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Published: Fri, 02 Feb 2018
English Conflict of Laws in relation to issues of jurisdiction
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Making use of relevant case law (where available) explain and discuss how, and to what extent, the old Brussels Convention and the new Council regulation 44/2001 have affected and altered traditional rules of English Conflict of Laws in relation to issues of jurisdiction arising from specific in personam contracts
The conflict of laws is slowly being changed in the UK, which is due to the Brussels Convention and the new Council Regulation 44/2001 because jurisdiction is being limited for domestic systems and the introduction of regulations on areas such as protection of the individual of in personam contracts.
The Convention’s rules on jurisdiction are not only more clearly delineated; they are also better attuned to the protection of fundamental values. While the US Supreme Court tends to treat all litigants alike, the Convention is more discerning: for instance, it bestows jurisdictional privileges upon certain weaker parties, such as support claimants, policyholders and consumers, who are allowed to sue in their home states. By the same token, contrary to US precedent the Convention severely restricts the use of forum-selection clauses against such parties. It also prohibits the use of the exorbitant member state jurisdictional bases enumerated in article 3(2) of the Brussels Convention.
However in relation to insolvency laws it has been argued that the conflict of laws and forum shopping is being increased, rather than limited to protect the weaker party. In cross-border insolvency actions it is usually two companies that are at loggerheads, which may explain the different protections or this may be the new route to protect competition. Therefore this discussion will consider in personam rights, as this is important to the Convention and Regulation. It will then consider the Centros Decision and some of the new insolvency proceedings which allows for there to be a choice of law in a company to company contract, i.e. there is a conflict in jurisdiction and it allows for the weaker law to apply if it promotes competition or in the case of insolvency the creditor to apply the harshest laws. Then it will consider this in relation to in personam contracts, i.e. personal contracts, where the consumer is being protected from the imbalances created by resources. Then it will consider how the Convention and Regulation are impeding the conflict of laws of in personam contracts or whether the new insolvency cases, albeit company to company based, is re-opening the conflict of jurisdictions and allowing for forum shopping.
In Personam Contracts, the Brussels Convention and Regulation 44/2001:
In Personam Rights: ‘law directed at somebody: made about or directed at a person rather than at property’.
Martin considers the debate concerning the nature and understanding of equitable rights and the interests of the beneficiary that are essentially in personam in nature. This question that arises in conflict of laws, contracts and jurisdiction that has arisen is the encroachment of equity on property rights and law; which affords the beneficiary with equitable rights of ownership . This causes problems with EU competition law is that has created a conflict with in personam contracts and consumer rights that are provided under the old Brussels Convention and Regulation 44/2001, i.e. it provides that the jurisdiction that should be used is that which is most favourable to the weaker party in insurance, consumer and employment contracts, i.e. in most cases this is not the company.
Therefore blocking the ability for companies to regime shop; hence blocking open markets and free competition.
Martin further presents the problem that faces investigation into the nature of equitable rights and determining whether equity is validly doing what is just, i.e. dealing with the deficiencies and injustices at common law or dealing with contracts that are not based upon property but something less tangible such as life assurance. The problem with the old Brussels Convention and the Council Regulation 44/2001 is that it is tied up in the language of consumer protection, which seems not necessarily dealing with competition and open market rules that the Conflict of Laws and the basic freedoms of the EU.
11) The rules of jurisdiction must be highly predictable and founded on the principle that jurisdiction is generally based on the defendant’s domicile and jurisdiction must always be available on this ground save in a few well-defined situations in which the subject-matter of the litigation or the autonomy of the parties warrants a different linking factor. The domicile of a legal person must be defined autonomously so as to make the common rules more transparent and avoid conflicts of jurisdiction.
(12) In addition to the defendant’s domicile, there should be alternative grounds of jurisdiction based on a close link between the court and the action or in order to facilitate the sound administration of justice.
(13) In relation to insurance, consumer contracts and employment, the weaker party should be protected by rules of jurisdiction more favourable to his interests than the general rules provide for.
This seems to be in opposition to the current movement of the EU’s promotion of the race to the bottom and regime shopping. It is also in opposition to the open market and conflict of laws principles in English law, i.e. it hinders competition rather than promotes it. Yet the protections are important because the parties that the Brussels Conventions and the Council Regulation 44/2001 are in a position of inherent weakness and to put this party in the same position as a company would be unfair because the knowledge and resources are greatly imbalanced. Within UK and USA law the traditional approach is to treat all parties the same and to allow the choice of the most favourable law; however these is restricting this choice in respect to in personam contracts, which some would argue is contrary to an open market and competition principles governing the EU.
This decision was based around the requirements of registration and trade within Denmark, which raised an issue of conflict between the laws of the UK, Ireland and the Netherlands whereby a properly registered foreign company is to be recognized; whereas Nordic law depends upon registration and whether refusal of registration was permissible to stop the circumvention of national law. The ECJ decided that this refusal went against the principles of competition law, which resulted in regional competition law outweighing domestic law therefore undermining the sovereignty of the state. The aim of the two Danish nationals by registering their company Centros in the UK and then transferring to Denmark was purely to circumvent the fee associated with registration. The question was whether the Danish court could refuse registration in Denmark because the aim was to defraud the Danish state; the ECJ advised that refusing registration was imposing an obstacle of the basic freedoms that make up company law. This case basically has caused competition law to become prevalent over national concerns. In fact it has possibly weakened the regulations of company law so that social and cultural policies will soon be under fire. This seems to be falling under the trap of companies for regime shopping, i.e. the weaker the regulation the higher the investment.
While forum shopping is to be deprecated, it may be legitimate and possible to show that a debtor’s COMI is within a jurisdiction where there is an advantage to be gained… There are now a number of well-publicised decisions in which the High Court has determined the location of a debtor’s COMI and has then gone on to open, or to refuse to open, main proceedings in England and Wales.
