International Jurisdiction between Nationality and Domicile in Tunisian Private International Law – Has the Perennial Debate Finally been Resolved?

I would like to thank Prof. Lotfi Chedly for providing me with the text of the decision on which this post is based.

 

I. Introduction

Scholars of private international law are well familiar with the classic debate on nationality and domicile as connecting factors in the choice of applicable law (see, for example, L. I. de Winter, “Nationality or Domicile? The Present State of Affairs” 128 Collected Courses III (1969) pp. 357 ff). In Tunisian private international law, this controversy has been particularly pronounced with regard to the role of nationality as a ground for the international jurisdiction of Tunisian courts. Since the enactment of the Tunisian Private International Law Code (“PILC”) in 1998 (for an English translation, see J. Basedow et al. (eds.) Encyclopedia of Private International Law – Vol. IV (Elgar Editions, 2017) 3895 and my own translation of the provisions dealing with international jurisdiction and the enforcement of foreign judgments in 8 Journal of Private International Law 2 (2012) pp. 221 ff)), the debate between opponents and proponents of nationality as a ground for international jurisdiction, especially in family law matters, has never ceased to be intense (for detailed analyses, see eg. Salma Triki, “La compétence internationale tunisienne et le critère de nationalité” in Ben Achour/Triki (eds.), Le Code de droit international privé – Vingt ans d’application (1998-2018) (Latrach edition, 2020) 119ff). This divergence in academic opinion is also reflected in the judicial practice of the courts, with the emergence of two opposing trends: one extends the international jurisdiction of the Tunisian courts when the dispute involves a Tunisian party, in particular as a defendant even when domiciled abroad. The other firmly rejects nationality as a ground for international jurisdiction.

The case commented here illustrates the culmination of this disagreement within the courts. The Supreme Court (mahkamat al-ta’qib – cour de cassation), in a second appeal, strongly denied the existence of such a privilege and emphasized the primacy of domicile over nationality as a basis for international jurisdiction in Tunisia. The Court of Appeal, acting as a court of remand, explicitly recognized that the jurisdiction of the Tunisian courts could be based on what is commonly referred to as “privilege of jurisdiction”. The Court of Appeal went even further by describing the decision of the Supreme Court, from which the case had been remanded, as “legally incorrect”. This stark contrast between the two courts prompted the intervention of the Joint Chambers (chambres réunies) of the Supreme Court, which issued what appears to be the first decision of its kind in the field of private international law in Tunisia (Ruling No. 36665 of 15 June 2023), signed by 62 judges of the Supreme Court (including the Chief Justice (President of the Court), 21 Presidents of Chambers and 40 other judges as counsellors).

 

II. Facts

The case concerns a divorce action brought in Tunisia by X (plaintiff husband and appellee in subsequent appeals) against his wife, Y (defendant and appellant in subsequent appeals). The text of the decision indicates that X and Y were married in 2012 and had a child. Moreover, while X’s Tunisian nationality appears to be undisputed, there may surprisingly be some doubts about Y’s Tunisian nationality, as emerged later in the parties’ arguments before the Joint Chambers.

In 2017, the Court of First Instance of Sousse (a city located about 150 km south of the capital Tunis) declared the parties divorced and ordered some measures regarding maintenance, custody and visitation. Dissatisfied, Y appealed to the Court of Appeal of Sousse. In 2018, the court overturned the appealed decision, considering that the Tunisian courts did not have jurisdiction over the dispute. X appealed to the Supreme Court (1st appeal). In its decision issued later in 2018, the Supreme Court overturned the appealed decision with remand, holding that the Court of Appeal did not correctly examine the existence (or not) of a foreign element in the dispute in order to decline jurisdiction on the grounds that X claimed that the spouses’ matrimonial domicile was in Tunisia, where Y lived and worked.

In 2019, the Court of Appeal of Sousse, as the court of remand, accepted jurisdiction and confirmed the decision of the court of first instance with some modifications. Y appealed to the Supreme Court (2nd appeal). Y argued, inter alia, that the rules of international jurisdiction laid down in the PILC had been violated, since the spouses’ matrimonial domicile was in France and that the couple had only returned to Tunisia during the summer vacations. In 2020, the Supreme Court ruled in favor of Y, stating, inter alia, that the Tunisian legislator had made from “the domicile of the defendant the decisive ground for the international jurisdiction of the Tunisian courts”. The Court also held that the Court of Appeal had reached an erroneous conclusion based on a misapplication of the facts and a misinterpretation of the law. The case was referred back again to the Court of Appeal.

In 2021, the Court of Appeal, in a frontal opposition, declared that the decision of the Supreme Court, according to which the domicile of the defendant was the ground based on which Tunisian courts could assume international jurisdiction, “cannot be followed” and is “legally incorrect”. Then the court affirmed that Tunisian nationals enjoy a “privilege of jurisdiction”, and this “means that Tunisian defendants should be subject to their national courts, even if they are domiciled abroad, since the purpose of granting jurisdiction to Tunisian courts in this category of disputes is to ensure better protection of their interests”.

Y challenged the decision of the Court of Appeal again before the Supreme Court (3rd appeal). As this was a disagreement between the Court of Appeal and the Supreme Court on a second appeal, the jurisdiction of the Joint Chambers was justified (articles 176 and 177 of the Code of Civil and Commercial Procedure, hereafter “CCCP”).

Before the Joint Chambers, Y argued, inter alia, that (1) that she was not a Tunisian national but a holder of dual Algerian/French nationality; (2) that the court had also based its decision on the fact that she was resident in Tunisia, ignoring the fact that she had returned to Tunisia only to spend her summer vacation; (3) that she had left Tunisia for France.

On the other hand, X argued that the Court of Appeal was right to hold that disputes in which one of the parties is Tunisian and in which the subject matter concerns matters of personal status fall within the jurisdiction of the Tunisian courts, since matters concerning the family and its protection concern public policy, especially when the dispute also involves a Tunisian minor.

 

III. Ruling

The Joint Chamber of the Supreme Court held that the Tunisian courts did not have jurisdiction and decided to overturn the decision of the Court of Appeal without further remand. The court ruled as follows (only relevant parts are reproduced here. The gendered style reflects the language used in the text of the Court’s decision):

“The dispute concerns the question whether the international jurisdiction of the Tunisian courts should be determined on the basis of the defendant’s domicile (maqarr), in accordance with Article 3 of the PILC, or on the basis of the privilege of jurisdiction, according to which a Tunisian national is subject to the jurisdiction of his national courts even if he is domiciled abroad.

It goes without saying that in Articles 3 to 10 of the PILC, the legislator has sought to confer jurisdiction on the Tunisian courts on the basis of close connections between the Tunisian legal system and the legal relationship, thereby abolishing the exceptional grounds such as nationality, representation or reciprocity. The reason for the abolition of these exceptional grounds lies in the fact that they do not constitute a genuine connection between the dispute and the Tunisian legal system […].

[…]

As appears from the files of the case, the residence (iqama) of Y in France is established either on the basis of the service of the summons […] on her domicile (maqarr) in France […] or the judicial admission made by X […] [in which he] admitted that his wife had moved to France where she had settled with their daughter and refused to return to Tunisia.

[However], by considering that the privilege of jurisdiction entails subjecting the Tunisian defendant to the jurisdiction of his or her national courts, even if he resides (muqim) abroad, the remand court misjudged the facts and drew erroneous conclusion, leading to a misunderstanding and misapplication of article 3 of the PILC […].”

 

IV. Comments

The principle established by the Joint Chamber regarding the role of the defendant’s Tunisian nationality as a ground for international jurisdiction can be considered a welcome clarification of the interpretation and application of Tunisian law. However, it must also be said that the decision commented on here contains some intriguing and to some extent confusing features, particularly in the parts of the decision not reproduced above relating to the meaning of and the distinction between “domicile (maqarr)” and “residence (iqama)”. For the sake of brevity, only the issue of nationality as a ground of international jurisdiction will be commented on here.

 

1. Prior to the Enactment of the PILC

Prior to the enactment of a PILC, nationality – especially that of the defendant – was used as a general ground for international jurisdiction in all disputes brought against Tunisians, even if they were domiciled abroad (former art. 2 of the CCPC). This rule is common in the MENA region and is generally followed even if it is not explicitly stated in the law (For the case of Bahrain, see here, for the case of Morocco, where a new draft code of civil procedure proposes to introduce a similar rule ex lege, see here).

 

2. Nationality as a ground for international jurisdiction under the PILC

The PILC, adopted in 1998, introduced a radical change in this regard by completely excluding nationality as a ground for international jurisdiction (see eg. Imen Gallala-Arndt, “Tunisia”, in J. Basedow et al. (eds.) Encyclopedia of Private International Law – Vol. III (Elgar Editions, 2017) p. 2586). Henceforth, the PILC recognizes only one legitimate ground of general  jurisdiction over any civil or commercial dispute (including family law disputes) arising between persons regardless of their nationality, if the defendant has its “residence (iqama)” in Tunisia, although the semi-official French version of the PILC (as officially published in the Official Gazette) refers to “domicile” (maqarr in Arabic). In literature, there is a general consensus among Tunisian scholars that the word iqama (residence) in the Arabic version of article 3 actually means “maqarr (domicile)”. Case law is, however, quite inconsistent on this issue, with Tunisian courts, including the Supreme Court itself, reaching contradictory decisions on the interpretation and application these basic notions. This issue was addressed in the decision commented here (although in a quite unsatisfactory manner as the Joint Chambers, while distinguishing between “residence” and “domicile”, used both notions interchangeably in a particularly intriguing manner). However, this aspect of the decision will not be discussed here.

It is worth mentioning that the solutions introduced in the PILC have attracted the attention of renowned foreign scholars, who have highlighted the peculiarity of the Tunisian solutions in this regard, describing the Tunisian solutions as “interesting” and the exclusion of nationality as ground for international jurisdiction in all matters, including family law disputes, as “courageous”  (see eg., Diego P. Fernando Arroyo, “Compétence exclusive et compétence exorbitantes dans les relations privées internationales” 323 Collected Courses 2006, pp. 140-141).

