Focus on international jurisdiction in cross-border damage claims

Beitrag als PDF (Download)

Claims filed by Austrian vehicle owners against German car manufacturers in connection with the so-called “Dieselgate” scandal have revived the controversial debate about international jurisdiction for damage claims based on pure economic loss. Recently, the European Court of Justice decided in favour of the vehicle owners by affirming Austrian jurisdiction (ECJ, Rs 343/19). A step toward plaintiff’s forum for pure economic loss?
Long-term and highly controversial question
Pure economic loss occurs when the injured party suffers “only” a financial disadvantage without suffering injury to his body or property. The crucial question for clarifying international jurisdiction in cases of pure economic loss is: How can pure economic loss be located geographically? Is it to be located in the state where the claimant is domiciled and has its assets? If this question is answered in the affirmative, actions for compensation of pure economic loss could be brought at the plaintiff’s forum – a forum that is generally (for good reasons) seen with scepticism in international procedural law.
What sounds like a “glass bead game” of legal dogmas is extremely explosive in practice. Prime examples are cases in which an investor, relying on false information, purchases securities that do not meet his expectations, and suffers losses as a result. If investors and subjects responsible for the false information are based in different countries, the controversial question arises as to whether the investor can sue them in the investor’s home country. Case law is very case-specific and does not provide clear answers. It is therefore hardly possible to deduce general rules for determining jurisdiction (see ECJ C-364/93, Marinari / Lloyds; C-220 / 88, Dumez France / Hessische Landesbank; C-168/02, Kronhofer / Maier; C-375/13, Kolassa / Barclays; C-12/15, Universal Music; C-304/17, Löber / Barclays ).
Specifics of claims against automotive manufacturers
In the Volkswagen case brought by Austrian vehicle owners against German car manufacturers, the pure economic loss arose from the fact that, based on incorrect information (about pollution emissions), the owners acquired a vehicle which they would not have bought at all, or only at a lower price, had they been given the correct information. (At least, this is the claim of the claimants.) The manufacturer, whom the claimants accuse of misinformation and deception, is based in Germany. The cars in question were manufactured in Germany. However, the vehicle was purchased in Austria, and Austria is the place of the buyers’ domicile. The Austrian vehicle owners therefore sued in Austria relying on the “jurisdiction in matters relating to tort or delict”.
Before the question of international jurisdiction was submitted to the ECJ, numerous Austrian courts of first and second instance had affirmed their jurisdiction; some denied it; some stayed the proceedings in order to await the ECJ ruling. Finally, the ECJ hold that, “where a manufacturer in a Member State has unlawfully equipped its vehicles with software that manipulates data relating to exhaust gas emissions before those vehicles are purchased from a third party in another Member State,” the damage consists in the purchase contract and “the place where the damage occurs is in that latter Member State.” (C-343/19)
The development of the jurisdiction in matters relating to tort or delict
The common legal background of the question of jurisdiction in investor cases and in the claims against vehicle manufacturers are the special jurisdiction rule of Article 7(2) of the Regulation 1215/2012 (Brussels Ia) in matters relating to tort or delict and the related ECJ case law, which goes back to the 1970s.
Fundamental principle: Defendant’s jurisdiction
The Brussels I Regulation states that the claimant must, in principle, sue at the defendant’s domicile (Article 4). The background to this basic principle is the consideration that the claimant determines the time and content of its complaint, while for the defendant the time limit for its defence begins when the complaint is served. The defendant should therefore have the opportunity to defend itself in its home country and should not be forced to organize legal representation and defence strategy in a foreign country under considerable time pressure.
Special jurisdiction rules for claims for damages
There are several exceptions to this basic principle. One of these exceptions is the jurisdiction in matters relating to tort or delict provided for in Article 7(2) of the Brussels I Regulation. Accordingly, the victim may choose to bring its claim in the country where “the harmful event occurred”. Since the landmark case Bier / Mines de Potasse (ECJ 30.11.1976, C-21/76), this provision is understood to mean that the plaintiff can choose between two places: the place where the damage occurred or the place of the event giving rise to the damage. Bier / Mines de Potasse concerned the jurisdiction of the Netherlands Courts for a lawsuit brought by an undertaking engaged in horticulture in the Netherlands. The horticulture was damaged by the high salt content of the Rhine, caused by the discharge of saline waste from the operations of the defendant in France. The ECJ ruled that the plaintiff could choose between two places: the place where the discharges were carried out (France as the place where the event giving rise to the damage occurred) and the place where the plantation was damaged (Netherlands, as the place where the damage occurred).
