Droit international général

The Centre for Private International Law (CPIL) of the University of Aberdeen is pleased to host its first postgraduate conference, which is to be held on 17 November 2021. The Postgraduate Law Conference aims at bringing together early career scholars working in the private international law field or at the intersection of European Union law and Private International Law. The purpose is for scholars to present their research before esteemed peers with relevant expertise and receive valuable feedback for further development from academic experts.

 

The Conference will include panels on Private International Law aspects of International Family Law, International Commercial Law and ADR as well as European Union Law and will be complete with the unrivalled expertise of the Members and Associate Members of the CPIL and external scholars. For a full list of the participating scholars and to download the Call for Papers form, please click here. The deadline for the Call for Papers is 31 August 2021.

 

This guest  post was written by Ahmed Alzaabi, a legal researcher based at Abu Dhabi. It is great material for comparative conflicts purposes, as it highlights issues like ‘clearly demonstrated’ choice of court, hybrid jurisdiction clauses, and lex contractus for choice of court. Geert.

Introduction

The Dubai International Financial Center Court of Appeal (DIFC CA) delivered an interesting judgment in Goel and others v Credit Suisse (Switzerland) Limited [CA-002-2021} on 26 April 2021, which addresses the DIFC Courts opt-in jurisdiction. It is the most important decision since the opt-in clauses came into force in 2011. The case deals with personal guarantees entered into by Goel and others as Guarantors, and Credit Suisse AG as Lender. A term of the guarantee agreements refers to the jurisdiction of the “Courts of Dubai”.

An ex parte application was filed before the DIFC Court of First Instance (CFI) and was dismissed by H.E. Justice Ali Al Madhani on ground that the words “Courts of Dubai” were not specific, clear and express as required by Article 5(A)(2) of the DIFC Judicial Authority Law[i] (“JAL”) to opt-in into the DIFC jurisdiction.

The application was appealed and determined by Justice Wayne Martin, who ruled that the DIFC CFI has the jurisdiction to hear and decide any substantive claim filed by the Respondent. Justice Wayne Martin issued a world-wide freezing order (WFO) against the Guarantors and the order was appealed on the basis that the jurisdiction term in the Guarantee Agreements refers to the Courts of Dubai, and not to the DIFC Courts, therefore, the DIFC Courts shall have no jurisdiction to decide on this matter. The DIFC CA dismissed the appeal and upheld the ruling of Justice Wayne Martin.

Overview of the dispute:

• Description of the parties. Credit Suisse AG (was a DIFC Establishment), and Credit Suisse (Switzerland) LIMITED (Respondent) are both subsidiary banks wholly owned by a Credit Suisse Group (a company registered in Switzerland). Goel and others (Appellants) are shareholders and directors of GP FZC (a parent company of GP Group of companies and offices all over the world).

• Facts. On 13 May 2016, the Appellants entered into Guarantee Agreements with the Credit Suisse AG guarantying the performance of various borrowers of GP Group under a Credit Facility Agreement. Furthermore, on September 2016, Guarantee Transfer Agreements were signed between the Credit Suisse AG and the Appellants providing for the transfer of the rights and obligations of the guarantees to benefit the Respondent. The Appellants undertook to perform their obligations toward the Respondent as if the Respondent has been a party to the original Guarantee Agreements. At the time of signing the Guarantee and Transfer Agreements, the Credit Suisse AG was a “DIFC Establishment” within the definition of DIFC JAL. Neither Appellants nor Respondent were a DIFC Establishment.

The Guarantee Agreements provide in its clause 16 that the governing law is the Law of the Emirate of Dubai and the Applicable Federal Law of the United Arab Emirates. Clause 17 of the Guarantees (enforcement provision) refers to the jurisdiction of the Courts of Dubai, and clause 17.1 entitles the lender, Credit Suisse AG, to initiate legal proceedings before any other competent court. On the other hand, clause 7 of the Guarantee Transfer Agreements[ii] refers to the applicable law and jurisdiction, which states that any contractual or non- contractual obligations of the Transfer Agreements shall be governed by the Laws of the Emirate of Dubai, and the applicable Federal Laws of the United Arab Emirates. In addition, any dispute arising out of the Transfer Agreements which relates to any provisions of the Guarantees (as transferred and amended) shall be subject to the same jurisdictional provisions of the Guarantee Agreements.

• Proceedings. The Respondent filed an application before the DIFC CFI requesting for a world-wide freezing order (WFO) to restrain the Appellants from dealing or disposing of their assets until the determination of the Respondent’s substantive claim. The CFI dismissed the claim on the ground that it has no jurisdiction, and stated that the order sought would have been granted if the court has the jurisdiction, as the Respondent made all the grounds for making such order. The Respondent appealed that decision, and the CA allowed the appeal and upheld that the judge of CFI should have granted that order on the basis that there is a good arguable case to the extent that the court has the jurisdiction. The CA added that, the CFI judge should have leave it open to the Appellants to challenge the court’s jurisdiction. Following this decision, the WFO was issued on 13 September 2020 and served on the Appellants. The Appellants filed an application to challenge the court’s jurisdiction arguing that the court lacked jurisdiction to issue that decision, and requested to dismiss the proceedings. Justice Martin, the assigned judge to hear the Appellants’ application, dismissed the application and held that DIFC Courts had the jurisdiction to hear and determine the Respondent’s substantive claim and the WFO against the Appellants, and he published his interesting reasoning for that decision on 4 October 2020.

• CFI Decision. It was common ground for the judge and the parties that the applicable law governing the guarantees are the laws of the Emirate of Dubai and the applicable Federal Law of the United Arab Emirates. Justice Martin referred to Article 6 of the JAL, which provides that “the Court shall apply the DIFC Laws and Regulations, except where the parties have explicitly agreed to another law to govern the dispute, provided that that law doesn’t contradict with the public policy and morals”. Accordingly, he pointed that this article clarifies that the parties may select another governing law than DIFC Laws. However, the choice made by the parties will not place the dispute outside the DIFC Courts jurisdiction.

Justice Martin then focused on whether the Court has the jurisdiction to enter the WFO in support of the Respondent’s substantive claim. He had to determine a question of if the Respondent could establish that the claim against the Appellants passed through one or other of the “gateways” to the jurisdiction of the CFI as stipulated in Article 5 of the JAL. His finding was that the only available “gateway” is Article 5(A)(2) of the JAL, which states the following: “the Court of First Instance may hear and determine any civil or commercial claims or actions where the parties agree in writing to file such claim or action with it whether before or after the dispute arises, provided that such agreement is made pursuant to specific, clear and express provisions”. He further noted that the Respondent submitted and Appellants denied that clauses 17.1 and 17.2 of the Guarantee Agreements constitute an agreement in writing within the meaning of Article (5)(A)(2) of the JAL.

Justice Martin analysed the UAE Civil Transactions Code as a governing law applied to the contract and cited Articles 258 and 265, which address the intention of the parties to a contract. He also looked at a commentary on the Civil Transactions Code approved by the Ministry of Justice. The result of his analysis is that: “the both UAE legal system and the common law require the Court to confirm the join intention of the parties. The joint intention could be ascertained by interpreting words which the parties have used to record their agreement objectively, as they would be understood by a reasonable business person having the knowledge of the circumstances known to the parties at the time they entered into their contract”.

Justice Martin then referred to three prior decisions of DIFC Courts (Sunteck, Taalem, and IGPL), in which the CA rejected the proposition that the words “Dubai Courts” mean only non-DIFC Courts. He extracted from these three decisions the following propositions:

(a) it is not mandatory for the contract to specifically refer to the jurisdiction of the “DIFC Courts” to consider the gateway to the jurisdiction specified by Article 5(A)(2) of the JAL;

(b) the Court is to determine the question whether the joint intention of the parties meant to select the jurisdiction of DIFC Courts to hear such kind of dispute;

(c) that question could be resolved by referring to the natural and ordinary meaning of the jurisdictional words as the parties would have been mutually understood them having regard to the circumstances, the nature of the agreement and the context in which the words are used;

(d) if the Court concluded that the parties intended to refer to the DIFC jurisdiction when using the words recorded in their contract, those words will satisfy the requirements set by Article 5(A)(2) ““specific, clear and express provisions”;

(e) the words (Dubai Courts) or (Courts of Dubai) in their natural and ordinary meaning refer to all courts established in the Emirates of Dubai, including the DIFC Courts and the non-DIFC Courts;

(f) if one of the parties was a DIFC establishment at the time of signing a jurisdiction agreement, the other party would have taken into consideration and understood that the DIFC Courts, by default, would have the exclusive jurisdiction within Dubai to hear and determine any dispute arising out of that agreement. It would require a clear and express words to come to the result that the parties’ mutual intention is to exclude the jurisdiction of DIFC Courts.

