declarations: (i) a declaration that the arbitration clause was unfair and not binding, (ii) a declaration that the governing law clause was unfair and not binding, and (iii) a declaration that the contract formed in the auction was illegal under the Gambling Act 2005.

The jurisdiction issues under Grounds 1 and 2 of the appeal relate only to the first of these three, the arbitration clause claim. The judge as discussed decided that the Arbitration Claim was within the arbitration exception which now forms part of the CJJA (and had its origin in the Brussels Convention and the later Recast Regulation), and the appeal from that decision was dismissed.

The judge however also decided that the other two claims, that is the Governing Law Claim and the Gambling Act Claim were not clearly within the arbitration exception, yet she stayed the E&W proceedings to give way to the arbitration in New York. Therefore these claims were at least capable of falling within the jurisdiction gateway provided for in s15B(2)(b) CJJA 1982.  Ground 3 argued that the first instance judge erred in staying these proceedings under section 9 of the arbitration Act without determining the fairness question or directing a trial before the English Court on the issues raised by that objection.

That ground was upheld for three reasons [151] ff which all go towards limits to Kompetenz Kompetenz in consumer (and other?) cases.

Firstly, the public importance of decisions vindicating (or not) consumers’ rights. The case Mr Soleymani is seeking to make has implications for  consumers in general in this jurisdiction and it is important that they are considered and ruled upon in public in a court. Therefore it was held the s9(4) issues should be decided at a trial and not left to be decided in the arbitral tribunal.

Further [152] the consumer protection rights under UK law involve domestic concepts which UK court are far better placed to adjudicate upon than a New York arbitrator. Even if it were certain that the New York Tribunal would apply UK law (a late proffered undertaking to do so was made and discussed [155] ff), it engages principles which are the subject matter of our domestic jurisprudence, not simply some general notion of fairness.

Thirdly whether the arbitration agreement does in fact operate unfairly on Mr Soleymani is not suited to summary determination. “If the invalidity argument is good, the very reasons which make it good, namely that it places an unfair burden on Mr Soleymani, weigh against allowing the tribunal to decide the issue under its Kompetenz-Kompetenz jurisdiction. The Judge’s finding that there would be nothing unfair about leaving it to the arbitrator to decide that issue is inconsistent with her recognition that there was a triable issue whether this was an unfair arbitration agreement.”

Geert.

EU Private International Law, 3rd ed. 2021, Heading 2.2.3.2, and 2.2.9.2.

Highly relevant judgment under retained EU law on possibility for consumers to enjoy jurisdictional protection of EU rules to avoid #arbitration outside of the EU
Review of the first instance judgment here https://t.co/G1wCZbigfs
Soleymani v Niftyhttps://t.co/3h8nGbIgGZ

— Geert Van Calster (@GAVClaw) October 6, 2022

Sierd J. Schaafsma (Justice of the Supreme Court of the Netherlands) is the author of Intellectual Property in the Conflict of Laws – The Hidden Conflict-of-law Rule in the Principle of National Treatment, published by Edward Elgar.

The world of intellectual property (patents, trade marks, copyrights, et cetera) is becoming increasingly international. More and more frequently, disputes about intellectual property have an international character. This inevitably raises questions of private international law: which national court is competent to adjudicate an international dispute of this kind? And which national law should be applied to an international case of this kind? Since the 1990s, the first question in particular has attracted attention; in recent years, the focus has shifted to the second question: which national law is applicable? Opinions differ widely on this matter today. The controversy focuses on the question whether the Berne Convention and the Paris Convention, the two most important treaties on intellectual property, contain a rule that designates the applicable law. In other words: do these treaties contain a ‘conflict-of-law rule’ as it is called? This question, which concerns nearly all countries in the world, is nowadays considered to be ‘heftig umstritten’ (fiercely contested) and ‘très difficile’ (very difficult). And that is where we come across something strange: today it may be fiercely contested whether these treaties contain a conflict-of-law rule, but in the past, for the nineteenth-century authors of these treaties, it was perfectly self-evident that these treaties contain a conflict-of-law rule, namely in the ‘principle of national treatment’ as it is called. How is that possible? These are the fundamental questions at the heart of this book: does the principle of national treatment in the Berne Convention and the Paris Convention contain a conflict-of-law rule? And if so, why do we no longer understand this conflict-of-law rule today?