This decision provoked a controversy about the scope of international jurisdiction for damage claims. There was criticism that the term “place where the harmful event occurred” should not be construed so extensively as to encompass any place where an adverse consequence could be felt. This would be against the principle of predictability.
After Bier / Mines de Potasse, the ECJ restricted the definition of the “place where the damage occurred”: In Marinari / Lloyds, C-364/93), the ECJ denied jurisdiction of Italian courts for an Italian claimant who had been wrongly arrested in London and suffered financial loss in his Italian company as a result of the arrest. The initial damage was the arrest and the arrest occurred in London. Therefore, England was considered as the place where the harmful event occurred. Consequential damage in Italy was deemed irrelevant for international jurisdiction.
Likewise, the attempt of a French parent company to sue a German bank in France for having harmed its German subsidiary failed. The subsidiary was the direct victim while the French claimant had suffered financial loss as an indirect consequence of the damage to its subsidiary. According to the ECJ, the relevant damage occurred in Germany and the consequential financial loss suffered by the parent company did not justify jurisdiction in the parent company’s state (C-220/88, Dumez France / Hessische Landesbank).
Current legal situation for investor damage
Many years later, the ECJ had to assess the jurisdiction for investor claims (ECJ C-168/02, Kronhofer / Maier; C-375/13, Kolassa / Barclays; C-304/17, Löber / Barclays ).
In these cases, Austrian investors acquired securities in reliance on false information of investment advisers and prospectus managers not based in Austria. They suffered pure economic loss consisting of the purchase of the securities (which did not correspond to what they thought they were buying). The damaged investors sued in Austria with the argument that their damage occurred in Austria.
The localization of damage is much more difficult in these cases than in the case Bier / Mines de Potasse, which concerned physical damage to physical things. Pure economic loss has no natural connection to a geographical place. In investment cases, a multitude of places can be theoretically considered to be the place of the harmful event: for example, the place from where the money transfer to purchase the securities was made; the place of the relevant bank account, whereby it is not clear which account should be considered relevant; and finally, the place where the investor’s bank or its corresponding branch is located.
In Kronhofer and Kolassa, the ECJ hold that pure economic loss did not justify jurisdiction at the domicile of the victim even if the victim’s assets were concentrated there. The question of where else pure economic loss was to be located remained open. In the most recent case (Löber) on the contrary, the ECJ located the place where the damage occurred in Austria and attributed jurisdiction to the Austrian courts. However, the ECJ emphasized that this decision cannot be generalized, because the localization of the place where the damage occurred depends on an overall consideration of all specific circumstances of the specific case.
Nevertheless, we can deduce from the case law that two factors must always be considered:
First, there should be a close relationship between the forum and the dispute, which justifies the jurisdiction for reasons relating to the sound administration of justice and the efficacious conduct of proceedings, particularly as regards evidence.
Secondly, the place of jurisdiction should be predictable for the defendant.
Application to the Dieselgate cases – overview of the Austrian jurisprudence
In connection with the Volkswagen case, the Austrian Supreme Court was initially confronted with the lawsuits of Austrian investors. They argued that Volkswagen had violated its ad hoc reporting obligations in connection with the software manipulation and that this resulted in shareholders suffering share price losses. The Austrian Supreme Court (6 Ob 18 / 17s) denied the jurisdiction of Austrian investors in accordance with Kronhofer and Kolassa.
Regarding the legal actions of vehicle owners, however, the trend has been in favour of the claimants from the beginning. Most of the first and second instance Austrian decisions affirmed the jurisdiction of Austrian courts, arguing that the damage consists in the purchase of the vehicle and the purchase occurred in Austria. The ECJ followed the same reasoning.
New trends?
While the previous European and Austrian case law was reluctant to attribute jurisdiction to the courts in the victim’s domicile in cases of pure economic loss, now the opposite view seems to be gaining ground. This is surprising given the long-standing tendency of the ECJ to place restrictive limits on accepting claimant’s domicile as the connecting factor in cases of pure economic loss.
However, the pure economic loss suffered by vehicle owners materializes in a “traditional purchase” in which two persons physically face each other and a physical object (the car) is handed over. This is not the case with many other cases of pure economic loss, particularly on the financial market. Here, the purchase consists in bookings, and financial damages can hardly be assigned to a geographical place. In these cases, the localization of pure economic loss will continue to be highly controversial and case law has so far raised more questions than it has provided answers.

bettina.knoetzl@knoetzl.com

judith.schacherreiter@knoetzl.com

Aktuelle Beiträge