Justice Martin selected the IGPL among the other two decisions, although it was an opt-out and not op-in case, but it shares common facts which are relevant to the question that the judge has to decide. The similarities with IGPL being (a) the relevant agreements were governed by the applicable Laws of UAE; (b) the words used in the jurisdiction agreements were identical (c) one of the party was a DIFC establishment at the time that the jurisdiction agreements were signed. Given those similarities, Justice Martin was bound to apply the reasoning in IGPL to conclude that clause 17.1 of the Guarantee Agreements indicates the mutual intention of the parties at the time that the agreements were signed. He highlighted that Credit Suisse AG was a DIFC Establishment at the time the guarantee agreements were signed. This constitutes a strong indication that the mutual intention of the parties was to include DIFC Courts within the meaning of the words “Courts of Dubai”. There was no indication of mutual intention of the parties to exclude DIFC Courts jurisdiction.

The judge stated the following circumstances which support the proposition that the words ‘Courts of Dubai’ should hold ordinary meaning to include DIFC Courts: “(a) the agreements are all in English language (the DIFC Courts operate in English); (b) Credit Suisse AG is a Foreign Company, incorporated in Switzerland; (c) a number of the borrowers under the Credit Facility Agreement were incorporated in foreign jurisdictions; (d) the Guarantors are all Indian nationals with Indian passports; and (e) clause 17.3 of each Guarantee expressly recognises the prospect of enforcement proceedings in foreign jurisdictions. These circumstances support the proposition that the parties have intended to refer to a court within the Emirate of Dubai which has an international characteristic as well as an onshore court of Dubai.

• DIFC CA Decision. The Appellants challenged the CFI decision after the permission of appeal has been granted and provided that the CFI does not have jurisdiction to determine the substantive claim against the Appellants including the WTO application. The appeal was unsuccessful. The CA upheld that the jurisdiction clause used in the contract was a solid agreement to opt-in to the DIFC Courts’ jurisdiction in accordance with article 5 (A)(2) of the JAL. The CA added that when the term “the courts of Dubai” is used in an agreement, it has an ordinary meaning that refers to all courts incorporated within the Emirate of Dubai, including DIFC’s and non-DIFC’s Courts. Furthermore, the CA confirmed that the intention of the parties when they signed the agreement with a DIFC Establishment did not change the obligations on the Appellants when the Guarantee Transfer Agreements are signed in favour of a non DIFC Establishment. The CA then looked at the question of whether the clarity of the term “the courts of Dubai” is enough for the purposes of the gateway to jurisdiction within Article 5(A) (2) of the JAL.  The CA added that if as a matter of contractual construction, the parties had intended to agree that the DIFC Courts should have jurisdiction over their disputes, it would be a triumph of form over substance to hold that they failed because they did not use the term “DIFC Courts. On that note, the CA ruled that the parties’ contract was “specific, clear and express” enough to opt-in to the jurisdiction of the DIFC Court.

The CA highlighted in its conclusion that the construction of terms such as “courts of Dubai” will rely upon their context. Moreover, the transactions’ history matter in this case is significant to the constructional conclusion.

• Conclusion. This case points out that the parties wishing to include or exclude DIFC jurisdiction should use a clear and express language in their contract to minimise jurisdictional disputes risk and avoid any ambiguity.

Royal Caribbean Cruises Ltd v Browitt [2021] FCA 653 is a great addition to the comparative conflicts binder, particularly from the angle of ‘consent’ in business to consumer contracts. It also engages a classic tripartite relation between the consumer, signing a contract with a travel agent, whose GTCS in turn incorporate the GTCS of the carrier.

The case follows on from the December 2019 volcanic eruption at Whakaari.  (Mrs Browitt), for herself and as representative of the deceased estates of her late husband Paul and late daughter Krystal, and Stephanie (Ms Browitt), a daughter who survived the eruption with horrific injuries, are suing Royal Caribbean Cruises Ltd (RCCL), a Liberian registered company headquartered and operating in Miami, Florida, in the courts at Miami. There are applicable law and procedural advantages (incl discovery and trial (both on culpability and level of damages) by jury).

RCL Cruises Ltd (RCL) and RCCL apply for anti-suit in the FCA arguing that the Browitts were passengers on the Ovation of the Seas pursuant to a contract of carriage between the Browitts and RCL as the disponent owner and operator of the vessel. They seek a declaration that it was a term of the contract, signed at Flight Centre in Victoria, Australia, that any disputes between the parties would be subject to the exclusive jurisdiction of the courts of New South Wales.

The list of issues to be determined is long but I repeat it here anyways for they highlight the complexity of issues following a routine purchase of a cruise:

(1)    Was Flight Centre the agent of Mrs Browitt, RCL or both?

(2)    Were the RCL AU terms, including the exclusive jurisdiction clause, incorporated into the contract of carriage by: (a)    reference in the Flight Centre terms and conditions signed by Mrs Browitt on 14 February 2019? (b)    the text of a Royal Caribbean brochure? (c)    links on the RCL AU website? (d)    links in emails? (e)    links in the electronic guestbook?

(3)    As to the construction of the RCL AU terms: (a)    is RCL entitled to invoke the exclusive jurisdiction clause to restrain the Florida proceedings? (b)    is RCCL entitled to rely on the exclusive jurisdiction clause? (c)    did the purchase of insurance exclude the operation of the terms (cl 1)? (The respondents later dropped reliance on the purchase of insurance as excluding the operation of the exclusive jurisdiction clause, so this issue fell away.) (d)    does the contract of carriage apply to shore excursions (cl 25)? If not, does the exclusive jurisdiction clause nonetheless operate to restrain the Florida proceedings? (e)    does the exclusive jurisdiction clause permit a proceeding to be brought in the Federal Court of Australia sitting in New South Wales, and if not, what consequence follows from the commencement of this proceeding (cl 1, cl 37/38)? (f)    does the exclusive jurisdiction clause cover the Florida proceeding?

(4)    Is RCCL entitled to relief on the basis of the RCL AU terms?

(5)    Is the Florida proceeding vexatious and oppressive such that RCL and RCCL are entitled to an anti-suit injunction?

The judge held that although the Browitts were bound by the RCL AU terms, the Florida proceeding is not in breach of the exclusive jurisdiction agreement in those terms because RCCL is not a party to the agreement and RCCL does not enjoy the benefit of it. Also, there is no basis for the alternative case that the Florida proceeding is in any event vexatious and oppressive such as to justify an order restraining Mrs Browitt and Ms Browitt from pursuing it.

Terms and conditions were available on relevant websites and brochures, shown to and browsed by Mrs Browitt but not for the purposes of terms and conditions. Rather, as one would expect, for details of the journey, vessels etc. Unlike a quote, the eventual invoice included as part of the document three pages of booking terms and conditions. Some of those were highlighted in the copy made available to Mrs Browitt  Mrs Browitt could have read the GTCS but there was no inidcation she had or had been specifically pointed to them. Nothing in either version of the invoice, i.e., that which was printed for and signed by Mrs Browitt and that which was emailed by the agency, identifies which of RCCL and RCL was offering the cruise or operating the vessel.

The judgment, which I would invite readers to consult, eventually boils down to limitations of ‘agency’, privity of contract, and clear determination of contractual clauses. It does not decide for the Browitts on the basis of a particular concern for the weaker party in a classic B2C transaction, rather on the need for parties clearly to think through their spaghetti bowl of overlapping arrangements and GTCs when hoping to rely on them in court.

Geert.