This book is an English translation of Sierd J. Schaafsma’s groundbreaking book, which appeared in Dutch in 2009 (now updated with the most significant case law and legislation).

Further information available here.

The author of this post is Michele Casi, Post-doc, DILHPS Università degli Studi di Milano, and researcher involved in the EFFORTS (Towards more EFfective enFORcemenT of claimS in civil and commercial matters within the EU) project.

The Final Conference of the EFFORTS Project (JUST-JCOO-AG-2019-881802) took place on 30 September 2022 at the Sala Napoleonica of the Università degli Studi di Milano. More than 160 participants attended the Conference, either online and in presence.

Francesca Villata, Coordinator of the Project, opened the conference by outlining the scope, the objectives, and the results of the EFFORTS Project.

The challenges that the EFFORTS Project has aimed at addressing include gaps and divergences in Member States implementing legislation and enforcement procedures, the lack of transparency in the overall system of cross-border enforcement, the lack of (mutual) trust, and the limited use of the EFFORTS Regulations. The objectives of the Project have been tackled by dialoguing with operators, sharing good practices, drafting analytical activities and testing the outcomes, with the help of the Academic Advisory Board, the Stakeholders Cross-Border Committee, the National Working Groups and a Professional Evaluator.

At its core, the Project has produced a wide variety of outputs that:

(i) identify the difficulties users encounter and how the practice is addressing them (seven Reports on national implementing rules, seven Reports on national case-law, seven National Exchange Seminars, one International Exchange Seminar, one Report on practices in comparative and cross-border perspective, and one Report on the digitalization of the enforcement procedures and of cross-border cooperation);

(ii) provide support and guidance (Bilingual Practice Guides for the application of the EFFORTS Regulations in the targeted Member States, complemented by Annexes on national enforcement procedures, for a total of 35 Guides and seven Annexes, seven Policy Recommendations for national legislators and one EU Policy Guidelines); and

(iii) spread awareness, knowledge and trust (see further the Project’s website, the Project LinkedIn and Facebook accounts, the Final Conference, the Final Study (soon available on the website) and the EFFORTS Network).

The presentations of the Final Conference were divided into three panels, respectively chaired by Ilaria Viarengo (Director of the Department of International, Legal, Historical and Political Studies of the Università degli Studi di Milano), Burkhard Hess (Director of the Max Planck Institute Luxembourg for International, European and Regulatory Procedural Law), and Fausto Pocar, (Emeritus of International Law, Private International Law and European Law at the Università degli Studi di Milano).

During the conference, the speakers discussed a wide variety of topics relating to the cross-border enforcement of claims in civil and commercial matters within the EU, concerning the EFFORTS Regulations – Regulation (EU) No 1215/2012 (Brussels I bis), Regulation (EC) No 805/2004 on the European Enforcement Order (EEO), Regulation (EC) No 1896/2006 on the European Payment Order (EOP), Regulation (EC) 861/2007 on the European Small Claims Procedure (ESCP), and Regulation (EU) 655/2014 on the European Account Preservation Order (EAPO) – such as: the certification of judgments, the effectiveness of the regulations on cross-border enforcement and national implementing rules, the suspension of the enforcement proceedings under the Regulations, the digitalization of cross-border enforcement procedures, cross-border provisional measures and the European Account Preservation Order, policy options for the re-drafting of the EFFORTS Regulations, and many others.

The discussion benefited from the interaction between national legislators, judges, lawyers, academics, in-house counsels, notaries and enforcing agents, showing once again the EFFORTS Project’s practice-driven approach and the interest of various professionals. In fact, to give one example, during the final debate the case of a lawyer working in the field of commercial cross-border transactions was brought up. The case concerned the payment of invoices, and the lawyer would advise his client to proceed in obtaining an Italian decreto ingiuntivo di pagamento rather than using the EOP procedure. According to the discussion, the Italian order for payment would be more convenient considering that the procedure is more familiar to practitioners and could be later certified for enforcement under one of the other EFFORTS Regulations (under Article 53 Brussles I-bis or as an EEO).

This observation meets, at its core, one of the issues that have been discussed amongst the EFFORTS research groups, and has been reflected in the EFFORTS EU Policy Guidelines: i.e. the differentiation among the existing Regulations. In order to expand ‘the role of uniform European procedures in this area of the law‘, it has been observed, ‘domestic orders for payment procedures would need to be excluded from the scope of the BI bis (n.n. Brussels I bis) and EEO Regulations – a solution which would at the same time reduce the difficulties related to the existence of a wide variety of simplified procedures across the different Member States and encourage economic operators to turn themselves to the EPO and the ESCP‘ (page 28 of the Report). This has further confirmed the practice-driven approach that has shaped the EFFORTS Project’s objectives and results during its implementation.

