Yearbook of Private International Law: Volume III, 2001

YEARBOOK OF PRIVATE INTERNATIONAL LAW

YEARBOOK OF PRIVATE INTERNATIONAL LAW VOLUME III – 2001

EDITORS

PETAR ŠARČEVIĆ

PAUL VOLKEN

Professor at the University of Rijeka

Professor at the University of Fribourg

PUBLISHED IN ASSOCIATION WITH SWISS INSTITUTE OF COMPARATIVE LAW LAUSANNE, SWITZERLAND

Sellier. European Law Publishers

Sellier. European Law Publishers ISBN 978-3-935808-49-1 Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://dnb.d-nb.de abrufbar. © 2001 Kluwer Law International und Swiss Institute of Comparative Law. © für den Nachdruck 2007 Sellier. European Law Publishers GmbH und Swiss Institute of Comparative Law. Dieses Werk einschließlich aller seiner Teile ist urheberrechtlich geschützt. Jede Verwertung außerhalb der engen Grenzen des Urheberrechtsgesetzes ist ohne Zustimmung des Verlages unzulässig und strafbar. Das gilt insbesondere für Vervielfältigungen, Übersetzungen, Mikroverfilmungen und die Einspeicherung und Verarbeitung in elektronischen Systemen. Herstellung: Karina Hack, München. Druck und Bindung: AZ Druck und Datentechnik, Kempten. Gedruckt auf säurefreiem, alterungsbeständigem Papier. Printed in Germany.

ADVISORY BOARD JÜRGEN BASEDOW Hamburg GENEVIÈVE BASTID-BURDEAU Paris/The Hague LAWRENCE COLLINS London HUANG JIN Wuhan HANS VAN LOON The Hague FERENC MÁDL Budapest

RUI MANUEL GENS DE MOURA RAMOS Luxembourg/Coimbra YASUHIRO OKUDA Sapporo GONZALO E. PARRA-ARANGUREN The Hague/Caracas SYMEON C. SYMEONIDES Salem (Oregon) PIERRE WIDMER Lausanne

ASSISTANT EDITOR AND ADRESSEE FOR MANUSCRIPTS AND CORRESPONDENCE ANDREA BONOMI Swiss Institute of Comparative Law Dorigny, CH – 1015 Lausanne

ENGLISH REVISION SUSAN ŠARČEVIĆ Faculty of Law, Rijeka

TABLE OF CONTENTS ________________

Foreword ............................................................................................................ ix Abbreviations..................................................................................................... xi Doctrine Harry DUINTJER TEBBENS Judicial Interpretation of the 1988 Lugano Convention on Jurisdiction and Judgments in the Light of its Brussels Matrix: the Convergence Confirmed .......................................................................... 1 David GODDARD Rethinking the Hague Judgments Convention: A Pacific Perspective ..................................................................................... 27 Christoph BERNASCONI Indirectly Held Securities: A New Venture for the Hague Conference on Private International Law ........................................... 63 Bertrand ANCEL The Brussels I Regulation: Comment ............................................................ 101 Private International Law Issues in World War II Era Litigation Yasuhiro OKUDA The Law Applicable to Governmental Liability for Injuries to Foreign Individuals during World War II: Questions of Private International Law in the Ongoing Legal Proceedings before Japanese Courts ............................................................................................. 115 Kent ANDERSON Issues of Private International Law and Civil Procedure Arising out of the U.S. Civil Suits for Forced Labor during World War II: To What Extent Do U.S. Conflict and Procedural Rules Obstruct Private Liability for Wartime Human Rights Violations?.............................. 137 Jan VON HEIN The Law Applicable to Governmental Liability for Violations of Human Rights in World War II: Questions of Private International Law from a German Perspective............................................... 185

National Reports Gerhard HOHLOCH & Cecilie KJELLAND The New German Conflicts Rules for Registered Partnerships ..................... 223 News from The Hague J.H.A. VAN LOON The Hague Conference on Private International Law – Work in Progress (2000-2001)....................................................................... 237 Forum Frank GERHARD The Extraterritorial Judicial Penalty – New Instrument for the Transnational Enforcement of Extraterritorial Injunctions?........................... 245 Texts, Materials and Recent Developments Council Regulation (EC) No. 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (‘Brussels I’) ........................... 301 Council Regulation (EC) No. 1206/2001 of 28 May 2001 on Cooperation between the Courts of the Member States in the Taking of Evidence in Civil or Commercial Matters ..................................... 333 CHINESE SOCIETY OF PRIVATE INTERNATIONAL LAW: Model Law of Private International Law of the People’s Republic of China (Sixth Draft, 2000)........................................................... 349 James A.R. NAFZIGER Oregon’s Conflicts Law Applicable to Contracts .......................................... 391 Book Review Mario GIOVANOLI (ed.), International Monetary Law, Issues for the New Millennium (Petar ŠARČEVIĆ) .......................................................... 419 Books Received .................................................................................................. 427 Index ................................................................................................................... 431

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FOREWORD ________________

Our main goal, as stated in the first volume, is to make the Yearbook an international podium for the intellectual exchange of scientific and practical ideas between specialists of private international law. The intention is to include contributions by scholars from all parts of the world. As readers will witness in this volume, the Yearbook is becoming more international; however, contributions from Africa are still missing. Hopefully this continent will also be represented in the near future. Again we encourage contributions on new developments in private international law in countries and regions around the globe. Discussions of important court decisions are particularly welcome. As earlier, we closely follow developments at the Hague Conference on Private International Law. Regarded as a European institution not long ago, the Hague Conference has grown into a worldwide organization with 55 Member States and several applicant countries. Although its membership has greatly expanded, this does not mean that conventions are automatically accepted and ratified on a global scale. The fate of the future Judgments Convention shows that conflicting interests on crucial issues often stand in the way of progress. Despite the present deadlock, the mere fact that a forum has been convened to study the problems and is attempting to reconcile differences, especially those between common law and civil law countries, is of major importance. Bilateral dialogues, such as those between EU and US experts, will certainly play a role in resolving the issues at stake. Whether this will be achieved now or in the near future does not diminish the value of such efforts. For the first time, the same topic – forced labor during World War II – is discussed by scholars from three different continents. As the reports show, there has been much activity in this area on the judicial front in Germany, Japan and the US. The disputes have also raised a number of difficult private international law issues. In light of the pending cases and new decisions, such as that of 19 October 2001 by of the California Superior Court in Orange County, it appears that, after more than 50 years, the courts will continue to be confronted with such issues. National and state legislators continue to be active as well. The draft Model Law of Private International Law of the People's Republic of China and Oregon’s Conflicts Law Applicable to Contracts are published in the present volume. Reports on new developments in other jurisdictions will be included in future volumes. As regards the situation in Europe, concurrence between EU and national legislation is still unresolved in the field of private international law. One of the best examples is the new EC directive on jurisdiction and enforcement in family matters, on the one hand, and the new German conflicts rules for registered partnerships, on the other. We remain committed to informing readers, promptly and accurately, about new developments that are shaping the future of private international law. This, of course, is the purpose of the Yearbook. Petar ŠARČEVIĆ

Paul VOLKEN

ABBREVIATIONS ________________

Am. J. Comp. L. Am. J. Int. L. Clunet I.C.L.Q. I.L.M. id. IPRax OJ PIL RabelsZ Recueil des Cours

Rev. crit. dr. int. pr. REDI Riv. dir. int. priv. proc. Riv. dir. int. RIW RSDIE

American Journal of Comparative Law American Journal of International Law Journal de droit international International and Comparative Law Quarterly International Legal Materials idem Praxis des internationalen Privat- und Verfahrensrechts Official Journal Private International Law Rabels Zeitschrift für ausländisches und internationales Privatrecht Recueil des Cours de l'Académie de la Haye de droit international = Collected Courses of The Hague Academy of International Law Revue critique de droit international privé Revista española de derecho internacional Rivista di diritto internazionale privato e processuale Rivista di diritto internazionale Recht internationaler Wirtschaft Revue suisse de droit international et européen = Schweizerische Zeitschrift für internationales und europäisches Recht

DOCTRINE ________________

JUDICIAL INTERPRETATION OF THE 1988 LUGANO CONVENTION ON JURISDICTION AND JUDGMENTS IN THE LIGHT OF ITS BRUSSELS MATRIX: THE CONVERGENCE CONFIRMED *

Harry DUINTJER TEBBENS** I.

II.

III.

Introduction A. Interpretation of the Brussels Convention B. Interpretation of the Lugano Convention C. Outline of Article Interpretation of the Lugano Convention: The Legal Framework A. Protocol 2 on Uniform Interpretation B. Reciprocal Declarations of EU and EFTA States Practise of Lugano Convention Interpretation A. Courts of European Union States 1. Tendency Towards Assimilation 2. The Peculiar Problem of lis pendens (I) B. Courts of EFTA Member States 1. General Features of Case-Law 2. Supreme Court Cases Dealing Extensively with the Parallel Brussels/Lugano Interpretation a) Scope of Convention: Notion of ‘Civil and Commercial Matters’ b) Scope of Convention: Bankruptcy Exception c) Notion of ‘Maintenance Obligation’ d) Conditions for Recognition and Enforcement

* This paper is the revised and updated text of a contribution made to a seminar in Brussels on 8-9 November 1999 on recent developments and perspectives of private international law and judicial cooperation in Community law, organised by the Academy of European Law, Trier, for the Legal Service of the European Parliament. ** The author is Head of Division, Legal Service, European Parliament, previously Head of Unit, Research and Documentation Service, European Court of Justice, and is Member of the Netherlands Standing Government Committee on Private International Law. The views expressed in this paper are purely personal and do not necessarily reflect the official position of the European Parliament.

Yearbook of Private International Law, Volume 3 (2001), pp. 1-25 © Kluwer Law International & Swiss Institute of Comparative Law

Printed in the Netherlands

Harry Duintjer Tebbens

3.

V.

Significant Examples of Parallel Interpretation a) The ‘Obligation in Question’ under Article 5(1) b) Validity of Choice of Court Clause c) The Problem of lis pendens (II) 4. Possible Incongruous Results a) Commercial or Bankruptcy Action b) Place of Pure Economic Loss c) Notion of ‘Consumer Contract’ The Court of Justice and the Lugano Convention A. Multistate Employment Contracts B. Discrimination in Civil Procedure Concluding Remarks

I.

Introduction

A.

Interpretation of the Brussels Convention

IV.

Compared to other international conventions, a well-known distinctive feature of the Brussels Convention on jurisdiction and the enforcement of judgments is that its application is subject to the harmonising, if not unifying interpretation of the European Court of Justice (ECJ). Pursuant to the Interpretation Protocol of 3 June 1971,1 at the request of national courts, the ECJ has given over one hundred preliminary rulings concerning the interpretation of the Brussels Convention. In its very first ruling on the Convention, the Court was cautious in its approach to the question whether to interpret the terms of the Convention by reference to national law (presumably the law of the court seized or the law applicable to the substance of the case), or by an independent concept to be drawn from the scheme and purpose of the Convention itself. It stated in Tessili2 that the choice had to be made for each provision or term separately, having regard to the need to give the optimal effet utile to the Convention. In its later case-law it becomes clear that, but for a few notable exceptions, the independent or ‘autonomous’ interpretation prevails. This is particularly clear in the 1993 judgment in Mulox,3 where the Court held that only that interpretation could ensure the uniform application of the Convention in all Member States, thus offering the necessary legal certainty to litigants. Having built up consistent case-law on numerous specific questions, the Court decided in 2001 for the first time to give a simplified ruling under its Rules 1

Official Journal of the European Communities (OJEC) 1975, L 204, p. 28. Tessili v. Dunlop [1976] ECR 1473, point 11. 3 Mulox IBC v. Geels [1993] ECR I-4075, points 10-11. 2

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of Procedure concerning the interpretation of the exclusive head of jurisdiction for rights in rem in immovable property.4 One might say that the national courts now have, as it were, a common annotated version of the Brussels Convention as their companion for its application.

B.

Interpretation of the Lugano Convention

The situation is different regarding the 1988 Lugano Convention,5 which in substance reproduces the scheme for jurisdiction and enforcement of judgments of the Brussels Convention for a wider range of countries, in particular the EFTA States. No common interpretation mechanism comparable to the one attached to the Brussels Convention exists for the Lugano Convention. During the negotiations, neither the European Community Member States nor those of EFTA wanted to confer jurisdiction to interpret this Convention to the European Court of Justice, though for different reasons. The option to set up a distinct judicial body and entrust it with this task was equally rejected.6 Finally, the solution adopted was to add a number of protocols and declarations to the Convention with the purpose of reducing to the greatest extent possible the risk that the Lugano Convention would be interpreted and applied differently than the Brussels Convention.7

C.

Outline of Article

This paper first examines these ‘second-best tools’ for interpreting the Lugano Convention (II), before sketching in a bird-eye’s view the initial response of courts to this challenge (III), in European Union States (A) and, in greater detail, in some other Contracting States as far as their supreme courts are concerned (B). Attention is then given to the European Court’s perception of the Lugano Convention (IV). Finally, some conclusions are drawn about the practice of the Convention’s interpretation (V).

4

Order of 5 April 2001, Case C-518/99 Gaillard v. Chekili, nyr, made under Art. 104(3) Rules of Procedure. 5 OJEC 1988, L 319, p. 9. 6 See DUINTJER TEBBENS H., ‘Die einheitliche Auslegung des LuganoÜbereinkommens’, in: REICHELT G. (ed.), Europäisches Kollisionsrecht - Die Konventionen von Brüssel, Lugano und Rom, Frankfurt am Main etc. 1993, pp. 49-64, at pp. 49-50. 7 See the Jenard/Möller Report on the Lugano Convention, OJEC 1990, C 189, p. 57, paras 111-119.

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II.

Interpretation of the Lugano Convention: The Legal Framework

Set up by its drafters as a parallel instrument to the Brussels Convention, the Lugano Convention follows the scheme and drafting of that Convention as closely as possible, as well as its judicial interpretation by the European Court of Justice.8 Upon conclusion of the Lugano Convention, a number of differences remained; however, several of them disappeared when the Brussels Convention itself was modified in 1989 for the accession of Spain and Portugal.9

A.

Protocol 2 on Uniform Interpretation

The very preamble of the Lugano Convention bears witness to this close relationship by ‘taking into account the Brussels Convention’ and extending its principles to the Lugano Contracting States. Moreover, Protocol 2 on the uniform interpretation of the Convention is attached to the Lugano Convention and deemed an integral part thereof by virtue of Article 65 of the Convention. The Protocol’s preamble recalls the substantial link between both Conventions, in particular the fact that the negotiations leading to the conclusion of the Lugano Convention were based on the Brussels Convention, as interpreted by the European Court up to that conclusion (on 16 September 1988). Protocol 2 also states two aspects of the objective to achieve a uniform interpretation: (i) as regards the Lugano Convention in and for itself, as well as (ii) in relation to the corresponding provisions of the Brussels Convention (preamble, last paragraph). i) As to the internal uniformity of the Lugano Convention, Protocol 2 obliges in its Article 1 the courts of all Convention States ‘to pay due 8

See the Jenard/Möller Report (note 7), para. and the summary of ECJ case-law, ibid., paras. 130 et seq.; STONE P.A., ‘The Lugano Convention on Civil Jurisdiction and Judgments’, in: Yearbook of European Law 1988, p. 105 et seq.; TRUNK A., Die Erweiterung des EuGVÜ-Systems am Vorabend des Europäischen Binnenmarktes, Munich 1991, p. 91 et seq.; MÖLLER G., ‘The Outlook for the System for the Free Movement of Judgments created by the Brussels Convention’, in: Civil Jurisdiction and Judgments in Europe (colloquium at the ECJ, March 1991), London etc. 1992, p. 215 et seq., pp. 217-220; DUINTJER TEBBENS H., ‘The European Jurisdiction and Enforcement Conventions: interpretation, concurrence and prospects’ in: Netherlands International Law Review 1993, p. 471 et seq., 474-477. 9 See SCHMIDT-PARZEFALL T., Die Auslegung des Parallelübereinkommens von Lugano, Tübingen 1995, p. 21; DROZ G., ‘La Convention de San Sebastian alignant la Convention de Bruxelles sur la Convention de Lugano’, in: Rev. crit. dr. int. pr., 1990, p. 1 et seq.

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account to the principles laid down by any relevant decision’ delivered by courts of the other States parties to it. In order for the courts to be able to discharge this duty the Protocol makes provision for an exchange of information concerning the relevant case-law (Article 2). ii) The external uniformity is also addressed in Article 2, but only indirectly, by the range of judicial decisions to which the exchange of information applies. Indeed, not only are the most important cases concerning the Lugano Convention itself to be included in this exchange, but also the rulings given by the European Court on the interpretation of the Brussels Convention and the most important cases decided by national courts involving the latter Convention. A detailed examination of how this exchange of information is carried out by the Registrar of the European Court as the central body under Article 2(2) is not necessary here. It suffices to mention that the relevant data are collected and selected by the Court’s Research and Documentation Service and sent periodically in hard copy to the national authorities designated under Article 2. This includes the original text of judgments without translation but with a short keyword description in French and English. The coverage started in 1992 when the Lugano Convention came initially into force between France, the Netherlands and Switzerland. As of 1997, the selected decisions are also placed on the Court’s website.10 In addition, the documentation covering the first five years has been reproduced in publications by the Swiss Institute for Comparative Law.11 This should enhance their availability, especially for those for whom the exchange of information has been primarily set up, viz. the judges of national courts who are obliged to take proper notice of relevant decisions of their brethren under Article 1 of the Protocol.

B.

Reciprocal Declarations of EU and EFTA States

Attached to the Final Act of the Diplomatic Conference adopting the Lugano Convention are two Declarations that further provide body to the uniform interpretation mechanism. According to the Declaration of the Member States of the European Communities, they consider as ‘appropriate’ that, when interpreting the Brussels

10

http://www.curia.eu.int, under ‘Research and Documentation’. Under the slightly unbalanced title (leaving out any reference to the Brussels Convention) of Collection of jurisprudence of the European Court of Justice and of the highest courts of the States Parties concerning the Lugano Convention, Vols. I-V (Years 1992-1996), Zurich 1996-2000. 11

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Convention, the European Court of Justice pay due account to the rulings contained in the case-law of the Lugano Convention.12 In the Declaration given by the EFTA Member States, the latter invite their courts to pay due account to the case-law of the European Court, as well as that of the national courts of EC Member States, when interpreting provisions of the Brussels Convention reproduced in the Lugano Convention.13 It should be noted that these Declarations are not strictly reciprocal: When applying the Lugano Convention, the national courts of the European Union States are not required to take into account the European Court’s rulings on the interpretation of the Brussels Convention.14 This is probably because a statement to that effect was considered superfluous since the Court’s rulings in preliminary reference proceedings – in this area as in Community law proper – have a persuasive authority in the legal order of the Member States, which is also reflected in the interpretation of the Lugano Convention in those States. After this summary presentation of the legal framework for the interpretation of the Lugano Convention, we turn to an assessment of the relevant judicial practice, particularly in relation to the body of existing case-law on the Brussels Convention.

III. Practise of Lugano Convention Interpretation Since the Lugano Convention entered into force for an initial group of three States on 1 January 1992, a substantial number of cases applying the Convention has been decided. A database kept at the European Court’s Research and Documentation Service, containing reported as well as some unreported cases, listed some 350 in 2001.15 Our main interest is directed to those decisions of superior or supreme courts that specifically and at some length deal with the parallelism between the two Conventions and its effect on interpretation. Although attention will be focused particularly on judgments of EFTA States within this category of cases, it appears useful to first summarise briefly the experiences of national courts of the European Union Member States with the phenomenon of parallelism. 12

OJEC 1988, L 319, p. 37. OJEC 1988, L 319, p. 40. 14 See MINOR J., ‘The Lugano Convention, some problems of interpretation’, in: Common Market Law Review 1990, p. 507 et seq, at p. 512. 15 Despite the fact that Protocol 2 provides that the national authorities shall transmit the relevant judgments to the central body, most cases are in fact taken from legal journals and law reports. 13

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A.

Courts of European Union States

1.

Tendency towards Assimilation

The case-law on the Lugano Convention in these States gives the general impression that it is handled as if it were the Brussels Convention. Often the courts briefly mention the fact that both Conventions are almost identical, or that the particular article in issue is entirely identical in either text.16 They then proceed to ‘dress up’ their judgment in the way characteristic of their jurisdiction, referring to the case-law of the Court of Justice, to domestic cases or legal writings concerning the Brussels Convention or the Lugano Convention, as the case may be. Thus the impression is one of clear convergence, even going towards complete assimilation of both Conventions. There is, however, a built-in limit for national courts that may or must refer to the Court of Justice for a preliminary ruling when the interpretation of the Brussels Convention is at stake: They cannot take that course if the issue to be clarified arises under the Lugano Convention, even if the wording of the article(s) involved is completely identical.17 The tendency towards assimilation sometimes goes too far, for instance, in cases that are decided under the Lugano Convention, but upon closer scrutiny of the factual circumstances, it becomes clear that the Brussels Convention should have been applied. Errors of this kind have occurred especially in EU Member States where both Conventions entered into force on the same day.18 Surely, such formal confusion of both instruments does little harm if the relevant rules are strictly identical.

2.

The Peculiar Problem of lis pendens (I)

The picture given above is of course a simplification, which does not apply to some of the more complex cases. In one case, for example, the result reached by the court was largely due to a marked difference between the two Conventions, relating precisely to their interpretation. This case, Polly Peck International plc v.

16

For a recent example, see the House of Lords, judgment of 17 February 2000, Agnew ao v. Lansförsäkringsbølagens, [2000] 1 All England Law Reports 737, [2000] 2 Weekly Law Reports 497. 17 This impossibility appears to be confirmed by the ECJ ruling in: Kleinwort Benson v. City of Glasgow District Council, C-346/93 [1995] ECR I-615, concerning an interregional jurisdiction conflict within the United Kingdom. 18 E.g., Portugal. Cf. the judgment of the Coimbra Appeal Court of 14 December 1993, in: Colectânea de Jurisprudência XVIII (1993), t. V., p. 51, purporting to apply the Lugano Convention to a German judgment.

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Citibank NA,19 decided by the English High Court, concerned a dispute between an English company, on the one hand, and United States and Swiss companies, on the other. The American and Swiss defendants argued that the Swiss courts had been first seized with a claim involving the same parties and the same cause of action. They invited the English court to decline jurisdiction in favour of the Swiss courts under Article 21 of the Lugano Convention. However, the English plaintiff contended that the English, not the Swiss court had been seized first. Thus the court had to answer the question on which date the Swiss courts had been seized of the action. The court noted that the rule on lis pendens was identical in the Brussels and Lugano Conventions and that the English court would be bound by rulings of the European Court concerning the lis pendens rule in the Brussels Convention, whereas the Swiss courts were merely required, under Protocol 2 of the Lugano Convention, to pay due account to such rulings. Now, the European Court has ruled in Zelger v. Salinitri (II)20 that the court first seized is the one where the requirements for proceedings to become definitively pending are first fulfilled, and that such requirements must be determined in accordance with the national law of each of the courts concerned. Therefore, the English court might well have felt obliged, in the case before it, to ascertain when those requirements had been met under the relevant laws of Switzerland, in order to determine which court had been first seized. However, ‘after some hesitation’ the court came to the conclusion that it should not do so. Instead, noting that the purpose of the Lugano Convention was to avoid conflicts of jurisdiction, it observed that the Swiss court would be bound, under Article 21, to decide whether it became seized of proceedings on the date alleged by the American and Swiss companies, but it would not be bound by a decision of an English court as to that date. The English court went on to say: ‘It follows that the only way in which a possible conflict can be avoided is for the courts of this country to adjourn the application until the Swiss courts have finally decided whether the District Court of Zurich became seized of the proceedings in that jurisdiction on 8 February, and if the Swiss courts decide that the District Court of Zurich was so seized, to decline jurisdiction. …[T]he courts of this country should, I think, as a matter of comity, decline to answer a question of Swiss law if it is one which must necessarily be decided by the Swiss courts, albeit that under the protocol the Swiss court

19 Judgment of 14 October 1993 of the High Court, Chancery Division, [1994] International Litigation Procedure 71. 20 Judgment of 7 June 1984, 129/83 [1984] ECR 2397.

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would have to take into account, without being bound by, the decision of this Court.’21 Besides the ‘comity’ invoked by the English court, it probably also had in mind an element of practicality or convenience which would militate against it attempting itself to come up with the correct answer under Swiss law, i.e., the English procedural tradition of hearing expert evidence by both parties concerning the content of foreign law. As a matter of fact, the question turned out to be extremely delicate, requiring an in-depth analysis of Swiss federal law relating to international civil procedure,22 as well as a particular pre-contentious conciliation procedure in the cantonal law of procedure in Zurich. This question, which divided not only the parties to the dispute in Switzerland, but also academic writers in that country,23 kept the Swiss courts occupied up to the last instance. The final answer of the Swiss Federal Supreme Court came four years later24 and was to the effect that the Swiss court had been seized after the English court. As a result, after having suspended proceedings all that time, the English court found itself in the odd situation of learning that it had been under no duty to suspend pursuant to Article 21 after all.

B.

Courts of EFTA Member States

1.

General Features of Case-Law

Judicial practice in the Lugano States Parties outside the Brussels Convention Membership is in keeping grosso modo with the interpretation of the latter Convention, as was mentioned above in connection with the judicial practice in countries where both the Brussels and the Lugano Convention are in force.25 This can be concluded by examining the relevant decisions in the former countries,26 21

International Litigation Procedure [1994] at p. 80 (para. 29). Federal Private International Statute of 18 December 1987, English translation in: International Legal Materials 1990, p. 1244, Article 9 (cited in full in the English judgment). 23 See infra at III.B.3 c) for the final Swiss judgment in this litigation, citing all relevant literature. 24 Judgment of 26 September 1997, infra III.B.3 c). 25 See, e.g., JAYME E./KOHLER Ch., ‘Europäisches Kollisionsrecht 1989 – Die Abendstunde der Staatsverträge’, in: IPRax 1999, p. 401 et seq, at p. 410; ID., ‘Europäisches Kollisionsrecht 2000 – Interlokales Privatrecht oder universelles Gemeinschaftsrecht?’, in: IPRax 2000, p. 454 et seq., at p. 463. 26 I.e., Austria, Sweden, Finland (before their transition to the Brussels Convention at the end 1998/beginning 1999), Norway and Switzerland. No Icelandic decision appears as 22

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included in the exchange of information set up under Protocol 2. The period covered for the purpose of the present paper is 1992-2000. Although the scope of this paper does not permit us to mention a large number of cases, some supportive case-law materials can be found in the research done under the auspices of the Standing Committee of the Lugano Convention, set up under Article 3 of Protocol 2. In order to better fulfil its mission to examine the functioning of the Convention and the development of the case-law reported under the exchange of information system (Article 4(1) of the Protocol), in 1998 the Standing Committee decided to have a study conducted of the case-law materials distributed through the system from 1992 through 1998. A large majority of cases examined in the Report on this case-law concerns decisions given by courts in EFTA States and thus its conclusions would appear to be relevant in the present context. Focusing on the interpretation of the thorny Article 5(1) concerning an optional forum for contractual disputes, one of the conclusions of the Report stated ‘that the case-law on the Lugano Convention is developing in a similar manner to that relating to the Brussels Convention, whilst sometimes allowing greater clarification and a more in-depth research into the subject’.27 The last point brings out, rightly in our opinion, that it might very well occur that a national court could be confronted with a situation governed by the Lugano Convention but for which the corresponding case-law of the Court of Justice under the Brussels Convention offers only scant guidance.28 This would give the national courts an opportunity to further develop solutions that could be valid for both Conventions, on the basis of the initial Brussels Convention precedents. These conclusions are confirmed in a second report covering decisions distributed by the central body in 1999.29

2.

Supreme Court Cases Dealing Extensively with the Parallel Brussels/Lugano Interpretation

Turning to Supreme Court decisions that give principled and extensive attention to the interpretation of the Lugano Convention, we find that almost all of them were yet to have been reported on the Lugano Convention. Poland acceded to the Convention only as of 1 February 2000. 27 Report on the national case-law relating to the Lugano Convention drawn up in performance of the task entrusted to the Spanish, Greek and Swiss delegations at the 5th session of the Lugano Convention’s Standing Committee (Interlaken, 18.9.1998)’, in: IPRax 2001, p. 262 et seq., at p. 268. 28 An example is Agnew ao v. Lansförsäkringsbølagens (note 16) concerning the duty of good faith as ‘obligation in question’ for the purpose of the contract forum in Art. 5(1). See also the Swiss judgment discussed infra, III.B.4 c). 29 Second Report on National Case-law on the Lugano Convention, by H. Bull, G. Musger and F. Pocar, part V (to be published in: IPRax).

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handed down by the Swiss and Austrian highest courts in 1997 or 1998. Their counterparts in the Nordic countries have surely dealt with this matter too; however, in line with the more concise style of judgments prevailing in those countries, rather than setting out the guiding principles or dogmatic underpinings of the parallel interpretation, they simply apply it.30 Not purporting to give an exhaustive review of all such cases, this chapter selects some illustrative ones. In the following presentation, the cases are grouped by topic.

a)

Scope of Convention: Notion of ‘Civil and Commercial Matters’

aa) In a case before the Swiss courts involving Swiss and Italian parties and the State of Paraguay, the jurisdiction of the court depended on whether or not the dispute had to be classified as a ‘civil and commercial matter’ under Article 1(1) of the Lugano Convention. In its judgment of 20 August 1998,31 the Swiss Federal Supreme Court held that the ‘context’ of the interpretation of the Lugano Convention within Article 31(2)(a) of the Vienna Convention on the Law of Treaties was formed in particular by the Contracting Parties, acknowledging the fact that the convention was substantially linked to the Brussels Convention. In this connection, it referred to the various passages in Protocol 2 and other texts (set out above, II) and to one of its earlier decisions on the Lugano Convention in the Polly Peck case.32 The Court then spelled out the preliminary rulings delivered by the ECJ (up to September 1988) on the concept of ‘civil and commercial matters’ and that Court’s insistence on an independent construction of the concept. It continued by saying that ‘there is no reason whatsoever not to follow this line of interpretation for the purpose of applying the Lugano Convention’,33 recalling also that the main advantage of any ‘autonomous’ treaty interpretation lies in it avoiding legal uncertainty. It was true that, by virtue of its basis in Community law, the Brussels Convention has a fonctionnalisme communautaire to it and that it could happen that the concurrent application, for example, of the prohibition of discrimination on the ground of nationality in EC law, would influence the interpretation of the Brussels Convention, preventing that 30 E.g., Swedish Supreme Court 23 February 1994, Nordic Water Products / S. Håkanson, English translation in [1995] International Litigation Procedure 766, on the scope of exclusive jurisdiction for patent claims, simply citing the relevant ruling of the ECJ. 31 Banque Bruxelles Lambert (Suisse) a.o. / République du Paraguay et Sezione speciale per l’assicurazione del credito all’esportazione, BGE (Federal Court Reports) 124 III 382. 32 Infra, III. B.3. c). 33 At BGE 124 III 395, letter e).

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interpretation from being adopted by non-EC States. But, the Court added that such situations would be rare and that it was proper to consider the territories of all the Lugano Contracting States as a common judicial area that required the greatest uniform application possible. Thereupon the Swiss Court applied the criteria laid down by the ECJ for the notion of civil and commercial matters. bb) In an almost simultaneous judgment another chamber of the same Swiss Court tackled the same issue in a dispute on export credit insurance. This judgment of 19 August 1998 34 equally adopts the approach that the Lugano Convention is to be considered as international uniform law, requiring an autonomous interpretation, which should be parallel to the Brussels Convention interpretation. The Court concluded from Protocol 2 that case-law of the ECJ on that convention and preceding the conclusion of the Lugano Convention was binding authority (‘als verbindliche Entscheidungsgrundlage zu berücksichtigen’) for the interpretation of the Lugano Convention, but that subsequent case-law of the ECJ according to the EFTA Declaration (supra, II.B.) had (only) to be duly taken into account. In fact, the court relied on such a subsequent ECJ ruling for its interpretation of the notion of ‘civil and commercial matters’ in Sonntag v. Waidmann.35 This ruling adopted a very broad interpretation by using a narrow concept of a public authority’s exercise of its public prerogatives. Remarkably enough, this Swiss judgment does not contain a reservation concerning the possibility of the interpretation of the ECJ being too communautaire, as distinct from the judgment mentioned under (i). The salient point about this is that the Sonntag ruling it relied upon did in fact contain reasoning influenced by Community law, in particular concerning the status of teachers in a public or private school.36

b)

Scope of Convention: Bankruptcy Exception

Another Swiss Supreme Court judgment of 23 December 199837 confirmed its position favouring a uniform interpretation of the two Conventions. The case concerned a claim for payment of commission arising out of a contract preceding the opening of insolvency proceedings concerning the debtor.

34

Dresdner Forfaitierungs AG / Sezione Speciale per l’Assicurazione del Credito all’Esportazione (SACE), BGE 124 III 436. 35 Judgment of 21 April 1993, C-172/91 [1993] ECR I-1963. 36 See para. 24 of Sonntag (previous note), citing the judgment of 3 July 1986, 66/85 [1986] ECR 2120, Lawrie-Blum/Land Baden-Württemberg, points 26-28. 37 Sorelec SA / Saleh Radwan, BGE 125 III 108.

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Although the Court did mention that taking over the ECJ’s interpretation of the bankruptcy exception could result in an undesirable influence of Community law, it flatly dismissed this possibility without further explanation in the present case. The only ECJ case involving the meaning of the phrase on bankruptcy and analogous proceedings in Article 1, paragraph 2(2) of the Brussels Convention, Gourdain v. Nadler,38 had not resorted to any consideration of Community law proper and, moreover, had not covered exactly the same issue as was before the Swiss Court.

c)

Notion of ‘Maintenance Obligation’

The Austrian Supreme Court 39 dealt with the issue whether an action by a woman against her father seeking payment of a dowry (Heiratsgut) could be brought by invoking the notion of ‘maintenance obligation’ in Article 5(2) of the Lugano Convention. Citing Protocol 2 and the Declarations referred to earlier, the Court affirmed – by apparently deducing from Article 1 of Protocol 2 – that courts of the Lugano Contracting States are obliged to find, on their own motion and take into account the important decisions handed down in other Contracting States, i.e., only the decisions reported to the national authorities under the exchange of information system. It added that the courts would have to discuss the merits of such decisions – as regards the Convention’s interpretation – if they intended to deviate from their essential reasoning, but that obiter dicta did not matter in this respect. Having regard to the EFTA Declaration, the Court noted that ECJ case-law dating from after the signature of the Lugano Convention merely had to be taken into consideration, as opposed to pre-1988 case-law that constituted an ‘authentic interpretation’ of Lugano provisions insofar as they were identical to Brussels Convention provisions. Turning to the notion of ‘maintenance obligation’, the Court found that there were no national decisions or rulings of the ECJ on Article 5(2) of the Conventions. Thus it took it upon itself to develop an independent interpretation of that notion. Apparently, the two preliminary rulings given by the ECJ some months before on that very notion40 had not come to the Court’s attention in time to be considered in the judgment. In any event, after carefully analysing the history of Article 5(2) of the Brussels Convention and insisting that an autonomous notion was preferable over 38

Judgment of 22 February 1979, 133/78 [1979] ECR 733. Judgment of 28 August 1997, Nr. 3 Nd 506/97, in: Zeitschrift für Rechtsvergleichung, internationales Privatrecht und Europarecht 1998, p. 39. 40 Judgments of 27 February 1997, C-220/95 [1997] ECR I-1147, Van den Boogaard v. Laumen, and of 20 March 1997, C-295/95 [1997] ECR I-1683, Farrell v. Long. 39

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one derived from national law, even if that would cause friction with the systematic structure of the forum’s national law, the Court arrived at a broad interpretation of ‘maintenance obligation’. Although the Austrian provisions on dowry are found in the chapter on marriage contracts, it was clear that they did not pertain to matrimonial property. This result appears to fully comply with the interpretation given by the European Court. Moreover, the independent interpretation of the Austrian Court allowed it to overcome certain dogmatic constraints inherent in its domestic law.

d)

Conditions for Recognition and Enforcement

The Austrian Supreme Court’s judgment of 24 June 199841 also reveals that the Court’s intention was to arrive at parallel interpretations of the Conventions to the greatest extent possible. The issue before it was whether the prohibition to review a foreign judgment as to its substance (Articles 29 and 34(3) of the Conventions) extended to situations where the court in the State addressed was asked to check whether the person against whom enforcement is sought is the same as the judgment debtor. The Court developed the same reasoning as in its judgment of 28 August 1997 (cited supra, under c) favouring an international and parallel approach and stressing the importance of consulting national and ECJ decisions communicated under Protocol 2. However, as it found none of these decisions helpful in resolving the issue at stake, the Court held that it could also consider other decisions not (yet) so communicated, provided that: 1) they arrive at a uniform interpretation of the Convention, 2) they are accessible to the national courts, without particular difficulty, through sources other than the exchange of information scheme, and 3) there are no convincing substantive grounds not to adopt the essential reasons of those decisions. Applying these criteria, the Court then reviewed some German superior court judgments in which the Brussels Convention was applied and cited German and Austrian legal writers. Therefore, it appears that the accessibility referred to under (ii) had a linguistic flavour, thus raising the question whether research of French or English language sources (let alone other languages of Lugano States) would have been conducted with the same thoroughness. Finally, the Court checked that the German case-law and scholarly literature on this point corresponded to the prevailing view in Austrian law on the enforcement of judgments. This being so, it affirmed the possibility to verify the identity of the respondent to the application for an enforcement order. 41

14

Case Nr. 3 0b 129/98m, in: Juristische Blätter 1998, p. 729.

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3.

Significant Examples of Parallel Interpretation

Some of the cases applying the uniform interpretation approach deserve attention because of the result achieved, more so than because of their treatment of principles underlying that interpretation. A few of these cases are outlined below.

a)

The ‘Obligation in Question’ under Article 5(1)

Ever since the well-known judgment of the ECJ in De Bloos,42 the question of which obligation should be taken into account for the purpose of identifying the forum having jurisdiction under Article 5(1) has reappeared in the context of commercial agency contracts. The question arose in a dispute before the Swiss Supreme Court between a Danish principal and his Swiss agent.43 After the principal started to sell his products through other Swiss merchants as well, the agent maintained that the contract was a sole distributorship and claimed damages on that basis. The issue at stake was whether the principal’s obligation to respect the distributorship agreement was the sole obligation in question or whether the obligation to supply the agent in Switzerland with products also came into play. The court deemed itself bound by the pre-1988 case-law of the ECJ, including the judgment in Shenavai,44 which had refused, in case of a plurality of obligations forming the basis of the action, to allow a single localisation at the place of performance of the characteristic obligation (which in the present case would point to Switzerland where the agent performed his sales activities). Moreover, the Court took due account of the post-1988 ECJ judgment in Stawa,45 where the European Court had explicitly confirmed its earlier case-law to the effect that in principle each obligation is to be treated separately for the purpose of Article 5(1). However, the Court then cited at some length criticism in scholarly literature, as well as Advocate General Lenz’s suggestion to change the established case-law (but rejected by the ECJ). Although it conceded that this criticism appeared worthy of consideration (beachtlich) in certain circumstances, the Court noted that it did not feel compelled to interpret the notion of ‘obligation’ in Article 5(1) of the Lugano Convention differently than the European Court. In doing so, it took into account the Stawa judgment and the need to ensure parallelism between the Brussels and Lugano Conventions. 42

Judgment of 6 October 1976, 14/76 [1076] ECR 1497, De Bloos v. Bouyer. Judgment of 9 March 1998, A. AG / B., BGE 124 III 188. 44 Judgment of 15 January 1987, 266/85 [1987] ECR 239, Shenavai v. Kreischer. 45 Judgment of 29 June 1994, Custom Made Commercial v. Stawa Metallbau, C288/92 [1994] ECR I-2913. 43

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As for the substance, the Supreme Court maintained that the obligation linked to the distributorship (not to the ensuing sales contracts) was the only relevant obligation of the defendant principal and had to be performed at the seat in Denmark.

b)

Validity of Choice of Court Clause

A judgment rendered on 23 February 1998 by the Austrian Supreme Court is a good illustration of the uniform interpretation approach.46 The case concerned a transport contract between an Austrian company and a Turkish road carrier for transport from Berlin to Uzbekistan. The Austrian plaintiff relied on a choice of court clause for Vienna, thus raising the question whether the validity of the clause was to be judged by Article 17 of the Lugano Convention or by Austrian national law. The Court noted first that the issue raised a disputed question in German and Austrian legal literature: Does Article 17 (of both Conventions) require that, in order to be applicable, the case must have a connection with a second Contracting State, in addition to the forum state, such as, in particular, the fact that one of the parties is domiciled in another Contracting State or that the choice of court clause ousts the jurisdiction of a court or courts in such State. However, it added that legal doctrine was not the only criterion; the principle of international harmony was inherent in the interpretation of multilateral conventions and against that background one had to consider Protocol 2 and the relevant Declarations. The Court recalled its earlier views47 on the duty of courts in Lugano Contracting States to examine ex officio pertinent decisions from other Contracting States and to cite objective reasons for not following such decisions. As to the issue before it, the Court found that the ECJ had not given any ruling on it, but it cited three national decisions in point, all involving the Brussels Convention. Only one of them had fully discussed the issue;48 another one had taken a position implicitly, and the third had done so by way of obiter dictum. However, all three pointed towards requiring a connection with a second Contracting State. This convergence led the Supreme Court to prefer that solution for the sake of avoiding any possible divergence in the Lugano and Brussels Contracting States, despite the fact that two of the three precedents had not engaged in a full discussion of the arguments representing the other approach to the question. 46 3 Ob 380/97x, in: Juristische Blätter 1998, p. 726, and in: Zeitschrift für Rechtsvergleichung, internationales Privatrecht und Europarecht 1998, p. 159. 47 Supra, III. B. 2 c). 48 Oberlandesgericht Munich, 20 September 1989, in: IPRax 1991, p. 46, and in: Europäische Zeitschrift für Wirtschaftsrecht 1991, p. 59.

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The striking feature of this judgment is that, instead of making its own assessment of the best solution having regard for the substance of the issue, it candidly prefers to follow the concurring available precedents. Hence, it favours interpretative harmony over individual (procedural) justice. Between the lines of its judgment, the Austrian Court seems to suggest that the other courts should have examined the relevant views in scholarly literature in greater detail. This is rather ironical in view of the fact that it itself did not discuss the merits of those views. Moreover, the Court favoured the solution of a mere dictum in one of the decisions in point, yet it had stated before that dicta were not pertinent.

c)

The Problem of lis pendens (II)

In the above-mentioned litigation involving Polly Peck,49 the Swiss and English courts were both seized with proceedings concerning the same dispute. The Swiss proceedings turned on the question which procedural act was to be regarded as bringing about the seizing of the Swiss court under Article 21 of the Lugano Convention. At stake was whether the answer to that question should be derived from a recently adopted rule of Swiss law or from the ruling of the ECJ in Zelger v. Salinitri (II).50 The Court noted in its judgment of 26 September 199751 that the Lugano Convention was intended to create a common uniform area for all litigants in the EU and EFTA Member States, and that the interpretation of international uniform law required the courts to be mindful of the fact that such law did not necessarily conform to the institutions and dogmatic constructions of its domestic legal order. It referred to the directives for interpretation laid down in Protocol 2 of the Convention and highlighted the binding character of the pre-1988 case-law of the ECJ on the Brussels Convention. Turning to the question of the date of the seizing of a court for the purpose of Article 21 of the Lugano Convention, the Court discussed extensively the ECJ judgment in Zelger v. Salinitri (II), the lis pendens rule recently introduced in the Swiss federal Private International Law Act (Article 9), as well as some national case-law on Article 21 of the Brussels Convention. It decided not to follow the opinion of a part of Swiss legal doctrine, according to which the Zelger judgment is interpreted as implying that the question when a court is ‘definitively’ seized is to be resolved entirely in accordance with the domestic law of that court. Instead it held that the ECJ had given a partial autonomous interpretation in that judgment, requiring a minimal commitment of the plaintiff to proceed with his action. Since the Swiss federal rule did not require such a commitment in order for the court to 49

Supra, III.A.2. Supra, note 20. 51 BGE 123 III 414. 50

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be definitively seized, that rule had to be discarded in favour of the interpretation adopted in the ECJ judgment. The Court thus came to the conclusion that the later of the two possible dates of seizing of the Zurich court was decisive for the application of Article 21 and that the English court had been seized earlier. This judgment shows that the Court was willing to let the international interpretation of lis pendens prevail over a more restricted harmonisation of cantonal laws of procedure, which the Swiss federal statute attempted to achieve at the national level.

4.

Possible Incongruous Results

The various rulings presented above bear ample witness that the Swiss and Austrian Supreme Courts attempted to achieve the greatest possible uniform interpretation of both Conventions by following the body of rulings of the ECJ and, lacking such guidance, the prevailing views expressed in national case-law.52 However, this approach does not always lead to the desired result. A few rulings of national courts of last instance might not entirely correspond to the ECJ’s actual or presumed position. As was observed,53 such discordance may not be attributable to the specific nature of the Lugano Convention and could have arisen in the context of the Brussels Convention as well. It should be added, however, that in the framework of the Brussels Convention, the preliminary reference mechanism could have ironed out the differences. Three such ‘non aligned’ cases may be cited as examples.

a)

Commercial or Bankruptcy Action

The Norwegian Supreme Court54 had to rule on the scope of the exception in Article 1(2) concerning bankruptcy, winding-up of insolvent companies and analogous proceedings. A Norwegian supplier filed a claim for the remaining debt arising out of contracts it had performed before the defendant buyer, an Italian 52 On the Swiss jurisprudence, see DONZALLAZ, Y., ‘L’interprétation de la Convention de Lugano (CL) par le Tribunal fédéral: étude de jurisprudence’, in: Revue de droit suisse, 1999, I.1, p. 22 et seq., who (with dislike) calls the Swiss Federal Court a model pupil of the ECJ’s case-law. 53 ‘Report on the national case-law relating to the Lugano Convention drawn up in performance of the task entrusted to the Spanish, Greek and Swiss delegations at the 5th session of the Lugano Convention’s Standing Committee (Interlaken, 18.9.1998)’, in: IPRax 2001, p. 262 et seq., at p. 268. 54 Judgment of 18 January 1996, Norsk Hydro / Alumix s.p.a., in: Norsk Retstidende 1996, 25, English summary in: [1996] International Litigation Procedure 461.

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state-owned company (and others belonging to the same State enterprise), had been ordered by a Italian decree to wind-up and not to pay its debts. The Court simply stated that the relevant provision was identical in both Conventions and, citing the Jenard Report and the ECJ ruling in Gourdain v. Nadler,55 concluded that the purpose behind the bankruptcy exception was to have proceedings concentrated in the country where the insolvency was opened and that accordingly, in the present case, the Norwegian courts should not interfere with the Italian proceedings. This was a majority decision, the minority being of the opinion that the claim itself did not relate to bankruptcy and could be decided under the contract forum of Article 5(1), albeit that eventually – at the enforcement stage – an Italian court might not accept the applicability of the Lugano Convention. However, a future Norwegian judgment should possibly be open to enforcement in other Contracting States. In our submission, the minority opinion sits better with the prevailing view in national case-law and legal literature, according to which only typical bankruptcy actions – like the one brought by the liquidator in Gourdain – come under the exception, while ordinary commercial claims would not.56 b)

Place of Pure Economic Loss

A second example is an Austrian decision of 24 February 199857 concerning the place where an economic tort is committed for the purpose of identifying the competent court under Article 5(3) of the Conventions. The Austrian plaintiff brought action against the general manager of a German company, whose malversations had left the plaintiff unpaid for goods sold and delivered to Germany and resold there despite a retention of title clause. The Austrian courts would have jurisdiction only if the tort could be considered to have been committed in Austria. The Supreme Court referred to the authentic interpretation of the Lugano Convention offered by the ‘methodical principles’ contained in the case-law of the ECJ. Under the established case-law, the plaintiff had the option to sue either at the place where the damage occurred or at the place of the event giving rise to that damage. The defendant relied on the Marinari judgment of the ECJ58 to show that the realisation of a pure economic loss in the patrimony of the plaintiff was not 55

See note 38. See GAUDEMET-TALLON H., Les Conventions de Bruxelles et de Lugano, Paris 1996, p. 27, and cited case-law; DYER A., ‘Remarks on Bankruptcies and Money Judgments: The Practice under the [Brussels] Convention’, in: Contemporary International Law Issues: Conflicts and Convergence, The Hague 1996, p. 125 et seq., at p. 131. 57 1 0b 319/97m, in: Juristische Blätter 1998, p. 517, and in: Zeitschrift für Rechtsverleichung, internationales Privatrecht und Europarecht 1998, p. 170. 58 Judgment of 19 September 1995, C-364/93 [1995] ECR I-2719, Marinari v. Lloyd’s Bank. 56

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sufficient to establish jurisdiction of the court at the latter’s domicile in Austria. However, the Supreme Court rejected this reasoning and considered that the initial loss, as distinct from further consequences occurring in a different state, had indeed been suffered at the plaintiff’s domicile. In its view, the Marinari case did not solve the question before the court because it did not concern pure economic loss. When concluding that the courts of the place where the loss was suffered have jurisdiction, the Court noted that the same solution had emerged in certain English and Italian cases in which the Brussels Convention is applied.59 Although this Austrian decision appears to comply with the parallel interpretation method, there may be a basic flaw in its treatment of the Marinari case. In fact, one could argue that the loss was caused by the unauthorised reselling of the goods in Germany, and that the diminution of the plaintiff’s patrimony was the further consequence of the initial loss of property. In this analysis, the Marinari judgment would be pertinent and should have directed the court to apply the restrictive approach adopted in that judgment, viz., that only the place of the initial damage is material for the purpose of Article 5(3) of the Conventions.

c)

Notion of ‘Consumer Contract’

One of the first Lugano decisions of the Swiss Federal Supreme Court dealt with the notion of ‘consumer contract’.60 A stamp collector domiciled in England was sued in Switzerland for the balance due resulting from a long-standing relationship; the claimant (a Swiss company) sold the defendant’s stamps at auctions and advanced the expected price; the excess advance payments were periodically reimbursed by the defendant. A complication arose because the defendant himself was also a professional stamp dealer, but ran his business separately from his private collection. The Federal Supreme Court noted at the outset that the Lugano Convention had to be interpreted by taking into account the principles of international treaty law, as well as foreign legal scholarship and foreign judicial decisions on the Lugano and the Brussels Convention. After conducting an extensive survey of the concept of consumer contract by consulting various legal sources, it finally held that the relationship between the parties could be classified as such a contract. In so doing, the court had some doubts because of certain particularities of the sales offers made on behalf of the defendant; however, it decided to give the benefit of the doubt to the alleged consumer. 59

The relevant judgments of the English Court of Appeal and the Italian Supreme Court had been communicated through the exchange of information system referred to supra, II.1. 60 Judgment of 4 August 1995, Corinphila / Jaeger, BGE 121 III 336.

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This judgment is a good example of the efforts made by courts in Lugano States when confronted with a novel question, for which the ECJ case-law offered no solid guidance at the time. From this point of view, the judgment should by no means be criticised because of its result, although, of course, commentators may chose to dissent.61 However, at the time the Swiss Court had to answer this question, certain rulings of the ECJ did point towards a restrictive interpretation of the special jurisdiction rules in Articles 13 et seq. of the Brussels Convention. In particular, in Shearson Lehmann Hutton,62 it considered that the protective role of those provisions implies that their application should not be extended to persons for whom such protection is not justified, and that the Convention appears clearly hostile towards conferring jurisdiction to the courts of the plaintiff’s domicile.63 Also, it is doubtful whether the collector in the case at hand had really been acting ‘for a purpose which can be regarded as being outside his trade or profession’ under Article 13(1) of the Lugano Convention. Finally, the restrictive approach taken by the ECJ in respect of the scope of special consumer jurisdiction was subsequently confirmed in its judgment in Benincasa v. Dentalkit.64 Accordingly, though admittedly a posteriori, it appears that the Swiss judgment is not completely in harmony with the interpretation given to the same notion in the Brussels Convention.

IV. The Court of Justice and the Lugano Convention Because of the lack of interpretative jurisdiction for the Lugano Convention (supra, I.B.), the Court of Justice may only indirectly consider that Convention.

A.

Multistate Employment Contracts

Rather soon after the conclusion of the Convention and well before its entry into force, the ECJ had to interpret Article 5(1) of the Brussels Convention in an employment dispute.65 A deputy project manager residing in France worked for a 61 Cf. the comment by VOLKEN P., in: Schweizerische Zeitschrift für internationales und europäisches Recht 1996, p. 84 et seq. 62 Judgment of 19 January 1993, C-09/91 [1993] ECR I-139, Shearson Lehmann Hutton v. TVB. 63 Ibid., para. 22. 64 Judgment of 3 July 1997, C-269/95 [1997] ECR I-3767. 65 Judgment of 15 February 1989, 32/88, [1989] ECR 341, Six Constructions / Humbert.

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contractor’s enterprise having an office in Belgium. His duties were exclusively performed in several African and Middle-East countries. The dispute turned on the question how to apply the criterion of the characteristic obligation laid down in earlier ECJ case-law (i.e., to perform the work) when the employee performs all his work outside EC territory. In the version of the Brussels Convention relevant to the case, there was no provision on labour contracts and the above-mentioned judge-made criterion did not offer a solution either. However, the Lugano Convention innovated on this point by providing a subsidiary rule conferring jurisdiction on the courts at the place where the business engaging the employee was situated.66 This would make the Belgian courts competent and, in fact, several Member States intervening in the preliminary reference proceedings invited the Court to adopt that solution. The ECJ declined to follow this approach, which, in their view, would not take due account of the need to protect the weaker party, i.e., the employee; namely, if the employer were the plaintiff, the forum provided under the Lugano Convention would amount to an undesired forum actoris. Having ruled out resorting to this solution, the Court had no choice but to conclude that the optional forum of Article 5(1) was not available in any Convention State and that only the general forum of the defendant’s domicile remained. (Since this was in a MiddleEast country in the present case, jurisdiction would under Article 4 not be governed by the Convention at all, but by national law). Therefore, somewhat paradoxically, the ECJ approach may lead to less employee protection in cases where the employer had engaged the employee at a place where it would be convenient for the latter to file a suit, in fact more convenient than the employer’s domicile or principal establishment. The Court’s rejection of the solution in the new rule of the Lugano Convention may have been influenced not only by the judges’ concern for employee protection, but also by the squarely negative position taken by the Advocate General in this case. In his view, it was out of the question that the Lugano Convention and the annexed Declaration directed at the European Court (which he found ‘surprising’) should directly influence the interpretation of the Brussels Convention.67 Surely, the Court was not obliged to follow the subsidiary rule of the Lugano Convention: The Declaration only refers to case-law concerning that Convention, which of course did not yet exist before its entry into force. Nevertheless, the Court could have adopted the connecting factor of Article 5(1), in fine, of the Lugano Convention; and yet, as a means of protecting the consumer, could have confined its application to actions brought by, but not against, the employee. This balanced solution was actually adopted in the Accession

66 67

22

Art. 5, first para., in fine. Opinion of Advocate General Tesauro, paras. 7-8, [1989] ECR at p. 351.

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Convention for Spain and Portugal to the Brussels Convention68 a few months after the Six judgment.

B.

Discrimination in Civil Procedure

Another opportunity for the Court to consider not so much the case-law concerning the Lugano Convention but simply its existence – regarded as an ‘extension of the principles of [the Brussels] Convention’, as it is called in the preamble of the Lugano Convention – arose in a preliminary reference made under the EC Treaty involving the scope of the prohibition of discrimination on grounds of nationality (see Article 7, now Article 12 of the Treaty). The case, Mund & Fester,69 concerned a rule of German civil procedure which required that certain conditions be met for authorising conservatory seizure of assets if the subsequent judgment had to be enforced in Germany, but which deemed these conditions fulfilled if enforcement was to take place in another country,70 thus making it easier to obtain seizure against foreign debtors than against debtors residing in the country. The ECJ held that this rule was indeed discriminatory against debtors residing in other EC Member States. In its reasons the ECJ emphasised that all Member States were parties to the Brussels Convention and could thus be regarded as forming a single entity for matters covered by the Convention. As a result, the conditions for enforcing judgments were substantially the same in all Member States. Therefore, applying the discriminatory rule to secure claims against debtors in other EC States was not justified, whereas it was justified if the ensuing judgment would have to be enforced in a third country. In so holding, the ECJ was silent on the fact that the Lugano Convention, which had come into force by then, created substantially the same regime of recognition and enforcement as contained in the Brussels Convention. The Court could therefore very well have made a reservation for third countries belonging to the Lugano Convention group. Although this was not strictly necessary, a note to that effect would certainly have been supportive of the spirit of parallelism between the two Conventions. And indeed, a broader perspective than the mere dichotomy of Member States and other States was adopted by national legislators who took account of the impact of the Mund & Fester judgment. Several of those legislators in EC Member States, inter alia, Germany, Netherlands and Austria, adapted their legislation that 68

Convention of 26 May 1989, OJEC L 285, p. 1, Art 4. Judgment of 10 February 1994, C-398/92 [1994] ECR I-467, Mund & Fester v. Hatrex Internationaal Transport. 70 § 917(2) of the Zivilprozessordnung (text prior to the modifying Act of 6 August 1998). 69

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was found incompatible with the judgment, with a view to excluding the discrimination of debtors not only in other Member States, but also in other States parties to the Lugano Convention.

V.

Concluding Remarks

The preceding presentation shows that by and large the Brussels and Lugano Conventions are interpreted uniformly and with due regard to the parallelism existing between them. In current practice, judgments applying the Lugano Convention frequently cite rulings of the European Court on the Brussels Convention, as well as views of legal writers on that Convention. Sometimes decisions of national superior or supreme courts are referred to as well, when no guidance can be drawn from the ECJ. Citations in the other direction are less frequent, but this may well be explained by the much larger body of case-law involving the Brussels Convention.71 Protocol 2 of the Lugano Convention and the Declarations on uniform interpretation have been implemented by the courts of EFTA States in a very constructive manner. The particular focus placed on the Swiss and Austrian supreme courts in this paper warrants special mention of their consistent approach favouring a uniform interpretation of both Conventions. In some cases they seem to have followed ECJ precedents even contre-coeur72 or preferred uniformity over a choice based on a substantive assessment of the options.73 Though some have expressed less enthusiasm about this convergent trend,74 our conclusion is positive, recalling the scepticism with which the second-best tools for uniform interpretation were received when the Convention was concluded.75 Of course, there have been some instances where doubts can be entertained about whether a Lugano Convention interpretation follows the line laid down by the ECJ for the Brussels Convention.76 However, no clear-cut and 71

The database kept at the ECJ shows a ratio of roughly 5:1 for Brussels and Lugano Convention decisions registered per year. 72 Supra, III.B.3 a). 73 Supra, III.B.3 b). 74 See DONZALLAZ Y. (note 52), at p. 29. 75 See STONE P.A. (note 8), at p. 117; PELLIS L., ‘All roads lead to Brussels: Towards a Uniform European Civil Procedure’, in: Netherlands International Law Review 1990, pp. 372 et seq., at p. 395; MCCAFFREY E.M., ‘The Lugano and San Sebastian Conventions: General Effects’, in: Civil Justice Quarterly 1992, p. 12 et seq., at p. 25. For more optimistic views see, e.g., MÖLLER G., (note 8), at p. 220; WAHL N., The Lugano Convention and Legal Integration, Stockholm 1991, at p. 76; DUINTJER TEBBENS H., (note 6), at pp. 60-61. 76 Supra, III.B.4.

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deliberate deviation from that case-law by courts of non-EU States was detected, not even where a ruling of the ECJ was supported, inter alia, by arguments drawn from European Community law.77 The EFTA States have lived up to the criterion for a successful uniform interpretation, which Droz aptly summarised as reciprocal esteem and good will of the various courts involved.78 The national courts in EU-Member States have contributed to this success. As for the European Court of Justice, it has not yet had the opportunity to draw inspiration from solutions developed in the case-law on the Lugano Convention for problems that had not yet arisen under the Brussels Convention. On the other hand, at one or two occasions, the Court could have been somewhat more receptive to the existence of an emerging judicial area for civil and commercial disputes larger than the one coinciding with the membership of the European Union. This would have been welcome, if only as a sign of encouragement for the courts of EFTA countries in their efforts to ensure a convergent interpretation. In the not-too-distant future the European Court will have to acknowledge this wider dimension. Under Article 65 of the European Community Treaty and following the transformation of the Brussels Convention into a Community Regulation,79 a revised Lugano Convention is to be concluded by the Community and/or the Member States, having regard to the special position of Denmark, with a view to aligning it to that Regulation on the basis of the joint revision operation undertaken in 1998-1999.80 This new Lugano Convention will become part of Community law by virtue of Article 300(7) of the Treaty. As such, it will fall within the general interpretative mission of the European Court under Article 234 (ex-Article 177) of the Treaty, or, possibly, the more restricted scope of its intervention in regard to measures within Title IV (Article 68). The Court can then build on the solid basis of convergent case-law already in existence.

