EAPIL blog

The author of this post is Christelle Chalas, who is an Associate Professor at the University of Lille. 

Background

The French law on the compliance with the Republican Principles (projet de loi confortant le respect des principes de la République) introduces a new paragraph in Article 913 of the French Civil Code aiming at re-establishing a right of ‘compensatory levy’ (droit de prélèvement compensatoire) on property situated in France for the benefit of children who would not benefit from a reserved share of inheritance.

Its scope is limited to cases where either the deceased or one of his or her children is a national of a Member State of the European Union or a person whose habitual residence is in such a State.

The new text reads:

Lorsque le défunt ou au moins l’un de ses enfants est, au moment du décès, ressortissant d’un État membre de l’Union européenne ou y réside habituellement et lorsque la loi étrangère applicable à la succession ne permet aucun mécanisme réservataire protecteur des enfants, chaque enfant ou ses héritiers ou ses ayants cause peuvent effectuer un prélèvement compensatoire sur les biens existants situés en France au jour du décès, de façon à être rétablis dans les droits réservataires que leur octroie la loi française, dans la limite de ceux-ci.

The law was eventually adopted by the National Assembly on 23 July 2021. The bill had been rejected twice by the Senate in April 2021 (see here) and then on 20 July 2021, but the National Assembly had voted twice in favour of its adoption (in February and July 2021, see here). Under the French legislative system, the Assembly’s deliberations ultimately prevail. The constitutionality of the bill was immediately challenged before the Constitutional Council (Conseil constitutionnel) (see below).

A compensatory levy was instituted in French inheritance law by the law of the 14 July 1819 but it was found to be unconstitutional by the Constitutional Council in 2011 (see here) on the ground that it disregarded the principle of equality by establishing an inequal treatment based on nationality between the heirs designated by the foreign inheritance law.

Although the new text avoids this obvious violation of the principle of equality by granting this right to all heirs whatever their nationality or residence, it raises several problems that threaten its validity.

These problems are interesting because they illustrate the small margin of freedom that national legislators still enjoy in particular with regard to European law. From a domestic perspective, issues of constitutionality also arose.

Is the New Provision Unconstitutional?

Regarding the conformity of Article 913 with the French Constitution, it is submitted that the main concern is the appropriateness of the “droit de prélèvement” with regard to the purpose of the law. It was said during the discussion in the Senate, and shown in French doctrine (Revue critique de DIP 2021, issue 2, announced here) that there is a high risk that the provision misses its target.

The purpose of Article 913 is to steer against the effects of an applicable foreign inheritance law that would discriminate between heirs according to their sex or religion. More specifically, the government did not hide that the provision aims at protecting female heirs from the inheritance laws of Muslim countries. But, since Article 913 does not limit its application to discriminatory foreign laws, but is concerned with foreign laws which “do not permit any reserved share mechanism”, the provision could reach situations that in no way threaten “Republican Principles” (here, equality) and, conversely, Article 913 could miss situations that do threaten these principles. Indeed, the laws of common law countries could be concerned as they do not provide for reserved shares, while, on the contrary, Article 913 could possibly not apply to Muslim laws since they might provide for a reserved share.

One can also be very critical about the weakness of the required connection with France: by rendering the mechanism available to all children heirs as long as only one of them, or the deceased, is a national of a Member State of the EU or is resident in one of theses states, it is very easy to imagine situations in which the protection of the French law will appear inappropriate, if not illegitimate. The real object of the law remains unclear and this raises concerns about the adequacy of the compensatory system set in place. This could be a reason for unconstitutionality.

Furthermore, if the only purpose of Article 913 is to fight against discriminatory foreign laws, the public policy exception should be efficient enough. The French Supreme Court for civil and criminal matters (Cour de cassation) could transpose its own jurisprudence on repudiation to the context of reserved share in inheritance law.

The other advantage of the public policy exception is that it allows a concrete and factual assessment of the result produced by the application of the foreign law.  For example, the family provisions of English law would be spared by the public policy exception while it is not sure that the new text would not receive application in this case.

Unfortunately, it does not seem that any of the parties who participated in the challenge of the constitutionality of the law raised any argument with respect to the new provision. On August, 13th, 2021, the Constitutional Council delivered its decision without addressing the issue.

A Risk of Euro-Incompatibility?

The conformity of Article 913 with the European Succession Regulation could also be questioned on several grounds.

Article 23 of the Regulation provides that “the law determined pursuant to Article 21 and Article 22 shall govern the succession as a whole. That law shall govern in particular, … the disposable part of the estate, the reserved shares and other restrictions on the disposal of property upon death as well as claims which persons close to the deceased may have against the estate or the heirs”. By putting in place a right of compensatory levy on property situated in France, Article 13 sets a new exemption on the applicable law designated by the Regulation.

The European Court of justice might not accept this type of circumvention of the applicable law, in particular when the deceased person has chosen its national law in accordance with Article 22. Recital 38 of the Preamble to the Regulation specifies that the choice of law is limited to the national law of the deceased precisely with the objective “to avoid a law being chosen with the intention of frustrating the legitimate expectations of persons entitled to a reserved share”. A limited and voluntary infringement to the reserved share is thus admitted by the Succession Regulation.

Article 913 would also possibly run against Recital 37 that states that the succession should be govern by a predictable law with which it is closely connected. Predictability and necessity of a close connection between the applicable law and the succession are clearly challenged by the French draft provision. Recital 37 also recommends that “for reasons of legal certainty and in order to avoid the frag­mentation of the succession, that law should govern the succession as a whole”. On the contrary, the compensatory levy instituted by French law results in the application of several inheritance laws.

The only solution would be to consider that the French compensatory levy right falls under the public policy exception set out in Article 35 of the Regulation. But neither here can there be certainty. As is well known, the Court of Justice supports a very restrictive application of the public policy exception, which is reinforced by the requirement in Article 35 that the application of a provision of the law specified by the Regulation should be “manifestly incompatible” with the public policy of the relevant State. Through its control, The European Court of Justice limits any misuse of the concept of public policy that would have the effect of impeding the effectiveness of European regulations.

In this respect, it seems that the nuanced jurisprudence of the French Supreme Court, which limits the exclusion of foreign law to cases where a child heir is in a situation of economic insecurity or need, is more in line with the requirement of Article 35.

Background

In the judgment in TeamBank dated 19 January 2019, the CJEU ruled that Article 14 of the Rome I Regulation does nothing to identify the law governing the effects of assignment in relation to third parties. The court referred, inter alia, to Article 27(2) of the Rome I Regulation, which tasked the Commission to report on this issue and propose an amendment to the Regulation. In the meantime, the question will be governed by national conflict-of-laws rules.

But by which one? This interesting point was subsequently decided in a judgment by the Court of Appeal (Oberlandesgericht) Saarbrücken (Germany), which had requested the preliminary ruling from the CJEU.

German Conflicts Rule on Third-party Effects of Assignment

The legal situation in Germany in this respect is somewhat unclear. Until 2009, the Introductory Act to the German Civil Code (EGBGB) featured a rule on the law applicable to assignment in its former Article 33. Although this provision did not explicitly address third-party effects, it was interpreted by the courts and most authors as submitting them to the law of the assigned claim. Yet Article 33 EGBGB was repealed in 2009 by the German legislator because it considered the rule as no longer necessary due to entry into force of the Rome I Regulation.

Thus, the important gap of the Rome I Regulation regarding third-party effects of assignment, which the CJEU had correctly identified in TeamBank, became all the more significant. To close it, the Court of Appeal Saarbrücken refers to the old EGBGB rule and its long-standing interpretation. In the eyes of the court, the repeal of the provision does not matter, given the advantages of applying the law of the assigned claim to third-party effects. Specifically, the court highlights the rule’s contribution to the goal of legal certainty, which could not be achieved by other connecting factors. Moreover, it explicitly rejects the habitual residence of the assignor in this context, as it would not allow the same degree of predictability in the case of sequential assignments.

The Decision

Applying this conflicts rule, the court determines the law of Luxembourg as governing the third-party effects in the present litigation. To recall: In the underlying case, a Luxembourgish civil servant habitually resident in Germany had twice assigned her salary claims against her employer, first to a bank in Germany and thereafter to a bank in Luxembourg, before becoming bankrupt. The debtor was only informed of the second assignment. Afterwards, the two banks had a dispute about the rights to the salary.

The Court of Appeal starts by considering the validity of the first assignment from the point of view of German substantive law, which governs the assignment under Art 14(2) Rome I Regulation. However, these considerations were ultimately futile. Only thereafter did the court address the real issue, i.e. the law applicable to the third-party effects of the assignment.

Since the claim assigned was governed by Luxembourgish law, the court held the same to be applicable to the dispute between the banks before it. Based on an expert opinion, the court considers only the second assignment, which had been notified to the debtor, as valid under Luxembourg law. The fact that the previous assignment is valid under German law without any notice to the debtor would not matter as Luxembourgish law governs the third-party effects of both assignments.

A Look at the Commission Proposal

The Court of Appeal does not fail to acknowledge that under the European Commission’s Proposal for a Regulation on the law applicable to the third-party effects of assignment of claims, the connecting factor will be different because the habitual residence of the assignor takes centre stage (see Article 4(1) of the Proposal). However, the court also points to the various exceptions to this rule in Article 4(2) and (3) of the Proposal. Moreover, it points to the rule for priority conflicts in Article 4(4) of the Proposal. The court takes the view that the latter rule would have yielded the same result it had reached in the present case, i.e. the applicability of the law of Luxembourg.

It is respectfully submitted that the court erred on this last point. Article 4(4) of the Proposal contains a rule for priority conflicts that may arise where two assignments are covered by Article 4(1) and Article 4(2) or (3) of the Proposal. It therefore presupposes the applicability of two diverging connecting factors – habitual residence on the one hand, and the law governing the claim on the other. This, however, was not the case in the situation faced by the Court of Appeal, in which the one and the same rule and connecting factor – that of the habitual residence under Article 4(1) of the Proposal – would have been applicable. Had the Proposal already been adopted, it would thus have resulted in the applicability of German law and, consequently, the validity of the first assignment.

Conclusion

The case offers two take-aways: First, there is still considerable support in national courts for the law of the assigned claim as the relevant connecting factor for third-party effects of assignment. The long-awaited Regulation of the Commission will thus have to entail significant changes in the attitudes.

Second, the case illustrates that the complex Commission’s Proposal lends itself to misunderstandings, even in its – easier – original form. One of the major challenges will be to educate lawyers about its meaning and secure its correct application by courts throughout the Union.

Many thanks to Verena Wodniansky-Wildenfeld and Amy Held for their contribution to this post.

As reported by Fabienne Jault-Seseke on this blog, the French supreme court for civil and criminal matters (Cour de cassation) ruled in a judgment of 26 May 2021 that “the principles of primacy and effectiveness of European Union law” require that French courts apply ex officio certain choice of law rules contained in EU Regulations.

This is a significant evolution from the doctrine that the court had adopted 20 years ago. This doctrine was the result of decades of academic debates and changes in the case law of the court. Interestingly enough, at the end of the 1980s, the court had ruled that choice of law rules contained in international conventions (essentially the conventions negotiated under the aegis of the Hague Conference of Private International Law) deserved a different status and should be applied ex officio, but the court dropped this exception a few years later.

Background: The Peculiar Consequence of Applying Choice of Law Rules

As most civil law jurisdictions, France recognises the principle jura novit curia. Article 12 of the French Code of Civil Procedure provides that courts must decides disputes in accordance with the legal rules which are applicable and that they should do so ex officio if necessary.

The extension of these principles to choice of law rules was always debated, however. One likely explanation is that the operation of choice of law rules may result in the designation of foreign law. The content of foreign law needs then to be determined, and this process typically involves private experts who must be remunerated (remarkably, French courts virtually never appoint judicial experts for that purpose, although they routinely do so for establishing complex facts). It is understandable, therefore, that the parties would not always want to engage the resources for establishing the content of foreign law, in particular for cases with limited financial stakes, or involving impecunious parties. The obligation to apply systematically choice of law rules may thus have appeared as generating severe practical difficulties, and it took the Cour de cassation decades to craft a doctrine which would weigh the competing interests in a satisfactory manner.

Why Impose Ex Officio Application when the Parties Could Settle?