The activities of the conference lasted the entire day and included several presentations as well as formal and informal discussions and Q&A from the participants, showing that the topics presented at the Conference have captured the attention and the interest of the public.

The contents extensively discussed at the Final Conference will be reflected in the upcoming and conclusive deliverables of the Project: the EU and national Policy Recommendations and the Final Study, soon to be published on the Project’s website.

Written by Zilin Hao*

 

On 15 July 2022, the Supreme Court of New South Wales (“NSW”) recognized and enforced a Chinese judgment issued by the Shanghai Pudong New Area People’s Court 12 years ago in Tianjin Yingtong Materials Co Ltd v Young [2022] NSWSC 943.[1] It ruled that the defendant Katherine Young (“Ms. Y”) pay the plaintiff Tianjin Yingtong Materials Co Ltd (“TYM”) outstanding payment, interest and costs. This marks the second time that the court of NSW in Australia enforces Chinese judgment after Bao v Qu; Tian (No 2) [2020] NSWSC 588.[2]

I. The Fact

On 7 April 2009, the original plaintiff, TYM, sued Shanghai Runteyi Industrial Co., Ltd (“first original defendant”), Shanghai Runheng International Trading Co., Ltd (“second original defendant”) and Ms. Y (named as “Hong Yang” in Chinese Judgment) before Shanghai Pudong New Area People’s Court (“the Chinese Court”). According to the Chinese judgment, TYM had acted as agent for the first original defendant and the second original defendant based on seven Import Agent Agreements signed by three of them. Subsequently, TYM and each original defendant, including Ms. Y entered into a Supplementary Agreement confirming and specifying the guarantee under the seven Import Agent Agreements, pursuant to which Ms. Y was a guarantor in favour of the plaintiff. However, the two original defendants failed to fulfill their liability for repayment as agreed while the Plaintiff has performed the contract obligations.

On 29 March 2010, the Chinese Court rendered a judgment and supported the TYM’s claims that the two original defendants shall pay the debt and overdue fine, Ms. Y shall assume joint and several liability for the payment obligation of the two original defendants. The Chinese judgment came into effect and finality when an appeal was dismissed on 1 June 2010. Due to the lack of sufficient assets of the two original defendants and the disappearance of Ms. Y, the Chinese Court only executed more than 4 million yuan in place for three years, and finally ended the enforcement procedure in 2014. The recovery of the relevant funds has subsequently reached an impasse.[3]

On 9 August 2021, after discovering the defendant’s property clues, TYM filed an application for recognition and enforcement of the Chinese judgment with the Supreme Court of NSW pursuant to Australia’s common law principles. The NSW court upheld the plaintiff’s claim after examining four conditions accordingly of Chinese judgment with: (1) the Chinese court has international jurisdiction where Ms. Y submitted to by arguing or appearing to argue the merits of the case; (2) the Chinese judgment is conclusive and final; (3) the identity of parties in recognition proceeding consisted with Chinese proceeding; (4) the Chinese judgment was for a fixed sum. The plaintiff has established the prima facie enforceability of the Chinese judgment and there are no refusal grounds exist.

The most important issue at the NSW proceeding is the limitation period for enforcement.[4] The plaintiff noted that it has been over 11 years since Chinese judgment came into conclusive and effective, which means it may not be enforced at the same time by Chinese court, if there is enforceable property in China, because the application will exceed the two-year enforcement limitation period stipulated by Chinese law.[5] However, according to section 17 “Judgment” of the Limitation Act 1969 (NSW)[6], the limitation period for action upon a foreign judgment is 12 years from the date on which the judgment becomes enforceable in the place where judgment was given. Therefore, the judge of Supreme Court of NSW held that relevant limitation period has not yet expired. Hence there is no time bar to the current proceeding for enforcement of the Chinese Judgment.[7]