77

See the Sonntag judgment, supra III.B.2 a). DROZ G., ‘La Convention de Lugano parallèle à la Convention de Bruxelles, concernant la compétence judiciaire et l’exécution des décisions en matière civile et commerciale’, in: Rev. crit. dr. int. pr. 1989, p. 1, at p. 12. 79 Regulation (EC) Nr. 44/2001 of the Council of 22 December 2000 on jurisdiction and the enforcement of judgments in civil and commercial matters, in: OJEC 2001, L 12, p. 1 (‘Brussels I Regulation’). 80 Recital No. 5 of Regulation No. 44/2001 (previous note). 78

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RETHINKING THE HAGUE JUDGMENTS CONVENTION: A PACIFIC PERSPECTIVE David GODDARD*

I.

II.

III.

IV.

Taking Stock A. Clarifying the Goals of the Judgments Convention B. Identifying the Core of the Convention C. Drafting Provisions to Address the Core Issues D. The Process for Completing the Convention Whence a ‘Pacific Perspective’? A. Elements of a Pacific Perspective B. The Emphasis of a Pacific Perspective C. New Rules Should Not Increase the Risks and Costs of Cross-Border E-Commerce D. The Importance of Widespread Ratification by the Region’s Trading Partners Priority Issues for the Judgments Convention A. Key Benefits from the Judgments Convention – Reducing Barriers to Trade B. Contract Disputes 1. The Benefit of Addressing Contract Disputes 2. Giving Effect to Forum Clauses 3. Default Jurisdiction in a Defendant’s Home Jurisdiction 4. Default Jurisdiction Based on Place of Performance, or Activity? 5. Summary – Contract Disputes C. B2C and C2C Contracting D. Tort Claims and Other ‘Imposed Obligation’ Claims E. The Risk of Addressing Jurisdiction in ‘Stranger’ Claims F. Restitution Claims G. Trusts H. The Black List The Core of the Convention A. The Core B. Other Topics

* Barrister, New Zealand. The author was a member of the New Zealand delegation which attended (as an observer) the first session of the Diplomatic Conference on the Judgments Convention in June 2001, and participated in meetings of the Special Commission in 1999 and in informal meetings in 1999 – 2001. The views expressed in this paper are the personal views of the author, and do not represent the views of the New Zealand Government.

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V.

VI.

Rules to Give Effect to the Core of the Convention – Some Suggestions A. Drafting a ‘Choice of Forum’ Convention B. Providing for Default Jurisdiction in Claims Between Contracting Parties Future Directions

I.

Taking Stock

It seems timely, following the first session of the Diplomatic Conference on the Judgments Convention in June 2001, to step back and reflect on the goals of the Convention, and on progress towards those goals. The immediate product of that meeting was an ‘Interim Text’ which poses as many questions as it answers.1 Consensus on many of the issues discussed proved elusive. A careful review of the text shows that a great deal has been achieved: some very important questions have been resolved, and in other areas substantial progress has been made in identifying more clearly the issues that would need to be resolved in order to complete a wide ranging convention of the scope envisaged by the project’s original framers. But it is equally plain that we are still a long way from agreement on the text of a convention, and that some very significant differences remain to be addressed. The meeting which produced the Interim Text was followed by a meeting to consider, among other matters, the Hague Conference’s future work programme. The Chair of the second meeting put to Member States the question whether, in the light of this result, the project should be pursued. The answer from each delegation that spoke was strongly positive. But beneath that apparent consensus, there remain real differences about what ‘the project’ should be – differences about its purpose, about its scope, and about the relative importance of various aspects of the proposed convention.

A.

Clarifying the Goals of the Judgments Convention

If the project is to succeed – if we are to conclude a text, and see it widely ratified and implemented – the starting point must be to achieve a measure of consensus on what we are trying to achieve, and why. This may sound trite: but work on the judgments convention to date has largely assumed the need for a wide-ranging instrument which applies to all civil and commercial disputes, with certain specific exclusions. The genesis of the project was a conception of a world-wide judgments convention equal in substantive scope to the Brussels and Lugano conventions: that has been the implicit goal throughout. There has been some discussion about the need for such a convention at a general level, but little or no empirical analysis of the nature and 1

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The Interim Text is available at ftp://hcch.net/doc/jdgm2001draft_e.doc.

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number of cross-border cases which raise the type of jurisdiction or enforcement issues with which the project is concerned. The focus has been on making provision for civil and commercial disputes generally, rather than on identifying particular areas where practical problems are especially common, or acute. This is not a criticism of the initial approach: if a comprehensive convention could readily be achieved, it would be very attractive indeed. But if significant difficulties are encountered, as they have been, it becomes necessary to reassess the breadth of our aspirations. Plainly some issues are more practically important than others. And some are more difficult to tackle – technically, or politically, or both – than others. Those categories may not be the same in a world-wide context, moreover, as within Europe, or other regional groupings. The objectives of a worldwide project on jurisdiction and judgments need to be clarified in order to ascertain whether all the difficulties that have been encountered to date really do need to be addressed. Participants in the project need criteria for distinguishing between core issues that must be resolved, and issues that are of secondary importance, but which may pose disproportionate difficulties. This highlights the need for each of the participating countries to identify and prioritise its goals for the convention, followed by discussion and agreement on shared goals. In this paper, I have been asked to provide a Pacific perspective on the Judgments Convention. For the reasons explained above, it seems to me that any national or regional perspective on the Convention needs to start from a clear conception of its practical rationale. What are the economic and social benefits which the convention would deliver, if successful? And how would it deliver them? What risks does such a convention create? How can these risks be avoided, or managed? So I will begin, in section II of this paper, by attempting to provide a view from the southern reaches of the Pacific on why we need the convention. In summary, it seems to me that the main objective for the project, from a Pacific perspective, should be to conclude a convention that will be very widely ratified within the region and by the region’s key trading partners, which: (a) reduces the risks and costs associated with cross-border trade, by reducing uncertainty and reducing litigation costs in relation to disputes between businesses dealing across borders; (b) enhances access to goods and services from other countries for the region’s businesses and consumers, enabling them to participate more fully in the global economy; (c) does not impede access to e-commerce for the region’s businesses and consumers. The potential benefits from the ‘weightless economy’, and the promise it brings of some release from the ‘tyranny of distance’, are too important to be undermined: any risk of doing so must be avoided. I suspect that these goals will be common to many (if not most) other regions. Other regions will probably have additional goals, reflecting differences in the nature and extent of cross-border dealings in those regions. But these should prove to be a common core.

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B.

Identifying the Core of the Convention

Once the project’s objectives are established, the next step is to identify clearly the issues which must be addressed, if the convention is to achieve its central goals, and those which – however desirable – are of less practical importance, and should not be permitted to jeopardise the project. Section III of this paper explores, topic by topic, the relative importance of various aspects of the current Interim Text for the goals identified above. This task requires us to identify the topics that might be addressed – such as jurisdiction and enforcement of judgments in contract disputes, or tort claims, or restitution claims, or prohibited grounds of jurisdiction – and a suggested approach to each topic, at a level of principle. Whether the Convention should address a particular topic is then determined by a matrix of factors: (a)

the economic and social benefits that could be obtained from addressing the topic in the convention – in particular, the extent to which addressing the topic will facilitate cross-border trade; (b) the technical difficulty of addressing the topic; (c) the political complexity of addressing the topic; (d) the risk of unanticipated or undesirable consequences from addressing the issue in the convention. I suggest in section IV that applying this matrix leads to the conclusion that the core of the convention – the subject-matter that must be addressed if it is to be a practically successful instrument – is confined to claims arising out of or in connection with contracts between businesses. The convention should: (a)

provide default rules permitting such claims to be brought in the defendant’s habitual residence, or in the State where a branch, agency or establishment which entered into the contract is situated; (b) give effect to choice of court clauses in such contracts – with the chosen court having jurisdiction, and the courts of other countries declining to exercise jurisdiction (unless the choice is non-exclusive); (c) provide for enforcement of judgments based on these heads of jurisdiction. There are many other topics that it would be useful to address. We should continue to explore the possibility of reaching agreement on a wider range of issues, and reducing still further the costs and risks associated with cross-border activity. But the need for world-wide solutions on these topics is less clearly demonstrated, and in many cases achieving workable and widely endorsed solutions is more difficult. If agreement cannot be reached reasonably readily on these secondary topics, this should not be permitted to imperil achievement of the project’s core goals. The case for restraint in relation to the scope of the convention can be put still more strongly in some respects. Attempting to address some issues – such as cross-border torts committed using electronic means – may actually run counter to

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one of the basic goals identified above, namely avoiding the risk of imperilling the development of cross-border electronic commerce. If we are not confident that we understand the implications of a proposed jurisdictional rule in the fast-evolving world of information and communications technology (‘ICT’), we should not risk undermining the economic promise of these developments. There are some issues in respect of which our goals require us to be less ambitious.

C.

Drafting Provisions to Address the Core Issues

Having clarified the convention’s goals, the core topics that must be addressed, and appropriate approaches to those issues, we need to draft provisions giving effect to those approaches. Much of this work has already been done – I would go so far as to say that the Interim Text gets us 90% of the way there. But more work is needed to perfect the relevant provisions. In section V of this paper I comment briefly on these issues.

D.

The Process for Completing the Convention

The Hague Conference needs to adopt a process which will enable delegations to focus on the core issues – the ‘must haves’ – while continuing to explore the possibility of reaching agreement on less critical topics. Section VI of this paper concludes by exploring some avenues for completing work on the convention.

II.

Whence a ‘Pacific Perspective’?

The first task for an author who has been asked to provide a Pacific perspective on the Convention is to ask what distinctive features of his home country, and the region, might give rise to a unique perspective in relation to the Convention. Whence a distinct ‘Pacific’ perspective, which: -

is to some degree likely to be common to the many different countries of the region? differs from a European perspective, or from a North American perspective, or even from an Asian perspective?

I should make clear, at the outset, that I cannot and do not purport to speak for all Pacific States – or even for the Government of my own country, New Zealand. Nor is there any reason to expect that the region would have a single, homogenous view on each and every issue relevant to the proposed convention. What I hope to do is to identify some characteristics of the region which are likely to colour the views

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of Pacific States in relation to the convention – and to explore where, in my personal opinion, those observations might take us. I should also note that in many contexts, a Pacific perspective would encompass the large North American and Asian States that form the rim of the Pacific ocean. But for the purposes of this Yearbook, other commentators have been asked to address North American and Asian perspectives – I will focus on the region of the Pacific that is sometimes referred to as Oceania.

A.

Elements of a Pacific Perspective

What, then, is special about the Pacific – what shared characteristics of the States in this region might influence their aspirations for the convention? The first clue is found in the region’s name: while other regions such as Europe or North America are named after land masses, ours is named for an ocean. A Pacific perspective is a perspective of relatively small, distant, countries, with ocean borders.2 Populations are tiny by world standards. Australia, far and away the largest Pacific nation,3 has some 19.5 million inhabitants. My own country, New Zealand, has but 3.8 million. These are large Pacific States – consider Fiji, with a population of approximately 850,000, New Caledonia with some 200,000, Samoa with around 180,000, Vanuatu, with around 190,000, the Cook Islands with about 20,000, or selfgoverning Niue with fewer than 2,000 residents. And distances are vast: from Wellington, where I sit writing this article, the nearest city with more than a million inhabitants is Sydney, almost 2,500 km away. A circle with a 2,000 km radius drawn around Wellington would include some 4 million people. If I were sitting in Paris, and drew the same circle, it would include most of the EU – and a population in excess of 300 million. Centred on Toronto, a circle of this size would take in many large Canadian and US cities, and a population in the hundreds of millions. Returning to the Pacific, that same circle, centred on Apia, would encompass fewer than 1.5 million people. The Pacific, then, is a region of small, distant countries, dependent for their economic livelihood and for many of the amenities of modern life on trade across the ocean that gives the region its name. It is no accident that this is the corner of the world that gave us the phrase ‘the tyranny of distance’.4 The region’s geography explains why cross-border dealings have, until recently, largely been confined to commercial dealings between businesses. Consumers cannot drive across New Zealand’s borders! Employees do not cross borders each day to go to work. It is not common for a tort committed in one Pacific state to have effects in another. Private international law issues in the 2

This is immediately apparent from a glance at a map of the region. As noted above, I am excluding the Pacific rim States for present purposes. 4 Taken from the title of a history of Australia published in 1966: see BLAINEY G., The Tyranny of Distance: how distance shaped Australia's history, Melbourne 1966. 3

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Pacific (outside the family law sphere) arise mainly in the context of commercial transactions. What do the firms engaged in cross-border trade look like, in the Pacific? Small countries typically have small economies, populated primarily by small and medium sized enterprises (‘SMEs’). There is something of a dilemma here. Small domestic markets mean that for a firm to grow large, it needs to export. But economic studies suggest that the fixed costs of exporting goods or services (including costs of managing currency risk and legal risk) are significant, and that those costs may be increased by distance.5 This creates a barrier to exporting by smaller firms – and a strong incentive for small countries to work to reduce those costs, where possible, to assist their SMEs to access export markets. The Pacific is also a region that has been dependent primarily on commodity exports – and has seen a decline in the value of those exports over time which has had a significant impact on standards of living. New Zealand, for example, has slipped from being one of the richest countries in the world in the 1950s to 15th in the OECD in terms of real per capita GDP in the 1970s, and 20th in 1999. Even Australia – which over the same period has had a far healthier economy than New Zealand – has experienced growth rates below the OECD median over the last 30 years. Attempts to increase volumes of traditional exports, and to add more value to products in New Zealand, have had limited success in arresting this relative decline. One possible solution for Pacific economies, some suggest, lies in the export of high value services to the rest of the world, using modern technologies. The hope is that the Internet, and ICT developments generally, will overcome the tyranny of distance, and enable businesses in New Zealand and other Pacific states to compete on equal terms with firms in other countries despite our geographical remoteness and the size of our domestic markets. A great leap in New Zealand’s economic performance came with the introduction of refrigerated shipping in the late nineteenth century. New Zealand Government policy statements a few years back described the Internet as ‘the freezer ship of the 20th century’ – enabling us to get our products (in this case, services and content) to markets on the far side of the ocean, or the world. Certainly the Internet has had a huge impact on access to information and products of many kinds in the region. A huge range of software can be purchased 5 See SKILLING D., ‘The Importance of Being Enormous: Towards an Understanding of the New Zealand Economy’ (unpublished paper, on file with author), citing inter alia BALDWIN R. & KRUGMAN P., ‘Persistent Effects of Large Exchange Rate Shocks’, in: Quarterly Journal of Economics 1989, pp. 635-654; BERNARD A.B. & BRADFORD JENSEN J., ‘Why Some Firms Export’, in: NBER Working Paper 8349, July 2001; ROBERTS M. & TYBOUT J., ‘An Empirical Model of Sunk Costs and the Decision to Export’, in: American Economic Review, 1997, pp. 545-564. For the impact on trade of borders, over and above the impact of distance, see HELLIWELL J.F., How Much Do National Borders Matter?, Washington (DC) 1998.

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over the Net. Music and texts can be downloaded – or ordered electronically, and received by post a week or two later. A researcher in Wellington can access an extraordinary wealth of data and can interact with colleagues more easily than ever before. ICT developments over the last decade or so mean, from a practical perspective, that: -

-

-

businesses in the region can learn about, and acquire, the tools (software, information etc) that they need to operate more efficiently, and to develop new products and implement new business methods; businesses can more readily identify new market opportunities worldwide; businesses are better able to reach customers domestically (even within countries, distances and physical barriers are significant in the Pacific, and populations are dispersed, which poses problems for traditional distribution methods) and internationally; businesses and researchers in the Pacific can collaborate with businesses and researchers in other countries more effectively, and at lower cost; the region’s consumers have access to a much wider range of goods and services than ever before, faster and at lower cost. Products (eg books or software) that would never be found on the shelves of a local store can be located and purchased in moments. Local competition, which may be limited, is supplemented by competition from overseas suppliers, in some cases dramatically reducing prices.

The reduction in the physical cost of doing business across borders in the ‘weightless economy’, and the ease of identifying new market opportunities abroad, puts even more focus on the fixed costs associated with entering foreign markets, and in particular the cost of managing legal and regulatory aspects of cross-border trade.

B.

The Emphasis of a Pacific Perspective

What does this tell us about a possible ‘Pacific perspective’ on cross-border legal coordination? It is a perspective that emphasises the importance of trade across borders. The drive to increase the volume and value of exports means that the primary concern – though not the sole one – is to reduce transaction costs for cross-border commercial activity, by increasing predictability and reducing the costs of cross-border dispute resolution, and facilitating the management of risk (for example through insurance). In particular, the goal is to reduce uncertainty and unnecessary risk and cost for businesses (especially SMEs) trading across borders, without compromising other important social goals such as consumer protection. The deterrence of civil wrongs that have cross-border effects, and providing compensation for those wrongs, is an important policy goal: however it is of less practical significance, at least in the Pacific region. Physical torts with cross-border

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effects are rare, for obvious reasons of geography. Even product liability claims against overseas defendants are few and far between. Claims arising out of nonphysical torts – such as defamation claims, or claims for infringement of intellectual property – more commonly raise cross-border issues. But the vast bulk of cross-border disputes, at least in New Zealand, arise between parties to commercial transactions. Increased trade, and the use of ICT to communicate across borders, or to misappropriate content across borders, will undoubtedly increase the frequency with which cross-border tort claims arise. But there is no reason to expect that the ratio of contract cases to other cases will alter significantly. More fundamentally, the economic challenges faced by most countries in the region mean that these are secondary concerns, compared with the overriding goal of maintaining and increasing living standards through sustainable economic growth. They are concerns that it would be good to address, if possible. But addressing them should not be the primary goal of work on cross-border coordination of rules on jurisdiction, and enforcement of judgments. Nor should difficulties in addressing these concerns prevent the conclusion of a convention which could deliver real benefits through facilitating cross-border trade.

C.

New Rules Should Not Increase the Risks and Costs of Cross-Border E-Commerce

An important facet of these goals which deserves separate mention is the importance of ensuring that the legal environment for e-commerce is as predictable and as consistent with other forms of cross-border dealing as possible – or at least, that it is not appreciably less certain or more costly to do business on-line. A related concern is to avoid a legal ‘balkanisation’ of the Internet in response to differences in legal regimes. The future welfare of consumers, and the participation of Pacific businesses in a world-wide knowledge economy, depends on maintaining access to the widest possible range of online services for businesses and consumers in the Pacific. A convention that put these potential benefits at risk would be very much contrary to the interests of the region.

D.

The Importance of Widespread Ratification by the Region’s Trading Partners

One further element of the Pacific perspective which must not be overlooked is that the convention will be useful only if it is ratified by a significant proportion of the countries with which Pacific States conduct most of their trade. In practice, that means that in addition to attracting widespread ratification within the region, the convention needs to be ratified by our Asian neighbours (in particular Japan), and by the United States. And while ratification by individual States within the

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European Union would not have the same economic significance as ratification by the United States or Japan, ratification by the entire EU would be a very important step.

III. Priority Issues for the Judgments Convention What are the implications of this perspective for the judgments convention? In particular, what does it tell us about the scope of the convention – that is, about the topics that should be addressed if the convention is to be useful in practice? A ranking of topics would be useful – from the essential ‘core’ requirements, through the highly desirable, and on to the ‘nice if we can do it without too much difficulty’ list. A simple matrix in respect of each topic sheds some light on how it should be ranked. Factors that need to be reflected in that matrix include: (a)

(b)

(c)

36

the economic and social benefits that could be obtained from addressing the topic in the convention – in particular, the extent to which addressing the topic will facilitate cross-border trade. This in turn depends on: - the frequency with which the issue arises (or is likely to arise in the future). The more common the issue, the more important it is for the law to be clear on the point; - the extent to which there is currently a ‘problem’, in the sense that rules in relation to jurisdiction and enforcement of judgments are unclear or inappropriate, or are the subject of significant conflicts, and give rise to practical difficulties. There is no point expending time and resources if an issue is not a problem in practice; - the extent to which the convention can effectively address the current problems in the field. However common or significant a problem may be, if the convention is unlikely to provide a practical solution, there is little to be gained from addressing the topic; the technical difficulty of framing a rule which is clear and simple, and leads to appropriate outcomes. The technical difficulty, in other words, of successfully addressing the issue. If an issue is of moderate importance, but very complex, work on it is less likely to pay off than work on equally important but more tractable issues. If there is real uncertainty about the ‘right’ approach to a particular issue, it may be better to refrain from attempting an answer in the short term, and risking undesirable outcomes; the political complexities inherent in the issue. Where rules on jurisdiction are politically sensitive, or where there are significant differences in the substantive law that is likely to be applied depending on the place of trial, it may be difficult to devise a rule which is not controversial, and does not

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(d)

A.

excite significant opposition. If the result of that opposition is likely to be non-ratification by significant trading States, the issue might be better avoided; the risk of undesirable outcomes if the convention adopts an inappropriate rule. Some legal rules do little damage, even if they are not optimal – this is especially true of default rules that apply to dealings between sophisticated parties, who can adopt different rules if they want to depart from the default rule. But other rules have the potential to cause serious economic or social harm, if they are framed or applied inappropriately. Much greater caution is required before making rules of the latter kind – the prerequisite to doing so should be a high degree of confidence that we have accurately diagnosed the problem, and identified an appropriate and durable solution.

Key Benefits from the Judgments Convention – Reducing Barriers to Trade

I suggested above that the touchstone in identifying priority topics for the convention should be its potential to facilitate trade, and reduce costs of doing business across borders. The New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards is an excellent example of an international instrument which facilitates trade by reducing uncertainty and reducing the costs of resolving cross-border disputes, thus facilitating the making of credible commitments to distant trading partners. How might a convention on jurisdiction and enforcement of judgments advance this goal? It is important, when asking this question, to do so from the perspective of firms engaged in day to day commercial activity, rather than the more limited perspective of firms already engaged in cross-border disputes. Once disputes arise, plaintiffs want broad jurisdictional rules which give them maximum choice, and easy enforcement of judgments; defendants on the other hand prefer rules on jurisdiction to be stringent and narrow, and favour a restrictive approach to enforcement of judgments. These perspectives are not easy to reconcile. And when it comes to ‘stranger claims’ – especially torts, including breach of IP rights – there are some firms that are generally plaintiffs, and others that are more commonly defendants. We should not be surprised to find that their views differ on the jurisdictional rules for such claims. But when it comes to contracting, all businesses agree that certainty is important, and that reducing the costs of resolving disputes is important. They agree that it is desirable to have clear default rules that apply if an issue is not dealt with in a contract, and to have the ability to contract for a different result if that is more appropriate.

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B.

Contract Disputes

1.

The Benefit of Addressing Contract Disputes

If the primary objective of the convention is to facilitate cross-border trade, the obvious starting point when looking at its scope is the contractual relationships which underpin that trade. And within that set of relationships, let us begin by focusing on contracts between businesses: the special issues raised by consumer contracts and employment contracts are examined in more detail below. Risks and costs will be reduced if the Convention: (a)

(b) (c)

enables parties engaged in cross-border contracting to predict in advance where their disputes will be resolved, and to focus their expenditure on legal advice about that jurisdiction; enables them to make credible commitments about where they can be sued, and where an enforceable judgment can be entered against them; reduces the long run costs associated with disputes because it is simpler and cheaper to resolve any difference about where a dispute will be heard, and about whether the resulting judgment is enforceable elsewhere.

Contractual disputes are far and away the most common class of cross-border claim. So the ‘frequency’ criterion in the decision matrix is certainly satisfied. The next question is whether there is a problem in practice. This needs to be tackled in two stages. First, are practical difficulties encountered in connection with jurisdiction or enforcement of judgments in cases where there is a forum clause in the contract? Will these difficulties be resolved if the convention provides for jurisdiction in the chosen forum, and for the enforcement of resulting judgments? Second, are practical difficulties encountered where there is no forum clause? If so, how might the convention tackle these issues?

2.

Giving Effect to Forum Clauses

It seems to me that there are real practical difficulties in relation to jurisdiction and enforcement even where there is a forum clause, based on the caselaw and my experience in legal practice. Most countries’ courts will accept jurisdiction based on a forum clause, but in many common law countries it is possible to ask the chosen forum not to exercise jurisdiction, on grounds of forum non conveniens. Similarly while most (though not all) courts will decline jurisdiction if there is a forum clause selecting the courts of another country, the national law of New Zealand and many other countries treats this as a factor which is highly persuasive but not decisive – so there is still room for doubt, and for tactical manoeuvring involving considerable delay and cost.

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Still more significant practical difficulties arise at the enforcement stage. Many countries enforce foreign judgments where jurisdiction was founded on a forum clause. But: -

this is not universally the case. In some States, enforcement depends on the existence of a treaty with the State of the court of origin;6 more importantly still, most countries will not enforce foreign judgments for specific performance of a contract, or other forms of nonmoney relief. A significant proportion of commercial disputes involves non-money relief. As the economic importance of information and technical know-how increases, this proportion seems likely to grow, since the ‘value’ associated with confidential information and technical processes can often only be preserved through mandatory orders requiring the return of information or equipment, or preventing the copying or dissemination of information. Yet enforcing non-money orders made in one country in other countries poses a host of technical and practical difficulties.

I have already mentioned the New York Convention on Arbitration, ratified by some 125 countries at the time of writing.7 Does this widely ratified convention mean that there is no problem in practice? If businesses can manage uncertainty in relation to where disputes will be resolved simply by agreeing to arbitration, and ensure that the resulting decision is enforceable in some 125 countries, do we need a parallel convention in relation to court-based dispute resolution? There are two principal reasons for pursuing such a convention, as a complement to the New York convention: (a)

(b)

such a convention would enable the parties to agree to refer disputes to a court rather than to arbitration, where that is more appropriate for their dealings (for example, the parties may wish to preserve access to courts to determine questions of law, and appeal rights, or court-based dispute resolution may be expected to be less costly). Many domestic contracts do not provide for arbitration for this very reason: the same option should be available to parties in cross-border transactions, rather than forcing them to agree to arbitration to achieve predictability in relation to dispute resolution; more importantly still, there are many situations in which claims are brought to enforce clear obligations – to pay for goods, for example, or to 6

Such as Finland (see OLDORFF B., ‘Finland’ in: CAMPBELL D. (ed), International Execution Against Judgment Debtors, New York 2001) or Vietnam (see Ordinance on the Recognition and Enforcement of Foreign Judgments and Civil Decisions of Foreign Courts of 17 April 1993, and Circular No 04-TTLN dated 24 July 1993 of the Ministry of Justice, Supreme People’s Court, and Supreme People’s Procuracy). 7 For an updated list of current parties to the New York Convention, see http://www.uncitral.org/english/status/status-e.htm.

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return confidential information following the expiry of a contract – where there is no dispute of substance between the parties. There is no point in incurring the cost and delay involved in setting up an arbitral tribunal, then taking steps to enforce the award. The plaintiff will want to go to court and get an enforceable judgment, using a low cost summary procedure. A convention on jurisdiction and judgments will reduce the cost of enforcement procedures of this kind, by clarifying where such a claim can be brought in order to maximise prospects of enforcement, and reducing the opportunity for the defendant to delay enforcement through opportunistic challenges to jurisdiction. A further factor that should not be overlooked is the relative ease and low cost of confirming that a State is a party to the convention, and will therefore respect forum clauses and enforce judgments given by the chosen forum, as compared with the current need to seek local legal advice on such issues. This is relevant both at the stage of negotiating a contract, and when it comes to bringing a claim or seeking enforcement of a judgment. Because national laws differ in some respects, despite a high degree of convergence on this point, there is a non-trivial cost associated with ascertaining the legal position in different countries, and modifying contracts accordingly. The convention would reduce these costs. For these reasons, it seems to me that a convention that gives effect to forum clauses – effectively paralleling the New York convention – would make a very valuable contribution to the goals identified above. It should be a high priority.

3.

Default Jurisdiction in a Defendant’s Home Jurisdiction

Would it be valuable to go further still, and provide in the convention for a default jurisdiction that applied in the absence of a forum clause? Cross-border contracts often fail to address questions of jurisdiction, and this seems likely to become more common still. The number of relatively low value contracts entered into by less sophisticated parties such as SMEs across borders is likely to increase dramatically, as cross-border e-commerce develops, and these contracts are less likely to address such issues. And where there is no forum clause, there are often difficult issues both at the jurisdiction stage, and in connection with the enforcement of resulting judgments. The key question is how the convention might address this issue. There would be little difficulty in reaching agreement that in the absence of a forum clause, a defendant should be able to be sued in that defendant’s home jurisdiction – its habitual residence, or the State in which the branch, agency or establishment that made the contract is situated – with the resulting judgment enforceable in other Contracting States. But would this achieve anything useful? It would have little or no impact on direct jurisdictional practices: I am not aware of any country that

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does not provide for the exercise of jurisdiction in respect of its habitual residents under national law. And the State in which a defendant is habitually resident is the State in which enforcement is most commonly sought, and is usually most effective – so questions of enforcement in other States are relatively rare. But there does appear to be some value in ensuring that a judgment given in the defendant’s home jurisdiction can be enforced against assets situated elsewhere, and that in personam orders (such as an injunction restraining disclosure of confidential information) can be enforced wherever the defendant may relocate. Providing for jurisdiction in the defendant’s home jurisdiction raises a series of additional complexities that would be avoided if the convention were confined to forum clauses. In particular: -

-

the Convention would need to address the question of whether other Contracting States would decline to exercise jurisdiction under national law, if another Contracting State is seized under this head of jurisdiction; default provisions along these lines could confer jurisdiction under the Convention on more than one State. For example, where a contract is made through a branch in State A of a company incorporated in State B, both State A and State B would have jurisdiction. The Convention would need to provide priority rules for this situation.

But these are not insuperable difficulties. Articles 21 and 22 of the Interim Text set out an approach to these issues which, though not free from difficulties, seems to embody a solution that would, with a little refinement, be acceptable to most delegations. And in this context, such provisions would be of limited practical relevance, so should not be too hotly contested. In the absence of any reliable empirical work on the relative importance of this issue, and the extent to which real practical problems would be resolved by a default rule of this kind, it is not self-evident that a default rule of this kind is essential for the convention. My suspicion is that it would be very useful indeed, and that we should strive very hard to resolve the additional complexities that such a rule brings in its train. Rules along these lines almost certainly form part of the core of the convention. But this conclusion is vulnerable to a clear demonstration that the issue is of less practical importance than I have assumed, or that resolving the associated questions (in particular, questions of lis pendens and declining jurisdiction) is more difficult than I anticipate, and would create real barriers to widespread ratification.

4.

Default Jurisdiction Based on Place of Performance, or Activity?

The next question is whether the convention should go further still, and provide for an additional default jurisdiction in contract disputes tied in some way to the making or performance of the contract. Most States have a rule of this kind under

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national law, permitting jurisdiction to be exercised in that State if a contract (or its ‘characteristic obligation’) is performed there, or if a breach occurs there, or if significant activity was conducted in that State or directed to that State in the course of making or performing the contract.8 It is difficult to see the value of such a rule, in the contractual context. In particular, if there is a default forum in the defendant’s home jurisdiction, and parties can contract for a different forum, it adds very little indeed. If a party places significant value on being able to sue in the place of performance, or some other place linked to the contract by virtue of activity conducted in that place, that party can seek to contract for that jurisdiction, either exclusively or as a supplement to the default jurisdiction. If the contract is silent on the question of jurisdiction, I have suggested above that there is some merit in having a default forum – but this need is met by allowing proceedings to be brought in the defendant’s home jurisdiction. Does an additional default jurisdiction based on contract-related activity (such as performance) add anything of significance, from a practical perspective? The starting point for considering this question must be that multiple fora are not in and of themselves a good thing – there is no gain simply from adding another possible forum to the list. Another default forum is valuable if and only if it is likely to be more useful – more appropriate – than the existing default fora. In some cases, the place (or places) where a contract is performed will have advantages as a forum – access to evidence in relation to performance, for example, or the ability to grant effective interim relief in relation to the subjectmatter of the contract. So sometimes an additional default forum along these lines would be of some value. But these advantages are not always present, and the advantage in relation to grant of interim relief does not depend on jurisdiction to determine the substantive dispute being available under the convention, as well as under national law. There are real difficulties in providing for a meaningful jurisdiction of this kind in the context of on-line contractual formation and performance. Despite many lengthy discussions about where a contract should be treated as performed, where for example software is purchased and downloaded online, no resolution has been reached.9 No resolution has been reached because there is no meaningful answer. There is no place which has the juridical advantages mentioned above, and 8

See for example Article 5(1) of the Lugano Convention, Article 5(1) of the Brussels Regulation (Council Regulation (EC) No 44/2001 of 22 December 2000), or Ord. 11 rule 1(1)(d) and (e) of the Rules of the Supreme Court of England and Wales. 9 See ‘Electronic Commerce and International Jurisdiction’, a report of an informal meeting organised by the Hague Conference and the Canadian Ministry of Justice in Ottawa from 28 February to 1 March 2000, Hague Conference Preliminary Document No. 12 (August 2000) available at ftp://hcch.net/doc/jdgmpd12.doc; GODDARD D., ‘Does the Internet Require New Norms?’, in: International Law Forum du droit international 2000, pp. 183-195, at 188-190.

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thus no place which has special merit as a forum. While it is possible to deem some place – the physical location of the buyer, or of the seller, or of some computer – to be the place of performance, this is an artificial exercise that does not lead to an additional forum of real practical value to the parties. A slightly different and potentially helpful way of looking at this issue is to think of the default jurisdiction in contract cases as a default term of the parties’ contract – the term that is implied by law, if they have not addressed the issue expressly. Recasting the issue in this way enables us to draw on both legal and economic scholarship in relation to the selection of default terms. Traditional common law tests for implying a term require us to ask what the parties would have agreed, had they turned their minds to the issue. Does it go without saying that they would have consented to claims being brought in the forum in question? This test is clearly satisfied by the default rule permitting claims to be brought in the defendant’s home jurisdiction. It is difficult to imagine contracting parties responding in the negative, if asked whether this was permitted, in the absence of any express agreement to the contrary. But there is no other forum I can think of which can be described with some specificity, and is selfevidently appropriate and likely to command agreement in all cases. Economic analysis also sheds some light on the selection of default terms. In most cases, transaction costs will be reduced if the law specifies as default terms the terms that would be agreed to by the majority of contracting parties, if bargaining on the issue were costless and if they had full information. Transaction costs are increased, on the other hand, if the law specifies a default term that is not acceptable to most contracting parties – since more parties will need to contract out expressly, or bear the cost of an inefficient allocation of risk. It is difficult to identify terms in relation to jurisdiction which would be agreed in the majority of cases. It is less difficult to conclude that most parties would not agree to a very general ‘place of performance’ or ‘place of significant activity’ test, because such a test would be seen as too vague, or the designated forum as not especially relevant. Still less are the majority likely to agree to an arbitrarily selected ‘buyer’s forum’ or ‘seller’s forum’ term. An additional default jurisdiction of this kind is likely to require more parties to include a forum clause in their contracts to achieve greater certainty, or to achieve a more appropriate outcome – thus increasing the transaction costs of cross-border contracting. This is directly counter to the goals I have suggested for the convention. There are circumstances in which it may be efficient for the law to specify as a default term a term which would not be agreed to in the majority of cases. In particular, it may be efficient to specify a term which will not be adopted in most contracts where one party has superior information about the relevant risks, and selection of a ‘penalty default’ will force disclosure of information that there would otherwise be an incentive to withhold, resulting in inefficient allocation and pricing

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of risk.10 To the extent that this line of reasoning is of assistance here (and its relevance is debatable), it points towards an approach under which a contracting party can say ‘I expect to be sued in my home jurisdiction – if you want to sue me elsewhere, you should specify this so I can price for the associated risk’. It does not support inclusion in the convention of any other default jurisdictions. In summary, an additional default jurisdiction of this kind is of little importance, and it is difficult to see how it can be specified other than in terms which are highly indeterminate (or in some cases meaningless), or artificial. The risk that it would be counterproductive is much greater than the prospect of such a rule being beneficial.

5.

Summary – Contract Disputes

In summary, appropriate provisions in relation to jurisdiction and enforcement of judgments in contract disputes should be a high priority for the convention. The convention should include: (a)

(b)

(c)

clear and simple default rules which permit claims under or in connection with a contract to be brought in the defendant’s home jurisdiction, in the absence of a forum clause; a provision permitting claims to be brought in a forum selected by contract, with other courts deferring to the chosen court (unless of course the choice is non-exclusive); provision for enforcement in other Contracting States of judgments (including non-money judgments) given by a court with jurisdiction under the convention.

This would give contracting parties the tools to manage jurisdictional risks. It does not matter where they choose to litigate, or where those judgments end up being enforced – the key is that they know what the position will be if they are silent on the issue, and can select an alternative forum with certainty by contract, if they wish to do so. In discussing these issues I have however left to one side the aspects of cross-border contracting which give rise to the most acute technical and political difficulties. A great deal of time has been spent in discussions in the Hague in relation to jurisdiction in disputes between businesses and consumers (‘B2C 10

See AYRES I. & GERTNER R., ‘Filling Gaps in Incomplete Contracts: an Economic Theory of Default Rules’, in: (1989) 99 Yale Law Journal 87; TREBILCOCK M.J., The Limits of Freedom of Contract, Cambridge (Mass.) 1993, pp. 120-124. The example that is explored by AYRES and GERTNER is the restriction found in many common law jurisdictions on recovery of damages for loss that is not reasonably foreseeable, such as loss of the benefit of particularly lucrative downstream contracts, unless this unusual exposure has been disclosed at the time of contracting.

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contracts’ in the current jargon). In this context, and possibly also in relation to contracts between individuals where neither party makes the contract in the course of carrying on a business (often referred to as ‘C2C contracts’, perhaps less appositely), the extent to which forum clauses should be given effect is highly controversial – and attempts to steer a middle course are technically complex. Similar concerns arise in relation to employment contracts. To address these difficulties, we need to refine our examination of the importance of ‘contract disputes’, looking more closely at the practical case for the convention to address B2C disputes, and other “non-commercial” dealings such as C2C contracts and employment contracts.

C.

B2C and other “non-commercial” Contracts

How useful would it be for Pacific states for the convention to address jurisdictional rules in B2C contract disputes, bearing in mind the important and complex issues associated with such rules? The volume of B2C commerce across borders, especially in the Pacific, is still tiny. It is dwarfed by B2B dealings both in value and in volume of transactions. But it will undoubtedly grow in the future, especially as Internet commerce develops.11 And reducing costs and risks for consumers is always desirable. Enhancing the access of consumers to meaningful remedies in crossborder contexts is also an important element in building consumer confidence in electronic commerce – and in achieving the social and economic benefits that this may bring. So the answer is that there is some value in addressing jurisdiction in B2C contract cases – though much less than in relation to B2B dealings – and that value is increasing rapidly. However there are two important qualifications to that positive response. The first is that most consumer transactions do not involve large sums. A breach by the seller – even one as fundamental as non-delivery of goods, or entirely defective goods or services – will not justify taking court proceedings in one jurisdiction, let alone taking proceedings in one jurisdiction then seeking to enforce the judgment elsewhere. The reality is that only a tiny proportion of consumer transactions will ever raise the cross-border enforcement issues with which the convention is concerned – the main examples being high value personal injury claims against the seller, or class actions. For the vast bulk of cross-border consumer dealings, online or offline, the only relevant remedies in contract disputes will be the seller’s 11

For a survey of available data and projections, which suggests that B2B dealings make up around 85% of e-commerce transactions by value, and that this sector is likely to grow faster than B2C in the near future, see COPPEL J., ‘E-Commerce: Impacts and Policy Challenges’ (OECD Economics Department Working Paper No 252, June 2000) available at http://www.olis.oecd.org/olis/2000doc.nsf/linkto/eco-wkp(2000)25.

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internal complaints process, or ADR mechanisms, supported by reputational sanctions (including trust mark based systems).12 Second, the convention will not play an important role in encouraging consumer confidence in electronic commerce. The contribution the convention can make to reducing risk for consumers in dealing online is very limited: -

-

-

there will always be many countries that are not parties to the Convention. The Convention will not assist a consumer dealing with such businesses. Consumers will not consult a list of contracting states (even one conveniently available on the Net!) before buying software online – so they will not know which countries are safer to deal with than others, and should assume that in every case it will be hard to enforce local court orders against a foreign supplier; even where the consumer and the business are both in Contracting States, the convention will almost never be relevant when it comes to resolving disputes, as the cost of taking steps in two jurisdictions will be prohibitive, in the context of a low value transaction; enforcement risk is tiny compared with more fundamental risks facing consumers, such as identifying and locating the other party, or the creditworthiness of that other party.

Put another way, any general confidence in electronic commerce that consumers derived from the convention would be misplaced. These two qualifications suggest that though there is undoubtedly a problem in this field, it is unlikely that the convention could do much to remedy it. That conclusion is reinforced by considering how the convention might attempt to address B2C dealings – and the technical and political complexity of doing so. The model suggested for B2B contract cases – a simple, clear default rule and an ability to contract out – cannot be used for B2C dealings. Most countries limit, or exclude entirely, the ability of consumers to enter into binding forum clauses. And certainly there is room for concern about whether consumers understand the implications, and practical significance, of forum clauses. Nor, on the other hand, is there general acceptance that consumers should always be permitted to bring proceedings in their home jurisdiction, and enforce the resulting judgment world-wide. Views differ on whether such a rule is beneficial to consumers, or to the many SMEs looking to the Internet to expand their businesses across borders:

12

For a very useful discussion of these issues, see the report prepared by the OECD of a recent conference organised by the OECD, the Hague Conference on Private International Law, and the International Chamber of Commerce on ‘Building Trust In The Online Environment: Business-To-Consumer Dispute Resolution’ at http://www.oecd.org/ dsti/sti/it/secur/act/online_trust/hague-adr-report.pdf.

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(a)

(b)

(c)

the concern, for small remote countries in particular, is that exporters of goods and services based in larger countries – especially content providers – might respond to any increased risk of being sued in unfamiliar and distant countries which provide limited market opportunities by deciding not to invest in compliance with local requirements, or the ability to defend proceedings in that jurisdiction. The simplest way to do this is to decline to provide goods or services to purchasers in those countries.13 This ‘balkanisation’ of the Internet has the potential to reduce access to services for both consumers and for businesses; alternatively, costs may increase for users in small remote countries, as suppliers of content price for the increased risk and cost of dispute resolution; from the perspective of SME suppliers in all countries, but especially small remote countries, being exposed to the risk and cost of defending proceedings in many distant countries is an additional barrier to selling goods and services over the Internet. The value of the Net, for SMEs, is that it provides access to world-wide markets at relatively low cost: but if this access brings with it significant legal risk, their ability to use it will be impeded.

There is a plausible argument that these negative effects should not be exaggerated, because the risk of liability is so small. But this is another way of saying that the convention hardly ever matters in cross-border B2C cases. There does not seem to be any objection to providing for claims by or against consumers to be brought in the State in which the defendant is habitually resident, and for enforcement of the resulting judgments elsewhere, at least where there is no forum clause requiring proceedings to be brought in a different court. The value of including such a rule in the convention is limited, since national law will always (so far as I am aware) provide for this forum, and enforcement will normally be sought in that forum. But it is not without significance. However this immediately raises difficult questions in relation to the effect of a forum clause. Should such a clause preclude access to the defendant’s home forum, even if the clause is not given any broader effect?

13

There are limits to the ability of suppliers to identify the country in which an Internet customer is based, and decline to deal with some countries’ residents. But a mix of technological indicators and simple inquiry will enable the supplier to pinpoint the honest and the unsophisticated – and this is enough to do most of the economic harm associated with refusals to deal based on location. Commercial providers of geolocation services claim a high degree of accuracy in identifying the country of origin of web users, and a report prepared for the French court by a panel of experts in the recent Yahoo! litigation suggested that the country in which an Internet user is located can be identified accurately in 90% of cases: see ‘Putting it in its place’ in: The Economist, 11 August 2001, also available at http://www.economist.com/displayStory.cfm?Story_ID=729808.

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This leads into the more general issues of whether the convention should provide for jurisdiction in the consumer’s habitual residence, in certain circumstances, and the extent to which the convention should give effect to a forum clause in a B2C contract. The most that is likely to be found in any widely ratified convention, by way of special provision for B2C contract disputes, is a default jurisdiction in the consumer’s habitual residence that is available if certain conditions are met (e.g. promotional activity by the business in, or directed to, that State), and provided there is no forum clause designating a different court. This approach could in principle be coupled with provisions: -

-

establishing a protective jurisdiction in the consumer’s habitual residence that overrides any forum clause, if both that State and the State in which the business is located (and where enforcement will ultimately be required) consider that this is an appropriate policy outcome; giving effect to forum clauses in B2C contracts, if and only if the consumer’s habitual residence considers that this is an appropriate policy outcome.

Variations on these themes are found in the alternative Articles on jurisdiction in consumer cases set out in the Interim Text. Such provisions would not be valueless. Nor, however, are they of far-reaching practical importance. Such an Article is desirable, other things being equal, but does not constitute a ‘must have’. The difficulty that is being encountered in drafting a reasonably simple and clear provision that embodies this sort of middle road suggests that the challenge of framing such a provision may prove insuperable. Even if the various alternatives in the Interim Text achieve an appropriate result, they are far from being clear and accessible. And even their most ardent supporters could not describe them as concise or elegant. It is worth continuing to pursue this work: but if we cannot craft a provision which is reasonably clear and accessible, and acceptable to most delegations, the topic of jurisdiction in B2C contract claims might better be left for another day. Many of the same issues arise in relation to other non-commercial contracts, such as employment contracts and C2C contracts. There are real difficulties in framing provisions that will be widely accepted. And in any event, the convention will almost never be relevant. The practical value of addressing these classes of contracts is not great. They should not be a priority topic.

D.

Tort Claims and Other ‘Imposed Obligation’ Claims

The next candidate for inclusion in the convention is jurisdiction in tort claims between non-contracting parties, and other claims for breach of obligations imposed by law, rather than being voluntarily assumed by contract. How useful,

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from a Pacific perspective, would it be for the convention to address jurisdiction in such claims? In the Pacific context, physical torts are rarely committed across borders. The most common type of cross-border physical tort claim seems likely to be product liability claims, as products are widely traded across borders in the region. Yet such claims are extremely rare, even between countries like New Zealand and Australia which trade together a great deal (there is a single trans-Tasman market for goods, supported by mutual recognition laws), and recognise each other’s judgments reasonably readily. For example, I am not aware of a single case of enforcement being sought in New Zealand for a personal injury judgment given in Australia, even though enforcement of money judgments from Australia is a relatively simple and inexpensive process.14 Defamation claims, claims for infringement of intellectual property rights, and other ‘non-physical’ cross-border wrongs are more common in the region. But the number of such claims is small compared with the number of cross border contract disputes, based on my experience in practice and a review of the New Zealand caselaw. In New Zealand, for example, a (simple, and rather unscientific) review of recent High Court decisions suggests that cross-border disputes between contracting parties outnumber claims between strangers by more than 5 to 1.15 And this statistic reflects the proportion of contentious cases: if (as seems likely, based on experience in practice) contract cases are underrepresented in the judgments databases because there is rarely a challenge to NZ jurisdiction where there is an applicable forum clause, the ratio of contract cases to other cases would be much higher still. I would be surprised if this ratio was significantly different in other countries in the region – or for that matter in other parts of the world. So the ‘frequency’ rating is relatively low. Do these cases pose problems, though, when they do occur? Are there difficulties with existing jurisdictional rules, and enforcement of resulting judgments? Plainly there are real difficulties – and these are being exacerbated by the rise of the Internet and other forms of ICT

14

Since New Zealand has replaced tort claims for personal injury in almost all contexts with a broad ‘no fault’ scheme, the reverse scenario is very unlikely to arise. 15 This admittedly imperfect review involved searching the Briefcase database, which indexes virtually all High Court decisions (reported and unreported) for decisions over the last decade which referred to the provisions of the High Court Rules relating to service of proceedings out of NZ, and identifying the nature of the claim which was the subject of the proceedings. Quite apart from questions concerning the coverage of the database, it needs to be borne in mind that if there was no challenge to service out of the jurisdiction the rule would not necessarily be referred to (so most cases where jurisdiction is founded on a forum clause would not appear, since a challenge is usually pointless). The review does however indicate the classes of case in which service out of NZ has proven contentious.

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which extend the reach of wrongdoers across borders.16 Both the conceptual basis for exercise of tort jurisdiction, and the application of the relevant rules in the context of the Internet and e-commerce generally, are hotly debated within many countries. And conceptual frameworks and applicable rules differ significantly from country to country. This brings us squarely face to face with the complexity of making provision for jurisdiction in cross-border tort cases. It seems to be generally accepted that a tort claim should be able to be brought in the defendant’s home jurisdiction – the defendant’s habitual residence, or the situation of a branch, agency or other establishment whose activities gave rise to the claim. But as noted above, this is not the most practically important of forums to provide for in the convention, since it is usually available under national law, and the resulting judgment can often best be enforced in the forum. And as recent experience in The Hague demonstrates, it is very difficult to craft an appropriate and widely accepted rule providing for special jurisdiction in tort cases, both technically and politically. The technical complexity stems from several factors. Not least of these is the intense debate about appropriate connecting factors for jurisdictional purposes in connection with dematerialised torts. The courts of many countries, and academic commentators, are still in the early stages of analysing and understanding the implications for traditional tort jurisdiction tests of the Internet, and high capacity and low cost communications generally. There is certainly no consensus – or even widespread agreement – on appropriate jurisdictional rules in such cases. Approaches based on ‘activity’ engaged in in the forum, or directed to the forum, provide little guidance in practice – at least without an extensive caselaw to flesh out their application in particular contexts. They have led courts to attempt to develop a range of guidelines for evaluating the jurisdictional significance of dealings with persons in the relevant forum of varying kinds and intensity, none of which are readily reduced to provisions in a convention. Approaches that are more familiar in many common law countries and Europe look to where the wrongful act was done: but in the context of on-line dealings tests of this kind lead to arcane, and somewhat sterile, debates about where services purchased online are supplied, and where information obtained through ‘pull’ technologies rather than ‘push’ technologies has been provided. Tests based on where the effects of wrongful conduct are felt lead to a multiplicity of available fora and many opportunities for forum shopping by plaintiffs – but all attempts to impose limits on the availability of these fora have proved to some extent arbitrary and controversial. The political complexity stems from several sources. The principal source of difficulty is that tort rules are mandatory rules which differ from country to country, reflecting different values, different social choices, or different legal 16 An excellent collection of papers surveying the difficult issues that arise in crossborder tort disputes can be found in MCLACHLAN C. and NYGH P. (eds.), Transnational Tort Litigation: Jurisdictional Principles, Oxford 1996. See in particular the useful overview by MCLACHLAN C. in Chapter 1.

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techniques for pursuing similar policy goals. Some countries impose tort liability for statements or acts which are not actionable in other countries. The approach to awarding damages, and costs, varies enormously between countries. Different rules exist in relation to recovery of economic loss, of legal costs, of punitive or exemplary damages. And approaches to non-money relief – such as injunctions restraining publication of defamatory statements – vary significantly between countries. Concern about liability under the domestic tort law of country A translates very swiftly into concern about providing for jurisdiction in country A, and enforcement of the resulting judgment in other Contracting States. Some areas where these concerns are particularly acute include: -

-

-

liability for speech/freedom of expression rules. Publication on the Internet results in speech being accessible – and potentially actionable – in many countries. Liability rules differ significantly between countries, and raise sensitive issues at the intersection of freedom of expression principles on the one hand, and on the other hand policy goals relating to hate speech, protection of reputation, public order, and protection of religious and cultural sensitivities; the boundaries of intellectual property protection, in particular copyright. Differences in the scope of such protections, in the parties liable for infringements, and in the defences available to infringement claims, have raised concerns about increased exposure associated with global distribution of content, in particular through the Internet. While enhanced protection of intellectual property through reduced enforcement costs can make an important contribution to the underlying policy goals of intellectual property law, there is a concern that content owners will invoke the laws of the most protective jurisdictions in which copyright material can be accessed to prevent or deter legitimate uses of that material in other countries; the extent to which infrastructure providers in the ICT sector are protected from liability. In some countries, notably the United States, legislation limits the exposure of infrastructure providers in respect of content which they store or transmit.17 Similar protections are not available elsewhere. The difference in substantive laws inevitably results in increased focus on questions of jurisdiction, and on the possibility of a judgment being enforced in a Contracting State for a liability that would have been excluded under that State’s substantive laws.

Another source of political complexity stems from active lobbying by groups with vested interests in extending liability in certain sectors, or in restricting liability in certain sectors. In the absence of substantive limits on their liability in many 17

See section 512 of the US Copyright Act, enacted by the Digital Communications Millennium Act 1998.

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jurisdictions, for example, infrastructure providers hope to limit their exposure to the exercise of jurisdiction in a wide range of States. On the other hand, content providers seek to establish jurisdiction (and an option as to where to pursue their claims) in as wide a range of fora as possible. Each group claims that acceptance of its arguments is critical for the future of the on-line economy. The answer seems likely to be more nuanced: governments the world over are striving to find an appropriate balance in this area, and a period of experimentation and of differences in approach seems inevitable. The challenge of addressing these issues even at the domestic level suggests that it is implausible that a single world-wide solution will be arrived at in the near future. Continuing differences in substantive laws will ensure continuing sensitivity and controversy in respect of jurisdictional rules. Still further political complexities arise from the intersection between some of the novel channels that are being used to pursue claims in respect of human rights violations, and the prohibited grounds of jurisdiction on the ‘black list’. This is another issue that has yet to be resolved in a manner that commands widespread support. Moving on to other facets of the convention, another source of both technical and political complexity stems from the inevitability of special jurisdiction rules in tort providing for multiple fora in many cases – for example where wrongful acts occur in several States, or where effects are felt in several states (consider, for example, a defamation claim based on a publication on a website). This means that the convention needs to contain priority rules which determine which of the available convention fora will proceed to hear the claim, and which will defer to that ‘priority forum’. (And the practical relevance of these priority rules will be much greater than in the context of rules permitting contract claims to be brought in the defendant’s home forum.) Significant steps have been made towards resolving this issue in Articles 21 and 22 of the Interim Text. But it remains an additional layer of complexity and political sensitivity which would, if avoided, reduce the difficulties of finalising the convention, and the barriers to its ratification. It is also in the field of tort claims that the most difficult and controversial issues arise in relation to the extent to which a judgment should be enforced. Many States have expressed concern about the possibility of being required to enforce non-compensatory or ‘excessive’ damages awards from other Contracting States. The Interim Text addresses this issue in Article 33, and provides for partial enforcement in such cases. The draft Article 33 may well provide the basis for a workable compromise on this difficult issue. But if omission of tort claims from the scope of the convention would enable that issue to be avoided, or reduce the frequency with which the issue arose and thus the practical importance of the relevant provision, that would undoubtedly be an advantage. In summary, the social and economic benefits that could be achieved by addressing jurisdiction in tort claims seem comparatively small, especially from a Pacific perspective where cross-border physical tort cases are rare. The difficulties associated with attempting to do so seem considerable. While further work is

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justified on some of the categories of claim that raise fewer technical or political difficulties – such as personal injury claims, or damage to tangible property, where the technology issues are less acute and policy approaches in most countries are similar – none of these appear to be ‘must have’ topics.

E.

The Risk of Addressing Jurisdiction in ‘Stranger’ Claims

The discussion of tort claims above raises a general issue of considerable importance in framing this convention which was touched on earlier. ‘Imposed obligations’ such as those created by tort law apply whether or not the parties are in a contractual relationship. Typically the parties do not have the opportunity to contract in respect of their interactions before the claim arises. Just as the parties cannot contract in relation to the substance of the obligation, they will often not have the ability to contract in relation to jurisdiction before the claim arises. It seems to me that we should be wary of attempting to address the question of jurisdiction in ‘imposed obligation’ cases between strangers in the convention, unless we are very confident that the rules we are prescribing are appropriate. There is the world of difference between default rules that can be contracted out of at a relatively low cost, and mandatory rules, or rules that apply as between strangers where contracting costs are prohibitive. The content of default rules in the contractual context is important – but the consequence of getting them wrong is in most cases simply an increase in transaction costs. The cost of getting mandatory rules wrong, or stranger rules wrong, is inappropriate outcomes, and significant economic distortions. Where a problem is not well understood, or where there is real doubt about the appropriate outcome, the risk of making a mandatory rule or a stranger rule is much greater than the risk of making a default rule. A higher degree of caution and restraint is warranted.

F.

Restitution Claims

Despite the practical importance of cross-border restitution claims in a world where assets are easily moved from one country to another, the topic of restitution has attracted little discussion by the Special Commission, or at the Diplomatic Conference. The reason may be that European participants have assumed that restitution claims were covered by the ‘torts’ article, consistently with the European jurisprudence on the Brussels Convention18, while it has never occurred to most other participants that a restitution claim is a ‘tort’, and that Article 10 of the Interim Text should be considered in that light. As each group of participants has been comfortable with its (inconsistent!) assumptions, the issue has not arisen for debate. 18

See Kalfelis v. Schroder [1988] ECR 5565.

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Putting this history (or its absence) to one side, how important is it, from a practical perspective, for the convention to address jurisdiction in cross-border restitution claims? Or, to be precise, in restitution claims between strangers – for if contractual disputes are covered by the convention, that will catch restitutionary claims arising out of contractual relationships, for example where a contract is frustrated, or affected by a mistake as to its subject-matter, or where there is a failure of consideration. In the Pacific region, at least, cross-border restitutionary claims between strangers remain rare compared with contract claims. But experience in practice suggests they may be more common in this region than cross-border tort claims, especially if tracing claims in respect of the proceeds of fraud or other wrongs are included under the ‘restitution’ rubric. The frequency with which cross-border enforcement issues arise in connection with restitution claims is likely to continue to increase, moreover, as it becomes ever easier for funds to be moved between jurisdictions, and converted into different forms. Turning to the second element in our matrix, cross-border restitution cases raise a number of difficult problems in practice, such as: - problems in establishing jurisdiction in a State in which assets against which recourse is sought are located, where no proprietary claim can be made in respect of those assets, and where there is no other connection between that State and the defendant or the substantive dispute. While the courts of some States (such as Germany) exercise general jurisdiction based on the presence of assets of the defendant in the State, this is not the case in many other States; - the need for access to effective interim relief, often in several jurisdictions, none of which need have any connection with the substantive dispute. Interim relief may be sought to freeze assets, to prevent the defendant dealing with assets in other jurisdictions, or to obtain disclosure of the whereabouts of assets. The extent to which interim relief is available in support of foreign proceedings varies considerably from country to country, and is very limited in many common law countries;19 - the need, in many cases, for multiple proceedings in order to ensure that effective relief is obtained against assets held in several jurisdictions. Some (though not many) of these difficulties would be addressed by providing for jurisdiction in the defendant’s home jurisdiction, and enforcement in all Contracting States of the resulting judgment. Such a rule seems uncontroversial in this context, as in others. But the issues relating to interim relief would require a more complex set of solutions. At the least, a provision would be required conferring jurisdiction on the courts of Contracting States to grant interim relief in support of proceedings in 19

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See eg Mercedes-Benz AG v. Leiduck [1996] 1 AC 284 (PC).

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another Contracting State. It would be possible to go further, and require interim relief to be granted in support of such proceedings. But even the less ambitious approach has been strongly resisted by some delegations, and has proven technically difficult to draft in a way which does not give rise to concerns that the convention is intruding too far into domestic rules of procedure, and questions of substantive law. It has been argued, with some force, that this is an issue better addressed in domestic legislation – perhaps in the implementing legislation giving effect to the convention that would be required in the common law states for which this is a particularly acute problem. The current problems in this field are of sufficient practical importance that further work towards a widely acceptable solution is clearly justified. But if a clear, effective and appropriate rule which is widely accepted cannot be crafted, this too is an issue which is better left for another day, rather than permitting it to imperil the core of the convention.

G.

Trusts

If cross-border tort claims are rare in the Pacific, cross-border disputes concerning express trusts of an ‘internal’ nature are rarer still. Nor is it easy to point to significant problems that have been encountered in litigation of this kind, which cry out for resolution in a multilateral convention. And while trusts are often used for commercial purposes, it would be difficult to argue that addressing jurisdiction and enforcement of judgments in relation to internal trust disputes – in particular, trust disputes which cannot also be framed as contract disputes – will make a meaningful contribution to reducing the costs of cross-border trade. The importance of addressing this issue is, therefore, slight. The only reason for persisting with work on this point appears to be that it is not very controversial – as the relative absence of square brackets in Article 11 of the Interim Text attests. However the absence of controversy in relation to jurisdictional rules masks the fact that if default rules are prescribed for internal trust disputes, they will inevitably point to multiple fora, requiring the convention to address the priority issues discussed above in connection with tort claims. If this could otherwise be avoided, the benefits of making provision for trust claims would not justify embarking on that difficult topic. In summary, internal trust claims are not part of the convention’s core. But if it is relatively simple to reach consensus on providing for such claims, it may be worthwhile to address this topic.