 

3. Judicial Application

However, as soon as the PILC entered into force, a trend developed in judicial practice whereby Tunisian courts at all levels showed a willingness to extend their jurisdiction when the dispute involved Tunisian nationals. At the same time, there has been a parallel trend whereby some courts, also at all levels, have strictly adhered to the new policy of international jurisdiction and have refused to assume jurisdiction whenever it appeared that the defendant (whether a a Tunisian national or not) was domiciled abroad. (For a detailed analysis with different scenarios and cases, see Souhayma Ben Achour, “L’accès à la justice tunisienne en droit international privé tunisien” in Ben Achour/Ben Jemia (dir.), Droit fondamentaux & droit international privé (La Maison du Livre, 2016) pp. 11 ff).

a. Regarding the former, Tunisian judges have used various approaches and methods to circumvent the law and extend their jurisdiction beyond the limits set by the PILC. For example:

  • In some cases, the courts have simply denied the international nature of the dispute on the grounds that all the parties were Tunisian, even though it was established that all or some of the parties (particularly the defendant) were domiciled abroad (see eg. Supreme Court, Ruling No. 12295 of 14 February 2002).
  • In other cases, the courts have inferred a tacit submission to the jurisdiction of the Tunisian courts, even in the absence of the appearance of the defendant (often a foreign wife) (see eg. First Instance Court of Tunis, Ruling No. 30605 of 18 January 2000).
  • In some other cases, the courts have confirmed their jurisdiction either on the basis of
    • the choice-of-law rules, according to which personal status shall be governed by the lex patriae of the parties (Supreme Court, Ruling No. 3181 of 22 October 2004), or,
    • on the basis of the rules of indirect jurisdiction laid down in bilateral conventions on mutual judicial assistance, knowing that these conventions do not contain rules of direct jurisdiction (see eg., Supreme Court, Ruling No. 6238 of 23 December 2004).
  • More problematically, some courts have relied on the “place of performance” as a ground for international jurisdiction in contractual matters, considering the marriage to be a “contract” and its “performance” to have taken place in Tunisia when the parties consummated the marriage or established their matrimonial residence/domicile there (see eg. First Instance Court of Tunis, Ruling No. 77280 of 12 July 2010).
  • In some cases, the courts have invoked forum necessitatis to extend their jurisdiction without indicating whether the requirements of its invocation were met (see eg. First Instance Court of Tunis, Ruling No. 75738 of 22 February 2010).
  • Last but not least, in some cases, and in direct violation of the law, the courts have declared themselves to be the “natural” courts in family law disputes involving Tunisians, and that their jurisdiction could be based on the idea of “jurisdictional privilege” based on the Tunisian nationality of the defendant (see eg., Tunis Court of Appeal, Ruling No. 76011 of 12 November 2008) (interestingly, the grounds invoked here are similar to those invoked by the Bahraini courts here).

All these cases, and many others (see eg., Ben Achour op. cit.), have given the impression that Tunisian courts would go to any lengths to assume jurisdiction over disputes involving Tunisians in family law matters (cf., eg., Sami Bostanji, “Brefs propos sur un traité maltraité” Revue tunisienne de droit, 2005, p. 347).

b. This trend should not, however, be allowed to overshadow another that has also developed in parallel as mentioned above. The Supreme Court itself, despite some inconsistencies in its case law, has reaffirmed on several occasions that the jurisdiction of the Tunisian courts can be established only on the basis of the rules laid down in the CPIL, thereby rejecting the idea of nationality as an additional ground of jurisdiction in disputes involving Tunisian nationals (see eg., Supreme Court, Ruling No. 32684 of 4 June 2009).

c. In this respect, the decision of the Joint Chambers is likely to bring some order to the judicial cacophony on this issue, although it may not put an end to the ongoing debate and divergence of opinions among legal practitioners and scholars on the relevance of nationality as a criterion of international jurisdiction. Moreover, the tendency of some judges – sometimes described as “conservative” (cf. Arroyo op. cit.) – to continue to assume jurisdiction in disputes involving Tunisians (particularly in family law disputes) seems to be so entrenched that some scholars in Tunisia have described it as a “movement of resistance” against the legislative policy of the State (cf. eg. Lotfi Chedly, “Droit d’accès à la justice tunisienne dans les relations internationales de famille et for nationalité” in Mélanges offerts à Dali Jazi (Centre de Publication Universitaire, 2010) p. 264). This state of affairs has led some leading authors in Tunisia to question the state’s policy of excluding nationality altogether, even in family law disputes. One of the arguments put forward is that nationality in family law disputes is not an excessive ground for jurisdiction and is widely used in other legal systems (for the various arguments in favor of nationality, see Triki, op. cit.).

 

4. Legislative amendment?

These voices found their way into two legislative proposals in 2010 and 2019 to amend the PILC and introduce nationality as a ground for international jurisdiction in divorce cases (on the 2019 proposal, its background and peculiarities, see Triki, op. cit.). However, these attempts were unsuccessful, mainly due to the unstable political situation in Tunisia (the outbreak of the Tunisian revolution at the end of 2010 and the political crisis that led to the dissolution of the parliament and the suspension of the post-revolutionary constitution of 2014 in 2021). In this general context, and despite the decision of the Joint Chambers, it would not be surprising if some courts persisted in extending their jurisdiction in a disguised manner, based on the methods they themselves have developed to circumvent the constraint imposed by the PILC, when the dispute – particularly in matters of family law – involves Tunisians.




An Answer to the Billion-Dollar Choice-of-Law Question

On February 20, 2024, the New York Court of Appeals handed down its opinion in Petróleos de Venezuela S.A. v. MUFG Union Bank, N.A. The issue presented—which I described in a previous post as the billion-dollar choice-of-law question—was whether a court sitting in New York should apply the law of New York or the law of Venezuela to determine the validity of certain bonds issued by a state-owned oil company in Venezuela. The bondholders, represented by MUFG Union Bank, argued for New York law. The oil company, Petróleos de Venezuela, S.A. (“PDVSA”), argued for Venezuelan law.

In a victory for PDVSA, the New York Court of Appeals unanimously held that the validity of the bonds was governed by the law of Venezuela. It then sent the case back to the federal courts to determine whether the bonds are, in fact, invalid under Venezuelan law.

Facts

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

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

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

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

The choice-of-law issue at the heart of the case related to the validity of the 2020 Notes. Whether the Notes were validly issued depended on whether the court applied New York law or Venezuelan law. The SDNY (Judge Katherine Polk Failla) ruled in favor of the bondholders after concluding that the issue was governed by the laws of New York. On appeal, the Second Circuit certified the choice-of-law question to the New York Court of Appeals. The Court of Appeals reformulated this question to read as follows:

Given the presence of New York choice-of-law clauses in the Governing Documents, does UCC 8-110(a)(1), which provides that the validity of securities is determined by the local law of the issuer’s jurisdiction, require the application of Venezuela’s law to determine whether the 2020 Notes are invalid due to a defect in the process by which the securities were issued?

In a decision rendered on February 20, 2024, the Court of Appeals unanimously concluded that the answer was yes.

Section 8-110

The court began with the New York choice-of-law clauses in the Indenture, the Note, and the Pledge Agreement. Under ordinary circumstances, it observed, New York courts will enforce New York choice-of-law clauses by operation of Section 5-1401 of the New York General Obligations Law. That statute provides that the parties to any commercial contract arising out of a transaction worth more than $250,000 may select New York law to govern their agreement even if the transaction has no connection to New York. In this particular case, however, a different part of Section 5-1401 dictated a different result.

Section 5-1401 also states that even when parties choose New York law, that law “shall not apply . . . to the extent provided to the contrary in subsection (c) of section 1-301 of the uniform commercial code.” UCC 1-301(c)(6) states, in turn, that if UCC 8-110 “specifies the applicable law, that provision governs and a contrary agreement is effective only to the extent permitted.” Finally, UCC 8-110(a)(1) states that “[t]he local law of the issuer’s jurisdiction . . . governs . . . the validity of a security.”

After following the chain of choice-of-law rules from Section 5-1401 to UCC 1-301(c) to UCC 8-110, the court observed that the validity of a security is governed by the law of the issuer’s jurisdiction. The court further observed, based on the statutory text, that Section 8-110 was a mandatory rule that could not be altered by a choice-of-law clause. Against this backdrop, the court held that “because UCC 8-110 is applicable here, any issue of the validity of a security issued pursuant to the Governing Documents is determined by the law of the issuer’s jurisdiction. In this case, the issuer is a Venezuelan entity, so the law of Venezuela is determinative of the issue of validity.”

Validity

The court next addressed the meaning of “validity” as used in Section 8-110. The bondholders argued that this term did not sweep broadly enough to encompass the requirement in Article 150 of the Venezuelan Constitution, which provides that the National Assembly must approve all “contracts of public interest.” They argued that the word encompassed only the usual corporate formalities for issuing a security. PDVSA argued that “validity” could be interpreted to include constitutional provisions that bear on the issue of whether a security was duly authorized. The Court of Appeals agreed.

In reaching this conclusion, the court first observed that the issue of “validity” had to be distinguished from the issue of “enforceability.” The first term refers to the “nature of the obligor and its internal processes.” The second term refers to “requirements of general applicability as going to the nature of the rights and obligations purportedly created, irrespective of the nature of the obligor and its processes.”  The court cited usury laws and anti-fraud laws as examples of laws that dealt with enforceability rather than validity. Although these laws may prohibit a court from enforcing a contract, they do not bear on the validity of that same contract because they do not address the procedures that must be followed for the contract to be duly authorized.

The court then distinguished between (1) validity and (2) the consequences of invalidity. While Section 8-110 stated the controlling choice-of-law rule with respect to the validity, it was not controlling with respect to the consequences stemming from that invalidity. “Even if a court determines that a security is invalid under the local law of the issuer’s jurisdiction,” the court held, “the effects of that determination will depend on New York law.”

With these distinctions in mind, the court held that “Article 150 and its related constitutional provisions could potentially implicate validity because they speak to whether an entity has the power or authority to issue a security, and relatedly, what procedures are required to exercise such authority.” In particular, the court observed that this constitutional provision required the approval of the National Assembly before certain contracts could be executed. Since Article 150 identified procedural requirements rather than substantive ones, the court reasoned, it spoke to the issue of validity rather than enforceability. In so holding, the court reasoned that the term “validity,” as used in Section 8-110, could implicate constitutional provisions of the issuer’s jurisdiction that speak to whether a security is duly authorized.

Caveats

After holding that the issue of validity was governed by the law of the issuer’s jurisdiction, and that Section 150 of the Venezuelan Constitution might be relevant to the issue of validity, the court went on to announce several important caveats.

First, the court stated that the application of Venezuelan law on these facts must be “narrowly confined.” It held that the “exception provided by UCC 8-110 provides no opportunity for the application of foreign laws going to the enforceability of a security, nor does it affect the adjudication of any question under the contract other than whether a security issued by a foreign entity is valid when issued.”

Second, the court emphasized that “none of this is to say that plaintiffs will ultimately be victorious.” It noted that the federal courts would still have to determine whether the securities were, in fact, invalid under the laws of Venezuela.

Third, the court went out of its way to emphasize the fact that—issues of validity notwithstanding—New York law governs the transaction in all other respects, including the consequences if a security was issued with a defect going to its validity.

Conclusion

This long list of caveats suggests that the Court of Appeals wanted to apply to New York law in this case to the maximum extent possible. Enforcing New York choice-of-law clauses, after all, generates business for New York lawyers, and the generation of such business ultimately benefits the State of New York. The Court was, however, unable to find an interpretive path that permitted it to apply New York law in light of the text of Section 8-110.

In the days following the court’s decision, several news outlets reported that the value of the PDVSA bonds at issue had fallen precipitously. This decline in price presumably reflects the market’s perception that the bondholders are less likely to gain access to the CITGO assets anytime soon (if at all) if Venezuelan law governs the validity issue. TLB will report on developments in this case going forward.

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




New EU Digitalisation Regulation: A Stepping Stone to Digitalised EU?

Author: Martina Ticic, assistant at the University of Rijeka, Faculty of Law and doctoral student funded by the Croatian Science Foundation (Hrvatska zaklada za znanost – HRZZ)

On 13 December 2023, two years after the first legislative proposal has been published, the new Regulation (EU) 2023/2844 of the European
Parliament and of the Council of 13 December 2023 on the digitalisation of judicial cooperation and access to justice in cross-border civil, commercial and criminal matters, and amending certain acts in the field of judicial cooperation (Digitalisation Regulation) has been adopted. While the process of digitalisation of judicial cooperation and cross-border procedures in the EU has been ongoing for some time already, the new Digitalisation Regulation represents a major step for advancing digitalisation practices in the EU.