Royal Caribbean Cruises Ltd v Browitt [2021] FCA 653
Consumer contracts, exclusive choice of court, privity (and sloppy drafting)
|Federal Court clears the way for victims of the White Island Volcano to sue in Florida https://t.co/qGjGc4DUaQ

— Geert van Calster (@GAVClaw) July 13, 2021

To celebrate the 25th anniversary of the HCCH 1996 Child Protection Convention, the HCCH is pleased to announce the launch of the Advancing and Promoting the Protection of All Children (Approach) Initiative!

The HCCH|Approach Initiative will consist of a series of activities and events culminating in the HCCH|Approach Event, to be held online on Tuesday 19 October 2021. Information on registration and the programme of the HCCH|Approach Event will be made available in due course.

Leading up to the HCCH|Approach Event, the Permanent Bureau of the HCCH is organising two competitions: the HCCH|Approach Essay Competition, and the HCCH|Approach Media and Design Competition. Entries can be submitted up until Friday 1 October 2021, 5.00 p.m. (CEST).

More information on the HCCH|Approach Initiative and its competitions is available here.

This post is published by the Permanent Bureau of the Hague Conference of Private International Law (HCCH). 

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

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

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

Background

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

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

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

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

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

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

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

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

Ruling

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

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

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

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

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

Issue (1) – Waiving The Corruption Allegation?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Issue (5) – Separability: s73 of 1996 Act

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

Issue (6) – Challenge on the Merits

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

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

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

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

By Sarah McKibbin, University of Southern Queensland

Epic Games, the developer of the highly popular and lucrative online video game Fortnite, recently won an appeal against tech juggernaut, Apple, in Australia’s Federal Court.[1] Fortnite is played by over three million Apple iOS users in Australia.[2] In April 2021, Justice Perram awarded Apple a temporary three-month stay of proceedings on the basis of an exclusive foreign choice of court agreement in favour of the courts of the Northern District of California. Despite awarding this stay, Justice Perram was nevertheless ‘distinctly troubled in acceding to’ Apple’s application.[3] Epic appealed to the Full Court.

On 9 July, Justices Middleton, Jagot and Moshinsky found three errors of principle in Justice Perram’s consideration of the ‘strong reasons’ given by Epic for the proceedings to remain in the Federal Court — despite the exclusive foreign choice of court agreement.[4] Exercising its own discretion, the Full Court then found ‘strong reasons’ for the proceedings to remain in the Federal Court, particularly because enforcement of the choice of court agreement would ‘offend the public policy of the forum.’[5] They discerned this policy from various statutory provisions in Australia’s competition law as well as other public policy considerations.[6] The appeal highlights the tension that exists between holding parties to their promises to litigate abroad and countenancing breaches of contract where ‘serious issues of public policy’ are at play.[7]

1          Exclusive Choice of Foreign Court Agreements in Australia

Australians courts will enforce an exclusive choice of court agreement favouring a foreign court either by granting a stay of local proceedings or by awarding damages for breach of contract. The usual approach is for the Australian court to enforce the agreement and grant a stay of proceedings ‘unless strong reasons are shown why it should not.’[8] As Justice Allsop observed in Incitec v Alkimos Shipping Corp, ‘the question is one of the exercise of a discretion in all the circumstances, but recognising that the starting point is the fact that the parties have agreed to litigate elsewhere, and should, absent some strong countervailing circumstances, be held to their bargain.’[9] The burden of demonstrating strong reasons rests on the party resisting the stay.[10] Considerations of inconvenience and procedural differences between jurisdictions are unlikely to be sufficient as strong reasons.[11]

Two categories of strong reasons predominate. The first category is where, as stated in Akai Pty Ltd v The People’s Insurance Co Ltd, enforcement ‘offends the public policy of the forum whether evinced by statute or declared by judicial decision’.[12] This includes the situation ‘where the party commencing proceedings in the face of an exclusive jurisdiction clause seeks to take advantage of what is or may be a mandatory law of the forum’.[13] The prohibition in Australian law against misleading and deceptive conduct is an example.[14] The second category justifying non-enforcement is where litigation in the forum concerns issues beyond the scope of the choice of court agreement or concerns third parties to the agreement.[15] Where third parties are concerned, it is thought that ‘the court should not start with the prima facie disposition in favour of a stay of proceedings’.[16]

2         Factual Background

The successful appeal represents the latest decision in an ongoing international legal battle between Apple and Epic precipitated by Fortnite’s removal from the Apple App Store in August last year. Epic released a software update for Apple iOS devices on 13 August 2020 making the Fortnite’s virtual currency (called V-Bucks) available for purchase through its own website, in addition to Apple’s App Store, at a 20 per cent discount. Any new game downloads from the App Store ‘came equipped with this new feature’.[17] While Fortnite is free to download, Epic’s revenue is generated by players purchasing in-app content, such as dance moves and outfits, through a digital storefront. After the digital storefront takes a commission (usually 30 per cent), Epic receives the net payment.

App developers only have one avenue if they wish to distribute their apps for use on Apple iOS devices: they must use the Apple App Store and Apple’s in-app payment system for in-app purchases from which Apple takes a 30 per cent revenue cut. Epic’s co-founder and CEO Tim Sweeney has singled out Apple and Google for monopolising the market and for their ‘terribly unfair and exploitative’ 30 per cent commission for paid app downloads, in-app purchases and subscriptions.[18] While a 70/30 revenue split has been industry standard for many years, the case for an 88/12 revenue model is building.[19] Sweeney argues that ‘the 30% store tax usually exceeds the entire profits of the developer who built the game that’s sold’.[20]

3         Apple’s App Developer Agreement

Epic’s relationship with Apple is regulated by the Apple Developer Program License Agreement (‘DPLA’) under which Apple is entitled to block the distribution of apps from the iOS App Store ‘if the developer has breached the App Store Review Guidelines’.[21] These Guidelines include the obligation to exclusively use Apple’s in-app payment processing system. Clause 14.10 contains Epic’s contractual agreement with Apple to litigate in the Northern District of California:

Any litigation or other dispute resolution between You and Apple arising out of or relating to this Agreement, the Apple Software, or Your relationship with Apple will take place in the Northern District of California, and You and Apple hereby consent to the personal jurisdiction of and exclusive venue in the state and federal courts within that District with respect any such litigation or dispute resolution.

By introducing a custom payment facility, the August update breached the App Store Review Guidelines. Apple swiftly removed Fortnite from its App Store. There were three consequences of this removal: first, Fortnite could not be downloaded to an Apple device; secondly, previously installed iOS versions of Fortnite could not be updated; and, thirdly, Apple device users could not play against players who had the latest version of Fortnite.[22]

4         The Proceedings

On the same day as Apple removed Fortnite from the App Store, Epic commenced antitrust proceedings in the United States District Court for the Northern District of California, alleging Apple’s ‘monopolisation of certain markets’ in breach of the United States’ Sherman Act and other California legislation. The judgment in the US trial is expected later this year. Epic also sued Apple in United Kingdom, the European Union and Australia on competition grounds. In February, the United Kingdom’s Competition Appeal Tribunal refused permission to serve Epic’s claim on Apple in California because the United Kingdom was not a suitable forum (forum non conveniens).[23] Together with these legal actions, Epic commenced a marketing campaign urging the game’s worldwide fanbase to ‘Join the fight against @AppStore and @Google on social media with #FreeFortnite’.[24] Epic also released a video parodying Apple’s famous 1984 commercial called ‘Nineteen Eighty-Fortnite’.[25]

The Australian proceedings were brought in the Federal Court in November 2020. Epic’s complaint against Apple is the same as in the US, the EU and the UK, but with the addition of a territorial connection, ie developers of apps for use on Australian iOS devices must only distribute their apps through Apple’s Australian App Store and only use Apple’s in-app payment processing system. As a consequence, Epic alleges that Apple has contravened three provisions of Part IV of the Competition and Consumer Act 2010 (Cth) concerning restrictive trade practices and the Australian Consumer Law for unconscionable conduct. In addition to injunctive relief restraining Apple from continuing to engage in restrictive trade practices and unconscionable conduct, Epic seeks ancillary and declaratory relief.