The current doctrine of the court was adopted in two judgments of 26 May 1999. The obligation of French courts to apply ex officio choice of law rules has since then been based on a major distinction. In matters where the parties may not dispose of their rights (e.g. parenthood, as in the first 1999 judgment), French courts ought to apply choice of law rules ex officio. In contrast, in matters where the parties may dispose of their rights (e.g. an international sale of goods, as in the second 1999 judgment), French courts have no obligation to apply choice of law rules if none of the parties raised their application or the application of foreign law. The system is mixed: some choice of law rules must be applied ex officio, others need not.

The distinction is between rights that the parties may dispose of, and rights that parties may not dispose of. The origin of the distinction is to be found in the writings of the most influential scholar in French private international law in the last decades, Pierre Mayer. Mayer argued that, while in principle foreign law should be considered as law and thus applied ex officio, an exception should be made for those rights which the parties could modify, and indeed waive. This is because they could decide to settle their dispute at any time, under any terms. Thus, a pragmatic solution should be to allow them to argue their case under the (French) law of the forum if they so wish. Just as they could have ignored the content of the applicable law to reach a settlement, they should be allowed to implicitly designate another law.

The Scope of the New Obligation to Apply EU Choice of Law Rules Ex Officio

The new rule laid down by the court in the judgment of 26 May 2021 establishes a distinction between two categories of EU choice of law rules. The Cour de cassation rules that the obligation to apply them ex officio is limited to mandatory choice of law rules, and that mandatory choice of law rules are rules that cannot be derogated from. This is a clear reference to party autonomy, that many EU regulations of private international law recognise. The meaning of the ruling is thus that the obligation is limited to the application of choice of law rules for which the European lawmaker did not grant freedom of choice to the parties.

The particular case was concerned with a tort action for unfair competition. The applicable choice of law rule is contained in Article 6 of the Rome II Regulation, and it expressly excludes the power of the parties to choose the applicable law (Art. 6(4)). The rule in Article 6 is thus to be considered as an EU mandatory choice of law rule, and French courts must now apply it ex officio.

In contrast, the general choice of law rule in Article 4 of the Rome II Regulation (application of the law of the place of damage in tort actions) is a default choice of law rule. It only applies in the absence of a choice of the applicable law made by the parties pursuant to Article 14 of the Rome II Regulation. Likewise, in contractual matters, the parties may choose the law governing their contract in most cases (under Article 3), which means than most choice of law rules contained in the Rome I Regulation are defaults.

Although the Court does not say so, it seems clear that the distinction that it has introduced is inspired from its 20 year old doctrine distinguishing between rights that the parties may dispose of, and rights that parties may not dispose of. But it is not absolutely identical. In this case, the action was concerned with an act of unfair competition which affected exclusively the interests of a single competitor (Rome II Regulation, Art. 6(2)). It was governed by general fault based tort liability. The interests involved were purely private, and it is likely that the parties could freely settle the action. Under the old doctrine, it seems that a French court would not have had the obligation to apply the choice of law rule ex officio. Under the new doctrine, it should have, because the parties may not freely choose the applicable law (although they may still freely settle).

Primacy and Effectiveness of EU Law?

Would it be a problem for the effectiveness of EU law if the parties were allowed to argue a case of unfair competition under the law of the forum instead of the law designated by the applicable EU choice of law rule? The Brussels Ibis Regulation grants jurisdiction to a number of courts in the EU, and other courts might apply all choice of law rules ex officio. In most Member States, however, the idea that courts, after ruling that foreign law applies, might then go on and establish the content of foreign law without the cooperation of the parties is, at best, unrealistic. And in most Member States, if foreign law cannot be established, courts will apply the law of the forum. You can lead a horse to water, but you can’t make him drink.

So the crucial question is that of the establishment of the content of foreign law. At the present time, the courts of most Member States do not have the possibility to ascertain the content of foreign law without the assistance of the parties. For this to change, considerable resources would need to be invested, to establish either centre(s) of comparative law which could provide expert opinions, or a network of courts which would be required to cooperate for that purpose. As long as these resources are not invested, the issue of the ex officio application of choice of law rules cannot be addressed without taking into account the interests of the parties.

Crossposted at EULawLive.

This post was contributed by Dr. Sally El Sawah, Avocat aux Barreaux de Paris et du Caire, Registered Foreign Lawyer (England & Wales), Co-Founder & Head of Arbitration and Litigation at JUNCTION (Paris).

In a judgment of 12 May 2021 (no. 19-13.853), the French supreme court for civil and criminal matters (Cour de cassation) ruled that central bank accounts are un-attachable assets according to Article L-153-1 of the Monetary and Financial Code (“CMF”). Therefore, any debate about the waiver by the State of its immunity from execution was irrelevant. Although the entire grounds of appeal before the Cour de cassation were based on the State immunity from execution, its scope and limits and the consequences of its waiver, the Court of cassation has decided to shift the debate to the question of un-attachability (“insaisissabililté”) of central bank accounts. Un-attachability echoes the inviolability for diplomatic property. Even though they produce similar effects, un-attachability, inviolability and immunity are three separate legal concepts such that a waiver of the latter is ineffective to the former two.

Background

It is possible today to talk about the Commisimpex saga, that would join the landmark precedents Noga, NML Capital and Yukos in the realm of State Immunity from execution.

This case is one of the many failed attempts of post-judgment measures of constraint exercised by the Congolese company Commissions Import Export SA (Commisimpex) in execution of two final and enforceable arbitral awards rendered against the Democratic Republic of Congo (“the DRC”) on December 3, 2000, and January 21, 2013. The fact that the contractual documents contained a clause providing for the waiver by the DRC of its immunity from execution was not of great assistance to Commisimpex when it tried to attach the DRC’s and/or its emanations’ assets for over a decade now. These attachments involved a pallet of assets ranging from mere shares in a société civile immobilière (non-trading real-estate company) to bank accounts of the DRC’s consular and diplomatic representations in France.

Here, they involved the Democratic Republic of Congo’s account with the Bank of Central African States (“BEAC”) held in France. This case was another opportunity for the Court of cassation to interpret (and perhaps revisit its reading of) Article L.153-1 of the Monetary and Financial Code (“Article L-153-1CMF) in light of Articles 18 and 19(a) and (b), and 21.1(c) and 21.2 of the United Nations Convention on Jurisdictional Immunities of States and their Property (“UNCSI”, although not yet entered into force, but from the perspective that it is a codification of customary international law), and Article 6§1 of the ECHR and Article 1 of its First Protocol.

Article L-153-1 was adopted in 2005 to limit the possibility of attachment over central bank accounts held in France on behalf of a State, regardless of the identity of the account holder. In other words, even if the account is held in the name of the central bank itself, and not that of the State, this did not constitute a reason to allow the attachments over these accounts. Any attempt to distinguish between the accounts held on behalf of the State based on the purpose for which they were used was also doomed to fail. Whether or not the accounts held on behalf of the State were in use or destined to be used for a commercial purpose was irrelevant. In any event, it was de facto impossible to prove such use for many reasons, amongst which was the principle of banking secrecy. In addition to these restrictions, another one was added by this article; it required the creditor holding a final enforceable title to obtain leave from the execution judge prior to making the attachment (although such requirement does not exist for the other creditors who hold a final and enforceable title against non-sovereigns). In practice, it has become impossible to seize central bank accounts in France, regardless of their holder or the purpose of their use.

Analysis

As expressly mentioned in the travaux préparatoires, the purpose behind Article L153-1 was to increase the competitiveness of Paris as an attractive financial hub of foreign central bank reserves. Such purpose was sufficient for the Court of cassation to declare the conformity of Article L153-1 with the French Constitution (Cass. civ. 2, July 11, 2013, no. 1340.036). The conformity of this article with the ECHR was also confirmed by the French Court of cassation (Cass. civ. 2, January 11, 2018, no. 16-10.661). In that decision, the Court of cassation affirmed that the restriction to article 6§1 was reasonable and proportionate insofar as it pursued the legitimate purpose of complying with customary international law rules. It was proportionate since even though the burden of proof that the accounts held by the Central Bank for its own account was used for other than governmental non-commercial purposes difficult, it was not impossible.

In the judgment commented here, the appellant raised similar arguments. On the one hand, Commisimpex tried to convince the Court of cassation that there was waiver of state immunity from execution. On the other hand, the alternative measures of recourse providing for a possible recourse by the Creditor before administrative courts to engage the responsibility of the French State for violation of the principle of equality before public charges when it granted immunity from execution to the foreign State were not applicable in the case at hand. Indeed, Commisimpex was not a taxpayer in France, and thus could not avail itself of the possibility of recourse before French administrative courts (definitely, the appellant was alluding to the Court of cassation’s decision of May 25, 2016, no. 15-18.646).

Following its traditional stern and concise way of making solemn declarations of principle, the Court of cassation stated that the purpose behind Article L.153-1 was to protect the functioning of institutions which contribute to the definition and implementation of the State monetary policy and to prevent the blockade of foreign exchange reserves deposited in France. This purpose was legitimate. Accordingly, the subsequent restriction to the right of property and the right of access to court and to an effective execution of final judicial decisions which resulted from the un-attachability of these accounts was legitimate. It was also proportionate insofar as it was limited to the central bank assets deposited in France and did not encompass all the other property of the State. Therefore, there was no violation of Article 6§1 of the ECHR, nor of the right to property under Article 1§1 of the Additional Protocol to the ECHR.

However, the Court of cassation’s declaration that the proportionality test was met since State assets other than central bank accounts could be seized is strikingly theoretical. Indeed, the Loi Sapin II, adopted in 2016, has embraced the same approach as in L-153-1 CMF with a requirement of prior leave and a presumption of the governmental non-commercial nature of State assets listed in that law, which rendered any possible enforcement over State assets illusionary.

It is noteworthy that in this decision, the attachment pursued the Democratic Republic of Congo’s account with the Bank of Central African States, and not those of the Central Bank of Congo (“CBC”). The BEAC operates as the central bank of six African States including the Democratic Republic of Congo and coexists in parallel with the CBC. The broad wording of Article L.153-1 which uses the terms “central bank” and “monetary authority” allows the protection of not only the CBC, but also any other entity which performs central bank functions and acts as a State’s monetary authority, such as the BEAC according to its Charter (Article 1). However, the main difference between these two central banks is that the BEAC in fact enjoys the privileges and immunities of international organisations (Article 6.1 of its Charter). One may wonder in such case whether Article L-153-1 CMF was the right provision to apply, and thus, whether there was room for the application of the so-called “un-attachability”. Indeed, Article 6.6 of the BEAC’s Charter provides that “only the net credit balances of accounts opened in the books of the Central Bank may be subject to seizure, in execution of a final judicial decision”. It is striking that this issue was not addressed by the Court of cassation (perhaps it has not been raised by the appellants before the Court of Appeal in the first place).

Regardless of the particularity of the BEAC and its Charter, what seems more striking though, is the absence of any reference whatsoever to Article 21.2 UNCSI, which provides for a possible attachment of central banks accounts in case of express waiver according to Articles 18.a and 19.a of the UNCSI.  Placing the debate on the ground of un-attachability allowed the Court of cassation to mute any possible argument based on such waiver. Immunity and un-attachability are two different concepts. The waiver by the DRC of its immunity from execution was thus inoperative and could not encompass un-attachable assets. Hence, the Court of cassation did not have to conciliate the un-attachability of Article L.153-1 CMF with the regime of central bank accounts under UNCSI.

Most likely, the real reason behind the Court of cassation’s new approach lies in the bad experience it has encountered when it has tried to be bold back in 2015 in the same Commisimpex Saga (Cass. Civ. 1e, May 13, 2015, no. 13-17.751). One may recall that, back then, the bold yet accurate interpretation adopted by the Court of cassation of Article 21 UNCSI to tackle the issue of waiver of State immunity from execution over diplomatic bank accounts has cost it the “legislative censure” by the Sapin II Act. This legislative reform has de facto rendered any possible execution over foreign States’ assets practically impossible. It is permissible in these circumstances to say that State immunity from execution in France has in fact become (quasi) absolute. Any kind of State property which is not evidently and ostensibly commercial, will be protected by State immunity from execution, and when the conditions for an exception thereto can be met, French courts could avoid the discussion by inventing a new layer of protection that it may call un-attachability …

Of course, it is important to attract foreign exchange reserves to the deposit of the Banque de France, yet, not at the high price of the Rule of law.