H.

The Black List

So far we have been considering the importance of providing for the exercise of jurisdiction in certain cases, and for the enforcement of the judgments which result.

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How important is it for the convention to provide for a ‘black list’ of prohibited grounds of jurisdiction, seen from a vantage point in the southern Pacific? The goal of reducing uncertainty and unnecessary risk and cost for businesses trading across borders would presumably be enhanced by limits on the exercise by foreign States of exorbitant grounds of jurisdiction. In the context of contract disputes, a black list is not very important at all. By agreeing on a forum, the parties to a contract render the black list entirely irrelevant. The chosen forum will be available, and all other courts in contracting states will decline to hear the case without any need to refer to a black list. The goal of reducing uncertainty is achieved by other means. Even where there is no forum clause, a plaintiff deciding where to bring proceedings: -

has some incentive to sue in a convention forum, to facilitate enforcement; has some incentive not to sue in a court in a Contracting State with no significant connection with either the defendant or the claim. There is no point in choosing a court in a country that is not a convention forum, unless the judgment can be enforced there (or elsewhere, under national law). This will be enough to exclude many inappropriate fora, in many cases.

Of course there will be some cases where the strategic benefit of suing in a forum seen as ‘friendly’ to the plaintiff’s claim will outweigh these factors. And the defendant will then be faced with the difficult choice of whether to appear and defend the proceedings – and risk enforcement in many other countries under national law, as well as in the forum, if the claim succeeds – or to let judgment be entered by default, and be exposed to enforcement in the forum state. But it must be borne in mind that the defendant could have avoided this dilemma by contracting for a particular forum, or for arbitration: if the risk is an important one, contracting parties have the tools to manage it. Because the parties to a contract will have the ability to solve this problem for themselves, if the convention provides for forum clauses to be effective, there is no compelling need for the convention to go further and provide default rules prohibiting certain fora. It seems to me that the first factor in the matrix identified earlier in this section – the degree of benefit to be obtained from addressing the issue in the convention – suggests there would be little point in having a black list in a convention that is concerned solely with disputes between contracting parties. And when the difficulty of settling the content of a black list is taken into account, this strongly tips the balance against trying to do so, if the convention is so confined. Outside the realm of contract cases, the black list is likely to be more significant, for two reasons: (a)

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there is not usually an opportunity to contract in relation to the forum for resolving the dispute, before that dispute arises;

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(b)

variations in the substantive law applied in different fora are much greater, and can reflect very different policy choices.

There are some heads of jurisdiction which are difficult to justify on any principled basis – such as the ‘tag’ jurisdiction exercised in New Zealand and many other common law countries. If the convention ranges more widely than contract claims, it seems sensible to exclude these heads of jurisdiction, if doing so is not likely to be controversial. This would be consistent with the convention’s basic goals. But where inclusion of a ground of jurisdiction on the black list is likely to jeopardise ratification of the convention in any major trading State, we should only buy that fight if there is clear, reliable, empirical evidence of the practical problems caused by the relevant rule. Hard policy choices with significant practical implications need to be founded on something more robust than abstractions and anecdotes. While I have an open mind on this point, nothing I have seen in the negotiation process to date establishes that the problem that an extensive black list would be ‘solving’ is worth the risk of excluding a major trading partner from the convention.

A Red Herring in Relation to the Black List It is sometimes suggested that there is little benefit for other States in entering into a convention with the United States unless there is an extensive ‘black list’ that prevents US courts from exercising exorbitant grounds of jurisdiction – in particular, general ‘doing business’ jurisdiction. There is no benefit in agreeing white list grounds of jurisdiction with the United States, the argument runs, because the US already takes a relatively generous approach to enforcing foreign judgments. Thus other States should hold out for an extensive black list – and refrain from entering into a convention with the US, if agreement on this issue cannot be reached. This analysis misconceives the basic policy goal of the convention, as explained above. It is not about relations between States, with State A ‘gaining’ if more of State A’s judgments are enforced elsewhere, and ‘losing’ if it has to enforce more of the judgments granted by other States. It is about the costs to firms of doing business across borders. Seen from this level, a convention with the US that clarifies jurisdictional rules in contract cases, and simplifies enforcement of judgments, is of real benefit to non-US businesses. As mentioned above, at present there is abundant room for interlocutory wrangles over jurisdiction, and conflicting judgments. And real difficulties arise in relation to enforcement of non-money judgments. It is these inefficiencies which need to be addressed by the Convention. If uncertainty and risk and legal costs are reduced, all traders in all participating States will benefit. The prospect that uncertainty and risk might be reduced further still by a more far-reaching – but unachievable – convention is not a sound reason for rejecting significant achievable gains

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IV. The Core of the Convention A.

The Core

The analysis in section 3 above suggests that the focus of the convention should be on contractual activity, excluding B2C and C2C contracts. The primary benefit to the Pacific region will come from a convention that applies to disputes between parties to contracts (other than B2C and C2C contracts), which: (a)

(b)

provides simple, clear, appropriate default rules where there is no forum clause. The only default rules that meet these criteria are rules providing for jurisdiction in the defendant’s home jurisdiction – its habitual residence, or the place where a branch, agency or establishment through which the contract was made is situated; gives effect to forum clauses, ensuring that the chosen court will hear the claim, other courts will not disregard the clause, and the resulting judgment will be enforced in other Contracting States.

These are both the most valuable topics, and the most tractable. They should form the core of the convention.

B.

Other Topics

Well behind contractual disputes in terms of practical importance for Pacific States come, in no particular order, the following types of cross-border dispute: (a)

(b) (c) (d)

tort claims between non-contracting parties, including intellectual property infringement claims. Claims in relation to physical torts seem most likely to be capable of being successfully addressed; restitution claims, including claims in connection with money taken dishonestly or paid by mistake; B2C contract claims; disputes concerning trusts, to the extent this is not covered by the other heads of jurisdiction.

It is certainly worth trying to achieve agreement on these – but not at the expense of the core. The black list falls into much the same category, at least on the current evidence.

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V.

Rules to Give Effect to the Core of the Convention – Some Suggestions

It seems logical to begin the process of preparing a draft convention by drafting the provisions that would be required to address the core identified above. The desirability and feasibility of addressing additional topics can then be examined by looking at what would need to be added to the core draft if those topics were to be covered – both in terms of additional jurisdictional provisions, and additional provisions relating to procedure or enforcement.

A.

Drafting a ‘Choice of Forum’ Convention

The simplest convention would focus on choice of forum clauses alone. It would provide that where parties to a contract (other than a B2C or C2C contract) agreed to refer a dispute (whether contractual or otherwise) to a particular court, that court would have jurisdiction to decide the dispute. It would also provide that where such a clause was exclusive, all other courts would decline jurisdiction. The Interim Text goes further and provides that forum clauses are to be treated as exclusive unless they expressly provide otherwise. This probably accords with the expectations of most contracting parties, and does not appear to be controversial. Article 4 of the Interim Text provides a good basis for this provision. What else would be required in a convention confined to the topic of forum clauses? There would be no need for any other Articles relating to jurisdiction. Nor would there be any need for provisions in relation to: -

-

-

lis pendens and declining jurisdiction (on grounds such as forum non conveniens). At most, the convention might confirm that the chosen forum cannot decline to exercise jurisdiction;20 prohibited grounds of jurisdiction; the ‘grey list’. At most, the convention would confirm that it did not affect the exercise of jurisdiction based on national law, in cases where there is no forum clause; appearance without protest (except to confirm that this did not amount to a choice of forum for the purposes of the convention); authentic instruments;

20

While the possibility of multiple fora cannot be ruled out, if a contract provides for claims to be brought in any of several States, this is most unusual. If the convention provided that a chosen forum cannot decline to exercise jurisdiction unless another forum is also chosen by the contract, and is seised, that should be sufficient to deal with even the most exceptional cases.

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-

-

bilateralisation, or other provisions designed to limit the States whose judgments would be enforced (see Article 42 of the Interim text). If the parties have chosen the forum, they can hardly complain if its judgments are given effect by other Contracting States; legal aid – this is much less of an issue in the commercial context; non-compensatory damages or grossly excessive damages: if the parties have chosen the forum, they cannot reasonably object to its damages rules. No such objection is available in proceedings to enforce an award under the New York Convention – there is no case for a more restrictive approach here.

Most of the Interim Text provisions in relation to the process for enforcement of judgments could be carried across without modification. (The detailed provision the convention would make for enforcement matters would be one of the principal differences between the draft convention and the Hague Convention of 25 November 1965 on the Choice of Court, which has never come into force.) Provisions in relation to substantive scope,21 territorial scope, and relationship with other conventions would all be substantially simplified. A draft convention along these lines could be finalised relatively easily, and without much delay.

B.

Providing for Default Jurisdiction in Claims Between Contracting Parties

What would need to be added to the provisions described above in order to provide for a default jurisdiction in claims arising under or in connection with a contract (other than B2C or C2C contracts) in the defendant’s habitual residence, or in the State where the relevant branch, agency or establishment is situated? Jurisdiction provisions along the lines of Interim Text Articles 3 and 9 (without any reference to ‘regular commercial activity’) would be required. The scope of this default jurisdiction would need to be set out – either in these Articles, or in the provision concerned with the substantive scope of the convention. Provisions in relation to lis pendens and declining jurisdiction would also be required – Articles 21 and 22 of the Interim Text would provide the starting point. To avoid serious asymmetry and injustice, it would also be necessary to provide that a court with jurisdiction under these rules had jurisdiction in related counterclaims – a provision along the lines of Article 15 of the Interim Text would be appropriate. I doubt that any other additions would be essential. A defendant with its habitual residence or a branch, agency or establishment in a State can hardly be 21

The matters in respect of which Article 12 of the Interim Text provides for exclusive jurisdiction would be excluded from the scope of the convention.

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heard to complain about enforcement of judgments rendered by the courts of that State, whether in that State or in other Contracting States. So there would be no additional concern in relation to bilateralisation, or excessive or non-compensatory damages. This is a slightly more ambitious work programme. But it is still confined to topics that are the subject of near consensus, and that are in my view eminently resolvable with a little time and attention. One of the main reasons that more progress was not made on these issues in June 2001 was the shortage of time – and this was a product of the significant amount of time consumed by other, more complex but less critical, issues.

VI. Future Directions Finally, if we are to take a practical approach to this convention we need to adopt a process that ensures we focus on perfecting the core, and do not jeopardise the core through disagreement on other issues, or through spending large amounts of time on less significant issues. We should be open to the possibility of a broader agreement, if it proves achievable: but pursuit of this broader agreement must not take place at the expense of achieving the core. It seems to me that there are several approaches that might work. In each case we should begin by perfecting the core, and preparing a draft convention which would give effect to that core. Until this is done, we should not permit ourselves the luxury of devoting scarce time and resources to less critical issues. This would constitute stage one. For stage two of this work there are three basic options. The Hague Conference could: (i)

work on a wider range of topics, but drop back to the core if agreement on these topics cannot be reached on a consensus basis; or (ii) work on a wider list of topics, with a view to incorporating them in an optional Chapter. Consensus might not be essential in relation to this Chapter, which could contain both additional grounds of jurisdiction and a black list of prohibited grounds; or (iii) decide not to pursue a wider range of topics at present (ie dispense with a stage two, and move straight to stage three). Approach (ii) is at first sight appealing. It allows those countries that can reach a more extensive agreement to piggyback on the core convention, and its enforcement provisions, without compromising the core. It also provides a ‘pressure valve’ for addressing issues seen by a subset of participants as important elements of a successful convention. On balance, however, I suspect it is less desirable than approach (i), for two reasons:

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(a)

(b)

the chapter on enforcement may become more complex, and more contested, if it also needs to accommodate enforcement of judgments based on optional heads of jurisdiction. So the risk of States deciding not to ratify the core because of concerns about enforcement provisions would be increased; if topics are addressed inappropriately, it may be more difficult to revisit them in later years than it would be if the territory remained untrodden.

The flexibility that approach (ii) would provide should not however be underestimated. It merits careful consideration and further debate. Stage three would take place five to seven years after the convention comes into force. The Judgments convention is best seen as a continuing process of rapprochement of jurisdictional practices, in the light of experience with the convention and with cross-border dispute resolution generally. The core convention should provide for delegations to meet again in the future to review the convention, with a view to addressing further topics. The importance of stage three cannot be overstated. We should not attempt to resolve everything now, and risk achieving nothing in practice. A staged approach is more likely to succeed, and less likely to do harm, especially in fields we do not yet fully understand such as ecommerce. The next meeting in relation to the judgments convention is scheduled for January 2002. Participants should attempt to reach agreement on the process to be followed at that meeting. Work on identifying the core issues, and addressing them, should follow – first policy decisions on outstanding issues, then detailed drafting. Next would come work on possible additions. The second half of the Diplomatic Conference would then: -

determine the core by consensus, building on preparatory work that should largely have resolved these issues; explore what (if anything) can be added to that core by consensus; if approach (b) is adopted, settle the content of the optional chapter (perhaps on some basis short of consensus).

The recent history of the judgments project has tested the enthusiasm and commitment of many participants. It would be easy to give up, and conclude that the issues are too difficult and the politics too intractable. But seen from this end of the world at least, that would be a tragic waste: a waste of an important opportunity, and a waste of a great deal of valuable work by some of the world’s leading private international lawyers. We must not let competing conceptions of an ideal convention prevent us from achieving a worthwhile one – one that meets a real practical need, and contributes, albeit indirectly and in a small way, to increasing prosperity and economic and social development. That is the real challenge: if we keep it firmly in our sights, we will have a reliable guide for settling our priorities, and for resolving our differences.

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INDIRECTLY HELD SECURITIES: A NEW VENTURE FOR THE HAGUE CONFERENCE ON PRIVATE INTERNATIONAL LAW Christophe BERNASCONI*

I. II.

III.

IV. V.

Introduction Purpose of the Project: Updating Conflict of Laws Principles to Reflect Market Reality A. Introduction B. Indirect Holding System C. Why Bother? An Example D. Scope of the Project: Limited to Proprietary Rights 1. The Issues Covered 2. The Issues Not Covered The Search for the Appropriate Connecting Factor A. Introduction B. ‘Looking-Through’ – An Inappropriate Substitute C. PRIMA – A Modern Reflection of the Traditional Lex Rei Sitae Principle Application of PRIMA and How to Identify the Relevant Intermediary The Pièce de Résistance: How to Locate the Relevant Intermediary? A. Introduction B. The Principles Agreed Upon 1. ‘Place of the Relevant Intermediary’ = ‘Place Where the Securities Account Is Maintained’ 2. The Need for ex ante Certainty and How To Achieve It 3. The Compromise Reached at the January 2001 Experts Meeting C. The ‘Principal Rule’ in Intermediate Drafts D. The Fall-Back Test 1. The Objective Balancing Test vs. The Single Factor or Cascade Approach 2. Single Factor Fall-Back Tests, in Particular the ‘Legally Established’ Test E. The ‘Black List’

* Dr. iur. utr. (Fribourg), LL.M. (McGill). First Secretary at the Permanent Bureau of the Hague Conference on Private International Law, in charge of the project on indirectly held securities; the opinions expressed are strictly personal and not to be attributed to the Hague Conference or to its Permanent Bureau.

Yearbook of Private International Law, Volume 3 (2001), pp. 63-100 © Kluwer Law International & Swiss Institute of Comparative Law

Printed in the Netherlands

Christophe Bernasconi

F.

VII.

Is There a Need for a ‘Super PRIMA’? The Case of a Fact Pattern Involving Several Intermediaries G. Existing Agreements The Insolvency Issue in Particular A. Introduction B. Respect of Validly Perfected Interests (Paragraph 1) C. The Qualifications (Paragraph 2) 1. Draft UNIDROIT Convention on International Interests in Mobile Equipment 2. The European Insolvency Regulation D. Conclusion on the Insolvency Issue Conclusions

I.

Introduction

VI.

The Hague Conference on Private International Law is exploring a new field of activity: in May 2000, its Special Commission on General Affairs and Policy recommended, among other things, that the Conference start working on a new Convention on the question of the law applicable to proprietary aspects of dispositions of securities held with an intermediary. The basic purpose of this project is to provide financial markets with legal certainty for dealings in indirectly held securities – dealings worth several billion US dollars a day. Agreement on a convention that produces a uniform and rational rule for determining the proprietary aspects of a transfer or pledge of indirectly held securities would bring very important benefits to market users, market participants and the financial system as a whole. Given the enormous economic and practical importance, the project may also help to firmly engrave the name of the Hague Conference – whose biggest success so far has been in the fields of family law (in particular child protection) and judicial co-operation – on the commercial map too. The importance of the project is also underlined by the fact that it is being developed on the basis of a fast track procedure: a Working Group of Experts, which met in January 2001 pursuant to a Recommendation made by the Special Commission on General Affairs and Policy of May 2000, unanimously agreed that a Convention could and indeed should be prepared on an accelerated timetable. During the first part of the 19th Diplomatic Session of the Hague Conference, which was held in June 2001, the Member States unanimously decided to add this topic to the agenda of the organisation, with a view to adopt the Convention during the year 2002. In other words, if the Convention is completed as planned, the work on this project will have lasted approximately two years – a very short period to develop an international instrument which raises difficult technical issues and which obviously has to suit the needs and interests of business practice.

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Indirectly Held Securities

This Article intends to describe the purpose, the basic features and the scope of the project (II) and includes in particular an analysis of the principal legal questions raised by the topic (III-VI).1 The comments reflect the status of work and discussion as of July 2001.2

II.

Purpose of the Project: Updating Conflict of Laws Principles to Reflect Market Reality

A.

Introduction

Traditionally, securities were held, traded and settled in a direct holding system in which owners of securities had a direct relationship with the issuer – the investors would either be recorded on the issuer’s register or be in physical possession of

1

The Article is mainly based on the three following documents: BERNASCONI Chr., The Law Applicable to Dispositions of Securities Held Through Indirect Holding Systems, Preliminary Document No 1 of November 2000 for the attention of the Working Group of January 2001 (hereinafter: BERNASCONI, Report); Report on the Meeting of the Working Group of Experts (15 to 19 January 2001) and Related Informal Work Conducted by the Permanent Bureau on the Law Applicable to Dispositions of Securities Held with an Intermediary, prepared by the Permanent Bureau, Preliminary Document No 13 of June 2001 for the attention of the Nineteenth Session (hereinafter: Report on the Meeting of the Working Group of Experts (15 to 19 January 2001); Tentative Text on Key Provisions for a Future Convention on the Law Applicable to Proprietary Rights in Indirectly Held Securities, Suggestions for further amendment of the text contained in Working Document No 16 of the January 2001 experts meeting, submitted by the Permanent Bureau, Preliminary Document No 3 of July 2001 for the attention of the Special Commission of January 2002 (hereinafter: annotated July 2001 draft; see also the following footnote for more comments on this document). All these documents are available on the website of the Hague Conference on Private International Law (http://www.hcch.net), under the heading Work in progress, sub-heading Indirectly held securities. 2 In July 2001, the Permanent Bureau submitted an annotated draft of key provisions for a future Convention on the law applicable to proprietary rights in indirectly held securities (see the reference in the previous footnote). This draft was submitted to all Member States of the Hague Conference and to all observers who participated in the experts Working Group meeting of January 2001, with a view to prepare as effectively as possible the Special Commission meeting in January 2002. The Member States and observers, as well as any interested parties, were invited to submit written comments to the Permanent Bureau. On the basis of the comments received, a new draft will be prepared which should then serve as the basic working document for the Special Commission meeting.

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bearer securities certificates.3 Within this traditional holding system, transfers of securities had to be settled through the physical delivery of paper certificates and instruments of transfer, making such transactions labour-intensive, time-consuming and expensive. They were also risky, because the paper documents could be lost, mislaid, stolen or counterfeited. The costs of protecting against such risks and of delivering documents across long distances made the transfer of securities in a direct holding system an expensive process. Furthermore, while in transit to the transferee, the securities were not available for use or investment, causing what has been referred to as ‘pipeline liquidity (or illiquidity) risk’.4 In the 1960s, a sharp increase in trading volumes overwhelmed the system. The gigantic amount of paper that had to be physically moved around the globe began to pose insurmountable logistical problems, eventually leading to what became the famous ‘paperwork crisis’ on Wall Street in the late 1960s: for a while, the New York stock exchange was forced to close one day a week in order to process the backlog of paperwork!5 This provided the impetus for a number of legal, regulatory and operational innovations to clearance and settlement systems. One of the most important objectives of the restructured system was to immobilise the vast amount paper, if not eliminate it altogether. This goal was achieved by introducing the indirect or multi-tiered holding system.

B.

Indirect Holding System

As its name suggests, this structure is made up of various tiers, often with an increasing number of entities involved in each of the tiers, thus making the

3 In many cases, holders of registered securities will also be issued a certificate, which may merely evidence ownership only or may be a document of title, delivery of which is capable of creating proprietary rights in the securities. 4 See GOODE R., ‘The Nature and Transfer of Rights in Dematerialised and Immobilised Securities’, in: ODITAH F. (ed.), The Future for the Global Securities Market: Legal and Regulatory Aspects, Oxford 1996, pp. 108-109; GUYNN R.D., ‘Modernizing Securities Ownership, Transfers and Pledging Laws’, A Discussion Paper on the Need for International Harmonization, Capital Markets Forum, Section on Business Law, International Bar Association 1996, p. 16, and the further reference there given (this paper is available in pdf format on the Internet at http://www.dpw.com/iba/modernization.pdf). 5 Whereas in 1960 the average trading volume on the New York Stock Exchange was around 3 million shares per day, by 1968 this had more than quadrupled to almost 13 million shares per day (Securities Industry Study, Report of the Subcommittee on Commerce and Finance of the Committee on Interstate and Foreign Commerce, House of Representatives, 1972, pp. 1 and 3). As a comparison, in 1999 the combined trading volume on Nasdaq and the New York Stock Exchange averaged more than 2.8 billion shares every single trading day (see http://www.dtcc.com/2000annual/clearance.htm).

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structure look like a pyramid.6 The top tier comprises national and international central securities depositories (CSDs and ICSDs, respectively), where large pools of securities of different issuers are immobilised or otherwise concentrated. Most (if not all) of the issues of many governments and major corporations are held by such institutions.7 In the case of certificated issues, the actual certificates 6

See GOODE R. (note 4), p. 22. For a practical example, see the comments below,

under C. 7 The oldest CSD was the Wiener Giro- und Cassenverein, founded in 1872 in Austria, which was later followed by the German Kassenverein, now part of Clearstream International (see below). The predecessor of Sicovam, the French CSD (which is now called Euroclear France, see below), was established during World War II. Plans of the New York Stock Exchange to set up a similar entity in the United States before World War I did not materialise; it was only after the paperwork crisis that The Depository Trust Company (DTC) was established. In September 1999, The Depository Trust & Clearing Corporation (DTCC) was established as a new holding company that has as its subsidiaries DTC and the National Securities Clearing Corporation (NSCC). Today, DTC is the world’s largest CSD, holding nearly $ 20 trillion in assets for its participants and their customers. During 1999, DTC processed more than 189 million book-entry deliveries valued at more than $ 94 trillion. Increasingly, DTC is servicing non-US issues as well as US issues, and non-US participants as well as US participants. NSCC processes practically all broker-to-broker equity and corporate and municipal bond trades in the US. For more information, see the websites of DTCC (http://www.dtcc.com), DTC (http://www.dtc.org) and NSCC (http://www.nscc.com). The most important ICSDs are Euroclear and Clearstream (formerly Cedel). Founded in 1968 by the Brussels office of Morgan Guaranty Trust Company of New York following the ‘paperwork crunch’, the Euroclear System has become one of the world’s largest clearance and settlement systems for internationally traded securities. The Euroclear System is operated by the market-owned Euroclear Bank, which is governed by more than 1500 user shareholders. In September 2000, Euroclear and Sicovam signed an agreement to fully merge the two entities. This merger became effective in January 2001 by the exchange of shares. Sicovam SA, now a wholly owned subsidiary of Euroclear Bank, adopted the name Euroclear France. Similar mergers are currently implemented with CIK and Necigef, the CSDs of Belgium and the Netherlands, respectively. In 2000, Euroclear Bank and Euroclear France had a combined turnover of about 100 trillion euros, while the total value of securities held in custody was over 7.4 trillion euros. For more information, see the website of the Euroclear group (http://www.euroclear.com). The European clearing house Clearstream International was formed from the merger of the former Cedel International and Deutsche Börse Clearing. The new company is one of the world’s largest international clearing and settlement organisation, having EUR 7 trillion in assets under custody and handling in excess of 80 million transactions per annum. Cedel stands for Centrale de Livraison de Valeurs Mobilières and was incorporated in 1970 as a limited company under Luxembourg law by 66 financial institutions from eleven countries as a neutral and independent capital markets infrastructure. It is owned by more than 90 financial institutions from Europe, the Americas and Asia. In 1999, Cedel International, the parent company of the Cedel group, announced a merger with Deutsche Börse Clearing AG to create Clearstream International. At the beginning of 2000, Cedel International

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evidencing or representing the securities are kept either in the vault of the CSD itself or in the vault of the CSD’s custodian or subcustodian. Registered securities held by the CSD are entered in the issuer’s records under the name of the CSD or a nominee.8 The next tier consists of a limited number of financial institutions, brokers, depositories and other professional investors who have direct contractual relationships with the CSDs and who hold their interests in securities in book-entry accounts with a CSD.9 These intermediaries are called the participants of the CSD.10 These participants, in turn, hold in their accounts interests in or in respect of securities either for themselves or for their customers, such as institutional or retail investors or further intermediaries, and so forth until accounts are held for the investors. As a result, there may be a variable number of tiers between the investors at the bottom of the structure and the securities themselves located with or registered in the name of the CSD (or its custodian, sub-custodians or nominees). This structure allows the issuer to deal with a single entity, the CSD.11

contributed its entire clearing, settlement and custody business to Clearstream International in return for a 50 % participation. Cedel International remains as a holding company representing the interests of its shareholders. Under the new corporate structure, clearing and settlement activities are conducted by two subsidiaries, Clearstream Banking Luxembourg and Clearstream Banking Frankfurt. Clearstream International has over EUR 7 trillion in assets under custody and expects to handle over 150 million transactions in 2001. During the year 2000, Clearstream International acquired a 7% stake in Monte Titoli, the Italian CSD. For more information, see the website of Cedel International (http://www. cedelinternational.com). 8 In the United States, the shareholder records of large corporations whose shares are publicly traded generally show a single entity – CEDE & CO. – as the registered owner of approximately 83% of all shares listed on the New York Stock Exchange, 72% of all shares traded on Nasdaq and 91% of all corporate debt securities listed on the New York Stock Exchange. CEDE & CO. is the nominee name used by DTC, see THE AMERICAN LAW INSTITUTE, NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS, Uniform Commercial Code, Official Text – 2000, Revised Article 8 (1994 Revision), Prefatory Note, p. 655 (hereinafter: U.C.C. 2000). 9 For more details on the holding pattern in Nordic countries in particular, see Art. 2, para. 4 of the annotated July draft, with accompanying comments. 10 By way of example, DTC’s network links more than 11,000 broker/dealers, custodian banks, and institutional investors, as well as transfer agents, paying agents, and exchange and redemption agents for securities issuers. Euroclear has more than 2,000 participants located in more than 80 countries. 11 In some instances, for example, Daimler-Chrysler shares issues may be structured so that the securities are held through two or more CSDs. See e.g., SCHEFOLD D., ‘Grenzüberschreitende Wertpapierübertragungen und Internationales Privatrecht – Zum kollisionsrechtlichen Anwendungsbereich von § 17a Depotgesetz’, in: IPRax 2000, p. 470, note 18 and accompanying text.

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The CSD, in turn, deals with a limited number of large players, who in turn will deal with a greater number of smaller participants, and so on through the pyramid. The investors do not appear on any register of ownership maintained by or on behalf of the issuer,12 nor do they have actual possession of certificates. The records of a CSD show the securities held on behalf of its various participants, and the records of each such participant show the securities held on behalf of their individual customers. Within an indirect holding system, it becomes apparent that it is the account rather than the certificates that is the source of the investor’s entitlement.13 This, in turn, has of course a major impact in determining the most appropriate connecting factor.14 The efficiency of the indirect holding system is further improved by the practice of most CSDs and intermediaries of holding securities in fungible pools. Under this structure, participants or customers lose the right to call for delivery of specific securities and have instead the right to call for securities of the issue, type and quantity corresponding to their book-entry holdings.15 This concept of 12 However, rules of corporate law may entitle or require an issuer to obtain details of the identity of persons entitled to, or interested in, securities – for example, for purposes of voting or of ascertaining the level of particular holdings. Such rules do not form part of the rules governing ownership and will not determine the position as regards proprietary rights. Matters between the issuer and its members, such as voting rights, do not fall within the scope of the Hague project and remain governed by the lex societatis. 13 See, e.g., GOODE R. (note 4), p. 23, and DE VAUPLANE H., De la détention nationale à la détention internationale de titres: où sont les titres ?, Annexe au Rapport du Conseil National du Crédit et du Titres, Problèmes juridiques liés à la dématérialisation des moyens de paiement et des titres, Paris, May 1997, p. 157. 14 See the comments below, under III. 15 In a traditional direct holding pattern, the owner’s interest is a direct property right: in the case of bearer securities, the owner has direct possession of the certificates, and in the case of registered securities, the owner’s name is recorded on a register of the securities maintained by the issuer or by a third party on the issuer’s behalf. The concept of a direct property right, however, becomes difficult to apply in the context of indirect holding systems. This is because under traditional legal principles commingling fungible property terminates direct property rights of owners of the individual commingled items. According to traditional principles which apply under both common law and civil law legal systems, and whose origins are rooted in Roman law, a person who deposits property with a depository retains whatever property rights that person has in the property, as long as the deposited property is not commingled with similar property of the depository or of other depositors. If, however, the property is commingled, the consequences will depend on the precise terms on which deposits are made. The depositor may have only a contractual claim for the return of the same amount and type of property initially deposited; alternatively, the depositor whose property has been commingled may have some form of common or coproprietary interest with other depositors in the commingled bulk. For the reasons of efficiency explained above, depositories that hold securities for investors generally do so through commingled omnibus customers accounts. The effect of such commingling is to

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fungibility is critical to ensure liquidity of issues.16 Fungibility also reduces the administrative costs associated with the custody of securities. Today, the vast majority of actively traded securities are held through a system of intermediaries. The system caters to the needs of a global marketplace: it reduces the processing and settlement costs and risks of loss, theft and counterfeiting associated with a direct holding system, and the transfer of interests in securities by mere accounting entries on the books of one or more intermediaries also allows for a rapid and efficient disposition of those interests, both domestically and across borders. The fact that the settlement time frames have shrunk and that these interests can be rapidly transferred enhances the efficiency of the indirect holding system compared to a traditional direct holding structure. The velocity of transactions has grown and continues to grow. The efficiency of the indirect holding system is further enhanced by the practice of netting,17 under which market participants are able to limit their credit exposure, and by the fact that transactions within indirect holding systems are usually settled on the basis of delivery versus payment (DVP).18 preclude the continuing existence of direct property rights of individual owners in the specific securities held prior to the commingling and to give each investor either a mere contractual right to the delivery of equivalent securities or co-ownership of the commingled fund of securities, according to the terms of the agreement between the investor and the depository. For an extensive legal analysis of these two models, see BERNASCONI, Report, pp. 19-26. 16 Some CSDs and intermediaries also agree to hold interests for participants or customers on a non-fungible, that is, identifiable basis. In Canada, securities held in such an account and actually registered or in the process of being registered in the name of the customer are known as ‘customer name securities’ in contrast to securities held on a pooled basis, which are known as ‘customer pool fund securities’. 17 Netting is an agreed offsetting (compensation) of mutual positions or obligations by trading partners or participants in a settlement system so that a large number of individual positions or obligations are reduced to a smaller number of positions or obligations, GUYNN R.D. / MARCHAND N.J., ‘Transfer of Pledge of Securities held through Depositaries’, in: VAN HOUTTE H. (ed.), The Law of Cross-Border Securities Transactions, London 1999, p. 55, note 21. Within a netting system, total buy and sell obligations for a particular security are paired off into one net position. The debits and credits from these net positions are likewise consolidated into one net money position for each firm. At the end of the day, instead of making and receiving hundreds or even thousands of payments, firms have only a single payment obligation. Netting is a technical and complex subject, a full description of which is beyond the scope of this article. It is, however, an extremely effective tool. For example, on the peak trading day in 2000, the value of transactions processed by DTCC for the industry exceeded $722 billion; by netting all the transactions, the clearing corporation was able to shrink the $722 billion in trades to a final payment obligation of only $21.7 billion – a reduction of a staggering 97% (see http://www. dtcc.com/2000annual/clearance.htm). 18 This means that cash and securities are exchanged simultaneously in electronic book-entry form. The fact that DVP is simultaneous eliminates the risk of a seller delivering

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In sum, within an indirect holding system, the investor no longer has a direct relationship with the issuer. Rather, the investor’s interest in respect of the underlying securities is recorded on the books of an intermediary, which in turn has its interest recorded with another intermediary and so on up the chain until some intermediary either (i) is recorded as the registered owner on the books of the issuer or the issuer’s official recordholder or (ii) holds the certificates or other documents of title representing the securities.19 Thus, this indirect holding system has one or more tiers of intermediaries between issuer and investor, and interests in respect of underlying securities are recorded by book entries at various levels in the chain. Transfers of such interests often occur through book entries without any form of delivery, whether constructive or actual.20 In most jurisdictions, however, neither the substantive laws governing securities transactions nor the rules determining the law applicable to such transactions have been updated adequately to reflect this market reality. In other words, in most countries the legal regime currently in place to cope with the indirect holding system dates back, to a greater or lesser extent, to a time when securities were still directly held in certificated form by investors. The concepts of (physical) possession and delivery, however, do not operate satisfactorily in the context of the modern indirect holding system, as there can be no actual possession or delivery of the intangible property interests arising under that system.21

C.

Why Bother? An Example

In order to assess both the importance and the usefulness of the Hague project, one may consider the following example:22

securities without receiving payment from the purchaser, or of a purchaser making payment without receiving securities from the seller. 19 This Article uses the term ‘intermediary’ as a general term including all the various kinds of financial institutions through which the investors’ interests are held, for example, brokers, nominee companies, banks and other custodians, settlement systems and depositories. 20 For a more detailed presentation of the indirect holding system, see BERNASCONI, Report, pp. 12 et seq. For a very instructive presentation of the commercial and legal developments on both the money and the securities sides of transactions, see GUYNN R.D. (note 4), pp. 16-21 and 21-25. See also GOODE R. (note 4), pp. 112-115. 21 See, e.g., UNIFORM LAW CONFERENCE OF CANADA (ULCC), Tiered Holding System – Uniform Legislation Project, Report of the Production Committee, April 30, 1997, drawn up by SPINK E. (Reporter), with updates presented on 1999 and 2000. The Report and the updates are available on the ULCC’s website (http://www.ulcc.ca/en/cls/index.cfm?sec= 2&sub=2x). 22 For a schematic illustration of the example, see BERNASCONI, Report, p. 15.

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Australian Investor is a corporation formed in Sydney, Australia. It holds an interest in respect of 500,000 Illinois Inc. shares through the indirect holding system. Illinois Inc. is incorporated in Illinois in the United States. Illinois Inc. has 5,000,000 shares outstanding. They are all held through DTC, which is incorporated and has its principal place of business in New York. DTC keeps the actual physical certificates representing the Illinois Inc. shares in its vault in New York. Illinois Inc. maintains a share register in Newark, New Jersey, with a registrar, NJ Registrar, located there. DTC’s nominee, Cede & Co., is recorded in the share register as the registered owner of the 5,000,000 outstanding Illinois Inc. shares. Australian Investor’s ownership interest in respect of the 500,000 Illinois Inc. shares is reflected by a book entry credited to an account entitled ‘Australian Investor Account’ at its intermediary, French Bank, located in Paris. French Bank, in turn, holds interests in respect of the Illinois Inc. shares corresponding to Australian Investor’s interest, together with interests of other customers of French Bank, through book entries credited to an account entitled ‘French Bank Omnibus Customers Account’ on the books of a European ICSD. In total, French Bank holds for all its customers (including Australian Investor) interests in respect of 1,200,000 Illinois Inc. shares. European ICSD, in turn, holds interests corresponding to French Bank’s interests in respect of the Illinois Inc. shares, together with interests of other participants in the European ICSD system, through book entries credited to an account entitled ‘European ICSD Omnibus Customers Account’ on the books of the ICSD’s sub-custodian in the United States, California Subcustodian, located in Los Angeles, California. In total, European ICSD holds for all its customers (including French Bank) interests in respect of 2,500,000 Illinois Inc. shares. California Sub-custodian, in turn, holds interests corresponding to European ICSD’s interests in the Illinois Inc. shares, together with interests of other customers of California Sub-custodian, through book entries credited to an account entitled ‘California Sub-custodian Omnibus Account’ on the books of DTC. In total, California Sub-custodian holds for itself and all its customers (including European ICSD) interests in respect of 3,000,000 Illinois Inc. shares. Each of the intermediaries in this indirect holding system holds interests in securities on an unallocated, fungible or pooled basis – that is, on terms that none of its account holders has an interest in any specific securities held by the intermediary at a higher level. Thus, for example, French Bank’s custody agreements provide that Australian Investor and French Bank’s other customers are not entitled to any specific securities held in the ‘French Bank Omnibus Customers Account’. Similarly, European ICSD’s Terms and Conditions specify that no European ICSD account holder has any interest in any specific securities held by European ICSD with sub-custodians or central securities depositories.

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In this situation, if Australian Investor wishes to provide its interests in the Illinois Inc. shares to a credit provider under a pledge mechanism23 the contractual aspects of which have been submitted by the parties to English law, the credit provider needs to know before entering into the transaction which requirements have to be fulfilled so as to ensure that the credit provider will receive a perfected interest, i.e., an interest that will prevail over the interests of third parties (including the interests of the liquidator should Australian Investor enter insolvency). In order to assess this question, the credit provider (collateral taker) needs to ascertain which jurisdiction’s law will govern the proprietary aspects of the transaction. In the current fact pattern there are a number of possibilities – among others, is it: (i)

Illinois law, as the law of the place of incorporation of the issuer of the underlying securities? (ii) New Jersey law, as the law of the place of the register for the underlying securities? (iii) New York law, as the law of the place where the underlying security certificates are kept?

23

In this article, the word ‘pledge’ is used as a generic term and includes not only possessory security interests but also non-possessory forms of security interests (such as mortgages and charges). It also covers title transfers by way of security. The term ‘pledge’ is preferred to the alternative generic term ‘security interest’ because of the inevitable confusion with ‘interest in securities’. The term ‘security interest’ is used in particular in the Uniform Commercial Code (U.C.C.) of the United States; see Art. 1-201(37), which defines a security interest as ‘an interest in personal property or fixtures which secures payment or performance of an obligation’, and Art. 9 U.C.C., which sets out the actual rules on ‘security interests’ in investment securities. This being said, we fully recognise that the term ‘pledge’ originally was limited to possessory interests in physical property only. Because of the potential confusion surrounding the expression ‘security interest’ in an international (and multilingual) context, we nevertheless prefer to use the term ‘pledge’ and deliberately extend its traditional meaning so as to cover non-possessory interests as well. Under a pledge, the collateral provider retains ownership of the securities pledged. In today’s economy, however, there are numerous ways of raising money and obtaining protection against credit exposure, and not all the ways of obtaining such protection utilise the pledge mechanism: some use a title transfer mechanism, under which ownership of the collateral is transferred to the collateral taker, who only has a contractual obligation to redeliver equivalent securities. Examples of such title transfer arrangements include ‘repurchase agreements’, ‘buy/sell-back’ transactions, ‘securities loans’, and swap transactions collateralised by means of a title transfer structure. Such title transfer arrangements are widely used to fulfil a security function, and where they do so, they are to be regarded as collateral transactions, even if – technically speaking – they do not create a pledge over collateral. Again, to be clear, in the future Convention and in this article, the term ‘pledge’ is used to include transfer by way of security even though this is a broader definition than in some jurisdictions.

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(iv) New York law, as the law of the place of the national CSD? (v) California law, as the law of the place of European ICSD’s subcustodian? (vi) the law of the place where European ICSD is located? (vii) French law, as the law of the place of Australian Investor’s intermediary? (viii) English law, as the law chosen by collateral provider and collateral taker in the pledge agreement? (ix) English law, as the law of the place of the collateral taker (creditor)? (x) Australian law, as the law of the place of the collateral provider (debtor)? Given the great variety of possible answers and the huge value of the transaction that is often at stake, one can easily assess the benefit that a Hague Convention on this issue could generate: It would provide ex ante certainty and allow the collateral taker to determine beforehand the legal order whose perfection requirements it will have to fulfil to get a good, i.e., perfected interest.

D.

Scope of the Project: Limited to Proprietary Rights

1.

The Issues Covered

The proposed Convention will only deal with the identification of the appropriate law to govern proprietary aspects of dealings in securities24 held with an intermediary. These dealings include in particular a pledge, a title transfer by way of security or an outright transfer (e.g., sale) of such securities.25 If an investor’s interest in the securities is merely of a contractual nature, the Convention will have no effect on this interest as such, but if, for example, the interest is provided as collateral or transferred to a purchaser, the proprietary rights arising from the transfer of purely contractual rights will be covered by the Convention. Also, the Convention will not interfere with the nature of an investor’s interest in securities held with an intermediary, nor impose any change on a State’s substantive law in this regard. Consequently, the interests which an investor holds in the securities under local law, prior to providing these interests as collateral or transferring them to a purchaser, will not be altered by the proposed regime. The conflict of laws rule

24 For an extensive analysis of the term ‘securities’, see the Report on the Meeting of the Working Group of Experts (15 to 19 January 2001), pp. 8-10. 25 See the comments in note 23.

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adopted should apply rationally and consistently to an investor’s interest irrespective of the form the interest takes.26 More precisely, the Convention will identify the appropriate law to govern proprietary aspects of a disposition of interests in securities, in particular:27 (a) the legal nature of the rights derived from the credit of securities to a securities account; (b) the legal nature and proprietary effects of a disposition of securities held with an intermediary; (c) the requirements for perfection of a disposition of securities held with an intermediary; (d) whether a person’s title to or interest in securities held with an intermediary is overridden by or subordinated to a competing title or interest;28 (e) the duties of an intermediary to a person who asserts a competing claim to securities held with that intermediary;29 and (f) the steps required for the realisation of a disposition of securities held with an intermediary. 26

One may recall that there are always two components to a collateral transaction or transfer of property: first, the contractual element, describing the parties’ obligations under the transaction and, secondly, the proprietary element, dealing with the transfer of rights in the property. Whatever the nature of the investor’s interest, the Convention will not determine the law applicable to the contractual or other non-proprietary aspects of rights or duties with respect to securities held with an intermediary (unless such interests are provided as collateral or transferred to a purchaser, see the comments in the text). In particular, the Convention will not determine the law applicable to the contractual rights and duties of parties to a transaction in securities, the contractual rights and duties arising from relations between an intermediary and an account holder, the rights and duties of an issuer of securities, or the rights and duties of a registrar or transfer agent (see Art. 1, para. 2 of the annotated July 2001 draft). The contractual aspects of an agreement under which a disposition of securities is made are covered by separate conflict of laws rules. These rules are usually straightforward and allow the parties to choose the applicable law. Within the context of transactions in respect of indirectly held securities, these rules do not create specific problems which would need to be addressed in the proposed Convention. 27 See Art. 4, para. 2 of the annotated July 2001 draft. 28 This should make clear that the applicable law governs all forms of dispute between or among claims of any property interest to securities held with an intermediary. This would include priority disputes among conflicting security interests. It would also include issues commonly described as adverse claim issues or issues of the rights of bona fide purchasers, such as whether the title or interest of a person who holds securities with an intermediary is subject to or may be defeated by an assertion that some other claimant is in fact the true owner of the securities or has some other form of claim to them. 29 This provides that the applicable law also determines the duties of an intermediary to a person who asserts a competing claim. Because the indirect holding system is the mechanism for settlement of enormous volumes of securities trading, many systems of substantive law are designed to ensure that the settlement system cannot be disrupted by assertions of claims by persons other than the person recorded on the intermediary’s records as the account holder. The suggested language is intended to make clear that an intermediary’s obligations with respect to such issues are governed exclusively by the law of the intermediary’s jurisdiction.

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2.

The Issues Not Covered

As we have seen, the Convention will not deal with the nature of an investor’s interest and method of transfer. The proposed Convention will also not address the substantive law issue of so-called ‘upper-tier attachment’ – that is, the problem that arises where a person with an interest at a lower level in the chain of holdings (for example, an investor or a person claiming to have acquired rights from an investor) seeks to attach or otherwise claim an interest in securities or an interest in securities held at a higher level where there is no record of that person’s entitlement.30 Furthermore, the proposed Convention is not intended to alter the rules governing the creation and issue of the underlying securities or the rights and duties of the issuer as against direct holders of such securities and third parties. Finally, it could be argued that the issues raised by indirect holding systems for securities also apply where other property (for example, physical commodities) is held in a similar way. However, it is not suggested that the scope of the proposed Convention should extend beyond the securities area. The delicate issue of the effects of a bankruptcy procedure on a transaction whose proprietary aspects are governed by the substantive law designated by the Convention deserves a more extensive comment and will be discussed below.31 To sum up, the proposed Convention should enable financial market participants to ascertain readily and unequivocally which law will govern the proprietary aspects of dispositions of interests in respect of securities held through indirect holding systems. The proposed Convention is thus intended to provide certainty and predictability on a limited but crucial aspect of such dispositions. Also, the fact that the Convention addresses a very specific, well defined and limited topic ensures that the project as such remains within clearly circumscribed boundaries, which in turn makes the administration of the project more lenient and predictable.

30

See, e.g., Fidelity Partners, Inc. v. First Trust Co., 1997 U.S. Dist. LEXIS 19287, No. 97 Civ. 5184, 1997, WL 752725 (S.D.N.Y., Dec. 5, 1997). In this case, a judgment creditor sought to execute against an interest in bonds held by a judgment debtor through an indirect holding system; the bonds were payable in New York, but the judgment debtor’s interest was recorded only on the books of an intermediary located abroad (Philippines). The court refused to order execution in New York. Claims of this nature are often referred to as ‘upper-tier attachment’ claims. Whether such a claim has such a prospect of success will depend on the substantive law of the jurisdiction in which the claim is asserted. Although therefore the possibility of upper-tier attachment may be a problem that ought to be addressed in some countries, as a matter of substantive law, it is not one with which the proposed Convention can deal. 31 See below, under VI.

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III. The Search for the Appropriate Connecting Factor A.

Introduction

The traditional conflict of laws rule for determining the enforceability of a transfer of property or a pledge of securities effected in the direct holding system is the lex rei sitae (also referred to as the lex cartae sitae or the lex situs).32 Under this rule, the validity of the transfer is determined by the law of the place where the security is located.33 In the case of bearer securities, this is taken to be the law of the See, e.g., DICEY & MORRIS, The Conflict of Laws, 13th ed., London 2000, pp. 915937; BATIFFOL H./ LAGARDE P., Traité de droit international privé, Paris 1983, Vol. II, pp. 163-173; AUDIT B., Droit international privé, 3rd ed., Paris 2000, pp. 630-658; DE VAUPLANE H. (note 13); the principle of the lex rei sitae in respect of collateral is enshrined in the second para. of Art. 3 of the French Civil Code which provides that French law governs the legal regime of real estate property (immeuble) located in France, even when title to such property is held by a foreign person; this principle has been extended by the French Supreme Court to movable property (Cour de cassation, Req. 19 March 1872, Craven, in: Dalloz Pér. 74. I. 465, and in: Sirey 72. I. 238; see also Cour de cassation, Req. 24 May 1933, in: Sirey 935. I. 253, note BATIFFOL H., and in: Rev. crit. dr. int. pr. 1934, p. 142, note J.P.N.); since then, the principle has been confirmed by the French Supreme Court on several occasions (Cour de cassation, 1ère civ., 8 July 1969, Société DIAC, in: Clunet 1970, p. 16, note DERRUPPÉ J.; Cour de cassation 1ère civ., 3 May 1973, in: Clunet 1975, p. 74, note FOUCHARD Ph.); FIRSCHING K./VON HOFFMANN B., Internationales Privatrecht, 4th ed., Munich 1995, pp. 422-432; KREUZER K., ‘Die Vollendung der Kodifikation des deutschen Internationalen Privatrechts durch das Gesetz zum Internationalen Privatrecht der ausservertraglichen Schuldverhältnisse und Sachen vom 21.5. 1999’, in: RabelsZ 2001, pp. 442 et seq.; DUTOIT B., Commentaire de la loi fédérale du 18 décembre 1987, 2nd ed., Basle & Frankfurt 1997, ad Art. 100. For further references, see GUYNN R.D. (note 4), note 41. See also ROTT Th., Vereinheitlichung des Rechts der Mobiliarsicherheiten, Tübingen 2000, pp. 3-5, with numerous comparative law references. 33 The lex rei sitae principle can be traced back to the work of the statutists, more precisely to Magister ALDRICUS (late 12th/beginning 13th century), and, in particular, to BARTOLUS (13th/14th century). The principle was first applied to immovables and those movables which by their origin belong to the territory (res in territorio natae). In the 19th century, SAVIGNY confirmed the rule, without retaining however the ‘origin’ qualification suggested by the statutists. For a most recent reference to these issues, see KROPHOLLER J., Internationales Privatrecht, 4th ed., Tübingen 2001, p. 12 and in particular pp. 519-520. Some authors have tried to trace the origin of the lex rei sitae rule back to Roman law. The author of this article respectfully disagrees. In fact, it does not appear appropriate to refer to Roman law when it comes to explain the origin of any PIL concept. The origin of PIL is to be found neither in the writings of the great Roman jurists from Mucius Scaevola to Modestin nor in the Byzantine law of the sixth century. PIL is a product of the Italian universities of the 12th and in particular the 13th century. The corpus iuris civilis, which either answers, or suggests an answer to practically every conceivable legal question – says next to nothing on the subject of the application of foreign laws. PIL can only establish itself 32

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jurisdiction where the transferee (collateral taker or purchaser34) takes possession of the securities certificate at the time of transfer. In the case of registered securities, the lex rei sitae is either the law of the issuer’s jurisdiction or the law of the jurisdiction where the securities records of the issuer or its official record holder are located at the time of transfer.35 But how does the lex rei sitae apply to a system where the securities are held through multiple tiers of intermediaries located in different jurisdictions? Which of the several possibilities enumerated above is to be regarded as ‘the’ lex rei sitae? Is there another connecting factor which is more appropriate in these circumstances?

B.

‘Looking-Through’ – An Inappropriate Substitute

Historically, many jurisdictions have attempted to apply the traditional lex rei sitae principle to indirectly held securities by ‘looking through’ the tiers of intermediaries to the laws of one or more of the following: the jurisdiction of incorporation of the issuer, the location of the issuer’s register or the location of the actual underlying securities certificates (the ‘look-through’ approach). However, there are severe conceptual, legal and practical difficulties potentially arising from the application of this approach in the modern context of indirect holding patterns for securities. Where – as is often the case – a diversified portfolio of securities is provided as collateral, the collateral taker would have to satisfy the laws of the jurisdiction of each issuer, register and/or physical custodian of the securities. In addition, in many jurisdictions it is uncertain exactly what the legal rule is when applying the look-through approach: Is it the law of the place of the issuer, the place of the register or the place of the underlying securities? Finally, even if the collateral taker did know the relevant test, often it is not possible to obtain the necessary information to ascertain how to apply the test. For example, a holding through various tiers of intermediaries may not enable the collateral taker to where respect is shown for foreign law, where there is an atmosphere of equality such as pervaded legal thinking in the Italian city-states from the 12th century onwards. Roman jurists were very far indeed from entertaining this conception. Their justifiable admiration for their own law may have induced in many of them such a contempt for all foreign law, including the Greek, that it never occurred to them to set up rules for the application of such ‘inferior’ productions. 34 The expression ‘purchaser’ is used without specifying whether it is limited only to ‘buyers’ or extends to other recipients of consensual transfers, e.g., a donee. 35 GUYNN R.D./MARCHAND N.J. (note 17), pp. 49 and 55. A third possibility is that, where the certificate issued in respect of a registered security is treated as representing the security (e.g., as being a negotiable instrument) the lex rei sitae will be the law of the jurisdiction where the collateral taker takes possession of the certificate at the time of the transfer.

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discover where the national central securities depositary actually stores the certificates, if any exist. In some circumstances, the collateral taker may not be able to point to a single jurisdiction, even if it had access to information, where the underlying certificates of a single issue are kept in more than one jurisdiction. Uncertainties as to the approach to be adopted and as to the effect of the ‘look-through approach’, if applicable, lead to significant expense for market participants (including collateral providers, because the expense of investigating perfection requirements is likely to be passed on to them by collateral takers). Moreover, because the position in many cases cannot be satisfactorily determined, there remains an element of risk, which, given the size of transactions involved and the identity and importance of the relevant financial institutions, must prudently be regarded as systemic in character. For these reasons, the look-through approach is considered by many neither to provide the necessary certainty, nor to be practicable in the modern context.

C.

PRIMA – A Modern Reflection of the Traditional Lex Rei Sitae Principle

Because of the deficiencies of the ‘look-through’ approach explained above, it is necessary to develop another approach, one that reflects the reality of the indirect holding system and follows the sensible legal principle that the law applicable to proprietary matters should be the law of the place where the record of title is maintained and where, therefore, orders in respect of the property can be effectively enforced. In indirect holding systems based on fungible accounts, the record of an investor’s title is maintained by the intermediary with whom the investor has an immediate relationship and it will be on the books of the investor’s immediate intermediary that any disposition of the investor’s interest in favour of a collateral taker or purchaser will be recorded. This suggests an approach that looks to the law of the place where that intermediary is located. This has become known as the ‘place of the relevant intermediary approach’ or ‘PRIMA’.36 36

PRIMA has already been statutorily adopted in Belgium, Luxembourg, France, Germany and the United States (see BERNASCONI, Report, pp. 50-52; for Germany, see the references in ibid., note 75). It is presently also being considered for enactment in a number of other jurisdictions (including, at least, Australia, Canada, Japan, Bermuda, the British Virgin Islands and the Netherlands Antilles; see BERNASCONI, Report, pp. 53-54). At a regional level, the EU Settlement Finality Directive of 1998 (Directive 98/26/EC of the European Parliament and of the Council of May 1998 on settlement finality in payment and securities settlement systems, OJEC 1998, L 166/45; referred to as the EU Settlement Finality Directive) has adopted PRIMA in all EU Member States, although implementation has not been entirely uniform. In some Member States, PRIMA has been adopted only in relation to central banks, the European Central Bank and certain settlement system participants as collateral takers, while in others it has been adopted more broadly to protect commercial counterparties as well (for more details, see IBA/CMF Bulletin No 2 of

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During the January 2001 experts meeting, the experts unanimously supported PRIMA as the appropriate connecting factor to be included in the future Hague Convention, and no support was given to the ‘look-through’ approach. In other words, there is little doubt that PRIMA is the connecting factor to be embodied in the future Hague Convention.37 October 1999). In the United Kingdom, PRIMA has been adopted narrowly in Regulation 23 of the Financial Services and Insolvency (Settlement Finality) Regulations 1999 SI 1999/2979. It only applies in respect of collateral provided to central banks in connection with their functions, or to participants in certain designated clearing systems (intended to cover the International Central Securities Depositories and national payments and securities systems in EU Member States) in connection with their participation in that system. However, Her Majesty’s Treasury (HMT) is currently attempting to extend the application of PRIMA by amending Regulation 23. The first attempt was withdrawn in early April due to concerns with the language used. In July, HMT published a Consultation Document on Domestic and International Initiatives Concerning Conflict of Law Issues Relating to Securities, which would amend Regulation 23 to apply PRIMA in all contexts where securities are taken as collateral. The proposal is open for consultation until October 17, 2001 (see the document at http://www.hm-treasury.gov.uk/docs/2001/hague_condoc/). Under the proposed Directive of the European Parliament and of the Council on financial collateral arrangements (often referred to as the EU Collateral Directive), PRIMA is to be applied as a general rule to all situations where securities held through indirect holding systems are provided as collateral (see Art. 10 of the EU Collateral Directive as proposed by the European Commission on 27 March 2001, COM (2001) 168 final, 2001/0086 (COD); formerly Art. 11 of the Working Document on Collateral from the Commission to relevant bodies for consultation, First Preliminary Draft Proposal for a Directive, Document number C4/PN D(2000), dated 15 June 2000). See also the following note. 37 In substance, this position has now also been adopted by the textbook DICEY & MORRIS, The Conflict of Laws, 13th ed., London 2000, in Rule 118, note 24-064: ‘If it is accepted that the expectation of all parties to the transaction is that the investor has a proprietary interest which is capable in principle of being assigned, and that the rules for choice of law should seek where possible to accommodate this reasonable expectation, the better view [that is, better than applying Art. 12 of the Rome Convention or traditional common law choice of law rules] would be that the investor’s proprietary rights are located at the place where his account with the depository is maintained, and that the law which governs dealings with these rights is the law which governs his relationship with the broker. This will be the law governing the relationship between investor and broker, under which the rights of the investor arose, and it will often be the lex situs of the rights the investor has against the broker. For present purposes it is submitted that choice of law rules designed in the nineteenth century for the assignment of policies of life insurance and interests under trusts should not be applied uncritically as the basis for regulating the assignment of intangibles of a kind, and by processes, then unknown.’ [footnote omitted] The references in this passage to ‘depository’ and ‘broker’ are perhaps not entirely clear. It seems reasonably clear from the context in which the passage quoted appears, however, that both terms refer to the intermediary with which the investor maintains the account (shortly before the passage quoted, reference is made to investors maintaining an account with ‘an intermediary or broker’).

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The major advantage of PRIMA is that the question of whether the collateral taker receives a perfected interest will be governed by the law of one jurisdiction even where a portfolio of securities of issuers from different countries is involved. Furthermore, the application of PRIMA can be seen as an appropriate extension of the lex rei sitae principle – the location of the collateral taker’s interest in securities credited to a securities account is (and the beneficial ownership of the securities themselves is most likely only recorded) where the securities account is located. Against this background, PRIMA may legitimately be regarded as an updated application of the traditional lex rei sitae principle. This applies even to situations where certificates have been issued and are kept in the CSD’s vault located in a different jurisdiction to that of the intermediary. It is true that in such a situation, one might argue that the physical location of the certificates determines the lex rei sitae. Such a deduction, however, can legitimately be challenged by reference to the ultimate justification of the lex rei sitae principle, i.e., the application of the law of the place where orders in respect of the property can be effectively enforced. Within an indirect holding structure, this place can only be the place of the relevant intermediary, i.e., the place of the account (see infra comments under V.B.1., not the place of the location of the physical certificates, where the investor is not even known and the transaction not recorded or reported.38 The principal attributes of PRIMA may be summarised as follows: - PRIMA dictates that questions of creation, perfection (rights against third parties) or completion, priorities and realisation of interests in respect of securities, be governed by the law of the place of the immediate intermediary on whose books the relevant interest is recorded; - PRIMA situates all of an investor’s interest with respect to a portfolio of securities in one single jurisdiction, even where the issuers and certificates evidencing such underlying securities are situated in many different countries; - PRIMA applies irrespective of whether a transfer is made by way of sale or by way of a collateral transaction, and in the case of a collateral transaction, irrespective of whether the transaction takes the form of a pledge or of a transfer of title; - PRIMA applies irrespective of the particular legal status of the collateral provider or collateral taker; - PRIMA applies irrespective of the jurisdiction in which the collateral provider, the collateral taker or any intermediary is formed or located; - Where a collateral taker acts as the collateral provider’s intermediary (that is, the collateral provider holds through the 38

See BERNASCONI, Report, pp. 27 et seq.

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collateral taker prior to the provision of collateral) and is also the secured party, the law of the relevant intermediary will be the law of the place of the collateral taker.