Main features
The Digitalisation Regulation establishes a uniform legal framework for the use of electronic communication and digital tools in cross-border legal proceedings. Particularly, it lays down rules on:
– communication between competent authorities/natural or legal persons and competent authorities
– the use of videoconferencing or other distance communication technology
– the application of electronic signatures and electronic seals
-the legal effects of electronic documents
– electronic payment of fees.
The Regulation establishes that communication between competent authorities of different EU Member States, as well as communication between competent authorities of different Member States and between a national competent authority and EU body or agency, shall be carried out through a decentralised IT system whenever possible. On the other hand, for communication between natural or legal persons and competent authorities in civil and commercial matters, a European electronic access point shall be established on the European e-Justice Portal. The Regulation also provides for the possibility of participating in a hearing through videoconference or other distance communication technology, depending on certain circumstances, e.g., the availability of such technology, parties’ opinion on the use of such technology, or appropriateness of the use of technology. Moreover, the Regulation makes a reference to the eIDAS Regulation in terms of electronic signatures and electronic seals, equates the legal effects of electronic documents with effects of non-electronic ones, and provides for the possibility of electronic payment of fees. Finally, it also amends relevant provisions of other legal instruments, including European Enforcement Order Regulation, European Order for Payment Regulation, European Small Claims Procedure Regulation, European Account Preservation Order Regulation, Regulation on mutual recognition of protection measures in civil matters, Insolvency Regulation, Service of Documents Regulation, and Regulation on the mutual recognition of freezing orders and confiscation orders.

Entry into force
The entire legal framework set by the Regulation, however, will not be fully operational until quite some time. The Regulation will apply from 1 May 2025 – with some exceptions. The Regulation requires the adoption of certain implementing acts by the European Commission, which would mainly set out various technical specifications and requirements. Article 10(3) of the Regulation sets out a timetable for the adoption of different implementing acts, ranging from January 2026 to January 2029.
Articles 3 and 4 of the Digitalisation Regulation, which regulate electronic communication (both between competent authorities and between natural or legal persons and competent authorities in civil and commercial matters) will only apply after two-year period has passed from entry into force of the corresponding implementing acts. These Articles will also only apply to proceedings initiated from that same day. It could be concluded that the Regulation will not be applicable in its entirety for the next seven years, until 2031. However, this only holds true in relation to the provisions on electronic communication. The other regulated aspects, i.e., the provisions on the use of videoconferencing, electronic signatures and seals, legal effects of electronic documents and electronic payment of fees, will all be applicable from May 2025.

Remaining challenges
While certainly a big step forward for the e-Justice developments in the EU, some challenges still remain even after the Digitalisation Regulation becomes fully applicable. Perhaps the biggest issue is fragmentation – both at the EU level and at the national level.
At the EU level, fragmentation is reflected in a complex EU framework and a number of different regulatory sources on different aspects of digitalisation of justice. There are multiple legal acts that address various aspects relevant for the process of digitalisation in the EU, including eIDAS Regulation, e-CODEX Regulation, Directive on Digitalisation of Judicial Cooperation, General Data Protection Regulation, Regulation on processing of data by EU institutions, etc. Moreover, a number of regulations offer specific provisions on digitalisation aspects in a particular procedure, such as European Order for Payment Procedure Regulation, Service Regulation, Evidence Regulation, etc. It is therefore expected that the new Digitalisation Regulation will add to already existing legal framework as an ‘umbrella regulation’, given that it covers a wide range of issues in various steps of legal proceedings in civil, commercial and criminal matters. It should, however, be noted that it will not apply to two crucial procedural aspects of the intra-EU cross-border relations: the service of documents pursuant to the Service Regulation (despite introducing certain amendments to it) nor to the taking of evidence pursuant to the Evidence Regulation, as highlighted in the Recital 17 of the Preamble.
At the national level, while COVID-19 pandemic certainly urged all of the EU Member States to accelerate the usage of digital tools in all aspects of society, there are still varying levels of digital developments in different jurisdictions. This can clearly be seen from the EU Justice Scoreboard, which includes a specific section on digitalisation developments in the Member States. It must be highlighted, however, that a significant improvement over the years is visible when comparing the yearly reports. With the new Digitalisation Regulation, in addition to all the other work that the EU is currently doing to promote digitalisation, the digital tools and digitalisation practices of the Member States will surely only be getting more advanced.
This having been said, diversity of national procedural rules, different e-justice domestic solutions and different levels of the development and usage of digital tools in the proceedings all may still pose problems. It can be expected that the period of the next few years will be especially difficult, as EU Member States will have a lot of work to do – national access points to the e-CODEX will have to be established; harmonised technical standards adopted; and all participants will have to get accustomed to the functionalities of new digital tools and practices. The Digitalisation Regulation partly touches upon this problem by providing that EU Member States must also offer necessary training to competent authorities and professionals concerned in order to ensure efficient use of the IT system and distance communication technology.
In order to ensure that adequate information on national particularities is available for all potential parties, the EU Member States are bound to communicate relevant information to the European Commission, including details of national IT portals, description of national laws and procedure on videoconferencing, information on fees, details on electronic payment methods, etc. Such information will be made available on the e-Justice Portal. On the assumption that the relevant information is regularly updated, the e-Justice Portal will be of great help with the smooth functioning of digital legal framework set by the Digitalisation Regulation.
Thus, while challenging period may be ahead, the result will surely be worthwhile.

What about the parties outside of the EU?
While the Digitalisation Regulation definitely brings important changes to the justice system of the EU and its Member States, potential implications for parties and countries outside of the EU should not be overlooked. Member States are now obliged to work on their national IT portals and digital tools, to train legal staff, and to generally provide for the usage of digital tools in the course of the procedure. Such national developments may then also assist in all cross-border cases, including those with countries outside of the EU. This means that the obligations that the Digitalisation Regulation sets for the Member States can also indirectly allow for better usage of IT tools in the course of cross-border procedures with all of the other countries that make use of such tools as well. On the other hand, for those countries that still lack in the department of digitalisation in law and legal system, this may serve as an incentive for further development in order to make cross-border procedure easier for all. After all, promotion of best practices and cooperation with international partners is one of the EU’s aims, as highlighted in the 2020 Communication from the Commission on the Digitalisation of Justice in the EU.




Bahraini High Court on Choice of Court and Choice of Law Agreements

I. Introduction

It is widely recognized that choice of court and choice of law agreements are powerful tools for structuring and planning international dispute resolution. These agreements play an important role in “increasing legal certainty for the parties in cross-border transactions and reducing incentives for (the harmful version of) forum shopping.” (Alex Mills, Party Autonomy in Private International Law (CUP, 2018) p. 75). However, the realization of these objectives depends on the enforcement of the parties’ choice. Unfortunately, general practice in the MENA (North Africa and the Middle East) region shows that, with a few exceptions, the status quo is far from satisfactory. Choice-of-court agreements conferring jurisdiction on foreign courts are often disregarded or declared null and void. Similarly, the foreign law chosen as the governing law of a contract is often not applied because of the procedural status of foreign law as a matter of fact, the content of which must be ascertained by the party invoking its application. The recent judgment of the High Court of Bahrain (a first instance court in the Bahraini judicial system) in the Case No. 2/13276/2023/02 of 17 January 2024 is nothing but another example of this entrenched practice that can be observed in the vast majority of countries in the region.

II. Facts

X (plaintiff, an English company) entered into a pharmaceutical distribution and sales agreement with Y1 (defendant, a Bahraini company), in 2017 in Bahrain. The agreement provided that disputes arising out of or in connection with the agreement would be subject to the exclusive jurisdiction of the courts of England and Wales. The parties also agreed that English law should be the governing law.

Following Y1’s failure to make due payments as agreed, X initiated legal proceedings against Y1, Y2 and Y3 (both Bahraini nationals and partners in Y1) in the High Court of Bahrain, seeking payment and some other related costs under Bahraini law. The defendants challenged the jurisdiction of the Bahraini court based on the forum selection clause, but did not present any claim as to the merits of the case.

 

III. The Ruling

The High Court ruled as follow to affirm its jurisdiction and the application of Bahraini law:

[Regarding international jurisdiction]

“[The defendants] challenge the jurisdiction of the Bahraini courts to hear the dispute on the basis that the contract contains a jurisdiction clause which confers exclusive jurisdiction on the English courts to hear any dispute arising out of or relating to the contract. However, according to Articles 14 and 15 of the Code of Civil Procedure, the Bahraini courts have jurisdiction over actions brought against Bahraini nationals, regardless of the nature of the dispute, as long as they have Bahraini nationality at the time the action is brought, without any further conditions, except for in rem actions relating to immovable property located outside Bahrain. Thus, the jurisdiction of the Bahraini courts is based on personal nexus, i.e. the nationality of the defendant, and any agreement to deviate from this jurisdiction is inadmissible because of its connection with public policy. This is because it is the State that determines the jurisdiction of its courts in order to serve the public interest, i.e. to ensure justice, which is one of its primary functions, and to maintain order and peace within its territory. (Underline added).

[Since Y1 is a Bahraini limited liability company and Y2 and Y3, who are partners in Y1, are Bahraini nationals,] it is not permissible to waive the jurisdiction of the Bahraini courts, which retain jurisdiction over the [present] dispute.

[Regarding the applicable law]

It is clear from the contract that the parties agreed that any disputes arising out of the contract should be governed by the laws of England and Wales. Pursuant to Article 4 of Law No. 6 of 2015 on Conflict of Laws in Civil and Commercial Matters with Foreign Elements, the parties may choose the applicable law. [However], Article 6(a) of the same law requires the parties to the dispute to submit the text of the applicable law, failing which Bahraini law shall be deemed applicable. [In the present case], neither party has submitted the agreed law governing the dispute, and X, which [as the foreign party] , requested the application of Bahraini law and relied on the provisions of the Bahraini Commercial Companies Law in its statement of claim. Since the court is not required to ask the parties [to provide the content] the applicable law, as this obligation rests with the parties themselves, Bahraini law shall be applied to the [present] dispute”.

 

IV. Comments:

  1. Sources of Law

It should be indicated from the outset that in Bahrain, rules governing international jurisdiction are primarily found in the Code of Civil and Commercial Procedure of 1971  (hereafter referred to as “CCCP,” articles 14-20). Regarding choice of law rules, those concerning family law and successions (i.e., personal status) are included in the CCCP (articles 21 and 22), while those concerning civil and commercial matters, including rules pertaining to general theory, are laid down in a special Law on Conflict of Laws in Civil and Commercial Matters with Foreign Elements (Law No. 6 of 2015).(*)

(*) One may wonder about the reasons behind keeping the choice of law rules in matters of family law and successions within a law dealing with civil and commercial procedure, especially since the Bahraini legislator codified the conflict of law rules in an autonomous act dealing with conflicts of laws (choice of law). There have been some calls to consolidate all private international law rules (including choice of law, international jurisdiction) in a single act dealing with legal relationships involving foreign elements (see eg., Awadallah Shaiba Al-Hamad Al-Sayed, “An Analytical and Critical Study of the Law No. 6 of 2015 on the Conflict of Laws in Civil and Commercial Matters – Kingdom of Bahrain”, Legal Studies, Vol. 2, 2019, pp. 224 ff (in Arabic)), however, no actions have been taken so far to implement this proposal.