II. Comments

1. Applicable Law to Limitation Period for Enforcement

Limitation period is a controversial issue when classifying whether it is a procedural or substantial matter under private international law, which decides the application of law concerning it. Generally, courts apply lex fori in matter with procedure issues, while choose lex causae by conflict rules dealing with substance issues. States distinguish limitation period as procedure or substantive issue differently, which represented by Germany and Japan who regard the limitation period as a substance issue and stipulates it in their civil codes, not specific legislation. Some common law countries, such as England, Australia and Singapore, made Limitation Acts to deal with the enforcement limitation issue in the domestic legislation.[8]

In China, the limitation of action is stipulated in Civil Code and is deduced as a substance issue.[9] While the statute of limitations for enforcement is a two-year period for creditors to apply to the court for execution based on a successful and legal effective document, which is provided in Civil Procedural Law of China and deemed as a procedure issue. In terms of recognition and enforcement of foreign judgments, conflicts of classification on the legal nature of enforcement limitation period between the State of requested and the State of origin will arise in the first place. When a judgment complies with the law of the requested State regarding the statute of limitations for applying an enforcement, but it has exceeded the limitations period of enforcement under the law of the State of origin, how does the court of requested State ascertain legal rules to decide? In TYM v Ms. Y above, the judge of Supreme Court of NSW applied Australian law to hold that there was no time bar to enforce the Chinese judgment even though the relevant limitation period has expired in China, which illustrates that enforcement limitation period of judgments is a substance issue for Australia.

2. Expiration of Limitation Period and Grounds for Refusal

Except the list of conditions to be used by the court requested or addressed to ascertain whether the judgment is eligible for recognition and enforcement, there are grounds for refusal as well. Under the common law principles for recognizing a foreign judgment in Australia, where the four conditions for recognition and enforcement, referred to Overview part, have been established, the recognition of the foreign judgment can then only be challenged on limited grounds including a) where granting enforcement of the foreign judgment would be contrary to Australian public policy; b) where the foreign judgment was obtained by fraud; c) where the foreign judgment is penal or a judgment for a revenue debt; and d) where enforcement of the decision would amount to a denial of natural justice. However, exceeding the limitation period for an application for enforcement under the law of the original State does not constitutes any of the grounds above for refusal of recognition and enforcement by the court of the requested State. In the case of TYM v Ms. Y, the Australian court did not consider the expiration of enforcement limitation of Chinese judgment under Chinese law as a refusal ground to recognize and enforce it.

3. Expiration of Limitation Period and Lack of Enforceability

There are international standards to recognize and enforce a judgment, such as enforceability, provided by the 2005 Hague Convention on Choice of Court Agreements (“2005 Hague Convention”) and 2019 HCCH Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (“2019 Judgments Convention”, collectively as “Hague Conventions”). Article 8 (3) of the 2005 Hague Convention and article 4 (3) of the 2019 Judgments Convention stipulated in same way that “A judgment shall be recognized only if it has effect in the State of origin, and shall be enforced only if it is enforceable in the State of origin”, which was believed that if the limitation period in the State of origin expires, the judgment will not be entitled to circulation under the Convention.[10] Pursuant to Civil Procedural Law of China, within the limitation period of enforcement, if the judgment creditor submits a request prescribed by law, the court will compel the debtor to perform the obligations undertaken. Otherwise, the court will still accept the applicant for enforcement, at the same time, however, the participant subject to enforcement may raise an objection to the limitation period for enforcement, and if the court finds that the objection is established upon review, it rules not to enforce it.[11] In TYM v Ms. Y, the plaintiff submitted a summon to recognize and enforce the Chinese judgment, which was rendered 11 years ago by Chinese court then, before the court of NSW Australia. Apparently, the limitation period of applying for enforcement of the Chinese judgment concerned in China has expired the maximum 2 years, which means the judgment may not be enforced compulsorily by courts upon application of winning party when the other party raise an objection.

At the same time, Article 14 of the 2005 Hague Convention and Article 13 of 2019 Judgments Convention stipulate that the enforcement procedures are governed by the law of the requested State unless these Conventions provide otherwise.[12] In referring to the procedure for enforcement, Article 13 of 2019 Judgments Convention is intended to include the rules of the law of the requested State that provide a limitation period for enforcement of a judgment unless itself provides otherwise, which is stipulated in Article 4 (3) that enforcement in the requested State depends on the judgment being enforceable in the State of origin.[13] Therefore, a longer period of limitation for enforcement in the requested State will not extend the enforceability of a foreign judgment that is no longer enforceable in the State of origin. Conclusively, a foreign judgment whose limitation period expires under the law of the State of origin will not be enforced by the State of requested under the Hague Conventions. In TYM v Ms. Y, limitation for enforcing the Chinese judgment has expired in China though, the Australian court registered and enforced it, holding that Chinese judgment is not unenforceable because it was still within the 12-year limitation period from the date of the judgment issued according to Australian law.