Apple applied for a permanent stay of the Federal Court proceedings, relying on the choice of court agreement in the DPLA and the doctrine of forum non conveniens. Epic unsuccessfully argued that its claims under Australian law did not ‘relate to’ cl 14.10 of the DPLA.[26] More critically, Justice Perram did not think Epic had demonstrated strong reasons. He awarded Apple a temporary three-month stay of proceedings ‘to enable Epic to bring this case in a court in the Northern District of California in accordance with cl 14.10.’[27] Where relevant to the appeal, Justice Perram’s reasoning is discussed below.

5         The Appeal: Three Errors of Principle

The Full Court distilled Epic’s 17 grounds of appeal from Justice Perram’s decision into two main arguments. Only the second argument — turning on the existence of ‘strong grounds’[28] — was required to determine the appeal. Justices Middleton, Jagot and Moshinsky identified three errors of principle in Justice Perram’s evaluation of ‘strong reasons’, enabling them to re-evaluate whether strong reasons existed.

The first error was Justice Perram’s failure to cumulatively weigh up the reasons adduced by Epic that militated against the granting of the stay. Justice Perram had grudgingly granted Apple’s stay application without evaluating the five concerns he had expressed ‘about the nature of proceedings under Part IV which means they should generally be heard in this Court’,[29] as he was required to do. The five concerns were:[30]

1. The public interest dimension to injunctive proceedings under the Competition and Consumer Act;
2. The ‘far reaching’ effect of the litigation on Australian consumers and Australian app developers as well as the nation’s ‘interest in maintaining the integrity of its own markets’;
3. The Federal Court’s exclusive jurisdiction over restrictive trade practices claims;
4. ‘[D]icta suggesting that [restrictive trade practices] claims are not arbitrable’; and
5. That if the claim in California ‘complex questions of [Australian] competition law will be litigated through the lens of expert evidence’.

The second error was Justice Perram’s ‘failure to recognise juridical disadvantages of proceeding in the US Court’.[31] The judge had accepted that litigating the case in California would be ‘more cumbersome’ since ‘expert evidence about the content of Australian law’ would be needed.[32] There was a risk that a California court ‘might decline to hear the suit on forum non conveniens grounds.’[33] Despite that, he concluded that ‘[a]ny inconvenience flows from the choice of forum clause to which Epic has agreed. It does not sit well in its mouth to complain about the consequences of its own bargain’.[34] However, the Full Court viewed the inapplicability of ‘special remedial provisions’ of the Australian Competition and Consumer Act in the California proceedings as the loss of a legitimate juridical advantage.[35]

The third error concerned a third party to the exclusive jurisdiction clause. In Australian Health & Nutrition Association Ltd v Hive Marketing Group Pty Ltd, Justice Bell observed that the default enforcement position was inapplicable in cases where ‘not all parties to the proceedings are party to an exclusive jurisdiction clause’.[36] Apple Pty Limited, an Australian subsidiary of Apple, was not a party to the DPLA. Yet it was responsible ‘for the distribution of iOS-compatible apps to iOS device users’ within the Australian sub-market in a manner consistent with Apple’s worldwide conduct.[37] Moreover, Epic’s proceedings included claims under the Competition and Consumer Act and the Australian Consumer Law against the Australian subsidiary ‘for conduct undertaken in Australia in connection with arrangements affecting Australian consumers in an Australian sub-market.’[38] In this light, the Full Court rejected Justice Perram’s description of the joinder of Apple Pty Limited as ‘ornamental and ‘parasitic on the claims Epic makes against Apple’.[39]

6          The Appeal: Strong Reasons Re-evaluated

The stay should have been refused. The Full Court found a number of public policy considerations that cumulatively constituted strong reasons not to grant a stay of Epic’s proceedings. The judges discerned ‘a legislative policy that claims pursuant to [the restrictive trade practices law] should be determined in Australia, preferably in the Federal Court’ — although it was not the only court that could hear those claims.[40] Essentially, the adjudication of restrictive trade practices claims in the Federal Court afforded legitimate forensic advantages to Epic — benefits which would be lost if Epic were forced to proceed in California. These benefits included the availability of ‘specialist judges with relevant expertise’ in the Federal Court, the potential for the Australian Competition and Consumer Commission to intervene, and the opportunity for private litigants (as in this case) to ‘develop and clarify the law’.[41] Indeed, the Federal Court has not yet interpreted the misuse of market power provision in the Competition and Consumer Act relied upon by Epic, which came into effect in 2017.[42] The litigation will also impact millions of Australians who play Fortnite and the state of competition in Australian markets.[43]

 

 

[1] Epic Games, Inc v Apple Inc [2021] FCAFC 122.

[2] Epic Games, Inc v Apple Inc (Stay Application) [2021] FCA 338, [7] (Perram J).

[3] Ibid, [64] (Perram J).

[4] Epic Games, Inc v Apple Inc (n 1) [48].

[5] Ibid.

[6] Ibid, [90].

[7] Ibid, [97]. See James O’Hara, ‘Strategies for Avoiding a Jurisdiction Clause in International Litigation’ (2020) 94(4) Australian Law Journal 267. Compare Mary Keyes, ‘Jurisdiction under the Hague Choice of Courts Convention: Its Likely Impact on Australian Practice’ (2009) 5(2) Journal of Private International Law 181; Richard Garnett, ‘Jurisdiction Clauses since Akai’ (2013) 87 Australian Law Journal 134; Brooke Adele Marshall and Mary Keyes, ‘Australia’s Accession to the Hague Convention on Choice of Court Agreements’ (2017) 41 Melbourne University Law Review 246.

[8] A Nelson & Co Ltd v Martin & Pleasance Pty Ltd (Stay Application) [2021] FCA 754, [10] (Perram J) (emphasis added). See also Huddart Parker Ltd v Ship ‘Mill Hill’ (1950) 81 CLR 502, 508–9 (Dixon J); The Eleftheria [1970] P 94, 99 (Brandon J); Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418, 427–9 (Dawson and McHugh JJ), 445 (Toohey, Gaudron and Gummow JJ).

[9] Incitec Ltd v Alkimos Shipping Corp (2004) 138 FCR 496, 505 [43].

[10] There was some argument about onus in Epic Games (Stay Application) (n 2) [35]–[40] (Perram J).

[11] Incitec (n 9) [49]; Andrew S Bell, ‘Jurisdiction and Arbitration Agreements in Transnational Contracts: Part I’ (1996) 10 Journal of Contract Law 53, 65. See generally O’Hara (n 7).

[12] (1996) 188 CLR 418, 445 (Toohey, Gaudron and Gummow JJ). See also Marshall and Keyes (n 7) 257.

[13] Australian Health and Nutrition Association Ltd v Hive Marketing Group Pty Ltd (2019) 99 NSWLR 419, 438 [80] (Bell P).

[14] Australian Consumer Law s 18.

[15] Incitec (n 9) 506 [47], [49] (Allsop J); Marshall and Keyes (n 7) 258.

[16] Australian Health (n 13) 423 [1] (Bathurst CJ and Leeming JA), 442 [90] (Bell J).

[17] Epic Games (Stay Application) (n 2) [6] (Perram J).

[18] @TimSweeneyEpic (Twitter, 29 July 2020, 1:29 pm AEDT) <https://twitter.com/TimSweeneyEpic/status/1288315775607078912>.

[19] See, eg, Nick Statt, ‘The 70-30 Revenue Split is Causing a Reckoning in the Game Industry’, protocol (Web Page, 4 May 2021) <https://www.protocol.com/newsletters/gaming/game-industry-70-30-reckoning?rebelltitem=1#rebelltitem1>.

[20] @TimSweeneyEpic (Twitter, 26 June 2019, 10.13 am AEDT) <https://twitter.com/TimSweeneyEpic/status/1143673655794241537>.

[21] Epic Games (n 1) [5].

[22] Epic Games (Stay Application) (n 2) [7].

[23] Epic Games, Inc v Apple Inc [2021] CAT 4.

[24] ‘#FreeFortnite’, Epic Games (Web Page, 13 August 2020) <https://www.epicgames.com/fortnite/en-US/news/freefortnite>.