IV. Application of PRIMA and How to Identify the Relevant Intermediary In order to illustrate how PRIMA works, and in particular which intermediary is the ‘relevant’ intermediary, one may consider the following example:39 An Australian Investor holds an interest in respect of 500,000 shares of Illinois Inc. through its intermediary, French Bank. French Bank, in turn, holds through European ICSD, which holds through California Sub-custodian, which holds through DTC. DTC’s nominee, Cede & Co., is recorded as the registered owner of the securities in the register maintained by NJ Registrar in New Jersey. The physical share certificates representing the Illinois Inc. shares are kept by DTC in a vault in New York. Australian Investor wishes to borrow money with the Illinois Inc. shares to be provided as collateral for the loan. Australian Investor seeks a loan from London Bank, an international investment bank incorporated in the United Kingdom and based in London. London Bank, the collateral taker, does not hold its interests in respect of Illinois Inc. securities through French Bank but rather holds through a different intermediary, Swiss Bank, which is incorporated in Switzerland and located in Zurich. In turn, Swiss Bank maintains an account entitled ‘Swiss Bank Omnibus Customers Account’ on the books of European ICSD in which it holds 100,000 Illinois Inc. shares for its customers. When Australian Investor asks for the loan, London Bank requires that Australian Investor move its interest in respect of the Illinois Inc. shares to Swiss Bank, with the pledge to be recorded on the books of Swiss Bank. By moving the shares to the books of an intermediary that London Bank trusts, London Bank is avoiding any exposure to French Bank, in particular, to the possible consequences of administrative error, wrongdoing or insolvency of French Bank (or the likely influence that Australian Investor may have with French Bank). Thus, prior to the pledge, Australian Investor’s interest in respect of the 500,000 Illinois Inc. Shares would be debited to the ‘Australian Investor Account’ at French Bank and credited to an ‘Australian Investor Account’ at Swiss Bank. The transfer from French Bank to Swiss Bank of interests in respect of 500,000 Illinois Inc. shares will result on the books of European ICSD in a debit to the ‘French Bank Omnibus Customers Account’ and a corresponding credit to the 39

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‘Swiss Bank Omnibus Customers Account’. Australian Investor pledges its interest in the Illinois Inc. shares to London Bank under a pledge mechanism, the contractual aspects of which are governed by English law. The pledge is represented on the books of Swiss Bank by a debit to the ‘Australian Investor Account’ of 500,000 in respect of the Illinois Inc. shares and a corresponding credit to the new ‘Australian Investor Pledge to London Bank Account’. The pledge does not result in any change on the books of European ICSD (because both these accounts are accounts in the books of Swiss Bank and there is no change in the ‘Swiss Bank Omnibus Customers Account’) or on the books of California Subcustodian or DTC. After executing the Pledge Agreement in favour of London Bank, Australian Investor again enters into a pledge agreement in respect of the same 500,000 Illinois Inc. shares with Italian Bank. The second pledge is valid under Italian substantive law (the governing law chosen by Australian Investor and Italian Bank in their pledge agreement). Australian Investor then enters insolvency in Australia. The liquidator asks the Australian court to rule on whether the pledges in favour of London Bank and Italian Bank should be treated as valid and, if both pledges are to be treated as valid, how they should be regarded as ranking against each other. In this fact pattern, under PRIMA, proprietary issues, such as whether London Bank received a perfected interest in respect of the Illinois Inc. shares and whether London Bank has priority over the interest of Italian Bank, would be governed by Swiss law, as the law of the place of Swiss Bank, the intermediary on whose books the pledge in favour of London Bank is recorded.40

V.

The Pièce de Résistance: How to Locate the Relevant Intermediary?

A.

Introduction

Once the relevant intermediary has been identified on the basis of the PRIMA rule, one still has to determine where the relevant intermediary is actually located for purposes of PRIMA. As a matter of fact, this question rapidly turned out to be the authentic pièce de résistance of all the discussions relating to this project. The crucial role of this question is hardly surprising and indeed had to be expected, as 40

This fact pattern was considered by experts in 28 jurisdictions surveyed by Richard POTOK, Legal Expert to the Permanent Bureau for this project. The state of confusion in the current law in many jurisdictions can be seen in the results. The multitude of probable and possible answers under current law are shown in schematic form in Figure 1 (perfection of pledge) and Figure 2 (priorities) in Appendix B to the BERNASCONI Report.

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the determination of the intermediary’s actual location will eventually put the PRIMA concept in a concrete form and lead to the designation of the law applicable. The problem of how to locate the intermediary is therefore at the very heart of the project. The discussion during the January experts 2001 meeting showed that several aspects need to be distinguished. These aspects will be addressed separately in the following comments.

B.

The Principles Agreed Upon

1.

‘Place of the Relevant Intermediary’ = ‘Place Where the Securities Account Is Maintained’

First, the experts agreed that the localisation of the relevant securities intermediary should be linked to the place of the account to which the securities are credited.41 It is indeed on the account that the collateral taker’s or transferee’s interest will be recorded and where this interest may therefore eventually be enforced. As the ultimate place to look at is the place of the account, some experts suggested that any reference in the Convention to the place of the relevant securities intermediary should be deleted and replaced by an explicit reference to the place of the securities account. While this might be perceived as a welcome simplification, focusing directly on the rationale underlying the main issue of the Convention, one may equally wonder if the deletion of the only express reference to PRIMA would not introduce an element of uncertainty and cause experts and practitioners to hesitate as to which approach has actually been taken in the Convention. PRIMA has become so widely accepted that experts and practitioners will presumably look for an explicit reference to it in the Convention itself. Against this background, the deletion of the reference to the place of the relevant intermediary may turn out to be counter-productive and the ‘two stage approach’ may well be acceptable.

2.

The Need for ex ante Certainty and How To Achieve It

Secondly, there was consensus among the experts on the need for ex ante certainty, i.e., the need for the parties to a transaction to be in a position to establish beforehand where the account is being maintained. This ex ante certainty is essential to meet the needs of market participants, who need to know which law applies to the proprietary aspects of the transaction and hence determines the perfection requirements to be fulfilled. Initially, there was however no full agreement among the experts on how to achieve this goal. Some delegations wanted the test to be the jurisdiction of the law chosen by the parties to the custody agreement or of the place specified by the parties to the custody agreement as the 41

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location of the account; along with this principle, one delegation stressed that the ability to designate the law applicable should not be subject to any requirement for a connection between the place designated in the agreement and the other facts of the transaction. Other delegations, however, explained that they could not accept a test that would allow parties freely to choose the law applicable to the proprietary aspects of a transaction and to invoke this choice against third parties. As a matter of fact, it is worth noting that although some civil law jurisdictions allow for party autonomy to apply to the proprietary aspects of a transaction, none of these jurisdictions seems to allow for this choice to be invoked against third parties.42 Against this argument, one has however to point out that in the present context use of the term ‘party autonomy’ is not appropriate, as it could imply that the parties to the collateral transaction or sale could determine by agreement the law governing the proprietary aspects of the transaction. This, however, has never been suggested, not even in the domestic legislation of those jurisdictions which were in favour of a test leading to the application of the law chosen or of the place specified by the parties to the custody agreement.43 Against this background, it does appear that it is not appropriate to refer to the concept of ‘party autonomy’ in the context of the proposed provision on the determination of the place of the relevant intermediary. Under this provision, the parties who are designating the law applicable by localising the account are the investor (account holder) and its intermediary. Under the concept of party autonomy, however, it would be the investor and the collateral taker or transferee who would be offered the possibility to choose the law applicable to the various aspects of their transaction. Such a choice, however, is not what is being suggested in the future Convention: it simply offers to the investor and its intermediary the possibility of localising their account.44 It has to be stressed though that such a localisation does of course have a ‘reflex effect’ (effet réflexe) on the actual transaction concluded between the investor and the collateral taker or transferee, as it is the law that would be governing the proprietary aspects of this transaction. But to refer to it under the heading of ‘party autonomy’ would be misleading. In order to avoid further misunderstandings, the author of the present article has suggested that the proposed solution be placed under the heading ‘consensual approach’, as it reflects the agreement and understanding of the investor and its intermediary.

42

See, e.g., Art. 104 of the Swiss PIL Statute. ‘Party autonomy’ in the UCC, for example, refers only to the relation between the investor and the intermediary, not the relation between the investor and the secured party. 44 Some experts have drawn a parallel with an investor choosing to do business with an intermediary located in State A rather than with an intermediary located in State B, and suggested that, although this ‘choice’ would lead to the application of a different law, it would not be accurate to refer to it as an example of ‘party autonomy’. 43

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3.

The Compromise Reached at the January 2001 Experts Meeting

As a result of the discussion, the following compromise emerged during the January 2001 meeting: the parties to the custody agreement should be able to designate an agreed place as the location of the account, but such an agreed designation would not be conclusive unless it satisfies one of a number of specified tests that indicate that the designated place is where the account is actually maintained. This is in order to prevent third parties being prejudiced by the use of an artificial designation which would conflict with the natural assumptions about the location of the account. Only under those conditions would PRIMA be regarded – and accepted – as a modern reflection of the traditional lex rei sitae approach. Ignoring the lex rei sitae principle for the sake of an unrestricted consensual approach would, however, be seen as having severe implications for long-standing private international law traditions of several countries. This compromise, it is submitted, bridges the position initially advocated by those who favoured an unrestricted consensual approach (i.e., parties should be allowed to designate any location of the account) with the position initially taken by those who argued that no contractual liberty should be left to the parties in relation to the issue of location, with only objective factors used. The precise wording of the provision embodying this test still needs to be found. Again, the following section reflects the status of discussion as of July 2001.

C.

The ‘Principal Rule’ in Intermediate Drafts

In the light of the discussions mentioned above, the principal rule embodied in all intermediate drafts for the future Convention is based on the consensual approach with a nexus test as a reality check. It was in particular embodied in the draft proposed by the Drafting Group at the January 2001 meeting (Article 4) and in a new draft reflecting the results of the subsequent informal working process (Article 5 of the annotated July 2001 draft). In the annotated July 2001 draft, the relevant provision (Article 5) has the following structure. Paragraph 1 specifies that the relevant intermediary is located ‘where the securities account with that intermediary is maintained’. The draft then goes on to suggest two options for the regulatory nexus test. Under the first option, the designation of an account location is effective only if the intermediary’s maintenance of the account is subject to regulatory supervision in the place so agreed. It has been suggested that in at least some countries ‘custodial accounting rules’ exist that would satisfy this requirement. Others, however, have suggested that regulatory structures may not focus on the manner in which the intermediary maintains securities accounts, but on the requirements that an intermediary must satisfy, such as capital requirements, in order to engage in the business of maintaining securities accounts. Accordingly,

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the second option states the regulatory nexus test in terms of regulation of the intermediary.45 46

D.

The Fall-Back Test

If the principle rule – i.e., the consensual approach with a nexus test as a reality check – does not work, either because there is no designation in the custody or other agreement or because the nexus conditions embodied in the proviso are not fulfilled, then a fall-back test is needed. It has to be mentioned though that this fallback test is intended to deal with a very small number of cases, as the bulk of the cases will presumably fall within the scope of the principal rule. 45

The annotated July 2001 draft also contains a third option which takes a completely different approach and allows the relevant intermediary to designate unilaterally the place of the account. This approach is based on the idea that the facts needed to make that determination may be knowable only to the intermediary that is maintaining the account. Third parties may have no way of independently determining whether the nexus test had been satisfied, even in cases in which the securities have been moved into a special pledge account that the intermediary maintains for the pledgee. The third option responds to this concern by giving complete protection to third parties who rely upon an intermediary’s certification of the location of the account. In these broad terms, however, the third option does not appear to be acceptable on a consensus basis, as it would allow the intermediary to designate any possible location, including a location that is completely divorced from the realities of the facts at stake and which is even inconsistent with the actual operation of the account in practice. This is why the Permanent Bureau has added bracketed language to the third option with a view to subject, similarly to the first two options, the intermediary’s ability to designate a location to some ‘reality check’ requirements. This approach has not been the subject of much discussion since the January 2001 experts meeting. 46 The annotated July 2001 draft also contains a specific proposal that departs from the equation ‘place of the relevant intermediary’ = ‘place of the account’, and instead suggests that the governing law is the law of the office or branch of the relevant intermediary as determined by the appropriate test. The reasoning underlying this ‘branch/office approach’ is the following: Because an account is an intangible legal relationship, it cannot, literally, have a geographical location. Rather, in speaking of the location of an account, one typically has in mind particular activities that an intermediary carries out in connection with maintaining the legal relationship of a securities account. Against this background, it may well be that retaining the concept of geographical location of an account causes more difficulties than it solves. However, the drawback of the ‘branch/office approach’ is that by dropping the reference to the account – i.e., to the place where orders in respect of the property can be effectively enforced – it does not seem to be based on the lex rei sitae principle anymore and would therefore be a rather dramatic departure from longstanding principles. This might render this approach less attractive to all those who believe that the lex rei sitae principle – although adapted to the new market realities – should serve as the basic rule to assess proprietary rights in indirectly held securities.

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1.

The Objective Balancing Test vs. the Single Factor or Cascade Approach

In the most recent draft (i.e., the annotated July 2001 draft), the proposed Article 5, paragraph 3, uses an objective balancing of factors test rather than a rule based on a single specified factor or a cascade of single specified factors. The balancing test, although not providing complete ex ante certainty, appears acceptable for two reasons. First, the strength of the principal rule means that commercial parties will be able to determine with certainty the law that will govern perfection in the great majority of cases. Therefore, if the fall-back test applies, this will normally be because the parties did not consider the issue of the location of the account; hence, it appears appropriate that the question of its actual location be decided by considering all the objective evidence. Secondly, the envisaged ‘black list’ (see infra under E) makes clear the factors that are not to be considered and this will provide far greater certainty than currently exists. In the July 2001 proposal, the factors that may be considered in determining the place of the relevant intermediary are: (a) the location of the office or branch where the relevant intermediary treats the securities account as being maintained for regulatory, accounting or internal or external reporting purposes; (b) the location of the office or offices of the relevant securities intermediary with which the account holder deals; (c) the terms of the custody agreement, account agreement or any other agreement relating to the securities account between the relevant securities intermediary and the account holder; (d) the terms of account statements or other reports prepared by the relevant securities intermediary that reflect the balance of the account holder’s interest in the securities account; and (e) the State whose law governs the agreement establishing the securities account. Letter (a) would simply reflect the main element embodied in the general rule. Sub-paragraph (a) and its components would certainly seem to be an important factor as part of a balancing test; what is less clear is whether the subparagraph’s components would make sense as a single fall-back rule. For example, using a test that looks to the place where the account is maintained for regulatory purposes will not provide certainty in cases where there is more than one State that has jurisdiction over it. Letter (b) may be useful in situations where other documentation has not expressly designated the location of the account, but the account holder regularly deals with a certain office or offices with respect to the custodial services provided by the intermediary. Letters (c) and (d) permit reference to the general terms of account agreements or statements. Both subparagraphs can be expected to lead over time to a change in industry practice. As a competitive matter, custodians will ensure that their account agreements and account statements clearly indicate where the account is maintained to provide certainty for their customers. Some experts questioned the inclusion of letter (c), as this factor is already contained in the principle rule. There are, however, two reasons for suggesting that it remains appropriate to refer to the same factors in both places. First, if no place is designated in the custody or other agreement, the terms of the agreement should still be relevant in evaluating the expectations of the

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parties as to the location of the account. Similarly, if a place has been designated in the custody or other agreement but the conditions embodied in the principal rule are not satisfied, the terms of the agreement between the parties might still be of relevance in determining the location of the account. Letter (e) has provisionally been included in the balancing test as one of the potential fall-backs proposed at the January experts meeting. This test had the support of some delegations. As one of the factors it would be an additional indication of a connection with a particular place. As a single factor fall-back test, however, it seems unlikely to be acceptable because it leads to an answer that may be divorced from the lex rei sitae rule.

2.

Single Factor Fall-Back Tests, in Particular the ‘Legally Established’ Test

As mentioned above when considering the balancing test, the factors specified in letters (a) and (e) do not seem appropriate as single factor tests. During the informal process, some experts have made it clear that they would prefer the use of a single fall-back test rather than a balancing test if a suitable single fall-back test can be found. The challenge has been trying to find a test that provides a single answer that is linked to the location where the account is actually maintained. Experts continue to strive for such a solution and it is expected that new and different suggestions will be considered as the process continues. One suggestion that was discussed at the January 2001 meeting was to locate the relevant intermediary at the place where that intermediary signing the custody agreement was ‘legally established’. Proponents of this test have suggested that it has the advantage of being clear cut. Others, however, have suggested that it may pose problems due to the varying treatment under different legal systems of the status of branches of multinational organisations, and have questioned whether it will always be feasible to determine whether the contracting party is a branch or the entity as a whole. In such cases, the application of the ‘legal establishment of the signing party’ test could result in the law of the place of incorporation or formation, statutory seat or central administration even though the securities account is not located in that jurisdiction. It has been suggested that this difficulty could be overcome, without abandoning the ‘legally established’ formula, by additional wording making it clear that in cases where the intermediary is dealing through a branch it is to be regarded for this purpose as legally established where the relevant branch is located. This however would lead back to the problem of identifying in each case which branch was the ‘relevant’ branch. Since there may be factors pointing to connections with two or more branches, it does not appear that the use of an expanded ‘legally established’ test of itself provides any greater clarity or certainty.

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E.

The ‘Black List’

Early in the process, it was suggested to expressly enumerate in the Convention black-listed factors that should not be taken into account in determining the location of the accounts. According to the annotated July 2001 draft, the following factors shall not be taken into account in determining the location of the relevant intermediary: (a) the places where certificates representing or evidencing securities are located; (b) the place where any register of holders of securities maintained by or on behalf of the issuer of the securities is located; (c) the place where the issuer of the securities is organised or incorporated or has its statutory seat, central administration, principal place of business or its registered office; (d) the place where any intermediary other than the relevant intermediary is located; or (e) the places where the technology supporting the bookkeeping or data processing for the securities account is located. No reference is made to the relevant securities intermediary’s place of formation or incorporation, statutory seat or principal place of business. It was thought unlikely, but not inconceivable, that this would have been of any relevance and that accordingly the best course was not to include it in either list.

F.

Is There a Need for a ‘Super PRIMA’? The Case of a Fact Pattern Involving Several Intermediaries

Throughout the working process, various experts stressed that the Convention should specifically address the situation where several intermediaries are involved in a transaction, in particular where a collateral provider and collateral taker hold through different intermediaries and the collateral is provided by way of title transfer. Under such a holding pattern, the collateral provider’s (transferor’s /seller’s) interest is not transferred directly to the collateral taker (transferee/purchaser), since the collateral provider never holds an interest with the same intermediary as the collateral taker. Instead, the collateral provider instructs its intermediary to transfer interests to the collateral taker’s intermediary, with a request to the latter to credit the collateral taker’s account.47 While the experts referred to above agree that PRIMA will simplify the choice of law issue and improve certainty at each level of the multi-tiered holding system by substituting a single law (i.e., the law of PRIMA) for the multiple possibilities that must now be considered at each level (e.g., law where certificates are located, law of issuer’s incorporation, law of the forum, PRIMA, etc.), they also argue that PRIMA should 47

This fact pattern is generally referred to as the ‘page 37’ problem, by reference to the page number of the BERNASCONI Report on which this problem is dealt with. See also the Report on the meeting of the Working Group of Experts (15 to 19 January 2001), pp. 1516, and the annotated July 2001 draft, Art. 2, para. 1, definition of the relevant intermediary, with accompanying comments.

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go further. They urge that, in the interests of clarity and simplicity, the Convention should provide that a single law governs proprietary aspects of all stages of a transfer between parties who use different intermediaries. Other experts, including the author of the present article, have expressed strong doubts about this proposal. They argue that while the simplicity of the proposal might be attractive at first sight, it also poses serious problems. They are not persuaded that it is necessary or desirable to have a sort of ‘Super-PRIMA’ that trumps all the individual PRIMAs at each level of the multi-tiered holding system. They believe that PRIMA should provide as much simplicity and certainty in the world of book-entry holdings and transfers as the traditional lex rei sitae rule provides for physical possession and transfers of bearer securities. In other words, PRIMA should provide a single answer to what law governs the proprietary issues arising out of book-entry holdings and transfers of securities at each level of the multi-tiered holding system, i.e., the PRIMA at that level. But there is no need for a ‘Super-PRIMA’ to trump these individual PRIMAs. An additional problem identified by these experts is that the parties involved in the early or middle stages of such a transfer may not be aware of the ultimate transferee or the location of its intermediary. Against this background, it would seem contrary to principle, and to the certainty and predictability which the Convention aims to produce, that parties in this position should be exposed to the effect of rules of property law of a jurisdiction of which they are unaware. Moreover, the suggestion would appear to have the result that the law governing the proprietary aspects of the earlier stages of the transfer is fixed only retrospectively; at the time that each stage occurs it will appear to be governed by one law, but this will be replaced by a different law when it becomes clear that an ultimate transferee holding through an intermediary in a different jurisdiction is involved. A further difficulty mentioned by the opponents to the ‘single law’ proposal arises from the fact that some intermediate transfers will be composite transfers of securities in the course of transmission to a number of different ultimate transferees who hold through intermediaries in different jurisdictions. In such a case it may not be possible to identify which securities are attributable to which ultimate transferee, leaving the position on governing law quite unclear.

G.

Existing Agreements

All the tentative drafts of the Convention produced so far (including the annotated July 2001 draft) do not specifically address the issue of pre-existing documentation (account or custody agreements), i.e., agreements concluded before the Convention’s entering into force. As this is a very important question to a large segment of the industry, it seems important to promote discussion of this issue also, even if at this stage no draft provision is suggested. The following comments are merely designed to highlight the issue and to generate reactions.

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The approach reflected in the comments above (in particular Article 5 of the annotated July draft) should accomplish the objective of providing ex ante certainty for future transactions. However, during the informal working process, it has been suggested that, at least in some situations, it might be difficult to amend pre-existing agreements and to bring them in line with the provisions of the Convention. In other words, the certainty provided by the Convention may not necessarily have a retroactive effect. It has therefore been suggested that consideration be given to adding provisions which would address this problem. One possibility could be to adopt – for pre-existing agreements – the ‘conclusive certificate’ approach suggested by some experts, even if that approach were not thought generally acceptable for future agreements.48 Another possibility would be to provide that for the purposes of Article 5, paragraph 2, where a pre-existing agreement does not contain an explicit reference to the location of the account, certain other terms can be taken into account as determining or indicating the location agreed by the parties. By way of illustration, a statement that the intermediary is acting through a given branch could be treated as an agreement, or as an indication of an agreement, that the account is located at that branch; another example of such an ‘interpretative clause’ could be to say that a choice of law clause shall be treated as an agreement that the account is located in the jurisdiction whose law is selected. Parties drafting agreements after the entering into force of the Convention can be expected to comply with the requirement of the specific provision of the Convention and to expressly specify the location of the account – this is why the possibility of the ‘interpretative clause’ might indeed be regarded as exclusively restricted to pre-existing agreements. During the informal working process, however, it has been suggested that such a provision could be beneficial for new agreements as well and that it should therefore apply generally. One may wonder, however, if such an approach would not be viewed as reintroducing through the back-door the concept of the ‘unlimited consensual approach’ (i.e., without reality check) that had been excluded by consensus. For many civil law countries and for all those who believe that the (modernised) lex rei sitae approach should be the principle underlying the connecting factor embodied in the Convention, the idea of an ‘interpretative clause’ that applies to new agreements too, may therefore not be acceptable. Furthermore, if the second example of such an interpretative clause mentioned above (i.e., a choice of law clause contained in the agreement) were eventually adopted for new documentation as well, its relationship with the existing paragraph 3, sub-paragraph (e), would presumably have to be examined.

48

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See the comments in note 45.

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VI. The Insolvency Issue in Particular A.

Introduction

The delicate issue of the effects of a bankruptcy procedure on a transaction – in particular a collateral transaction – whose proprietary aspects are governed by the substantive law designated by the Convention deserves a more extensive comment.49 At the outset, it should be noted that insolvency laws might have an impact in two ways on the law applicable to the taking of securities as collateral. First, insolvency laws might impact whether a proprietary interest has been properly created and perfected. Secondly, insolvency laws might jeopardise the effects of such interest within a bankruptcy procedure. In its current version (July 2001), the proposed Convention addresses both these issues in Article 6.50 It aims at finding the delicate balance between preserving the effectiveness of an interest perfected under the substantive law designated by the Convention, while not vitiating rules in bankruptcy that affect secured parties.51

B.

Respect of Validly Perfected Interests (Paragraph 1)

During the January 2001 meeting, a large number of experts endorsed the principle that an interest validly perfected under PRIMA should be respected under the provisions of specific insolvency laws. This is stated as a general principle in Article 6, paragraph 1 of the annotated July 2001 draft. The general principle is 49 As a matter of fact, the crucial question with respect to a pledge is its efficacy in the event of the debtor’s insolvency. This being said, States have always been very sensitive to any possible intrusion into their domestic insolvency law regime. It is against this background that in the BERNASCONI Report, p. 5, we suggested that the proposed Convention should not interfere with national insolvency rules. This issue had not been discussed in full detail during the informal discussions prior to the January meeting; the matter was in fact deliberately left for discussion at the January 2001 experts meeting. Further discussions on this core issue are needed. 50 This provision reads as follows: ‘(1) The opening of an insolvency proceeding shall not affect the validity of proprietary rights in respect of indirectly held securities that have been constituted and perfected in accordance with the law of the place of the relevant intermediary. (2) Nothing in this Article affects the application of: (a) any rules of insolvency law relating to the [ranking of categories of claim or to the] avoidance of a transaction as a preference or a transfer in fraud of creditors; or (b) any rules of insolvency procedure relating to the enforcement of rights to property which is under the control or supervision of an insolvency administrator.’ 51 The provision is currently drafted without specifying against whom the insolvency proceedings are brought. This way, it covers any relevant insolvent debtor, including the intermediary.

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subject to exceptions, the scope of which raises important policy issues which are discussed further below. It was, however, generally agreed that the exceptions should not be phrased so as to permit the insolvency court to apply a conflicts rule different from PRIMA in identifying the law to govern proprietary issues such as creation and perfection. The approach taken in paragraph 1 is based on both the Council Regulation (EC) No 1346/2000 on Insolvency Proceedings (Article 5(1)),52 and on the Draft UNIDROIT Convention on International Interests in Mobile Equipment (Article 29(1) and (2).53

52

This Regulation (see this Yearbook 2000, pp. 241-264), which will enter into force on 31 May 2002, has been adopted with a view to developing more uniform procedures that will avoid incentives for the parties to transfer assets or judicial proceedings from one Member State to another in order to obtain a more favourable legal position. The proposed solutions rely on the principle of proceedings with universal scope, while retaining the possibility of opening secondary proceedings within the territory of the Member State concerned. The Regulation applies ‘to collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator’ (Art. 1, para. 1). It applies equally to all proceedings, whether the debtor is a natural person or a legal person, a trader or an individual. However, it does not apply to insolvency proceedings concerning insurance undertakings, credit institutions, investment undertakings which provide services involving the holding of funds or securities for third parties, and collective investment undertakings (Art. 1, para. 2). The courts with jurisdiction to open insolvency proceedings are those of the Member State where the debtor has his centre of ‘main interests’ (Art. 3, para. 1; in the case of a company or legal person, this is the place of the registered office, in the absence of proof to the contrary). Secondary proceedings may be opened subsequently to liquidate assets located in another Member State (Art. 3, para. 2; these secondary proceedings are restricted to the assets of the debtor located in the other Member State). The law of the Member State in which proceedings are opened determines all the effects of those proceedings (Art. 4; conditions for the opening of the proceedings, their conduct and closure, questions of substance such as the definition of debtors and assets, effects of proceedings on contracts, individual creditors, claims, etc.). However, the in rem rights of third parties in respect of the debtor’s assets located in another Member State are not affected by the opening of an insolvency proceeding in another Member State (see further comments on this issue in the text). Art. 5, para. 1 reads as follows: ‘The opening of insolvency proceedings shall not affect the rights in rem of creditors or third parties in respect of tangible or intangible, moveable or immoveable assets – both specific assets and collections of indefinite assets as a whole which change from time to time – belonging to the debtor which are situated within the territory of another Member State at the time of the opening proceedings.’ One may add, however, that this immunisation is only partial, as the liquidator may request secondary proceedings to be opened in the State where the assets are located if the debtor has an establishment there. Finally, decisions by the court with jurisdiction for the main proceedings are, in principle, recognised immediately in the other Member States without further scrutiny (Art. 16). 53 Article 29 of this Draft Convention (as approved by the UNIDROIT Governing Council at its 79th session, held in Lisbon from 10 to 13 April 2000) reads as follows:

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The creation, validity and scope of in rem rights are governed by their own applicable law (in general, the lex rei sitae, or, in the specific context of indirectly held securities, PRIMA). The fundamental policy pursued in paragraph 1 is to give effect to a right created under the law of the State where the assets are ‘situated’ and hence can eventually be enforced. In other words, the system preserves legal certainty of the rights over these assets. Rights in rem can only properly fulfil their function if they are not more affected by the opening of insolvency proceedings in other States than they would be by the opening of national insolvency proceedings.

C.

The Qualifications (Paragraph 2)

In the annotated July 2001 draft, the principle stated in Article 6, paragraph 1 is subject to two important qualifications embodied in paragraph 2. These qualifications are based on the Draft UNIDROIT Convention on International Interests in Mobile Equipment.

1.

Draft UNIDROIT Convention on International Interests in Mobile Equipment

Like Article 29, paragraph 3, of the Draft UNIDROIT Convention on International Interests in Mobile Equipment, the February 2001 draft of Article 6, paragraph 2, aims at: (1) preserving certain rules relating to insolvency proceedings such as the ranking of categories of claims and avoidance rules, and (2) avoiding interfering with rules about the enforcement of real rights or security interests pending reorganisation. The basic reasoning underlying sub-paragraph (a) is to preserve insolvency rules which may declare that certain types of claims (e.g., wages and taxes) should have priority over any other interest. Several experts stated that in their respective jurisdictions such insolvency rules would have public policy character and hence would have to prevail over any other interest. Another group of experts expressly questioned this conclusion. Furthermore, to ensure that reorganisation proceedings do not collapse (because, for example, a secured party seizes crucial assets), sub‘(1) In insolvency proceedings against the debtor an international interest is effective if prior to the commencement of the insolvency proceedings that interest was registered in conformity with this Convention. (2) Nothing in this Article impairs the effectiveness of an international interest in the insolvency proceedings where that interest is effective under the applicable law. (3) Nothing in this Article affects any rules of insolvency law relating to the avoidance of a transaction as a preference or a transfer in fraud of creditors or any rules of insolvency procedure relating to the enforcement of rights to property which is under the control or supervision of the insolvency administrator.’

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paragraph (b) is designed to subject the security interest to such procedures (e.g., a stay). A first group of experts agreed with the principles underlying Article 6. Another group, however, questioned the qualifications in paragraph 2 and its effect of submitting the interests in the pledge to the lex concursus. In their opinion, the effects of paragraph 2 would be too far-reaching. Instead, these experts suggested that the proprietary rights of the beneficiary in cases of insolvency should be determined exclusively in accordance with PRIMA. This approach, which expands the effects of PRIMA to the detriment of the lex concursus, is inspired by the European Insolvency Regulation. During the January meeting and in subsequent informal discussions, a number of experts have stressed that it was important to ensure compatibility between the proposed Hague Convention and the European Legislation. The general focus of the proposed Convention, however, should remain on PRIMA and it may be worthwhile not to bee too ambitious on insolvency issues so as not to lose sight of the principal aim of the project.

2.

The European Insolvency Regulation

As already mentioned, Article 5, paragraph 1, of the European Insolvency Regulation (EIR) excludes from the effects of the proceedings rights in rem of third parties and creditors in respect of assets belonging to the debtor, which, at the time of the opening of proceedings, are situated within the territory of another Contracting State.54 Similar to the Draft UNIDROIT Convention, the EIR does not ‘immunise’ rights in rem against the debtor’s insolvency altogether.55 According to Article 5, paragraph 4, the principle of protection embodied in paragraph 1 ‘shall not preclude actions for voidness, voidability or unenforceability as referred to in Article 4(2)(m).’56 Pursuant to the latter provision, these actions are governed by 54

See supra, note 52 and accompanying text. If the assets are situated in a nonContracting State, Art. 5 is not applicable. 55 It has to be noted that the EIR does not define what ‘rights in rem’ are. If it were to impose such a definition, it would indeed run the risk of describing as rights in rem legal positions which the law of the State where the assets are located does not consider to be rights in rem, or of not encompassing rights in rem which do not fulfil the conditions of that definition. Hence, the classification of a right as a right in rem must be sought in the national law which, according to the general conflict of laws principles, governs rights in rem (i.e., in general, the lex rei sitae, or in the context of indirectly held securities, the PRIMA jurisdiction). 56 Furthermore, if the law of the State where the assets are located allows these rights in rem to be affected in some way, the liquidator (or indeed any other person thus empowered) may request secondary proceedings to be opened in that State if the debtor has an establishment there. The secondary proceedings are conducted according to national law and allow the liquidator to affect these rights under the same conditions as in purely domestic proceedings.

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the lex concursus. So far, the system is comparable to the one embodied in the Draft UNIDROIT Convention. Article 5, paragraph 4, however, has to be read in conjunction with Article 13 of the EIR. Article 13 is indeed crucial, as it states that the possibility of an action for voidness, voidability or unenforceability under the lex concursus ‘shall not apply where the person who benefited from an act detrimental to all creditors provides proof that: the said act is subject to the law of a Member State other than that of the State of the opening of proceedings, and that law does not allow any means of challenging that act in the relevant case.’ Hence, if prior to the opening of the debtor’s insolvency proceedings, a collateral taker has fulfilled all the perfection requirements under PRIMA, and the collateral taker’s interest is not subject to further challenge under the PRIMA jurisdiction’s law, the collateral taker’s interest should be given full effect and not be affected by the lex concursus. Accordingly, if the conditions for an actio pauliana would be fulfilled under the lex concursus, but not under the PRIMA jurisdiction (because, for example, the suspect period is shorter in the latter than in the former), the collateral taker’s interest would remain protected. If, on the other hand, the PRIMA jurisdiction’s law does allow for the act to be challenged, the appropriate steps may be taken to set aside the acquisition or disposition of the account right concerned. Article 13 represents a defence against the overriding application of any provision of the lex concursus invalidating the collateral taker’s interest in circumstances where it is not possible to invoke a corresponding invalidating provision under the law of the PRIMA jurisdiction. This mechanism is said to be ‘easier to apply than other possible solutions based on the cumulative application of the two laws’ and to ‘uphold legitimate expectations of creditors or third parties of the validity of the act in accordance to the normally applicable national law, against interference from a different lex concursus’.57 For the collateral taker, this system enhances certainty and thus represents an advantage: he only has to look at one single law for both the perfection requirements and the extent of protection offered in case of the debtor’s insolvency and his expectations would be respected.58 57

These quotations are from the Explanatory Report on the European Convention on Insolvency Proceedings prepared by Prof. VIRGÓS (Spain) and Mr SCHMIT (Luxembourg). In essence, the Regulation is a mere transcript of the Convention and hence the Explanatory Report may still be consulted with benefit. 58 A similar solution is proposed in the Draft UNCITRAL Convention on Assignment of Receivables in International Trade. In the case of investment securities held through a securities intermediary, the characteristics and priority of the assignee in proceeds are governed by PRIMA (Art. 24, para. 1, sub-para. b; Art. 31), except in two situations: first, where the substantive provision of the PRIMA jurisdiction would be manifestly contrary to the public policy of the forum State, and secondly, where non-consensual preferential rights (such as wages and tax) are given priority in the forum State (Arts. 25 and 31).

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D.

Conclusion on the Insolvency Issue

This brief analysis indicates that there seems to be agreement on the principle that local insolvency rules should not be permitted to apply a principle different from PRIMA to identify the law applicable to proprietary issues such as whether an interest has been validly created and perfected. There is, however, no consensus as yet as to the extent of any further protection which should be given to any rules of the PRIMA jurisdiction against the application of differing rules of the insolvency, for example, in relation to matters such as the invalidation of transactions on the grounds of preference or fraud on creditors. Two concepts are proposed: one that is guided by the aim of preserving the effects of the local insolvency law,59 and another that aims at preserving the collateral taker’s interest by giving PRIMA the greatest possible effect in the debtor’s insolvency procedure. No consensus has yet been reached on this crucial question and further discussions are needed.

VII. Conclusions As of today, financial market participants are not in a position to ascertain readily and unequivocally which law will govern the proprietary aspects of dispositions of interests in respect of securities held through indirect holding systems. The exposures involved are extremely large, as each day indirectly held securities worth hundreds of billions of dollars, Euro and yen are provided as collateral under arrangements involving a cross-border element. The problem thus appears to be extremely important for the international financial markets and urgently needs to be addressed. Against this background, the Hague Conference on Private International Law is to be congratulated for having taken up this project. Also, in light of the characteristics of the project, the adoption of new working methods – which proved to be extremely valuable – is welcome, in particular the conducting of numerous informal discussions with delegations, market participants, practitioners and experts.60 This informal working process, whose results have been extensively 59

During informal discussions subsequent to the January meeting, a group of experts stressed that the proposed Hague Convention should refrain from interfering with local insolvency laws. As a result, they suggested that para. 2 should be deleted altogether and that Art. 6 should be limited in stating the principle embodied in para. 1 only. 60 Given the tight agenda suggested by the Member States for this project and the need to act on the basis of a ‘fast track’ procedure, the Permanent Bureau organised prior to the January 2001 experts meeting a series of three telephone conference calls with 30-50 participating experts. The aim of these conference calls was to identify the main issues to be tackled by the Working Group and to propose possible answers. Similarly, after the January 2001 experts meeting, the Permanent Bureau continued to discuss with legal experts on an

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reflected in official documents prepared by the Permanent Bureau,61 is crucial to finalise the project within the envisaged timeframe. There is indeed no doubt that if the goal of formally adopting the Convention during 2002 is to be realised, the informal working process has to be continued. At the 19th Diplomatic Session of the Hague Conference, whose first part was held in June 2001, the Member States were extremely supportive of this informal working process, taking into account in particular that the various conference calls provided a forum in which to identify and – where necessary – to clarify potential concerns and to explore possible solutions. There is no reason to believe that this support will cease, as long as the informal work remains subject to the same strict conditions of transparency applied until now. In this context, it is worth mentioning that during the Diplomatic Session in June 2001, numerous delegations invited the Hague Conference, and in particular its Permanent Bureau, to reflect on the possibility of adopting these new working methods for other projects currently under preparation or to be tackled in the future. On a personal note, we are convinced that the consensus principle, which is now prevailing at the Hague Conference’s negotiation procedures, is only workable if accompanied by extensive informal discussions between two ‘official’ meetings in the Hague. The steadily increasing number of Member States of the Hague Conference appears to give even more impetus to this trend,62 as ‘official’ negotiations in a room packed with 200 experts are becoming more and more difficult and unlikely to produce substantive results. The second element allowing this project to be dealt with on a fast track procedure is its limited scope. Not only is the future Convention limited to conflict of laws issues (in other words, the Convention will not address issues of jurisdiction and the effects of foreign judgments), but the subject matter of the Convention is also rather limited, as it will only identify the appropriate law to unofficial basis the tentative text prepared in January and to work closely with market participants to ensure that the future convention incorporates a solution which is both practicable and provides the required level of certainty. A fourth conference call was held in April 2001 in order to discuss the numerous comments on a previous draft and new suggestions submitted by a large number of experts. Around 45 experts from 15 different States participated in this fourth call. 61 See in particular the Report on the meeting of the Working Group of Experts (15 to 19 January 2001), mentioned in note 1. 62 As of 6 August 2001, the following 54 States were Members of the Conference: Argentina, Australia, Austria, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Ireland, Israel, Italy, Japan, Jordan, Republic of Korea, Latvia, Luxembourg, The former Yugoslav Republic of Macedonia, Malta, Mexico, Monaco, Morocco, Netherlands, Norway, Peru, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Suriname, Sweden, Switzerland, Turkey, United Kingdom of Great Britain and Northern Ireland, United States of America, Uruguay, Venezuela, Yugoslavia.

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govern proprietary aspects of a disposition of interests in indirectly held securities. The fact that the Convention addresses a crucial, but very specific, well defined and limited topic ensures that the project as such remains within clearly circumscribed boundaries, which in turn makes the administration of the project more lenient and predictable. Here again, the future will tell us if there are some lessons to be learned from a less ambitious, but more manageable approach to the selection of topics to be taken up by the Hague Conference.

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THE BRUSSELS I REGULATION: COMMENT Bertrand ANCEL∗

I. II.

A Brief Historical Introduction The Brussels I Regulation A. Reinforced Grounds of Jurisdiction 1. Protective Rules of Jurisdiction. a) Employment Contracts b) Consumer Contracts 2. Jurisdiction in Matters Relating to Contracts. B. Increased Mutual Trust. 1. Trust Imposed on the Judge of the State Addressed a) Substantive Grounds for Non-Recognition b) Procedural Grounds for Non-Recognition 2. Trust Imposed on the Judge Seized of the Action a) Chronology of Concurrent or Related Actions b) Inadmissibility of Forum Non Conveniens

I.

A Brief Historical Introduction

Council Regulation (EC) No. 44/2001, of 22 December 2000, will enter into force on 1 March 2002. Given that the true content of a law is revealed only by its application, this paper should talk about the future. Nevertheless, it starts with a glance at the past. This brief historical note is justified as the purpose is to examine the doctrine of the juge naturel.1 The idea is that the model of the movement of decisions found in this doctrine could directly or indirectly help clarify the Regulation adopted by the Council. Not long ago, the doctrine of the natural judge was said to govern SwissFrench relations in matters of jurisdiction and recognition of judgments, i.e., before the Lugano Convention altered the traditional legal links between France and the

∗ Professor of law at the University Panthéon Assas (Paris II), rédacteur en chef of Revue critique de droit international privé. 1 HOLLEAUX D., Compétence du juge étranger et effets des jugements, Paris 1970, No. 201.

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cantons dating from the fifteenth century. The Convention of 15 August 18692 was the most modern expression, if not the most true, of the model of natural judge in bilateral relations. The central characteristic of this model is a close linkage between the notions of jurisdiction and the enforcement of foreign judgments. In theory, every decision of a competent authority is due enforcement in an addressed State. Based on a kind of division of judicial tasks between jurisdictions, this doctrine aims to guarantee that every decision rendered and announced in conformity with aforementioned division will be recognized and given effect in all countries participating in the division, with a reservation in the case of execution. In cases where execution is demanded, the discontinuity between jurisdictions requires, in addition to the condition of the original court’s competence, a procedure for a local authority to order local agents to bring about, by coercion if necessary, the concrete result required by the foreign judgment. Such procedure is precisely to confirm that the executory judgment indeed originates in the jurisdiction designated by the rules creating the division of judicial tasks. The Convention of 1869 followed this doctrine, albeit with some requirements to assure that the laws and rules of public order and administration in the addressed State are respected and, in addition, that defendant’s rights and protection are safeguarded. The latter condition reflected a concern with private interests and a preoccupation with procedural justice, which could seem rather unusual within the context of the natural judge’s doctrine. Meanwhile, as a corollary, the Convention granted power to declare enforceability to either a judge (in France and some cantons) or an administrative official (in other cantons). The latter alternative, which appears to limit the judicial discretion over ultimate enforcement, is the closest to the original model of natural judge. This is clearly shown by the treaties which preceded that of 1869, that is to say, the treaties of 1715 and 1777;3 these two provided in some sense that executory capacity would only follow an essentially administrative procedure aimed at confirming the origin of the decision and nothing more. There would be no other formalities or required pleading to obtain enforceability. Thus it would suffice to check that the judge of origin is the natural judge. This was a decisive feature: it expresses the relationship between the State where the judge of origin sits and the party against which the decision was taken. The sovereignty of a State over individuals – personal ties of such party to its State – is the key to the mechanism. As the agent of the sovereign State, the natural judge may act against the interests of an individual by exercising the power to judge, punish and constrain. At the same time, the decision will be recognized as a sovereign act and will be supported in foreign countries by the paradigm of 2

For this Convention, see FLATTET G., ‘Un traité centenaire: la Convention francosuisse du 15 juin 1869 sur la compétence judiciaire et l’exécution des jugements’, in: Rev. crit. dr. int. pr. 1969, p. 577. 3 FLATTET G. (note 2), p. 595.

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sovereignty: foreign sovereigns have no interest in a relationship of allegiance where they have no part; however, for the sake of reciprocal treatment, they do have an interest in welcoming and, if necessary, actively executing foreign decisions on their territory. There is nothing more required than to register the foreign decision when its origin is confirmed. This sovereignty of a State over its own people is powerful, by definition, and its exercise is not subject to any form of restriction. Once accepted, it is limitless in its power; it is a power that has no known limit.

II.

The Brussels I Regulation

Does the Regulation of 22 December 2000 lean towards this model? Like the Brussels and Lugano Conventions, it provides that decisions of other Member States should be recognized and given effect in the addressed Member States, without any special procedure being required. In addition, in respect of executory judgments, it states in Article 41: ‘The judgment shall be declared enforceable immediately on completion of the formalities provided for in Article 53 without any review under Articles 34 and 35. The party against whom enforcement is sought shall not at this stage of the proceedings be entitled to make any submissions on the application.’ This suggests that, based on the official text of the foreign decision and a certificate evidencing its nature and origin, the addressed State will declare a judgment from another Member State enforceable on its territory, thus abandoning the simplified procedure of exequatur under the Brussels and Lugano Conventions. Albeit summary and ex parte, this was indeed a judicial procedure requiring a local judge to ascertain that the foreign decision had been rendered in conformity with the requirements of Articles 27 and 28 or, more precisely, that no ground for nonenforceability existed. Nothing of this sort is in the Brussels I Regulation, which, one may say, leads back to former French law and its system of pareatis,4 i.e., an administrative act that the court officers of the addressed jurisdiction are obliged to observe once presented with rogatory letters from the judge of origin; such rogatory letters – like the certificate required by Article 53 of the Regulation – should confirm the origin of the judgment. 4 LAINÉ A., ‘Considérations sur l’exécution des jugements étrangers en France’, in: Revue critique de législation et de jurisprudence 1904, p. 95; HUDAULT J., ‘Les conflits de juridictions dans le droit international privé des trois derniers siècles de l’Ancien Régime’, in: Cours d’Histoire du droit privé du Moyen Age et des Temps Modernes, Paris 1971, p. 26.

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Of course, the Regulation admits judicial contest, an appeal affording an opportunity to observe the judicial maxim audi alteram partem and to hear both parties to the case, but only against a decision that declares or refuses enforceability. The same opportunity existed formerly under the regime of the natural judge; this regime is known by those recourses to parliaments. However, it is uncertain whether the rehabilitation of pareatis sets the stage for an inevitable reappearance of the juge naturel doctrine. In fact, the coupling of immediate recognition and pareatis – the declaration of enforceability (in the language of the Brussels I Regulation) – is not necessarily linked to the natural judge doctrine and the notion of sovereignty. It is rather the broad influence – not the essence – of sovereignty that results in the choice of treatment for foreign judgments. Another paradigm could replace the notion of sovereignty in its function of driving force behind the recognition and enforcement of judgments. Under the Ancien Régime in France, pareatis fulfilled an internal function more often than an international one;5 it was used to assure the prorogation of enforceability from one jurisdiction to another within the realm, where all jurisdictions derived their powers from a single sovereign source. Sovereignty did not intervene in this device of internal pareatis. A glance at the subsequent history of French law makes the judicial politics set in motion by today’s Regulation strikingly clear. Pareatis signals the dismantling of borders between jurisdictions. Until 1 March 2002, sovereign States will survive in a judicial context which links them in a federal fashion to the Union; afterwards they will disappear to make room for a single or common judicial system within which even the executory power of decisions will, in principle, circulate freely. The notion of sovereignty is thus progressively effaced and replaced by a regime defining judicial competence within a net of judicial courts of the same and equal quality. In this respect, the Brussels I Regulation follows the outline of the Brussels and Lugano Conventions, which already privileged a privatiste notion of judicial power. Of course, this notion still maintains some division of jurisdictions; however, it combines a number of elements – some of which are subjective (defendant’s rights or protection of weak parties) and others objective (sound administration of justice or procedural efficiency) – so as to offer a variety of solutions that differ according to the type of litigation, and in principle, favour a private interests-oriented procedural justice. As the motor driving the free movement of decisions within the Community, it is necessary that these combinations of elements, incarnated in a set of jurisdictional rules, be well balanced, stable and solid. Only then will the objective – the effective judicial protection of plaintiffs within the Union – be achieved in a manner that will also encourage every Member State to give full faith and credit to a judgment from another Member State. If the rules of jurisdiction were to leave any doubt about whether the original judge had treated a case fairly, it would be unthinkable to reduce the requirements for the reception of foreign judgments. 5

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Consequently, it was understandable that the Brussels I Regulation chose pareatis attempts to reinforce grounds of judicial competence (I); however, the task is difficult and, since it was uncertain whether the unconditional support of every Member State or their courts would be obtained in all circumstances, the Regulation makes the best of a voluntary policy that requires reciprocal confidence within the Union (II).

A.

Reinforced Grounds of Jurisdiction

While following the general structure of the Brussels Convention on the matter of judicial competence, the Regulation also adds (sometimes quite subtly) some improvements, which could be regarded as lessons from the past as well as concerns for the future. It is unnecessary and would be tedious to catalogue and evaluate each of these in detail; thus it seems reasonable to select some areas where improvement was clearly intended. These involve, on the one hand, devices of ‘unequal competence’ intended to protect the ‘weak party’, and, on the other, the rule of special jurisdiction in matters relating to a contract (Article 5(1)), which has been the subject of much, sometimes radical, criticism.

1.

Protective Rules of Jurisdiction.

Two types of modifications are noteworthy. The first is a change of structure: Chapter II (Title II of the Conventions) includes a section on individual contracts of employment, which is inserted between the sections on insurance and consumer contracts, and a section on exclusive judicial competence. The second modification is less noticeable in terms of form, but has a significant impact on consumer contracts.

a)

Employment Contracts

Cases involving individual employment contracts are deleted from Article 5 and moved to the section dealing with protective jurisdiction. This change is symbolic or narrative. It is clearer than ever that salaried employees benefit from a system of judicial competence favourable to them, tending to assure their access to justice and to guarantee effective redress against violations of their rights. This orientation, which guides judicial interpretation, is not new – it harks back to the Convention of Donostia-San Sebastian of 1989 and even to the Convention of Lugano of 1988; but it is emphasized. From now on, jurisdiction in employment contracts is not covered by Article 2 or the related rules of Articles 5 and 6 (within the exception of Article 5(5) which applies by virtue of the new Article 18). As a result, links to actor sequitur forum rei are weakened.

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Of course, the essence of the protective regime for salaried employees has not been significantly altered; many elements intended to help 'weak parties' have been borrowed from the sections on consumer and insurance contracts and are already included in Article 5(1). Therefore, a salaried employee has the option of using the forum rei (the courts of the Member State where the employer is domiciled) or the forum laboris (the courts of the place where the work is performed). While an employer has no such option and must always file a complaint at the forum rei, the salaried employee’s option is protected against the prorogation of jurisdiction agreements, which will be effective only if concluded post litem natam or ad augendam tutelam. The most novel but not very significant change is the slightly increased possibility for the rules of judicial competence to cross borders of the common territory of Member States. This possibility is already available under the Brussels Convention when a plaintiff salaried employee prefers the forum laboris over the forum rei. The forum of the employee’s service is determined by the place in a Member State where this service is habitually performed, or as Article 19 adds, by the last place where it was habitually performed. However, if the employee does not or did not habitually carry out his work in any one country, the forum laboris is the place in a Member State where the business that engaged the employee is or was situated. The latter solution is maintained even if the services are performed outside the common judicial area on the territory of non-Member States. In a territoriality stained matter, such a forum laboris challenges third States’ jurisdiction. Article 18(2) could lead to a similar border-crossing issue by attaching to employment contracts’ litigation an assimilation mechanism that already serves successfully for insurance and consumer contracts. If an employer that is not domiciled in the common judicial area installed a permanent operation centre in a Member State, it is deemed, for the purpose of disputes arising out of the operations of the centre, to be domiciled in that Member State. As a result, the jurisdiction of its courts will be well founded both by means of forum rei or forum laboris – the latter being the prevailing forum laboris of Article 19(2)(b). Without doubt this is the most remarkable consequence of the creation of Section 5, Chapter II. Though not a large change, it brings the regime of judicial jurisdiction over individual contracts of employment closer to the other protective regimes. But it is still not equivalent. In fact, the protective system of unequal judicial competence enjoyed by salaried employees is not sheltered at the recognition and enforcement level by Article 35 of the Regulation, which updates Article 28 of the Convention. Without such shelter, breaches of the rules of Section 5 will be an obstacle to the free movement of judgments in other Member States. Therefore, in contests against a decision declaring or denying enforceability, the court of the addressed State does not proceed in the same manner if the judgment dealt with an employment contract as he would if the matter involved an insurance or consumer contract. It is true that the Brussels Convention already made this expediency measure. Moreover, experience shows that, to date, the

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examination was not indispensable and that, as a result, there is less reason to weigh down the conditions for foreign recognition if, in the vast majority of cases, the judgment will lead to a result favouring the plaintiff salaried employee. The logic is astonishing, nevertheless, in so far as it devalues a judicial competence that it proposes to reinforce.6 Finally, we may suspect that there is more partisanship or ideological fervour than rationality behind Section 5’s conception of autonomous judicial competence, if this formal modification in the system of jurisdiction is to have real consequences.

b)

Consumer Contracts

By virtue of Article 15 (replacing Article 13 of the Brussels Convention), unequal competence is, for some contracts, granted to a consumer, the type of which has not changed. These contracts are as previously sales of goods on instalment credit terms or loans repayable by instalments, or any other form of credit, made to finance the sales of goods (Article 15(1)(a) and (b)). On the other hand, subsection c of this section alters Article 13 of the Convention, whence the rest of the section is derived. Subsection c no longer restricts its range to other contracts providing services or goods when their conclusion or premises occurred within the territory of the Member State where the consumer is domiciled. The nature of the object of the performance and the original links of the contract with the country of the consumer are no longer conditions for protection. Henceforth, the protective system still largely benefits consumers. It applies as soon as a consumer is domiciled in a Member State and has concluded a contract with a person who pursues commercial or professional activities in the territory of a Member State, or whose activities are specially if not exclusively directed toward the market of such Member State. The second branch of the latter alternative could include electronic commerce. This is not only an aggiornamento aiming to adjust the protection to the level of the temptations to which consumers are exposed by the latest communication and marketing techniques; it is also an important step toward a generalization of consumer protection. The Brussels I Regulation firmly takes the position that unequal judicial competence is fair and justified in favour of the ‘weak party’.

6

BRUNEAU Ch., ‘Les règles européennes de compétence en matière civile et commerciale’, in: Juris-Classeur Périodique 2001, I, 104, n°20

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2.

Jurisdiction in Matters Relating to Contracts

There was a pressing need to redraft Article 5(1) of the Convention if not to suppress it entirely , as some recommended.7 This Article grants a specific judicial competence in contracts separate and as an alternative to that based on the domicile of the defendant, by giving the plaintiff the option of access to ‘the courts for the place of performance of the obligation in question’. This formulation, according to the interpretation given by the Court of Justice, generates serious difficulties both concerning the determination of the obligation that is to be taken into account and concerning the determination of the location of its performance. On the one hand, the analytical approach required by the decision in de Bloos8 ignored the unity of contract and threatened to disperse among several states the various contested issues concerning distinct obligations under the contract. On the other hand, the reference to the law applicable to the contract in order to determine the place of performance of the obligation under Tessili9 requires a complicated and uncertain exercise which consists of resolving the question of judicial competence by application of a law, the choice of which presupposed that this question has been resolved. Furthermore, in practice, this interpretation has produced mediocre results: disregarding procedural efficiency, it responds only imperfectly to the principle of proximity which is supposed to assure the sound administration of justice, and Mr. Droz has shown that where the claim is for payment, either it offers a bad option, if according to the lex causae the payment is moveable to the creditor’s domicile, or it obviates any option if the payment is due at the debtor’s domicile. In the first case, the place of performance of the obligation in question will be the forum actoris, anathema to the Brussels system; in the second case, it will be the same as the forum rei, which, as a practical matter, gives the same result as under Article 2. The Regulation did not dare to completely reform this disappointing system. Instead, it amended the system as if it did not wish to overrule the Court of Justice, which, for its part, seems however recently to have expected a reform or reformulation of Article 5(1) that could help it to escape the constraints of its own unfortunate jurisprudence. Nonetheless, it is simply a modified Article 5(1) that will govern jurisdiction in contractual matters in the future. This it will do in accordance with a formula whose wording is relatively complicated – no model of literary skill – but which should nonetheless reduce the uncertainty and 7 DROZ G., ‘Delendum est forum contractus’, in: Recueil Dalloz 1997, chr. 351; HEUZÉ V., ‘De quelques infirmités congénitales de droit uniforme: l’exemple de l’article 5. 1 de la Convention de Bruxelles du 27 septembre 1968’, in: Rev. crit. dr. int. pr. 2000, p. 595; see also, less radical, MUIR WATT H., ‘Peut-on sauver le for européen du contrat? ’, in: Revue générale des procédures 1998, p. 371; ANCEL M.-E., La prestation caractéristique du contrat, Paris 2001, No. 36. 8 European Court of Justice (ECJ), 6 October 1976, [1976] ECR 1497 9 ECJ, 6 October 1976, [1976]. ECR 1473

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unforseeability that currently results from the jurisprudence of the Court of Justice. The formula does not condemn the jurisprudence but intends to confine it to a subsidiary role within a narrow perimeter, giving the revived Brussels Convention rule a specific interpretation for two types of contracts: ‘…unless otherwise agreed, the place of performance of the obligation in question shall be, in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered [and] in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided’ (Article 5(1)(b)). One might say, then, that the place where the characteristic performance of the contract has been (or should have been) executed is deemed to be the place of performance of all other obligations freely assumed between the parties pursuant to the contract and that, in order to determine this place, it is no longer necessary to examine the applicable law, but it is sufficient to examine the contract itself. The Tessili-de Bloos jurisprudence was not by this means entirely replaced. It is possible that the contract itself does not allow an identification of the place of execution of the characteristic performance and, in such a case, it is tempting to turn back to the lex contractus for the determination. The difficulty is reduced but not eliminated. At any rate, the simplification delivered by the Regulation encounters limits that are inherent to the nature of contracts and the will of the parties. Curiously, only two types of contracts were considered. Sales of goods and service contracts are doubtless the principal instruments of international trade. But there are other types of contract in the field of the Regulation. Moreover, it appears that the advantage of promoting the characteristic performance is available in litigation in commercial matters only. Is the sale of the Rembrandt that hangs on the wall of the seller’s living room to a private individual buyer a ‘sale of goods’ (‘vente de marchandises’)? Does the mandate to collect the rent given by a landlady to her husband or her brother result from a service contract as defined in litt. b? It is doubtful that these sorts of contracts will be covered; and this doubt will add to the inherent uncertainty of the categories used by Article 5(1)(b) and the qualification of these types of contracts thereunder. Consequently, a potentially large area remains open to the application and to the disadvantages of the general rule inherited from the Brussels Convention.10 ANCEL M.-E., Comment of decisions from French Cour de cassation, Civ. 1re, 8 February 2000 (3 judgments), 30 may and 27 june 2000 (2 judgments) and Com., 16 May, 20 June and 11 July 2000, in: Rev. crit. dr. int. pr. 2001, p. 148, p. 162. 10

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Moreover, the general rule – if I do not misinterpret Article 5(1)(b) – could be overridden by the parties’ own agreement concerning the place of performance of the obligation in question. In this case, the characteristic performance will lose its powers of consolidation over other contractual obligations and the analytical approach of de Bloos will be applied. As underthe doctrine of the Court of Justice in Tessili, the agreement of the parties renders the reference to lex causae useless. In summary, the re-evaluation and re-balancing of the elements that determine jurisdiction appears to have been quite timid. The new wording of Article 5 manifests a significant effort to modify optional jurisdiction to enhance predictability and simplicity; it also seeks to reconcile the requirement of proximity for a sound administration of justice with the consolidation of litigation, which the objective of procedural efficiency demands. Only its application to specific cases will demonstrate whether the Regulation can achieve these goals. The Brussels I Regulation reinforces the unequal rules of competence to the benefit of salaried employees and consumers in an apparently more assertive manner. In this way it favours the protection of weak parties, without being divided by various potentially contradictory objectives. Nevertheless, the reformatting of these rules of competence does not guarantee that it will establish solid and incontestable jurisdiction for all proceedings such that it justifies and legitimates, at the international level, the decisions of judges thus empowered. And, as if to offset potential weaknesses in jurisdiction and the resulting diminished authority that could jeopardise the recognition of decisions abroad, the Regulation establishes as part of its system a number of solutions that presuppose a heightened reciprocal trust between Member States.

B.

Increased Mutual Trust.

The Brussels I Regulation’s choice of the technique of pareatis, offered immediately, without re-examining the analysis of the foreign judge, attests to the high level of mutual trust expected between jurisdictions within the Union. This represents a great step forward, which nevertheless represents no more than a first step in a more ambitious program. The mutual trust is already, if less intensely, indicated by conventional law in Article 28, which prohibits the judge addressed from re-examining the competence of the foreign judge. The irrebutable presumption of judicial competence is linked to the origin of the decision: no European judge could be so mistaken or so malicious as to hear and decide a claim arbitrarily. As soon as there are reasonable grounds for jurisdiction and serious judges, fears of abuse dwindle and mistrust gives way to trust. In the Regulation, this trust goes farther, at a forced march. It is required not only of the judge of the State addressed, but also of the judge seized of the action.

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1.