The centre of the debtor’s main interest (COMI) was formulated to hinder conflict of laws and forum shopping in the EU Council Regulation 1346/2000, but as the recent cases have seen the notion of COMI has not forced jurisdiction to be pre-decided but opened up insolvency law to a conflict of laws in the favour of the creditor. This has been mirrored in the avenue taken with respect to consumer contracts under the Brussels Convention and the Regulation. Therefore rather than hindering the conflict of laws it is allowing it but just in the favour of one party. This will be illustrated in the following insolvency cases.
In Brac Rent-a-Car English Courts were forced to give jurisdiction because of COMI, even though under the Insolvency Act 1986 there was no standing because the company in question did not fall under the definition of a company for its proceedings. It allowed the proceedings of Article 3(1) of the insolvency directive which broadly defines what COMI as:
The courts of the Member State within the territory of which the debtor’s centre of main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary.
In the case of Re: Daisytek the notion of COMI was retested where an English company had subsidiaries in France and Germany and if ran from the UK the COMI would undoubtedly be held in the UK; however this case highlighted that the French and German courts under COMI may not hold this a the subsidiaries are located in France and Germany. Also it allows the creditors to regime shop for the harshest regime. The case of Mazur Media is a another example of the use of COMI for the creditor’s benefit where the creditor was located in the UK but the debtor in Germany and it was held that the creditor could claim that the debtor’s COMI was in the UK because of the location of the creditor. This creates an ideal situation for the creditor to impress their interests on the debtor and create an unfair advantage, i.e. another example of regime shopping which arguably this directive was meant to inhibit, but has in fact made easier therefore creating a situation where creditors can use the competitiveness of legal regimes to maximize the amount of debt returned, without thought to the social situation of the debtor. Therefore this follows that the conflict of laws to flourish and as it has been seen that insolvency law can apply to the private individual, i.e. a personal contract; hence the Regulation and Convention are being outmoded:
Within the European Union, the recent Centros decision has drawn attention to a similar debate. Significantly, the battle-horse of global competition is spurred on in this and other fields by law and economics scholars, whose agenda is geared to ‘putting the “private” back into international law’ by means of party choice. Thus, it is suggested that regulatory competition through exit (or party choice of foreign law) could be to be the optimal mode of global governance in such fields as securities, anti-trust, insolvency, banking or environmental protection.
EU and the Protection of in personam Contracts:
The current EU protections to consumer, employee and insurance contracts as already noted opposes newer regulations and approaches, because it is being argued that the conflict of laws is the best choice for fairness. In respect to insolvency cases which may be a personal contract or not the conflict of laws and choice of law are prevailing; hence the limitations on in personam contracts and the lack of choosing jurisdiction is being eroded. Yet the Convention and Regulation still stand, where the harshest jurisdiction is imposed in favour of the weaker party.
The Brussels Regulation follows the Brussels Convention in that an EU based supplier of goods and services must, in general (and unless the contract says otherwise), sue a customer in the customer’s own country or in the country in which the goods are delivered or services performed. However, consumers are placed in a more advantageous position: a consumer (a customer buying goods or services “for a purpose which can be regarded as being outside his trade or profession”) can choose (whatever the contract says) to sue either in the consumer’s own courts or those of the supplier, while the supplier can only sue in the consumer’s home jurisdiction. This provision is clearly designed to ensure that consumers are not disadvantaged in participating in cross-border transactions, such as those conducted over the internet, mobile phones or through digital television.
The reasoning behind the Convention and Regulation are important; therefore makes sense in respect to limiting jurisdiction. Yet as with the Insolvency Proceedings there is a choice, which is in the hands of the weaker party so there is a conflict of laws but it is lopsided and creates the same problem as with the Insurance Cases on party has a choice but the other does not. This is an imbalance and unfair, which makes decisions as Centros more persuasive, which is to allow true choice of law and only in personam contracts. In the case of Kuwait Oil Tanker v UBS it was held that enforcement of a debt by the courts against a third party such as a bank, is not a personal right but a property right as this was not a personal or beneficial interest then the jurisdiction of the home courts apply; therefore adding further limitation to the conflict of laws in respect to in rem rights. In this case it puts the injured party at an unfair disadvantage therefore there needs to be some form of protection, but also equality for the parties so it is necessary in the interests of justice third party enforcements be dealt with separately. In the long run the approach under the Convention and Regulation is best route, because by offering choice of law to the consumer and giving jurisdiction to the consumers home country in the case of the consumer is the defendant offers protection to the least resourced party, i.e. equality of arms. The case of Owusu supports this because he wanted jurisdiction in his home country under the Brussel’s convention and Regulation 44/2001. He was injured in a Jamaican hotel where he was staying, i.e. a consumer.
Therefore his home jurisdiction was protected under the convention and as it was outside of the EU under the convention it was doubly obliged to deny jurisdiction in Jamaica. This goes against the traditional response of UK courts, where jurisdiction is decided on the best forum rather than the wishes and domiciliation of the consumer, which has been criticized:
The English courts have developed an effective system of regulating jurisdiction in international disputes arising out of a desire to ensure that disputes are dealt with in the most appropriate forum… This has been a very effective means of controlling forum-shoppers. The courts have now been deprived of that flexibility. The ECJ’s ruling means claimants will now be able to ensure that claims are brought before the English courts by bringing proceedings against at least one party domiciled in England-regardless of the merits of the claim against that party. The English courts will be forced to hear cases which would be more appropriately dealt with elsewhere.
This is supported by the choice offered to consumers and the use of COMI by creditors and the question arises is this right; maybe not in the case of creditors but certainly for consumers who do not have the protections that sellers have.
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