[25] Fortnite, ‘Nineteen Eighty-Fortnite – #FreeFortnite’ (YouTube, 13 August 2020) <https://youtu.be/euiSHuaw6Q4>.

[26] Epic Games (Stay Application) (n 2) [11]–[12].

[27] Ibid, [66].

[28] Epic Games (n 1) [41], [47].

[29] Ibid, [57].

[30] Epic Games (Stay Application) (n 2) [59]–[63].

[31] Epic Games (n 1) [58].

[32] Epic Games (Stay Application) (n 2) [53].

[33] Ibid, [44].

[34] Ibid, [58].

[35] Epic Games (n 1) [62].

[36] Australian Health (n 13) 442 [90] (Bell P).

[37] Epic Games (n 1) [74].

[38] Ibid, [78].

[39] Ibid.

[40] Ibid, [99]. The Full Court clarified that ‘other Australian courts may determine Pt IV claims, but within a limited compass and for specific reasons’: [116].

[41] Ibid, [104], [107], [122].

[42] Ibid, [107].

[43] Ibid, [97].

The Mexican Academy of Private International and Comparative Law (AMEDIP) has just published the 25th Anniversary Issue of the Mexican Journal of Private International Law.  It is available here.

One of the main aims of this journal is to publish the papers presented at AMEDIP’s annual seminars, which must comply with the requirements set out in the convocations and are peer-reviewed. Click here to access the Journal page.

Below is the table of contents of the 25th Anniversary Issue (in Spanish):

 

DOCTRINA

– Pros  y  contras  del  Convenio  de  la  Haya  de  1996,  sobre  la competencia, la ley aplicable, el reconocimiento, la ejecución y cooperación en materia de responsabilidad parental y de medidas de protección de los niños / María Virginia Aguilar

– La retención ilícita del menor en un contexto familiar transfronterizo: aspectos de competencia judicial internacional / David Carrizo Aguado

– La (Des)  Apreciación Conjunta de  los  Convenios  de  la  Haya de 1980 y 1996 por el Tribunal Europeo de Derechos Humanos y el Perjuicio al Principio del Interés  Superior del Niño / Aline Beltrame de Moura

– El papel controversial del TEDH en la interpretación del Convenio  de  la  Haya  de  25  de  octubre  de  1980  sobre los Aspectos Civiles de Sustracción Internacional de Menores: Especial referencia a los casos Neulinger y Shuruk c. Suiza y X. c. Letonia  / María Mayela Celis Aguilar

– Algunos apuntes sobre sobre la competencia jurisdiccional civil internacional en materia de alimentos a la luz del Convenio de la Haya sobre los Aspectos Civiles de la Sustracción Internacional de Menores y el Derecho Procesal Peruano / Luis Raúl Serrano Arribasplata

– La extensión de  las  cláusulas  arbitrales a  partes no  signatarias con base en la Teoría del Grupo de Sociedades / Jorge I. Aguilar Torres

– Comentarios al Convenio de la Haya del 2 de julio de 2019 sobre Reconocimiento y Ejecución de Sentencias Extranjeras en materia Civil y comercial / Francisco José Contreras Vaca

– El Derecho Internacional Privado en el contexto internacional actual: Las reglas de competencia judicial internacional indirecta en el Convenio de la Haya de 2 de julio de 2019 y el acceso a la justicia / Carlos Eduardo Echegaray de Maussion

– La aplicación de la regla de conflicto en materia mercantil / James A. Graham

– Extraterritorialidad de la Foreing Corrupt Practices Act de 1977 / Francisco Jesús Goytortúa Chambon

– La Nacionalidad Mexicana / Leonel Pereznieto Castro

– Democracies and Major Economies are becoming authoritarian; Multilateralism and the rule of law is threatened: and the case of president Donald Trump / James Frank Smit

 

LA VOZ DEL COMITÉ EDITORIAL

– Los primeros 25 años de la Revista Mexicana de Derecho Internacional Privado y Comparado / Jorge Alberto Silva

– Contribución de la Revista Mexicana de Derecho Internacional Privado y Comparado al estudio y a la regulación de las transacciones privadas internacionales / José Carlos Fernandez Rozas

– Cultura de Arbitraje / Bernardo M. Cremades

 

NOTAS

– Los MASC: La incorporación de la TIC a procesos judiciales y alternativos / Erick Pérez Venegas

– Exposición de motivos: mi vida dedicada al DIPr / Leonel Pereznieto Castro

 

RESEÑAS

– Ortiz Ahlf Loreta: El derecho de acceso a la justicia de los inmigrantes en situación irregular / Jorge Alberto Silva

– Aguilar María Virginia: Manual de Derecho Familiar / Leonel Pereznieto Castro

– -Enríquez Rosas José David y González de Cossío Francisco: Arbitraje Comercial y de Inversión en el Sector Energético / Erick Pérez Venegas

– Pérez Amador Barrón: El Derecho internacional Privado / Leonel Pereznieto Castro

– Silva Jorge Alberto: Rapsodia Jurídica, selección de estudios  jurídicos  / Nuria González Martín .

 

DOCUMENTOS

– Ley Uruguaya de Derecho internacional Privado

C (A Child) [2021] EWFC 32 involves an application brought by a mother (M) against the father (F) in relation to their daughter (C). M was born in Russia and is a citizen of Finland. Her mother and step-father live in France, where C was born in August 2014. F was born in Sweden and is resident in Monaco. Does the English court have jurisdiction to hear M’s application?

F had made his own, clearly pre-emptive application (ia involving a denial of fatherhood – later corrected by the DNA testing) in Monaco about a week earlier than M’s. That application is translated at [3] and it unfortunately illustrates the quasi inevitably acrimonious nature of these kinds of applications. In March 2021 the courts at Monaco declared they had jurisdiction for the father’s parentage and subsidiary maintenance claim. The father incidentally in late December 2020 also issued pre-emptive proceedings in Grasse, France, with a view to establish an EU court being seized prior to Brexit date.

F cites a wide variety of CJEU authority re the maintenance regulation’s forum shopping potential which eventually fails, inter alia for [47] it is the maintenance creditor, not the debtor, which the EU system aims to protect (reference also to Villiers v Villiers).

At 15 ff counsel for F argues reflexive effect of the Maintenance Regulation’s lis pendens rule, referring pro inspiratio to Ferrexpo. Munby J adroitly describes the theory of reflexive effect as being one of domestic, i.e. English law, not EU law. He rejects reflexive effect of the lis pendens rules, mostly [57] because of the very different nature of maintenance obligations. (For similar reasons he distinguishes [58] the Court of Appeal’s reflexive effect of the Lugano lis pendens rules in Privatbank – which in my view was wrongly decided).

Argument rejected therefore for reflexive effect of the EU Maintenance Regulation 4/2009.  Habitual residence of M was found to be in E&W, amongst an acrimonious parties’ to and fro on abusive forum shopping and maintenance tourism.

An interesting judgment.

Geert.

C (A Child) [2021] EWFC 32
Argument rejected for reflexive effect of EU Maintenance Regulation 4/2009 (hence stay of E&W proceedings) viz father resident in Monaco
Habitual residence found to be in E&W
Munby J ending with the below rebuke on costs https://t.co/EvLBrP9dNZ pic.twitter.com/FGe6JcjyZh

— Geert van Calster (@GAVClaw) April 23, 2021

 

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

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

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

Background

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

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

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

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

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

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

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

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

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

Member State Competence: Centralisation of Jurisdiction in Specialised Courts

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

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

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

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

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

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

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

Comment and Conclusion

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

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

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

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

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

« From 5 to 9 July 2021, the Experts’ Group on Parentage / Surrogacy met for the ninth time. […] The Experts’ Group discussed the scope of the possible draft Convention on legal parentage (draft Convention) and the scope of the possible draft Protocol on legal parentage established as a result of an (international) surrogacy arrangement (draft Protocol). The Group discussed in particular the desirability and feasibility of including domestic adoptions in the scope of the draft Convention; legal parentage established as a result of a domestic surrogacy arrangement in the draft Convention or draft Protocol; and domestic adoptions in the context of a (domestic / international) surrogacy arrangement in the draft Convention or draft Protocol.