China and Australia are neither contracting parties to Hague Conventions, it’s reasonable for Australian court to recognize and enforce Chinese judgment even if the limitation period of it has expired, because the court regarded which as a procedural issue and applied lex fori to ascertain it. However, the outcome of TYM v Ms. Y will be negative if the Hague Conventions come into force between China and Australia. Furthermore, there is another problem about reciprocity. The limitation period for enforcement of judgments in China is much shorter that it in Australia, which means the situation is common where an Australian judgment sought to bring enforcement proceedings in China during the period of enforceability of the judgment under the law of Australia but after the limitation period for enforcement under the law of China has expired. Under the principle of reciprocity, Chinese court may enforce Australian judgments according to Article 288 of Civil Procedural Law of China.[14] However, pursuant to Article 545 of Supreme People’s Court Interpretation of Civil Procedural Law of China, the provisions of Article 246 of the Civil Procedure Law shall apply to the period during which a party applies for recognition and enforcement of a legally effective judgment or ruling rendered by a foreign court, which means the period for applying for enforcement of foreign judgments is two years. Therefore, a Chinese court will probably not enforce an Australian judgment when the application expires two-year limitation period and there is an objection from the judgment debtor.

 

* Ph.D Candidate, Institute of International Law, Wuhan University.

[1] File number: 2021/226856, available at https://www.caselaw.nsw.gov.au/decision/181ff033dcea3902d40b24ea, accessed 10 October 2022.

[2] Jeanne Huang, ‘The first Mainland China monetary judgment enforced in NSW Australia: Bao v Qu; Tian (No 2) [2020] NSWSC 588’ (conflict of laws.net, 20 May 2020); Meng Yu, ‘Court of NSW Australia Recognizes Chinese Judgment for the First Time’ (China Justice Observer, 26 September 2021).

[3] Li Zhang, Shuting Chen, ‘Lao Lai Hides Abroad for More Than a Decade Still Can’t Escape the Law, The Australian court has once again recognized and enforced the Chinese court judgment’ (Legal Insights, 17 September 2022).

[4] The limitation period in this article referred to only relates to the enforcement of a foreign judgment and should not be conceptually confused with the limitation period governing the original substantive right or claim at stake, i.e., the limitation period to bring a legal action on the merits before a court.

[5] Article 246 of Civil Procedural Law of China provides “the period of application for enforcement is two years”.

[6] Available at https://jade.io/article/276236/section/54, accessed 10 October 2022.

[7] Para 42, (n 1).

[8] Guiqiang Liu, ‘Study on the Limitation Period in the Enforcement of Foreign Judgments’ (2020)4 China Journal of Applied Jurisprudence 109.

[9] Yongping Xiao, Principles of Private International Law (2003) Law Press China, p.4.

[10] Permanent Bureau, Limitation period on the Enforcement of Foreign Judgments in the Context of the 2018 Draft Convention, No 11 of May 2019.

[11] Lina Guo, ‘How much is known about implementation period’ (jszx.court.gov.cn, 14 July 2019), available at https://jszx.court.gov.cn/main/ExecuteCase/227653.jhtml, access 10 October 2022.

[12] “The procedure for recognition, declaration of enforceability or registration for enforcement, and the enforcement of the judgment, are governed by the law of the requested State unless this Convention provides otherwise. The court addressed shall act expeditiously.”

[13] Francisco Garcimartín, Geneviève Saumier, ‘Explanatory Report on the Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters’ HCCH Permanent Bureau, para 310.

[14] Article 288 of Civil Procedural Law of China provides “If a legally effective judgment or ruling made by a foreign court requires recognition and enforcement by a people’s court of the People’s Republic of China, the party concerned may directly apply for recognition and enforcement to the intermediate people’s court with jurisdiction of the People’s Republic of China. Alternatively, the foreign court may, pursuant to the provisions of an international treaty concluded between or acceded to by the foreign state and the People’s Republic of China, or in accordance with the principle of reciprocity, request the people’s court to recognize and execute the judgment or ruling.”