After arguing that States Should Not Ratify, and Should Instead Denounce, the Hague Choice-Of-Court Agreements Convention, Gary Born received a series of serious criticisms by Trevor Hartley, Andreas Bucher and the Hague Conference of Private International Law.

Mr Born has responded to some of these criticisms in two further posts at the Kluwer Arbitration Blog.

At the invitation of the Editors of the EAPIL Blog, Trevor Hartley, Professor emeritus at the London School of Economics, offers the following rejoinder.

I assume we can all agree on two things: first, corrupt and biased judges exist; secondly, corrupt and biased arbitrators exist. Since the parties to an arbitration agreement choose the arbitrators and the parties to a choice-of-court agreement choose the court, this ought not to be a problem. However, for one reason or another, a party to an arbitration agreement may find himself before an arbitrator whom he believes to be corrupt and biased; likewise, a party to a choice-of-court agreement may find himself before a judge whom he believes to be corrupt and biased. If we can agree on all this, the matter comes down to the safeguards against the enforcement of a corrupt award under the New York Convention and the safeguards against the enforcement of a corrupt judgment under the Hague Convention. I want to examine this in order to see how the two instruments compare.ague Convention.

The grounds for refusing to recognize or enforce an award are set out in Article V of the New York Convention. The equivalent grounds under the Hague Convention are in Article 9. We will consider them one by one.

Arbitration Agreement Invalid

Under New York, an award will not be recognized or enforced if the arbitration agreement was invalid: Article V(1)(a). This covers incapacity of the parties and other grounds of invalidity. The capacity of the parties is governed by ‘the law applicable to them’; other grounds of validity are governed by the law to which the parties have subjected the agreement or, failing any indication thereon, the law of the country where the award was made. Under Hague, a judgment under a choice-of-court agreement will also be refused recognition if the agreement is null and void: Article 9(a). The applicable law is stated to be the law of the State of the chosen court; but if the chosen court has already held the agreement to be valid, this is conclusive.

However, under Article 9(b) of Hague, recognition and enforcement may also be refused if a party lacked capacity to conclude the agreement under the law of the requested State (the State asked to recognize the judgment). Thus, New York is slightly stronger in general, in that it gives the parties the right to subject the validity of the agreement to some law other than that of the country where the award is made. However, Hague is slightly stronger as regards capacity, in that it requires capacity to exist under both the law of the chosen court and the law of the country asked to recognize the judgment.

Insufficient Notice

Under New York, another ground for non-recognition is that the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case: Article V(1)(b). Under Hague, there are two grounds for non-recognition. Under Article 9(c)(i), recognition may be refused if the document which instituted the proceedings (or an equivalent document, including the essential elements of the claim) was not notified to the defendant in sufficient time and in such a way as to enable him to arrange for his defence. However, the defendant loses this right if he entered an appearance and presented his case without contesting notification in the court of origin (provided that the law of the State of origin permitted notification to be contested). This has the same effect as the ground under New York, though Hague is more fleshed out. The second ground under Hague is that the document was notified to the defendant in the requested State in a manner that was incompatible with fundamental principles of the requested State concerning service of documents: Article 9(c)(ii). This has no equivalent under New York.

New York is slightly wider in that it also permits non-recognition where the party is ‘otherwise unable to present his case’. There is no exact equivalent to this under Hague, though if his inability to present his case is due to chicanery by the other party, Article 9(d) would come into play. This gives another ground for non-recognition, namely that the judgment was obtained by fraud in connection with a matter of procedure.

Outside the Scope of the Submission

Under New York, recognition of an award can be challenged on the ground that the award deals with a difference outside the scope of the submission to arbitration: New York, Article V(1)(c). At first sight, there appears to be no equivalent to this in Hague. However, the duty to recognize and enforce a judgment applies only to a judgment given by a court of a Contracting State ‘designated in an exclusive choice of court agreement’: Hague, Article 8(1). The term ‘exclusive choice of court agreement’ is defined in Article 3(a) as an agreement that designates a court (or several courts) ‘for the purpose of deciding disputes which have arisen or may arise in connection with a particular legal relationship’ (italics added). If the designated court decided a matter that did not concern the legal relationship specified in the choice-of-court agreement, it could be argued that the court was no longer designated in the choice-of-court agreement. Then the judgment would not be subject to recognition and enforcement under the Convention. If this is right—and it surely must be—the Hague Convention produces the same result.

Composition of the Arbitral Authority

Another ground for non-recognition under New York is that the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties (or, failing such agreement, was not in accordance with the law of the country where the arbitration took place): New York, Article V(1)(d). For obvious reasons, there is no equivalent to this under Hague. However, if the court which gave the judgment was not designated in the choice-of-court agreement, the judgment would not, for the reasons explained in the previous paragraph, be subject to recognition and enforcement under the Convention.

Award Not Binding on the Parties

Under New York, recognition and enforcement of an award may be refused if it has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made: Article V(1)(e). This is supported by Article VI, which makes provision for the adjournment of enforcement proceedings where an application is made for the setting aside or suspension of the award. Under Hague, there are two provisions, which together have the same effect. The first is Article 8(3), which provides that a judgment will be recognized only if it has effect in the State of origin and will be enforced only if it is enforceable in the State of origin. If has been set aside or suspended in the State of origin, it will not be recognized or enforced. The second is Article 8(4), which provides that recognition or enforcement may be postponed or refused if the judgment is the subject of review in the State of origin or if the time limit for seeking ordinary review has not expired. (It goes on to say that a refusal does not prevent a subsequent application for recognition or enforcement of the judgment.) Taken together, these provisions give protection that is at least as good as that under New York.

Subject Matter Not Capable of Settlement by Arbitration

Another ground for non-recognition under New York is that the subject matter of the difference is not capable of settlement by arbitration under the law of the country in which enforcement is sought. There is no equivalent to this under Hague since there are few matters within the subject-matter scope of the Convention that are not capable of settlement by a court. However, if the judgment did concern such a matter, public policy could be invoked.

Public Policy

In both New York and Hague, the most important safeguard is the provision which allows recognition and enforcement to be refused on the ground of public policy. The relevant provision in New York is Article V(2)(b) and in Hague it is Article 9(e). The provision in New York simply says that recognition and enforcement may be refused if it would be contrary to the public policy of the country concerned. Hague, however, is a little more detailed. After saying that recognition or enforcement may be refused if it would be manifestly incompatible with the public policy of the requested State, it adds ‘including situations where the specific proceedings leading to the judgment were incompatible with fundamental principles of procedural fairness of that State’.

A Problem

This all seems clear; however, there is a problem. Article 8(2) of Hague provides that the court asked to recognize and enforce the judgment is bound by the findings of fact on which the court of origin based its jurisdiction (unless the judgment was given by default). Does this mean that if the court of origin ruled that its members were not corrupt, the court asked to recognize and enforce the judgment cannot question this? If this were true, it would be a serious defect. However, the answer is given in the Explanatory Report, which was approved by all the States that participated in the Conference which drew up the Convention. The relevant paragraphs are 166–169. The first point made is that the court addressed will not have to accept the legal evaluation of the facts adopted by the court of origin. For example, if the court of origin found that the choice-of-court agreement was concluded by electronic means that satisfied the requirements of the Convention, the court addressed would be bound by the finding that the agreement was concluded by electronic means, but not by the finding that it satisfied the requirements of the Convention.

The second point is that the court asked to recognize and enforce the judgment is only bound by the findings of fact of the court of origin with regard to the grounds of non-recognition specified in Article 9(a) and (b). The rule does not apply to the grounds in the other sub-paragraphs of Article 9, that is sub-paragraphs (c), (d) and (e). This is because these latter provisions do not concern jurisdiction. The Report states in paragraph 167:

The position is different with regard to the grounds of non-recognition laid down in sub-paragraphs c), d) and e) of Article 9. These are not concerned with jurisdiction under the Convention, but with public policy and procedural fairness. Thus, the court addressed must be able to decide for itself, in accordance with these sub-paragraphs, whether the defendant was notified; whether there was fraud; or whether there was a fair trial: a finding by the judge of origin that he did not take a bribe, for example, cannot be binding on the court addressed.

A footnote adds that this also applies to a finding by an appeal court that the first instance judge was not guilty of corruption.

Paragraph 168 of the Report continues:

The same is true with regard to procedural fairness under sub-paragraph e). Assume that the defendant resists recognition and enforcement on the ground that the proceedings were incompatible with the fundamental principles of procedural fairness of the requested State. He claims that he was not able to go to the State of origin to defend the case because he would have been in danger of imprisonment on political grounds. A finding by the court of origin that this was not true cannot be binding on the court addressed. Where matters of procedural fairness are concerned, the court addressed must be able to decide for itself.

In view of this, we can conclude that rule that findings of fact are binding does not seriously compromise the safeguards.

Conclusions

As this short discussion has shown, the safeguards in the two instruments have almost the same effect. One cannot say that one is better than the other. In any event, where the judgment is tainted by corruption or bias, public policy would always ensure that it was not recognized or enforced. Of course, there is the question of proof, but this is just as much a problem in the case of an award as in the case of a judgment.

The decision corresponding to case C-262/21 PPU A, will be delivered on 2 August 2021. It corresponds to a preliminary reference from the Supreme Court of Finland, with five questions on Regulation 2201/2003 and the 1980 Hague Convention, as well as on the interface between the first one and the Dublin III Regulation. Practicalities surrounding the application of Article 11(4) Brussels II bis regulation are also at stake.

1. Must Article 2(11) of Council Regulation (EC) No 2201/2003 of 27 November 2003 concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility, repealing Regulation (EC) No 1347/2000 (‘the Brussels II bis Regulation’), relating to the wrongful removal of a child, be interpreted as meaning that a situation in which one of the parents, without the other parent’s consent, removes the child from his or her place of residence to another Member State, which is the Member State responsible under a transfer decision taken by an authority in application of Regulation (EU) No 604/2013 of the European Parliament and of the Council (‘the Dublin III Regulation’), must be classified as wrongful removal?

2. If the answer to the first question is in the negative, must Article 2(11) of the Brussels II bis Regulation, relating to wrongful retention, be interpreted as meaning that a situation in which a court of the child’s State of residence has annulled the decision taken by an authority to transfer examination of the file, but in which the child whose return is ordered no longer has a currently valid residence document in his or her State of residence, or the right to enter or to remain in the State in question, must be classified as wrongful retention?

3. If, in the light of the answer to the first or the second question, the Brussels II bis Regulation must be interpreted as meaning that there is a wrongful removal or retention of the child, and that he or she should therefore be returned to his or her State of residence, must Article 13(b) of the 1980 Hague Convention be interpreted as precluding the child’s return, either

(i) on the ground that there is grave risk, within the meaning of that provision, that the return of an unaccompanied infant whose mother has personally taken care of him or her would expose that child to physical or psychological harm or otherwise place the child in an intolerable situation; or

(ii) on the ground that the child, in his or her State of residence, would be taken into care and placed in a hostel either alone or with his or her mother, which would indicate that there is a grave risk, within the meaning of that provision, that his or her return would expose the child to physical or psychological harm or otherwise place the child in an intolerable situation: or

(iii) on the ground that, without a currently valid residence document, the child would be placed in an intolerable situation within the meaning of that provision?

4. If, in the light of the answer to the third question, it is possible to interpret the grounds of refusal in Article 13(b) of the 1980 Hague Convention as meaning that there is a grave risk that his or her return would expose the child to physical or psychological harm or otherwise place the child in an intolerable situation, must Article 11(4) of the Brussels II bis Regulation, in conjunction with the concept of the child’s best interests, referred to in Article 24 of the Charter of Fundamental Rights of the European Union and in that regulation, be interpreted as meaning that, in a situation in which neither the child nor the mother has a currently valid residence document in the child’s State of residence, and in which therefore have neither the right to enter nor the right to remain in that State, the child’s State of residence must make adequate arrangements to secure that the child and his or her mother can lawfully remain in the Member State in question? If the child’s State of residence has such an obligation, must the principle of mutual trust between Member States be interpreted as meaning that the State which returns the child may, in accordance with that principle, presume that the child’s State of residence will fulfil those obligations, or do the child’s interests make it necessary to obtain from the authorities of the State of residence details of the specific measures that have been or will be taken for the child’s protection, so that the Member State which surrenders the child may assess, in particular, the adequacy of those measures in the light of the child’s interests?