 

  1. International Jurisdiction

Interestingly, the rules of international jurisdiction contained in the CCCP deal mainly with actions brought against non-Bahraini nationals, either on the basis of their domicile/residence in Bahrain (general jurisdiction, Article 14 of the CCCP) or in certain other matters depending on the category of dispute (special jurisdiction, Article 15 of the CCCP). The fact that the rules on international jurisdiction refer only to foreign defendants raised the question of whether Bahraini courts could assume jurisdiction based on the nationality of the defendant (Cf. Hosam Osama Shaaban, Treatises on Bahraini Private International Law (Al-Bayan Media, 2016), p. 277 [in Arabic]).

In a number of cases, the Supreme Court has ruled in the affirmative. For example, in a decision issued in 2014, the Bahraini Supreme Court held that “even if the Bahraini legislator did not establish the rules of international jurisdiction of the Bahraini courts in the CCCP with regard to lawsuits filed against Bahraini nationals, it is understood that the jurisdiction of the national courts over [such lawsuits] stems from the consideration of [judicial jurisdiction] as a manifestation of the sovereignty of the State, which extends to what falls under this sovereignty” (Supreme Court, Appeal No. 531/2013 of 15 April 2014). In another case, the Supreme Court confirmed its ruling by considering that “persons holding Bahraini nationality are subject to the jurisdiction of Bahraini courts as a manifestation of the state’s sovereignty over its citizens”, thus recognizing the jurisdiction of Bahraini courts over Bahraini nationals even if they hold a second nationality and are not resident in Bahrain (Supreme Court, Appeal No. 77/2017 of 11 April 2018).

In this regard, it can be said that the High Court’s decision commented here is fully consistent with the well-established case law of the Supreme Court.

 

  1. Choice of Court Agreements

With respect to the admissibility of choice of court agreements, it should be noted that agreements with prorogative effect, i.e., choice of court agreements that confer jurisdiction on Bahraini courts that are not otherwise competent, are generally admitted (see article 17 of the CCCP [dealing with explicit or tacit submission to the jurisdiction of Bahraini courts]; article 19 of Legislative Decree No. 30 for the year 2009 with respect to the Bahrain Chamber for Economic, Financial and Investment Dispute Resolution (BCDR) [on the jurisdiction of the BCDR based on the agreement of the parties]. See also, eg, Supreme Court, Appeals Nos. 154 and 165/2017 of 20 May 2017 [tacit submission to the jurisdiction of Bahraini courts]).

However, with respect to agreements with derogative effect, although the law is silent on the matter, the Supreme Court has ruled against their admissibility. This is particularly the case of the Supreme Court ruling in a decision rendered in 2006 (Supreme Court, Appeal No. 231/2005 of 27 February 2006). The case concerned a lawsuit filed by a former foreign employee against his Bahraini employer, claiming overdue employment rights. The employer relied on a choice of forum clause in favor of the English court, arguing that Bahrain’s rules on international jurisdiction (articles 14 and 15 of the CCCP) apply only in the absence of a written agreement between the parties when one of them is a foreigner, and that rules on international jurisdiction do not concern public policy; therefore, nothing should prevent the parties from displacing the jurisdiction of Bahraini courts in favor of a foreign court. The Supreme Court disagreed. However, instead of framing its decision in the particular context of the employment relationship, where the employee – as the weaker party – deserves special protection, the Court proclaimed the principle that any agreement by which the parties derogate from the jurisdiction Bahraini courts conferred under Bahraini law “shall be deemed null and void and shall not be invoked” to challenge the jurisdiction of courts in Bahraini (Supreme Court, Appeal No. 231/2005 of 27 February 2006).

The High Court’s decision commented here is consistent with this ruling. In fact, the underlying part of the first paragraph of the High Court’s decision quoted above is almost a verbatim copy from the Supreme Court’s decision of 27 February 2007 mentioned above.

Finally, it should be indicated that the position of the Bahraini courts on this issue is broadly similar to that of other countries in the region, as noted in the Introduction. (For a brief overview of some relevant Supreme Court decisions from various MENA Arab countries and the implications of this position for the enforcement of foreign judgments in the region, see Béligh Elbalti, “Perspective of Arab Countries,” in M. Weller et al. (eds.), The 2019 HCCH Judgments Convention – Cornerstones, Prospects, Outlook (Hart, 2023), p. 188.)

 

  1. Party Autonomy – Principle

The principle of party autonomy is enshrined in Article 4 of Law No. 6 of 2015, which states that the “[p]arties may agree to choose the applicable law […]”. Bahraini courts have recognized the principle of freedom of parties to choose the applicable law (eg, Supreme Court, Appeal No. 641/2011 of 27 May 2011). The courts did so even in the absence of legislative guidance prior to the adoption of the current applicable rules (see eg, Supreme Court Appeal No. 143/1994 of 4 December 1994). The High Court in the present case did not deviate from this “well-established” principle, which is rooted in both Bahraini statutes and case law. (For a detailed study based on Bahraini case law, see Béligh Elbalti & Hosam Osama Shabaan, “Bahrain – Bahraini Perspectives on the Hague Principles”, in D. Girsberger et al. (eds.), Choice of Law in International Commercial Contracts – Global Perspective on the Hague Principles (OUP, 2021), pp. 414 ff).

 

  1. Party Autonomy – Practice

In practice, however, as demonstrated by the High Court decision, there is a gap between the affirmation of the principle of party autonomy on the one hand and the actual application of the chosen law to a concrete case on the other. This gap arises from the fact that, under Bahraini  law as regularly confirmed by case law,  foreign law is treated as a fact, the content of which must be determined by the party requesting its application (see eg, Article 6 of Law No. 6 of 2015. For further details and examples, see Elbalti & Shaaban, op cit., at 420-421). Consequently, failure to ascertain the content of the foreign law would normally result in the application of Bahraini law. The same principle applies even in cases where the parties have made a choice of law agreement. For example, in the aforementioned Supreme Court decision in the Appeal No. 143/1994 of December 4, 1994, although the Court recognized that the parties had (implicitly) agreed on Pakistani law as the applicable law, it ultimately excluded the application of the chosen law because its content had not been established. (For further details and examples, see Elbalti & Shaaban, op cit.). The High Court did not deviate from this general approach showing by this some degree of consistency in the Bahraini courts’ practice.

 

  1. Epilogue

In the case commented here, the court justified the application of Bahraini law on the grounds that the content of the law chosen by the parties had not been submitted to the court. To some extent, it may be questioned whether such a justification is acceptable, as it could be argued that there was a tacit agreement to apply Bahraini law instead of the chosen law (on the issue of tacit choice of law under Bahraini law and the relevant Supreme Court cases, see Elbalti & Shaaban, op cit., pp. 423-425). However, as evidenced by the facts of the case, the defendants in this case did not present any arguments on the merits, but merely challenged the jurisdiction of the Bahraini court. The mere fact that the plaintiff based its claim on Bahraini law by relying on the relevant provisions of the Bahraini Commercial Companies Law does not in itself constitute an “implied” agreement to apply Bahraini law.

On this particular point, it is interesting to compare the decision of the High Court discussed here with another decision issued by the same court just thirteen days earlier in a case involving similar legal issues, namely the admissibility of a choice of court agreement in favor of the Cayman Islands courts and the application of Cayman Islands law as the law chosen by the parties (High Court, Case No. 5/11341/2023/02 of 4 January 2024). In this case, the High Court ruled in exactly the same way as in the present case with regard to the admissibility of the choice of court agreement. However, with respect to the application of Cayman Islands law, the court held that there was an implied agreement to apply Bahraini law in lieu of the chosen law because both parties based their claim on the provisions of Bahraini law and relied on relevant Supreme Court decisions.




U.S. Supreme Court Decides Great Lakes

On February 21, 2024, the U.S. Supreme Court handed down its decision in Great Lakes Insurance SE v. Raiders Retreat Realty Company, LLC.

The question presented was whether, under federal admiralty law, a choice-of-law clause in a maritime contract can be rendered unenforceable if enforcement is contrary to the “strong public policy” of the U.S. state whose law is displaced. In a unanimous opinion authored by Justice Kavanaugh, the Court concluded that the answer to this question was no. It held that choice-of-law provisions in maritime contracts are presumptively enforceable as a matter of federal maritime law. It further held that while there are narrow exceptions to this rule, state public policy is not one of them.

Facts

Great Lakes Insurance SE (GLI) is a corporation organized under the laws of the Germany that is headquartered in the United Kingdom. Raiders Retreat Realty Co., LLC (Raiders) is a company organized under the laws of Pennsylvania. GLI insured a yacht owned by Raiders. The marine insurance contract signed by the parties contained the following choice-of-law clause:

It is hereby agreed that any dispute arising hereunder shall be adjudicated according to well established, entrenched principles and precedents of substantive United States Federal Admiralty law and practice but where no such well-established, entrenched precedent exists, this insuring agreement is subject to the substantive laws of the State of New York.

After the yacht ran aground in Florida and sustained significant damage, Raiders filed a claim. GLI denied the claim on the ground that the yacht’s fire-extinguishing equipment had not been recertified or inspected. Although the damage to the yacht was not caused by fire, GLI took the position that Raiders had misrepresented the vessel’s fire suppression system’s operating ability, thereby making the policy void from inception.

After denying the claim, GLI filed an action for a declaratory judgment in the U.S. District Court for the Eastern District of Pennsylvania. It asked the court to hold that the policy was void due to the alleged misrepresentations by Raiders with respect to the fire extinguishers. In response, Raiders asserted five counterclaims against GLI: (1) breach of contract, (2) breach of implied covenant of good faith and fair dealing, (3) breach of fiduciary duty, (4) bad faith liability under 42 Pa. Const. Stat. §8371, and (5) violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.

GLI moved for judgment on the pleadings with respect to the fourth and fifth counterclaims. It argued that these claims were not viable because the policy’s choice-of-law provision had designated New York as the governing law in the absence of applicable federal maritime law. Because the claims were based on Pennsylvania statutes, it argued, they were barred by the choice-of-law clause. Raiders opposed this motion. It argued that the choice-of-law clause was unenforceable because it was contrary to Pennsylvania’s strong public policy of punishing insurers who deny coverage in bad faith.

The trial court ruled in favor of GLI. The Third Circuit ruled in favor of Raiders. The Supreme Court granted GLI’s cert petition and heard oral arguments on October 10, 2023.

Decision

The Court held that the issue of whether a choice-of-law clause in a maritime contract is enforceable is governed by federal law. In support of this conclusion, the Court noted that it had previously held that the enforceability of forum selection clauses in these contracts is governed by federal law. It would be strange, the Court reasoned, to adopt a different rule with respect to choice-of-law clauses. The Court further held that choice-of-law clauses in maritime contracts were “presumptively enforceable.” Again, this conclusion logically followed from the fact that the Court had previously held that forum selection clauses in maritime contracts are “prima facie valid.”