Trust Imposed on the Judge of the State Addressed

The requirement for trust manifests itself by a reduction of the permitted grounds for rejecting a foreign judgment as enumerated in Article 34 (which replaces Article 27 of the Brussels Convention).

a)

Substantive Grounds for Non-Recognition

First, among requirements of substantive nature, the repeal of the rule of Article 27(4) must be pointed out. This rule provided for an examination of the choice of law made by the foreign judge to resolve a preliminary question concerning the status of natural persons, matrimonial property or succession, which is sometimes necessary before he can decide the principal issue. This choice-of-law test in personal and family matters was widely accepted in the law of recognition of judgments of the founding Members of the Community who were the first signatories of the Brussels Convention of 27 September 1968. The rule survived various redrafts of the treaty and even made it into the Lugano Convention. Perhaps it was not really a problematic rule because it was not really observed. In truth, inside the Community, it was falling into disuse. Following the example of Council Regulation (EC) of 29 May 2000 on jurisdiction and recognition and enforcement of judgments in matrimonial matters and in matters of parental responsibility for children of both spouses (Brussels II), Brussels I Regulation eliminates this rule thereby relieving the courts of the Member States whose national system excluded the requirement from any scruples they might have had concerning either ignoring or circumventing it. Among the substantive grounds for non-recognition and non-enforcement, it must also be noted that that of protecting the public order has been weakened. Henceforth, the conflict with the public order in the Member State addressed must be manifest. Actually this change is not revolutionary. It seems rather to lie along the lines of a general evolution in the Union, even though it must be remarked that many Member States appear to increasingly consider both procedural and substantive issues which concern human rights and fundamental liberties as immediately raising a question of public order. Thus the modification of the wording of Article 27(1) can be supposed to encourage moderation as well as an invitation to each State to realign its sensitivities in this field with the canons of the Community public order…

b)

Procedural Grounds for Non-Recognition

Second, concerning requirements of a procedural nature, the Regulation brings precision to the requirements of notification in foreign default judgments.

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Article 27(2) of the Convention that set this condition only defined it by means of its satisfaction, without specifying its purpose. According to this provision, the document that instituted the proceedings must have been served to the defendant in sufficient time to enable him to arrange for his defence and in a regular manner according to a timetable and form set by the law where the judge seized with the action sits. If this double condition is met, there can be no doubt that the default of the defendant manifests a refusal to defend his interests before the court; such a voluntary default does not merit protection after the decision is handed down and so cannot constitute grounds for non-recognition. Only an involuntary default can raise suspicion and lead to the rejection of the decision in the State addressed. But the failure to respect the timetable and form imposed by the law of the foreign judge – which according to Article 27(2) leads to nonrecognition – can mask a voluntary default. There have been cases in which a defendant took advantage of irregularities in the service of documents that instituted the proceedings to obstruct the circulation of the decision.11 Formally, the requirements of Article 27(2) were not satisfied; but in reality, such conditions are met as soon as the defending party who knows of the proceedings voluntary neglects them. Thus, the means do not fit well with the ends. In addition it is quite odd to ask the court addressed to review the decision of the foreign judge for the appropriateness of the latter’s authority to hear the case: in cases of default, the judge seized of the action must, according to Article 20 of the Convention, verify his own competence and stay the proceedings until it can be determined if the defendant was in a position to receive proper service. The power given to the court of the State addressed to review this verification is exorbitant. This constitutes an expression of distrust, which the Brussels I Regulation could have eliminated. The Regulation did not go so far as to prohibit this review, but did limit the subject matter of the investigation. Article 34(2) removed the condition requiring that notice be given in accordance with the law of the foreign judge, preferring effective notice to formal notice; thus it protects only such defendant who either was never made aware of the proceedings or, having not been notified in a timely fashion, could neither defend himself nor obtain any recourse against an unfavourable decision. In such conditions, the review by the court addressed does not lead to a reconsideration of the issues decided by the foreign judge. Undoubtedly, the Regulation could have gone farther in trusting the foreign judge, but this already represents significant progress.

2.

Trust Imposed on the Judge Seized of the Action

If the rules of jurisdiction of Chapter II are solid, no European judge should be afraid to exercise the powers these rules confer. There are, however, some hard 11

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cases where a conscientious judge may hesitate. There are even some circumstances where he is specifically ordered, or permitted, to refuse to hear the case. This does not suggest however that the judge’s authority is too weak; rather it may be that another judge, competent to judge under rules of jurisdiction of equal value, is concurrently hearing the same claim, between the same parties on the same facts, or that another judge must hear a different claim that is so closely connected to the first that their resolution should be consolidated to prevent the risk of irreconcilable judgments resulting from separate proceedings. In such concurrent or interfering cases, so-called cases of lis pendens or of related actions, the judge must or may have confidence in the rival court where the case was first submitted.

a)

Chronology of Concurrent or Related Actions

Article 30 will henceforth facilitate this exercise of trust through its ‘autonomous’ provision that determines the order in which cases are submitted. The purpose here is to resolve a practical problem of chronology. Apparently, the Court of Justice succeeded in overcoming this difficulty by referring judges of concurrent or connected actions back to their respective national laws. This solution, however, assumes that a judge will consult the law of the foreign judge to determine the date that court was seized; but the variety and complexity of national rules concerning the means of submission to a court in fact makes this exercise delicate and uncertain. It was thus necessary to establish a ‘clear and automatic mechanism’ of uniform determination of the date on which a case is regarded as pending. Article 30 of the Regulation makes an attempt, in language that is a bit complex, concentrating the whole process of submission on the day when the first step was taken – on condition that the process was carried through to its conclusion. By not using the later date on which service of documents has been perfected, the Regulation forecloses the possibility of abusive later submission, which might be simply tactical or unfair. Above all, the judge in a related or lis pendens case benefits from this mechanism, and will be less likely to hesitate to refer a file to the judge reviewing the concurrent or connected action.

b)

Inadmissibility of Forum Non Conveniens

The Regulation relies on the trust of foreign judges more generally as well, if the Explanatory Memorandum preceding the Regulation’s provisions is binding. Paragraph 11 of that Exposé des motifs appears, for example, to condemn the

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Court of Appeals’ use of the forum non conveniens doctrine a dozen years ago12 to permit an English judge of the defendant’s domicile to decline jurisdiction in favour of a court in a third State, not signatory of the Brussels Convention. This discretionary decision by a judge whose competence was based on the Convention was certainly already forbidden if it presented a risk of a Member State’s court declining jurisdiction in favour of a court of another Member State. Such discretion could destroy the predictability and security, which is at the heart of the Brussels I system. Paragraph 11 of the Explanatory Memorandum is based on the same consideration when it renders jurisdiction under Article 2 imperative with regard to the judge seized: regardless of whether the most appropriate court will be that of a Member State, ‘primary jurisdiction […] based on the defendant’s domicile […] must always be available’. To the extent that the rules of special jurisdiction and derogatory jurisdiction supplant primary jurisdiction, they cannot be supposed to be less solid. The fragility of judicial competences granted under the Brussels I Regulation is therefore averted less by the rationality of their content than by the authority of the Council. Thus the judge seized of the case need not show more circumspection than the court of the State addressed concerning the quality and appropriateness of fora defined by the Regulation. A regime of forced full faith and credit aims to make up for the inevitable weaknesses and defects of some competences which, combining and balancing multiple values and objectives, will never have the monolithic structure of the old natural judge jurisdiction. The pareatis or declaration of enforceability of Article 41 does not signal a revival of the juge naturel doctrine, nor does it restore the device of recognition and enforcement fuelled with a notion of sovereignty indifferent to private justice and interest. On the contrary, it confirms the lessening of importance of the national sovereignties inside a common judicial area and emphasizes consideration for effective judicial protection of private interests within the Union.

12

Re Harrods (Buenos Aires) Ltd, [1992] Ch. 72 (C.A.); see GAUDEMET-TALLON H., ‘Le forum non conveniens, une menace pour la Convention de Bruxelles? (A propos de trois arrêts anglais récents)’, in: Rev. crit. dr. int. pr., 1991, p. 491; CHALAS C., L’exercice discrétionnaire de la compétence juridictionnelle en droit international privé, Paris 2000, No. 604.

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PRIVATE INTERNATIONAL LAW ISSUES IN WORLD WAR II ERA LITIGATION ________________

THE LAW APPLICABLE TO GOVERNMENTAL LIABILITY FOR INJURIES TO FOREIGN INDIVIDUALS DURING WORLD WAR II: Questions of Private International Law in the Ongoing Legal Proceedings before Japanese Courts Yasuhiro OKUDA∗

I. II.

Introduction Preliminary Analysis of Public International Law A. Agreements on Reparation and the Practice in Japan B. Compensation of Individuals under the 1907 Hague Convention Respecting the Laws and Customs of War on Land III. Law Applicable to Governmental Liability A. Practical Implications of Analysis B. Rules Governing Governmental Liability in General C. Rules Governing Wrongs Committed during World War II D. Article 11 of the Horei 1. Lex Loci Delicti 2. Cumulative Application of the Lex Fori to Requirements of Claims 3. Cumulative Application of the Lex Fori to Effects of Claims IV. Conclusion Post Scriptum

∗

Professor of the School of Law, Hokkaido University; Councilor of the Private International Law Association of Japan. The author thanks Professor Kent Anderson for revising the English text.

Yearbook of Private International Law, Volume 3 (2001), pp. 115-135 © Kluwer Law International & Swiss Institute of Comparative Law

Printed in the Netherlands

Yasuhiro Okuda

I.

Introduction

Although World War II ended in 1945, a chain of legal proceedings on governmental liability has not stopped since 1952 when the Treaty of Peace with Japan came into force. These proceedings can be divided into three groups:1 The first group includes claims for damages filed by numerous Japanese individuals who contended that the Japanese government was liable for waiver of claims against foreign States for damages and losses under agreements after World War II.2 The second group includes claims filed by numerous Koreans and Taiwanese who had Japanese nationality as a result of the annexation of Korea and Taiwan and who had worked in the Japanese army but could not receive old age pensions or disability pensions. Having automatically lost their nationality in 1952, the plaintiffs claimed this was discriminatory because the pension laws required that applicants have Japanese nationality.3 The third group includes many individuals of various nationalities who claimed damages for violations of the law of warfare by the Japanese army during World War II. These covered such events as the holocaust in Nanking; experiments on humans by Unit 731; forced prostitution of Chinese, Korean, and Philippine women (so-called ‘comfort women’); forced labor of Chinese and Korean men; and mistreatment of English, American, Australian, New Zealand, and Dutch prisoners of war.4 1 See YAMADA M., ‘Saiban Jitsumu kara Mita Sengo Hosho’ [Post-War Compensation from Perspective of Court Practice], in: OKUDA Y./KAWASHIMA S. et al., Kyodo Kenkyu Chugoku Sengo Hosho [Study on Post-War Compensation of Chinese Civilians], Tokyo 2000, p. 219 et seq. 2 As famous examples, see Tokyo District Court, 7 December 1963, in: Hanrei Jiho, No. 355, p. 17; The Japanese Annual of International Law (hereinafter cited as JAIL), No. 8, p. 212 (damages caused by the atomic bombs in Hiroshima and Nagasaki); Supreme Court, 13 March 1997, in: Saiko Saibansho Minji Hanreishu (hereinafter cited as Minshu), Vol. 51, No. 3, p. 1233; Hanrei Jiho, No. 1607, p. 11 (damages caused by the detention and forced labor of Japanese POWs in Siberia). See also Supreme Court, 27 November 1968, in: Minshu, Vol. 22, No. 12, p. 2808; Hanrei Jiho, No. 538, p. 6; Supreme Court, 4 July 1969, in: Minshu, Vol. 23, No. 8, p. 1321; Hanrei Jiho, No. 566, p. 33; Kyoto District Court, 22 November 1968, in: Hanrei Jiho, No. 566, p. 54. 3 See a case involving Taiwanese, Supreme Court, 28 April 1992, in: Hanrei Jiho, No. 1422, p. 91; JAIL, No. 36, p. 182. See cases involving Koreans, Supreme Court, 5 April 2001, in: Saibansho Jiho, No. 1289, p. 7; Osaka High Court, 15 October 1999, in: Hanrei Jiho, No. 1718, p. 30; Kyoto District Court, 27 March 1998, in: Shomu Geppo, Vol. 45, No. 7, p. 1259; Tokyo High Court, 27 December 1999, in: Hanrei Jiho, No. 1659, p. 35; Tokyo High Court, 29 September 1998, in: Shomu Geppo, Vol. 45, No. 7, p. 1355. 4 See Tokyo District Court, 22 September 1999, in: Hanrei Taimuzu, No. 1028, p. 92; JAIL, No. 43, p. 216 (the holocaust in Nanking and experiments on humans by Unit 731); Tokyo District Court, July 16, 1998, in: Hanrei Taimuzu, No. 1046, p. 270 (murder of a Chinese civilian by Japanese soldiers); Tokyo District Court, 9 October 1998, in: Hanrei Jiho, No. 1683, p. 57; JAIL, No. 42, p. 170 (forced prostitution of Philippine women);

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The results of these proceedings have not at all been favorable for the plaintiffs. In one case involving comfort women, the court ordered the Japanese government to pay damages amounting to slightly over 300,000 yen (about 3,000 US dollars) per person.5 In four other cases, victims of forced labor and Japanese companies reached a settlement after the courts had ruled against the former laborers.6 As for the Japanese government, it has enacted laws to pay 2,000,000 yen (about 20,000 US dollars) per person to ex-soldiers and Japanese army workers from Korea and Taiwan.7 The government has also established a Tokyo District Court, 30 November 1998, in: Hanrei Taimuzu, No. 991, p. 262; JAIL, No. 42, p. 143 (mistreatment of Dutch POWs); Tokyo District Court, 26 November 1998, in: Hanrei Taimuzu, No. 998, p. 92 (mistreatment of English, American, Australian, and New Zealand POWs); Fukuoka High Court, 1 October 1999, in: Hanrei Taimuzu, No. 1019, p. 155 (forced labor of a Korean); Tokyo District Court, 22 November 1996, in: Shomu Geppo, Vol. 44, No. 4, p. 507 (forced labor of Koreans); Nagoya High Court, Kanazawa Branch, 21 December 1998, in: Hanrei Taimuzu, No. 1046, p. 161 (forced labor of Korean women); Yamaguchi District Court, Shimonoseki Branch, 27 April 1998, in: Hanrei Jiho, No. 1642, p. 24 (forced prostitution and forced labor of Korean women); Tokyo High Court, 30 November 2000, in: Hanrei Jiho, No. 1741, p. 40 (forced prostitution of a Korean woman); Tokyo District Court, 27 July 1995, in: Hanrei Jiho, No. 1563, p. 121 (murder of a Korean man by Japanese soldiers). See also Tokyo District Court, 17 June 1999, in: Shomu Geppo, Vol. 47, No. 1, p. 1; JAIL, No. 43, p. 192 (invalidation of military payment certificate issued in Hong Kong); Tokyo District Court, 17 November 1980, in: Hanrei Jiho, No. 991, p. 93 (invalidation of military payment certificate issued in Taiwan). 5 Yamaguchi District Court, Shimonoseki Branch, 27 April 1998, in: Hanrei Jiho, No. 1642, p. 24. The court held that the Japanese government is liable for its failure to legislate for compensation of comfort women. The Hiroshima High Court reversed this, however, on 29 March 2001, holding that there is no liability for such legislation (http://www.shikoku-np.co.jp/news/kyodo/200103/20010329000180.htm). See similar decisions: Tokyo District Court, 9 October 1998, in: Hanrei Jiho, No. 1683, p. 57; JAIL, No. 42, p. 170; Nagoya High Court, Kanazawa Branch, 21 December 1998, in: Hanrei Taimuzu, No. 1046, p. 161. 6 See http://www5b.biglobe.ne.jp/~mujige/nittetu04.htm (settlement on 18 September 1997 in the case involving Korean workers against Nippon Steel Co.); http:// www.unityflag.co.jp/doc/649/0649_45f.html (settlement on 11 July 2000 in the case involving Korean women against Fujikoshi Co.); http://www.unityflag.co.jp/doc/670/ 0670_23a.html (settlement on 29 November 2000 in the case involving Chinese workers against Kajima Co.). Regarding the settlement on 6 April 1999 in the case involving a Korean worker against NKK Co., see TANIGAWA T., ‘Nippon Kokan Sosho Wakai to sono Imisurumono’ [Impact of the Settlement in the Case against NKK Co.], in: Kikan Senso Sekinin Kenkyu, No. 25, p. 50. 7 The laws for payment of ‘solatium’ [‘chouikin’, i.e., good-will payments rather than technical indemnity] to Taiwanese domiciled in Taiwan are entitled ‘Taiwan Jumin dearu Senbotsusha no Izokuto ni taisuru Choikinto ni kansuru Horitsu’ (Law No. 105, 1987) and ‘Tokutei Choikinto no Shikyu no Jishi ni kansuru Horitsu’ (Law No. 31, 1988). The law for payment of ‘solatium’ to Koreans and Taiwanese domiciled in Japan is entitled ‘Heiwa

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fund to pay 2,000,000 yen per person to ex-comfort women, as well as providing them with other assistance.8 However, many ex-soldiers, workers, and comfort women have refused these offers, maintaining that they are insufficient to compensate their losses and damages. In summary, most World War II victims have lost their cases in the legal arena and have received no alternative remedy from the Japanese government. Why do these victims continue to sue the Japanese government in spite of the results mentioned above? In this context it is important to mention the role of Japanese attorneys, who not only represent the foreign victims in the legal proceedings, but also finance the proceedings. Otherwise, from the practical point of view, the foreign victims could not institute legal proceedings in Japan. For example, the ‘Group of Attorneys for Claims of Chinese Victims’9 was founded in 1994 on the initiative of a few attorneys who by chance had discovered during a visit to China that many Chinese victims wanted to sue the Japanese government but lacked financial support and legal advice. Several hundred attorneys joined the group, which financed eight cases before Japanese courts and also founded the ‘Group of Citizens to Support Claims by Chinese Victims’.10 The attorneys work voluntarily on these cases in Japan and also fly to China, Germany, and the U.S.A. at their own expense for research and exchanging views with foreign lawyers.11 It seems that most other proceedings involving foreign victims were instituted in a similar manner. The Japanese attorneys are willing to finance these cases because they regard it as their moral duty. This thinking is very characteristic of Japanese attorneys. What law do the Japanese attorneys invoke in the grounds of claims filed by World War victims? In cases involving waiver of claims against foreign States under postwar agreements, they contend that the Japanese government is liable above all pursuant to Article 29(3) of the Constitution on government expropriation. In cases on ex-soldiers and workers of the Japanese army, the attorneys argue that the nationality clause in the pension laws is contrary to Article 14(1) of the Constitution and Article 26 of the International Covenant on Civil and Political Joyaku Kokuseki Ridatsushato dearu Senbotsusha Izokuto ni taisuru Choikinto no Sikyu ni kansuru Horitsu’ (Law No. 114, 2000). 8 The fund is named ‘Josei no tameno Azia Heiwa Kokumin Kikin’ and was constituted on 19 July 1995. See the English page of this fund’s site (http://www. awf.or.jp/index_e.html). 9 This group’s name in Japanese is ‘Chugokujin Senso Higaisha Baisho Seikyu Jiken Bengodan’. 10 This group’s name in Japanese is ‘Chugokujin Senso Higaisha no Yokyu wo Sasaeru Kai’. 11 YAMADA M. (note 1), p. 229 et seq. See also the English page of the site of the ‘Group of Citizens for Support of Claims by Chinese Victims’ (http://www. osk.3web.ne.jp/~suopei/suopei-e/index_e.html).

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Rights, both of which guarantee equality under the law. Other attorneys working on cases involving violations of the law of warfare maintain primarily that the victims are entitled to damages under the 1907 Hague Convention respecting the Laws and Customs of War on Land. For the Korean and Taiwanese victims, the Hague Convention is the only possible basis of their claims. The unlawful acts took place in territories belonging to Japan at that time, and a State immunity doctrine was then applied in Japan that exonerated the government from liability for acta jure imperii. On the other hand, the attorneys representing the Chinese and Philippine victims contend that the lex loci delicti applies to acts committed by Japanese soldiers on the mainland of China and the Philippines. Questions of private international law have played a major role in the legal proceedings in the above-mentioned cases of World War victims. Since the proceedings of the Chinese and Philippine victims were instituted later, at the time this article was written only three of the reported decisions address questions of private international law.12 However, as is evident in this article, there are many problems in Japanese private international law that differ from similar situations in other countries.13 Before analyzing the conflict of laws rules, an attempt is made to preliminarily analyze questions of public international law (II). This analysis shows that the agreements between Japan and other States place no obstacles in the way of claims of individuals and that the 1907 Hague Convention cannot support these claims. The main theme of this article is the law applicable to governmental liability (III). The analysis begins with practical implications that could be directly connected with the results of cases (A). Thereafter, rules on governmental liability in general are considered (B) and rules on wrongs committed during World War II (C). In addition, some questions arise concerning the interpretation of Article 11 of the Horei (Japanese Statute on Applicable Law) (D). As a concluding remark, I consider the necessity of establishing international uniform rules on civil liability for war crimes (IV).

12 Tokyo District Court, 22 September 1999, in: Hanrei Taimuzu, No. 1028, p. 92; JAIL, No. 43, p. 216; Tokyo District Court, 16 July 1998, in: Hanrei Taimuzu, No. 1046, p. 270; Tokyo District Court, 9 October 1998, in: Hanrei Jiho, No. 1683, p. 57; JAIL, No. 42, p. 170. 13 For a short essay on this theme in European languages, see YAMAUCHI K., ‘Staatshaftung für Kriegsgeschädigte im japanischen IPR’, in: Festschrift für Otto Sandrock zum 70. Geburtstag, Heidelberg 2000, p. 1057; OKUDA Y./YOKOMIZO D./TOUBKIN N., ‘Chronique de Jurisprudence japonaise’, in: Clunet, 2001, p. 558 et seq. From the perspective of international law, see IGARASHI M., ‘Post-War Compensation Cases, Japanese Courts and International Law’, in: JAIL, No. 43, p. 45.

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II.

Preliminary Analysis of Public International Law

A.

Agreements on Reparation and the Practice in Japan

Signed by forty-eight Allied Powers and ratified by forty-five, the Treaty of Peace with Japan entered into force in 1952. Article 14(a) of the Treaty recognized ‘that Japan should pay reparations to the Allied Powers for the damage and suffering caused by it during the war’. However, ‘it is also recognized that the resources of Japan [were not then] sufficient, if it is to maintain a viable economy, to make complete reparation for all such damage and suffering and at the same time meet its other obligations....’ Therefore, Article 14(b) specified that except ‘as otherwise provided in the present Treaty, the Allied Powers waive all reparations claims of the Allied Powers, other claims of the Allied Powers and their nationals arising out of any actions taken by Japan and its nationals in the course of the prosecution of the war, and claims of the Allied Powers for direct military costs of occupation’. Under this provision, most of the Allied Powers made agreements with Japan on the basis of which Japanese economic assistance was provided to the Allies as reparations in return for their waiver of war claims.14 These agreements in fact often profited Japanese companies because the Japanese government paid them to construct and deliver power plants, dams, waterworks, ships, and trucks to the Allied Powers. In many cases, the war victims were compensated neither by Japan nor by their home country.15 There are a few exceptions. The Japanese government delivered Japan’s foreign assets to the International Committee of the Red Cross, which had them liquidated and then distributed to various Allied nations that distributed them to their prisoners of war pursuant to domestic schemes.16 Additional compensation was granted to English war prisoners on 7 November 2000 and to Australian war prisoners on 22 May 2001 by the respective home countries.17 Compensation money delivered by the Japanese government to the Korean, Philippine, and Dutch governments was distributed partly to war prisoners and other victims under their national laws of the 1950s and 1960s.18 Compensation for property damages was ordered by the arbitration court of Japan and the Allies under the Allied Powers 14

Fifty-four agreements between Japan and the Allies are listed in: ASAHI SHINBUN SENGO HOSHO MONDAI SHUZAIHAN [Team of the Asahi Shinbun Reporting on Post-War Compensation], Sengo Hosho towa nanika [What is the Post-War Compensation?], Tokyo 1994, p. 26 et seq. 15 Ibid., p. 17 et seq. and p. 36 et seq. 16 Ibid., p. 21 et seq. 17 http://www.cnn.co.jp/2000/WORLD/11/08/pow.compensation/ (England POW); Asahi Shinbun, 23 May 2001, p. 23 (Australian POW). 18 TUKAMOTO T., ‘Rippou Shoukai – Kaidai’ [Introductory Note on Translations of Foreign Laws], in: Gaikoku no Rippo, Vol. 34, No. 3-4, p. 4 et seq.

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Property Compensation Act of 1951.19 However, the amount of money was not sufficient to compensate foreign victims for their losses and damages. The Japanese government has never maintained before Japanese courts that the Peace Treaty’s waiver clause could be interpreted to include the waiver of claims of individuals. Conversely, an official of the Foreign Ministry declared in Parliament that the Agreement on Reparation between Japan and Korea was intended to waive only the right to diplomatic protection and did not include claims of individuals.20 The Japan Supreme Court delivered the same ruling in regard to the Treaty of Peace with Japan concerning the waiver to assets of Japanese nationals that remained abroad.21 Most scholarly writings agree with the Supreme Court.22 Since the Japanese government waived their right to diplomatic protection, Japanese individuals have had considerable difficulty receiving any compensation for damages arising during the war. First, Japanese individuals cannot sue foreign States in these matters before Japanese courts because the defendant States enjoy foreign sovereign immunity from the jurisdiction of Japanese courts. Second, they lack the financial assistance and legal advice to sue the defendant State before its own courts. To my knowledge, Japanese victims have not filed claims at American courts for damages suffered as a result of the atomic bomb, nor at Russian courts for damages suffered as a result of forced labor in Siberia. On the contrary, Chinese, Korean, and Philippine victims have been able to institute proceedings before Japanese courts thanks to the financial assistance and volunteer work of Japanese attorneys. This difference between Japanese and foreign victims should be noted, as well as the fact that the agreements between Japan and other States do not concern the claims of individuals.

19 HATANO R./HIGASHI J., Kokusai Hanrei Kenkyu Kokka Sekinin [Study of Case Law on State Liability under International Law], Tokyo 1990, p. 845. 20 ASAHI SHINBUN SENGO HOSHO MONDAI SHUZAIHAN (note 14), p. 20. See also ITO T., ‘Dainiji Sekai Taisengo no Nihon no Baisho Seikyuken Shori’ [Claims and Debts of Japan after the Second World War], in: Gaimusho Chosa Geppo, 1994, No. 1, p. 112 et seq. 21 Supreme Court, 27 November 1968, in: Minshu, Vol. 22, No. 12, p. 2808; Hanrei Jiho, No. 538, p. 6. See also Supreme Court, 4 July 1969, in: Minshu, Vol. 23, No. 8, p. 1321; Hanrei Jiho, No. 566, p. 33; Supreme Court, 13 March 1997, in: Minshu, Vol. 51, No. 3, p. 1233; Hanrei Jiho, No. 1607, p. 11. 22 OHNISHI Y., Case Comment, in: Minshoho Zashi, Vol. 61, No. 2, p. 311 et seq.; HAGHINO Y., Case Comment, in: Kenpo Hanrei Hyakusen I, 3rd ed., Tokyo 1994, p. 217; SAKURADA H., Case Comment, in: Gyosei Hanrei Hyakusen II, Tokyo 1979, p. 313; MIYAZAKI S., Kokusai Ho ni okeru Kokka to Kojin [State and Individuals in International Law], Tokyo 1963, p. 327 et seq.; NAKAGAWA J., ‘Sengo Hosho Sosho to Kokusai Ho’ [Litigation on Post-War Compensation and International Law], in: Hogaku Kyoshitsu, No. 238, p. 43. Contra ASHIBE N., Case Comment, in: Hogaku Kyokai Zashi, Vol. 87, No. 2, p. 286; HIROBE K., Case Comment, in: Juristo, No. 423, p. 199.

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B.

Compensation of Individuals under the 1907 Hague Convention Respecting the Laws and Customs of War on Land

The foreign victims contend that the acts committed by the Japanese army violated the law of nations embodied in the 1907 Hague Convention respecting the Laws and Customs of War on Land and its annexed Regulations. The Hague Convention, which was ratified by Japan in 1911 and entered into force in 1912, states in Article 3: ‘A belligerent party which violates the provisions of the said Regulations shall, if the case demands, be liable to pay compensation. It shall be responsible for all acts committed by persons forming part of its armed forces.’ According to the victims, Article 3 of the Hague Convention entitles them to claim damages directly from the Japanese government, which is liable for acts committed by its own army during World War II. Japanese courts have rejected this argument in all cases.23 For example, in a claim filed by Dutch war prisoners and civilian internees, the Tokyo District Court held on 30 November 1998: ‘It must be said that in general the basic purpose of treaty interpretation is, above all, to ascertain the objective meaning of the terms of the treaty. This being so, Article 3 of the Hague Convention only stipulates that an offending State shall bear an international responsibility to pay compensation. There is no provision regarding issues such as how this compensation shall be effectuated and whether individuals hold a right to claim compensation. No mention is made about individuals. In the light of the Hague Convention as a whole, there is no provision that might suggest that an individual can be the subject of a claim for compensation and that an individual can exercise such a right.’ The Court found this conclusion justified by research that is part of the preparatory work of the Hague Convention, as well as by the subsequent practice of the Contracting States.24 The view also prevails in most scholarly writings that Article 3 of the Hague Convention concerns only reparations between States.25 Thus it follows that the Hague Convention cannot support claims of individual victims.

23 Tokyo District Court, 27 July 1995, in: Hanrei Jiho, No. 1563, p. 121; Tokyo District Court, 22 September 1999, in: Hanrei Taimuzu, No. 1028, p. 92; JAIL, No. 43, p. 216; Tokyo District Court, 9 October 1998, in: Hanrei Jiho, No. 1683, p. 57; JAIL, No. 42, p. 170; Tokyo District Court, 30 November 1998, in: Hanrei Taimuzu, No. 991, p. 262; JAIL, No. 42, p. 143; Tokyo District Court, 26 November 1998, in: Hanrei Taimuzu, No. 998, p. 92. 24 Tokyo District Court, 30 November 1998, in: Hanrei Taimuzu, No. 991, p. 262, at p. 275 et seq.; JAIL, No. 42, p. 143, at p. 146.

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III. Law Applicable to Governmental Liability A.

Practical Implications of Analysis

Acts of the Japanese army committed during World War II could violate not only the law of nations but also the domestic law of the relevant States. Namely, the acts may constitute a tort because indeed murder, rape, abduction, confinement, assault, and so on all occurred. Generally speaking, acts of war do not constitute torts under domestic law if the acts were justified by the law of warfare. This rule, however, does not apply to acts of the Japanese army that resulted in damage and injury to foreign civilians.26 Japanese law, however, had accepted a State immunity doctrine (Kokka Mutouseki no Hori) at the time of the acts in question. According to this doctrine, the Japanese government could not be held liable for acta jure imperii.27 Consequently, if Japanese law governs the acts committed by the Japanese army during World War II and the State immunity doctrine covers these acts, the rules of the Civil Code on tort liability are not applicable. In this context, Japan’s conflict of laws rules come into play. If the acts concerned are not governed by Japanese law but by a foreign law, the Japanese government will not be exempted from tort liability. The State immunity doctrine, which could also be applicable under a foreign applicable law, is regarded as exempting its own government only. Even if Japanese law is applicable, one must determine whether the State immunity doctrine applies to the acts in question. First, one could argue that some of the acts committed during World War II were not acts of the government, acta jure imperii, but acts of a commercial nature, acta jure gestionis. Second, application of the State immunity doctrine to acts committed abroad might not comply with the purpose and objective of this doctrine. Third, the State immunity doctrine could be a procedural rule that is not applicable to legal proceedings instituted after World War II. Finally, the application of the State immunity doctrine to the acts concerned could be contrary to ordre public from the perspective of intertemporal law. 25

YASUI K., ‘Genbaku Kogeki to Kokusaiho jyo no Songai Baisho’ [The Atom Bomb and Compensation under International Law], in: Horitsu Jiho, Vol. 36, No. 2, p. 56; HIROSE Y., Horyo no Kokusaiho jyo no Chii [Status of POWs under International Law], Tokyo 1990, p. 45 et seq.; ASADA M., Case Comment, in: Juristo, No. 1091, p. 246; KOTERA A., Expert Opinion, in: FUJITA H. et al.(ed.), Senso to Kojin no Kenri [War and Rights of Individuals], Tokyo 1999, p. 83 et seq. Contra ABE K., Jinken no Kokusaika [Internationalization of Human Rights], Tokyo 1998, p. 260 et seq.; SHIN H., ‘Kokusaiho kara Mita Sengo Hosho’ [Post-War Compensation from Perspective of Public International Law], in: OKUDA Y./KAWASHIMA S. et al.(note 1), p. 80 et seq. 26 It is likely to be undisputed that the alleged acts of the Japanese army in cases of post-war compensation violated customary international law, as well as the 1907 Hague Convention respecting the Laws and Customs of War on Land and its annexed Regulations. 27 For details of the State immunity doctrine, see below III. D. 2.

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The question of prescription is also relevant in an analysis of the conflict of laws rules. If Japanese law applies to this matter, the right to claim damages in torts has been lost automatically by the fact that the twenty-year period of prescription has elapsed. On the contrary, if a foreign law governs this question, it is possible that the issue of the expiry of the period of prescription would have to be raised by the defendant before the court. This appears to be true with respect to the law of the Republic of China, according to which the Japanese government could be exempted from liability for compensation only if it pleaded before the courts that the period of prescription had elapsed. In such case, given the various circumstances, one could argue that the abuse of rights doctrine does not permit the Japanese government to rely on the argument of prescription.

B.

Rules Governing Governmental Liability in General

Article 11(1) of Japan’s Conflict of Laws Act, the Horei, provides that the requirements and effects of claims arising from unlawful acts are governed by the law of the place where the facts giving rise to the claims occurred. This was ‘the first legislation in the world that included a bilateral provision on the applicability of the lex loci delicti commissi’.28 Until recently, the question whether Article 11 of the Horei also applies when determining the law applicable to governmental liability had not been discussed in the courts and was rarely mentioned in the doctrine. The plaintiff’s attorneys, however, requested application of the lex loci delicti. In former cases involving governmental liability, no one had doubted that Japanese law was applicable because the acts of the civil servants concerned had taken place inside the territory of Japan. This question was dealt with perhaps for the first time in Japan by Professor Takao Sawaki. Focusing on the application of the Governmental Liability Act (Kokka Baisho Ho) of 1947, which contains special rules on governmental liability and provides otherwise for the application of the Civil Code on tort liability, he offered two possible solutions, without firmly advocating either. First, the Governmental Liability Act could apply as part of Japanese law under Article 11 of the Horei, because the Act is part of private law. However, Professor Sawaki found this solution unreasonable, since the Act does not apply to unlawful acts committed by Japanese civil servants abroad. Second, the Act could apply to all acts committed by Japanese civil servants, irrespective of the law specified in Article 11 of the Horei. Professor Sawaki doubted that the Civil Code could apply mutatis mutandis under Article 4 of the Governmental Liability Act, even though Article 11 of the Horei refers to a foreign law.29 28 KELLER M./SIEHR K., Allgemeine Lehren des internationalen Privatrechts, Zurich 1986, p. 358 (English translation by OKUDA Y.). 29 SAWAKI T., Case Comment, in: Shogai Hanrei Hyakusen, Tokyo 1967, p. 205.

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Professor Sawaki’s comments are not convincing since they are concerned only with the results of application or non-application of Japanese substantive rules. According to the doctrine, it is generally understood that the law governing relations with foreign elements as a whole should first be decided and then the substantive rules to be applied as part of the applicable law. If Article 11 of the Horei also determines the law applicable to governmental liability and refers to a foreign law, the Japanese government could be liable under the foreign substantive rules on tort. On the contrary, if governmental liability is governed by the lex fori and not by lex loci delicti, the Civil Code of Japan could be applied on gounds other than those in Article 11 of the Horei.30 Following Professor Sawaki, Professor Ryoichi Yamada similarly suggested other possible solutions for determining the law applicable to governmental liability; however, he too did not firmly adopt any approach. Professor Yamada first addressed Article 6 of the Governmental Liability Act, which requires reciprocity when the Act applies to foreign victims. Categorizing this provision as public rather than private law, Professor Yamada believed it should apply directly to relations with foreign elements. Next, he suggested that all provisions on the status of aliens could be applied only if they are part of the law designated by the conflict of laws rules. This would mean that the Governmental Liability Act should be applied if Japanese law is applicable under Article 11 of the Horei. It could also be argued that, according to an unwritten conflicts rule, an unlawful act by a civil servant should be governed by the law of the State to which he belongs.31 It is unclear whether Professor Yamada addressed only Article 6 of the Governmental Liability Act or whether he was addressing the Act as a whole. In either case, his comments lead, similar to Professor Sawaki’s, to the exclusive application of Japanese substantive rules. This raises the question whether it is really impossible for Japanese courts to apply a foreign law to governmental liability. As mentioned above, the Japanese government could be liable under a foreign substantive rule on tort if Article 11 of the Horei determines the law applicable to governmental liability and refers to a foreign law as the lex loci delicti. A court could also create an unwritten rule specifying that a civil servant’s unlawful act should be governed by the law of the State to which he belongs. Accordingly, if a foreign civil servant committed an unlawful act in Japan, the Japanese court would apply the foreign law of his home country.32 30 See also OKUDA Y., ‘Kokka Baisho Sekinin no Jyunkyoho ni kansuru Oboegaki: Sengo Hosho no Keesu wo Chusin to site’ [Law Applicable to State Liability for Post-War Compensation], in: The Hokkaido Law Review, Vol. 49, No. 4, p. 127. 31 YAMADA R., Kokusai Shiho [Private International Law], Tokyo 1992, p. 160 et seq. 32 See also OKUDA Y., ‘Kokusai Shiho kara Mita Sengo Hosho’ [Post-War Compensation from Perspective of Private International Law], in: OKUDA Y./KAWASHIMA S. et al. (note 1), p. 137.

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As far as acta jure imperii are concerned, a civil servant is permitted to act abroad only with prior agreement of the foreign State or if such acts are authorized by the law of nations.33 The civil servant may exercise his powers according to customary international law or an agreement between his home country and the host country. Furthermore, his acts as a civil servant are subject to the domestic law of his home country. Therefore, the government has an interest in applying its own law to the issue of liability for acts of its civil servants. In principle, this interest should be respected as it creates legal certainty for victims who can then expect to apply the civil servant’s home law. Some victims may be nationals of the civil servant’s home country who had sought but, contrary to the home law, were denied ambassadorial protection. Other victims may be nationals of the host country who had applied to the consul for a visa, but were rejected contrary to the consul’s home law. In this way there is a certain legal relationship between the victim and the civil servant’s home country, thus justifying applying the law of that country.34

C.

Rules Governing Wrongs Committed during World War II

In cases involving Chinese and Philippine victims of World War II, the Court concluded that the Horei did not apply because the State immunity doctrine had been applied at the time of the Japanese army’s unlawful acts. In its ruling of 9 October 1998 regarding Philippine victims, the Tokyo District Court held: ‘Whereas Article 11 of the Horei is supposed to determine the law applicable to matters with foreign elements when there is a conflict between private laws, it is quite doubtful that the Horei should be applied to this case. This is because, as mentioned below, the alleged offenses have a highly public character related to the governmental acts of the State and because general private law was not applicable to governmental acts of the State under the legal system of Japan at the time of the offenses. Additionally, it would also be questionable to include the alleged acts in the category of torts prescribed under Article 11 of the Horei, since the Civil Code could not be applied to governmental acts of the State. That is, governmental acts were out of the range of civil liability under the Japanese legal system at that time.’35 33

UGA K., Kokka Hosho Ho [State Liability Law], Tokyo 1997, p. 365. OKUDA Y. (note 32), p. 138 et seq. Regarding this point I agree with the decision of Austria’s Supreme Court (OGH), 17 February 1982, in: Österreichische Juristenzeitung 1982, p. 462. See the details of this case below at note 38. 35 Tokyo District Court, 9 October 1998, in: Hanrei Jiho, No. 1683, p. 57, at p. 77 et seq.; JAIL, No. 42, p. 170, at p. 178 et seq. 34

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The Court used similar reasoning in its decision of 22 September 1999 against Chinese victims.36 The reasoning of the Court is not at all convincing. Obviously, Article 11 of the Horei includes a bilateral rule for conflicts cases involving torts, under which the applicable law of the lex loci delicti may refer to Japanese law or to a foreign law. The provisions of the Horei were not enacted to bring about exclusive application of Japanese law. Even if Japanese law is designated as applicable by the Horei, it is up to the intertemporal law of Japan to decide whether the State immunity doctrine or the Governmental Liability Act shall apply to the case. In other words, the Horei refers to Japanese law as a whole and not directly to the State immunity doctrine. Therefore, the reasoning of the Court does not justify not applying Article 11 of the Horei.37 The Court also acknowledged that ‘the alleged offenses have a highly public character related to governmental acts of the State’. Indeed, all acts of the Japanese army were closely connected with the interests of the Japanese government. One might conclude that this could justify application of the unwritten rule that an unlawful act of a civil servant shall be governed by the law of the State to which he belongs. According to this rule, Japan’s liability for wrongs committed during World War II would be governed by Japanese law. However, this conclusion ignores the interests of the Chinese and Philippine victims which should also be respected when the decision on the applicable law is made. The plaintiffs had no legal relationship with Japan until the offenses of the Japanese army. Thus, they could not have foreseen the application of Japanese law. Therefore, there is an important difference in the circumstances relating to the wrongs of the Japanese army and the cases of general governmental liability mentioned above. In the former cases it would be unfair to apply Japanese law, even though this is the lex fori. Instead, the lex loci delicti, a neutral law for both parties, should govern Japan’s liability for the acts of the Japanese army.38 36 Tokyo District Court, 22 September 1999, in: Hanrei Taimuzu, No. 1028, p. 92, at p. 128 et seq.; JAIL, No. 43, p. 216, at p. 220 et seq. 37 OKUDA Y. (note 32), p. 129 et seq. See also OKUDA Y., ‘Sengo Hosho Saiban to Savigny no Kokusai Shiho Riron (1) [Litigation on Post-War Compensation and Savigny’s Doctrine on Private International Law (1)], in: The Hokkaido Law Review, Vol. 51, No. 3, p. 251 et seq. 38 OKUDA Y. (note 32), p. 140 et seq. See also OKUDA Y., ‘Sengo Hosho Saiban to Savigny no Kokusai Shiho Riron (2)’ [Litigation on Post-War Compensation and Savigny’s Doctrine on Private International Law (2)], in: The Hokkaido Law Review, Vol. 51, No. 4, p. 343 et seq. As mentioned above in note 34, regarding this point I agree with the decision of Austria’s Supreme Court, OGH, 17 February 1982, in: Österreichische Juristenzeitung 1982, p. 462. In this case, an Austrian ambassador accidentally shot a French ambassador, when both were hunting under the auspices of Yugoslavia’s president. The Court applied Yugoslav law as the lex loci delicti to the question of the liability of the Austrian government.

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D.

Article 11 of the Horei

1.

Lex Loci Delicti

As mentioned above, Article 11(1) of the Horei provides that the lex loci delicti shall govern tort liability. In the case of the Chinese victims, the question arises which law applies as the lex loci delicti; namely, the law of the Republic of China, the law of Manchukuo – the Japanese sponsored State – or the law of the People’s Republic of China. The acts of the Japanese army took place on the mainland of China, which was divided between the Republic of China and Manchukuo at that time, and is now governed by the People’s Republic of China. Manchukuo was established in 1932 in the northeast area of mainland China. This is where Unit 731 of the Japanese Army confined many Chinese civilians and conducted human experiments. As dramatized in the film ‘The Last Emperor’, the Japanese government had designated the ex-emperor of China as executive of Manchukuo, and he later rose to the State’s throne as emperor. In other words, Manchukuo was a puppet government of Japan. Although the Japanese government recognized it as an independent State in 1933, the League of Nations soon declared the recognition premature. As a result, it should be concluded that Manchukuo did not satisfy the requirements of an independent State and its law should not be applied as the lex loci delicti.39 While the mainland of China is now governed by the People’s Republic of China, the wrongs of the Japanese army took place when the law of the Republic of China was in force in that territory. Since it cannot be said that the law of the Republic of China was simply reformed by the law of the People’s Republic of China, the latter cannot be regarded as the lex posterior to the former. Both laws are from different jurisdictions, which could be applied independently as the lex loci delicti. Thus, the law of the Republic of China should be applied as the lex loci delicti because the wrongs of the Japanese army occurred when these laws were in force.40

39 OKUDA Y. (note 32), p. 145 et seq. See also TABATA S., ‘Shonin to Kokunai Saiban’ [Recognition of State and Litigation in National Courts], in: Hogaku Ronso, Vol. 76, No. 1-2, p. 49. As to the premature recognition of the Manchukuo, see SHOJI Y., ‘Manshukoku Fushonin no Hoteki Konkyo ni kansuru Ichikosatsu’ [Study on Legal Grounds of Non-Recognition of the Manchukuo], in: Hogaku Kenkyu Nenshi (Tohoku Gakuin University), No. 10, p. 1. 40 OKUDA Y. (note 32), p. 146 et seq. The Japanese courts applied the law of the Republic of China as the lex loci celebrationis to all marriages contracted in the mainland of China before the creation of the People’s Republic of China. Kyoto District Court, 9 December 1992, in: Hanrei Taimuzu, No. 831, p. 122; Tokyo High Court, 29 September 1988, in: Katei Saiban Geppo, Vol. 41, No. 4, p. 59; Tokyo District Court, 29 July 1987, in: Katei Saiban Geppo, Vol. 41, No. 4, p. 71; Tokyo District Court, 20 November 1986, in: Katei Saiban Geppo, Vol. 39, No. 2, p. 174.

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Incidentally, there were many Chinese civilians who were confined in the mainland of China and transported to Japan where they were forced to work for Japanese companies. In these cases the question also arises as to which law should be applied as the lex loci delicti, Chinese or Japanese law. The wrongs took place both in China and in Japan, and also on the high seas during the transit by ship. However, it was the Japanese government and companies that confined the Chinese civilians and transported them to Japan. If the law of the destination is applied as the lex loci delicti, the Japanese government and companies would be able to choose the law applicable to their own liability. This would be unfair since the lex loci delicti is applicable as a neutral law for both parties. In the cases of forced labor of the Chinese civilians, Chinese law should apply as the lex loci delicti.41

2.

Cumulative Application of the Lex Fori to Requirements of Claims

The principle of lex loci delicti in Article 11(1) of the Horei is restricted by paragraph 2, which provides that, ‘as to unlawful acts, the preceding paragraph shall not apply where the facts occurring abroad are not unlawful under Japanese law’. According to the prevailing view in the doctrine, this provision means that the lex fori is to be applied cumulatively to all requirements of claims.42 Namely, the claims of the Chinese and Philippine victims must satisfy the requirements of both the lex loci delicti and Japanese law. In this context, the question arises as to whether the State immunity doctrine is applicable to the acts concerned. In the case involving Philippine comfort women, the Tokyo District Court answered affirmatively on 9 October 1998: ‘Paragraph 6 of the supplementary provisions of the State Liability Act of 1947 provides that the antecedent law shall apply to damages arising from conduct committed before this Act came into force. At the time of the Second World War, during which the alleged offenses were committed, the State immunity doctrine was effective, so that

41 OKUDA Y. (note 32), p. 147 et seq. See also Matsuyama District Court, 8 November 1994, in: Hanrei Jiho, No. 1549, p. 109 (application of Italian law in the case of a yacht transported from Italy to Japan); Osaka District Court, 6 December 1990, in: Hanrei Taimuzu, No. 760, p. 246 (application of German law in the case of a car transported from Germany to Japan). 42 YAMADA R. (note 31), p. 323; TAMEIKE Y., Kokusai Shiho Koghi [Lecture on Private International Law], 2nd ed., Tokyo 1999, p. 377. Contra ORIMO Y., Kokusai Shiho Kakuron [Private International Law, Individual Parts], 2nd ed., Tokyo 1972, p. 185 (cumulative application should be restricted to the unlawfulness of acts according to the literal interpretation of paragraph 2).

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with regard to acta jure imperii, the Civil Code was not applicable and the Japanese government was not liable to pay compensation.’ In other words, on the one hand, the administrative court dismissed the actions for compensation against the government under Article 16 of the Administrative Justice Act of 1890. On the other hand, the judicial court denied civil liability of the government for acta jure imperii, but applied Article 715 of the Civil Code to acta jure gestionis, making the government liable as employer of the civil servants. The alleged offenses accompanied acts of war of the Japanese army and should be characterized as acts connected with acta jure imperii or as acts of a highly public character. Therefore, the liability of the Japanese government to pay compensation for the offenses should be denied under the State immunity doctrine.43 The court expressed a similar opinion in a decision of 22 September 1999 in a case involving the holocaust in Nanking, the experiments on humans by Unit 731, and the bombing of the non-military area of a Chinese city.44 There are several points at issue concerning the applicability of the State immunity doctrine to cases involving war victims. First, it is doubtful that all acts of the Japanese army during the World War II were acta jure imperii. In a yet to be reported decision of 30 November 2000, the Court of Appeals of Tokyo held in the case of a Korean comfort woman as follows: ‘From application mutatis mutandis of Article 715, paragraph 2 of the Civil Code, one may conclude that as the supervisor of the tortfeasors the Japanese government is liable for the unlawful acts of the employers of the comfort women and the Japanese soldiers. This is because the government was a party to the contracts with, or a business partner of, the employers of the comfort women.’45 The same rule may apply in the forced labor cases where the Japanese government acted as a contracting party and as a partner in the businesses of the Japanese companies that confined and forced foreign civilians to work in Japan.46 Second, it is helpful to consider the purpose and objective of the State immunity doctrine. Boissonade, the French scholar who originally drafted the Japanese Civil Code, provided that public and private administrations were liable 43

Tokyo District Court, 9 October 1998, in: Hanrei Jiho, No. 1683, p. 57, at p. 78; JAIL, No. 42, p. 170, at p. 180. 44 Tokyo District Court, 22 September 1999, in: Hanrei Taimuzu, No. 1028, p. 92, at p. 129. This part of the decision is not translated in JAIL, No. 43, p. 216. 45 Tokyo High Court, 30 November 2000 (Case No. 5333/ne, 1999). 46 AKIYAMA Y., ‘Gyoseiho kara Mita Sengo Hosho’ [Post-War Compensation from Perspective of Administrative Law], in: OKUDA Y./KAWASHIMA S. et al. (note 1), p. 61 et seq.

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for damages caused by their servants or employees. In particular, his draft recognized State liability for all acts of civil servants. However, the wording of his draft was altered by the Parliamentary Drafting Committee, as a result of which the final version of the Civil Code of 1890 was silent about State liability. According to the prevailing theory in the doctrine and case law, these circumstances justify the decision not to apply the Civil Code to acta jure imperii, as a result of which the Japanese government was not liable to pay compensation until enactment of the State Liability Act of 1947.47 However, according to the preparatory work of the Parliamentary Drafting Committee, the members exonerated the Japanese government from liability not simply because the acts of civil servants were deemed acta jure imperii. In their opinion, the ‘people’ should accept the effects of the State immunity doctrine since it was the State’s duty to protect the rights and property of its people by means of acta jure imperii.48 Thus, the State immunity doctrine should be excluded when there is no such relationship between the State and the persons concerned. As mentioned above, a civil servant may carry out acta jure imperii abroad only if the foreign State grants prior approval or if the acts are authorized by the law of nations. This applies both to protecting one’s own nationals and issuing visas to foreigners. However, there was no such protective relationship between the Japanese army and the Chinese and Philippines, who were the victims of the offenses committed by the army in violation of the law of warfare. In this case, the application of the State immunity doctrine does not comply with its purpose and objective. Thus, the Japanese government should be liable for compensation under the Civil Code.49 Third, taking account of the preparatory work of the Administrative Justice Act of 1890, one sees that the jurisdiction of the administrative courts as to the subject matter was regulated differently in several drafts of the Act. Some drafts provided that the administrative courts had jurisdiction over compensation for acta jure gestionis, while others denied it or conferred it upon the judicial courts. With regard to acta jure imperii, some drafts did not mention jurisdiction in matters of compensation, while others expressly denied it. In any case, no draft expressly recognized it or conferred it upon the judicial courts. The final version of the Act provided that the administrative courts should not accept actions for compensation. This rule should be interpreted as denying jurisdiction to the administrative courts 47

On the views in the doctrine and case law, see UGA K. (note 33), p. 15 et seq. OKUDA Y., ‘Kokka Baisho Sekinin to Horitsu Fusokyu no Gensoku’ [State Liability and Principle of Non-Retroactive Application of Law], in: The Hokkaido Law Review, Vol. 52, No. 1, p. 16 et seq. The preparatory materials of the Parliamentary Drafting Committee are reprinted in: HOMUDAIJIN KANBO SHIHO HOSEI CHOSABU (ed.), Horitsu Torishirabe Iinkai Minpo Soan Zaisanhen dai 373 Jyo ni kansuru Iken [Law Research Committee, Opinions on the Draft of Article 373, Title Property, Civil Code], Nihon Kindai Rippo Shiryo Sosho, Vol. 16, Tokyo 1989. 49 OKUDA Y. (note 48), p. 47 et seq. 48

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in matters of compensation for all acts of the government. As for the judicial courts, under the Court Constitution Act of 1890 they had jurisdiction over ‘civil matters’ and ‘criminal matters’ only. Thus it follows that at that time neither the administrative courts nor the judicial courts had jurisdiction in matters of compensation for acta jure imperii. As a result, the government was not liable for compensation. In other words, the State immunity doctrine was a procedural rule.50 After World War II, the Administrative Justice Act and the administrative court were abolished under Article 76(2) of the Constitution and paragraph 2 of the supplementary provisions of the Court Act. As specified by Article 3(1) of the Court Act, judicial courts have jurisdiction over all legal disputes, including, of course, actions against the government for compensation as a result of acta jure imperii. Accordingly, the State immunity doctrine should not apply to actions brought after World War II. It is true that the principle of non-retroactive application of lex posterior is stipulated in paragraph 6 of the supplementary provisions of the State Liability Act; however, this provision applies to substantive rules and not to procedural rules. As a result, since paragraph 6 of the supplementary provisions of the State Liability Act prohibits retroactive application, judicial courts have jurisdiction over ongoing actions of the war victims under the existing Court Act and should apply the Civil Code in such cases.51 Finally, even if the State immunity doctrine is deemed to be substantive law and is applied in cases where the government and foreign victims have had no previous legal relations, the question arises as to whether applying the State immunity doctrine would be contrary to ordre public from the perspective of intertemporal law. The principle of non-retroactive application is based on the policy that legal relations already established between parties should be respected. In other words, the Japanese government should expect that it will not be liable for compensation under the law in force at the time of the acts committed by its civil servants, and the victims should be aware that they are unable to claim compensation under that law. This policy is reasonable in most cases. However, this is not true in regard to cases involving wrongs of the Japanese army during World War II. On the one hand, the war victims continue to suffer physical and psychological pain even sixty years after the offenses had been committed. On the other hand, the Japanese government has enacted laws that grant remedies to former Japanese soldiers and the families of deceased soldiers, as well as to victims of the atomic bomb. This discrimination causes additional pain to the foreign victims. Thus, it can be said that the wrongs of the Japanese government not only occurred in the past but continue to occur now. Furthermore, the acts of the Japanese army, such as the holocaust in Nanking, the experimentation on 50

Ibid., p. 33 et seq. The drafts of the Administrative Justice Act are reprinted in: GYOSEI SAIBANSHO (ed.), Gyosei Saibansho 50 nenshi [History of the Administrative Justice Court in 50 Years], Tokyo 1941, p. 13 et seq. 51 OKUDA Y. (note 48), p. 50 et seq.

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humans by Unit 731, the forced prostitution of Chinese, Korean and Philippine women, and the forced labor of Chinese and Korean men, were all clear violations of humanitarian law that the Japanese government either ordered or did not attempt to prevent. Under these circumstances, the principle of non-retroactive application of lex posterior should be excluded exceptionally, thus allowing the State Liability Act to apply in the cases of the war victims.52

3.

Cumulative Application of the Lex Fori to Effects of Claims

The principle of lex loci delicti in Article 11(1) of the Horei is further restricted by paragraph 3, which provides that, ‘even if the facts occurring abroad are unlawful under Japanese law, the victim shall not claim damages or any other remedy not available under Japanese law’. According to the prevailing view in the doctrine, this provision means that the lex fori should be applied cumulatively to measures and amounts of damages.53 However, the plain meaning of Article 11(3) suggests that it does not apply to matters of prescription governed exclusively by the lex loci delicti. The preparatory materials of the Horei support this conclusion.54 Article 724 of the Japanese Civil Code provides that the right to claim compensation for unlawful acts extinguishes if the victim does not exercise it within three years after he comes to know of the damage and who caused it, or after twenty years from the day the unlawful act was committed. According to case law, this means that the period of prescription is three years and the period for the invalidation of claims 20 years. In other words, a claim for compensation arising from unlawful acts will be invalidated simply after twenty years have elapsed.55 Article 197(1) of the Civil Code of the Republic of China provides that the right to claim compensation for unlawful acts extinguishes when the victim does not exercise it within two years after he comes to know of the damage and who caused it or after ten years from the day the unlawful act was committed. The wording is very similar to the Japanese Civil Code. However, according to the prevailing view in Chinese doctrine, the provision creates a period of prescription 52 Ibid., p. 52 et seq. On ordre public under intertemporal law in general, see SZASZY I., Conflict of Laws in the Western, Socialist and Developing Countries, Leiden 1974, p. 376; HESS B., Intertemporales Privatrecht, Tübingen 1998, p. 396 et seq. 53 YAMADA R. (note 31), p. 324; SAKURADA Y., Kokusai Shiho [Private International rd Law], 3 ed., Tokyo 2000, p. 229. 54 OKUDA Y. (note 32), p. 159 et seq. Nobushige Hozumi, draftsman of the Horei, mentioned only the need to apply the lex fori cumulatively to measures and amounts of damages but not at all to prescription. See HOMUDAIJIN KANBO SHIHO HOSEI CHOSABU (ed.), Hoten Chosakai Horei Ghiji Sokkiroku [Law Research Committee, Preparatory Work of the Horei], Nihon Kindai Rippo Shiryo Sosho, Vol. 26, Tokyo 1986, p. 125. 55 Supreme Court, 21 December 1989, in: Minshu, Vol. 43, No. 12, p. 2209; Hanrei Jiho, No. 1379, p. 76.

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of two years and 10 years, i.e., the elapse of this period only confers the right to reject payment. In other words, the defendant must raise the issue of prescription before the court in order to be exempted from the liability to pay compensation.56 In light of the various circumstances in cases involving Chinese victims, the Japanese government should not be allowed to invoke prescription on the grounds of the abuse of rights principle. This is because these plaintiffs could not exercise their claims for compensation before Japanese courts until 1995. There were neither diplomatic nor factual relations between Japan and the mainland of China until 1972. Moreover, a foreign minister of China declared for the first time in 1995 that the communiqué of 1972 between Japan and China intended to waive reparations between both governments, however, not the compensation of individuals.57 On the other hand, even though fifty years have passed since the end of World War II, it can easily be proven that the offenses committed by the Japanese army caused injuries to the plaintiffs. For example, a film of the holocaust in Nanking by John Magee entitled China Invaded clearly documents one plaintiff’s injuries inflicted by the Japanese army. There are many reports showing that the plaintiffs were confined and transported for human experiments by Unit 731 and forced labor in Japan. Some plaintiffs have appeared before Japanese courts for testimony.58 As a result, the Tokyo District Court recognized the plaintiffs as victims of offenses committed by the Japanese army in a decision of 22 September 1999, although it denied their claims.59 In view of these circumstances, it follows that invoking the right to reject payment on the grounds of prescription should not be allowed because it would represent an abuse of this right.

IV. Conclusion In regard to war compensation, the victims can bring actions only before courts of the defendant State. Claims filed before courts of their home country or a third country will be dismissed as these courts lack jurisdiction due to sovereign immunity. As a result, the lex fori is always the law of the defendant State. If the lex fori applies to war compensation, this is contrary to the administration of justice: A defendant State could enact a law on war compensation, give this law

56 SUZUKI K., ‘Chugokuho kara Mita Sengo Hosho’ [Post-War Compensation from Perspective of Chinese Law], in: OKUDA Y./KAWASHIMA S. et al.(note 1), p. 200. 57 Ibid., p. 205. See also YAMADA M. (note 1), p. 228. 58 YAMADA M. (note 1), p. 243 et seq. Regarding John Magee, see also http://www. arts. cuhk.edu.hk/NanjingMassacre/NMMage.html. 59 Tokyo District Court, 22 September 1999, in: Hanrei Taimuzu, No. 1028, p. 92, at p. 100. This part of the decision is not translated in JAIL, No. 43, p. 216.

