Establishing the extent of the UK court’s jurisdiction (AMT Futures Ltd v Marzillier and others)

Establishing the extent of the UK court’s jurisdiction (AMT Futures Ltd v Marzillier and others)

The Supreme Court’s ruling in AMT Futures v Marzillier that the English courts lacked jurisdiction to hear a claim brought against a German firm of solicitors for the tort of inducing a breach of contract is examined by Pierre Janusz, barrister, of 3 Hare Court.

Original news

AMT Futures Ltd v Marzillier and others [2017] UKSC 13, [2017] All ER (D) 06 (Mar)

The Supreme Court, dismissing an appeal by a UK derivatives broker, held that the English courts did not have jurisdiction to hear its claim that its clients had been induced by the respondent German firm of lawyers to breach their contracts. For the purposes of Article 5(3) of Regulation (EC) 44/2001 (Brussels I), which gave jurisdiction in tort claims to the courts for the place in which the harmful event had occurred or might occur, that place had been Germany.

What was the background to the case?

Investors from Germany and other countries had been introduced to the appellant by independent brokers in Germany. Many of the investors had lost money as a result of the options trades which the appellant had processed. Using the services of the respondent, they commenced legal proceedings in Germany, claiming that the introducing brokers had given them bad investment advice or had failed to warn them of the risks, and that the appellant had breached its duty in tort to prevent any transactions being undertaken contrary to their interests. The appellant paid out more than £2m in legal costs and settlement costs.

The appellant brought proceedings in the High Court against the investors and the respondent. The appellant claimed that by bringing proceedings in Germany, the investors had breached their contracts, which contained an exclusive jurisdiction clause in favour of the English courts. The appellant claimed that the respondent had committed the tort of inducing those breaches.

The respondent applied for a declaration that the English courts did not have jurisdiction that claim. The High Court refused the respondent’s application because, for the purposes of Article 5(3) Brussels I, the harm had occurred in England when the appellant had been deprived of the benefit of the exclusive jurisdiction clause.

The Court of Appeal concluded that the English courts did not have jurisdiction as the relevant harm had occurred in Germany.

The appellant then obtained permission to appeal from the Supreme Court.

What issues arose for the Supreme Court’s consideration?

The essential issue was whether the English court could exercise jurisdiction over the respondent in relation to the substance of the claim.

Because the respondent was domiciled in another EU Member State, all questions of jurisdiction are determined by the substantive provisions of Brussels I. The general rule under Brussels I is that persons are to be sued in the courts of their own Member State. There are, however, qualifications and exceptions to this general rule, and the appellant sought to invoke the exception provided for by Article 5(3) Brussels I, which says that in matters relating to tort, a person domiciled in one Member State may be sued in another Member State in the courts for the place where the harmful event occurred or may occur.

This provision has been interpreted by the Court of Justice as meaning that, in a case where the damage occurs in a different Member State to the one where the event giving rise to the damage occurs, a claimant can sue a defendant domiciled in another Member State in the courts for the place where either the damage occurred or the event giving rise to damage occurred. It was common ground that the event giving rise to damage occurred in Germany, so the vital question was whether it could be said that the damage occurred in England. The appellant contended that the damage with which one was concerned for these purposes was the deprivation of its contractual right to be sued by any of the investors only in England and that this occurred in England where it should have been sued.

There was also a second issue before the court which arose in consequence of the respondent advancing an alternative ground for the appeal to be dismissed. The respondent submitted that the action should not in any event be permitted to proceed because the nature of the claim was one which was incompatible with the harmonised scheme of jurisdiction and recognition and enforcement of judgments established by Brussels I. This was a ground which the respondent had also run before the Court of Appeal, but which the Court of Appeal had declined to rule on because it had found in the respondent’s favour on the question of whether jurisdiction could be established on the basis of Article 5(3) Brussels I.

What did the court decide and why?

The court decided that jurisdiction could not be established under Article 5(3) Brussels I because the damage had occurred in Germany and not England. In coming to this conclusion, it took into account decisions of the Court of Justice which established that the focus in the search for the place where the damage occurred was on the place where the direct and immediate damage occurred. This meant that if a victim of a tort had suffered harm in one Member State and also loss consequential upon that harm in another Member State, the consequential loss in the second Member State was not the damage which was relevant for jurisdictional purposes under Article 5(3) Brussels I.

It noted that the Court of Justice had developed special rules of interpretation of Article 5(3) Brussels I to deal with certain special situations or types of claim, eg cases of international transport in which there might be evidential problems in identifying the place where the damage had occurred, cases of international libel in which it was not possible to identify a single place where the relevant harm had occurred, cases involving the infringement via the internet of intellectual property rights or cases concerned with international cartels. However, these rules had been developed to address situations in which it is not possible to identify readily the place where the harm occurs, and there was no call for the crafting of a special rule where the answer to the question of where the harm occurred is straightforward.