5. If the child’s State of residence does not have the obligation, referred to above in the fourth question, to take adequate measures, is it necessary, in the light of Article 24 of the Charter of Fundamental Rights, to interpret Article 20 of the 1980 Hague Convention, in the situations referred to in the third question, points (i) to (iii), as meaning that that provision precludes the return of the child because the return of the child might be considered to be contrary, within the meaning of that provision, to the fundamental principles relating to the protection of human rights and fundamental freedoms?

AG Pikamäe’s Opinion was published in French and Finnish on July 14. He proposed the Court to answer as follows (translation by the author):

Council Regulation (EC) No 2201/2003 … must be interpreted as meaning that the situation, such as that in the main proceedings, in which a child and its mother have moved and remain in a Member State in execution of a transfer decision taken by the competent authority of the Member State of origin in accordance with Regulation (EU) No 604/2013 … cannot be considered as unlawful removal or retention within the meaning of Article 2 (11) of Regulation No 2201/2003, except if it is established that, under cover of an application for international protection made for the child, the mother has de facto tried circumvent the rules of judicial jurisdiction provided for by Regulation No 2201/2003, which is for the referring court to verify in the light of all the specific circumstances of the case.

The case will be decided by the First Chamber (M. Bonichot, as reporting judge ; M. Bay Larsen, Mme. Toader, M. Safjan, M. Jääskinen).

The new issue of International & Comparative Law Quarterly (Volume 70, Issue 3) is out. Some of articles concern directly or indirectly questions of private international law. Their abstracts are provided below.

The whole issue is available here. Some of articles are available in open access.

A. Poon, Determining the Place of Performance under Article 7(1) of the Brussels I Recast, pp. 635-663

This article calls for a reassessment of the methodology in determining the place of contractual performance under Article 7(1) of the Brussels I Regulation Recast. The first part of the article deals with Article 7(1)(a). It argues that in light of the adoption of autonomous linking factors under Article 7(1)(b), more types of contracts presently not covered within the ambits of Article 7(1)(b) should centralise jurisdiction at the places of performance of their characteristic obligations. The second part of the article considers the way Article 7(1) operates when there are multiple places of performance under the contract. The test devised by the Court of Justice of the European Union in this regard is not only difficult to apply, but the application of the test also often does not guarantee a close connection between the claim and the court taking jurisdiction. This article argues that when a claim is made in respect of a contractual obligation to be performed in more than one Member State, Article 4 should be applied instead of Article 7(1).

A. Xu, A New Solution Concerning Choice-of-Law for the Assignment of Debts, pp. 665-696. Available in open access.

This article explores a solution to the choice-of-law issues concerning both voluntary and involuntary assignments arising in a domestic forum. The focus is on English private international law rules relating to cross-border assignments. A distinction is made between primary and extended parties as the foundation for choice-of-law analysis. Drawing on insights from the distinction of the use value and exchange value of debts found in economics, this article proposes a new analytical framework for choice-of-law based on a modified choice-of-law theory of interest-analysis.

S. Caserta, P. Cebulak, Resilience Techniques of International Courts in Times of Resistance to International Law, pp. 737-768

International courts are increasingly called upon to adjudicate socially divisive disputes. They are therefore exposed to a heightened risk of backlash that questions their authority and impedes the implementation of their judgments. This article puts forward an analytical framework for mapping the resilience techniques used by international courts to counter this growing resistance. Case studies involve the Court of Justice of the European Union, which has been cautious in its stance regarding democratic backsliding in Hungary and Poland, and the Caribbean Court of Justice, which has engaged in legal diplomacy while adjudicating both on the land rights of indigenous groups and on Lesbian Gay Bisexual Transgender Queer and Intersex (LGBTQI) rights. It is argued that, in order to effectively avoid and mitigate backlash, international courts should deploy resilience techniques that go beyond merely exercising their judicial function. The successful deployment of resilience techniques can allow international courts to become significant actors in global governance during a time of crisis for the international liberal order.

This post was contributed by Nicolas Kyriakides, who is a practising lawyer in Cyprus and an Adjunct Faculty at the University of Nicosia, and Laura McBride, a BA Jurisprudence student at the University of Oxford.

On 6 July 2021, Robin Knowles J handed down a lengthy judgment in the case of Province of Balochistan v Tethyan Copper Company Pty Ltd [2021] EWHC 1884 (Comm), in the Commercial Court subdivision of the Queen’s Bench Division of the High Court of England and Wales.

This case was to settle various preliminary issues in an arbitration dispute, and provides an interesting insight into the workings of substantive jurisdiction and separability in arbitration.

Background

The Province of Balochistan is one of the four provinces of Pakistan and is rich in natural resources, including gold.

The defendant is an Australian company, owned by two of the world’s biggest mining companies, Antofagasta and Barrick Gold, and had been exploring the Chagai Hills in Balochistan as a possible location for mining. For that purpose, a contract – the Chagai Hills Exploration Joint Venture Agreement (CHEJVA) had been formed in 1993 between BHP Minerals Intermediate Exploration Inc. and the Balochistan Development Authority, but BHP had been replaced as a party to the contract through a Novation Agreement in 2006 which introduced Tethyan Copper (TCCA).

The Islamabad High Court granted a Scheme of Arrangement, which broadly transferred TCCA’s rights to its wholly owned subsidiary (TCCP). After years of exploring, a Mining Lease application was made by TCCP to the Government of Balochistan, which was refused, and two arbitrations have followed – one through ICSID, and one through the ICC – as well as a case in the Supreme Court of Pakistan.

The Province of Balochistan claimed that the ICC arbitral tribunal did not have jurisdiction because the CHEJVA was void, and therefore the arbitration agreement contained within it was also void. This is based on the ‘Corruption Allegation’, which is the allegation that the CHEJVA and related agreements were void due to the existence of corruption.

Robin Knowles J’s robust analysis and thorough discussion laid bare a breadth of important points when it comes to substantive jurisdiction and separability of agreements in the context of arbitration. The ability to preclude parties from denying the jurisdiction of the tribunal is key to ensuring that an arbitration can occur successfully. The learned judge found multiple ways to ensure that the arbitration could occur in line with the actual submissions that the parties had advanced to proceed with the arbitration in the first place.

The Corruption Allegation, as it stood, appears to have had the possibility of preventing the two parties from having any non-litigious solution to their standoff, but Robin Knowles J effectively threw it out as a possible challenge to the jurisdiction of the ICC’s arbitral tribunal.

The sanctity of arbitration agreements, even in invalid, ineffective, or void contracts, is clearly demonstrated through the reasoning of Robin Knowles J, who carefully ensures both deference to the Supreme Court of Pakistan and the continuance of successful arbitration, especially in a case as complex as this.

This case reflects the importance of preserving such international deference and the ability to maintain relations across multiple jurisdictions, which has cemented London as a global centre of arbitration between warring international organisations.

Ruling

Robin Knowles J was asked to give judgment on eight issues:

• Whether the Corruption Allegation is precluded by section 73(1) of the Arbitration Act 1996
• Whether the Corruption Allegation is precluded pursuant to the doctrine of waiver by election
• Whether TCCA is precluded by an issue estoppel arising from the Judgment of the Supreme Court of Pakistan from alleging separability of the arbitration agreement
• Whether TCCA is precluded by an issue estoppel arising from the Judgment of the Supreme Court of Pakistan from denying that the arbitration agreement is governed by the law of Pakistan
• Whether the Province of Balochistan is precluded by section 73 of the 1996 Act from denying separability of the arbitration agreement
• Whether the Corruption Allegation seeks impermissibly to challenge the ICC tribunal’s decision on the merits of the claim before it
• Whether the Province of Balochistan cannot pursue the Corruption Allegation on the basis that it was not included in the Arbitration Claim Form
• Whether an application dated 21 January 2021 by the Province of Balochistan to amend the Arbitration Claim Form should be granted?

A further two issues were dependent upon the answer given to the fifth issue.

The analysis began with extensive outlining of the Supreme Court of Pakistan’s judgment to see what the Court actually said with reference to corruption. The Supreme Court of Pakistan found that the CHEJVA was made contrary to the Balochistan Mining Concession Rules 1970 and the later Balochistan Mining Rules 2002, both of which were implemented in conformity with the Mineral Development Act 1948. The Government of Balochistan, under these rules, is able to relax the requirements outlined in the Rules in cases of hardship, and the applicant must show special circumstances warranting the exercise of such power. The hardship was never demonstrated, yet the rules were relaxed, in what the Supreme Court described as relaxations granted in excess of authority and therefore ultra vires. This means that the CHEJVA was made contrary to law, and hence was unenforceable. Beyond this, s23 of the Contract Act 1872 allows for a contract to be void if the object or consideration is unlawful, including if it opposes public policy – the contract, in its violation of the BCMR, was opposed to public policy, and therefore unlawful on these grounds as well.

Noticeably, there was not much discussion of corruption in the Supreme Court of Pakistan’s judgment. Indeed, Robin Knowles J made it clear that corruption was not the turning point in deciding that the CHEJVA was void, but the court had observed that there were disclosures of corruption. Descriptions or references to corruption are insufficient to found the claim that it rendered the contract void.

Issue (1) – Waiving The Corruption Allegation?

The first, and most substantial, issue concerns whether the Province of Balochistan was precluded from making the Corruption Allegation based on s73(1) of the Arbitration Act 1996, which says that a party continuing in an arbitration without making an objection about the substantive jurisdiction of the arbitral tribunal may not raise the objection later unless he proves that he did not know and could not with reasonable diligence have discovered this.

The Province, before the Supreme Court of Pakistan had delivered their reasoning, argued that there was no jurisdiction for arbitration, but that rather there should have been judicial review by the court system of Pakistan in reference to a decision made by the Licencing Authority under the BMR 2002 being a product of corruption. Furthermore, it argued that the Supreme Court of Pakistan should be able to determine the validity, legality, and vires of the CHEJVA before the arbitration even occurs, as the appropriate forum is Pakistan.

The ICC tribunal, however, disagreed with this argument by the Province, as they found that arbitration clause within the CHEJVA was separable from the larger agreement, and may be governed by a different law – in this case, arguably English law, as the chosen seat of arbitration is London, although the agreement did also reference international law – nor was there any formal challenge to the Tribunal’s jurisdiction by the Government. Following the delivery of the judgment of the Supreme Court of Pakistan, the Province argued that the entire contract being null and void meant that the jurisdiction of the ICC tribunal, arising from the contract, would also be illegal.

However, they did not ask the ICC’s arbitral tribunal to make an independent case of corruption leading to the invalidity of the arbitration agreement, and while the arbitral tribunal acknowledged that there were references to corruption within the Supreme court of Pakistan’s judgment, this was not the basis upon which the contract was declared void. The arbitral tribunal, in its Rulings on Preliminary Issues, decided that the Supreme Court did not make any findings of corruption and did not invalidate any agreement on this ground, but made no ruling itself upon the question of corruption because no separate arguments or evidence had been put before it.

Following the arbitral tribunal’s Rulings on Preliminary Issues, an exchange between the parties and tribunal occurred, wherein the latter offered to the parties a slightly different course of action, where the Rulings would be given as a Partial Award. Between the time of the grant of award and the transfer of the award itself, the right to object to substantive jurisdiction of the ICC tribunal would not be lost under s73 where the objection had been made in the proceedings which led to the Rulings. However, there were no objections, whether one was not made for the reasons under s73(1) or any other reason.

After this exchange, the Province said that it had recently uncovered ‘new evidence of extensive corruption by TCC’, and claimed that it was not too late to raise the issue of corruption, because the evidence had required the cooperation of third parties who had not been previously involved when the time had come to allege corruption originally.

It was open to the Province to request the ICC tribunal look at the issue of corruption as one which went to jurisdiction, not only to merits of claims under arbitration. The Province did not take this course of action, but confined the request to the merits of the claims, and Robin Knowles J felt that, by consulting an international law firm in doing so, they appreciated what they were doing. The Province identified an exception in English law to the general practice rule that corruption has no impact upon the jurisdiction of the arbitral tribunal and that the doctrine of separability is preferred, in that where bribery impeaches the arbitration clause in particular, then there is the possibility that the general rule no longer applies.