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retroactive effect, and thus exclude victims’ claims that would otherwise be recognized under the lex loci delicti. Consequently, the lex loci delicti should be made an international uniform rule for war compensation. This should then be supplemented by rules facilitating access for foreign victims to the courts of the defendant State. In other words, the home State of the victims and the defendant State should cooperate by providing financial assistance and legal advice to the victims, thus making it possible for them to have access to justice. This proposal results necessarily from the experience of the legal proceedings of war victims before Japanese courts.60

Post Scriptum On 13 July 2001, the Tokyo District Court ordered the Japanese government to pay 20 million yen (about 200,000 US dollars) in a Chinese forced labor case. This is the first case where a foreign war victim (in this case his wife and children as successors) has been awarded so much compensation. The Court justifies this conclusion, however, reasoning that the Japanese government is liable for its failure to protect this Chinese laborer, who had escaped from the coal mine and hid out in Hokkaido for 13 years, unaware that the war had ended. On the contrary, the Court denied liability for the abduction and the forced labor for reasons similar to those in the decisions of other cases.61

60

Article 75(2) of the Rome Statute of the International Criminal Court provides that the Court may make an order directly against a convicted person specifying appropriate reparations to, or in respect of, victims, including restitution, compensation and rehabilitation. This provision seems to overcome difficulties for war victims to claim damages but may be not enough for them to receive the full amount of compensation. 61 See http://www.japantimes.co.jp/cgi-bin/getarticle.pl5?nn20010713a3.htm; http:// www.asahi.com/english/national/K2001071301067.html

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ISSUES OF PRIVATE INTERNATIONAL LAW AND CIVIL PROCEDURE ARISING OUT OF THE U.S. CIVIL SUITS FOR FORCED LABOR DURING WORLD WAR II: To What Extent Do U.S. Conflict and Procedural Rules Obstruct Private Liability for Wartime Human Rights Violations? Kent ANDERSON*

I. II.

III.

IV.

Introduction Factual & Procedural History A. European Litigation B. Asian Litigation Jurisdiction A Personal Jurisdiction B. Subject Matter Jurisdiction 1. State Courts 2. Federal Courts a) Diversity Jurisdiction b) Federal Question Jurisdiction c) Alien Tort Claims Act d) Foreign State Jurisdiction e) Supplemental Jurisdiction C. Forum Non Conveniens D. Summary of Jurisdiction Procedural Bars and Defenses A. Treaty Resolution 1. Japanese Peace Treaty 2. German Peace Treaties B. Statute of Limitations 1. International Law Claims 2. Restitution and Tort Claims 3. State Law Specific Claims 4. Equitable Tolling

* MA, JD (Wash.), MJur (Oxon.). Associate Professor, Hokkaido University School of Law, Sapporo, Japan. From September 2001: Senior Lecturer, The Australian National University, Faculty of Law. I wish to thank Andrew Clayton and Yasuhiro Okuda for their comments and suggestions. As always, all errors are mine alone.

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Printed in the Netherlands

Kent Anderson

C. Political Question (Non-justiciability) D. Comity E. Act of State Doctrine & Foreign Sovereign Immunity F. Accord and Satisfaction & Preemption G. Summary of Procedural Bars and Defenses V. Choice of Substantive Law A. International Law Claims B. Tort Claims C. Restitution Claims D. State Law Specific Claims E. Summary of Choice of Substantive Law VI. Private International Law Implications on Settlement VII. Conclusion Addendum

I.

Introduction

World War II was fought over fifty years ago in Europe and Asia, but much of its final resolution is taking place today in the United States. The fact that a Belgian Holocaust victim’s suit against her German slave masters and an Australian prisoner of war’s (POW) claim against his Japanese prison guards are taking place in American courts surprises few U.S. court watchers. Human rights lawyers assert, ‘It is a tribute to the United States system of justice that our courts can handle claims which originated over fifty years ago in another part of the world.’1 Yet, defendants are ‘bewildered and angry’ that U.S. courts are hearing these suits and ‘blam[e] American trial lawyers for opportunistic greed’.2 Whether bewildered or ecstatic, comparative and international lawyers have an interest in closely following the resolution of the private international law and civil procedure questions involved in these cases because these issues have been outcome determinative, whether it be settlement or dismissal. Stated more broadly, how U.S. courts treat the conflicts and procedural questions in the World War II era lawsuits has serious implications for future international human rights litigation in this forum. This Essay develops a coherent framework for the private international law and procedural issues arising in U.S. international human rights litigation derived from an examination of the U.S. lawsuits against private entities for slave and 1

BAZYLER M.J., ‘Litigating the Holocaust’, in: 33 U. Richmond L. Rev. 1999, p. 603. THARP M., ‘Past-due Bills for Japan: Should Wartime Laborers Collect?’, in: U.S. News & World Rep., 7 Feb. 2000. 2

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forced labor during World War II.3 The analysis of some issues varies based on the different factual settings of forced and slave labor in Europe and Asia during World War II.4 Thus, I begin by providing a broad sketch of the factual and procedural history of the European and Asian suits. Next, Section III concentrates on the primary question in pursuing this dispute in the United States-jurisdiction. Section IV then assesses procedural questions, which have been dispositive in the court-resolved cases to date. Section V speculates on the choice of substantive law questions raised by the various claims, on which U.S. courts have yet to rule. In Section VI, I consider to what extent private international law and civil procedure rules impact the private and political resolution of international human rights claims. Finally, I conclude by drawing lessons from the World War II era suits regarding future international human rights litigation in the United States. Specifically, I argue that liberal U.S. jurisdictional laws provide a forum for these suits but restrictive procedural rules preclude their substantive claims from being heard, which in turn results in only a limited temporal window available for leveraging political and private settlements.

II.

Factual and Procedural History

A.

European Litigation

Lawsuits for forced and slave labor were the third wave of Holocaust era litigation in the United States. The general trend began in earnest in 1996 with lawsuits against several European banks for claims over World War II bank accounts of Holocaust victims and has moved to cover, among other things, claims over

3 This Essay does not cover a number of related issues. It does not delve into governmental liability because the Japanese and German governments have purposefully not been named in the U.S. suits and because the issue is almost certainly nonjusticiable under the political question doctrine discussed infra Section IV.C. or alternatively barred by the Foreign Sovereign Immunities Act. See, e.g., Princz v. Federal Republic of Germany, 26 F.3d 1166, 1176 (D.C. Cir. 1994); Wolf v. Federal Republic of Germany, 95 F.3d 536, 544 (7th Cir. 1996). I also do not review the World War II era litigation in the U.S. courts against European banks, insurance companies, or art collectors, because the issues in those cases do not appear or are not central to the Asian litigation. Conversely, I do not review the comfort women, Nanjing massacre, or Unit 731 issues pivotal in the Asian litigation. 4 This Essay uses the term ‘European litigation’ or ‘East Coast litigation’ to describe the lawsuits against various entities for their use of forced and slave labor in the European theater of World War II. ‘Asian litigation’ or ‘West Coast litigation’ is used to describe the similar lawsuits over forced and slave labor in the Asian theater. The phrase ‘World War II era litigation’ is used to refer to both the European and Asian litigation collectively.

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insurance policies and suits for lost art works.5 The European labor cases included a handful of state actions and over fifty federal suits, at least 42 of which were class action lawsuits.6 Generally speaking, the plaintiffs in these cases were U.S. citizens and aliens who were formerly forced and slave laborers in privately owned factories in Germany and its occupied territories between 1942 and 1945. During this period, as part of its war effort the German government encouraged and organized the use of members of persecuted groups, as well as civilians from occupied territories and prisoners of war as either expendable (i.e., slave) or involuntary (i.e., forced) workers.7 The defendants to the suits were the companies that bid on and used these laborers and/or their subsidiaries, parent, and related entities. The plaintiffs, in general, based their claims on (1) violations of international law against slavery and forced labor, (2) restitutionary claims for unjust enrichment and quantum meruit, and (3) tort claims for assault, battery, infliction of emotional distress, and false imprisonment.8 Defendants primarily relied upon conflict of laws and procedural defenses, including (1) lack of personal jurisdiction, (2) lack of subject matter jurisdiction, (3) forum non conveniens, (4) treaty resolution, (5) statute of limitations, (6) political question non-justiciability, (7) comity and foreign sovereign immunity, and (8) preemption and accord and satisfaction.9 In September 1999, separate federal courts in New Jersey dismissed five of the class action suits on their pleadings in Iwanowa v. Ford Motor Company and 5 For the most extensive review of the Holocaust litigation in American literature, see BAZYLER M.J., ‘Nuremberg in America: Litigating the Holocaust in United States Courts’, in: 34 U. Richmond L. Rev. 2000, p. 1 (noting modern Holocaust litigation began in 1996 and reviewing the various types of litigation, viz., bank cases, insurance cases, art cases, forced and slave labor cases, and miscellaneous cases). 6 See In re Nazi Era Cases Against German Defendants’ Litigation, 198 F.R.D. 429, 2000 U.S. Dist. LEXIS 18148, *3-*4, app. A (D.N.J. Dec. 5, 2000) (hereinafter: In re Nazi Era Cases I) (naming 49 of the federal cases and noting the others); BAZYLER M.J. (note 5), App. A (listing all state and federal cases); U.S. Department of State, ‘Annex C & D to Joint Statement on the Federal Foundation "Remembrance, Responsibility and the Future"’, 17 July 2000, at http://www.state.gov/www/regions/eur/holocaust/000717-js-annex.c.pdf (noting in Annex C 42 cases in which plaintiffs’ attorneys participated in the Foundation Agreement, infra note 12, and 13 cases in which plaintiffs’ attorneys did not participate in Annex D). 7 See Iwanowa v. Ford Motor Co., 67 F. Supp. 2d 424, 432-33 (D.N.J. 1999). This Essay incorporates the distinction between slave and forced labor used in the Foundation Agreement discussed infra at note 12. However, as others have pointed out ‘slave’ is a misnomer because slave masters valued their workers as property while German slave workers were treated as a disposable and renewable resource. See BAZYLER M.J. (note 5), n. 784 (citing FERENCZ B.B., Less than Slaves: Jewish Forced Labor and the Quest for Compensation, 1979). 8 See, e.g., Burger-Fischer v. Degussa AG, 65 F. Supp. 2d 248, 252 (D.N.J. 1999). 9 See, e.g., ibid., at 250.

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Burger-Fischer v. Degussa AG.10 Forty-nine of the remaining cases were voluntarily dismissed with prejudice in December 2000.11 These dismissals were directly tied to the settlement efforts among the German government, German industry including most of the defendants, a majority of the plaintiffs, various nongovernmental organizations, and the United States and other governments. Their agreement, known as the Foundation Agreement, stipulated the establishment of a DM 10 billion ($5.1 billion) agency to provide compensation for former workers’ claims upon (1) the dismissal of all U.S. labor based lawsuits, (2) funding by the German government and industry, and (3) proof of the individual claims.12 The remaining labor cases that had not been voluntarily revoked were dismissed on the same grounds as Iwanova and Burger-Fischer on 1 March 2001 in In re Nazi Era Cases Against German Defendants Litigation.13 Thus, for the purposes of U.S. courts the European cases have been conclusively resolved.14

B.

Asian Litigation

While the European suits centered around the federal courts on America’s East Coast, the thirty plus cases in the Asian litigation are focused on the state and federal courts of California.15 The plaintiffs in these cases are predominately former Allied POWs and civilians of Japanese occupied areas, rather than persecuted domestic minority groups. The Asian defendants are a close replica of the European defendants and consist primarily of Japanese businesses and their subsidiaries, parents, and related companies. The defendants have asserted substantially the same conflict of laws and procedural defenses. The Asian litigation plaintiffs, however, have not made any claims based on international law and have made additional state law specific claims under 10

Iwanowa, 67 F. Supp. 2d 424; Burger-Fischer, 65 F. Supp. 2d 248. See In re Nazi Era Cases I, 2000 U.S. Dist. LEXIS 18148. 12 See Agreement between the Government of the United States of America and the Government of the Federal Republic of Germany concerning the Foundation ‘Remembrance, Responsibility and the Future,’ 17 July 2000, at http://www.state.gov/www/regions/ eur/holocaust/000717_agreement.html (hereinafter: ‘Foundation Agreement’). 13 129 F. Supp. 2d 370, 2001 U.S. Dist. LEXIS 2018 (D.N.J. 1 Mar. 2001) (hereinafter: In re Nazi Era Cases II). 14 The final Holocaust era cases were dismissed on 21 May 2001, and distributions pursuant to the Foundation Agreement began shortly thereafter. See ‘German Companies Ready to Release $1.3 Billion into Nazi-Era Labor Fund’, in: Japan Times, 24 May 2001, p. 6. 15 For a list of the cases see BAZYLER M.J./SAXA-KANEKO D., ‘World War II-Era Lawsuits Against the Japanese in U.S. Courts’, http://www.law.whittier.edu/sypo/final (last visited 15 Feb. 2001) (hereinafter: BAZYLER M.J./SAXA-KANEKO D., Asian Litigation List) (providing summary as of November 20, 2000, of 18 federal and 14 state cases). 11

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California’s Civil Procedure Code and Business and Professional Code.16 The lynchpin of these causes of action is section 354.6 of the Code of Civil Procedure (‘Section 354.6’) which provides: ‘(b) Any Second World War slave labor victim, or heir of a Second World War slave labor victim, Second World War forced labor victim, or heir of a Second World War forced labor victim, may bring an action to recover compensation for labor performed as a Second World War slave labor victim or Second World War forced labor victim from any entity or successor in interest thereof, for whom that labor was performed, either directly or through a subsidiary or affiliate. That action may be brought in a superior court of this state, which court shall have jurisdiction over that action until its completion or resolution. (c) Any action brought under this section shall not be dismissed for failure to comply with the applicable statute of limitations, if the action is commenced on or before 31 December 2010.’ The statute was drafted with only the European laborers in mind. The bill’s legislative history talks exclusively of ‘Nazi persecution’ and the statute’s definitions of laborers only refer to those who worked for ‘the Nazi regime, its allies and sympathizers, or enterprises transacting business in any of the areas occupied by or under control of the Nazi regime or its allies and sympathizers’.17 Similarly the extension of the statute of limitations was explained with reliance on German court decisions that reportedly held that claims under the German peace treaties were tolled until 1997.18 Nonetheless, the plaintiffs have taken advantage of the broad statutory language and brought suits predominately against Japanese companies and related entities. To date, the resolution of the California cases has diverged from their East Coast cousins. First, a federal district court has dismissed almost half of the cases on similar legal grounds as Iwanowa and Burger-Fischer, but this was of course

16

See, e.g., In re World War II Era Japanese Forced Labor Litigation, 114 F. Supp. 2d 939, 944 (N.D. Cal. 2000). 17 See Cal. Code Civ. Pro., § 354.6(a)-(b) (Deering 2000); S.B. 1245, 1999-2000 Sess. (Cal. 1999), enacted as 1999 Cal. Stat. ch. 216, §§ 1-2. 18 See Cal. Senate Rules Committee Report on S.B. 1245, 1999-2000 Sess. (Cal. 1999), available at http://www.leginfo.ca.gov/pub/99-00/bill/sen/sb-1201-1250/sb-1245-cfa19990526-154116-sen-floor.htm, (summarizing the 1946 Paris Treaty, London Debt Agreement, and 2+4 Treaty, discussed infra, and finding, ‘The statutes of limitations applying to claims arising out of the Second World War were therefore tolled until 7 November 1997, when the first of several German courts ruled that [the moratorium was ended]’).

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based on different factual findings regarding the relevant Asian Peace Treaty.19 Second, there have been no indications of a pending settlement by the defendant Japanese businesses or Japanese government. In fact, both parties have stated their intent to oppose the cases to their fullest.20 Third, one of the fiercest battles in the Japanese-centered cases has been over whether the proper forum was the state or federal courts.21 This issue arises in the Asian cases because, as partially reviewed above, the California legislature has been enacting legislation to assist World War II victims seeking redress as well as calling on Japan to ‘formally issue a clear and unambiguous apology’ and ‘immediately pay reparations to the victims’ of, among other things, forced labor.22 As a result, the defendants have been eager to avoid and the plaintiffs eager to rely on California state courts.23 19

See In re World War II Era Japanese, 114 F. Supp. 2d at 949. See, e.g., ‘Japan to Fight Ex-POWs’ Campaign for Redress’, in: Japan Times, 29 June 2000, p. 2 (noting statement of Japanese Ambassador to the United States that ‘Japan has no option but to counter the campaign [for forced labor compensation] in court’.); ‘Japan’s Murky Past Catches Up’, in: The Economist, 8 July 2000 (noting Japanese industry and government resolve to defend the cases). 21 See, e.g., Jeong v. Onoda Cememt Co., Ltd., 2000 U.S. Dist. LEXIS 7985 (C.D. Cal. 18 May 2000). 22 See A.J.R. 27, 1999-2000 Sess. (Cal. 1999) (calling for apology and reparations); Cal. Civ. Proc. Code, §§ 354.6 (extending statute of limitations for forced and slave laborers); 354.5 (providing jurisdiction for insurance claims); Holocaust Victims Insurance Act, Cal. Ins. Code, §§ 790-790.15 (allowing state Insurance Commissioner to suspend insurer’s license for failing to pay Holocaust claims); 12967 (ordering research on Holocaust insurance claims); 13800-02 (establishing a Holocaust Insurance Registry and extending jurisdiction and statute of limitations to Holocaust survivors); Holocaust Reparations Act, Cal. Rev. & Tax. Code, § 17155 (exempting Holocaust survivor compensation awards from state taxation). 23 In addition to California, fifteen states have enacted legislation to assist Holocaust plaintiffs. See BAZYLER M.J. (note 5), App. A (providing a list and summary of all legislation). However, California is the only state to enact a statute such as Section 354.6 for forced and slave labor claims and to extend the statute of limitations on these claims. A bill to enact a statute essentially identical to Section 354.6 was introduced in Rhode Island, but it failed to pass. See S.B. 2026, 2000 Sess. (R.I. 2000), status and bill text available at http://www.state.ri.us/00SESSION/bills/00-2026.htm. Rhode Island’s House also passed a resolution similar to California’s calling upon the United States, Germany, and German industry to create a fund to compensate forced and slave laborers of World War II. See House Res. 8119, 2000 Sess. (R.I. 2000), available at http://www.rilin.state.ri.us/billtext00/ housetext00/h8119. htm. The most recent legislative activity comes from the U.S. House of Representatives where one of the original sponsors of Section 354.6, now a U.S. representative and joined by 64 other representatives, introduced proposed federal legislation on 22 March 2001 that seeks, in effect, to extend the statute of limitations in the World War II era suits and eliminate the treaty resolution defense discussed below in section IV.A. See Justice for United States Prisoners of War Act of 2001, H.R. 1198, 107th Cong. (sponsored by Rep. Mike Honda). 20

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III. Jurisdiction For many foreign observers, the most fundamental question regarding the United States litigation over World War II era claims is on what basis are the courts asserting authority over disputes between foreigners regarding foreign activities. Under domestic law, U.S. courts may hear cases for monetary damages where they have both personal jurisdiction over the parties and subject matter jurisdiction over the claims.24 Personal jurisdiction relates to a court’s control over the parties and is limited by constitutional protections of due process. On the other hand, subject matter jurisdiction refers to a court’s power to hear or determine the claims of a case, which is generally determined by specific statutory grants. While the standard for personal jurisdiction is the same whether a claim is brought in the federal or state courts, subject matter jurisdiction is complicated by different rules for federal and state tribunals.

A.

Personal Jurisdiction

The due process requirements for personal jurisdiction are notably broad and as a practical matter have not obstructed any of the labor suits. Pursuant to the classical statement of the rule for in personam jurisdiction, a court may exert jurisdiction over a nonresident to the extent that that party has ‘minimum contacts’ with the province and control over that party does not offend ‘traditional notions of fair play and substantial justice’.25 Because in all of the World War II cases the actions on which the complaints are based were conducted outside of the United States, the defendants’ present contacts with the forum must be ‘substantial’ or ‘continuous and systematic’.26 Consistent with this, it has long been held that the presence of a subsidiary alone is not enough to subject a separate and distinct parent to personal jurisdiction.27 The cases, however, have also found personal jurisdiction where the defendants had no actual presence in the forum, but did have a direct agency relationship with a local company.28 Whether a party satisfies this standard will be determined on a case-by-case basis reviewing all the specific facts, but as a The U.S. executive branch has opposed the bill. See ‘U.S. Cool to Bill on Ex-POW Claims’, in: Japan Times, 3 March 2001, p. 3, available in LEXIS, News Library, Japan Economic Newswire. 24 See Restatement (Second) of Judgments, § 1 (1982). 25 See International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). 26 See Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 414-16 (1984). 27 See Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 337 (1925). 28 See, e.g., Frummer v. Hilton Hotels Int’l, Inc., 19 N.Y.2d 533 (N.Y. 1967).

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practical matter, the rules mean that courts may control almost any defendant doing nearly any business with the forum no matter how tenuously connected with it. In both the European and Asian portions of the U.S. World War II era litigation, the named defendants are almost all large multinational companies along with their subsidiaries and related companies. As multinational companies, it is extremely likely that they satisfy the due process requirements for personal jurisdiction. That is not to say, however, that personal jurisdiction will not limit whom the plaintiffs may sue.29 Many of the plaintiffs’ lawyers in the European litigation noted that, barring the settlement, they would have expanded their actions to the over 500 firms that were subsequently identified as using forced and slave labor during the war.30 However, the personal jurisdiction standard would most likely only allow suits against those companies that have been successful enough to grow beyond their country’s borders in the post-war years. As a result, the United States forum is only a practical alternative for international human rights cases against U.S. companies or large foreign entities.

B.

Subject Matter Jurisdiction

1.

State Courts

In addition to personal jurisdiction, the plaintiffs in international human rights cases in the United States must establish that the specific court in which they bring their cause has subject matter jurisdiction. Subject matter jurisdiction cannot be created by consent, waiver, or estoppel.31 U.S. state courts generally have subject matter jurisdiction to hear all cases except those specifically withheld from them by state or federal constitutions.32 Thus, state courts have authority over restitution 29 See Cornell v. Assicurazioni Generali S.p.A, 2000 U.S. Dist. LEXIS 11004 (S.D.N.Y., 7 Aug. 2000) (dismissing Holocaust insurance case against Austrian insurer for lack of personal jurisdiction); Cornell v. Assicurazioni Generali S.p.A, 2000 U.S. Dist. LEXIS 2922 (S.D.N.Y., 16 Mar. 2000) (dismissing Holocaust insurance case against French insurer for lack of personal jurisdiction). But see Stahl v. Victoria Holdings AG, 2000 U.S. App. LEXIS 11358, *3 (9th Cir. 18 May 2000) (reversing dismissal of WII era case against European insurance companies for lack of personal jurisdiction connections and remanding for a hearing on the plaintiffs’ ‘novel “enterprise” theory of jurisdiction.’). 30 See FISHER B.A., ‘Japan’s Postwar Compensation Litigation’, in: 22 Whittier L. Rev. 1999, pp. 35, 37-38 (the author was a plaintiffs’ attorney in both the European and Asian litigations). 31 See Insurance Corp. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982). 32 See, e.g., Cal. Const., art. XI, § 10; U.S. Const., Amend. X (providing ‘powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people’).

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and tort claims such as those raised by the plaintiffs in both the European and Asian litigations. Moreover, California’s Section 354.6 expressly provides its state courts with original jurisdiction over whatever claims fall within its definition.33 Though rarely relied upon due to a variety of substantive problems including those reviewed below; in principle, state courts also have concurrent power to hear claims based on violations of international law.34 However, in the Asian litigation the plaintiffs have been particularly careful not to plead these causes of action because in doing so they might give the federal courts jurisdiction.35 Evaluating the exact benefits of state courts versus federal courts is a complex and multifactor calculation that counsel for plaintiffs and defendants will necessarily conclude differently. Nonetheless, given the climate in California where the legislature has condemned the Japanese government and called for it and Japanese businesses to compensate former forced and slave laborers, the plaintiffs’ attempts to limit subject matter jurisdiction to the state courts seems understandable.

2.

Federal Courts

In contrast to state courts, U.S. federal courts are courts of limited, not general, jurisdiction and, thus, it is much more difficult to establish their subject matter jurisdiction over a suit.36 There are two primary bases for federal subject matter jurisdiction-diversity of litigants’ residence and questions of federal law. In

33

See Cal. Code. Civ. Pro., § 354.6(b). Concerning what exactly those substantive claims are see infra section V.D. Section 354.6’s extension of subject matter jurisdiction might arguably be challenged as unconstitutional for violating, inter alia, the foreign affairs power. Section 354.5 of the California Code of Civil Procedure, which gives jurisdiction over World War II era insurance claims and extends the statute of limitations until 2010, has recently been questioned on this ground. See Gerling Global Reins. Corp. of Am. v. Quackenbush, 2000 U.S. Dist. LEXIS 8815, *4 n.2 (E.D. Cal. June 9, 2000), aff’d on different grounds, sub nom., Gerling Global Reins. Corp. of Am. v. Low, 2001 U.S. App. LEXIS 1724, *5 (9th Cir. Feb. 7, 2001) (dismissing challenge of Section 354.5 for lack of ripeness). 34 See U.S. Const., Article III, amend. X; Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473 (1981) (holding unless Congress expressly makes federal jurisdiction exclusive, federal and state courts have concurrent jurisdiction to try federal law claims). This of course raises the unresolved question of whether an individual has a private right of action under international law discussed below in Section III.B.2.b. 35 See, e.g., In re World War II Era Japanese, 114 F. Supp. 2d at 942 (noting ‘plaintiffs’ attempts to plead only state law claims’); Jeong, 2000 U.S. LEXIS 7985, at *2 (conspicuously failing to plead international law claims). 36 See Aldinger v. Howard, 427 U.S. 1, 15 (1978); 13 WRIGHT C.A. et al., Federal Practice and Procedure, St. Paul Minn. 1984 & Supp. 2000, § 3522 (summarizing cases).

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addition, the World War II era cases raise two other rarely used bases for federal court control.

a)

Diversity Jurisdiction

Federal courts have concurrent ‘diversity jurisdiction’ with the state courts for state law claims between citizens of different states (including foreign states) where the amount in controversy exceeds $75,000.37 However, the diversity of the parties must be complete, that is, none of the defendants may be from the same state as any of the plaintiffs.38 This requirement of complete diversity is a difficult standard to meet in cases such as the World War II era lawsuits where numerous class action plaintiffs are simultaneously suing a huge number of primary defendants and a variety of their subsidiaries and related entities.39 This was clearly shown in Jeong v. Onoda Cement Company, Ltd. where the Japanese defendants sought to remove the class action from a California state court to the federal courts based on diversity jurisdiction.40 In Jeong, there was no diversity of the parties on the face of the complaint since one of the named defendants was a California company. Because this company was only a recently acquired subsidiary of one of the primary Japanese defendants though, the defendants asserted that it had been fraudulently named merely to destroy diversity jurisdiction or alternatively that it was the alter ego of its foreign parent and so it should be considered a non-resident for jurisdictional purposes.41 The court refused to accept either argument. It denied the alter ego rationale as a factual matter and found that the broad language of Section 354.6, which covers ‘any entity or successor of interest thereof, for whom that labor was performed, either directly or through a subsidiary or affiliate’, seemed to allow the joining of even remotely related subsidiaries.42 Other courts hearing the World 37

28 U.S.C. § 1332(a) (2001). See Strawbridge v. Curtiss, 7 U.S. (2 Cranch) 267, 267 (1806). 39 Diversity jurisdiction was not addressed in the consolidated case dealing with the majority of the Asian suits. See In re World War II Era Japanese, 114 F. Supp. 2d 939 (conspicuously not addressing diversity jurisdiction). 40 See Jeong, 2000 U.S. LEXIS 7985, at *3-*14. 41 See ibid.; LEUNG S., ‘Suit Will Test State Law on War Labor’, in: Wall Street J., 27 Oct. 1999 (reviewing the 1990 acquisition of the California company by the Japanese defendant and noting that during World War II the U.S. subsidiary was in fact operating solely in the United States and contributed to the war effort against Japan). 42 See Jeong, 2000 U.S. LEXIS 7985, at *3-*14 (emphasis in original). But cf. Gerling Global Reins. Corp. of Am. v. Nelson, 123 F. Supp. 2d 1298, 1304 (N.D. Fla. 2000) (ruling comparable Florida statute unconstitutional specifically because it seemed to allow the joining of even remotely related subsidiaries). 38

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War II era lawsuits have been more willing to find diversity, but these cases have been on the East Coast where it has been primarily the plaintiffs who sought and the defendants who did not object to the diversity basis.43 In other words, depending upon the plaintiffs’ objectives in going to or avoiding federal court, they should be able to create or evade diversity jurisdiction by carefully constructing their complaint and whom it names as parties.

b)

Federal Question Jurisdiction

When diversity jurisdiction cannot be found, the federal court may also take subject matter jurisdiction where the claims raise questions of federal law. That is, ‘federal question jurisdiction’ is met where a cause of action ‘aris[es] under the Constitution, laws, or treaties of the United States’.44 The analysis of whether the World War II era litigation implicates such federal law issues, however, differs between the European and Asian cases. This is because the plaintiffs in the East Coast lawsuits have sought to base jurisdiction upon it, while the plaintiffs in the West Coast cases have purposefully and carefully sought to avoid it. In the Asian litigation, the plaintiffs have not alleged any claims based on violations of federal law, and federal question jurisdiction only exists where a federal claim is ‘presented on the face of the plaintiff’s properly pleaded complaint’.45 Nevertheless, defendants have the right to remove a case from the state courts to the federal courts where the suit alternatively could have been brought in a federal court.46 They may not, however, remove the case if the federal question only arises as part of a defense and not as a basis on the plaintiff’s properly pleaded complaint.47 Relying on this rule, the court in the Jeong case denied the defendants’ attempt to remove that suit to the federal forum. The court found that the federal law questions they asserted did not develop as affirmative claims but only arose as defenses.48 Specifically, the defendants argued that the Japanese Peace Treaty and the War Claims Act, both reviewed below, were federal remedies that preempted any relief based on the plaintiffs’ state law causes. The court found though that only where a federal law ‘completely’ preempts or ‘supplants’ state law claims will it cease to be a mere defense and support federal issue jurisdiction.49 Therefore, it concluded that ‘because neither the Treaty nor the Act gave any forced labor 43

See Iwanowa, 67 F. Supp. 2d at 470; Burger-Fischer, 65 F. Supp. 2d at 250. 28 U.S.C. § 1331. 45 Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987). 46 28 U.S.C. § 1441(a). 47 See Rivet v. Regions Bank of La., 522 U.S. 470, 475 (1998). 48 See Jeong, 2000 U.S. Dist. LEXIS 7985, at *15-*20. 49 See ibid., at *15-*16. 44

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victim a right to bring a suit for compensation in the federal court’, the federal issues raised by the claims were merely defenses upon which federal jurisdiction could not be supported. Shortly after this opinion, the court hearing the remainder of the consolidated Asian cases accepted the Jeong conclusion and yet still found a basis for federal question jurisdiction.50 In In re WWII Era Japanese Forced Labor Litigation, the court held that the lawsuit raised questions of the ‘federal common law of foreign relations’ upon which general subject matter jurisdiction could hang.51 The court explained federal common law of foreign relations is implicated where causes of action, including private party claims, ‘necessarily require determinations that will directly and significantly affect United States foreign relations’.52 Applying this rule to the Asian lawsuits, the court found that because the claims arise out of war and unavoidably involve the policy choices made in settlement, the complaints, ‘on their face, implicate the federal common law of foreign relations and, as such, give rise to federal jurisdiction’.53 Accepting this, defendants in future cases alleging international human rights violations during war and asserted after a negotiated peace appear to have a foundation for removing state lawsuits into the federal courts. In the European cases, because it was the plaintiffs and not the defendants who sought to be in the federal courts, the analysis of whether general federal question jurisdiction existed was quite different. The plaintiffs in these cases asserted general federal question jurisdiction based on their international law claims. International law, whether pursuant to treaties or as customary law, is law of the federal United States, not the separate states.54 Therefore, some courts have simply found that if a plaintiff in the World War II era litigation has relied on international law in making its claims the court has federal question jurisdiction.55

50

See In re World War II Era Japanese, 114 F. Supp. 2d at 943-44, n.1. Ibid. (noting also and quoting Poole v. Nippon Steel Corp., No. 00-0189 (C.D. Cal. 17 March 2000) in which another federal district court found that the Asian litigation satisfied federal question jurisdiction by ‘presenting substantial issues of federal common law dealing with foreign policy and relations’). 52 See Republic of Philippines v. Marcos, 806 F.2d 344, 352 (2d Cir. 1986); Torres v. Southern Peru Copper Corp., 113 F.3d 540, 543 (5th Cir. 1997). 53 See In re World War II Era Japanese, 114 F. Supp. 2d at 943. 54 See Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 415 (1964) (holding the federal courts have jurisdiction over cases arising under international law); Filartiga v. Pena-Irala, 630 F.2d 876, 886 (2d Cir. 1980). But cf. BRADLEY C.A./GOLDSMITH J., ‘The Current Illegitimacy of International Human Rights Litigation’, in: 66 Fordham L. Rev. 1997, pp. 319 et seq. (1997) (arguing that international customary law must be incorporated into federal law). 55 See, e.g., Bodner v. Banque Paribas, 114 F. Supp. 2d 117, 127 (E.D.N.Y. 2000). 51

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Other courts, however, have looked beyond this superficial question and noted that whether international law based jurisdiction exists is necessarily dependant upon whether international law gives rise to claims that a plaintiff may personally assert.56 Stated differently, the courts reason that if plaintiffs do not have an international law claim upon which private rights of action exist, they have no cause of action on which to rest federal issue jurisdiction. The issue is further complicated because there are different standards for U.S. citizen plaintiffs and alien plaintiffs regarding whether a private right of litigation and corresponding jurisdiction exists. Jurisdiction for international claims by aliens is slightly more straightforward since it is covered by a specific statute discussed below. On the other hand, whether citizens have private rights of action under international law is an extremely complex and unsettled area of the law, which incidentally the courts hearing the World War II era claims have largely avoided.57 A citizen’s private rights of action under international law technically may be founded on either treaty law or customary law. However, with regards to treaty law, this proposition has been all but foreclosed by the failure of the United States to ratify self-executing human rights treaties.58 Self-executing treaties are enforceable in courts without enacting legislation, however, the vast majority of treaties are non-self-executing under which individuals have no right to sue.59 Regarding whether citizens hold a private right of action under customary international law, no consensus may be drawn from the decisions to date.60 Most commonly, the federal courts have avoided the question by relying on another basis for federal subject matter jurisdiction or by dismissing on other grounds.61 Thus, whether a U.S. court has general federal question jurisdiction over citizens’ complaints based on international law continues to be an open question.

56 See, e.g., Tel-Oren v. Libyan Arab Republic, 726 F.2d 744, 811 (D.C. Cir. 1984) (Bork, J., concurring). See also BILENKER S.A., ‘In re Holocaust Victims’ Asset Litigation: Do the U.S. Courts have Jurisdiction over the Lawsuits Filed by Holocaust Survivors Against the Swiss Banks?’, in: 21 Maryland J. Int’l L. & Trade 1997, pp. 251, 260-70 (reviewing the issue). 57 Given the private international law focus of this essay, I do not fully address the issue of whether individuals have a private right of action under public international law. For a more comprehensive treatment of that question see, e.g., BRADLEY C.A., ‘Customary International law and Private Rights of Action’, in: 1 Chicago J. Int’l L. 2000, P. 421. 58 See ibid. pp. 422, 425; BILENKER S.A. (note 56), pp. 262-67. 59 See, e.g., Foster v. Neilson, 27 U.S. (2 Pet.) 253, 313-14 (1829); Goldstar (Panama) v. United States, 967 F.2d 965, 968-69 (4th Cir. 1992). 60 See, e.g., Princz v. FRG, 26 F.3d at 1176 (rejecting basis); Forti v. Suarez-Mason, 672 F. Supp. 1531, 1544 (N.D. Cal. 1987) (accepting basis). 61 See Burger-Fischer, 65 F. Supp. 2d at 273 (avoiding issue and relying on diversity jurisdiction); Tel-Oren, 726 F.2d at 823 (Robb, J., concurring) (holding case not justiciable under political doctrine and declining to review jurisdiction issue).

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c)

Alien Tort Claims Act

In contrast, pursuant to the Alien Tort Claims Act (ATCA) the United States has provided the federal courts with subject matter jurisdiction over foreigners’ claims based on international law since 1789.62 Originally drafted to combat pirates, since 1980 U.S. lawyers have increasingly relied on the law to establish U.S. courts’ jurisdiction over claims of international human rights violations.63 The ATCA provides: ‘The [federal] district court shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.’ Given this specific grant of authority it is generally accepted that the federal courts can hear lawsuits by aliens for tort claims based on international law.64 More problematic has been (1) whether the jurisdictional grant of the ATCA also creates a private right of action for violations of international law; and (2) whether the specific cases of slave and forced labor alleged in the World War II litigation violated customary international law. Given the private international law focus of this Essay, I only touch upon the responses to date of these questions.65 Regarding the first issue, there is a split of authority with a strong majority of federal courts, including the court in Iwanowa, finding that the ATCA creates a private right of action along with jurisdiction, and a small minority denying any private rights of action.66 Interestingly, because this majority is more clearly developed than any judicial position regarding the comparable issue of a U.S. citizen’s private rights based on international law, American law seems to produce the ironic result of giving foreigners stronger claims in international human rights litigation than nationals. Regarding the second issue, the court in Iwanowa held 62

See Judiciary Act of September 24, 1789, § 9, 1 Stat. 73, 77, codified at 28 U.S.C.

§ 1350. 63 See BAZYLER M.J. (note 1), pp. 605-06 (citing the 1980 case Filartiga, 630 F.2d 876, as establishing the approach). 64 See, e.g., Kadic v. Karadzic, 70 F.3d 232, 236, 238 (2d Cir. 1995) (finding jurisdiction over ‘suits alleging torts committed anywhere in the world against aliens in violation of the law of nations’). See also MCDONALD K., ‘Corporate Civil Liability under the U.S. Alien Tort Act for Violations of Customary International Law during the Third Reich’, in: St. Louis-Warsaw Transatlantic L. J. (1997), p. 167 et seq. (reviewing ATCA for World War II era labor claims). 65 For greater development of these issues see, e.g., RAMASASTRY A., ‘Secrets and Lies? Swiss Banks and International Human Rights’, in: 31 Vanderbilt J. Transnat’l L. 1998, p. 325; BRADLEY C.A./GOLDSMITH J. (note 54), pp. 319, 357-363. 66 Cf. Iwanowa, 67 F. Supp. 2d at 443; Abebe-Jira v. Negewo, 72 F.3d 844, 848 (11th Cir. 1996); Kadic, 70 F.3d at 236; In re Estate of Ferdinand Marcos, Human Rights Litig., 25 F.3d 1467, 1475 (9th Cir. 1994); Tel-Oren, 726 F.2d at 780 (Edwards, J., concurring); Xucax v. Gramajo, 886 F. Supp. 162, 179 (D. Mass. 1995); Paul v. Avril, 812 F. Supp. 207, 212 (S.D. Fla. 1993); Tel-Oren, 726 F.2d at 810-26 (Bork, J., concurring).

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that ‘case law and statements of the Nuremberg Tribunals unequivocally establish that forced labor violates customary international law’.67 Subject to a hearing of the specific facts of the case, this conclusion should also apply to forced and slave labor claims in the Asian lawsuits. Thus, the ATCA provides foreigners with a basis for federal subject matter jurisdiction in international human rights cases that assert forced and slave labor claims in violation of international law.

d)

Foreign State Jurisdiction

The defendants in the Asian litigation have inventively suggested another route to the federal courts – 28 U.S.C. § 1330, which gives federal jurisdiction over ‘foreign states’. Generally speaking, the governments of Japan, Germany, or anywhere else have not been named in the World War II era litigation; in fact, the whole essence of the suits is that they are against the private companies that used forced and slave labor. The Asian defendants, however, assert that during the war they were agents or instrumentalities of the state, and as a result, they may remove the lawsuits to federal court as well as assert foreign sovereign immunity defenses.68 Specifically, one of the Japanese defendants submitted that it was ‘essentially nationalized’ between 1944 and 1945 under the Munitions Company Law.69 The court in Jeong rejected this as a factual matter stating that they had failed to meet the burden of showing that the plaintiff’s claims related solely to that period while the defendant was allegedly nationalized.70 The court, however, did not foreclose this route of jurisdiction and defense. Rather, it merely noted that it would be factually difficult to establish, which was ‘an unfortunate consequence of the California legislature’s decision to attempt to revive 55-year old claims’.71 Because states frequently nationalize industries as part of the economic efforts in the prosecution of war, this unanswered question of jurisdiction and defense appears to remain an option for defendants and an obstacle for plaintiffs in future forced labor lawsuits.

67

Iwanowa, 67 F. Supp. 2d at 441. See Jeong, 2000 U.S. Dist. LEXIS 7985, at *21-*33. 69 Ibid., at *25. 70 Ibid. at *30-*33. 71 Ibid. at *33, n.14. Regarding the defense of a nationalized or denationalized agency or instrumentality of a foreign state see generally, SIMMONS R.J., ‘Nationalize and Denationalized Commercial Enterprises under the Foreign Sovereign Immunities Act’, in: 90 Columbia L. Rev. 1990, p. 2278. 68

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e)

Supplemental Jurisdiction

If a party can establish subject matter jurisdiction as a federal question, under the ATCA, or as a foreign state, the federal court also has the right to hear any additional state claims raised.72 The state claims must be so related to the federal causes that they form part of the same case or controversy, which means that they ‘derive from a common nucleus of operative facts’ or ‘would normally be expected to be tried in a single judicial proceeding’.73 Relevant to the state claims in the labor litigation, a federal court commented on the inclusion of state causes of action in one of the World War II era bank suits that: ‘It is patently obvious that both conditions, as well as considerations of judicial economy, favor the assertion of supplemental jurisdiction [in these cases].’74

C.

Forum Non Conveniens

Assuming arguendo that jurisdiction existed, the defendants in all the World War II era litigation asked the courts to dismiss the suits as a discretionary measure under the doctrine of forum non conveniens. Pursuant to this doctrine a court may dismiss a case, over which it has jurisdiction, in favor of another, more appropriate forum.75 The rationale behind the policy is to avoid inflicting hardship on the defendant and the court which may result from forum shopping possible under jurisdiction rules.76 The standard places a strong presumption in favor of plaintiff’s selected forum, but allows for dismissal where (1) there is an adequate alternative forum and (2) private and public interests favor the foreign forum.77 At first blush, the World War II era labor litigation would appear to be a prime candidate for forum non conveniens. The courts, however, have been hesitant. None of the decisions in the World War II era litigation cases have addressed the issue, but a federal court reviewed and denied the defense in the related case of Bodner v. Banque Paribas concerning World War II era French bank liability for Holocaust accounts.78 The court in Bodner began by reiterating the strength of the presumption in favor of the local court when a plaintiff is a local

72

28 U.S.C. § 1367(a). See United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966). 74 Bodner, 114 F. Supp. 2d at 127 n.7. 75 See Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981). 76 SCOLES E.F./HAY P., Conflict of Laws, 2d ed., St. Paul Minn. 1992, § 11.9. 77 See Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947). 78 See Bodner, 114 F. Supp. 2d at 131-33. See also Burger-Fischer, 65 F. Supp. 2d at 254 (declining to address issue). 73

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resident.79 In the World War II era labor litigation, plaintiffs are split between foreigners and American residents, but the presumption applies even where plaintiffs are mixed in class actions and would appear especially compelling in the case of former POW citizens. The key regarding the adequate alternative forum factor is not simply whether there is another court where the lawsuit may be brought, but whether a U.S. court deems that forum adequate. Courts have found that differences under foreign law, such as the lack of punitive damages, no contingent-fee lawyers, and substantive law more favorable to the defendant, should not be given substantial weight in determining whether an alternative court is adequate.80 Nonetheless, in Bodner the court held that the lack of similar remedies and class action procedure in the alternative forum meant that the European venue (France, specifically) was not an adequate court and, therefore, forum non conveniens could not be granted.81 This conclusion may be criticized, but given the inconsistency of existing case law on the subject and the fact-specific nature of the inquiry, the decision seems to lack significant precedential value whatever its outcome. In the World War II era labor cases, the fact that these issues have been or are being litigated throughout Europe and Asia suggests that there is an alternative forum. Whether a U.S. court will find those forums adequate is difficult to predict given the different views on the cognoscibility of claims where the foreign systems lack punitive damages, class action procedures, contingency-fee lawyers, and other substantive law benefits. Despite the court’s preemptive conclusion in Bodner, it went on to review whether private and public interests favored foreign forums over U.S. courts.82 First considering the private factors, the court found that the plaintiffs would have both physical difficulty traveling abroad and financial difficulty securing representation due to the lack of a contingency-fee system. On the other side, the court dismissed or discounted any inconvenience the foreign defendants might encounter reasoning that they were large companies doing business globally who would not be financially burdened by defending in the United States particularly with modern technology such as faxes, email, and the internet. The court continued that the location of evidence and witnesses was an indeterminative factor since most of the foreign evidence had already been collected and was largely available in the United States. In reviewing the public factors, the court reiterated that there was a strong public interest in providing a forum for citizens. This type of governmental interest 79 Bodner, 114 F. Supp. 2d at 131. Accord Piper, 454 U.S. at 255-56; Derenis v. Coopers & Lybrand Chartered Accountants, 930 F. Supp. 1003, 1009 (D.N.J. 1996) (U.S. residents’ selection of local forum entitled to deference even in class action). 80 See Piper, 454 U.S. at 247; SCOLES E.F./HAY P. (note 76), pp. 376-81, 377 n. 4 (providing citations and summarizing). 81 See Bodner, 114 F. Supp. 2d at 132. 82 See ibid., at 132-33.

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rationale might arguably be extended to those foreigners with ATCA or Section 354.6 claims, since these statutes suggest that the legislatures specifically sought to provide a forum for these cases.83 The court in Bodner concluded its analysis by dismissing the significance or challenge of applying a foreign substantive law, such as France’s. The court’s treatment, however, completely failed to consider a number of other factors often weighed by other courts such as the alternative forum’s competing interest in hearing the case and any negative factors in hosting the case such as the overburdening of local courts.84 As a result, the Bodner court’s analysis appears outcome driven. Nonetheless, the strong presumption in favor of local plaintiffs and the arguable governmental interest in providing a forum for foreigners with ATCA and Section 354.6 claims suggest that forum non conveniens may be a doubtful means of escaping jurisdiction for defendants in international human rights lawsuits.

D.

Summary of Jurisdiction

Jurisdiction in the United States is a complex issue, particularly in regard to international human rights cases. Personal jurisdiction restricts the reach of U.S. courts by incorporating constitutional due process requirements, but this is notably broad and generally captures any person doing business in America. The limitation is not meaningless with regards to the World War II era litigation though, as it will likely prevent a court from asserting jurisdiction over any defendant that has not been successful enough to expand beyond its own borders. Subject matter jurisdiction refers to the power of the court to hear a specific complaint. The essence of the World War II era labor suits is restitutionary and tortious, which are subjects clearly within the state courts’ authority. State courts also have subject matter jurisdiction over those unique state statutes such as Section 354.6 and arguably international law based claims. The federal courts will have concurrent jurisdiction over all these state law areas where there is diversity among the parties and over $75,000 in controversy. This provided a clear basis for federal jurisdiction in a number of the European labor suits, but was contested vigorously by plaintiffs in the Asian litigation. The one decision to date on the subject suggests that multinational corporations with numerous U.S. subsidiaries may make diversity jurisdiction difficult to establish. The federal courts also have subject matter jurisdiction over claims based on federal law, including international law. Because the forced and slave labor 83 See Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 103-108 (2d Cir. 2000) (denying forum non conveniens request in ATCA case for human rights violations); Jota v. Texaco, Inc., 157 F.3d 153, 159 (2d Cir. 1998) (noting district court on remand should consider Congress’ intent in providing a forum for aliens in the forum non conveniens balance in an ATCA suit). 84 See, e.g., Stangvik v. Shiley, 819 P.2d 14, 17-18 (Cal. 1991).

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actions are predominately tort and restitution suits, federal question jurisdiction has been largely based on claims of violations of customary international law against slave labor. This is an extremely problematic basis for jurisdiction of U.S. citizens, but more successful for foreigners who may rely on the ATCA. Once federal question jurisdiction is established, state law claims may be heard based on supplemental jurisdiction. Even where a court has jurisdiction, it may decline to hear a case based on the doctrine of forum non conveniens. This, however, is a difficult standard to satisfy particularly where the plaintiff is a U.S. national or the jurisdictional statute specifically extends to aliens. The net result is (with the ironic and uncertain exception of a U.S. citizen’s non-diverse complaint based on international law) U.S. courts will take jurisdiction over almost all forced and slave labor lawsuits and these cases will eventually be heard in the federal courts.

IV. Procedural Bars and Defenses As noted above, most of the U.S. decisions on the World War II era labor litigation have been based on procedural law. The few cases that have passed the litany of procedure obstacles have yet to be heard on their merits. As a result, the courts have provided very little guidance on the vast number of arguments the defendants have made. Despite this, navigating these decisions is the key to the viability or impossibility in the United States of international human rights lawsuits for wartime forced and slave labor.

A.

Treaty Settlement of Claims

Civil procedure in America follows lex fori.85 Civil Procedure Rule 12(b)(6) requires a court to dismiss a lawsuit for failure to state a claim upon which relief may be granted. In both the Asian and European litigation, the defendants have asserted that the plaintiffs have failed to state a claim, because the peace treaties finalizing the war settled finally all disputes for damages by nationals of the Allied nations against nationals of the Axis countries. The courts’ analysis of the legal issues on both coasts is strikingly similar, but due to the different peace treaties the issues must be treated separately.

85

See Restatement (Second) of Conflict of Laws, § 122 (1969) (‘A court usually applies its own local law rules prescribing how litigation shall be conducted even when it applies the local law rules of another state to resolve other issues in the case.’).

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1.

Japanese Peace Treaty

In 1951, the United States, 47 other allies, and Japan signed the Treaty of Peace with Japan.86 Article 14(b) of the treaty provided: ‘Except as otherwise provided in the present Treaty, the Allied Powers waive all reparations claims of the Allied Powers, other claims of the Allied Powers and their nationals arising out of any actions take by Japan and its nationals in the course of the prosecution of the war, and claims of the Allied Powers for direct military cost of occupation.’ The court in In re WWII Era Japanese Forced Labor Litigation concluded that on its face this was a ‘waiver clause … plainly broad enough to encompass the plaintiffs’ [forced labor] claims’.87 The court rested on this conclusion, but went on in dicta to examine the background of the treaty. The court particularly noted comments by U.S. negotiators of the treaty and the Senate ratification debate. At a time when the United States was confronting the beginnings of the Cold War and yet still aware of the effect of World War I reparations on Germany’s interwar development, chief U.S. negotiator John Foster Dulles explained the rationale of the treaty: ‘[I]f the treaty validated, or kept contingently alive, monetary reparations claims against Japan, her ordinary commercial credit would vanish, the incentives of her people would be destroyed[,] and they would sink into a misery of body and spirit that would make them easy prey to exploitation.’88 More directly the Senate Foreign Relations Committee in recommending ratification of the treaty noted that the treaty provisions ‘do not give a direct right of return to individual claimants except in the case of those having property in Japan[;] United States nationals, whose claims are not covered by the treaty provisions … must look for relief to the Congress of the United States.’89 In fact, Congress followed this with a compensation scheme – the War Claims Act –

86

[1952] 3 U.S.T. 3169, T.I.A.S. 2490 (1951). In re World War II Era Japanese, 114 F. Supp. 2d at 945. 88 Ibid. at 946 (quoting U.S. DEPT. OF STATE, Record of Proceedings of the Conference for the Conclusion and Signature of the Treaty of Peace with Japan, 82-83 (1951)). 89 Ibid. (quoting Japanese Peace Treaty and Other Treaties Relating to Security in the Pacific, S. Rep. No. 82-2, 82d Cong., 2d Sess. 13-14 (1952)). 87

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providing for POWs and others.90 Based on all of this, the court in In re WWII Era Japanese held ‘the history of the Allied experience in post-war Japan, the drafting of the treaty[,] and the ratification debate … [all lead to] finding a waiver’.91 The court did not stop there. It continued by dismissing plaintiffs’ various counter-arguments.92 The plaintiffs asserted that the treaty did not cover their forced labor claims since their work was for private companies and, thus, not arising out of the ‘prosecution of war’. The court found that such distinction was not possible. The plaintiffs asserted that the treaty was an unconstitutional settlement of claims by a sovereign. The court found that Dames & Moore v. Regan93 clearly held that the U.S. government could settle claims of its nationals against foreign governments and their nationals. The plaintiffs asserted that Article 26 of the Peace Treaty was a most favored nations clause that should revive their claims. The court found, without addressing whether any later treaty in fact gave better treatment to another country, that any rights arising out of the MFN clause would accrue in the governments, not individuals. In short, the court held that the treaty conclusively settled all possible claims by any Allied national in United States courts.94 This, of course, did not preclude the claims of any Chinese or Korean nationals whose countries did not sign the 1951 Peace Treaty.95

90 See War Claims Act of 1948, 50 U.S.C. app. §§ 2001-2016 (creating War Claims Commission and providing compensation for U.S. POWs, civilian internees, and injured government workers). 91 In re World War II Era Japanese, 114 F. Supp. 2d at 947. 92 See ibid., at 948. 93 453 U.S. 654, 679-80 (1981). 94 See In re World War II Era Japanese, 114 F. Supp. 2d at 948-49. This conclusion is also supported by an unreported 1988 case from the federal court for the Middle District of Florida. See Aldrich v. Mitsui & Co., No.87912 Civ. J12, (M.D. Fla., Jan. 28, 1988) (dismissing U.S. POW’s forced labor suit against Japanese businesses based on preemption by Treaty of Peace with Japan); Jeong, 2000 U.S. Dist. LEXIS 7985, at *16 (noting and distinguishing Aldrich); FENNER P., ‘Prisoner of War’s Case Is on Appeal’, in: St. Petersburg [Florida] Times, 12 April 1988, p. 2 (noting dismissal based on treaty and intended appeal to Eleventh Circuit arguing plaintiff is not seeking ‘damages’ but rather seeks ‘compensation for his labor’). 95 In re World War II Era Japanese, 114 F. Supp. 2d at 942; Shang-Ting Sung v. Mitsubishi Corporation, No. 2:00-3175 (N.D. Cal., filed Feb. 22, 2000) (Chinese nationals class action); Suk Yoon Kim v. Ishikawajima Harima Heavy Industries Co., Ltd., No. 3:995303 (N.D. Cal., filed Oct. 22, 1999) (Korean nationals class action); Jae Sik Choe v. Nippon Steel Corp., No. 3:99-5309 (N.D. Cal., filed 22 Oct. 1999) (Korean nationals class action); Sa Son ‘Sindo’ Sin v. Mitsui & Co., Ltd., No. 8:00-436 (N.D. Cal., filed 30 March 2000) (Korean nationals class action).

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2.

German Peace Treaties

The extensive diplomatic history of the peace treaties with Germany resulted in much less straightforward reasoning though essentially the same conclusion as the Asian litigation. The courts in Iwanowa and Burger-Fischer both concluded that the treaties left no personal claims upon which relief could be granted. The fundamental holding of both decisions was that war reparations included private civil claims and those claims were conclusively settled by the post-war treaties. After a painstakingly detailed review of the treaties,96 however, the opinions differed on exactly which treaty settled the matter. Arguably five treaties covered settlement between Germany and the Allies for World War II. First, the 1945 Potsdam Agreement signed by the United States, United Kingdom, and Soviet Union covered all reparations of the German State and private entities and was designed to reduce Germany to a ‘pastoral economy’.97 Second, the Paris Treaty of 1946 required Germany to pay reparations to 18 nations covering ‘all [their] claims and those of [their] nationals against the former German Government and its Agencies, of a governmental or private nature arising out of war’.98 Third, in 1953, 35 nations and West Germany agreed in the London Debt Agreement to defer and restructure all ‘claims arising out of World War [II] by countries which were at war with or were occupied by Germany during that war and by nationals of such countries, against the Reich or agencies of the Reich’.99 Fourth, between 1952 and 1954 the United States, United Kingdom, and France agreed in the Transition Agreement that ‘they will at no time assert any claim for reparation against the current production of the Federal Republic’ and yet ‘the [remaining] problem of reparations shall be settled by the peace treaty between Germany and its former enemies’.100 Lastly, in 1990 the United States, United Kingdom, France, and Soviet Union on one side and East and West Germany on

96 The Iwanowa opinion runs 120 pages and the Burger-Fischer decision 78. See BAZYLER M.J. (note 5), pp. *209, *226. 97 See Protocol of the Proceedings, Berlin (Potsdam) Conference, Aug. 2, 1945, 3 Bevans 1207, art. B(111). 98 See Agreement on Reparations from Germany, Establishment of Inter-Allied Reparations Agency and Restitution of Monetary Gold, 14 Jan. 1946, 61 Stat. 3157, T.I.A.S. 1655, Part I, Article 2.A. 99 See Agreement on German External Debts, 27 Feb. 1953, 4 U.S.T. 444, 333 U.N.T.S. 3, Article 5(2) 100 See Convention on the Settlement of Matters Arising out of the War and the Occupation, signed at Bonn on 26 May 1952, as amended by Schedule 4 to the Protocol on the Termination of the Occupation Regime, signed at Paris on 23 Oct. 1954, 332 U.H.T.S. 219, Ch. 6, Article 1.

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the other entered the conclusive peace treaty known as the ‘2+4 Treaty’, which provided for no further reparations.101 The courts in both Iwanowa and Burger-Fischer agreed that all civil claims were covered by the reparations provided for in the Paris Treaty.102 However, Burger-Fischer found the Transition Agreement settled all claims barring further settlement in a final peace treaty, while Iwanowa found that the London Agreement controlled until a final settlement and even then personal claims could only be asserted at the governmental level.103 Regardless of the courts’ reasoning for the interim period, they agreed that the 2+4 Treaty terminated any deferment of or possibility for further reparations.104 In short, following the 1990 Peace Treaty both courts agreed there were no possible personal civil claims against Germany or its nationals and as a result the labor lawsuits did not state claims on which relief could be granted. The European and Asian litigation decisions are consistent in finding that the peace treaties among the Allies and Axis powers settle the issue of reparations. Further, these opinions agree that reparations provided for by the various treaties included all private civil claims against private entities arising during the war years. The courts also were uniform in their methodology, largely basing their holdings on treaty interpretation covering both plain language and contextual approaches. Furthermore, the more subtle underlying rationale for these holdings appears consistent, namely the political nature of and need for finality in peace treaties. Thus, despite the courts’ different factual findings, the precedential message regarding the comprehensiveness and finality of peace treaty reparations appears conclusive.

B.

Statute of Limitations

Civil Procedure Rule 12(b)(6) may also block a claim that is brought outside the statute of limitations.105 Traditionally U.S. conflicts law treated statutes of limitations as procedural and applied the local rules.106 More recently, the trend has been to apply the local rule but allow for application of the substantive law’s 101

Treaty on the Final Settlement with Respect to Germany, 12 Sept. 1990, 29 I.L.M.

1196. 102

Iwanowa, 67 F. Supp. 2d at 460; Burger-Fischer, 65 F. Supp. 2d at 277. Iwanowa, 67 F. Supp. 2d at 461; Burger-Fischer, 65 F. Supp. 2d at 280. 104 Ibid., at 455; Burger-Fischer, 65 F. Supp. 2d at 279. See also Princz v. BASF Group, 1995 U.S. Dist. LEXIS 22104, *12-*14 (D.D.C. 1995) (providing in stipulated dismissal with prejudice of World War II era slave labor case that treaties resolved issues). 105 See, e.g., Cito v. Bridgewater Township Police Dep’t, 892 F.2d 23, 25 (3d Cir. 1989). 106 See Restatement (Second) of Conflict of Laws, § 142. 103

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limitation period in exceptional circumstances.107 Under either approach, the applicable statute is determined by the type of substantive law claim. Thus, in the World War II era litigation there were different limitation periods for the international law claims, the tort claims, the restitutionary claims, and the state law specific claims. Furthermore, the plaintiffs asserted that even if the limitations had expired they were equitably tolled.

1.

International Law Claims

Claims based on the ATCA or customary international law, to the extent they exist at all, do not have a specific statute of limitations. When federal claims do not have limitation rules, the courts apply ‘the most closely analogous statute of limitations under state law’.108 Because these causes of action are limited to tort claims arising under international law, the most analogous state law would likely be the tort limitation periods reviewed below. The general rule to apply the most similar state law, however, also contains an exception that allows the application of another federal limitation period where that ‘clearly provides a closer analogy’.109 In Iwanowa, the court found this exception applicable. In particular, the court relied on the ten-year limitations period contained in the Torture Victim Protection Act of 1991, a statutory note attached to the ATCA. In applying this period the court found that in the European case the statute had been tolled against German defendants until conclusion of the final peace treaty, the 2+4 Treaty, on 15 March 1991.110 The court held, however, that the various treaties did not toll the limitations against non-German entities so these presumably expired ten-years from 1949.111 Pursuant to these conclusions, claims in the European litigation based on international law were timely to the extent that they were filed against German defendants before 14 March 2001. Applying this approach to the Asian cases and the conclusions made there regarding the Japanese Peace Treaty, the statute of limitations on any international law claims in those cases lapsed on 27 April 1962, ten-years after the treaty came into force.