The Experts’ Group will meet again in November 2021 and in 2022, before submitting its final report for the 2023 CGAP meeting ».

The report of the ninth meeting is available at https://assets.hcch.net/docs/a29ca035-f4d9-469f-9ff9-cd9fca1918c8.pdf. One finds in it the Aide-mémoire of the meeting.

Windhorst v Levy [2021] EWHC 1168 (QB) has been in my in-tray a little while. The court was asked to consider whether registration of a German judgment under Brussels Ia should be set aside when the judgment debt in question was subsequently included within a binding insolvency plan, which is to be recognized in E&W pursuant to the European Insolvency Regulation  – EIR 1346/2000 (not materially different on this point to the EIR 2015). Precedent referred to includes Percival v Moto Novu LLC.

Appellant argues the registration order should be set aside as the initial 2003  judgment is no longer enforceable, having been waived as part of a binding insolvency plan, which came into effect by order of a German court on 31 August 2007 (“the Insolvency Plan”), and which this court is bound to recognize under the Insolvency Regulation.

In CJEU C-267/97 Coursier v Fortis Bank SA (held before the adoption of the EIR) it was held that enforceability of a judgment in the state of origin is a precondition for its enforcement in the state in which enforcement is sought. However that judgment then at length discussed what ‘enforceability’ means, leading to the Court holding that it refers solely to the enforceability, in formal terms, of foreign decisions and not to the circumstances in which such decisions may in practice be executed in the State of origin. This does not require proof of practical enforceability. The CJEU left  it to ‘the court of the State in which enforcement is sought, in appeal proceedings brought under [(now) Brussels Ia], to determine, in accordance with its domestic law including the rules of private international law, the legal effects of a decision given in the State of origin in relation to a court-supervised liquidation.’

The respondent contends that, applying the test laid down in Coursier v Fortis, the 2003 Judgment plainly remains enforceable in formal terms under German law.

The judge, at 52 ff, refers ia to CJEU Prism Investments and Salzgitter to emphasise the very narrow window for refusal of recognition, and holds [56] that the German judgment clearly is still formally enforceable in Germany (where enforcement is nota bene only temporarily stayed pending appeal proceedings). The effects of the German insolvency plan, under German law, are not such that the 2003 judgment has become unenforceable [58].

The request for a stay of execution is also denied, seeing as the appellant chose not to pursue a means available to it under German law and before the German courts, to seek a stay (it would have required it to put down the equivalent sum as court security).

Geert.

EU Private International Law, 3rd ed. 2021, 2.560 ff, 5.141 ff.

Brussels I (not Ia; no material difference), Insolvency Regulation EIR
Whether registration of DE judment should be set aside when debt subsequently included in #insolvency plan, to be recognized under EIR
Windhorst v Levy [2021] EWHC 1168 (QB) (6 05 2021)https://t.co/B23rsMDykA

— Geert van Calster (@GAVClaw) May 7, 2021

Winslet & Ors v Gisel, The Estate of [2021] EWHC 1308 (Comm) is a brilliant example to teach the ‘looking over the fence’ method for determining forum contractus under Article 7(1), for contracts that do not fall within the default categories and whence the CJEU De Bloos place of performance bumps into the limits of harmonisation following CJEU Tessili v Dunlop. Confused?: the judgment certainly helps.

Claimants, domiciled at England, seek to recover from the estate of a late friend, a considerable sum by way of repayment of principal in respect of a number of interest-free loans between friends (the borrower domiciled at France).

At [16] Butcher J holds (despite considering the broad interpretation of ‘services’ by the AG in Corman-Collins /Maison du Whiskey) ‘In my judgment, the simple provision of money to a friend, which is not undertaken as part of a business of lending money, probably does not qualify as the provision of a service’ (per A7(2), GAVC – reference is made to C-533/07 Falco Privatstiftung v Weller-Lindhorst [29]: “The concept of services implies, at the least, that the party who provides the service carries out a particular activity in return for remuneration.”

The answer to the question ‘what is the place of performance of the obligation to repay’ therefore leads to Rome I per CJEU Tessili v Dunlop and to Article 4(2) Rome I. [26]

‘In the context of banking services, it is, at least ordinarily, the lender that renders characteristic performance of a loan agreement in providing the principal sum to the borrower’ (reference to CJEU Kareda). [27] ‘The question of which party renders the characteristic performance of a loan agreement outside the sphere of financial services has been viewed as rather less clear cut.’ [32] ‘pursuant to the contracts of loan which are in issue, claimants loaned money in return for a promise to repay.’ They, it is held, rendered characteristic performance under the Loans.

As a result, the Loans are governed by English law, as England is the place where each claimant has his or its habitual residence, and English law therefore determines the place of performance, which it does at the creditor’s place of residence or business (contrary it would seem to the position under French law.

Superbly clear analysis.

Geert.

EU private international law, 3rd ed. 2021, 2.401 ff.

A classic De Bloos, Tessili v Dunlop looking over the fence quagmire.
A7(1) forum contractus 'goods', 'services', 'neither' issue.
Winslet & Ors v Gisel, The Estate of [2021] EWHC 1308 (Comm)https://t.co/LlwbfpJaWR

— Geert van Calster (@GAVClaw) July 7, 2021

Dr. João Ribeiro-Bidaoui (First Secretary at the Hague Conference on Private International Law) has posted a compelling answer on the Kluwer Arbitration Blog to the debate sparked by Prof. Gary Born’s criticism in a series of posts published on the same Blog (see Part I, Part II, and Part III). First Secretary Ribeiro-Bidaoui’s response is masterfully crafted in drawing the boundaries between equally valuable and essential instruments, and certainly constitutes a most welcome contribution.

For further commentary on these exchanges, see also on the EAPIL Blog, here.

In ID v LU & Anor [2021] EWHC 1851 (Comm) Pelling J discusses a challenge to jurisdiction in which each of the parties are Ukrainian nationals. Brussels Ia applies but is only engaged viz one of the defendants. Claimant and second defendant are both domiciled and resident in Ukraine. The first defendant is a Ukrainian national who is and was at all material times domiciled in an otherwise unidentified EU Member State.

Claimant alleges that the second defendant approached him requesting that he move his corporate banking business to the second defendant, a Bank. Following discussions, the claimant agreed to do so and considerable funds  were placed with The Bank. The claimant’s case is that he agreed to do so only after the second defendant agreed that he would undertake personal responsibility for all monies that the companies placed with The Bank. The claimant alleges that it was expressly agreed by the claimant and second defendant that this oral agreement was governed by English law.

There was more tro and fro however I focus here on the jurisdictional challenge. With reference to Article 4 BIa and the most recent authority of Vedanta, the judge holds that in principle the defendant with EU domicile has a right to refuse to be sued other than in his place of domicile. However that defendant acknowledged service, indicating an intention to defend the claim but not to contest jurisdiction. This leads the judge to conclude, after some discussion, that there is A26 BIa submission (aka voluntary appearance).

Next follows an important discussion on the circumstances in which a defendant who voluntarily submits, may serve as an anchor defendant under the English residual rules.  It would certainly not be possible under Brussels Ia. The relevant rule in the practice directions (this is ‘Gateway 3’) reads

“3.1 The claimant may serve a claim form out of the jurisdiction with the permission of the court under rule 6.36 where –… 3) A claim is made against a person (‘the defendant’) on whom the claim form has been or will be served (otherwise than in reliance on this paragraph) and  – a) there is between the claimant and the defendant a real issue which it is reasonable for the court to try; and b) the claimant wishes to serve the claim form on another person who is a necessary or proper party to that claim.

Second defendant argues claimant is not entitled to rely on Gateway 3 because the first defendant is not a defendant who is to be treated as being a person on whom the claim form has been or will be served because the court has jurisdiction over the first defendant only because he has voluntarily submitted to the jurisdiction of the English Court. The overall nature of the discussions on this issue essentially discuss the need to avoid abuse. Of note in this respect is the judge finding [41] that there is ‘no evidence that suggests that there was any agreement reached between the claimant and the first defendant by which the first defendant agreed to submit to the jurisdiction of the court prior to the issue of the Claim Form in these proceedings or for that matter afterwards.’