They did not wish to pursue this to vitiate TCC’s claim, nor did they acknowledge that the issue that, if the practice rule in English law also existed in Pakistan’s laws, they could not identify a suitable exception which would allow them to claim no jurisdiction.

The jurisdictional issue, then, was whether the Supreme Court of Pakistan had decided that the arbitration agreement was void, including on the basis of corruption, which is not the Corruption Allegation as defined above, which is wider. Raising the contention that there was contention is not enough to raise it as a jurisdictional objection, and raising the contention as a jurisdictional objection that the Supreme Court of Pakistan had decided that the arbitration agreement was void, including on the basis of corruption, is not the same thing as raising corruption as a jurisdictional objection.

As a consequence of this, the Corruption Allegation was ruled to be precluded by s73(1) of the 1996 Act because the Province did not make the jurisdictional objection to the ICC tribunal that the CHEJVA and related agreements were void due to the existence of corruption, even though with reasonable diligence the Province had the knowledge it needed to raise the objection.

Issue (2) – The Corruption Allegation: Waiver by Election

The second issue focused on the doctrine of election, which applies where a choice has to be made between two inconsistent courses of action. The Province had made a decision not to pursue the argument that the arbitration agreement in the CHEJVA was vitiated by corruption on behalf of TCC, which Robin Knowles J held to be a clear, unequivocal choice. Consequently, the Corruption Allegation is additionally precluded by the doctrine of waiver by election.

Within this issue, the principle of separability was also introduced. Section 7 of the 1996 Act provides that an arbitration agreement which was part of an “invalid, non-existent, or ineffective” larger agreement is not regarded as such, and is treated as a distinct agreement. While it was common ground that s7 applied before the ICC tribunal, the Province denied it.

Issue (3) – Issue Estoppel Against TCCA: Separability of the Arbitration Agreement

The notion that a judgment of a court in another jurisdiction is capable of giving rise to an issue estoppel in proceedings before the English courts has been in existence for over half a century in England. The focus of the issue estoppel here is whether the Supreme Court of Pakistan decided that the arbitration agreement was not separable from the CHEJVA, or if it was otherwise saved by the principle of separability.

Robin Knowles J identified that, while no part of the CHEJVA had escaped the Supreme Court of Pakistan’s judgment and indeed the Court had decided that there was no separability, there was an issue of who was in fact a party to the case in Pakistan. TCCP, the wholly-owned subsidiary of TCCA, was before the court, but a shared commercial interest does not make TCCP a privy to TCCA. As a result, TCCA is not precluded from alleging separability of the arbitration agreement by an issue estoppel arising from the judgment of the Supreme Court of Pakistan.

Issue (4) – Issue Estoppel against TCCA: The Governing Law of the Arbitration Agreement

The fourth issue was dealt with shortly. It was ruled that TCCA was not precluded by an issue estoppel arising from the judgment of the Supreme Court of Pakistan from denying that the arbitration agreement is governed by the law of Pakistan, for the same reasons that they were not precluded under issue (3).

Issue (5) – Separability: s73 of 1996 Act

The Province could have argued, for the fifth issue, that the lack of jurisdiction included the fact that the arbitration agreement is not separable, but they chose to not argue this, and in fact argued the opposite way during the arbitration. Robin Knowles J highlighted that the party raising an objection to jurisdiction must deal with separability when relevant in order for them to prevail. Due to the Province’s failure to do this, they are now precluded by s73 of the 1996 Act from denying the separability of the arbitration agreement under English law.

Issue (6) – Challenge on the Merits

The Corruption Allegation was not raised as a jurisdictional objection before the ICC tribunal but was raised as part of its defence on the merits. In its Partial Award, the ICC tribunal found that the ICSID tribunal’s dismissal of corruption allegations in the arbitration under the Bilateral Investment Treaty had a “preclusive effect” in the ICC arbitration. A party bringing a jurisdictional challenge under s67 of the 1996 Act may challenge the arbitral tribunal’s findings of fact which are relevant to that challenge, and the facts which have been treated as having preclusive effect may also be challenged. However, it is not for the Court to handle the aspects of jurisdiction challenge to which the findings of fact would be relevant.

The ICC tribunal had addressed the findings of fact as part of its consideration on the merits, and the Province had accepted their jurisdiction to determine TCC’s claims, so the effect of allowing a Corruption Allegation to be advanced within its s67 challenge would allow the Province to challenge the ICC’s treatment of the merits of dispute. The Province must raise the evidence relating to corruption with the tribunal, not the court as a challenge to the jurisdiction of the tribunal.

Issue (7) – The Arbitration Claim Form, and Issue (8) – Amendments to the Claim Form

These two issues together referred to the Claim Form submitted by the Province. The Province had incorrectly referenced corruption as one of the reasons for the Supreme Court of Pakistan’s decision in the claim form, but proper analysis of the judgment as above made it clear that corruption was not one of the grounds for the judgment. The Province did not include the Corruption Allegation in the claim form, so therefore cannot pursue it in arbitration. Indeed, the amendments under issue (8) relied upon the proposition that the Supreme Court had decided in favour of corruption. As a consequence, the ability to amend the form was denied.

The authors of this post are Lena Hornkohl, LL.M. (College of Europe), Senior Research Fellow Max Planck Institute Luxembourg for Procedural Law, and Priyanka Jain, LL.M. (Coventry University), Research Fellow Max Planck Institute Luxembourg for Procedural Law.

On 15 July 2021, the Court of Justice of the European Union (CJEU) issued an important judgment regarding the interpretation of Article 7(2) of the Brussels I bis Regulation in the context of the Trucks cartel with huge implications beyond the competition law context.

Essentially, the CJEU held that Article 7(2) of the Regulation concerns both international and territorial jurisdiction. However, Member States are free to centralise the handling of particular types of disputes, such as disputes relating to anti-competitive practices, to a single specialised court. Outside of such specialisation, Article 7(2) confers international and territorial jurisdiction on the court within whose jurisdiction the harmed undertaking purchased the goods affected by those arrangements or, in the case of purchases made by that undertaking in several places, the court within whose jurisdiction the harmed undertaking’s registered office is situated.

Background

In 2016, the European Commission had fined several truck manufacturers for cartel infringements conducted between 17 January 1997 and 18 January 2011 in proceedings under Article 101 TFEU and Article 53 of the EEA Agreement. Between 2004 and 2009, RH, established in Cordoba (Spain), purchased five trucks from a Spanish subsidiary of the cartelists with registered offices in Madrid (Spain). Subsequently, RH brought an action for cartel damages against the parent companies (with domicile outside of Spain) and the Spanish subsidiary before the Juzgado de lo Mercantil no 2 de Madrid (Commercial Court No 2, Madrid, Spain).

The Spanish court was uncertain as to how Article 7(2) of the Brussels I bis Regulation is interpreted, mainly whether it concerns international and territorial jurisdiction. In its judgment, the CJEU now largely follows the opinion of Advocate General Jean Richard De La Tour of 22 April 2021.

Private Enforcement of EU Competition Law and Article 7(2) of the Brussels I bis Regulation

Article 7(2) of the Brussels I bis Regulation confers jurisdiction on the courts for the ‘place where the harmful event has occurred’. Particularly in the context of cross-border infringements of Article 101 TFEU, the place where the damage occurred has been a constant source for preliminary references.

To recap where we stand today: In CDC Hydrogen Peroxide (C-352/13), the CJEU established that in cartel damages actions brought against defendants domiciled in the various Member States and who participated in the cartel infringement at different times in different places, the harmful event occurred in relation to each alleged victim on an individual basis. This can entail the place where the claimant company has its registered office. In Tibor-Trans (C‑451/18), the CJEU transferred the established dual concept for Article 7(2) Brussels Ibis Regulation to private enforcement of competition law: the place where the harmful event has occurred is intended to cover both the place where the damage occurred and the place of the event giving rise to it. It means that the defendant may be sued, at the applicant’s option, in the courts for either of those places.

The CJEU already held in Tibor-Trans that if it is apparent from the decision at issue that the infringement established in Article 101 TFEU giving rise to the alleged damage covered the entire EEA market, the place where that damage occurred, is in that market, of which the individual Member States form part. In the present judgment, Volvo and Others, the CJEU underlines this once more for Spain in particular (para. 31).

Article 7(2) of the Brussels I bis Regulation Confers International and Territorial Jurisdiction

The CJEU then goes beyond established case law and touches upon an issue relevant beyond cartel damages actions: Article 7(2) Brussels Ibis Regulation confers both international and territorial jurisdiction on the courts for the place where the damage occurred (para. 33). In case a Member State has jurisdiction according to Article 7(2) Brussels Ibis Regulation (i.e. international jurisdiction), Article 7(2) Brussels Ibis Regulation also determines which court within the Member State has jurisdiction (i.e. territorial jurisdiction) – both according to the autonomous interpretation of Article 7(2) Brussels Ibis Regulation. Member States cannot apply different criteria for the conferral of jurisdiction (para. 34).

In its reasoning, the Court first refers to the wording of the provision. Indeed, Article 7(2) Brussels Ibis Regulation points specifically to ‘the courts for the place where the harmful event occurred’ and not simply (the territory of) the Member States alone. This interpretation is also in line with the CJEU’s reasoning in Wikingerhof (C-59/19), which concerned an abuse of dominance case and in which the CJEU referred to the court in particular (and not only the Member State’s territory as a whole). Second, the CJEU resorts to a historical interpretation and a rare literature review, as it mentions that its interpretation is following P. Jenards report on the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters (sadly leaving out P. Schlosser’s report previously cited by the Advocate General).

Member State Competence: Centralisation of Jurisdiction in Specialised Courts

However, the Member States have not lost all their say in the matter. The CJEU noted that the Member States have the option, as part of the organisational competence for their courts, to centralise the handling of disputes relating to anti-competitive practices in certain specialist courts (paras. 34 – 37). This specialised court would have exclusive jurisdiction irrespective of where the damage occurred within the Member State. Unfortunately, the CJEU did not use the opportunity to clarify how this centralisation would be possible given the absence of any centralisation rules in the underlying dispute.

In its reasoning, the CJEU stressed the complexity of the rules applicable to cartel damages actions, which argues in favour of centralisation of jurisdiction within the Member States. Furthermore, the CJEU mainly follows Advocate General De La Tour’s analogy to the Sanders and Huber (C-400/13 and C-408/13) judgment by stating that ‘a centralisation of jurisdiction before a single specialised court may be justified in the interests of the sound administration of justice’. While Sanders and Huber concerned a matter relating to cross-border maintenance obligations under Regulation EC No 4/2009, the ideas can indeed be transferred to the Brussels I bis Regulation, as the disputed provision of Regulation EC No 4/2009 in Sanders and Huber was one of the provisions relating to the rules on jurisdiction which replaced those in the Brussels I bis Regulation. In Sanders and Huber, the CJEU established that, although the jurisdiction rules have been harmonised by the determination of common connecting factors, the specific identification of the competent court remains a matter for the Member States.

Surprisingly and contrary to Advocate General De La Tour (and the EU legislator in procedural contexts), the CJEU does not expressly mention procedural autonomy and the principles of equivalence and effectiveness. Likely, as general principles of EU law, they are a no-brainer in the view of the Court: Member States have the organisational competence to centralise proceedings, subject to compliance with the principles of equivalence and effectiveness.

Absence of Specialised Court: The Place Where the Goods are Purchased or the Harmed Undertakings Registered Office

For Member States without any centralisation rules, such as in the present case, the CJEU provides further guidance on identifying the place where the damage occurred to ascertain the court having jurisdiction within the Member State in cartel damages actions. Naturally, as both territorial and international jurisdiction are determined by Article 7(2) Brussels Ibis Regulations, the following statements are also applicable to international jurisdiction.

The CJEU here combines two strains of case law, which from now on should be considered one after the other. First, by analogy outside of competition law to Verein für Konsumenteninformation (C‑343/19), it held that the place where the affected goods were purchased determines which court has jurisdiction (paras. 39, 40). However, this is rightfully only applicable when ‘the purchaser that has been harmed exclusively purchased goods affected by the collusive arrangements in question within the jurisdiction of a single court’ since ‘[o]therwise, it would not be possible to identify a single place of occurrence of damage with regard to the purchaser harmed’. Second, the CJEU refers to CDC Hydrogen Peroxide and the above-mentioned concept of the harmed company’s registered office (paras. 41, 42). In case of purchases made in several places, which is likely in the context of big, lengthy cartels, the courts of the place where the harmed undertaking has its registered office have jurisdiction.

