Supreme Court, economic tort and jurisdiction

Introduction
Facts
English claim and prior decisions
Supreme Court decision
Comment

Introduction

The Supreme Court recently handed down a short but important judgment on jurisdiction under the EU Brussels Regulation(1) in AMT Futures Limited v Marzillier, Dr Meier & Dr Guntner Rechtsanwaltsgesellschaft mbH.(2) The court held in no uncertain terms that jurisdiction for the economic tort of inducing a breach of contract between a claimant and a third party lies with the home courts of the place where the harm was directly suffered as a result of the tortious acts, and that this is the case irrespective of any provision in the contract of which breach was procured which confers exclusive jurisdiction as between the claimant and the third party on the courts of a different country.

Facts

The appellant in the case was AMTF, a derivatives broker based in London. It is regulated by the Financial Conduct Authority and provides services on an execution-only (ie, non-advisory) basis. Its customer agreements were on industry standard terms and conditions, which included English law and exclusive jurisdiction clauses. AMTF had commercial relationships with brokers in Germany, which acted as introducers to continental European retail customers. AMTF charged commission on trades to the retail customers and paid a percentage of the commission to the German brokers by way of introduction fees.

The respondent in the Supreme Court and defendant to AMTF's English action was German law firm MMGR. Following losses by retail investors in this and other similar relationships with London-based brokers, MMGR devised and marketed a means of suing AMTF (and other similar brokers) primarily in the courts of Duisburg (and Dusseldorf on appeal), which AMTF alleged were chosen for their more investor-friendly approach. In essence, this involved asserting claims against AMTF based on its alleged accessory liability in relation to German law claims against the introductory brokers for failure to advise the retail investors properly. The basis of these accessory liability claims was that AMTF was alleged to have encouraged the breaches of advisory duty by the introductory brokers by paying them a percentage of the commissions earned.

MMGR signed up a significant number of retail investors to sue AMTF. AMTF sought to challenge a number of cases on jurisdictional grounds, but was apparently for the most part unsuccessful in those endeavours, with German courts finding that the contractual jurisdiction clauses did not capture claims framed in German law of delict/quasi-delict. AMTF was found liable in a number of German judgments and began to settle claims on commercial terms. The case concerned 70 claims: 58 by German investors and the remainder Austrian, Belgian and Swiss. Of these, 51 had been settled at an overall cost to AMTF of around £2.2 million in settlement payments and legal and other costs, while 19 were pending before the German courts at the time of the Supreme Court hearing.

English claim and prior decisions

AMT issued proceedings in London against MMGR, alleging that MMGR had caused it losses by committing the English law economic tort of procuring a breach of contract by the retail investors in the form of inducing them to breach the English law and exclusive jurisdiction clause by bringing their claims in the German courts.

MMGR applied to set aside the claim form and for a declaration that the English courts did not have jurisdiction over AMT's claims against it. This application was denied at first instance. That decision was overturned in the Court of Appeal "with little enthusiasm" on the basis that while it would be preferable "for the determination of what is in essence an ancillary claim in tort for inducement of breach of contract to be made in the court which the contract breaker agreed should have exclusive jurisdiction in respect of that contract, rather than the courts of the country where the inducement and breach occurred" under the Brussels Regulation, the jurisdiction clauses were not a relevant factor and the harm which AMTF had suffered as a result of any unlawful tortious actions by MMGR was suffered in Germany.

Supreme Court decision

The Supreme Court upheld the Court of Appeal's decision, allowing MMGR's application to set aside the English claims on jurisdictional grounds.

The Supreme Court's analysis started with the fundamental principle in Article 2.1 of the Brussels Regulation that "Subject to this Regulation, persons domiciled in a member state shall, whatever their nationality, be sued in the courts of that member state".

In accordance with the scheme of the regulation, there are alternative grounds of jurisdiction. Of particular relevance are the provisions allowing a person domiciled in a member state to be sued in another member state:

• "in matters relating to a contract, in the courts for the place of performance of the obligation in question" (Article 5.1);
• "in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur" (Article 5.3);
• "where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings" (Article 6.1); and
• if there is an agreement "that a court or the courts of a member state are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise" (Article 23).

The Supreme Court outlined and followed European Court of Justice (ECJ) rulings emphasising that the derogations from the basic principle in Article 2.1 must be construed narrowly(3) in the interests of promoting legal certainty for prospective litigants as to which member state will have jurisdiction over claims.

As AMTF's claims against MMGR were economic tort claims, it naturally focused on Article 5.3 as a means of trying to establish English jurisdiction. Reviewing the relevant ECJ decisions,(4) the Supreme Court elicited the following main principles in relation to the reference in Article 5(3) to "the place where the harmful event occurred":

• This can be either the state in which the event occurred which caused the harm or the state in which the harm was suffered as a result of the event (if different),(5) at the claimant's option.
• It is "the place where the event giving rise to the damage, and entailing tortious… liability, directly produced its harmful effect upon the person who is the immediate victim of the event" (and thus not a place where, for example, a parent company of the victim suffered consequential losses).(6)
• Where a victim suffers direct harm in one state and consequential financial losses in another, it is the first state in which the direct harm was suffered.(7)

It was agreed ground between the parties that the event which caused any damage to AMTF was any inducement by MMGR of AMTF's clients to sue AMTF in the German courts.