After discussing why the Court’s decision in Wilburn Boat Company v. Fireman’s Fund Insurance Company (1955) did not dictate a different outcome, the Court turned its attention to the question of when a choice-of-law clause in a maritime contract should not be enforced. It held that courts should disregard these clauses in situations where applying the chosen law would “contravene a controlling federal statute” or “conflict with an established federal maritime policy.” It also held that these clauses should not be given effect when there was no “reasonable basis” for selecting the law of the chosen jurisdiction. However, the Court expressly rejected the argument advanced by Raiders that a choice-of-law clause in a maritime contract was unenforceable if applying the law of the chosen state would be contrary to a fundamental policy of a state with a greater interest in the dispute.

In rejecting this argument, the Court explained that a federal presumption of enforceability “would not be much of a presumption if it could be routinely swept aside based on 50 States’ public policy determinations.” It reasoned that the “ensuing disuniformity and uncertainty caused by such an approach would undermine the fundamental purpose of choice-of-law clauses in maritime contracts: uniform and stable rules for maritime actors.” The Court also noted that nothing in its previous decisions relating to the enforceability of forum selection clauses in maritime contracts suggested that state public policy was relevant to whether these clauses should be given effect.

Finally, the Court declined to adopt the argument—advanced by me and Kim Roosevelt in an amicus brief prepared with the assistance of the North Carolina School of Law Supreme Court Program—that it should resolve the question of enforceability by looking to Section 187(2) of the Restatement (Second) of Conflict of Laws. The Court reasoned that the rule laid down in Section 187 “arose out of interstate cases and does not deal directly with federal-state conflicts, including those that arise in federal enclaves like maritime law.” The Court also pointed out that Section 187 was a “poor fit” for maritime cases in part because it would “prevent maritime actors from prospectively identifying the law to govern future disputes.”

Analysis

I had two great fears going into this case. Thankfully, neither was realized.

First, I was concerned that the Court might take the test it had previously articulated for determining whether a forum selection clause should be given effect as a matter of federal maritime law and apply that test to choice-of-law clauses. This is, in essence, what the Third Circuit did in its decision below. Such an approach would, in my view, have generated a great deal of mischief. Although choice-of-law clauses and forum selection clauses are often invoked in the same breath, they are not the same and the courts should utilize different tests to evaluate whether they should be enforced. I was relieved that the Court chose not to go down this path. The test laid down in Great Lakes for determining whether a choice-of-law clause in a maritime contract is enforceable is distinct and different from the test for determining whether a forum selection clause laid down in The Bremen and Carnival Cruise.

Second, I was concerned that the Court’s test for enforcing choice-of-law clauses might be couched in such broad language that it would eventually supplant Section 187 in non-maritime cases. This is essentially what happened when the Court decided The Bremen in 1972. Although that decision only applied to forum selection clauses in maritime contracts, the sweeping language utilized by the Court ultimately brought about a significant change in practice in non-maritime cases. The language in Great Lakes, by comparison, is much more carefully drawn. Throughout the opinion, Justice Kavanaugh consistently frames the issue as whether a choice-of-law clause is enforceable in a maritime contract rather than in a more general sense. The rationales articulated by the Court for declining to adopt the rule laid down in Section 187 are similarly encouraging. The Court stated that Section 187 was not the right rule because it “arose out of interstate cases and does not deal directly with federal-state conflicts.” This language suggests that Section 187 should provide the relevant rule of decision in cases relating to the enforceability of choice-of-law clauses when the conflict of laws is between two states—or between a state and foreign country—rather than between state and federal law.

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




Implied Jurisdiction Agreements in International Commercial Contracts

Authors: Abubakri Yekini (Lecturer in Conflict of Laws at the University of Manchester) and Chukwuma Okoli (Assistant Professor in Commercial Conflict of Laws at the University of Birmingham, Senior Research Associate at the University of Johannesburg).

A  Introduction

In an increasingly globalised economy, commercial transactions often involve business entities from different countries. These cross-border transactions present complex legal questions, such as the place where potential disputes will be adjudicated. To provide certainty, commercial parties often conclude ex ante agreements on the venue for dispute resolution by selecting the court(s) of a particular state. However, what happens if no such express agreement over venue is reached for resolving a contractual dispute? Could consent to the venue be implicitly inferred from the parties’ conduct or other factors?

Explicit jurisdiction clauses offer cross-border litigants the benefit of predictability by allowing them to anticipate where disputes arising from their commercial transactions will be resolved. However, business entities sometimes neglect to include express provisions for the venue, whether inadvertently or due to their inexperience. In such cases, firms may have implicitly agreed on a venue through their actions or based on their tacit understanding. This type of ‘unwritten’ jurisdiction agreement remains largely unexplored in the legal scholarship.

Relatively recently, the validity or enforceability of implied jurisdiction agreements arose in the Privy Council Case of Vizcaya Partners Ltd v Picard & Anor [2016] UKPC 5. In this Case, following a comprehensive survey of the existing academic and judicial authorities, Lord Collins held that since it is commonplace for a contractual agreement or consent to be implied or inferred, ‘there is no reason in principle why the position should be any different in the case of a contractual agreement or consent to the jurisdiction of a foreign court’. However, in the wake of the above Case, the notion of an implied jurisdiction agreement drew limited scholarly research attention (for instance, see Kennedy, (2023);  Kupelyants, 2016). Moreover, there has been no systematic analysis of how it aligns with the needs of the international business community.

In our latest article, published in the 2023 edition of the Journal of Private International Law, vol. 19(3), we examine the enforceability of implied jurisdiction agreements from a global comparative perspective. Therefore, our paper provides the first comparative global perspective of the enforcement of implied jurisdiction in international contracts. Our analysis reveals uncertain and subjective standards for implied jurisdiction agreements, which undermine the needs of international commerce. While limited scenarios may justify enforcing implied jurisdiction agreements, our paper advocates restraint, given that the criteria for inferring consent are complex, unpredictable, and variable across legal systems.

B  Implied Jurisdiction Agreements Create Uncertainty for Business

The main thesis of our article is that implied jurisdiction undermines the core needs of business entities engaging in cross-border commercial transactions. These entities value legal certainty and predictability, in order to make informed choices and plan business activities. However, by their very nature, implied terms offer less clarity concerning the governing law and jurisdiction agreements.

Our article likewise surveys primary legal sources across common law, civil law and mixed legal systems (as well as insights from academics and practising lawyers), assessing whether implied jurisdiction agreements are widely recognised. We find limited consensus on the conduct that demonstrates implied consent or agreement to litigate in a particular forum. Factors such as previous interactions between contracting parties and trade usage in an industry are highly subjective. Even common law tests for inferring implied terms, like the ‘officious bystander’ and ‘business efficacy’ rule, fail to clarify how these terms apply specifically to international jurisdiction.

This uncertainty requires the courts to undertake a complex, case-by-case analysis of parties’ unspoken intent. However, companies benefit from consistency in interpreting cross-border transactions, whereas a lack of clarity risks complicating commercial disputes, rather than resolving them efficiently. Overall, the unclear standards surrounding implied jurisdiction agreements are incapable of delivering the stability required by global businesses when operating across legal systems.

 

C Treatment under International Conventions 

International treaties are aimed at harmonising divergent national laws and policies on jurisdiction, applicable law, and the recognition and enforcement of foreign judgments.  The 2005 Hague Convention on Choice of Court Agreements (HCCA) governs exclusive choice of court agreements from a global perspective. Articles 3(c) and 5(1) address formal and substantive validity. Our paper suggests that the requirement for the written form under Article 3(c) may present challenges in implying jurisdiction agreements. Consequently, it is difficult to envision situations where implicit jurisdiction agreements could arise under the Hague Choice of Court Convention, given that the initial hurdle is the requirement for the agreement to be in writing.

The spirit of the HCCA is further reflected in the 2019 Hague Judgments Convention, which seeks to promote express – as opposed to implicit – jurisdiction agreements between parties. For instance, Article 5 of the Convention exhaustively lists permitted grounds for establishing international jurisdiction. This provides clarity for commercial parties who are litigating abroad. Consequently, implied jurisdictions agreements are conspicuously absent and so the policy favours explicit consent. Accordingly, we argue that the emerging global consensus dictates caution around enforcing implied jurisdiction agreements that could disrupt settled jurisdictional principles in the international context.

Brussels Ia and the Lugano Convention share provisions for the validity of a jurisdiction agreement. Namely, consent must be in writing, or evidenced in writing. This aligns with the Hague frameworks: the HCCA and the Judgments Convention. While some scholars argue for the validity of implied jurisdiction agreements in specific contexts (especially trade usage and previous dealings between parties), the prevailing view requires clear and precise consent. By way of illustration, CJEU’s stance in Cases like Galeries Segoura  SPRL, ProfitInvestment SIM SpA and Colzani,  implies a stringent approach to consent.

 

D  Should Implied Jurisdiction Agreements be Enforced?

In section IV of our paper, we examine the justification and rationale for the recognition or otherwise of implied jurisdiction agreements, having, inter alia, considered the diverse approaches adopted by the many courts across the globe.

  1. Business Efficacy and Commercial Expectations

Party autonomy, a cornerstone of private international law, emphasises the importance of upholding the presumed intentions of the contracting parties. The recognition of implied jurisdiction agreements potentially aligns with the principle of party autonomy, since it seeks to fill gaps in contracts and thereby reflect the parties’ unexpressed intentions, as noted by Lord Neuberger. In the context of English law, Lord Collins relied on the business efficacy and officious bystander analogy to imply jurisdiction agreements in Vizcaya.

Additionally, the application of business efficacy logic can mitigate challenges such as parallel proceedings or the fragmentation of disputes. Extending a jurisdiction agreement to closely related contracts, even in the absence of explicit terms, will reduce uncertainty and meet commercial expectations. Certainty, convenience, and the efficient administration of justice are paramount considerations for rational businessmen who would rather not litigate in separate courts. Nonetheless, Cases like Terre Neuve Sarl v Yewdale Ltd [2020] and Etihad Airways PJSC v Flother [2020] reveal complexities in ascertaining commercial expectations and business efficacy. Divergent approaches to interpreting and implying terms, coupled with the challenge of defining what constitutes a reasonable businessperson, further contribute to the uncertainty and unpredictable outcomes.

    2. The Choice of Law Analogy

Implied choice of law is well-established in private international law. Moreover, it is recognised in various international instruments and across common law, mixed, and civil law jurisdictions. While jurisdiction and choice of law are distinct, the underlying principle of implied choice of law may apply to implied jurisdiction agreements.

Globally, the interrelationship between jurisdiction and choice of law is acknowledged. For instance, a choice of court agreement is widely regarded as a highly significant factor in determining an implied choice of law. The applicable law of a contract, while not determinative of jurisdiction, remains significant. However, challenges arise when parties fail to expressly state the applicable law, leading to a strict standard for implying the choice of law based on a number of factors.

Despite the recognition of implied choice of law, we argue against transposing this principle directly to the question of jurisdiction. Jurisdiction involves the exercise of state powers over litigants, and while implied choice of law may indicate a governing law, it does not necessarily imply submission to the jurisdiction of a specific court. Instead, the distinct nature of jurisdiction agreements calls for a nuanced approach.