In its justification, the CJEU rightfully refers to the principles of proximity, predictability and sound administration of justice. Both – the place where the goods were purchased and the harmed company’s registered office – allow a certain proximity and efficacious conduct of proceedings. The CJEU also gives a clear, predictable roadmap for claimants and, thus, predictability: in case the affected goods were purchased in one place, that court has jurisdiction; in case the goods were purchased in several places, the court within whose jurisdiction the harmed undertaking’s registered office is situated, has jurisdiction.

Comment and Conclusion

The judgment fills in another gap in the Article 7(2)-saga. Article 7(2) Brussels I bis Regulation nevertheless generally remains to be one of the troublemakers of the Brussels I bis Regulation, which will be up for a possible revision or at least a report soon (Article 79 Brussels I bis Regulation: 11 January 2022).

For now, the judgment has vast implications in- and outside of the competition law context. In the competition context, it determines a clear roadmap for international and territorial jurisdiction in the sense of Article 7(2) of the Brussels I bisRegulation outside of centralisation. In general, the judgment underlines a prevailing opinion in academia: Article 7(2) Brussels Ibis Regulation confers both international and territorial jurisdiction.

Particularly for competition law, but also for other sectors which are highly complex or demand technical expertise, the judgment highlights the huge potential for centralised and specialised courts (recently also discussed in an article available here). At the moment, Member States largely lack centralised and specialised courts in the competition context. Advocate General De La Tour already underlined that the centralisation of jurisdiction promotes the development of the necessary specific expertise. This idea can be spun even further. The efficiency of centralised and specialised courts could be increased by introducing competition lay judges. They could make the expensive experts in cartel damages actions to some degree obsolete. At the centralised courts, the competition lay judges could assess a case based on their particular professional qualifications and business experience, which allows for a practical and appropriate judgment in competition disputes.

Beyond competition law, we want to mention another area that is in desperate need of concentration provisions: collective consumer redress. Establishing a centralised court for collective redress is essential, in our opinion, for the Representative Actions Directive to become a successful instrument. The future central court could ensure a uniform and coherent application of the Directive and become a specialised court with judges skilled in dealing with the complexity of collective litigation.

Inspiration can be taken from initiatives of centralisation in the other Member States. In the Czech Republic, the Parliament recently passed an Act (218/2021) that enables the concentration of applications for recovery under the European Account Preservation Order in a single court in the country. Questions nevertheless remain: when complexity and technicality call for centralisation, where do we draw the line? When are general courts sufficient, and where do we need specialisation? Here, further (EU) coordination would be helpful.

The Centre for Socio-Legal Studies at the University of Oxford will host a webinar on 27 July 2021 (12.00-14.00 British Summer Time (GMT+1)) dedicated to Commercial Courts in a Global Context.

The event is co-sponsored by the University of Oxford (China, Law & Development), Faisalabad Industrial Estate Development & Management Company, Ease of Doing Business in Pakistan, Pakistan-China Joint Chamber of Commerce & Industry, and Center for International Investment and Commercial Arbitration.

This webinar and research is related to developments in recent years. A number of States and municipalities have established new commercial courts which are perceived by some to be the building blocks of economic development and global commerce. These new commercial courts include those that are designed primarily for domestic disputes and others geared toward international disputes. The new international courts share a common aspiration: to provide forums for the resolution of commercial conflicts that are cheap, quick, and whose judgments are enforceable.

As part of its Ease of Doing Business Reforms Agenda, Pakistan has recently established commercial courts at the district level. The new commercial courts dovetail with a number of macro-economic and geostrategic trends, including the rise of Asia, and China in particular, as a supplier of both outbound capital and dispute resolution, and the increasing diversification of forums across the world.

This webinar will provide an in-depth discussion of the new domestic and international commercial courts with a focus on topics including jurisdiction and legislative basis, regulatory framework, relationship to the domestic court system, staffing and personnel issues, the courts-arbitration nexus, and cross-border disputes and associated enforcement issues.

The speakers, including judges and lawyers from Pakistan, the UK, Singapore, and China, will share insights with the launch and evolution of these new courts in the context of both dynamic domestic and global legal transformations.

More information about the webinar and the ERC Research project are available here. See here for registering for the event.

On 16 July 2021, the EU Commission has issued a Proposal for a Council Decision on the accession by the European Union to the Hague Convention of 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters.

Under the Proposal, the EU would make two declarations.

External Competence

The European Union declares, in accordance with Article 27(1) of the Convention, that it exercises competence over all the matters governed by this Convention. Its Member States will not sign, ratify, accept or approve the Convention, but shall be bound by the Convention by virtue of its conclusion by the European Union. 

For the purpose of this declaration, the term “European Union” does not include the Kingdom of Denmark by virtue of Articles 1 and 2 of the Protocol (No 22) on the position of Denmark annexed to the Treaty on the Functioning of the European Union.

Commercial Tenancies

The European Union hereby declares under Article 18 of the Convention that it will not apply the Convention to commercial leases (tenancies) of immovable property situated in the European Union.

The declaration is explained as follows:

a declaration is needed in order to ensure that the achievement of the policy objectives of the Brussels Ia Regulation is not affected by the accession to the Convention. More specifically, in cases involving commercial tenancies, the Brussels Ia Regulation affords exclusive jurisdiction to courts in a Member State where the immovable property is located. The Judgments Convention does not include such exclusive jurisdictional rules for commercial tenancies. Therefore, under the Convention, Member States would be obliged to recognise and enforce third-country judgments on commercial leases of immovable property that is situated on their territory. This would be in contradiction to the policy objective behind the Brussels Ia Regulation to attribute exclusive jurisdiction to courts in the EU for disputes related to immovable property situated in the EU.

No Declaration Pursuant to Articles 18 and 19

The Commission will not make declarations pursuant to Articles 18 and 19 of the Convention.

On the possibility to make declarations, Member States opposed a declaration based on Article 19 of the Convention and did not express clear views on declarations under Article 18. Only a small number of stakeholders favoured accession with a declaration under Article 19 while there was no clear tendency detected for Article 18 declarations.

Summer has come! The blog will remain open, but blogging will be lighter in the coming weeks.

We will resume our usual 5-post-a-week pace at the end of August.

We wish our readers and all EAPIL Members all the best for their holidays.

Stay safe, and enjoy the break!

According to Frank Woud (e-CODEX Community and External Relations Manager, Ministry of Justice and Security, The Netherlands):

The full potential of the European e-commerce market has not yet been reached. While consumers feel safer buying from online stores within the borders of their own country rather than from other European countries, European traders experience a range of challenges of their own, such as the lack of a level playing field and the overwhelming complexity of the legal and judicial system. Justice is the sine qua non for trade, and e-commerce will only be able to reach its full potential in Europe when justice permeates the digital realm. e-CODEX, the digital platform for cross-border legal data exchange within the European Union (EU), plays an important role in this regard. The mission of e-CODEX is to make cross-border justice accessible for all citizens and businesses within the EU.

To further this pursuit, e-CODEX hosted on 25 November 2020 an online roundtable discussion about e-justice as an enabler for cross-border e-commerce in Europe. The webcast of the roundtable discussion can be viewed here.

The e-Commerce Meets Justice White Paper is a representation of the facts and opinions expressed by the panel members. The panel was composed of Margarita Touch (Information Officer at DG JUST), Luca Cassetti (Secretary General of Ecommerce Europe), Marco Velicogna (Researcher at Institute of Legal Informatics and Judicial Systems of the National Research Council of Italy), and Hans van Grieken (Senior Technology Researcher at Capgemini, Gartner and Deloitte).

Their contributions to the White Paper discuss: e-commerce and developments triggered by the pandemic, the SMEs heavy reliance on platforms for cross-border e-commerce, the legal aspects of inter-European e-commerce, alternative dispute resolution means, and the role of e-justice in supporting cross-border e-commerce and building consumers’ trust.

More information on e-CODEX can be found here.

Membership in the European Association of Private International Law entails the payment of a (small) annual fee. Fees are due on 31 January every year.

For more information (and practical details on how to pay), please visit this page.

Most of the 336 current members have already paid their fees for 2021. Those who haven’t are invited to do so as soon as practical. Thank you!

For any queries concerning the fees, please write an e-mail to the EAPIL Treasures, Apostolos Anthimos, at treasurer@eapil.org.

Matthias Lehmann (University of Vienna) has posted National Blockchain Laws as a Threat to Capital Markets Integration on SSRN. The paper, which appeared in the European Banking Institute Working Paper Series 2021, analyses the legislation adopted by a number of countries in Europe and the US for dealing with crypto assets and distributed ledger technology for investment purposes, the risks of fragmentation and divergent rules, and regional solutions towards a harmonised approach.

The abstract reads as follows:

Various states have started providing private law frameworks for blockchain transfers and crypto assets. The first acts have been adopted by France and Liechtenstein, while a commission of the British government sees no difficulties in extending property protection under the Common law to crypto assets. In the US, an amendment to the Uniform Commercial Code has been suggested, which has not stopped some States going their own, different way. The aim in all cases is to promote the use of modern distributed ledger technology and enhance investor protection. While these initiatives will increase legal certainty, they differ significantly. This has an important downside: there is a strong risk that the blockchain will be made subject to diverging legal rules. Similar to the world of intermediated securities, various national laws will need to be consulted to determine the rights and privileges of investors. This may increase transaction costs, thwart interoperability and produce thorny conflict-of-laws problems. Markets risk being fragmented into national segments, with an inevitable diminution of their depth and liquidity. As a remedy, this article suggests developing uniform rules for the blockchain. Before national legislators and judges once again divide the world through idiosyncratic rules, the private law of crypto assets should be harmonised to the highest degree possible. Uniform rules should ideally be forged at the global level, by fora like the International Institute for the Unification of Private Law (UNIDROIT), the United Nations Commission on International Trade Law (UNCITRAL), and the Hague Conference on Private International Law. In the absence of world-wide rules, uniformisation of private law should take place at the regional level, for instance by the European Union. The article makes specific suggestions as to how this can be achieved and what the content of those rules should be.

On 20 July 2021, the University of Milan will host the (on-line) Annual Conference of the EU-funded project Jean Monnet Module on Multilevel, Multiparty and Multisector Cross-Border Litigation in Europe.

This year’s topic, Incentives and Challenges to Transnational Access to Justice, will be discussed in the framework of two roundtables concerning, respectively, Third-party Funding in International Dispute Resolution and E-Justice in International Dispute Resolution.

The complete programme is available here. Registrations are open until 15 July 2021, through this form.

Strategic Lawsuits Against Public Participation (SLAPP) can be defined as lawsuits intended to intimidate and silence critics by burdening them with the cost of a legal defense, until they abandon their criticism or opposition.

Some jurisdictions have already passed anti-SLAPP laws. In its Action plan for democracy, of 2020, the Commission had already announced its intention to present an initiative to protect journalists and civil society against SLAPPs in 2021. An Expert group was created in December 2020.

The topic is of course not new. It has gained momentum again – possibly following the assassination of Daphne Caruana Galizia in October 2017- also at the Council of Europe, and within the civil society (see, for instance on the need for a EU legislative proposal to protect public watchdogs from legal harassment  here and here.)

On 5 July 2020, a study commissioned by the European Parliament’s Policy Department for Citizens’ Rights and Constitutional Affairs at the request of the JURI Committee on SLAPP and PIL instruments was published, authored by J. Borg-Barthet (who is one of the members of the Expert Group mentioned above), Benedetta Lobina and Magdalena Zabrocka.

The document analyses legal definitions of Strategic Lawsuits Against Public Participation (SLAPP), assesses the compatibility of anti-SLAPP legislation with EU law, and recommends that an anti-SLAPP Directive be adopted.