Here the direct harm which the appellant suffered was the expenditure necessitated by the commencement of proceedings in Germany—and that occurred in Germany. The submission that the harm was the deprivation, in England, of its contractual right to be sued only in England was unsound. There was no positive obligation on the investors to sue in England, and for that reason the case was distinguishable from a case where a person was under a positive obligation to pay money in England and was dissuaded from doing so, where it would be said that the harm occurred in England because that was the place where the contractual performance of which it had been deprived should have occurred.

There was no justification for creating a special rule for claims such as the appellant’s on the grounds that it could avoid the inconvenience of claims against the investors themselves and the person who had induced them to breach their contracts having to be brought in different courts. Although that might in one sense promote the sound administration of justice, which is one of the justifications for the exception under Article 5(3) Brussels I, it was the rule that had to be satisfied in order to establish jurisdiction, and not merely the rationale for the rule. The Court of Justice had recognised that the rules of Brussels I could lead to one jurisdiction not being able to deal with all related claims in a dispute, but that was an inconvenience which had to be accepted as a consequence of the scheme which imposed well-defined rules with no scope for a general application of forum conventions principles.

The court also rejected the appellant’s fall-back position that it should make a reference to the Court of Justice on the question of whether Article 5(3) Brussels I should be interpreted as meaning that an English court would have jurisdiction in a case where a defendant had induced another person to breach a contractual obligation to sue only in an English court. The court considered that the matter was acte clair and that a reference on the point was not mandated.

Having decided, therefore, that the appeal should be dismissed, essentially for the same reasons upon which the Court of Appeal had relied, the Supreme Court ruled that it was unnecessary to determine the merits of the respondent’s alternative grounds for upholding the decision of the Court of Appeal, namely that the claims being made were incompatible with EU law.

Does the decision lend clarity to this area of law? Are there any remaining unresolved issues or grey areas for which practitioners need to watch out?

This decision certainly adds clarity to the law relating to the interpretation of Article 5(3) Brussels I. It reinforces the principle that exceptions to the general rule under Brussels I are to be interpreted strictly and that the scheme does not favour creating jurisdiction for the courts of the claimant’s domicile unless the rule clearly produces that result. It also reminds us that it is the rule rather than the rationale for the rule which determines whether jurisdiction can be established and that the principles of forum conventions do not have any place in the Brussels I scheme.

So far as the future is concerned, there is the uncertainty in the medium term over changes to jurisdictional rules which might follow from the withdrawal of the UK from the EU. Such changes could render the decision irrelevant after withdrawal, although if the UK continued to be bound by the Lugano Convention 2007 then the decision would continue to be relevant as the rules under the Lugano Convention 2007 are identical to those under Brussels I.

For the immediate future, however, it should be recalled that, although the effect of the decision will remain authoritative and binding, in respect of actions commenced after 10 January 2015, Brussels I has been replaced by Regulation (EU) 1215/2012 (Brussels I (recast)), so that the relevant article is now Article 7(2) Brussels I (recast).

The decision does not, however, resolve the important question of whether EU law precludes claims for damages for breach of an exclusive jurisdiction clause where the alleged breach consists in bringing a claim before the courts of another EU Member State. There is authority, binding at the level of the Court of Appeal (eg Starlight Shipping Company v Allianz Marine & Aviation Versicherungs AG, The Alexandros T [2014] EWCA Civ 1010, [2014] All ER (D) 206 (Jul)), that such claims are not incompatible with and do not infringe EU law, but there is a substantial body of academic opinion, both in England and Germany, that such claims are impermissible under EU law. It is disappointing that the Supreme Court did not take the opportunity to give a ruling on this point, but it is understandable that it felt it was unnecessary to address this question having decided that the appeal should be dismissed. This means that although the situation is now clear that, as a matter of jurisdiction, a law firm domiciled in another EU Member State cannot without more be sued in England for inducing a litigant to sue in another Member State in breach of an exclusive jurisdiction clause in favour of the English courts, the position is unsettled so far as the intrinsic viability of a claim against the alleged contract breaker is concerned. It was apparent, however, from the course of the hearing in the Supreme Court that it was receptive to the idea that such claims were at the very least arguably incompatible with EU law and the indications were that it saw the point as one which might need to be referred to the Court of Justice.

Pierre Janusz appeared with Hugh Mercer QC for the respondent in this case.

Interviewed by Robert Matthews.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

First published on LexisPSL Banking & Finance. Click here for a free trial.

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About the author:

Neil specialises in banking and asset finance transactions with a particular emphasis on shipping finance, aviation finance, renewable energy finance and in providing corporate finance transactional support. Neil qualified as a solicitor with TLT in 2004 and worked as a finance solicitor in both the Bristol and London offices before joining the asset finance team at DLA Piper.