     3. International Jurisdiction and the Recognition of Foreign Judgments

Implied jurisdiction agreements play a dual role, serving as a basis for establishing both direct and indirect jurisdiction. Courts often decide on the enforceability of judgments based on the existence of a jurisdiction agreement, whether express or implied.

Different thresholds apply to direct and indirect jurisdiction. This differentiation reflects the complexities involved in establishing jurisdiction in cross-border disputes. While policy considerations may influence the exercise of direct jurisdiction, recognising and enforcing foreign judgments necessitates adherence to some very specific, often stricter, criteria set by the court addressed.

The inherent connection between jurisdiction and judgments underscores the need for certainty in cross-border litigation. Implied jurisdiction agreements lack globally established criteria. This introduces ambiguity and can lead to prolonged legal proceedings, given that litigants will often draw attention to implicit jurisdiction agreements at the enforcement stage. In short, it undermines the efficiency sought in international business transactions.

On the strength of the inefficiency that can arise from an exercise of jurisdiction based on implicit agreements, we argue that the concept of implied jurisdiction agreements adds little (if any) value to the recognition and enforcement of foreign judgments. Conversely, the HCCH 2019 Judgments Convention provides clear jurisdictional grounds, consequently averting the need for implied agreements. The Convention’s carefully drafted criteria support the global pursuit of certainty and predictability in cross-border commercial legal frameworks.

E  Conclusion

In closing, we argue that implied jurisdiction agreements do not align with the needs of international commerce or the emerging global consensus on international jurisdiction. Aside from the very limited recognition of implied jurisdiction agreements under certain international instruments such as Brussels Ia, our study further reveals divergent national approaches to implied jurisdiction agreements. For several reasons, we advocate caution regarding the validity of implicit agreements:

  1. Consent is not genuinely mutual if one party disputes the existence of an implied agreement: genuine consent must be clear.
  2. Implied agreements provide minimal value: even without them, jurisdiction can be founded on close connections between the contract and forum.
  3. The emerging global consensus on jurisdiction, as seen in the HCCH Conventions, emphasises predictability through the requirement for well-defined but restricted grounds. Implied agreements therefore fail to align with the policy behind these instruments and the emerging consensus.

Our overall conclusion is that express jurisdiction agreements should remain the priority for cross-border contracts.

 

 

 

 




A note on “The BBC Nile” in the High Court of Australia – foreign arbitration agreement and choice of law clause and Article 3(8) of the Amended Hague Rules in Australia

By Poomintr Sooksripaisarnkit

Lecturer in Maritime Law, Australian Maritime College, University of Tasmania

Introduction

On 14th February 2024, the High Court of Australia handed down its judgment in Carmichael Rail Network Pty Ltd v BBC Chartering Carriers GmbH & Co KG [2024] HCA 4. The case has ramifications on whether a foreign arbitration clause (in this case, the London arbitration clause) would be null and void under the scheme of the Carriage of Goods by Sea Act 1991 (Cth) which makes effective an amended version of the International Convention on the Unification of Certain Rules of Law relating to Bills of Lading, Brussels, 25 August 1924 (the “Hague Rules”). The argument focused on the potential effect of Article 3(8) of the Amended Hague Rules, which, like the original version, provides:

“Any clause, covenant, or agreement in a contract of carriage relieving the carrier or the ship from liability for loss or damage to, or in connection with, goods arising from negligent, fault, or failure in the duties and obligations provided in this article or lessening such liability otherwise than as provided in these Rules, shall be null and void and of no effect. A benefit of insurance in favour of the carrier or similar clause shall be deemed to be a clause relieving the carrier from liability”.

BRIEF FACTS OF THE CASE

The case involved a carriage of head-hardened steel rails from Port of Whyalla in South Australia to the Port of Mackay in Queensland. When the goods arrived at the Port of Mackay, it was discovered that goods were in damaged conditions to the extent that they could not be used, and they had to be sold for scrap. A bill of lading issued by the carrier, BBC, containing the following clauses:

3. Liability under the Contract

  • Unless otherwise provided herein, the Hague Rules contained in the International Convention for the Unification of Certain Rules Relating to Bills of Lading, dated Brussels the 25th August 1924 as enacted in the country of shipment shall apply to this Contract. When no such enactment is in force in the country of shipment, the corresponding legislation of the country of destination shall apply. In respect of shipments to which there are no such enactments compulsorily applicable, the terms of Articles I-VIII inclusive of said Convention shall apply….”
  1. Law and Jurisdiction

Except as provided elsewhere herein, any dispute arising under or in connection with this Bill of Lading shall be referred to arbitration in London. The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) terms. The arbitration Tribunal is to consist of three arbitrators, one arbitrator to be appointed by each party and the two so appointed to appoint a third arbitrator. English law is to apply”.

The carrier, BBC, commenced arbitration in London according to Clause 4 of the bill of lading. Carmichael, on the other hand, commenced proceeding before the Federal Court of Australia to claim damages. Carmichael sought an anti-suit injunction to restrain the arbitration proceeding. BBC, on the other hand, sought a stay of the Australian proceeding.

ARGUMENTS IN THE HIGH COURT OF AUSTRALIA

Carmichael contended that Clause 4 should be null and void because of Article 3(8) of the Amended Hague Rules. First, there is a risk that London arbitrators will follow the position of the English law in Jindal Iron and Steel Co Ltd and Others v Islamic Solidarity Shipping Co. Jordan Inc (The “Jordan II”) [2004] UKHL 49 and found the carrier’s duty to properly stow and care for the cargo under Article 3(2) of the Hague Rules to be a delegable duty, as opposed to an inclination of the court in Australia, as shown in the New South Wales Court of Appeal decision in Nikolay Malakhov Shipping Co Ltd v SEAS Sapfor Ltd (1998) 44 NSWLR 371. Secondly, there is a risk that the London arbitrators would construe Clause 3 as incorporating Article I-III of the Hague Rules, instead of the Amended Hague Rules of Australia. This would result in reducing the package limitation defence. Thirdly, there would be more expenses and burdens on the part of Carmichael to have to pursue its claim against BBC in London.

REASONING OF THE HIGH COURT OF AUSTRALIA

Whether Article 3(8) is applicable, the High Court of Australia found as a matter of principle that the court must consider all circumstances (being past, present, or future) whether a contractual clause relieves or lessen the carrier’s liability. The standard of proof to be applied in considering such circumstances is the civil standard of the balance of probability. The court drew support from section 7(2) and section 7(5) of the International Arbitration Act 1974 (Cth), as the parties relied on this piece of legislation in seeking an anti-suit injunction or a stay of the proceeding. In section 7(2), the language is that the court “shall” stay the proceedings if a matter is capable of settlement by arbitration. In section 7(5), again, there is a word “shall” in that the court shall not stay the proceedings under subsection (2) if the court finds the arbitration agreement to be null and void. As the High Court of Australia emphasised in paragraph 25 of its judgment: “For an Australian court to ‘find’ an arbitration agreement null and void … it must be able to do so as a matter of law based on agreed, admitted, or proved fact”. Such proof is on the balance of probabilities pursuant to the Evidence Act 1995 (Cth). Moreover, the Amended Hague Rules in Australia ultimately has the nature of an international convention. The interpretation of which must be done within the framework of the Vienna Convention on the Law of Treaties 1969 which requires that relevant rules of international law must be considered. The burden of proof which international tribunals usually adopt is that of “preponderance of evidence”, which is no less stringent than that of the balance of probabilities. This supports what the High Court of Australia found in paragraph 32 of its judgment that “references to a clause ‘relieving’ a carrier from liability or ‘lessening such liability’ are to be understood as referring to facts able to be found in accordance with the requisite degree of confidence…” Also, the High Court of Australia found the overall purpose of the Hague Rules is to provide a set of rules which are certain and predictable. Any attempt to apply Article 3(8) to the circumstances or facts which are not agreed or admitted or proved would run against the overall objective of the Hague Rules.

A reference was also made to an undertaking made by BBC before the Full Court of the Federal Court of Australia that it would admit in the arbitration in London that the Amended Hague Rules would be applicable to the dispute and BBC did consent to the Full Court of the Federal Court of Australia to make declaration to the same effect. It was argued by Carmichael that the undertaking and the subsequent declaration should not be considered because they came after BBC had commenced the arbitration pursuant to Clause 4. However, the High Court of Australia, emphasised in paragraph 59 that the agreed or admitted or proved facts at the time the court is deciding whether to engage Article 3(8) are what the courts consider. The effect of the undertaking and the declaration are that it should be amounted to the choice of law chosen by the parties within the meaning of section 46(1)(a) of the Arbitration Act 1996 and should effectively supersede the choice of the English law in Clause 4 of the bills of lading.

All the risks pointed out by Carmichael are unreal. First, the indication of the New South Wales Court of Appeal in the Nikolay Malakhov case in respect of Article 3(2) of the Hague Rules was not conclusive as it was obiter only. There is no clear legal position on this in Australia. Secondly, the language of Clause 3 is that Article I-VIII are to be applied if there are “no such enactments”. But the country of shipment in this case (namely Australia) enacts the Hague-Rules. Moreover, there is no ground for any concern in light of the undertaking and the declaration. Lastly, Article 3(8) of the Amended Hague Rules concerns with the carrier’s liability. It is not about the costs or burdens in the enforcement process. Hence, the Australian proceeding is to be stayed.

COMMENT

As the High Court of Australia emphasised, whether Article 3(8) of the Amended Hague Rules is to be engaged depending upon facts or circumstances at the time the court is deciding the question. This case was pretty much confined to its facts, as could be seen from the earlier undertaking and the declaration which the High Court of Australia heavily relied upon. Nevertheless, the door is not fully closed. There is a possibility that the foreign arbitration and the choice of law clause can be found to be null and void pursuant to Article 3(8) if the facts or circumstances are established on the balance of probabilities that the tribunals will apply the foreign law which has the effect of relieving or lessening the carrier’s liabilities.

 

 

 




French Supreme Court ruling in the Lafarge case: the private international law side of transnational criminal litigations

Written by Hadrien Pauchard (assistant researcher at Sciences Po Law School)

In the Lafarge case (Cass. Crim., 16 janvier 2024, n°22-83.681, available here), the French Cour de cassation (chambre criminelle) recently rendered a ruling on some criminal charges against the French major cement manufacturer for its activities in Syria during the civil war. The decision addresses several key aspects of private international law in transnational criminal lawsuits and labour law.

From 2012 to September 2014, through a local subsidiary it indirectly controlled, the French company kept a cement plant operating in a Syrian territory exposed to the civil war. During the operation, the local employees were at risk of extortion and kidnapping by armed groups, notably the Islamic State. On these facts, in 2016, two French NGOs and 11 former Syrian employees of Lafarge’s Syrian subsidiary pressed criminal charges in French courts against the French mother company. Charges contend financing a terrorist group, complicity in war crimes and crimes against humanity, abusive exploitation of the labour of others as well as endangering the lives of others.