107 See SCOLES E.F./HAY P. (note 76), p. 59 (reviewing, inter alia, the 1988 revision of the traditional Restatement rule). 108 See Del Costello v. International Board of Teamsters, 462 U.S. 151, 152 (1983). 109 See Ree v. United Transp. Union, 488 U.S. 319, 324 (1989). 110 See Iwanowa, 67 F. Supp. 2d at 465-66. 111 See ibid., at 463, 466-67.

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2.

Restitution and Tort Claims

The limitations period for restitutionary and tortious claims is determined by state law whether that be as a matter of forum law or under the exception in which some state’s may follow the rules associated with the substantive law.112 Because of possible state variety, this section discusses the statutes of limitations for restitution and tort claims generally and specifically looks at the laws of New York, New Jersey, and California where the majority of the World War II era litigation was filed. The statute of limitations for restitution claims is six years in New Jersey, six years in New York, and two years in California.113 The statute of limitations for tort claims is two years in New Jersey, one year in New York, and one year in California.114 As reviewed above and applied to the state law claims in Iwanowa, these limitation periods presumably began to run from the effective date of the peace treaties settling all reparations.115 Therefore, at the very latest the Asian litigation restitution and tort claims expired on 27 April 1958, and the European litigation claims on 14 March 1997. No known World War II era labor litigation cases were filed in U.S. courts that would pre-date either deadline.116

3.

State Law Specific Claims

Section 354.6 seeks to extend the statute of limitations for World War II era labor claims to 31 December 2010. Generally speaking, the purpose of statutes of limitations is ‘to promote justice by preventing surprises through the revival of claims that have been allowed to slumber until evidence has been lost, memories

112

As a derivate of substantive law this may be the law of a foreign country, however, only the substantive law of the United States is reviewed here. The court in Iwanowa did find that the German statute of limitations was applicable under the exception and that claims were barred under this three-year rule as well. See Iwanowa, 67 F. Supp. 2d at 476-82. 113 See N.J. Stat. Ann., § 2A:14-1 (West 2000); N.Y. C.P.L.P. § 213 (Consol. 2000); Cal. Civ. Proc. Code, § 339 (West 2001) 114 See N.J. Stat. Ann. § 2A:14-2; N.Y. C.P.L.P. § 215; Cal. Civ. Proc. Code § 340. 115 See, e.g., Iwanowa, 67 F. Supp. 2d at 152 (dismissing restitution claims for failure to file within six years of 2+4 Treaty). Cf. Sampson v. Federal Rep. of Germany, 975 F. Supp. 1108, 1122-23 (E.D. Ill. 1997) (denying in dicta Holocaust survivor’s claims in contract, restitution, and tort law as barred by various state statute of limitations). 116 See BAZYLER M.J. (note 5), App. A (noting no slave labor and related claims cases in the European litigation filed before 14 March 1997); U.S. Dept. of State, Annex C & D to Foundation Agreement (note 6) (same); BAZYLER M.J./SAXA-KANEKO D., Asian Litigation List (note 15) (noting no World War II era lawsuits against Japanese filed before 27 April 1968)

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have faded, and witnesses have disappeared’.117 Nonetheless, the Supreme Court has noted that statutes of limitations are not fundamental rights and are necessarily arbitrary.118 Subsequently, other courts have upheld legislatures’ revival of causes of action otherwise barred by a statute of limitations.119 Thus, Section 354.6 appears facially valid. It is arguable, however, that Section 354.6 is only applicable to the European litigation and not to the Asian litigation. As noted above, the statute was drafted in broad terms but only referred to the European lawsuits. This is particularly relevant to the statute of limitations because, according to the legislative history, the basis for the 2010 expiration date was derived from German courts’ findings that European claims were tolled until the conclusion of the 2+4 Treaty.120 In contrast, the Japanese treaties were concluded forty years earlier, thus, the lifting of the bar seems more capricious and ‘unjust’.121 In countering these arguments, however, plaintiffs may point to section 2 of the enacting legislation which suggests a broad reading of the statute by providing: ‘It is the intent of the Legislature … to enact additional public policy in any other case of proven patterns of slave labor employed by firms presently doing business in California.’122 As a 117

Cal. Senate Judiciary Committee Report on S.B. 1245, 1999-2000 Sess. (Cal. 1999) p.7, available at http://www.leginfo.ca.gov/pub/99-00/bill/sen/sb-1201-1250/sb-1245cfa-19990519-144254-sen-comm.htm. See also Order of R.R. Tels. v. Railway Express Agency, Inc., 321 U.S. 342, 348-49 (1944); Jeong, 2000 U.S. Dist. LEXIS 7985, at *33 (‘Defendant’s difficult in investing [possible facts] is, perhaps, an unfortunate consequence of the California legislature’s decision to revive 55-year old claims. Over that span of years, documents naturally will be lost, witnesses will die or forget facts, and languages may even evolve to the point where translations becomes difficult.’) 118 See Chase Securities Corp. v. Donaldson, 325 U.S. 304, 314 (1945). 119 See, e.g., ibid.; Campbell v. Holt, 115 U.S. 620 (1885); Lent v. Doe, 47 Cal. Rptr. 2d 389, 390 (Cal. Ct. App. 1995) (upholding revival of claim for childhood sexual abuse that otherwise was barred by limitations period). 120 See Cal. Senate Rules Committee Report on S.B. 1245 (note 18), p. 4 (‘This legislation . . . merely codifies the position taken by recent German court rulings, that the moratorium imposed by the London Agreement no longer bars the assertion of claims by victims of National-Socialist persecution against their persecutors.’). This legislative finding that the claims were tolled until 7 November 1997, is directly contrary to Iwanowa and substantial U.S. case law which holds that in the United States treaties are effective from enactment. See Iwanowa, 67 F. Supp. 2d at 465-66. 121 See Cal. Senate Judiciary Committee Report on S.B. 1245 (note 117), p. 7 (‘The theory [of statute of limitations] is that even if one has a just claim it is unjust not to put the adversary on notice to defend within the period of limitation and the right to be free of stale claims in time comes to prevail over the right to prosecute them.’) (emphasis added and citations omitted). 122 1999 Cal. Stat. ch. 216, § 2. The legislative history notes that this section encourages ‘turning California into an international court of justice’. See Cal. Senate Judiciary Committee Report on S.B. 1245 (note 117). Taking this rationale to the extreme

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statutory matter, the issue boils down to whether the phase ‘the Nazi regime, its allies and sympathizers’ should include Japan and other parties not in the World War II European theater. Baring acceptance of this argument and for the European cases regardless, Section 354.6 appears to effectively extend the limitations period 56 years for the Asian litigation and 15 years for the European litigation.

3.

Equitable Tolling

The plaintiffs to these suits posit that even if the claims are technically time barred the limitations period should be equitably tolled. Equitable tolling was developed in the fraud context and stops the statue of limitations from running where a defendant has actively misled a party.123 The misrepresentation asserted in these cases is the denying of the use and liability for forced and slave labor by the defendants. In the related World War II era insurance cases, the courts have allowed equitable tolling counter-arguments finding that the defendants may have ‘deceptive[ly] and unscrupulous[ly] depriv[ed] both assets and information sustaining plaintiffs’ and their ancestors’ rights to these [insurance] assets’.124 The court in Iwanowa was unwilling to accept the argument in the European labor litigation, however. The court found any statements made to the plaintiffs regarding their claims were after the statute had already expired and no proof was otherwise provided of the defendants actively misleading the plaintiffs.125 Similarly, in the legislative history to the enactment of Section 354.6 it was noted that though justification for equitable tolling existed to support a statute on World War II era insurance claims, ‘similar justification for the delay in bringing the actions to recover [for WWII era labor] compensation does not appear to exist’ and there is no ‘documentation of repeated attempts to receive compensation that were either systematically denied or delayed as a result of the potential defendants’ conduct’.126 Correspondingly, it is unlikely any statutes of limitations have been equitably tolled in the Word War II era labor cases. one might argue that African-American descendants of slave laborers in the U.S. South might bring suits under this statute against those businesses in California that formerly used slaves. See GHANNAM J., ‘Repairing the Past’, in: American Bar Association J., Nov. 2000, pp. 38, 40 (reviewing recent claims by African-Americans for both government reparations and civil restitution for pre-Civil War slave labor and comparing the claim to those in the European and Asian litigations); DUBOSE J., ‘Racial Reparations Due, Says Lawmaker’, in: Atlanta J. Const., 24 Feb. 2001, p. A-1 (same); SHEPARD P., ‘We Too Built This Country’, in: Japan Times, 25 Feb. 2001, p. 11 (same), from Associated Press Wire, 10 Feb. 2001. 123 See, e.g., Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1387 (3d Cir. 1994). 124 See Bodner, 114 F. Supp. 2d at 135-36. 125 See Iwanowa, 67 F. Supp. 2d at 467-68. 126 See Cal. Senate Judiciary Committee Report on S.B. 1245 (note 117), p. 7.

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C.

Political Question (Non-Justiciability)

Another threshold question that may be addressed even before establishing jurisdiction is whether a matter raises a non-justiciable political question.127 The political question doctrine provides that courts shall decline to hear cases that involve concerns more appropriately treated by the political branches of government.128 The doctrine is not founded on the text of the Constitution, but is based on the basic ideals of separation of powers and limitation of the judiciary.129 The Supreme Court has summarized: ‘The conduct of foreign relations of our Government is committed by the Constitution to the executive and the legislative – the ‘political’ departments of the government, and the propriety of what may be done in the exercise of this political power is not subject to judicial inquiry or decision.’130 Nonetheless, not every case or controversy that involves foreign affairs or foreign relations raises a non-justiciable political question.131 Therefore, to determine whether an issue is within the political question doctrine the Supreme Court has created a six factor test where if any one factor is ‘inextricably’ intertwined in a matter the court should refrain from hearing the case.132 The factors include: (1) a textually demonstrable constitutional commitment of the issue to a political department; (2) a lack of judicially discoverable and manageable standards for resolving the issue; (3) an impossibility of deciding the issue without making a policy determination typically outside judicial discretion; (4) an inability to resolve the issue without expressing a lack of respect to the political departments; (5) an unusual need for unquestioning adherence to a political decisions already made; or (6) a potential for embarrassment from multifarious pronouncements by various departments on one question. The three courts in the World War II era litigation that have addressed the issue have all held that the lawsuits raise a number of these factors. Burger-Fischer found ‘[t]o a greater or lesser extent all of the above indicia are present in the instant case’.133 Iwanowa found ‘at least four of the factors are inextricable from 127

See In re Nazi Era Cases II, 2001 U.S. Dist. LEXIS 2018, *9 n.6. See Atlee v. Laird, 347 F. Supp. 689 (E.D. Pa. 1972), aff’d 411 U.S. 911 (1973) (reviewing the history of the political question doctrine). 129 See, e.g., Powell v. McCormack, 395 U.S. 486, 516-17 (1969). 130 Oetjen v. Central Leather Co., 246 U.S. 297 (1918). 131 See Baker v. Carr, 369 U.S. 186, 211 (1962). 132 Ibid., at 217. 133 See Burger-Fischer, 65 F. Supp.2d at 282, 282-85. See also Princz v. BASF, 1995 U.S. Dist. LEXIS 22104, at *14-*15 (accepting this defense in stipulated dismissal with 128

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[the plaintiff’s] claims’, specifically the first, second, fourth, and sixth factors.134 In re Nazi Era Cases II found ‘prominent on the surface of this case are the fourth factor and the sixth factor’.135 The gist of all three courts’ reasoning was best summarized in Burger-Fischer: ‘Major policy determinations are implicated in the determination of the size and in the allocation of reparations. They are not the subject of judicial discretion. For a court now, in the light of the diplomatic history of the last fifty-five years, to structure a reparations scheme would be to express the ultimate lack of respect for the executive branch which conducted negotiations on behalf of the United States and for the Senate which ratified the various treaties which emanated from these negotiations. These are decisions which were made in the face of serious foreign policy concerns. An attempt by a court to undo them would create the ‘embarrassment for multifarious pronouncements by various departments’ on one question.’136 Other commentators have criticized the courts’ reliance on the political question doctrine in the World War II era cases asserting that the courts erroneously treated these private claims as public reparations matters.137 This argument, however, seems to disregard the courts’ earlier holdings that even private claims arising from World War II are ‘reparations’ under the various peace treaties and as such were dealt with in those agreements.138 The courts have responded to this argument even more plainly stating: ‘The issue is not how Plaintiff has styled his suit [whether as a private or a public claim], but instead what the underlying controversy is. At the heart, the underlying dispute here is one arising from atrocities committed by supporters of and collaborators with [a foreign government during a war].’139 The detractors also note that the U.S. executive branch’s failure to file amicus curae briefs in the European litigation suggests that no political questions were raised. Subsequent events have proven this assertion plainly wrong. The U.S. State and Justice Departments originally declined to file a statement of position in the European litigation, but that silence should not have be interpreted as tacit assent to the non-political nature of the issues. As both the State and Justice prejudice); Kelberine v. Société Internationale, 363 F.2d 989, 995 (D.C. Cir. 1966) (dismissing an early World War II era labor lawsuit based on political question doctrine). 134 See Iwanowa, 67 F. Supp. 2d at 485, 485-89. 135 See In re Nazi Era Cases II, 2001 U.S. Dist. LEXIS 2018, *39. 136 Burger-Fischer, 65 F. Supp.2d at 284-84 (internal citations omitted). 137 See, e.g., BAZYLER M.J. (note 5), pp. *223-*26, *229-*32. 138 See Section IV.A (reviewing courts’ holdings that civil labor claims were included in reparations matters settled by various peace treaties). 139 In re Nazi Era Cases II, 2001 U.S. Dist. LEXIS 2018, *14-*15 (emphasis added).

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Departments later clarified, their silence in the European litigation was a ‘policy’ decision due to the ‘very delicate stage’ of negotiations for a settlement at that time.140 Furthermore, these divisions of the executive branch have subsequently participated in both the Asian and European litigation and stated before Senate Judiciary Committee hearings that reparations include civil claims and the peace treaties resolved these matters.141 Thus, international human rights claims arising from a war that has been settled by a comprehensive peace treaty that the United States has ratified will largely fall within the political question doctrine, and as such will not be justiciable in U.S. courts.

D.

Comity

Falling somewhere between the political question and forum non conveniens principles is the doctrine of comity. Comity is a discretionary policy that allows, but does not require, a U.S. court to decline hearing a case that involves the judicial, executive, or legislative acts of a foreign state.142 In other words, comity encourages or allows a court to dismiss a matter that has been or already is being addressed by another nation’s courts or government.143 The rationale is to encourage international cooperation and reciprocity while discouraging conflicting and limited territorial decisions.144 The courts in the World War II era litigation have rested on this doctrine as an alternative basis for dismissal. In Iwanowa, the court relied solely on Germany’s 140

See ‘Former U.S. World War II POWs: A Struggle for Justice’: Hearing before the Comm. on Judiciary of U.S. Senate, 106th Cong. 585, at 8, 9, 10 (statements of David W. Ogden, Acting Assistant Attorney General, Civil Division, U.S. Department of Justice, and Ronald J. Bettauer, Deputy Legal Advisor, U.S. Department of State). Cf. Kadic, 70 F.3d at 250 (noting the U.S. State Department declined to comment on that case because it believed the political question doctrine did not apply in this case). 141 See ibid., at 9-10, 14-15 (referring to the Japanese Peace Treaty but applicable by analogy to the German peace treaties); In re Nazi Era Cases I, 2000 U.S. Dist. LEXIS 18148, *19-*24; In re World War II Era Japanese, 114 F. Supp. 2d at 947-48; In re Nazi Era Cases II, 2001 U.S. Dist. LEXIS 2018, *22-*24. See also Foundation Agreement (note 12), Article 2(1), Article 3(4), Annex B (requiring United States to file Statements of Interest and otherwise oppose any challenges to Germany’s sovereign immunity in all pending and future European litigation). 142 See, e.g., Hilton v. Guyot, 159 U.S. 113, 164-65 (1895) 143 See, e.g., Laker Airways, Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909, 937 (D.C. Cir. 1984). 144 See Spatola v. United States, 925 F.2d 615, 618 (2d Cir. 1991). See also ANDERSON K., ‘What Can the United States Learn from English Anti-Suit Injunctions’, in: 25 Yale J. Int’l L. pp. 195, 226-31 (2000) (reviewing the rationale for comity in the anti-suit injunction context).

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executive branch response to the labor claims in refraining from issuing a decision that might contradict that government’s official position.145 The U.S. court’s approach appears perhaps unnecessarily cautious since at the same time the German judicial branch (i.e., the courts) reportedly had both supported and contradicted the government’s position.146 In In re Nazi Era Cases II though, another U.S. court was able to rest its comity concerns more solidly on a recent and seminal German decision holding that the Foundation Agreement was constitutional and created the exclusive remedy for war laborers.147 Though comity has not yet been the basis of a decision in the Asian litigation, the principle also appears applicable in that context where the Japanese government and courts have dealt with the issue even more consistently – if negatively – than their German counterparts.148

E.

Act of State Doctrine & Foreign Sovereign Immunity

Both the act of state doctrine and the Foreign Sovereign Immunity Act (FSIA) provide foreign governments with defenses to lawsuits brought in U.S. courts. The act of state doctrine stipulates that U.S. courts will not judge a foreign state for acts done within its own territory.149 Under the FSIA, foreign states are immune from most suits in the United States.150 In the World War II era labor litigation, the key issue for both of these procedural defenses was whether the private defendants may be considered foreign state actors. As noted above, some of the defendants argued that they were government agencies or instrumentalities to the extent that they 145

Iwanowa, 67 F. Supp. 2d at 489-91. But cf. Bodner, 114 F. Supp. 2d at 129-30 (denying comity argument in World War II era insurance cases against French defendants because no French cases on the same issue had been filed and no governmental compensation plan had been created). 146 See BAZYLER M.J. (note 5), No. 953 (citing various German decisions). 147 See In re Nazi Era Cases, 2001 U.S. Dist. LEXIS 2018, *57-*58 (citing 30 Nov. 2000 decision of Bundesgerichtshof (III ZB 46/00)). 148 See, e.g., OKUDA Y., ‘Law Applicable to Governmental Liability for Damages to Foreign Individuals during Second World War’, in this Yearbook, n. 14-15 (citing ITO T., ‘Dainiji sekai taisen go no nihon no baisho seikyuken shori [Claims and Debts of Japan after the Second World War]’, in: Gaimusho chosa genppo 1994, no. 1., p. 111 et seq.; Supreme Court [of Japan], 4 Nov. 1969, 566 Hanrei jiho 33); IGARASHI M., ‘Post-War Compensation Cases, Japanese Courts and International Law’, in: 43 Japanese Annual of Int’l L. 2000, pp. 45, 73; FISHER B.A. (note 30), pp. *42-*43; ‘Japan to Fight Ex-POWs’ Campaign for Redress’, in: Japan Times, 29 Jun. 2000, p. 2 (statement of Japanese Ambassador to United States that 1951 Peace Treaty provided final and complete resolution of all claims). 149 See, e.g., Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964); Underhill v. Hernandez, 168 U.S. 250, 252 (1897). 150 See 28 U.S.C. §§ 1330, 1602-1611; Princz v. FRG, 26 F.3d at 1176.

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were nationalized or used forced and slave labor pursuant to official compulsion under the law. The FSIA expressly applies to any ‘political subdivision of a foreign state or an agency or instrumentality of a foreign state’, which can include a separate legal person, a majority of which is owned by the foreign state.151 Whether any of the defendants in the World War II era litigation satisfy this standard, however, is a factual issue that has not been decided and is not abundantly clear. At the very least, the court in Jeong left open the possibility that defendants might be able to establish their status as agents of the state and rely on these defenses.152

F.

Accord and Satisfaction & Preemption

The defenses of preemption and accord and satisfaction, as applicable in these cases, both refer to the idea that the government by providing and the plaintiffs by accepting administrative remedies for their injuries are blocked from also seeking judicial redress. These defenses were raised in the World War II era labor litigation, but have not yet been addressed by the courts. The logic of the defenses is multipart. First, pursuant to the various peace settlements each country took responsibility for compensating its injured nationals. Second, each state developed an administrative remedy to compensate victims of various war injuries. Third, under the preemption defense, those administrative programs created an exclusive remedy under which nationals could make claims for injuries occurring during the war.153 Under the accord and satisfaction defense, anyone who accepted administrative remedies thereby agreed to forego any judicial remedy.154 The preemption defense was addressed indirectly in Jeong with regards to jurisdiction and in more detail in the U.S. Department of State’s response to Senate Judiciary Committee questions.155 Speaking directly to the Asian claims, these sources noted that the peace treaty contemplated the creation of a scheme covering compensation for ‘damage and suffering’ inflicted by Japan and its nationals ‘during the war’. 156 This plan was funded by the seizure and liquidation of $4 billion worth of public and private property located outside of Japan and formerly 151

28 U.S.C. § 1603(a)-(b). See Jeong, 2000 U.S. Dist. LEXIS 7985, at *31-*33, n.14. Cf. Bodner, 114 F. Supp. 2d at *130 (denying act of state doctrine in World War II era French insurer cases because defendants were private parties) 153 See Olson v. General Dynamics Corp., 960 F.2d 1418, 1423 (9th Cir. 1991) (preemption by ERISA). 154 See Bowater North Am. Corp. v. Murray Machinery, Inc. 773 F. 2d 71 (6th Cir. 1985) (discussing accord and satisfaction requirements). 155 See Jeong, 2000 U.S. Dist. LEXIS 7985, at *14-*20; ‘Former U.S. World War II POWs: A Struggle for Justice’ (note 140), at 50-51. 156 See Treaty of Peace with Japan (note 87), Article 14, sec. 1-2; Article 16. 152

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owned by the Japanese government and Japanese companies and individuals. The distribution was made to U.S. citizens (namely, military POWs, civilian internees, and government related employees) pursuant to the War Claims Act, which expressly rejected any recourse to the courts.157 Similar developments also covered claimants from the European theater.158 Thus, the argument goes, Congress purposefully and consciously intended the administrative remedies to preempt any resort to judicial remedies. The accord and satisfaction defense follows the same rationale but only effects those parties who applied for and received compensation pursuant to the War Claims Act.159 These arguments might also be relevant to certain alien defendants. Germany, Canada, United Kingdom, Australia, New Zealand, Isle of Mann, and various other countries have established compensation schemes that explicitly cover forced and slave labor claims.160 As a practical matter, however, these arguments are largely 157 See War Claims Act of 1948, 50 U.S.C. app. §§ 2001-2016. Compensation under the War Claims Act was limited to $1.00 per day for missed meals and $1.50 per day for lost wages. See ‘Former U.S. World War II POWs: A Struggle for Justice’ (note 140), at 2. The State Department notes, however, that in year 2000 dollar payment amounts would be $20,646. See BURRESS C., ‘State is Ground Zero for World War II Lawsuits’, in: S.F. Chronicle, 22 April 2001, p. A-1. This amount compares favorably with the amount available under the Foundation Agreement and other compensation plans, and the amount reportedly sought in private settlement. See infra notes 159, 160. 158 Not all victims, however, were covered by at least one of the various national schemes. See Princz v. FRG, 26 F.3d at 1168 (noting U.S. citizen’s non-coverage by German and U.S. systems). 159 Consistent with the accord and satisfaction defense, compensation under the Foundation Law is reduced by the amount of money the party has received under other compensation schemes and limited to DM 15,000 ($7,000) for slave laborers and DM 5,000 ($2,300) for forced laborers. See In re Nazi Era Cases I, 2000 U.S. Dist. LEXIS 18148, *12*14, n.11 (citing Gesetz zur Errichtung einer Stiftung ‘Erinnerung, Verantwortung und Zunkunft’, §§ 9, 15(2)). 160 See In re Nazi Era Cases I, 2000 U.S. Dist. LEXIS 18148 (reviewing German compensation scheme); ‘Britain to Compensate POWs’, in: Japan Times, 9 Nov. 2000 (noting £10,000 payments to POWs of Japan (but not Germany or Italy) by United Kingdom and British POWs’ concurrent withdrawal of WWII era claims filed in Japan, and compensation made by Canada and Isle of Mann to its Asian veterans); WRIGHT L., ‘55 Years On, POWs Set to Get Compo’, in: Canberra Times, 21 May 2001, p. A-1 (noting POWs and civilian internees of Japan (but not Germany or Italy) to receive AUD$25,000 tax free payments and compensation made by New Zealand). It is arguable that these payments are merely a ‘honorarium’ and as such do not effect an accord or preemption. See ‘Former U.S. World War II POWs: A Struggle for Justice’ (note 140), at 3-4 (statement of Senator Jeff Bingaman characterizing Canadian payments as non-prejudicial to compensation claims). Senator Bingaman introduced a similar ‘honorarium’ bill calling for $20,00 payments to POWs who were forced into labor, but the bill did not emerge from committee. See S.1806, 106th Cong. (1999), status available at http://thomas.loc.gov/ Perhaps coincidentally $20,000 also appears to be the amount POWs are seeking in

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untested and the strength of other procedural defenses likely will ensure that they remain undeveloped.

G.

Summary of Procedural Bars and Defenses

American civil procedural rules construct a minefield difficult to navigate in most international human rights litigation. In the World War II era labor lawsuits, the case law to date suggests that peace treaty resolution, statute of limitations, and the political question doctrine will all result in nearly insurmountable obstacles for claims. Assuming these are cleared, the second line procedural defenses include comity, the act of state doctrine, foreign sovereign immunity defenses, preemption, and accord and satisfaction. These ramparts are mostly untested and appear much less stable, nonetheless, their presence alone adds to the cost and difficulty in trying these cases and the defendants’ overall confidence in their position. The end result is America’s broad jurisdiction policies will allow into court most claims for forced and slave labor during wartime, but the country’s narrower procedural rules will likely keep these cases from being heard on their merits.

V.

Choice of Substantive Law

Because the courts hearing the World War II era litigation have largely held based on procedural matters and because procedural rules in America are automatically lex fori, little discussion of the choice of law rules for forced and slave labor claims has occurred. Some general conclusions, however, may still be drawn.161

A.

International Law Claims

World War II era plaintiffs making claims under the ATCA pleaded international law as a substantive law choice. No consensus has developed among the courts, however, as to whether the applicable law in an ATCA claim is international law settlement from the Asian litigation defendants. See AMEDORI C., ‘Amends Overdue for Bataan Death March’, in: Japan Times, 26 Aug. 2000, p. 21 (reprinted from The Baltimore Sun). 161 As background, private international law in the United States provides that state courts and federal courts sitting in diversity will apply local conflict of laws rules. See Van Dusen v. Barrack, 375 U.S. 612, 645-46 (1964); Restatement (Second) of Conflict of Laws, § 6(1). Characterization of conflict terms is based on local rules and local law subject to the applicable law. See Restatement (Second) of Conflict of Laws, § 7. Renvoi is generally only applied as an exception. See ibid., § 8.

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or municipal law, such as lex fori or lex loci.162 This of course is closely related to the confusion over whether individuals even have a private right of action under international law. To the extent the courts find that under the ATCA the applicable law is municipal law, the analysis of tort and restitution claims reviewed below arises. To the extent the courts hold that international law standards apply, further resolution is not problematic. No conflicts arise in the application of international law, because its entire premise is that it is singular and uniform. As a practical matter, variations may occur in how different states’ courts interpret international law, including whether they find private rights of action under that law. U.S. courts may take notice of these diverging foreign courts’ interpretations; however, because the implementation of international law is a procedural matter following lex fori, they are not bound by any differences.163

B.

Tort Claims

As is well known, the Restatement (Second) of Conflict of Laws and most American jurisdictions follow a most significant relationship approach to choice of tort law.164 In applying the most significant relationship test, the courts consider: (1) the place where the injury occurred; (2) the place where the conduct causing the injury occurred; (3) the domicile, residence, nationality, place of incorporation, and place of business of the parties; and (4) the place where the relationship, if any, between the parties was centered.165 For a large portion of the World War II labor cases, the place of the injury, the tortious conduct, and where the relationship of the parties was centered was Japan and Germany. Further, the defendants’ places of incorporation are predominately Japan and Germany. This strongly suggests that the tort law of Japan should be applied in much of the Asian litigation and German law in the European litigation.166 Moreover, many of the plaintiffs and defendants

162 See Fliartiga, 630 F.2d at 889 (requiring district court to do a traditional choice of law analysis to determine the applicable law); Wiwa, 226 F.3d at 105 (noting the issue is unresolved); Tel-Oren, 726 F.2d at 777, 781-82 (Edwards concurring) (suggesting applicable law for ATCA claim is lex loci delicti); In re Estate of Marcos, 978 F.2d at 503 (approving lower court’s application of lex loci delicti for ACTA claim); Forti, 672 F. Supp. at 1531 (stating applicable substantive law for ATCA claim is international law); Xuntax v. Gramjo, 886 F. Supp. 162 (D. Mass. 1995) (finding both international law and municipal law may be applied as substantive law for ATCA claim). 163 See Beard v. Green, 523 U.S. 371, 375 (1998). 164 See Restatement (Second) of Conflict of Laws, § 145. 165 Ibid. § 145(2). 166 In Iwanowa, under a governmental interest analysis for the applicable statute of limitations the court applied German law. See Iwanowa, 67 F. Supp. 2d at 476-77. Further, the court noted that if called upon it would have applied German substantive restitution law

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in the World War II era litigation appeared to agree on this fact as its application has been pleaded and consented to in a number of cases.167 It is unclear from the remaining cases under which tort law the plaintiffs sought relief, but it is doubtful that a U.S. court, whether state or federal, would apply American tort law given the tenuous connection of the United States to most of these claims.168 A more difficult question is what law should be applied to claims concerning acts and injuries in territories occupied by Japan and Germany, particularly where the plaintiffs are or were domiciled, resident, or citizens of these territories. That is, what tort law should be applied in those lawsuits for forced and slave labor committed in Manchuria, Korea, Poland, Czechoslovakia, and so forth? In these cases the significant relationship factors lead to application of the occupied territories’ law. Occupied territories’ law, in turn, generally means the law at the time of the forced labor, i.e., the occupiers’ law.169 In Kalmich v. Bruno, however, the Seventh Circuit noted that it would apply present, or at least post-occupation, Yugoslav law for torts committed in that territory during German occupation.170 Thus, pursuant to this approach and given the flexibility of the most significant relationship rule, the courts have the ability to apply either the occupiers’ or the pre- or post-occupation law. With this option and given genuine concerns about applying the law of an illegitimate or unrecognized regime, one might expect U.S. courts to more often than not apply the law of the pre- or post-war states.

C.

Restitution Claims

Similar to tort law, the Restatement and a majority of states apply a most significant relationship test for the choice of restitution law.171 In making that determination, the courts consider five factors: (1) the place where a relationship between the parties was centered; (2) the place where the benefit was received; (3) the place where the act resulting in the enrichment was done; (4) the domicile, under a governmental analysis. See ibid., at n. 69. See Xuncax, 886 F. Supp. at 195-196 (applying foreign tort law in ATCA claim under most significant connection analysis). 167 See, e.g., ibid. at 476 n. 69 (noting the parties conceded that German, not New Jersey, substantive law controlled); Burger-Fischer, 65 F.3d at 252, 254 (pleading under German tort law in both the Siemens and Degussa cases). 168 The due process limitations to application of American law is reviewed infra in Section V.D. 169 New statutes are generally applied prospectively unless contrary legislative intent is noted otherwise. See, e.g., Union Pacific R.R. v. Laramie Stock Yards, 231 U.S. 190, 199 (1913). 170 See Kalmich v. Bruno, 553 F.2d 549, 552 (7th Cir. 1977) (noting pursuant to a most significant relationship analysis that the law of the place where the tort occurred, i.e., Yugoslavia under German occupation, should apply). 171 See Restatement (Second) of Conflict of Laws, § 221.

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residence, nationality, or place of incorporation of the parties; and (5) the place where the physical thing that related to the enrichment was situated.172 Paralleling the analysis for tortious acts, in the World War II era labor cases all of these factors with the possible exception of the domicile and residence of the parties point towards the law of Germany, Japan, or the areas these states occupied. Reflecting at least the possibility of the application of the law of a defendant’s domicile, the court in Iwanowa considered not only Germany restitutionary law but also Michigan and Delaware law where one of the defendants, Ford, was based and incorporated.173 Nevertheless, the court suggested in a note, which founded its analysis concerning the applicable statute of limitations, that German law had the most significant relationship to the case.174 Thus, as with tort law the choice of law rules suggest Japanese or German law should apply to most restitution claims though there remains the strong possibility of the application of the domestic law of the previously occupied territory.

D.

State Law Specific Claims

From a choice of laws perspective, California’s Section 354.6 first raises a characterization and interpretation question. It is unclear from the plain language of the statute whether Section 354.6 is merely a jurisdictional and statute of limitations law or whether it creates independent substantive rights. The legislative history is ambiguous regarding the legislature’s intent on this issue, but the statute’s placement in the civil procedure code rather than the state’s civil code, which generally covers substantive obligation matters such as restitution and torts, suggests that the statute does not create new rights but merely provides a forum for existing rights. If the courts read the statute to only relate to jurisdiction and limitations, then no choice of law issue arises beyond the tort and restitution considerations outlined above. The plaintiffs in the Asian litigation, however, have interpreted the section to create new independent rights upon which they have sought damages.175 There is some support for this reading because Section 354.6(3) gives ‘compensation’ a definition independent of the otherwise applicable tort or restitution law.176 If the 172

See ibid. § 221(2). See Iwanowa, 67 F. Supp. 2d at 470-72. 174 See ibid., at 476-77, n. 69. 175 Analysis of the applicable law under the ATCA might by analogy provide some guidance to this question, but as reviewed above there is no consensus whatsoever regarding the applicable law under the ATCA. See note 162 and accompanying text. 176 Damages are usually measured consistent with the applicable substantive law. See Restatement (Second) of Conflict of Laws, §§ 171, 207. Section 354.6(3) provides: ‘Compensation means the present value of wages and benefits that individuals should have been paid and damages for injuries sustained in connection with the labor performed. 173

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courts accept the plaintiffs’ construction and characterize Section 354.6 as an independent cause of action, then they would presumably make and apply new California common law to determine whether liability exists. This is turn may give rise to due process challenges of the law under the Fourteenth Amendment. Due process limits application of lex fori as a choice of laws rule where the matter has no substantive contact with the forum state.177 The analysis is similar to the due process restrictions for personal jurisdiction, however, the tests and the specific application are subtly but significantly different.178 The Supreme Court standard for whether the application of state law violates due process provides: ‘[The] State must have a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.’179 Consistent with this, a federal district court recently found a violation of the due process clause by part of Florida’s Holocaust legislation package, which extended the limitations period against and the obligations of ‘any parent, subsidiary, or affiliated company’ of a Florida insurer that issued World War II era insurance contracts.180 In cursorily considering whether Section 354.6 might violate the due process protections if substantively applied to the World War II era litigation, it would appear that none of the facts underlying the claims have a connection with California, that the defendants largely have no connection with California or are subsidiaries with no connection to the forced and slave labor. On the other hand, some of the plaintiffs have become residents of California since the underlying events occurred and some of the defendants indirectly or directly conduct business in California. The test is fact-intensive and applied on a case-by-case basis; therefore, it is impossible to make conclusive predictions. Nevertheless, the connections of California with the events and parties are questionable enough to give serious consideration to the argument that applying California substantive

Present value shall be calculated on the basis of the market value of the services at the time they were performed, compounded annually to date of full payment without diminution for wartime or postwar currency devaluation.’ 177 See Home Ins. Co. v. Dick, 281 U.S. 397, 408 (1930). See also SCOLES E.F./HAY P. (note 76), §§ 3.20-3.29 (reviewing and summarizing the due process limitations on choice of law rules). 178 See SCOLES E.F./HAY P. (note 76), §§ 3.27-3.29 (reviewing differences in the tests and outcomes based on the tests). 179 Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 818 (1985) (finding application of lex fori violated due process in a class action suit where 3% of class members were from and 1% of the claims arose inside the forum state and quoting Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-13 (1981)). 180 See Gerling Global Reins. Corp. of Am. v. Nelson, 123 F. Supp. 2d 1298, 1304 (N.D. Fla. 2000).

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law, whether its common law under the statute itself or its codified law such as the claims under California’s Business and Professional Code, violates due process.181

E.

Summary of Choice of Substantive Law

American choice of law rules tend to suggest that Japanese, German, or conceivably international law would be applied to the substantive law issues in the World War II era litigation. However, the flexible approach under the dominant choice of law framework in the United States would allow for selection of other connected laws such as the laws of the areas formerly occupied by aggressor nations. This conclusion also has a pragmatic appeal to the extent that courts find the occupation was illegitimate, unrecognized, or in violation of public international law. Little suggests that substantive American law should be applied. However, given the flexibility of U.S. choice rules, U.S. courts’ frequent failure to consider conflicts issues, and the emotional appeal of U.S. citizens seeking redress for acknowledged harms, that possibility cannot be excluded. If it does occur, recent case law suggests that defendants, at the least, might challenge such application as violating due process protections.

VI. Private International Law Implications on Settlement The European lawsuits for forced and slave labor alone covered anywhere from 700,000 to 2.3 million potential class members.182 This litigation included over fifty federal cases and a handful of state suits.183 It also involved well over a hundred named attorneys.184 The exact amount of damages claimed by all of the lawsuits is incalculable, but almost all sought tortious, restitutionary, and punitive damages as well as attorneys’ fees and costs. In a related case, a single World War II victim

181

Cf. Gerling Global Reins. Corp. v. Low, 2001 U.S. App. LEXIS 1724, *41-*43 (9th Cir. Feb. 7, 2001) (remanding to district court to review whether California Holocaust Victim Insurance Relief Act of 1999 violates due process protections). See also In re Nazi Era Cases II, 2001 U.S. Dist. LEXIS 2018 at *8 n.5 (citing Gerling v. Nelson and stating ‘the Court notes in passing that the California statute upon which plaintiff relies [Section 354.6] is of exceedingly questionable constitutionality’). 182 See BAZYLER M.J. (note 5), p. *192, n. 786 (providing citations). 183 See In re World War II Nazi Era Cases I, 2000 U.S. Dist. LEXIS 18148, at *3-*4, app. A; U.S. Dept. of State, Annex C & D to Foundation Agreement (note 6). 184 Ibid.

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sought over $40 million for his claims alone.185 Thus, it is not surprising that the parties eventually agreed to settle for DM 10 billion (US$5.1 billion).186 The World War II era lawsuits and their settlement most closely resemble mass tort litigation in American courts – the number of parties and the amounts involved are simply enormous.187 Settlement in America accounts for the vast majority of contested cases and is generally about a meeting of the minds on a dispute’s likely outcome, adjusted for risk and less saved expenses.188 In mass tort cases, however, settlement is often not about likely outcome, but rather about the possible outcome. With large plaintiff classes, punitive damages, extensive pretrial discovery, civil juries of laypeople, potential for multiple and lengthy appeals, and other factors contributing to a double punch of unpredictability and potentially enormous damages, defendants often settle to avoid the possible outcome rather than based on a rational estimate of the likely results.189 Nevertheless, settlement negotiations take place in the shadow of the law including the rules of private international law and civil procedure.190 Thus, the more clearly cut the legal questions and resolutions are, the more likely the parties will be able to come to an agreement on the value of the ‘possibility’ factor. This same analysis may be made in economic terms. Settlement generally occurs where the parties’ risk-adjusted approximation of the litigated verdict 185

See D’Amato v. Deutsche Bank, 2001 U.S. App. LEXIS 78, *2 (2d Cir. 4 Jan.

2001). 186

The parties to the Asian lawsuits have not settled any U.S. claims and no known negotiations are underway. 187 Others have made the same conclusion, see BROWN D., ‘Litigating the Holocaust: A Consistent Theory in Tort for the Private Enforcement of Human Rights Violations’, in: 27 Pepperdine L. Rev. 2000, pp. 553, 584-589 (noting that while cases such as BurgerFischer ‘at first blush, appear to impose unseasonable burdens upon defendants, such scenarios would not be unusual considering the cacophonous state of modern tort law’ and going on to compare Burger-Fischer with mass tort lawsuits such as those against dram shops, tobacco companies, and gun manufacturers). 188 See, e.g., OSTROM B.J./ KAUDER N.B., Examining the Work of State Courts 1994, 28 (noting all but 4% of civil cases in state courts settle). 189 For a discussion of a variety of issues involved in settlement of mass tort lawsuits see, Symposium, ‘Mass Torts and ‘Settlement Class Actions’’, in: 80 Cornell L. Rev. 1995, p. 811; ‘Symposium on Mass Torts’, in: 31 Loyola L.A. L. Rev. 1998, p. 437. Some have cynically or critically referred to such lawsuits that capitalize on the possibilities with an objective of settlement as ‘blackmail’ and ‘extortionist’. See, e.g., Castano v. The Am. Tobacco Co., 84 F.3d 734, 746 (5th Cir. 1996). Such characterizations are incorrect and unfortunate, however, because the raison d’être of these lawsuits is that they are possible under the law, rather than outside of the law. 190 See MNOOKIN R.H./ KORNHAUSER L., ‘Bargaining in the Shadow of the Law: The Case of Divorce’, in: 88 Yale L. J. 1979, P. 950 (discussing the impact of legal rules on negotiations and bargaining outside judicial proceedings).

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amount less litigation costs converge.191 The greater the risk or approximation of verdict amount, the wider the divergence on the total estimations of litigation value, and the less likely settlement will occur. Information is a key element in determining both a party’s approximated verdict amount and its risk adjustment. The more information the parties have the more accurate their approximations and the lower their risk adjustments. As a result, the more likely the parties’ total estimation of litigation value less litigation costs will converge and settlement will happen. Private international law and civil procedure rules applicable in international human rights cases are one critical source of information to the parties. The more definitive and predictable these rules are the more likely the parties will be able to settle on mutually acceptable terms. The courts and the U.S. State and Justice Departments, however, purposefully refrained from clarifying these rules during part of the European litigation.192 Their stated justification was that they did not want to derail settlement negotiations.193 As one commentator noted with apparent approval: ‘Judge Korman [in the WWII era Swiss bank litigation] did something brilliant. He did nothing. Rather than ruling on the [private international law and procedure] motions, he sat on them for close to one year and waited for the parties to reach a settlement. Judge Michael Mukasey in Manhattan borrowed Judge Korman’s approach from the Swiss bank cases. In response to the insurance companies motion to dismiss [the WWII era insurance litigation on conflict and procedural grounds], he has not ruled on the motions, hoping the matter will settle instead.’194 191 See POSNER R.A., Economic Analysis of Law, 5th ed., New York 1998, pp. 588589, § 21.5. Thus, where d represents defendant and p plaintiff, and where L equals litigation costs, S equals settlement costs, R(V) equals total estimation of litigation value (i.e., Risk adjustment times approximation of Verdict amount); settlement will occur where: R d (V)-L d +S d
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Such dilatory court practice aimed solely at forcing the parties to settle privately has been described as creating a ‘bankrupt’ legal system in other contexts.195 Furthermore, it was only after two federal courts in Iwanowa and Burger-Fischer ruled on the conflicts and procedural rules that settlement was achieved. In short, private international law and procedure rules impact resolution of international human rights disputes whether it be judicial dismissal, or private and political settlement. As a result, it is incumbent upon us to elucidate and define these rules where the opportunity or, in the case of the courts and administrative officers, duty presents itself.196

VII. Conclusion What lessons may international human rights lawyers take from the World War II era lawsuits regarding the feasibility of claims for private liability for forced wartime labor? First, the broad jurisdictional rules of the United States will provide a forum for these suits. Second, America’s stricter procedural rules will likely block most serious attempts at trying these matters on the merits. The temporal window between these two conclusions, however, is crucial. Wide jurisdiction rules provide a forum from which claimants may leverage the potential liability of the litigation along with whatever political and public pressure they may generate. The rules of procedure provide a measure of confidence to defendants, but reliance on them opens these parties to whatever negative extra-legal pressure the plaintiffs may produce prior to the defenses being decided by a court and the ever-present risk in America that they may lose their seemingly strong arguments. It is on this stage that settlement negotiations are conducted. It is suggested here that diligent and neutral elucidation of the private international law and civil procedure rules involved in these lawsuits can promote the settlement of the cases. 195

See CHIRA S., ‘If You Insist on Your Day in Court, You May Wait and Wait and Wait’, in: N.Y. Times, 1 Sept. 1987, p. 4 (criticizing Japanese judicial practice that results in litigation delays and thereby encourages parties to settle extra-judicially). 196 As Benjamin Cardozo, one of America’s most eminent judges, stated: ‘[O]bscurity of state or of precedent or of customs or of morals, or collision between some or all of them, may leave the law unsettled, and cast a duty upon the courts to declare it.’ CARDOZO B., The Nature of the Judicial Process, New Haven-London 1921, p. 128 (emphasis added). It is notable that one of the conditions of the Foundation Agreement among Germany, the United States, German industry, the European litigation lawyers, and a variety of others is that: ‘The United States shall [in all the known European litigation] inform its courts thought a Statement of Interest that it would be in the foreign policy interests of the United States for the Foundation to be the exclusive remedy and forum for resolving such claims asserted against German companies and that dismissal of such cases would be in its foreign policy interest.’ See Foundation Agreement (note 12), Article 2(1).

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The more information the parties obtain the more easily they may value the vagaries of potential and possible liability, on the one hand, and political and public pressure, on the other. The more easily and consistently the parties value the lawsuits the more likely a mutually acceptable settlement will be forthcoming. Thus, conflict and procedural rules have been outcome determinative in the settlement and dismissals of the World War II era cases to date. The lesson for international human rights lawyers from the U.S. courts’ treatment of the private international law and civil procedure issues arising in the civil litigation of forced and slave labor claims during World War II is that opportunity exists but it is a complex and not necessarily legal equation that must be exercised in a limited timeframe.

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Addendum As noted above, as of early 2001 the only WWII era labor suits that remained in U.S. courts were those Asian litigation cases filed by Korean, Chinese, and Philippine nationals.197 Between September 14 and 17, 2001, three decisions were issued by the federal and state courts in California that largely, but not completely, resolved these cases. On September 14, a California state court denied defendants’ motion to dismiss Korean plaintiffs’ claims based on private international law and civil procedure rules in the continuation of the Jeong case reviewed above.198 On September 17, however, a federal court in California granted defendants’ motion to dismiss class action complaints by Korean, Chinese, and Filipino plaintiffs in two separate opinions in the continuation of In re WWII Era Japanese Forced Labor Litigation.199 Taken together these three opinions add in a variety of areas to the framework created above. Regarding jurisdiction, In re WWII Era Japanese III added support to the Iwanova holding that forced labor violates international law and, therefore, may be a basis for federal subject-matter jurisdiction under the ATCA.200 Regarding peace treaties’ resolution of personal claims arising out of war, In re WWII Era Japanese II found that Filipino forced laborers’ claims were also waived by article 14(b) of the 1951 Japan Peace Treaty since the Philippines ratified that agreement in 1956.201 The court in In re WWII Era Japanese III did not interpret the peace agreements between Japan and China, and Japan and Korea, but it did find that the 1951 Peace Treaty did not preempt Chinese and Korean nationals from seeking redress in U.S. courts despite being the ‘supreme law of the land’ in the United States.202 197

See In re WWII Era Japanese, 114 F. Supp. 2d at 942. Jeong v. Onoda Cement Co. Ltd., Case No. BC217805 (L.A. Sup. Ct. , Sep. 14, 2001), available at http://www.lieffcabraser.com/pdf/OrderJSL.pdf (hereinafter Jeong II). 199 In re WWII Era Japanese Forced Labor Litigation (Order No. 9), 2001 U.S. Dist. LEXIS 14641 (N.D. Cal. Sep. 17, 2001) (hereinafter In re WWII Era Japanese II); In re WWII Era Japanese Forced Labor Litigation (Order No. 10), 2001 U.S. Dist. LEXIS 14640 (N.D. Cal. Sep. 17, 2001) (hereinafter In re WWII Era Japanese III). 200 See In re WWII Era Japanese III, 2001 U.S. Dist. LEXIS 14640, at *54-*58. See also In re WWII Era Japanese II, 2001 U.S. Dist. LEXIS 14641, at *20 (same). 201 See In re WWII Era Japanese II, 2001 U.S. Dist. LEXIS 14641, at *10-*13. 202 See In re WWII Era Japanese III, 2001 U.S. Dist. LEXIS 14640, at *15-*22. See also In re WWII Era Japanese II, 2001 U.S. Dist. LEXIS 14641, at *17-*18 (holding 1951 Peace Treaty is ‘supreme Law of the Land’ and consequently that ‘[w]hether waiver of the Filipino plaintiff’s claims violates the constitutional law of the Philippines (as opposed to American constitutional law) is beside the point’); Jeong II (note 198), at 4-12 (holding 1951 Peace Treaty is not supreme law of land in matter between Korean national and Japanese business; but, since determination pursuant to the 1965 Japan-Korea Peace 198

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Falling within the choice of substantive law rubric, the federal court found that application of Section 354.6 was unconstitutional as a violation of the foreign affairs power of the federal government.203 Specifically, because application of Section 354.6 ‘will affect international relations in a persistent and subtle way, have a great potential for disruption or embarrassment of the United States, and trigger more than some incidental or indirect effect in Japan,’ it overstepped the legislative authority of California as one of the several states.204 The state court in Jeong II had left this issue open; 205 thus, it is likely that defendants in that case will be able to use the federal court’s decision to seek a dismissal. Finally, the cases added insight to the statute of limitation issues, which the courts handled substantially as outlined above. Because Section 354.6 was found unconstitutional, its extension of the applicable statutes of limitation for the international, tort, and restitution claims was ineffective. Thus, the court first followed Iwanova in finding a ten-year limitation period for international claims and dismissed those causes for being brought too late.206 Next, without making the choice of law determination regarding the applicable limitation law, the federal court found that all tort and restitution claims were filed after all possible limitation periods under Californian, Japanese, and Korean law.207 Interestingly, the court partially relied on Japanese court decisions concerning WWII era labor claims for support of this determination.208 The court also followed Iwanova and the legislative history of Section 354.6 in finding that as a factual matter there was no basis for equitable tolling of the limitation periods.209 Given the decisions of the federal court any precedential value of Jeong II is questionable, but Jeong II also speaks to two other aspects of the framework for private international law and civil procedural issues. First, the California state court determined that the Korean plaintiffs’ claims would not be dismissed as a matter of preemption or accord and satisfaction because the 1951 Peace Treaty and the U.S. compensation scheme did not cover Korean nationals.210 The court did not raise the issue, but it is also believed that these parties’ claims have not been preempted or satisfied by Korean or Japanese legislation or settlements. Agreement is inconclusive, Korean plaintiffs’ claims could not be said to be preempted by that agreement). 203 See In re WWII Era Japanese III, 2001 U.S. Dist. LEXIS 14640, at *22-*53. 204 See ibid., at *53 (citing Zschernig v. Miller 389 U.S. 429, 434-35, 440 (1968)) (internal punctuation omitted). 205 Jeong II (note 198), at 4 n.3. 206 See In re WWII Era Japanese III, 2001 U.S. Dist. LEXIS 14640, at *59-*66. 207 See ibid., at *66-*69. 208 Ibid., at *69. 209 See ibid., at *63-*66. 210 Jeong II (note 198), at 12-15.

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Second, in direct contrast to Iwanova, Burger-Fischer, and In re Nazi Era Cases II, the California court found that the Korean labor cases were not precluded under the political question doctrine.211 The court distinguished the European litigation decisions by asserting that in those cases ‘compensation or reparations had been provided for in the Treaties or Agreements at issue.’212 It is unclear from the opinion, but it seems the essence of the court’s rationale was that though Japan and Korean may have entered into agreements regarding reparations, those were not agreements of the United States and, thus, United States foreign relations are not implicated by judicial decisions concerning those foreign agreements. As the federal court in In re WWII Era Japanese III makes clear, however, this rationale fails in that U.S. court determinations about disputes between foreign parties covered by foreign treaties and agreements may indeed impact U.S. foreign relations by causing ‘unavoidable judicial criticism’ of foreign governments and directly interfering with diplomatic negotiations between the foreign states at issue.213 The federal decisions do not have direct binding authority on the California state proceeding and plaintiffs’ attorneys in the federal lawsuits state that they plan to appeal the district court’s decisions; thus, as of this writing the WWII era labor litigation arguably still remains partially active.214

211

See ibid., at 17-18. Ibid., at 17. 213 See In re WWII Era Japanese III, 2001 U.S. Dist. LEXIS 14640, at *44-*46. 214 KANG K.C., ‘Allowing Suits by Forced Laborers Voided’, in: L.A. Times, 20 Sep. 2001, p. 2-1. In a strikingly similar case, after a federal district court ruled a California statute directed against Holocaust era insurers was likely unconstitutional as a violation of the federal government’s power over foreign affairs, the Ninth Circuit Court of Appeals overturned the decision and remanded for more hearings. See Gerling Global Reins. Corp. of Am. v. Low, 240 F.3d 739, 2001 U.S. App. LEXIS 1724, *34-*40 (9th Cir. Feb. 7, 2001). But see In re WWII Era Japanese III, 2001 U.S. Dist. LEXIS 14640, at *50, *52 (distinguishing Gerling). 212

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THE LAW APPLICABLE TO GOVERNMENTAL LIABILITY FOR VIOLATIONS OF HUMAN RIGHTS IN WORLD WAR II Questions of Private International Law from the German Perspective Jan VON HEIN*

I. II. III.

Introduction Reparations and Individual Claims: A Mutually Exclusive Relationship? Basic Features of German Substantive Law A. Governmental Liability in General B. Special Substantive Rules Dealing with Compensation for Wrongs Inflicted during Wartime 1. Federal Compensation Act 2. Law on the Creation of the Foundation ‘Remembrance, Responsibility and the Future’

IV.

The Law Applicable to Governmental Liability A. German Choice-of-Law Rules for Torts: A Survey 1. Basic Rule for Torts in General: Lex Loci Delicti 2. Content of the Lex Loci Delicti in Annexed and Occupied Territories 3. Deviations from the Lex Loci Delicti B. Special Rules for Governmental Liability: The Current State of the Discussion in Germany (with a Side Reference to Austria) 1. Characterisation of War-Related Human Rights Violations 2. Public International Law: Lack of Jurisdiction to Prescribe 3. Private International Law: Most Significant Relationship with the Law of the State Claimed to Be Liable a) A General Rule b) Depending on an Established Connection Between the Perpetrating State and Victim: The Case of the Ambassadors’ Hunting Party 4. Dépeçage between the Law Applicable to the Liability of Civil Servants and the Issue of Assumption

* Dr. iur.; Max-Planck-Institute for Foreign Private Law and Private International Law, Hamburg. The manuscript was completed on 18 May 2001.

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Printed in the Netherlands

Jan von Hein

5.

V. VI. VII. **

Interdependence of State Immunity and the PIL of Governmental Liability a) State Immunity v. Conflicts Justice: Two Different Approaches? b) Restrictions of Absolute State Immunity c) Conclusion to 5 Limitations of Substantive Provisions Recognition and Enforcement of Foreign Judgments Conclusion**

Abbreviations of journals and periodicals: AG = Die Aktiengesellschaft AuR = Arbeit und Recht AVR = Archiv des Völkerrechts Beiträge = Beiträge zur nationalsozialistischen Gesundheits- und Sozialpolitik BerDGesVR = Berichte der Deutschen Gesellschaft für Völkerrecht BGBl. = Bundesgesetzblatt BGHZ = Entscheidungen des Bundesgerichtshofs in Zivilsachen Blätter = Blätter für deutsche und internationale Politik BVerfGE = Entscheidungen des Bundesverfassungsgerichts IECL = International Encyclopedia of Comparative Law IPRE = Österreichische Entscheidungen zum internationalen Privatrecht IPRspr. = Die deutsche Rechtsprechung auf dem Gebiete des Internat. Privatrechts JBl. = Juristische Blätter JZ = Juristenzeitung KJ = Kritische Justiz Mich. J. Int’l L. = Michigan Journal of International Law NJW = Neue Juristische Wochenschrift NZA = Neue Zeitschrift für Arbeitsrecht Rev. Hell. = Revue Hellénique de Droit International RGBl. = Reichsgesetzblatt RGZ = Entscheidungen des Reichgerichts in Zivilsachen VersR = Versicherungsrecht WM = Wertpapier-Mitteilungen ZEuP = Zeitschrift für Europäisches Privatrecht ZfRV = Zeitschrift für Rechtsvergleichung ZRP = Zeitschrift für Rechtspolitik ZVglRWiss. = Zeitschrift für Vergleichende Rechtswissenschaft ZVR = Zeitschrift für Verkehrsrecht

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Governmental Liability for Violations of Human Rights

I.

Introduction

The subtitle of this article might strike a reader unfamiliar with the subject as strange: Governmental liability, violations of human rights and the laws of war are traditionally regarded as belonging to the realm of public international law rather than the conflict of laws. The classic approach to dealing with wrongs inflicted on a population during wartime is for the State that has been attacked to bring actions for damages against the aggressor after the war has ended, viz. reparations.1 Yet we are confronted with the phenomenon that, more than fifty-five years after the end of World War II, private litigation involving claims for war-related human rights violations is mushrooming all over the world.2 Several German courts have been and still are dealing with claims against the Federal Republic of Germany (F.R.G.), especially with regard to compensation for forced labour.3 Since the torts underlying these actions have often been committed abroad, i.e., in the countries occupied or annexed by the Reich, the question arises as to which law should govern these claims.4

1 Cf. Bundesgerichtshof (Federal Supreme Court), 26 September 1966, in: IPRspr. 1966–67, No. 14 (sub 1). 2 Professor D. BLUMENWITZ (University of Würzburg) speaks of a ‘a wave of new claims for reparations due to the current trend towards a ‘privatisation’ of international legal relations’ (my translation), ‘Blumenwitz: Die Forderungen ufern aus’, in: DIE WELT online, 23 March 2000 , visited 27 July 2000; on this paradigm shift see Professor Chr. WOLF (University of Hannover), ‘Menschenrechtsschutz durch Zivilprozess – eine Aufgabenbeschreibung’, at , visited 7 January 2001. 3 See Bundesverfassungsgericht (Federal Constitutional Court) 13 May 1996, in: BVerfGE, Vol. 94, p. 315; Bundessozialgericht (Federal Social Court) 18 June 1997, in: NJW 1998, p. 2309; Oberverwaltungsgericht Münster (Supreme Administrative Court of North-Rhine-Westphalia) 19 November 1997, in: NJW 1998, p. 2302; Oberlandesgericht Köln (Regional Court of Appeals Cologne) 3 December 1998, in: IPRax 1999, p. 251 = NJW 1999, p. 1555 = WM 1999, p. 242 = VersR 2000, p. 590 = IPRspr. 1998, No. 44; Landgericht (Regional Court) Bremen 3 December 1992, in: JZ 1993, p. 633; Landgericht Bonn, 2 July 1993, in: RANDELZHOFER A./DÖRR O., Entschädigung für Zwangsarbeit, Berlin 1994, p. 113. On the dimension and function of forced labour in national-socialist Germany see BENZ W., ‘Zwangsarbeit im nationalsozialistischen Staat’, in: Dachauer Hefte 16 (2000), pp. 3-17; SCHRÖDER R., ‘Zwangsarbeit: Rechtsgeschichte und zivilrechtliche Ansprüche’, in: Jura 1994, pp. 61-72 (part I), pp. 118-130 (part II), at pp. 62-64, both with many further references. 4 But see PHILIPP W., ‘Darf der Vorstand zahlen?’, in: AG 2000, pp. 62-69, at p. 64, who states that ‘all incidents occurred in Germany’ (my translation). This, with due respect, is plainly wrong. On the question which law applied in the annexed territories, see infra IV.A.2.