Nevertheless the judge holds that the current authorities in particular the Court of Appeal in the Benarty [1983] 1 Lloyds Rep 361, continue to not permit a claimant to rely on an anchor defendant who has voluntarily submitted to the jurisdiction when he could not otherwise have been served in accordance with the CPR. Obiter he holds that while there is a real issue to be tried against the second defendant, the contract gateway for jurisdiction (which would require English law to be the lex contractus) is not engaged. No clearly demonstrated will exists for English law to be lex voluntatis per Rome I [76] and [80]

There is no plausible evidential basis to submit that that the governing law identified by either Article 4(2), 4(3), or 4(4) [of Rome 1] would be English law. The Tripartite Agreement was, if made: (a) agreed between three Ukrainians who reside (or resided) in Ukraine and/or [The EU Member State]; (b) agreed in, variously, [The EU Member State], Ukraine, and France; (c) premised on a further agreement said to have been agreed in Ukraine, between two Ukrainians, in respect of deposits made by Ukrainians into a Ukrainian bank; (d) to be performed outside England. No party has provided any evidence of any connection between themselves, or the Tripartite Agreement, and England”

Neither does the tort gateway help [83]:

There is no evidence that at any stage any of the contact that took place leading to what the claimant contends to be the inducement of a breach by the first defendant of the Tripartite Agreement took place otherwise than in either Ukraine or The EU Member State.

At [86] ff England is, equally obiter, held to be forum non conveniens.

Lack of jurisdiction against the second defendant is confirmed. One imagines there might be ground of appeal given the change to the practice directions’ formulation after the Benarty and the need to clear up this principled issue.

Geert.

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

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

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

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

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

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

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

The opinion of the European Economic and Social Committee on ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions — Digitalisation of justice in the European Union. A toolbox of opportunities (COM(2020) 710 final) (EESC 2021/00048) has been published at the OJEU, C 286, 16.7.2021, p. 88, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.C_.2021.286.01.0088.01.ENG&toc=OJ%3AC%3A2021%3A286%3ATOC

The opinion of the European Economic and Social Committee on ‘Proposal for a Regulation of the European Parliament and of the Council on a computerised system for communication in cross-border civil and criminal proceedings (e-CODEX system), and amending Regulation (EU) 2018/1726’ (COM(2020) 712 final — 2020/0345 (COD)) (EESC 2020/05898) has been published at the OJEU, C 286, 16.7.2021, p. 82, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.C_.2021.286.01.0082.01.ENG&toc=OJ%3AC%3A2021%3A286%3ATOC

The opinion of the European Economic and Social Committee on ‘Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions “Ensuring justice in the EU — A European judicial training strategy for 2021-2024”’ (COM(2020) 713 final) (EESC 2021/00976) has been published at the OJEU, C 286, 16.7.2021, p. 141, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.C_.2021.286.01.0141.01.ENG&toc=OJ%3AC%3A2021%3A286%3ATOC

The latest issue of RabelsZ is out. It contains the following articles:

Kai-Oliver Knops: Die unionsrechtlichen Voraussetzungen des Rechtsmissbrauchseinwands – am Beispiel des Widerrufs von Verbraucherdarlehens- und Versicherungsverträgen (The Requirements of EU Law on Abuse of Law and Abuse of Rights – the Example of the Right to Withdraw from Credit Agreements and Insurance Contract), Volume 85 (2021) / Issue 3, pp. 505-543 (39), https://doi.org/10.1628/rabelsz-2021-0023

In the European Union, it is apparently only in Germany that withdrawals by consumers and policy-holders are often rejected as invalid and abusive. Mostly it is argued that an objection of abuse is subject to national law and that application of the principle of good faith is a matter for the judge alone. In fact, the jurisprudence of the Court of Justice of the European Union sets strict limits on the objection of abuse and requires special justification, which the national legal system must comply with in accordance with the primacy of European Union law. Under EU law, withdrawal from consumer loans and insurance contracts will be vulnerable to an objection of legal abuse only in very exceptional cases and by no means as a rule.

 

Bettina Rentsch: Grenzüberschreitender kollektiver Rechtsschutz in der Europäischen Union: No New Deal for Consumers (Cross-Border Collective Redress: No New Deal for Consumers), Volume 85 (2021) / Issue 3, pp. 544-578 (35), https://doi.org/10.1628/rabelsz-2021-0024

The recently adopted Directive on representative actions marks the beginning of a new era for collective redress in the European Union. However, applying the Brussels Ia and Rome Regulations for questions regarding jurisdiction, recognition, enforcement and the applicable law entails jurisdictional and choice-of-law-related problems inherent in cross-border aggregate litigation as such: European private international law, including its rules on jurisdiction and enforcement, is designed for bipartisan proceedings and thus shows a variety of inconsistencies, deficits and contradictions when faced with collective redress. Moreover, applying a multitude of laws to a single collective proceeding generates prohibitive costs for the plaintiff side, while generating economies of scale on the defendant side. It is unlikely that the parties to collective proceedings will enter a subsequent choice of law agreement to reduce the number of applicable laws.

 

Frederick Rieländer: Der »Vertragsabschlussschaden« im europäischen Deliktskollisions- und Zuständigkeitsrecht (Locating “Unfavourable Contracts” in European Private International Law), Volume 85 (2021) / Issue 3, pp. 579-619 (41), https://doi.org/10.1628/rabelsz-2021-0025

The inconsistent case law of the ECJ concerning the task of locating pure economic loss, for the purposes of Art. 7 No. 2 Brussels Ibis Regulation and Art. 4 para. 1 Rome II Regulation, is characterisedby the absence of a careful theoretical analysis of the protective purposes of the relevant liability rules. In this article, it is submitted that in the voluminous category of cases where a party has been induced into entering an unfavourable contract with a third party, “damage” for the purposes of Art. 7 No. 2 Brussels Ibis Regulation and Art. 4 para. 1 Rome II Regulation generally occurs at the moment when the victim is irreversibly bound to perform its obligation to the third party, whilst it is immaterial whether and, if so, where the contract is performed. Although the locus contractus appears to be the most appropriate connecting factor in the majority of the relevant cases of misrepresentation – particularly for the purpose of tying prospectus liability to the market affected – it needs to be displaced, for instance, in those cases where consumers are lured into purchasing faulty products abroad by fraudulent misrepresentations on the part of the manufacturer.

 

Raphael de Barros Fritz: Die kollisionsrechtliche Behandlung von trusts im Zusammenhang mit der EuErbVO (The Treatment of Trusts under the European Succession Regulation), Volume 85 (2021) / Issue 3, pp. 620-652 (33), https://doi.org/10.1628/rabelsz-2021-0026

Few legal institutions cause more difficulties in the context of the European Succession Regulation (ESR) than trusts. There is, for instance, hardly any agreement on the scope of the exception created for trusts in Art. 1 para. 2 lit. j ESR. There is also widespread support in academic literature for the application of Art. 31 ESR to trusts, although neither the precise contours of this enigmatic provision nor its exact functioning in connection with trusts has yet been established. The present article addresses, therefore, the question of how trusts are to be treated within the ESR. In particular, it will be shown how Art. 1 para. 2 lit. j ESR is to be understood against the background of Recital 13. In addition, the question will be raised as to what extent Art. 31 ESR has any importance at all in connection with trusts.

 

Written by Jingru Wang, Wuhan University Institute of International Law

 

1.Background

Three days after its low-key listing in the US on 30 June 2021, Didi Chuxing (hereinafter “Didi”) was investigated by the Cyberspace Administration of China (hereinafter “CAC”) based on the Chinese National Security Law and Measures for Cybersecurity Review.[1] Didi Chuxing as well as 25 Didi-related APPs were then banned for seriously violating laws around collecting and using personal information,[2] leading to the plummet of Didi’s share. On 16 July 2021, the CAC, along with other six government authorities, began an on-site cybersecurity inspection of Didi.[3] The CAC swiftly issued the draft rules of Measures for Cybersecurity Review and opened for public consultation.[4] It proposed that any company with data of more than one million users must seek the Office of Cybersecurity Review’s approval before listing its shares overseas. It also proposed companies must submit IPO materials to the Office of Cybersecurity Review for review ahead of listing.