Of special interest for PIL is that it also recommends that the Brussels I bis Regulation and Rome II Regulation be recast to limit the incidence of SLAPPs. The final conclusion in this regard reads as follows:

In addition to the adoption of an anti-SLAPP Directive, it is recommended that the Brussels Ia Regulation be recast with a view to adopting a bespoke rule concerning defamation claims and thereby to distinguish jurisdiction in defamation cases from ordinary torts. To this end, it is recommended that jurisdiction should be grounded in the forum of the defendant’s domicile unless the parties agree otherwise. This would enable public interest speakers to foresee where they will be expected to defend themselves, and would be in keeping with the core values of the Brussels Ia Regulation, namely predictability and the limitation of forum shopping.
Greater predictability as to the outcomes of choice of law processes is also needed to dissuade meritless litigation intended to suppress public participation. Accordingly, it is recommended that a new rule be included in the Rome II Regulation which would harmonise national choice of law rules in defamation cases. It is recommended that this rule should focus on the closest connection with the publication and its audience, namely the law of the place to which the publication is directed.

I  expect comments – here or elsewhere- to both proposals and their underlying rationale.

The first impression is a little bit disappointing. The proposal regarding the applicable law is a general one for defamation cases, i.e., it is not SLAPP-specific. On jurisdiction, I would be cautious to spouse the assertion on page 39:

(…), the Court of Justice has developed a body of case law whose net effect is to afford further opportunities for forum shopping and vexatious litigation strategies in defamation cases, particularly where the claimed defamatory content is posted online.

Moreover  a solution which entails giving up eDate and Martinez looks unrealistic to me (in this regard, though, C-800/19 is worth considering; the Opinion was available in February 2021). Vexatious claims have always existed. The lis pendens and related actions rules provide a solution at the jurisdictional level for a plurality of claims within the EU: a word on why they would (or not) be fit in an anti-SLAPP scenario is missing. In addition, and more important, the Brussels regime does not prevent reacting against vexatious claims with the procedural tools available at the national level, such as abuse of process. That is why I am not convinced either by the following sentence, on page 42:

‘In particular, judgments concerning the deployment of antisuit injunctions reveal a Court that is reluctant to replace the ex ante general analysis deployed by the legislator with its, or a national court’s, judgement of the merits of jurisdictional justice in individual cases‘

Even if the bottom line was correct, antisuit injunctions would not have provided the pertinent example.

Beyond the EU borders, with the exception of Articles 33 and 34 of the Brussels I bis Regulation, which have no parallel in the Lugano Convention, the situation is left to the Member States; simultaneous proceedings before the courts of the UK and the USA is simply a situation that cannot be solved by the European lawmaker.

There is indeed a need to balance the interests of the claimants and of the defendant (the target of the strategic lawsuit) also in relation to international jurisdiction and to the conflict of law rule.

In my opinion, achieving the goal requires a more grounded examination; also, and mainly, to acknowledge that the problem is to be addressed at a different level – something that the Study does in its 5th part devoted to an anti-SLAPP directive.

But, just like the authors say, the adoption and implementation of such a directive may take too long. The time to react is now, and it is not imperative (not even for reasons of distribution of competences) to wait for Brussels to take the lead.

(Photo: The use of SLAPPs © Image used under the license of Adobe Stock)

This post was contributed by Alexia Pato, who is Postdoc Research Fellow at the University of McGill (Montreal, Canada).

The present post provides an overview of the legal initiatives on artificial intelligence (AI) recently launched at the EU level and the questions they generate from a private international law (PIL) perspective.

The analysis starts with the 2021 Proposal for a Regulation on harmonised rules on AI and continues with the EU Parliament’s detailed recommendations for drawing up a Regulation on liability for the operation of AI systems.

Overview of the Proposed AI Regulation

On 21 April 2021, the EU Commission published its much-awaited Proposal for a Regulation laying down harmonised rules on AI, following explicit requests from the Council and the Parliament (see, in particular, the AI-related resolutions of the Parliament of October 2020 on ethics, civil liability and intellectual property). The proposed Regulation’s goal is to promote the free movement of AI-related goods and services, while ensuring the protection of fundamental rights.

If enacted, the Regulation would create a horizontal regulatory framework for the development, placement on the market and use of AI systems in the Union, depending on the risks that those systems generate for people’s health and safety or fundamental rights. In particular, Article 5 forbids AI practices which create an unacceptable risk (some exceptions may nevertheless apply). The prohibition extends to AI systems deploying subliminal techniques beyond a person’s consciousness to induce a particular behaviour and to those exploiting the vulnerabilities of a group of people (e.g., a doll integrated with a voice assistant that encourages children to play dangerous games in order to maximise their fun).

Real-time remote biometric identification (e.g., facial recognition) and social scoring are deemed to create an unacceptable risk as well. As regards high-risk AI systems (Title III), they must undergo an ex ante conformity assessment in order to be placed on the EU market (Articles 19 and Title III, Chapter 5).

The proposed Regulation imposes a series of requirements in relation to data, documentation and recording keeping, transparency and information to users, human oversight, robustness, accuracy and security (Articles 8 to 15). Examples of high-risk AI systems include medical assistants (e.g., IBM’s Watson assistant), chatbots and automated recruitment applications. Lastly, AI systems which create a low or minimal risk are permitted.

For a general assessment of the Proposal, see the CEPS Think Thank with Lucilla Sioli (DG CONNECT) available here, as well as the Ars Boni podcast available here.

The Extraterritorial Reach of EU law

As Article 2 of the proposed AI Regulation would confer the Regulation an extraterritorial reach, PIL questions emerge. In particular, the EU rules on AI are meant to apply to (1) providers placing AI systems on the EU market or putting them into service there, irrespective of their place of establishment; (2) users located in the EU; (3) providers and users located in a third state, when the output produced by the AI system is used – but not marketed – in the EU.

Remarkably, Article 2 bypasses the traditional choice of law methodology and unilaterally delineates the Regulation’s territorial scope of application.

This legislative technique has been used on other occasions: the most recent example is perhaps Article 3 of the General Data Protection Regulation (GDPR). Literature on the latter provision shows that the extraterritorial application of laws creates a fertile ground for overlaps and high compliance costs. The same observation could apply to AI if other states chose to exercise their (legislative) jurisdiction extraterritorially. How private (or public) international law will tackle that concern remains to be seen.

Moreover, interpretative issues are likely to arise, as the wording of Article 2 is vague. In particular, when is a user “located” in the EU – does the temporary presence on the territory trigger the application of the Regulation? What is the “output” of an AI system? And finally, when is an AI system “placed on the EU market” or “put into service” there?

The Law Applicable to Civil Liability

It is acknowledged that the misuse of AI systems may be harmful, despite the great potential of technologies to significantly improve our lives in many sectors. Traffic accidents involving either autonomous – i.e. driverless – or driver-assist vehicles are a telling example in that regard.

Currently, the law applicable to civil liability in such a scenario essentially depends on the actors involved – the driver, the manufacturer of the car, the designer of the software, etc. Several PIL systems applying different connecting factors might come into play, namely the Rome II Regulation, the 1971 Hague Convention on the Law Applicable to Traffic Accidents and the 1973 Hague Convention on the Law Applicable to Products Liability. Considering the fact that national civil liability regimes vary (sometimes significantly) from one state to another, the outcome of a case might be different depending on the court seized.

For a thorough PIL analysis, see T. Kadner Graziano, “Cross-Border Traffic Accidents in the EU – The Potential Impact of Driverless Cars” (Study for the JURI Committee, 2016), available here.

The EU Commission announced that a new piece of legislation addressing civil liability should soon complement the proposed AI Regulation, following the EU Parliament’s detailed recommendations for drawing up a regulation on liability for the operation of AI systems. If followed by the Commission and adopted, the text would partially harmonise national laws on civil liability in the EU. These shall however not be replaced; only adjustments would be provided.

The object of the future Regulation is to hold the operators of high-risk AI systems strictly liable, while operators of other AI systems would be subject to a fault-based liability regime. Finally, the drafting of the future Regulation should go hand in hand with the necessary review of the Product Liability Directive in order to build up a consistent liability framework in the EU.

According to Article 2 of the Parliament’s Draft Proposal, the liability rules enacted at the EU level would apply “on the territory of the Union where a physical or virtual activity, device or process driven by an AI system has caused harm or damage to the life, health, physical integrity of a natural person, to the property of a natural or legal person or has caused significant immaterial harm resulting in a verifiable economic loss”.

I find the wording of this provision unclear: shall the future Regulation apply where a court of a Member State is seized with a dispute involving damages caused by AI systems (as the terms “on the territory of the Union” suggests) or must the damage, the operator, the activity or the victim additionally be located in the EU?

Additionally, even though the future Regulation bypasses the Rome II Regulation according to Article 27 of the latter, traditional choice of law rules would still be needed to designate the law applicable to questions falling out of the future Regulation’s scope (such as the law applicable to multiple liability where non-operators are involved, just to mention one example). Fragmentation would therefore not be completely avoided.

For an analysis of the Draft Proposal from a PIL perspective, see J. von Hein, “Liability for Artificial Intelligence in Private International Law” (online presentation, 25 June 2020), available here.

Conclusion

The interaction of AI with the PIL field brings interesting research questions on the table for legal scholars. As things currently stand, however, the EU’s legislative initiatives do not overcome the sempiternal difficulties experienced in PIL, namely the fragmented application of laws, and the difficulty to manage interactions between multiple legal texts because of their overlapping and extraterritorial effect.

Earlier this year, Charlotte Guillard defended her dissertation at the University of Paris II Panthéon-Assas on Conflict justice and material justice : pertinence and sustainability of the distinction. Study in private international family law (Justice matérielle et justice conflictuelle : pertinence et pérennité de la distinction en droit international privé).

The author has provided the following  summary in English:

The distinction between conflict of laws justice and substantive justice has its origin in an academic attempt to foster an idea that has proved crucial to the general theory of private international law. This idea builds on the intuition that private international relations need to be processed specifically by the law, which implies in turn a customized conception of justice, namely conflict of laws justice. In this perspective, conflict of laws justice aims at fulfilling the diverse interests at stake in a private international relation: the interests of the different parties involved and the interests of the domestic legal systems. In the context of conflict of laws, conflictual justice manifests itself methodologically through the classical (“savignian”) conflict of laws rule, a rule that purports to accommodate those interests, without taking into account the substantive aspects of the situation. As an exception, conflictual justice may give way to substantive considerations. In that case, another conception of justice, one that is substantive, takes precedence.

The methodological manifestations of substantive justice are varied. It is usually associated with tools that seek to defend or promote imperative values within each State’s legal order, such as the exception of public policy of the forum (“exception d’ordre public international”).

This articulation of the different conceptions of justice is usually presented as following a principle/exception organization, thus providing a framework for private international law. The borderland between the two conceptions of justice muddled, however, as a result of an evolution in the field of private international law.

The change in the field that is most striking lies with its materialization. Overriding mandatory rules, fundamental rights, as well as the development of conflict of laws rules that achieve substantive aims are obvious examples.

Increasingly, the diverse methods of regulation specific to this legal field have been seen to borrow routinely from both conceptions of justice, shaking the classical distinction.

This research explores the remaining pertinence of the framework provided by the distinction between conflict of laws justice and substantive justice, and the appropriateness of its conservation in the field of contemporary private international law.

The study was conducted within the scope of private international law relating to family and personal matters. It is indeed within this restricted field that the questions raised are most sensitive, owing to continuing legal particularisms and national specificities, a natural breeding ground for the materialization of PIL.

As an outcome, this study shows the many weaknesses in the classical representation of the distinction between the two conceptions of justice. The actual meaning of each conception remains elusive and their mutual articulation according to a principle/exception organization is no longer reflected in positive law. Further, this study purports to offer an articulation of the two conceptions of justice that would better serve current PIL.

In this perspective, it appeared necessary to shed two commonly accepted ideas which have unnecessarily confined PIL until now. The first one relates to the conception of conflictual justice as being neutral. The second one seeks to limit substantive justice to the internal conceptions of each legal order.

This study purports to redefine the distinction between the two conception of justice while still conceptualizing their articulation according to a principle/exception organization, in which the conflictual conception of justice features as principle. This private international law conception of justice should ideally result in the conciliation of the diverse interests at stake, in order to achieve international legal harmony (of solutions) with regards to private international relations.