After lengthy procedural contortions, the chambre d’instruction of the Cour d’appel de Paris (the investigating judge) confirmed the indictments in a ruling dated May 18th, 2022.  Here, the part of the decision of most direct relevance to private international law concerns the last incrimination of endangering the lives of others. The charge, set out in Article 223-1 of the French Criminal Code, implicates the act of directly exposing another person to an immediate risk of death or injury likely to result in permanent mutilation or infirmity through the manifestly deliberate violation of a particular obligation of prudence or safety imposed by law or regulation. The chambre d’instruction found that the relationship between Lafarge and the Syrian workers was subject to French law, which integrates the obligations of establishing a single risk assessment report for workers’ health and safety (Articles R4121-1 and R4121-2 of the French Labour Code) and a mandatory safety training related to working conditions (Article R4141-13 of the French Labour Code). On this basis, it upheld the mother company’s indictment for violating the aforementioned prudence and safety obligations of the French Labour Code. Following this ruling, the Defendants petitioned to the French Supreme Court to have the charges annulled, arguing that French law did not apply to the litigious employment relationship.

By its decision of January 16, 2024, the French Cour de cassation (chambre criminelle) ruled partly in favour of the petitioner. By applying Article 8 of the Rome I regulation, it decided that the employment relationship between Lafarge and the Syrian workers was governed by Syrian law, so that, French law not being applicable, the conditions for application of Article 223-1 of the French Criminal Code were not met. Thus, the Cour de cassation quashed Lafarge’s indictment for endangering the lives of others, while upholding the remaining charges of complicity in war crimes and crimes against humanity.

The Lafarge case highlights the stakes of transnational criminal law and its interplay with private international law.

Interactions between criminal jurisdiction and conflict of laws.

Because of the solidarity between criminal jurisdiction and legislative competence, the field is in principle exclusive of conflict of laws. However, this clear-cut frontier is often blurred.

In Lafarge, a conflict appeared incidentally via the specific incrimination of endangering the lives of others. In a transnational context, the key legal issue concerns the scope of the legal and regulatory obligations covered by the incrimination. A flexible interpretation including foreign law would lead to a (too) broad extension of French courts’ criminal jurisdiction. In the present decision, the Cour de cassation logically ruled, notably on the basis of the principle of strict interpretation of criminal law, that an obligation of prudence or safety within the meaning of Article 223-1 “necessarily refers to provisions of French law”.

Far from exhausting issues of private international law, this conclusion opens the door wide to conflict of laws. Indeed, the court then had to determine whether such French prudence or safety provisions applied to the case.

Under Article 8§2 of the Rome I regulation, absent a choice of law in an employment contract, the law applicable to the employment relationship between Lafarge and the Syrian workers should be the law of the country in which the employees habitually carry out their work –i.e. Syrian law. However, French law could be applicable in two situations: either if it appears that the employment relationships have a closer connection with France (article 8§4 Rome I), or because French law imposes overriding mandatory provisions (article 9 Rome I).

On the one hand, the Cour de cassation dismissed the argument that the employment relationship had a closer connection with France. Previously, the chambre d’instruction considered that the parent company’s permanent interference (“immixtion”) in the management of its Syrian subsidiary (based on a body of corroborating evidence, in particular, the subsidiary’s financial and operational dependence on the parent company, from which it was deduced that the latter was responsible for the plant’s safety) resulted in a closer connection between France and the employment contracts of the Syrian employees. Referring to the ECJ case law, which requires such connection to be assessed on the basis of the circumstances “as a whole”, the Supreme Court conversely held that considerations relating solely to the relationship between the parent company and its subsidiary were not sufficient to rule out the application of Syrian law. Ultimately, the Cour de cassation found that none of the alleged facts was such as to characterize closer links with France than with Syria.

On the other hand, the Cour de cassation rejected the characterization of Articles R4121-1, R4121-2 and R4141-13 of the French Labour Code as overriding mandatory provisions (“lois de police”). Here, the Criminal division of the Cour is adopting the solution set out by the Labour disputes division (chambre sociale) in an opinion issued on the present Lafarge case. In its opinion, the Social division noted that, while the above-mentioned provisions do indeed pursue a public interest objective of protecting the health and safety of workers, the conflict of laws rules set out in Article 8 Rome I are sufficient to ensure that the protection guaranteed by these provisions applies to workers whose contracts have enough connection with France -a questionable utterance in the light of the reasoning of the Cour de cassation in the decision under comment and its strict interpretation of the escape clause.

As a result, the employment relationship between Lafarge and the Syrian workers was governed by Syrian law, with French law not imposing any obligation of prudence or safety to the case. The Supreme court thereby concluded that the conditions for application of Article 223-1 of the French Criminal Code were not met.

Implications.

The Lafarge decision will have broad implications for transnational litigations.

Firstly, the Cour de cassation confirms the strict interpretation of the escape clause in Article 8§4 of the Rome I regulation. Making extensive reference to the ECJ case law, the Court recalled that when applying Article 8§4, courts must take account of all the elements which define the employment relationship and single out one or more as being, in its view, the most significant (among them: the country in which the employee pays taxes on the income from his activity; the country in which he is covered by a social security scheme and pension, sickness insurance and invalidity schemes; as well as the parameters relating to salary determination and other working conditions).

More importantly, the French Supreme Court limits the consequences of parent companies’ interference (immixtion) in international labour relations and value chain governance. The criterion of interference is commonly used to try to lift the corporate veil for imputing obligations and liability directly to a parent company. By establishing that the parent company’s interference was insufficient to characterize the existence of a closer connection with France, the Cour de cassation circumscribes the spatial scope of French labour law and maintains the territorial compartmentalization of global value chains. It is regrettable, in that respect, that the Supreme court did not precisely discuss the nature of the relationship between Lafarge and the Syrian workers. This solution is nevertheless consistent with the similarly restrictive approach to co-employment adopted by the French courts, which requires a “permanent interference” by the parent company leading to a “total loss of autonomy of action” on the part of the subsidiary. Coincidentally, in the absence of overriding mandatory provisions, the ruling empties of all effectiveness similar transnational criminal actions based on Article 223-1 of the French Criminal Code.

While the Cour de cassation closed the door of criminal courts, French law on corporate duty of care (Loi n° 2017-399 du 27 mars 2017 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre) offers an effective alternative in the field of civil liability. The aim of this text is precisely to impose on lead companies a series of obligations purported to identify risks and prevent serious violations of human rights and fundamental freedoms, human health and safety, and the environment, throughout the value chain. The facts of the Lafarge case are prior to the enactment of this law. Nevertheless, future litigations will likely prosper on this ground, all the more so with the forthcoming adoption of a European directive on mandatory corporate sustainability due diligence.




Looking but not Seeing the Economic Unit in Cartel Damage Claims – Opinion of Advocate General in Case C-425/22, MOL Magyar Olaj- és Gázipari Nyrt. v Mercedes-Benz Group AG

By Professor András Osztovits*

 

I. Introduction

The heart of European economic integration is the Single Market, which can only function properly and provide economic growth and thus social welfare if effective competition rules ensure a level playing field for market players. The real breakthrough in the development of EU competition policy in this area came with Regulation 1/2003/EC, and then with Directive 2014/104/EU which complemented the public law rules with private law instruments and made the possibility to bring actions for damages for infringement of competition law easier.

It is not an exaggeration to say that the CJEU has consistently sought in its case-law to make this private enforcement as effective as possible, overcoming the procedural and substantive problems that hinder it. It was the CJEU which, in the course of its case law, developed the concept of the economic unit, allowing victims to bring an action against the whole of the undertaking affected by the cartel infringement or against certain of its subsidiaries or to seek their joint liability.

The concept of an economic unit is generally understood to mean that a parent company and its subsidiary form an economic unit where the latter is essentially under the dominant influence of the former. The CJEU has reached the conclusion in its case law that an infringement of competition law entails the joint and several liability of the economic unit as a whole, which means that one member can be held liable for the acts of another member.

 

II. The question referred by the Hungarian Supreme Court

However, there is still no clear guidance from the CJEU as to whether the principle of economic unit can be interpreted and applied in the reverse case, i.e. whether a parent company can rely on this concept in order to establish the jurisdiction of the courts where it has its registered seat to hear and determine its claim for damages for the harm suffered by its subsidiaries. This was the question raised by the Hungarian Supreme Court (Kúria) in a preliminary ruling procedure, in which this issue was raised as a question of jurisdiction. More precisely Article 7 (2) of the Brussels Ia Regulation had to be interpreted, according to which a person domiciled in a Member State may be sued in another Member State, ‘in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur’.

The facts of the case were well suitable for framing and answering this question. The applicant is a company established in Hungary. It is either the majority shareholder or holds another form of exclusive controlling power over a number of companies established in other EU Member States. During the infringement period identified by the Commission in its decision of 19 July 2016, those subsidiaries purchased indirectly, either as owners or under a financial leasing arrangement, 71 trucks from the defendant in several Member States.

The applicant requested, before the Hungarian first-instance court, that the defendant be ordered to pay EUR 530 851 with interest and costs, arguing that this was the amount that its subsidiaries had overpaid as a consequence of the anticompetitive conduct established in the Commission Decision. Relying on the concept of an economic unit, it asserted the subsidiaries’ claims for damages against the defendant. For that purpose, it sought to establish the jurisdiction of the Hungarian courts based on Article 7(2) of Regulation No 1215/2012, claiming that its registered office, as the centre of the group’s economic and financial interests, was the place where the harmful event, within the meaning of that provision, had ultimately occurred. The defendant objected on the ground that the Hungarian courts lacked jurisdiction. The courts of first and second instance found that they lacked jurisdiction, but the Curia, which had been asked to review the case, had doubts about the interpretation of Article 7(2) of the Regulation and referred the case to the CJEU.

 

III. The Opinion of Advocate General

In his Opinion delivered on 8 February 2024, Advocate General Nicholas Emiliou concluded that the term ‘the place where the harmful event occurred’, within the meaning of Article 7(2) of Regulation No 1215/2012, does not cover the registered office of the parent company that brings an action for damages for the harm caused solely to that parent company’s subsidiaries by the anticompetitive conduct of a third party.

In his analysis, the Advocate General first examined the jurisdictional regime of the Brussels Ia Regulation, then the connecting factors in the context of actions for damages for infringements of Article 101 TFEU, and finally the question of whether the place of the parent company’s seat can be the place where the damage occurred in the case of damage suffered by a subsidiary. He recalled that, according to the relevant case-law of the CJEU, rules of jurisdiction other than the general rule must be interpreted restrictively, including Article 7. He pointed out that ‘the place where the harmful event occurred’ within the meaning of that provision does not cover the place where the assets of an indirect victim are affected. In the Dumez case, two French companies, having their registered offices in Paris (France), set up subsidiaries in Germany in order to pursue a property development project. However, German banks withdrew their financing, which lead to those subsidiaries becoming insolvent. The French parent companies sought to sue the German banks in Paris, arguing that this was the place where they experienced the resulting financial loss. According to the Advocate General, the applicant in the present action is also acting as an indirect victim, since it is seeking compensation for damage which first affected another legal person.