It is a touchy subject. Didi Chuxing is a Beijing-based vehicle for hire company. Its core business bases on the accumulation of mass data which include personal and traffic information. The accumulated data not only forms Didi’s unique advantage but also is the focus of supervision. The real concern lays in the possible disclosure of relevant operational and financial information at the request of US securities laws and regulations, which may cause data leakage and threaten national security. Therefore, China is much alert to information-based companies trying to list overseas.

The overseas listing of China-related companies has triggered regulatory conflicts long ago. The Didi event only shows the tip of an iceberg. This note will focus on two issues: (1) China’s supervision of red-chip companies’ overseas listing; (2) the conflicts between the US’s demand for disclosure and China’s refusal against the US’s extraterritorial jurisdiction.

 

2. Chinese supervision on red-chip companies’ overseas listing

A red-chip company does most of its business in China, while it is incorporated outside mainland China and listed on the foreign stock exchange (such as New York Stock Exchange). Therefore, it is expected to maintain the filing and reporting requirements of the foreign exchange. This makes them an important outlet for foreign investors who wish to participate in the rapid growth of the Chinese economy. When asking Chinese supervision on red-chip companies listed overseas, such as Didi, the foremost question is whether the Chinese regulatory authority’s approval is required for them to launch their shares overseas. It is uneasy to conclude.

One reference is the Chinese Securities Law. Article 238 of the original version of the Chinese Securities Law provides that “domestic enterprises issuing securities overseas directly or indirectly or listing their securities overseas shall obtain approval from the securities regulatory authority of the State Council following the relevant provisions of the State Council.” This provision was amended in 2019. The current version (Art. 224 of the Chinese Securities Law) only requires the domestic enterprises to comply with the relevant provisions of the State Council. The amendment indicated that China has adopted a more flexible approach to addressing overseas listing. Literally, the securities regulatory authority’s approval is no longer a prerequisite for domestic enterprises to issue securities overseas.

When it comes to Didi’s listing in the US, a preliminary question is the applicability of such provision. Art. 224 is applied to “domestic enterprise” only. China adopts the doctrine of incorporation to ascertain company’s nationality.[5] According to Article 191 of the Chinese Company Law, companies established outside China under the provisions of foreign law are regarded as foreign companies. Didi Global Inc. is incorporated in the state of Cayman Islands, and a foreign company under the Chinese law. In analogy, Alibaba Group Holding Ltd., another representative red-chip enterprise, had not obtained and not been required to apply for approval of the Chinese competent authority before its overseas listing in 2014. A Report published by the Chinese State Administration of Foreign Exchange specifically pointed out that “domestic enterprises” were limited to legal persons registered in mainland China, which excluded Alibaba Group Holding Ltd., a Cayman Islands-based company with a Chinese background.[6]

In summary, it is fair to say that preliminary control over red-chip enterprise’s overseas listing leaves a loophole, which is partly due to China’s changing policy. That’s the reason why Didi has not been accused of violating the Chinese Securities Law but was banned for illegal accumulation of personal information, a circumvent strategy to avoid the possible information leakage brought by Didi’s public listing. Theoretically, depends on the interpretation of the aforementioned rules, the Chinese regulatory authority may have the jurisdiction to demand preliminary approval. Based on the current situation, China intends to fill the gap and is more likely to strengthen the control especially in the field concerning data security.

 

3. The conflict between the US’s demand for audit and China’s refusal against the US’s extraterritorial jurisdiction

Another problem is the conflict of supervision. In 2002, the US promulgated the Sarbanes-Oxley Act, under which the Public Company Accounting Oversight Board (hereinafter “PCAOB”) was established to oversee the audit of public companies. Under the Sarbanes-Oxley Act, wherever its place of registration is, a public accounting firm preparing or issuing, or participating in the preparation or issuance of, any audit report concerning any issuer, shall register in the PCAOB and accept the periodic inspection.[7] The PCAOB is empowered to investigate, penalize and sanction the accounting firm and individual that violate the Sarbanes-Oxley Act, the rules of the PCAOB, the provisions of the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants. Opposed to this provision (although not intentionally), Article 177 of the Chinese Securities Law forbids foreign securities regulatory authorities directly taking evidence in China. It further stipulates that no organization or individual may arbitrarily provide documents and materials relating to securities business activities to overseas parties without the consent of the securities regulatory authority of the State Council and the relevant State Council departments. Therefore, the conflict appears as the US requests an audit while China refused the jurisdiction of PCAOB over Chinese accountant companies.

It is suspected that despite the PCAOB’s inofficial characteristic, information (including the sensitive one) gathered by the PCAOB may be made available to government agencies, which may threaten the national security of China.[8] Consequently, China prevents the PCAOB’s inspection and some of Chinese public accounting firm’s application for registration in the PCAOB has been suspended.[9] In 2013, the PCAOB signed a Memorandum of Understanding with Chinese securities regulators that would enable the PCAOB under certain circumstances to obtain audit work papers of China-based audit firms. However, the Memorandum seems to be insufficient to satisfy the PCAOB’s requirement for supervision. The PCAOB complained that “we remain concerned about our lack of access in China and will continue to pursue available options to support the interests of investors and the public interest through the preparation of informative, accurate, and independent audit reports.”[10] After the exposure of Luckin Coffee’s accounting fraud scandal, the US promulgated the Holding Foreign Companies Accountable Act in 2020. This act requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the PCAOB is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the PCAOB. If the PCAOB is unable to inspect the issuer’s public accounting firm for three consecutive years, the issuer’s securities are banned from trade on a national exchange or through other methods.

China has made “national security” its core interest and is very prudent in opening audit for foreign supervisors. From the perspective of the US, however, it is necessary to strengthen financial supervision over the public listing. As a result, Chinese enterprises have to make a choice between disappointing the PCAOB and undertaking domestic penalties. Under dual pressure of China and the US, sometimes Chinese companies involuntarily resort to delisting. This may not be a result China or the US long to see. In this situation, cooperation is a better way out.

 

4. Conclusion

China’s upgrading of its cybersecurity review regulation is not aimed at burning down the whole house. Overseas listing serves China’s interest by opening up channels for Chinese companies to raise funds from the international capital market, and thus contribute to the Chinese economy. The current event may be read as a sign that China is making provisions to strengthen supervision on red-chip companies’ overseas listing. It was suggested that the regulatory authority may establish a classified negative list. Enterprises concerning restricted matters must obtain the consent of the competent authority and securities regulatory authority before listing.[11] It is not bad news for foreign investors because the listed companies will undertake more stringent screening, which helps to build up an orderly securities market.

 

 

 

[1] http://www.cac.gov.cn/2021-07/02/c_1626811521011934.htm

[2] http://www.cac.gov.cn/2021-07/04/c_1627016782176163.htm; http://www.cac.gov.cn/2021-07/09/c_1627415870012872.htm.

[3] http://www.cac.gov.cn/2021-07/16/c_1628023601191804.htm.

[4] Notice of Cyberspace Administration of China on Seeking Public Comments on the Cybersecurity Review Measures (Draft Revision for Comment), available at: http://www.cac.gov.cn/2021-07/10/c_1627503724456684.htm

[5] The real seat theory is recommended by commentators, but not accepted by law. Lengjing, Going beyond audit disputes: What is the solution to the crisis of China Concept Stocks?, Strategies, Volume 1, 2021, p. 193.

[6] 2014 Cross-border capital flow monitoring report of the People’s Republic of China, available at: http://www.gov.cn/xinwen/site1/20150216/43231424054959763.pdf

[7] Sarbanes-Oxley Act, §102(a), §104 (a) & (b).

[8] Sarbanes-Oxley Act, §105 (b)(5)(B).

[9] https://pcaobus.org/Registration/Firms/Documents/Applicants.pdf

[10] China-Related Access Challenges, available at: https://pcaobus.org/oversight/international/china-related-access-challenges.

[11] https://opinion.caixin.com/2021-07-09/101737896.html.