AMTF relied on the second limb of the Handelskwekerj principle (as summarised in the first bullet point above), arguing that the losses which it had suffered were suffered in England because that was where it had been denied the benefit of the exclusive contractual jurisdiction clause. The Supreme Court dismissed this argument on the basis that:

• if anywhere, AMTF had certainly suffered some harm in Germany, as that was where the proceedings against it had been brought and settled; and
• in any case, it could not be said that AMTF's former clients had breached a positive obligation to bring proceedings in England, as they were not obliged to bring proceedings at all (only, if they did, to bring them in England).(8)

The Supreme Court instead held that it was "straightforward in this case" to identify that any harm to ATMF had been directly suffered in Germany as a result of the proceedings which had been brought there and the resulting settlements and German legal costs. It dismissed further arguments that AMTF had suffered wider losses in London as a result of harm to its business model as, if sustainable, being only consequential losses and not the direct harm which had been suffered.

The Supreme Court then considered ATMF's second argument, which "in substance [sought] this court to craft a special rule for the tort of inducing breach of contract where the contractual term which has been breached is an exclusive jurisdiction clause". The Supreme Court declined to do so, finding that this "would be contrary to the clear jurisprudence" of the ECJ for a number of reasons:

• ATMF sought to rely on a number of factors which underpin and justify the creation of the rule in Article 5.3 as being justification for also crafting this special rule of jurisdiction for economic torts in relation to contracts with exclusive jurisdiction clauses. However, that was held to be beside the point. The rule in Article 5.3 is that jurisdiction lies with the state in which the event which caused the harm occurred, or in which the harm occurred. The making of that rule provided legal certainty. The fact that the justifications supporting the creation of the Article 5.3 rule could be argued also to support other rules which had not been expressed in the wording of the Brussels Regulation was not a basis on which the courts could conjure such rules into being when applying the Brussels Regulation.
• The fact that Article 5.3 led to the conclusion that the German courts would have jurisdiction over ATMF's claims against MMGR, whereas the English courts should have had jurisdiction over contractual claims between ATMF's former clients and ATMF under Article 23, was not a reason for implying a special rule to bring both types of claim into a single jurisdiction. The ECJ's jurisprudence expressly recognises that different causes of action may have different jurisdictional bases.(9) The policy of having clear and certain rules applicable to given causes of action was more important than having all related points in a dispute heard in a single jurisdiction.
• The contractual agreement as between ATMF and its former clients to convey exclusive jurisdiction on the English courts had no binding effect as between ATMF and MMGR. It might be the case that election meant that the appropriate law for the economic tort claims was English law, but if so, that was something which the German courts were perfectly competent to apply in claims between ATMF and MMGR.

The Supreme Court denied a submission that it should refer the issue to the ECJ, finding that there was no lack of clarity as to where the harm had directly occurred under Article 5.3. There was therefore no need for clarification from the ECJ.

Comment

The English courts are quick to give effect to contractual exclusive jurisdiction clauses. That is consistent with both policy considerations and their traditional high respect for the principle of freedom of contract. Following the recasting of the Brussels Regulation, that position has also been bolstered in EU law. However, the Supreme Court in this case drew a clear line in the sand when it comes to circumstances in which the contractual election is not binding on the parties in the claim, but is instead a contractual election of which a third party has procured a breach. The clarity of Article 5.3 of the Brussels Regulation as applicable to claims in tort has been left undisturbed for the (non) special case of the economic tort of procuring the breach of an exclusive jurisdiction clause.

For further information on this topic please contact Jake Hardy at RPC by telephone (+44 20 3060 6000) or email (jake.hardy@rpc.co.uk). The RPC website can be accessed at www.rpc.co.uk.

Endnotes

(1) EU Regulation 44/2001.

(2) [2017] UKSC 13.

(3) Citing, for example, Kronhofer v Maier (Case C-168/02) and Coty Germany GmbH v First Note Perfumes NV (Case C-360/12).

(4) With particular emphasis on Handelskwekerj GJ Bier BV v Mines de Potasse d' Alsace SA (Case C-21/76), Dumez France v Hessische Landesbank (Helaba) (Case C-220/88) and Marinari v Lloyd's Bank Plc (Case C-364/93).

(5) Handelskwekerj GJ Bier BV v Mines de Potasse d' Alsace SA (Case C-21/76).

(6) Dumez France v Hessische Landesbank (Helaba) (Case C-220/88).

(7) Marinari v Lloyd's Bank Plc (Case C-364/93).

(8) Distinguishing Dolphin Maritime & Aviation Services Ltd v Sveriges Angfartygs Assurans Forening [2010] 1 All ER (Comm) 473.

(9) Kalfelis v Bankhaus Schröder, Münchmeyer, Hengst and Co (Case C-189/87), Réunion Européenne SA v Spliethoff's Bevrachtingskantoor BV (Case C-51/97).