Recalling the connecting factors in actions for damages for infringement of Article 101 TFEU, the Advocate General pointed out that there were inconsistencies in the case law of the CJEU, which needed to be clarified in a forthcoming judgment. Both types of specific connecting factors (place of purchase and the victim’s registered seat) could justify the application of the rule of jurisdiction under Article 7(2) of the Regulation. The Advocate General referred to the Volvo judgment, where the CJEU qualified ‘the place where the damage occurred’ is the place, within the affected market, where the goods subject to the cartel were purchased. The Court has simultaneously reaffirmed, in the same judgment, the ongoing relevance of the alleged victim’s registered office, in cases where multiple purchases were made in different places. According to the Advocate General, the applicant seeks to extend the application of that connecting factor to establish jurisdiction in relation to its claim in which it seeks compensation for harm suffered solely by other members of its economic unit.

The Advocate General referred to the need for predictability in the determination of the forum in cartel proceedings, although he acknowledged that when it comes to determining the specific place ‘where the harm occurred’, the pursuit of the predictability of the forum becomes to some extent illusory in the context of a pan-European cartel.

In examining the Brussels Ia Regulation, the Advocate General recalled that it only provides additional protection for the interests of the weaker party in consumer, insurance and individual contracts of employment, but that cartel victims are not specifically mentioned in the Regulation, and therefore, in its interpretation, the interests of the claimants and defendants must be considered equivalent. Even so, the parent company has a wide range of options for claiming, the victim can initiate the action not only against the parent company that is the addressee of the respective Commission decision establishing an infringement but also against a subsidiary within that parent company’s economic unit. That creates the possibility of an additional forum and may therefore further facilitate enforcement. The victim also has the option of bringing proceedings before the court of the defendant’s domicile under the general rule of jurisdiction, which, while suffering the disadvantages of travel, allows him to claim the full damages in one proceeding. In these circumstences, the Advocate General failed to see in what way the current jurisdictional rules fundamentally prevent the alleged victims of anticompetitive conduct from asserting their rights.

 

IV. In the concept of economic unit we (don’t) trust?

Contrary to the Advocate General’s opinion, several difficulties can be seen which may prevent the victim parent companies from enforcing their rights if they cannot rely on Article 7(2) of the Brussels Ia Regulation. The additional costs arising from geographical distances and different national procedural systems may in themselves constitute a non-negligible handicap to the enforcement of rights, although this is true for both parties to the litigation. However, the aim must be to minimise the procedural and substantive obstacles to these types of litigation, whose economic and regulatory background makes them inherently more difficult and thus longer in time. It is also true that the real issue at stake in this case is the substantive law underlying the jurisdictional element: whether the parent company can claim in its own name for the damage caused to its subsidiaries on the basis of the principle of economic unit. If so, then Article 7(2) of the Brussels Ia Regulation applies and it can bring these claims in the court of its own registered office. Needless to say, having a single action for damages in several Member States is much better and more efficient from a procedural point of view, and is therefore an appropriate outcome from the point of view of EU competition policy and a more desirable outcome for the functioning of the Single Market. The opportunity is there for the CJEU to move forward and further improve the effectiveness of competition law, even if this means softening somewhat the relevant jurisprudence of the Brussels Ia Regulation, which has interpreted the special jurisdictional grounds more restrictive than the general jurisdiction rules. The EU legislator should also consider introducing a special rule of jurisdiction for cartel damages in the next revision of the Brussels Ia Regulation at the latest.

 

The fullt text of the opinion is available here (original language: English)

*Dr. András Osztovits, Professor at Károli Gáspár University, Budapest, Hungary, osztovits.andras@kre.hu.  He was member of the chamber of the Hungarian Supreme Court (Kúria) that initiated this preliminary procedure. Here, the author is presenting his own personal views only.




„El clásico“ of Recognition and Enforcement – A Manifest Breach of Freedom of Expression as a Public Policy Violation: Thoughts on AG Szpunar 8.2.2024 – Opinion C-633/22, ECLI:EU:C:2024:127 – Real Madrid Club de Fútbol

By Madeleine Petersen Weiner, Research Fellow and Doctoral Candidate at Heidelberg University

Introduction

On 8 February 2024, Advocate General (AG) Szpunar delivered his Opinion on C-633/22 (AG Opinion), submitting that disproportionate damages for reputational harm may go against the freedom of expression as enshrined in Art. 11 Charter of Fundamental Rights of the European Union (CFR). The enforcement of these damages therefore may (and at times will) constitute a violation of public policy in the enforcing state within the meaning of Art. 34 Nr. 1 Brussels I Regulation. The AG places particular emphasis on the severe deterring effect these sums of damages may have – not only on the defendant newspaper and journalist in the case at hand but other media outlets in general (AG Opinion, paras. 161-171). The decision of the Court of Justice of the European Union (CJEU) will be of particular topical interest not least in light of the EU’s efforts to combat so-called “Strategic Lawsuits Against Public Participation” (SLAPPs) within the EU in which typically financially potent plaintiffs initiate unfounded claims for excessive sums of damages against public watchdogs (see COM(2022) 177 final).

The Facts of the Case and Procedural History

Soccer clubs Real Madrid and FC Barcelona, two unlikely friends, suffered the same fate when both became the targets of negative reporting: The French newspaper Le Monde in a piece titled “Doping: First cycling, now soccer” had covered a story alleging that the soccer clubs had retained the services of a doctor linked to a blood-doping ring. Many Spanish media outlets subsequently shared the article. Le Monde later published Real Madrid’s letter of denial without further comment. Real Madrid then brought actions before Spanish courts for reputational damage against the newspaper company and the journalist who authored the article. The Spanish courts ordered the defendants to pay 390.000 euros in damages to Real Madrid, and 33.000 euros to the member of the club’s medical team. When the creditors sought enforcement in France, the competent authorities were disputed as to whether the orders were compatible with French international public policy due to their potentially interfering with freedom of expression.

The Cour de Cassation referred the question to the CJEU with a request for a preliminary ruling under Art. 267 TFEU, submitting no less than seven questions. Conveniently, the AG summarized these questions into just one, namely essentially: whether Art. 45(1) read in conjunction with Arts. 34 Nr. 1 and 45(2) Brussels I Regulation and Art. 11 CFR are to be interpreted as meaning that a Member State may refuse to enforce another Member State’s judgment against a newspaper company and a journalist based on the grounds that it would lead to a manifest infringement of the freedom of expression as guaranteed by Art. 11 CFR.

Discussion

The case raises a considerable diversity of issues, ranging from the relationship between the European Convention on Human Rights (ECHR), the CFR, and the Brussels I Regulation, to public policy, and the prohibition of révision au fond. I will focus on whether and if so, under what circumstances, a breach of freedom of expression under Art. 11 CFR may lead to a public policy violation in the enforcing state if damages against a newspaper company and a journalist are sought.

Due to the Regulation’s objective to enable free circulation of judgments, recognition and enforcement can only be refused based on limited grounds – public policy being one of them. Against this high standard (see as held recently in C-590/21 Charles Taylor Adjusting, ECLI:EU:C:2023:633 para. 32), AG Szpunar submits first (while slightly circular in reasoning) that in light of the importance of the press in a democracy, the freedom of the press as guaranteed by Art. 11 CFR constitutes a fundamental principle in the EU legal order worthy of protection by way of public policy (AG Opinion, para. 113). The AG rests this conclusion on the methodological observation that Art. 11(2)CFR covers the freedom and plurality of the press to the same extent as Art. 10 ECHR (ECtHR, Appl. No. 38433/09 – Centro Europa and Di Stefano/Italy, para. 129).

Under the principle of mutual trust, the Regulation contains a prohibition of révision au fond, Art. 45(2) Brussels I Regulation, i.e., prevents the enforcing court from reviewing the decision as to its substance. Since the assessment of balancing the interests between the enforcement creditors and the enforcement debtors had already been carried out by the Spanish court, the AG argues that the balancing required in terms of public policy is limited to the freedom of the press against the interest in enforcing the judgment.

Since the Spanish court had ordered the defendants to pay a sum for damages it deemed to be compensatory in nature, in light of Art. 45(2) Brussels I Regulation, the enforcing court could not come to the opposing view that the damages were in fact punitive. With respect to punitive damages, the law on enforcement is more permitting in that non-compensatory damages may potentially be at variance, in particular, with the legal order of continental states (cf. Recital 32 of the Rome II Regulation). In a laudable overview of current trends in conflict of laws, taking into account Art. 10(1) of the 2019 Hague Judgments Convention, the Résolution de L’Institut de Droit International (IDI) on infringements of personality rights via the internet (which refers to the Judgments Convention), and the case law of the CJEU and the ECtHR (AG Opinion, paras. 142-158), AG Szpunar concludes that, while generally bound by the compensatory nature these damages are deemed to have, the enforcing court may only resort to public policy as regards compensatory damages in exceptional cases if further reasons in the public policy of the enforcing Member State so require.

The crux of this case lies in the fact that the damages in question could potentially have a deterring effect on the defendants and ultimately prevent them from investigating or reporting on an issue of public interest, thus hindering them from carrying out their essential work in a functioning democracy. Yet, while frequently referred to by scholars, the CJEU (see e.g., in C-590/21 Charles Taylor Adjusting, ECLI:EU:C:2023:633 para. 27), and e.g., in the preparatory work for the Anti-SLAPP Directive (see the explanatory memorandum, COM(2022) 177 final; see also Recital 11 of the Anti-SLAPP Recommendation, C(2022) 2428 final), it is unclear what a deterring effect actually consists of. Indeed, the terms “deterring effect” and “chilling effect” have been used interchangeably (AG Opinion, para. 163-166). In order to arrive at a more tangible definition, the AG makes use of the ECtHR’s case law on the deterring effect in relation to a topic of public interest. In doing so, the deterring effect is convincingly characterized both by its direct effect on the defendant newspaper company and the journalist, and the indirect effect on the freedom of information on society in the enforcing state as a whole (AG Opinion, para. 170). Furthermore, in the opinion of the AG it suffices if the enforcement is likely to have a deterring effect on press freedom in the enforcing Member State (AG Opinion, para. 170: “susceptible d’engendrer un effet dissuasif”).

As to the appropriateness of the amount of damages which could lead to a manifest breach of the freedom of the press, there is a need to differentiate: The newspaper company would be subject to a severe (and therefore disproportionate) deterring effect, if the amount of damages could jeopardize its economic basis. For natural persons like the journalist, damages would be disproportionate if the person would have to labor for years based on his or her or an average salary in order to pay the damages in full. It is convincing that the AG referred to the ECtHR’s case law and therefore applied a gradual assessment of the proportionality, depending on the financial circumstances of the company or the natural person. As a result, in case of a thus defined deterring effect on both the defendants and other media outlets, enforcing the decision would be at variance with public policy and the enforcing state would have to refuse enforcement in light of the manifest breach of Art. 11 CFR (AG Opinion, para. 191).

Conclusion

The case will bring more clarity on public policy in relation to freedom of expression and the press. It is worth highlighting that the AG relies heavily on principles as established by the ECtHR. This exhibits a desirable level of cooperation between the courts, while showing sufficient deference to the ECtHR’s competence when needed (see e.g., AG Opinion, para. 173). These joint efforts to elaborate on criteria such as “public participation” or issues of “public interest” – which will soon become more relevant if the Anti-SLAPP Directive employs these terms –, will help bring legal certainty when interpreting these (otherwise partially ambiguous) terms. It remains to be seen whether the CJEU will adopt the AG’s position. This is recommended in view of the deterrent effect of the claims for damages in dispute – not only on the defendants, but society at large.