Whenever such an outcome appears unachievable (or merely irrelevant), substantive justice shall step in to ensure that one interest prevails over the others, without any predetermined preference. There is something to gain in such a reconfiguration. Namely, it would allow for a more satisfying distribution of PIL methods between the two conceptions of justice. This would be particularly beneficial regarding fundamental rights, whose role remains a thorny methodological issue in PIL. The proposed reconfiguration could create an opportunity to see them not merely as an expression of substantive justice (in keeping with the majority view) but also in relation to the private international law conception of justice.

Through this reconceptualization, the distinction between the two conceptions of justice may aspire to be more than abstract academic construction. It indeed appears as a useful tool in the organization of the methodological pluralism in private international law. This can prove critical to help authorities dealing with PIL questions to better handle their task in choosing the right method and reaching the right solution.

Dr. Guillard presented her study in a conference in Paris in March 2021 which can be watched here (in French).

The author of this post is Burcu Yüksel Ripley, who is a Lecturer in law and the Director of the Centre for Commercial Law at the University of Aberdeen.

In the legal proceedings that European Union (EU) brought before the Belgian courts against AstraZeneca in April 2021 and May 2021, one of the key questions is the law applicable to the Advance Purchase Agreement (“APA”) for the production, purchase and supply of a Covid-19 Vaccine in the European Union signed between the European Commission (with a business address in Belgium) and AstraZeneca (incorporated in Sweden with a business address therein) on 27 August 2020.

Since the publication of the APA, which is governed by the laws of Belgium as per its Section 18.4, there have been discussions around whether the United Nations Convention on Contracts for the International Sale of Goods (known as the CISG or the Vienna Sales Convention 1980) applies to this agreement (see eg Global sales law in a global pandemic: The CISG as the applicable law to the EU-AstraZeneca Advance Purchase Agreement? written by Dr Ben Köhler and EU-AstraZeneca contract – applicability of the CISG? written by Till Maier-Lohmann and cited in Dr Köhler’s blog).

But the fact that this question relates to the law applicable to the APA, and accordingly the application of the Rome I Regulation on the law applicable to contractual obligations, seems to have been overlooked so far apart from a couple of publications (see eg Sixto A. Sánchez Lorenzo, “El advance purchase agreement (APA) entre AstraZeneca y la comisión europea visto desde el Derecho privado”, La Ley: Unión Europea, No 90 March 2021, for which a useful summary in English was provided in Professor Matthias Lehmann’s post in this blog entitled Suing AstraZeneca: Who, Where, and under Which Law?).

Upon the first decision of the Belgian court on 18 June 2021 which states at paragraph 29 at p.39 that “Les conventions doivent être interpretées au regard de l’intention commune des parties, conformément à l’article 1156 de l’ancien Code Civil” (“The agreements must be interpreted with regard to the common intention of the parties, in accordance with Article 1156 of the former Civil Code”), further questions have been raised in relation to the applicable law: “Has the court held that Article 3(1) of Rome I Regulation excludes the application of the CISG?; Did the Court apply its domestic conflict rules?; Does the choice of Belgian law by the parties preclude the application of the CISG?”(see Some questions about the first decision of the Belgian court in the dispute between AstraZeneca and the European Commission – CISG-Portugal.org by César Pires).

The relationship between the Rome I Regulation and the CISG is at the heart of this discussion. Which instrument should be the starting point of the applicable law analysis for the EU-AstraZeneca APA and does this matter in practice?

Relationship between Rome I and the CISG for EU Member States Party to the CISG

The Rome I Regulation is an EU private international law instrument concerning the law applicable to contractual obligations. Under Article 1(1), it applies in the EU, in situations involving a conflict of laws, to contractual obligations in civil and commercial matters that fall into its scope. Being in the form of a regulation, Rome I has general application, is binding in its entirety and directly applicable in all EU Member States (with the exception of Denmark) pursuant to Article 288 of the Treaty on the Functioning of the EU.

On the other hand, the CISG is an international convention which provides primarily uniform substantive law rules relating to international sale of goods contracts that fall into its scope. Under Article 1(1), it applies to contracts between parties whose places of business are in different States if either (a) both of those States are Contracting States or (b) the rules of private international law lead to the law of a Contracting State (unless a state reservation exists regarding the 1(1)(b) situation as per Article 95 or parties have excluded the application of the CISG as per Article 6). The CISG has been adopted by the majority of EU Member States, including Belgium and Sweden, and is in force as part of their national law.

It has been argued on different grounds that if the forum is located in an EU Member State party to the CISG, the CISG takes precedence over Rome I or is capable of applying directly (or autonomously) without recourse to Rome I. This seems to be the prevailing view, notably in Germany, and has been recently endorsed in the UNCITRAL, HCCH and Unidroit Legal Guide to Uniform Instruments in the Area of International Commercial Contracts, with a Focus on Sales. However, it is questionable to what extent this approach is consistent with EU law:

1.  It has been argued that for courts in the CISG Contracting States, the CISG (as uniform substantive law) eliminates under its Article 1(1)(a) the need to recourse to conflict of laws analysis to determine whether it applies (see eg Peter Winship, ‘Private International Law and the U.N. Sales Convention’, (1988) 21 Cornell International Law Journal 487, p.520). According to this view, courts in the EU Member States which are also the CISG Contracting States do not first have to resort to their private international law because, where the CISG is applicable, there is no ‘situation involving a conflict of laws’ within the meaning of Article 1(1) of Rome I (see eg Thomas Kadner Graziano, ‘The CISG Before the Courts of Non-Contracting States? Take Foreign Sales Law as You Find it’ (2012) 13 Yearbook of Private International Law 165, p.166). However, from a different perspective, the fact that there is uniform substantive law to apply to a case does not mean that there is no situation involving a conflict of laws in the given case. It rather means that the conflict of laws is resolved in the given case partially or fully by the application of that uniform substantive law. The question of ‘as part of which law that uniform substantive law applies to the given case’ would still first require a conflict of laws process (for a similar alternative interpretation of Article 1(1)(a) of the CISG, see Arthur Taylor von Mehren, Explanatory Report on the Convention on the Law Applicable to Contracts for the International Sale of Goods, Proceedings of the Extraordinary Session of October 1985, para. 192). This is to be the approach to follow unless the forum’s private international law provides otherwise and gives precedence to uniform substantive law rules over conflict of laws rules (for such a provision, see eg the Turkish Private International Law and International Civil Procedure Act (numbered 5718 and dated 2007) which gives, in its Article 1(2), precedence to the provisions of international agreements to which Turkey is a party over the Act).

2. It has been argued that the CISG’s provisions on its sphere of application take precedence over the conflict of law rules in Rome I according to Article 25(1) regulating the Rome I’s relationship with existing international conventions. However, an existing international convention to which one or more EU Member States are parties at the time when Rome I is adopted can only take precedence over the rules of Rome I under Article 25 if the convention in question lays down conflict of law rules relating to contractual obligations. The CISG does not lay down conflict of law rules relating to contractual obligations and accordingly it is not listed as per Article 26 of Rome I among conventions that are referred to under Article 25(1). To assist with comparison, one example of such an international convention in the context of sale of goods which could prevail over the rules of Rome I under Article 25 of Rome I is the 1955 Hague Convention on the Law Applicable to International Sale of Goods as this convention does lay down conflict of law rules relating to contractual obligations.

3. It has been argued that uniform substantive law is more specific than private international law and therefore the former should prevail over the latter pursuant to the principle of lex specialis derogat legi generali. However, this principle should come into play where there is more than one law/provision dealing with the same matter (eg the CISG and national substantive sales laws in relation to matters of sale of goods contracts). This is not the case regarding the CISG and Rome I as these instruments deal with different matters.

Furthermore, from the perspective of EU law, it is questionable whether the argument that the CISG takes precedence over Rome I is consistent with the supremacy of EU law and the direct effect of EU regulations given that the CISG is not a convention to which the EU is a party and therefore not internalised in the EU system. EU law, in principle, cannot be overridden by an extraneous source unless that extraneous source is internalised.

In terms of the relationship between Rome I and the CISG for EU Member States party to the CISG, an alternative view here to the prevailing view suggests a two-step approach. The first step is that, if the forum is located in an EU Member State, a state law is determined as the applicable law in a given case under the rules of Rome I. The second step is that if that law includes the CISG, then the applicability of the CISG (as part of that law) to the given case is determined under the rules of the CISG. The CISG may become applicable as part of that law through its Article 1(1)(a) if the places of business of both parties are in Contracting States or through its Article 1(1)(b) even if only one or none of these places is in Contracting States (on how the CISG interacts with state law, see also Benjamin Hayward, Bruno Zeller and Camilla Baasch Andersen, ‘The CISG and the United Kingdom- Exploring Coherency and Private International Law’ (2018) 67 International and Comparative Law Quarterly 607).

One question that arises in this context is whether it matters in practice if a court starts the analysis with Rome I or the CISG. In cases where the applicable law is to be determined according to objective choice of law rules under Article 4 of Rome I, the outcome might differ depending on the approach that the court takes if the applicable law is a law of a non-Contracting State (see generally Peter Winship, cited above, p.519 and see, specifically on Rome I and the CISG, Sir Richard Plender, QC & Michael Wilderspin, The European Private International Law of Obligations, 5th edn, Sweet & Maxwell, 2019, paras 1-047 and 1-048).

For example, if the sales contact is between parties with places of business in the CISG Contracting States (eg Belgium and Sweden), and if the court in the EU starts the analysis with the CISG, the court will find that the CISG applies to the contract as per Article 1(1)(a) of the CISG. In the same example, if the court starts the analysis with Rome I and determines that the objectively applicable law is a law of a non-Contracting State, eg law of England and Wales, which would be something rare but possible via the operation of the escape clause in Article 4(3) of Rome I, the court will find that the UK’s Sale of Goods Act 1979 will apply to the contract (not the CISG). If the outcome might differ depending on a court’s approach, this would potentially also give scope for forum shopping.

The First Step: Application of Rome I to the EU-AstraZeneca APA

In the light of the above analysis, as the first step, the law applicable to the APA is to be determined under the Rome I Regulation.

The APA is not one of the types of contracts for which Rome I provides special choice of law rules between Articles 5 and 8, and therefore the applicable law of the APA will be determined according to the general choice of law rules under Article 3 (on freedom of choice) and Article 4 (on the applicable law in the absence of choice) of Rome I.

Under Article 3 of Rome I, a contract is governed by the law chosen by the parties and this choice can be express or clearly demonstrated by the terms of the contract or the circumstances of the case. The APA includes an express choice of law agreement in Section 18.4 according to which it is governed by the laws of Belgium. Provided that this choice of law agreement is valid in its form and substance under Articles 10 and 11 of Rome I and raises no issues of legal capacity (to which Rome I does not apply as per Article 1(2)(f)), Belgian law is the law applicable to the APA and governs the matters that fall into the scope of the applicable law set out under Article 12. Since renvoi is excluded under Article 20 of Rome I, this means that substantive law rules of Belgian law will be applied to the APA.

Belgium is a party to the CISG, and therefore the application of the laws of Belgium (as agreed by the parties in the choice of law agreement in Section 18.4 of the APA) includes the rules of the CISG.

The Second Step: Applicability of the CISG to the EU-AstraZeneca APA

It follows that the CISG is applicable to the extent that a given dispute, which may arise under or in connection with the APA or the legal relationships established by the APA, falls into the scope of the CISG. In such cases, the CISG itself will not be strictly speaking the applicable (or governing) law of the APA, but it will apply as part of the applicable (or governing) law of the APA which is Belgian law.

The extent of the CISG’s applicability in this context would further require a substantive law analysis as to (i) whether the APA is a type of sales contract that falls into the scope of the CISG (see eg Application of the CISG to International Government Procurement of Goods by Cesar Pereira), (ii) whether a given dispute will fall into the scope of the CISG (as the CISG does not deal with all types of disputes that a sales contract may give rise to), (iii) whether any relevant state reservations exist, and (iv) whether the APA provides otherwise (which would mean under Article 6 of the CISG that the parties have derogated from or varied the effect of CISG’s provisions).

As a concluding remark, it is also worth noting that the CISG in essence is a safety net for sales for which contractual parties have not utilised freedom of contract and party autonomy. For other sales, the CISG’s utility and also scope of application is much more limited in practice and, in some cases, even excluded by the parties as allowed under Article 6 of the CISG.