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This fundamental problem has so far received only scant attention by the German courts.5 Although the issue of forced labour claims will probably lose importance as a practical matter before German courts as a result of the recent enactment of the German Law on the Creation of the Foundation ‘Remembrance, Responsibility and the Future’ (hereinafter: Foundation Law),6 the main purpose of this article is to further elucidate the choice-of-law aspects of this issue (see infra IV). First of all, the problem deserves historical interest in its own right. Secondly, the arguments exchanged in the German debate may be helpful to lawyers in other countries facing similar legal challenges.7 Thirdly, the question which law should apply to claims for compensation for human rights violations is not restricted to cases that arose in World War II; on the contrary, recent and ongoing armed conflicts furnish ample evidence of the practical importance of this issue.8 Finally, not all claimants chose to take the F.R.G. to its own courts. In 2000, the F.R.G. was ordered by the Greek Supreme Court, the Areopag, to pay damages to the victims of the massacre committed by German troops in Distomon, Greece, in 1944.9 Proceedings in the same case were unsuccessful in 5

See, however, the brief discussion of the problem in Oberlandesgericht Köln

(note 3). 6

Gesetz zur Errichtung einer Stiftung ‘Erinnerung, Verantwortung und Zukunft’, 2 August 2000, in: BGBl. 2000, part I, p. 1263, in force since 3 August 2000; see infra III B 2. For a survey, see HAHN H.-J., ‘Individualansprüche auf Wiedergutmachung von Zwangsarbeit im Zweiten Weltkrieg’, in: NJW 2000, pp. 3521-3526. The first reported decisions applying the new law are: Bundesgerichtshof, 30 November 2000, in: NJW 2001, p. 1069; Oberlandesgericht Hamm, 27 October 2000, in: NJW 2000, p. 3577; see also Landgericht Nürnberg-Fürth, 18 January 2001 – 9 O 2180/00 . 7 On the discussion in Japan see YAMAUCHI K., ‘Staatshaftung für Kriegsgeschädigte im japanischen IPR’, in: Festschrift für Otto Sandrock zum 70. Geburtstag, Heidelberg 2000, pp. 1057-1064, and OKUDA Y., in this Yearbook, pp. 115-135. 8 See FISCHER G., ‘Schadensersatzansprüche für Menschenrechtsverletzungen im Internationalen Privat- und Prozeßrecht’, in: Festschrift für Walter Remmers, Köln 1995, pp. 447-464; HESS B., ‘Staatenimmunität bei Menschenrechtsverletzungen’, in: Festschrift für Rolf A. Schütze zum 65. Geburtstag, München 1999, pp. 269-285, at p. 283 et seq. 9 Greek Areopag, 4 May 2000, in: KJ 2000, p. 472 (German translation), affirming Court of First Instance of Livadia, 30 October, 1997 (Prefecture of Voiotia v. Federal Republic of Germany), in: Rev. Hell. 1997, p. 595 (English translation) with a note by GAVOUNELI M.; the decision of the Livadia court is also reported by BANTEKAS I., in: Am. J. Int. L. 1998, pp. 765-768; for German comments on the Distomon litigation, see BRODESSER H.-J./FEHN B. J./FRANOSCH T./WIRTH W., Wiedergutmachung und Kriegsfolgenliquidation: Geschichte – Regelung – Zahlungen, München 2000, p. 183 et seq.; HESS B. (note 8), p. 277; KÄMMERER J. A., ‘Kriegsrepressalie oder Kriegsverbrechen?’, in: AVR 1999, pp. 283-317; PAECH N., ‘Wehrmachtsverbrechen in Griechenland’, in: KJ 1999, pp. 380-397; SCHMINCK-GUSTAVUS Chr., ‘Nemesis’, in: KJ 2001, pp. 111-117. From an historian’s point of view, cf. RONDHOLZ E., ‘Schärfste Maßnahmen gegen die Banden sind

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Cologne.10 While the appeal against the German judgment is still pending before the German Bundesgerichtshof,11 the plaintiffs attempted to execute the Greek judgment in Athens by seizing the local German school and the Goethe Institute.12 These efforts were stalled by a temporary injunction of an Athens court because the Greek Justice Department has so far refused to grant the permission required under Greek law for the seizure of property belonging to a foreign State.13 In the United States, class actions against German companies were filed by former slave labourers.14 Past decisions and pending proceedings involving wartime torts raise the question whether pertinent judgments against the F.R.G. (or a German company) could be recognised and enforced in Germany (see infra VII). Moreover, these actions created the political pressure resulting in the enactment of the German Foundation Law.15 The German Parliament must still vote to declare ‘legal peace’ before payments can begin. At the moment, it is not yet entirely clear whether U.S. Courts will consider themselves bound by the parallel GermanAmerican Forced Labour Agreement and the statement of interests issued by the U.S. State Department.16 Although the statement of interests recommends that notwendig…’, in: Beiträge 14 (1997), pp. 130-170; ID., ‘Tausend unbekannte Lidices’, in: Blätter 1993, pp. 1509-1519, at p. 1515 et seq. 10 Oberlandesgericht Köln, 27 August 1998 – 7 U 167/97, unreported, available on demand at . 11 Reference: III ZR 245/98; see Bundesgerichtshof, official press release No. 34/2001, at: (visited 3 May 2001); on the pending proceedings, see SCHMINCK-GUSTAVUS Chr. (note 9), p. 115 et seq. 12 See ANTONAROS E., ‘In Griechenland könnte deutsches Eigentum zwangsversteigert werden’, in: DIE WELT online, 4 July 2000, at: . 13 AP, ‘Beschlagnahme deutschen Eigentums weiter blockiert’, at: . 14 Cf., e.g., Burger-Fischer et al. v. Degussa AG, Vogel et al. v. Degussa AG, Lichtman v. Siemens AG, Klein et al. v. Siemens AG, 65 F.Supp.2d 248 (U.S. Dist. N.J. 1999); Iwanowa v. Ford Motor Company and Ford Werke A.G., 67 F.Supp.2d 424 (U.S. Dist. N.J. 1999). On these judgments, see DOEHRING K., ‘Zwangsarbeit und Reparationen’, in: AG 2000, pp. 69-71; REINISCH A., ‘NS-Verbrechen und "political questions": Können deutsche Unternehmen von ehemaligen Zwangsarbeitern vor US-Gerichten verklagt werden?’, in: IPRax 2000, pp. 32-39; SAFFERLING C.J.M., ‘Zwangsarbeit vor amerikanischen Gerichten’, in: NJW 2000, pp. 1922-1924. On Californian Legislation designed to facilitate the adjudication of forced labour claims see GEBAUER M./SCHULZE G., ‘Kalifornische Holocaust-Gesetze zugunsten von NS-Zwangsarbeitern und geschädigten Versicherungsnehmern und die Urteilsanerkennung in Deutschland’, in: IPRax 1999, pp. 478-484. See also ANDERSON K., in this Yearbook, pp. 137-183. 15 Supra note 6. 16 Agreement between the Government of the United States of America and the Government of the Federal Republic of Germany concerning the Foundation

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pending lawsuits should be dismissed, Judge Shirley Wohl Kram of the U.S. District Court in Manhattan refused to comply with the statement unconditionally. Instead, she ordered on 11 May 2001 that the victims’ suits could be reinstated if the German parliament did not make certain changes to the Foundation Law.17 The U.S. Court of Appeals for the Second Circuit, however, ruled on 17 May 2001 that the District Judge had exceeded her judicial authority: Kram lacked the power ‘to require such actions of the legislature of a foreign sovereign’.18 Therefore, it is hoped that the German parliament will soon be able to declare the ‘legal peace’ that must be established before the foundation can start making payments. Apart from these well-known cases, actions filed by individual victims have attracted less attention. For example, a 76 year-old French former slave labourer is currently suing the F.R.G. before an industrial tribunal in Paris for compensation.19 Before dealing with the conflicts issues, it is necessary to examine two aspects of the legal background. Firstly, some brief preliminary remarks on the public international legal framework are important to grasp the full dimension of the problem (see infra II). Secondly, a basic knowledge of the German substantive law applicable to governmental liability is indispensable to understand the positions taken by German courts and scholars on the conflicts aspect of this issue (see infra III).

II.

Reparations and Individual Claims: A Mutually Exclusive Relationship?

The question which law should govern individual claims for human rights violations can only arise if such claims are not excluded by rules of public international law. There is no doubt that the enslavement of a vanquished population was a flagrant violation of valid rules of the law of nations as it already stood ‘Remembrance, Responsibility and the Future’, 17 July 2000, for the text of the Agreement and further materials, visit ; on this issue, see the decision of the District Court N.J., Bassler J., at 2000 WL 1876641 and SEBOK A., ‘Unsettling the Holocaust – The strange legal status of the Nazi forced labor agreement’, . 17 ‘Germans Dispute Judge’s Order on Pay to Victims of Nazis’, , 12 May 2001. 18 AP, ‘Ruling in Nazi Slave Labor Case’, , 18 May 2001; FRITSCH J., ‘One Step Closer to Reparations for Nazi Victims’, , 18 May 2001. 19 ‘Früherer Zwangsarbeiter verklagt Deutschland’, in: Süddeutsche Zeitung, 8 December 2000, p. 8. On the repression of the French Résistance, see MEYER A., ‘…daß französische Verhältnisse anders sind als polnische’, in: Beiträge 14 (1997), pp. 43-91.

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in World War II.20 It is also unanimously accepted that the F.R.G. is the successor to the Reich and as such liable for violations of human rights that occurred during World War II.21 The F.R.G., however, has taken the official stance that individual claims for compensation raised by slave labourers or by victims of war-related massacres should be characterised as a kind of reparations.22 According to customary international law as interpreted by the F.R.G., pertinent claims could be filed only by the States of which the claimants were nationals, but not by the individual victims themselves.23 Apart from customary international law, this argument was based on Article 5(2) of the London Agreement on German External Debts (hereinafter: the London Agreement).24 Pursuant to this provision, the consideration of World War II claims of countries that were at war with or were occupied by Germany during that war and claims of nationals of such countries against the Reich and agencies of the Reich shall be deferred until the final settlement of the problem of reparations.

20

See, e.g., Burger-Fischer (note 14), pp. 255, 272 et seq.; Iwanowa (note 14), p. 440; Landgericht Stuttgart, 24 November 1999, in: IPRax 2001, p. 240, at p. 243, with a note by OBERHAMMER P./REINISCH A., ‘Zwangsarbeiter vor deutschen Gerichten’, in: IPRax 2001, pp. 211-218; BRODESSER H.-J./FEHN B. J./FRANOSCH T./ WIRTH W. (note 9), p. 194 et seq.; BRÜGMANN C., ‘"Wiedergutmachung" und Zwangsarbeit – Juristische Anmerkungen zur Entschädigungsdebatte’, in: Dachauer Hefte 16 (2000), pp. 177-189, at p. 185; on claims raised by former prisoners of war, cf. Oberverwaltungsgericht Münster (note 3). 21 See the decisions cited in note 3 and Oberlandesgericht Köln (note 9), p. 18. 22 Cf. the arguments advanced by the FRG in Oberlandesgericht Köln (note 9), p. 5 et seq. (concerning Distomon) and in Landgericht Bonn, 5 November 1997 – 1 O 134/92 as well as in Landgericht Bremen, 2 June 1998 – 1 O 2889/90 (the two latter decisions – both concerning slave labour – can be downloaded at ); this is still the position taken in the treatise edited by the former and current officials of the German Ministry of Finance BRODESSER H.-J./FEHN B. J./FRANOSCH T./ WIRTH W. (note 9), p. 194 et seq.; DOEHRING K. (note 14); HAHN H.-J. (note 6), p. 3521 et seq. On this line of reasoning, see the critical discussion in BRÜGMANN C. (note 20), p. 185 et seq.; FRAUENDORF L., ‘Die Entschädigung von NS-Zwangsarbeit – ein aktuelles Problem’, in: ZRP 1999, pp. 1-6, at p. 4 et seq.; HESS B., ‘Entschädigung für Zwangsarbeit im "Dritten Reich"’, in: JZ 1993, pp. 606-610, at p. 606 et seq.; ID., ‘Entschädigung für NSZwangsarbeit vor US- und deutschen Zivilgerichten’, in: AG 1999, pp. 145-154, at p. 151; KISCHEL U., ‘Wiedergutmachungsrecht und Reparationen’, in: JZ 1997, pp. 126-131; KÜPPER H., ‘Die neuere Rechtsprechung in Sachen NS-Zwangsarbeit’, in: KJ 1998, pp. 246254, at pp. 248-251; PAWLITA C., ‘Verfolgungsbedingte Zwangsarbeit im Nationalsozialismus’, in: AuR 1999, pp. 426-436, at p. 430; TOMUSCHAT Chr., ‘Rechtsansprüche ehemaliger Zwangsarbeiter gegen die Bundesrepublik Deutschland?’, in: IPRax 1999, pp. 237-240, at p. 239 et seq., all with numerous further references. 23 See the references in note 22. 24 London Agreement on German External Debts, 27 February 1953, BGBl. 1953, part II, p. 331.

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The German Constitutional Court, however, ruled in a ground-breaking decision in 1996 that the diplomatic protection afforded the victims under customary international law does not exclude their individual (delictual) claims under the national law of the State that committed the human rights violations in question.25 The private claims of individual victims against the aggressor are concurrent with those of the State of which they are nationals.26 Only the latter claims are based on public international law.27 The position taken by the Constitutional Court on the justiciability of individual claims was affirmed by the Federal Labour Court in 2000.28 This latter decision deals with claims against companies that employed slave labourers, not with claims against the F.R.G. With regard to the problem of ‘exclusiveness’, however, it rightly asserts obiter that it does not make a difference whether the claims are directed against the F.R.G. as the successor to the Reich or against private individuals.29 The decision of the Federal Labour Court ended a series of contradictory judgments of lower labour courts.30 The Constitutional Court did not elaborate what it meant by the national law of the perpetrating State (‘das nationale Recht des verletzenden Staates’).31 Does this expression refer directly to the substantive law of the perpetrating State or does it encompass rules of private international law?32 On the one hand, the Constitutional Court probably thought mainly of German substantive law when it formulated its 1996 judgment, which is indicated by its reference to the Federal Compensation 25

Bundesverfassungsgericht (note 3), p. 330 et seq. The Bundesgerichtshof (note 1) had already decided in 1966 that contractual claims are not excluded by reparations. 26 Bundesverfassungsgericht (note 3), p. 330. 27 Bundesverfassungsgericht (note 3), p. 331. 28 Bundesarbeitsgericht (Federal Labour Court), 16 February 2000, in: NZA 2000, p. 385, at p. 386. On the decision of the Federal Labour Court, see the critical note by SEIFERT A., in: AuR 2000, p. 228 et seq. The 1996 decision of the Bundesverfassungsgericht has also been affirmed by Landgericht Bonn (note 22), sub A.I.4. and Landgericht Bremen (note 22), sub 2.3. in cases concerning governmental liability and by the Landgericht Stuttgart (note 20), p. 242 et seq., in a case concerning a private company. 29 Bundesarbeitsgericht (note 28), p. 386. 30 Landesarbeitsgericht Hessen (Regional Labour Court of Appeals Hesse), 16 July 1999, in: AuR 1999, p. 450; Landesarbeitsgericht München, 2 August 1999, in: AuR 1999, p. 449; Landesarbeitsgericht Nürnberg, 18 August 1999, in: AuR 1999, p. 405 (headnote); Arbeitsgericht (Labour Court) Koblenz, 7 July 1999, in: NJW 1999, p. 2838 (a judgment which contains [at p. 2839, sub 8] language and arguments rightly condemned as ‘incomprehensible’ by SAFFERLING C.J.M. [note 14], p. 1923, note 10 and as ‘scandalous’ by KLIMPE-AUERBACH W., ‘Keine Aufrechnung von Zwangsarbeit’, in: AuR 1999, p. 436); Arbeitsgericht Hannover, 5 August 1999, in: AuR 1999, p. 451. Further unpublished decisions are reported by PAWLITA C. (note 22). 31 Bundesverfassungsgericht (note 3), p. 330 et seq.; Bundesarbeitsgericht (note 28), p. 386. 32 Cf. the doubts expressed by the Landgericht Stuttgart (note 20), p. 246.

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Act.33 On the other hand, the court was well aware that the applicability of German substantive law could not be taken for granted, which is demonstrated by its discussion of the principle of territoriality and the spatial scope of German public law in annexed Poland.34 Especially interesting is its rather cryptic reproach to the lower court: ‘The regional court did not consider whether the cases before us, in which German sovereign power was exercised on foreign territory, suggest that the Federal Republic of Germany cannot invoke the potential inapplicability of German law.’35 The post-1996 decisions of German lower courts on governmental liability for war-related torts start by determining the applicable law.36 This approach is correct. In the context of its decision, the Constitutional Court applied ‘national law’ as opposed to public international law. Since private international law is also a part of the ‘national law’ of a given State and not of public international law,37 the notion ‘national law’ should be interpreted as comprising conflicts rules as well. Nonetheless, it should be kept in mind that the 1996 decision does not question the right of States to waive individual tort claims of their nationals.38 Consequently, the Constitutional Court left open the possibility of individual claims being excluded by bi- or multilateral agreements.39 Therefore, courts still faced the problem whether individual claims were barred by Article 5(2) of the London Agreement.40 The Supreme Administrative Court of North-RhineWestphalia answered this question in the negative in 1997.41 The court argued that the condition set forth in Article 5(2) of the London Agreement, namely the final settlement of the question of reparations, had been met by the so-called Two-PlusFour Treaty concluded between the former Allies, the F.R.G. and the German Democratic Republic (GDR) in September 1990 to pave the way for German 33

Bundesverfassungsgericht (note 3), p. 331; see also Oberlandesgericht Hamm (note 6), p. 3579. On this act see infra III.B.2. 34 Bundesverfassungsgericht (note 3), pp. 323-325. 35 Bundesverfassungsgericht (note 3), pp. 324 et seq. 36 Oberlandesgericht Köln (note 3), p. 253; ID. (note 9), p. 18; cf. for claims against the Dresdner Bank Landgericht Frankfurt am Main 27 April 2000 – 2-19 O 161/99, . 37 Bundesverfassungsgericht, 4 May 1971, in: BVerfGE, Vol. 31, p. 58, at p. 73; for a discussion and further references see VON HEIN J., Das Günstigkeitsprinzip im Internationalen Deliktsrecht, Tübingen 1999, p. 47. 38 Bundesverfassungsgericht (note 3), p. 330. On the pertinent treaties see, e.g., HESS B. 1993 (note 22), p. 607; PAWLITA C., P. 432 et seq. (note 22); Burger-Fischer (note 14), pp. 266-269; Iwanowa (note 14), p. 468. For a critique see SAFFERLING C.J.M. (note 14), p. 1924; SCHRÖDER R. (note 3), p. 71. 39 Bundesverfassungsgericht (note 3), p. 333 et seq. 40 Supra note 24. 41 Oberverwaltungsgericht Münster (note 3).

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reunification.42 The court conceded that the Two-Plus-Four Treaty does not constitute a peace treaty as this term is commonly defined.43 It also pointed out that the Treaty did not explicitly mention the subject of reparations.44 Nevertheless, the court interpreted the Two-Plus-Four Treaty as being intended to be the final word on the German question and related matters of occupation.45 Thus, the court considered it evident that there will never be a comprehensive peace treaty in the traditional sense.46 Therefore, according to the court, the question of reparations is settled and individual claims are no longer barred by Article 5(2) of the London Agreement.47 However, some important caveats have to be added to this controversial decision. First of all, the German government still clings to the official stance that the Two-Plus-Four Treaty had no impact whatsoever on the moratorium fixed in the London Agreement,48 a position that enjoys considerable academic support.49 This attitude is not expected to change, unless this question is authoritatively and formally settled.50 It should be mentioned that the subject of formal reparation 42 Vertrag über die abschließende Regelung in bezug auf Deutschland, 12 September 1990, in: BGBl. 1990, part II, p. 1318. 43 Oberverwaltungsgericht Münster (note 3), p. 2303. The Federal German government did everything it could not to conclude a peace treaty precisely because it wanted to avoid resuscitating the question of reparations, see DOLZER R., ‘Reparationspflicht ohne Ende?’, in: NJW 2000, p. 2480 et seq., at p. 2481; OBERHAMMER P./REINISCH A. (note 20), p. 214. 44 Oberverwaltungsgericht Münster (note 3), p. 2302. 45 Oberverwaltungsgericht Münster (note 3), p. 2302. 46 Oberverwaltungsgericht Münster (note 3), p. 2303. 47 Oberverwaltungsgericht Münster (note 3), p. 2302; concurring: Landgericht Bonn (note 22), sub A.I.5; Landgericht Bremen (note 22), sub 2.4; Landgericht Stuttgart (note 20), p. 245 et seq.; Landgericht Berlin, 1 February 2000, NJW 2000, p. 1958 (inferring that the three-year period fixed by the statute of limitations started to run in 1990); BRÜGMANN C. (note 20), p. 187; FRAUENDORF L. (note 22), p. 5; PAECH N. (note 9), p. 391; PAWLITA C. (note 22), p. 430; cf. also SCHRÖDER R. (note 3), p. 126. 48 Cf. the arguments advanced by the F.R.G. in Oberlandesgericht Köln (note 9), p. 6. 49 See BRODESSER H.-J./FEHN B. J./FRANOSCH T./ WIRTH W. (note 20), p. 186; HAHN H.-J. (note 6), p. 3521 et seq.; HESS B. 1999 (note 22), p. 151; but cf. DOLZER R. (note 43), p. 2481, who argues that, according to the principle of good faith and fair dealing, the F.R.G. should be entitled to regard the 2+4 Treaty as the final settlement of reparation claims. 50 Cf. GEBAUER M./SCHULZE G. (note 14), p. 481, note 40 (‘an open question’). The Federal Constitutional Court, however, does not seem to be eager to pick up this issue because it does not involve the interpretation of customary international law, cf. Bundesverfassungsgericht (note 3). Under German constitutional law, international treaties have to be interpreted by the ordinary courts, ibid.

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claims was officially raised by the U.S. in the negotiations concerning the Forced Labour Agreement.51 This unexpected threat led to surprised, not to say frightened reactions among German politicians.52 Eventually, Article 3 of the Forced Labour Agreement provided that the U.S. ‘will not raise any reparation claims’ against the F.R.G.53 This pactum de non petendo and the circumstances surrounding its genesis lend support to the thesis that, at least from the American point of view, reparation claims were not already definitively settled in the Two-Plus-Four Treaty. Moreover, it is doubtful whether anything at all can be deduced from the Two-Plus-Four Treaty as far as non-signatory States are concerned.54 With these reservations, the decisions of the Federal Constitutional Court and those of the Supreme Administrative Court of North-Rhine-Westphalia opened the door to the private litigation of war-related claims in German courts.

III. Basic Features of German Substantive Law A.

Governmental Liability in General

The German substantive law of governmental liability can only be understood in an historical perspective.55 From the theoretical point of view, there are four models for determining compensation for an illegal and culpable act of a civil servant.56 (1) First, it is possible to make only the civil servant liable for the consequences of his act. The State is not implicated. 51 Cf. DOLZER R. (note 43); HAHN H.-J. (note 6), p. 3522; see also ‘Vorschlag der USA im Streit um Reparationen’, in: Süddeutsche Zeitung, 13 May 2000, p. 5. 52 See ‘Heye: Reparationsfrage ist für Berlin geklärt’, in: Süddeutsche Zeitung, 11 March 2000, p. 5. 53 Supra, note 16. 54 Cf. the skepticism expressed in Oberlandesgericht Köln (note 9), p. 16 et seq., with regard to Greece; but cf. Landgericht Stuttgart (note 20), p. 246, with regard to Poland. 55 OSSENBÜHL F., Staatshaftungsrecht, 5th ed., München 1998, p. 6. For descriptions of German law in English see DEPENHEUER O., ‘Governmental Liability in Germany’, in: Comparative Studies on Governmental Liability in East and Southeast Asia, ed. by YONG ZHANG, Den Haag/London/Boston 1999, pp. 173-199; EÖRSI G., ‘Private and Governmental Liability for the Torts of Employees and Organs’, in: IECL, Vol. XI, Ch. 4, Tübingen/Den Haag/Paris 1975, paras. 212-223; RÜFNER W., ‘Basic Elements of German Law on State Liability’, in: Governmental Liability: A Comparative Study, ed. by BELL J./BRADLEY A. W., London 1991, pp. 249-274, reviewed by NEITZEL J., in: RabelsZ 1995, pp. 169-174, at p. 172 et seq. 56 Cf. OSSENBÜHL F. (note 55), p. 7.

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(2)

The opposite model consists of the direct liability of the State for a tortious act committed by an official while exonerating the latter from responsibility towards the injured party (direct governmental liability).

(3)

Thirdly, the civil servant and the State are both liable (cumulation).

(4)

A fourth model uses the personal liability of the official as a starting point; however, the State then assumes this liability (assumption). This derivative form of governmental liability is called Amtshaftung in German.

In nineteenth century Germany, the first model was widely preferred because the relationship between the State and its officials was classified as a kind of private mandate.57 Consequently, the State as mandator could not be held accountable for the torts the mandatory – the civil servant – committed contra mandatum.58 This theory left its traces in the German Civil Code, the Bürgerliches Gesetzbuch (BGB), which came into force in 1900.59 § 839(1), 1st sentence BGB provides that an official who intentionally or negligently violates his official duty towards a third party must compensate this party for the resulting damage. The position of this provision in the code reflects a characteristic ambivalence of the German law: On the one hand, the rule was placed in the chapter dealing with torts in general (§§ 823 et seq. BGB); on the other, the liability of an official should not be governed by the general rules on torts, but by the special provision in § 839 BGB. Apart from that, at the end of the nineteenth century, the opinion gained ground that the traditional mandate theory was utterly unsatisfactory.60 However, the federal legislator lacked the competence to introduce a direct or even a derivative form of governmental liability.61 As a result, Article 77 of the Introductory Law to the Civil Code (EGBGB 1900) left the matter to the states, which subsequently enacted laws providing for the assumption of an official’s liability by the respective state.62 In 1919, Article 131 of the Weimar Constitution (WRV) adopted this derivative form of governmental liability for the entire Reich. It also provided that the ordinary (civil) courts, not the administrative courts were competent to deal with cases involving governmental liability (Article 131, 3rd sentence WRV). In spite of the disrespect of the national socialist regime for the Weimar Constitution, Article 131 WRV continued to be applied by German courts

57

OSSENBÜHL F. (note 55), p. 7 et seq. OSSENBÜHL F. (note 55), p. 7 et seq. 59 Bürgerliches Gesetzbuch, 18 August 1896, in: RGBl. 1896, part I, p. 195, in force since 1 January 1900, as amended. 60 Cf. OSSENBÜHL F. (note 55), p. 8. 61 OSSENBÜHL F. (note 55), p. 8 et seq. 62 OSSENBÜHL F. (note 55), p. 9. 58

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during the Third Reich.63 In 1949, this provision was replaced by the nearly identical Article 34 of the German Grundgesetz (Basic Law, i.e., Constitution). As a matter of intertemporal law, however, Article 131 WRV remains applicable to torts committed by officials in World War II. 64

B.

Special Substantive Rules Dealing with Compensation for Wrongs Inflicted during Wartime

1.

Federal Compensation Act

With regard to torts relating to national socialist persecution, the common provisions applicable to governmental liability are superseded by special substantive rules that fall into two categories.65 While one set of rules aims to compensate victims of National Socialism for deprivations of their life, liberty, health or career, a second set deals with the restitution of assets confiscated by the national socialist regime. The first type of rules is found in the Federal Compensation Act (Bundesentschädigungsgesetz–BEG),66 the second type in the Federal Restitution Act.67 Claims of slave labourers or victims of massacres such as those committed by German troops in Distomon or Kalavrita clearly have to be classified as claims for compensation.68 The BEG does not, however, contain a comprehensive legal solution for all groups of victims. On the contrary, it is limited both in its personal and territorial scope. Compensation under the BEG is restricted to persons who suffered as a result of persecution by the Nazis on certain grounds, such as race, religion or Weltanschauung (§ 1 BEG). Forced labour as such does not

63 Reichsgericht (Supreme Court of the German Empire), 17 November 1936, in: RGZ, Vol. 152, p. 385 et seq.; 17 February 1939, in: RGZ, Vol. 160, p. 193, at p. 196; KÄMMERER J.A. (note 9), p. 310. 64 Oberlandesgericht Köln (note 3), p. 253; Landgericht Bremen (note 22), sub 2.3; TOMUSCHAT Chr. (note 22), p. 238. This is frequently overlooked, e.g., by Oberverwaltungsgericht Münster (note 3), p. 2305. 65 For a survey of German compensation law and policies after World War II, see BRÜGMANN C. (note 20), pp. 180-184; HESS B., Intertemporales Privatrecht, Tübingen 1998, pp. 260-262; ID. 1999 (note 22), p. 150; KÜPPER H. (note 22), pp. 246-248; PAWLITA C. (note 22), pp. 427-429; SCHRÖDER R. (note 3), pp. 68-72. 66 Bundesentschädigungsgesetz, 29 June 1956, in: BGBl. 1956, part I, p. 562, as amended. 67 Bundesrückerstattungsgesetz, 19 July 1957, in: BGBl. 1957, part I, p. 734, reenacted 24 March 1958, in: BGBl. 1958, part I, p. 141, as amended. 68 Cf. HESS B., in AG 1999 (note 22), p. 150 (concerning forced labour).

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constitute a ground for a claim under the BEG.69 Even more restrictive is the territorial limitation of the BEG, which is applicable only to German nationals and stateless persons (§§ 4, 167 et seq. BEG, Article VI BEG-Schlußgesetz).70 The indemnification of foreign nationals was dealt with in various lump sum agreements concluded between the F.R.G. and other nations.71 The provisions of the BEG are leges speciales which supersede the general rules on governmental liability.72

2.

Law on the Creation of the Foundation ‘Remembrance, Responsibility and the Future’

As mentioned in the introduction, claims of former forced and slave labourers are now governed exclusively by the Foundation Law.73 § 11(1) of the Foundation Law provides: ‘Eligible under this Law are: 1. Persons who were held in a concentration camp as defined in Section 42, Paragraph 2 of the German Federal Compensation Act or in another place of confinement outside the territory of what is now the Republic of Austria or a ghetto under comparable conditions and were subjected to forced labor; 2. Persons who were deported from their homelands into the territory of the German Reich (according to the borders of 1937) or to a German-occupied area, subjected to forced labor in a commercial enterprise or for public authorities there, and held under conditions other than those mentioned in Number 1, or were subjected to conditions resembling imprisonment or similar extremely harsh living conditions; this rule does not apply to persons who because their forced labor was performed primarily in the territory of what is 69 Cf. HESS B., in AG 1999 (note 22), p. 150, who calls this a fundamental lack of justice (‘nachhaltige Gerechtigkeitslücke’); KÜPPER H. (note 22), p. 247; SAFFERLING C.J.M. (note 14), p. 1923; SCHRÖDER R. (note 3), p. 72. 70 BEG-Schlußgesetz, 14 September 1965, in: BGBl. 1965, part I, p. 1315. 71 Cf. BRÜGMANN C. (note 20), p. 182; HESS B., in AG 1999 (note 22), p. 150; KÜPPER H. (note 22), p. 249; SCHRÖDER R. (note 3), p. 72, all with further references. As a recent example, see the so-called Princz settlement between the FRG and the USA, 19 September 1995, 1995 FCSC Ann. Rep. 11 et seq. SAFFERLING C.J.M. (note 14), p. 1924 criticizes lump sum agreements for what he perceives as their ‘arbitrariness’ with regard to the individual claims of the victims. This criticism neglects that an expeditious out-of-court settlement is often in the best interest of the aged victims. 72 Oberlandesgericht Köln (note 3), p. 253. 73 See supra, note 6.

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now the Republic of Austria can receive payments from the Austrian Reconciliation Foundation; 3. Persons who suffered property loss as a consequence of racial persecution with essential, direct, and harm-causing collaboration of German businesses as defined by the laws on indemnification and who could not receive any payment or could not file their claims for return or compensation by the deadline because they either did not meet the residency requirements of the Federal Compensation Act or had their domicile or permanent residence in an area with whose Government the Federal Republic did not maintain diplomatic relations, […].’ § 16 (1) of the Foundation Law provides: ‘Payments from public funds, including social security, and from German business enterprises for injustice suffered under National Socialism as defined in § 11 may be claimed only under the terms of this Law. Any further claims in connection with National Socialist injustices are excluded. This applies also to cases in which claims have been transferred to third persons by operation of law, transition, or a legal transaction.’ The exclusion of other claims is constitutional.74 Given the considerable legal difficulties plaintiffs faced under the law as it stood before August 2000, the Foundation Law on the whole improves the situation of the victims. § 11(1) of the Foundation Law defines not only the personal, but also the spatial scope of the Law: If, for example, a person was deported to a Germanoccupied area and subjected to forced labour there, his or her claims are governed exclusively by the Foundation Law, regardless of the substantive law that would otherwise apply under ordinary choice-of-law rules. In this respect, the Foundation Law is a loi d’application immédiate, a mandatory rule in the international sense. For the reasons cited in the introduction, the ordinary choice-of-law rules are analysed below; however, the reader should always keep in mind that the issue of forced labour has now been settled in the Foundation Law. Moreover, it should be noted that claims such as those filed by the Distomon victims are not covered by the Foundation Law.

74

See the decisions cited in note 6.

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IV. The Law Applicable to Governmental Liability A.

German Choice-of-Law Rules for Torts: A Survey

1.

The Basic Rule for Torts in General: Lex Loci Delicti

The German private international law of torts has only recently been codified in a comprehensive fashion.75 As a matter of intertemporal law, however, the pre-1999 conflicts rules remain applicable to torts committed before 1 June 1999.76 The original EGBGB contained only one conflicts rule concerning torts, Article 12 EGBGB 1900, which was a special provision on public policy.77 Article 12 EGBGB 1900 shielded Germans who were sued at home for torts committed abroad from higher liability under foreign law by fixing the amount the plaintiff could receive under German law as an insurmountable ceiling. It was generally accepted that this rule presupposed that torts should, in general, be governed by the lex loci delicti.78 Although Article 12 EGBGB 1900 was 75 Gesetz zum Internationalen Privatrecht für außervertragliche Schuldverhältnisse und für Sachen, 21 May 1999, in: BGBl. 1999, part I, p. 1026, in force since 1 June 1999. An introduction to the new law in English is given by HAY P., ‘From Rule-Orientation to Approach in German Conflicts Law – The Effect of the 1986 and 1999 Codification’, in: Am. J. Comp. L. 1999, pp. 633-649. For French readers, the article is recommended by SONNENBERGER H.-J., ‘La loi allemande du 21 mai 1999 sur le droit international privé des obligations non contractuelles et des biens’, in: Rev. crit. dr. int. pr. 1999, pp. 647-668. 76 See Landgericht Frankfurt (note 36) for claims of former inmates of concentration camps against the Dresdner Bank; on the intertemporal aspects of the new law in general, see HELDRICH A., in: PALANDT O., Bürgerliches Gesetzbuch, 60th ed., München 2001, Vor Art. 38 EGBGB, para. 1; HOHLOCH G., in: ERMAN W., Handkommentar zum Bürgerlichen Gesetzbuch, 10th ed., Münster/Köln 2000, Vol. 2, Art. 40 EGBGB, para. 19. 77 The reform of 1986 turned the provision into Article 38 EGBGB without changing its content. The 1999 reform replaced it with a more flexible and non-chauvinistic public policy exception (Article 40(3) EGBGB). On this new provision, see KROPHOLLER J./ VON HEIN J., ‘Spezielle Vorbehaltsklauseln im Internationalen Privat- und Verfahrensrecht der unerlaubten Handlungen – Weniger ist mehr’, in: Festschrift für Hans Stoll (forthcoming in 2001), with numerous further references. 78 Bundesgerichtshof, 5 October 1976, in: NJW 1977, p. 496, at p. 497 = IPRspr. 1976, No. 17; 8 January 1981, in: BGHZ, Vol. 80, p. 1, at p. 3 = IPRspr. 1981, No. 24; 7 July 1992, in: BGHZ, Vol. 119, p. 137, at p. 139 (= IPRspr. 1992, No. 58); HELDRICH A., in: PALANDT O., Bürgerliches Gesetzbuch, 58th ed., München 1999, Art. 38 EGBGB, para. 1; VON HOFFMANN B., in: VON STAUDINGER J., Kommentar zum BGB mit EGBGB und Nebengesetzen, 13th ed., Berlin/New York 1998, EGBGB/IPR, Art. 38 EGBGB, para. 111; KREUZER K., in: Münchener Kommentar zum BGB, 3rd ed., München 1998, Vol. 10, Art. 38 EGBGB, para.12; LÜDERITZ A., in: SOERGEL H. Th., Bürgerliches Gesetzbuch mit EGBGB und Nebengesetzen, 12th ed., Stuttgart 1996, Art. 38 EGBGB, para. 3; WENGLER W., Internationales Privatrecht, Berlin/New York 1981, Vol. 1, p. 454.

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regrettably chauvinistic,79 it at least represented – in its implicit recognition of the lex loci delicti – progress compared with the view held by VON SAVIGNY, who had advocated exclusive application of the lex fori to torts because of the ‘mandatory, strictly positive’ nature of delictual provisions.80 As in ordinary tort cases, the Bundesgerichtshof extended the protection of Article 12 EGBGB 1900 to companies sued by former slave labourers.81 Even in ordinary tort cases where Article 12 EGBGB 1900 could not be invoked, the application of foreign law by German courts was seriously diminished by the definition of locus delicti given by the German courts. Ever since an 1888 decision by the Reichsgericht, German courts considered the place of a tort as comprising both the place of acting and the place of injury.82 German judges usually did not hesitate to find at least one spatial connection of the case with Germany, which could be classified either as the place of acting or of injury.83 If the plaintiff did not make a choice between the place of acting and the place of injury, the court would have to determine ex officio which of the two (or more)84 laws in question was more favourable to the victim.85 This inquiry very often led to German substantive law.86 The recent reform codified the principle of lex loci delicti in Article 40(1) EGBGB 1999: The law of the place of acting is to be applied unless the victim chooses the law of the place of injury.

2.

Content of the Lex Loci Delicti in Annexed and Occupied Territories

Determining the lex loci delicti is complicated by the fact that German law was put into force in the annexed territories.87 For example, the Polish towns of Auschwitz 79

Cf. HAY P. (note 75), p. 637. VON SAVIGNY F.C., System des heutigen römischen Rechts, Vol. VIII, Berlin 1849, pp. 278-280. 81 Bundesgerichtshof, 12 December 1957, in: VersR 1958, p. 109 = IPRspr. 1956– 57, No. 40. 82 Reichsgericht, 20 November 1888, in: RGZ, Vol. 23, p. 305. For an extensive discussion of the genesis of the so-called theory of ubiquity, cf. VON HEIN J. (note 37), pp. 40-46. 83 Cf. VON BAR Chr., ‘Grundfragen des Internationalen Deliktsrechts’, in: JZ 1985, pp. 961-969, at p. 962-964. 84 Cf. Reichsgericht, 16 May 1925, Das Recht, Vol. 29 (1925), No. 1274 (p. 404), ordering the lower court to compare the laws of Germany, Mexico and New York. 85 On the determination of the more favorable law, see VON HEIN J. (note 37), pp. 7887, 222-251. 86 VON BAR Chr. (note 83) calls this a ‘lex-fori approach in disguise’ (my translation). 87 On this problem, see Bundesverfassungsgericht (note 3), p. 324; Landgericht Frankfurt am Main, 10 June 1953 – 2/3 O 406/51 (Wollheim ./. IG Farben), p. 27 (a copy of 80

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and Monowitz and their adjacent concentration camps were situated outside the frontiers of Germany as they stood in 1937, but were integrated into the Reich (District Kattowitz in the Province Silesia) by virtue of a decree in 1939.88 While the 1939 decree did not totally abolish Polish civil law, a 1941 ordinance introduced the German Civil Code into the annexed eastern territories.89 It is unanimously accepted that the annexation of Poland was legally null and void under public international law.90 Nevertheless, the Regional Courts in Frankfurt/Main and in Stuttgart have expressed the opinion in forced labour cases that, as a matter of fact, German civil law constitutes the lex loci delicti applicable to torts committed by companies in Poland in World War II.91 This is in keeping with the view of the Federal Supreme Court and of eminent German scholars that, for the purposes of private international law, it is the factual observance of rules in a given territory that should count rather than their valid enactment under public international law.92 On the other hand, the Federal Supreme Court ruled in a 1957 forced labour case

the original decision can be downloaded at ; on this historic lawsuit, see [in detail] BENZ W., ‘Der Wollheim-Prozeß. Zwangsarbeit für die IG Farben in Auschwitz’, in: Wiedergutmachung in der Bundesrepublik Deutschland, ed. by HERBST L./GOSCHLER C., Munich 1989, pp. 303-326 and [in a nutshell] SCHRÖDER R. [note 3], p. 69); ID. (note 36); Landgericht Stuttgart (note 20), p. 246. 88 Erlaß des Führers und Reichskanzlers über Gliederung und Verwaltung der Ostgebiete, 8 October 1939, in: RGBl. 1939, part I, p. 2042. 89 § 1 of the Ost-Rechtspflegeverordnung, 25 September 1941, in: RGBl. 1941, part I, p. 597. 90 Bundesverfassungsgericht (note 3), p. 324; Landgericht Frankfurt (note 87), p. 27; ID. (note 36); Landgericht Stuttgart (note 20), p. 243; RANDELZHOFER A./DÖRR O., p. 13 et seq.; TOMUSCHAT Chr., p. 237 (both note 3). 91 Landgericht Frankfurt (note 87), p. 27; ID. (note 36); Landgericht Stuttgart (note 20), p. 246. 92 Bundesgerichtshof (note 1), sub 2 (concerning the application of German company law to a company having its seat in Alsace, France during 1943-45); ENGEL Chr., ‘Die Bedeutung völkerrechtlicher Anerkennungen für das Internationale Privatrecht’, in: Festschrift für Dietrich Rothoeft, München 1994, pp. 87-96; KEGEL G., in: SOERGEL (note 78), Before Art. 3 EGBGB, para. 190; KEGEL G./SCHURIG K., Internationales Privatrecht, 8th ed., München 2000, § 1 IV 1 a and § 1 IV 2 b; KROPHOLLER J., Internationales Privatrecht, 4th ed., Tübingen 2001, § 8 II 2; SONNENBERGER H.-J., in: Münchener Kommentar (note 78), Einl. IPR (General Introduction), para. 118. But see the reservations expressed by WENGLER W., ‘Fragen der Faktizität und Legitimität bei der Anwendung fremden Rechts’, in: Festschrift Hans Lewald, Basle 1953, pp. 615-632; ID. (note 78), Vol. I, pp. 287-290. Cf., moreover, the skepticism in Bundesverfassungsgericht (note 3), p. 324 (concerning administrative law). For cases after World War II see the discussion in BAADE H. W., ‘Operation of Foreign Public Law’, in: IECL, Vol. III, Ch. 12, Tübingen/ Dordrecht/Boston/Lancaster 1991, para. 21.

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that the lex loci delicti applicable to a tort committed by a company in Western Galicia (Poland) was Polish law, subject, however, to Article 12 EGBGB 1900.93 Although respect for factual observance may be a sound rule in general, it is highly doubtful whether it can be applied to claims against the Reich (i.e., the F.R.G.) as opposed to claims against private parties. The rationale for giving priority to factual observance over the legal validity of civil law rules is to protect the legitimate expectations of private parties: Marriages, incorporations of companies, contracts etc. should not be considered void ex post because the parties performing those acts could not avoid complying with rules that had been enacted illegally at the time.94 Within the paradigm of lex loci delicti, the annexing State, however, is not entitled to the protection of legitimate expectations insofar as these are based on rules that the aggressor itself enacted in the annexed territory. The aggressor should not be allowed to create an illegal situation and then to rely on it. But even if the view is taken that the lex loci delicti applicable to torts in the annexed territories should be the pre-annexation civil law of those countries, the question arises whether governmental liability is subject to the lex loci delicti at all. Under German private international law, lex loci delicti is not an absolute rule; on the contrary, it is restricted by numerous exceptions that will be described below.

3.

Deviations from the Lex Loci Delicti

A deviation from the lex loci delicti was introduced in a 1942 Decree Law:95 German law should apply to non-contractual claims for damages that arose from torts committed by a German to a German abroad (§ 1, para. 1 of the 1942 Decree Law). This rule was created to ensure that members of the German military did not have to face claims emanating from an unknown lex loci delicti if both the tortfeasor and the victim were German. Despite its unsavoury origin, this provision was still regarded as being good law by German courts after 1945.96 It was replaced by a similar provision in 1999 (Article 40(2) EGBGB 1999), which replaced common nationality by common habitual residence, thus codifying an earlier develop-

93 Bundesgerichtshof (note 81). Western Galicia, however, was not formally annexed as part of the Reich, but ruled as part of a ‘Generalgouvernement’ under Governor Hans Frank (see the maps in: KINDER H./HILGERMANN W., dtv-Atlas zur Weltgeschichte, 16th ed., München 1981, Vol. 2, p. 154). 94 See the convincing arguments advanced by Bundesgerichtshof (note 1), sub 2 and by BAADE H. W. (note 92). 95 Verordnung über die Rechtsanwendung bei Schädigungen deutscher Staatsangehöriger außerhalb des Reichgebiets, 7 December 1942, in: RGBl. 1942, part. I, p. 706. 96 Bundesgerichtshof (Federal Supreme Court) 2 February, 1961, in: BGHZ, Vol. 34, p. 222 = IPRspr. 1960–61, No. 47a; 8 March, 1983, in: BGHZ, Vol. 87, p. 95 = IPRspr. 1983, No. 31.

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ment in German jurisprudence.97 Although the 1942 Decree Law was probably not intended by the historic legislator to apply to claims of victims of National Socialism, nothing in the language of the Act prohibits such application.98 Consequently, tortious claims by German victims against German companies for compensation for forced labour are governed by German substantive law, regardless of where the tort was committed.99 The Bundesgerichtshof applied the 1942 Decree Law not only to claims against private parties, but also to claims against the government.100 Moreover, the victim and the tortfeasor could – explicitly or tacitly – agree on the applicable law after the tort had been committed.101 This restrictive recognition of party autonomy was also codified in 1999 (Article 42 EGBGB 1999).102 While the above-mentioned rules of the 1999 reform law more or less codified what had previously been recognised as existing law, Article 41(2) No. 1 EGBGB 1999 introduced the possibility of making conflicts in tort ‘accessory’ to a pre-existing legal or factual relationship between the parties. Although such a solution had gained ground among German scholars since the late 1960’s,103 it had consistently been rejected by German courts prior to the 1999 reform.104 Apparently influenced by this scepticism, the legislator did not codify an accessory choice of law as a hard-and-fast rule, but merely as a guideline for the court when exercising its discretion regarding the principle of proximity (Article 41(1) EGBGB 1999).

97

Bundesgerichtshof, 7 July 1992 (note 78). See Landgericht Frankfurt (note 87), p. 27. 99 Ibid. 100 Bundesgerichtshof 22 October 1981, in: VersR 1982, p. 185 = IPRspr. 1981, No. 28 (in a case involving an accident in a NATO school in the Netherlands). 101 Landgericht Frankfurt (note 87), p. 27. 102 See VON HEIN J., ‘Rechtswahlfreiheit im internationalen Deliktsrecht’, in: RabelsZ 2000, pp. 595-613. 103 See the fundamental analysis by KROPHOLLER J., ‘Ein Anknüpfungssystem für das Deliktsstatut’, in: RabelsZ 1969, pp. 601-653, at pp. 625-634; for a survey of the state of the discussion before the 1999 reform, see VON STAUDINGER J./VON HOFFMANN B. (note 78), Art. 38 EGBGB, paras. 135-144. 104 See Bundesgerichtshof, 28 March 1961, in: VersR 1961, p. 518; ID., 7 July 1992 (note 78), pp. 145-147; ID., 28 January 1996, in: BGHZ 132, p. 105 = IPRspr. 1996, No. 142; Oberlandesgericht Karlsruhe, 23 November 1993, in: IPRspr. 1994, No. 46. 98

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B.

Special Rules for Governmental Liability: The Current State of the Discussion in Germany (with a Side Reference to Austria)

1.

Characterisation of War-Related Human Rights Violations

According to the prevailing view in Germany, governmental liability for sovereign or public acts is subject to the substantive law of the State claimed to be liable rather than to the ordinary rules of private international law for torts.105 Consequently, the first question that arises is which law shall apply when characterising the act giving rise to a claim based on governmental liability. Law A might characterise a certain act as a sovereign or public act (actum iure imperii), while law B might qualify the same act as merely resulting in an ordinary case of private tortious liability (actum iure gestionis). A case in point is the liability of a negligent teacher for an accident of one of his or her students while the class is travelling abroad.106 Whereas German substantive law would characterise the teacher’s duties as being of a sovereign or public nature, thus potentially giving rise to governmental liability,107 other European substantive laws would regard the case as a purely private one for which no special conflicts rules are required. Within the framework of the Brussels Convention, an autonomous characterisation is mandatory.108 In German conflict of laws, which follows public international law on state immunity,109 characterisation has to be carried out pursuant to the lex fori.110 It is widely accepted, however, that the characterisation of a certain act does not merely reflect the structures and boundaries established in German substantive law. Characterisation is rather seen as a specific choice-of-law process that follows functional teleological criteria.111 With regard to the distinction between public and

105

See the detailed references infra. For private acts (acta iure gestionis), the rules described supra sub A. apply, see ERMAN W./HOHLOCH G. (note 76), Art. 40 EGBGB, para. 58; MünchKomm/KREUZER K. (note 78), Art. 38 EGBGB, para. 277; KROPHOLLER J. (note 92), § 53 IV 7 c; PALANDT O./HELDRICH A. (note 76), Art. 40 EGBGB, para. 16; SOERGEL H. Th./LÜDERITZ A. (note 78), Art. 38 EGBGB, para. 70; VON STAUDINGER J./ VON HOFFMANN B. (note 78), Art. 38 EGBGB, para. 228b. 106 Cf. ECJ, 21 April 1993 – 172/91 (Sonntag v. Waidmann), in: ECR 1993, I-1963; on this case, see HESS B., ‘Amtshaftung als "Zivilsache" im Sinne von Art. 1 Abs. 1 EuGVÜ’, in: IPRax 1994, pp.10-17 and the note by KUBIS S., in: ZEuP 1995, pp. 853-863. 107 Cf. Bundesgerichtshof, 16 September 1993, in: BGHZ, Vol. 123, p. 268. 108 ECJ (note 106), para. 25; HESS B. (note 106), p. 11 et seq.; KROPHOLLER J., Europäisches Zivilprozeßrecht, 6th ed., Heidelberg 1998, Art. 1, para. 8; KUBIS S. (note 106), p. 857. 109 SEIDL-HOHENVELDERN I./STEIN Th., Völkerrecht, 10th ed., Köln 2000, para. 1476. 110 VON STAUDINGER J./VON HOFFMANN B. (note 78), Art. 38 EGBGB, para. 228c. 111 KROPHOLLER J. (note 92), § 17.

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private governmental acts, it is the nature and appearance of an act that should count rather than its purpose.112 In regard to torts committed by German troops (including the SS and other special units) such as the massacre in Distomon, it is quite clear that those acts must be characterised as acta iure imperii, although they violated international law.113 It is a different question whether the F.R.G. can invoke its sovereign immunity if it is sued for compensation in a foreign court (see infra 5.b). Torts involving forced labour are harder to characterise because the victims did not always perform their work in governmental institutions, but were often leased to private enterprises.114 Thus, the question arises whether this commercial context leads to a characterisation of the relevant torts as acta iure gestionis. In order to convince the court of this classification, the plaintiff in Princz v. F.R.G. argued that the national socialist regime ‘leased slaves for money to German industrial concerns who in turn utilised the slaves for commercial interests’.115 The German government countered ‘that private parties do not take or hold prisoners’.116 The District Court did not decide the issue.117 A distinguished German public lawyer took the opposite view that not only the acts of the Reich but also those of the companies should be characterised as acta iure imperii since they were acting as agencies of the Reich, not as private parties.118 This theory is implicitly 112

Bundesverfassungsgericht, 30 April 1963, in: BVerfGE Vol. 16, p. 27, at p. 62 et

seq. 113 Oberlandesgericht Köln (note 9), p. 11 et seq.; KÄMMERER J.A. (note 9), p. 310 et seq.; PAECH N. (note 9), p. 385 et seq.; cf. also Oberster Gerichtshof (Austrian Supreme Court), 11 April 1995, in: IPRax 1996, p. 41 with an affirmative note by SEIDLHOHENVELDERN I., ‘Staatenimmunität bei Kriegshandlungen’, p. 52 et seq. (bombardments by Yugoslav aircraft characterized as acta iure imperii). 114 See, e.g., WAGNER B.C., ‘Häftlingsarbeit für die IG-Farbenindustrie in Auschwitz-Monowitz’, in: Dachauer Hefte 16 (2000), pp. 136-158. On the question which law should apply to delictual claims of slave labourers against their private employers, see Bundesgerichtshof (note 81); Landgericht Frankfurt (note 87), p. 27; ID. (note 36); cf. also Burger-Fischer (note 14), p. 272 (applying governmental interest analysis). 115 Princz v. FRG, 26 F.3d 1166 (D.C. Cir. 1994), at p. 1172; on this case, see the notes by HEIDENBERGER P., ‘Die Praxis von US-Gerichten zur Staatenimmunität Deutschlands’, in: ZVglRWiss. 1998, pp. 440-453; REIMANN M., ‘A Human Rights Exception to Sovereign Immunity: Some Thoughts on Princz v. Federal Republic of Germany’, in: 16 Mich. J. Int’l L. pp. 403-432 (1995); ZIMMERMANN A., ‘Sovereign Immunity and Violations of International Jus Cogens – Some Critical Remarks’, in: 16 Mich. J. Int’l L. pp. 433-440 (1995). 116 Ibid. 117 Ibid. 118 DOEHRING K. (note 14), p. 69.; cf. also the classification of the Ford Werke A.G. as de facto state actors in: Iwanowa (note 14), p. 445 et seq., with detailed references to German jurisprudence of the 1960’s and 1970’s.

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based on the assertion that companies were forced to accept slave labourers; this, however, has long since been refuted by historians.119 Classifying private companies as State actors would lead to the logical consequence that the liability of both the State and the companies should be governed by German substantive law rather than the lex loci delicti.120 German courts, however, have preferred a more analytical approach in recent judgments. They have construed the tripartite relationship between the victim, the government and the respective private ‘employer’ as being public in nature insofar as claims of slave labourers against the State are concerned, but as private in nature in regard to relationships between slave labourers and their ‘employers’.121 For the purpose of characterisation, it does not matter that both the public and private relationships of the victims with the German State and their employers were legally null and void.122 It is precisely this illegality which gives rise to delictual claims.

2.

Public International Law: Lack of Jurisdiction to Prescribe

German courts have consistently applied the law of the State claimed to be liable – usually federal German law – to governmental liability cases without considering 119 See, e.g., BENZ W., p. 11 et seq.; SCHRÖDER R., P. 72 (both note 3, with further references). 120 See GEBAUER M./SCHULZE G. (note 14), p. 481, note 33. Against that, cf. Landgericht Frankfurt (note 87), p. 27; ID. (note 36); Bundesgerichtshof (note 81). 121 Bundesarbeitsgericht (note 28), p. 387; Oberverwaltungsgericht Münster (note 3), p. 2305; Landgericht Bonn (note 22), sub A.I.2.a); Landgericht Stuttgart (note 20), p. 245; see also HESS B., in: AG 1999 (note 22), p. 151 in note 97; PAWLITA C. (note 22), p. 430 et seq.; SEIFERT A. (note 28), p. 228; this point of view is implicitly shared by Oberlandesgericht Köln (note 3). 122 On the evident illegality of slave labour in spite of its being formally justified by national socialist ‘law’ see unanimously Oberlandesgericht Köln (note 3), p. 253; Landgericht Bremen (note 3), p. 634; ID. (note 22), sub 2.3; Landgericht Bonn (note 22), sub A.I.1.; Landgericht Stuttgart (note 20), p. 243; BRÜGMANN C. (note 20), p. 186; FRAUENDORF L. (note 22), p. 4; HESS B. (note 65), p. 412 et seq. (who considers this a case of intertemporal public policy); KÜPPER H. (note 22), p. 250; SCHRÖDER R. (note 3), p. 120 et seq. However, for a positivist assertion of the legality of slave labour in the Third Reich, see RANDELZHOFER A./DÖRR O. (note 3), p. 41; TOMUSCHAT Chr. (note 22), p. 238. Some authors argued that a valid contract of employment must exist in order to support the victims’ claims against the German pension system, e.g., SEIFERT A. (note 28), p. 228; a ‘quasi-contractual relationship’ was advocated by PAWLITA C. (note 22), p. 431; but see now Bundesarbeitsgericht (note 28), authoritatively denying a valid contract of employment; likewise Landgericht Stuttgart (note 20), p. 244 et seq.; on the content of national socialist labour law see the instructive description in Bundesarbeitsgericht (note 28), p. 387 et seq.; SCHRÖDER R. (note 3), pp. 64-68.

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the lex loci delicti.123 Major German scholars agree with these judgments because of what they deem to be a lack of jurisdiction to prescribe under public international law: Pursuant to the principle of state sovereignty as recognised by customary international law, no State may judge acta iure imperii of another.124 Consequently, these acts are not characterised as torts for the purposes of private international law.125 The Cologne Court of Appeals recently adopted this view in cases involving claims for forced labour and for the massacre in Distomon.126 In the reasons given for the legislative draft of the 1999 reform act, the federal government explains: ‘The connection to the place where the tort was committed does not encompass the extracontractual liability of States and their officials towards private parties (governmental liability). According to the clearly dominant view, the substantive law of the State claimed to be liable is to be applied.’127

3.

Private International Law: The Most Significant Relationship with the Law of the State Claimed to Be Liable

a)

A General Rule

Other approaches are more nuanced: Instead of merely relying on the principle of legislative immunity, they invoke arguments of conflicts justice in order to justify 123

Explicitly Landgericht Rostock, 19 May 1995, in: IPRax 1996, p. 125 = IPRspr. 1995, No. 37 (concerning the liability of a captain of a GDR-owned ship for frustrating an attempted flight of the plaintiff: law of GDR, not FRG applied); see obiter Bundesgerichtshof, 10 November 1977, in: IPRspr. 1977, No. 29 (p. 79). A detailed survey of cases in which German courts have applied German law to governmental liability, usually without even discussing the conflicts aspect, is given by SCHURIG K., ‘Internationalrechtliches zum Staatshaftungsgesetz’, in: JZ 1982, pp. 385-391, at p. 386 and SOERGEL H. Th./LÜDERITZ A. (note 78), Art. 38 EGBGB, para. 69. th 124 VON HOFFMANN B., Internationales Privatrecht, 6 ed., Munich 2000, § 3 para. 18 (legislative immunity); VON STAUDINGER J./VON HOFFMANN B. (note 78), Art. 38 EGBGB, para. 228a; WENGLER W., p. 441 (note 78). 125 ERMAN W./HOHLOCH G., Art. 40 EGBGB, para. 58; PALANDT O./HELDRICH A., Art. 40 EGBGB, para. 15 (both note 76). 126 Oberlandesgericht Köln (note 3), p. 253 (forced labour); ID. (note 9), p. 18 (Distomon). 127 Entwurf eines Gesetzes zum Internationalen Privatrecht für außervertragliche Schuldverhältnisse und für Sachen, Begründung, in: DEUTSCHER BUNDESTAG (German Federal Parliament), Drucksachen (Materials), No. 14/343, p. 10 (1 February 1999) (my translation).

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the development of special connecting factors for governmental liability.128 According to a paradigm developed by KEGEL, which continues to exert a considerable influence on German legal thinking, justice in the conflict of laws requires the striking of an optimal balance between three competing interests: the interests of the parties (Parteiinteressen), the interests of predictability and legal security (Verkehrsinteressen) and, finally, the interest of maintaining the legal order (Ordnungsinteresse).129 The Ordnungsinteresse comprises various elements, such as decisional harmony (avoidance of ‘limping’ marriages etc.), a preference for applying ‘real’ law instead of creating special substantive law for international situations and, finally, enforceability of judgments.130 SCHURIG has suggested that the interest of a given State to determine its own administrative organisation should be recognised as a kind of Ordnungsinteresse, which includes the power to prescribe the legal consequences of mistakes made by its officials.131 This is justified by the close interdependence of administrative law and the liability arising from its erroneous application.132 Accordingly, the lex loci delicti is discarded. From a doctrinal point of view, this approach may be classified as a correction of the lex loci delicti by an unwritten principle of proximity.133 In the reasons given for the legislative draft of the 1999 reform act, the federal government refused to take sides in the doctrinal controversy between the camps of public and private international scholars: ‘Even if in a given case claims for governmental liability were to be characterised as delictual [within the meaning of Article 40 et seq. EGBGB 1999], Article 41 EGBGB [1999, which establishes that a significantly closer connection with the law of another State takes precedence over the lex loci delicti] would allow deviations from the lex loci delicti.’134 128

On the concept of conflicts justice see KEGEL G./SCHURIG K. (note 92), § 2 I. This idea was presented for the first time by KEGEL G., ‘Begriffs- und Interessenjurisprudenz im Internationalen Privatrecht’, in: Festschrift Hans Lewald, Basel 1953, pp. 259-288; for the current state of the doctrine, see KEGEL G./SCHURIG K. (note 92), § 2 II. For a detailed critique, see FLESSNER A., Interessenjurisprudenz im internationalen Privatrecht, Tübingen 1990. 130 KEGEL G./SCHURIG K.(note 92), § 2 II 3. 131 SCHURIG K. (note 123), p. 387 et seq.; KROPHOLLER J. (note 92), § 53 IV 7 c; for a detailed analysis, see MUELLER H., Das Internationale Amtshaftungsrecht, Frankfurt/Main 1991, pp. 148-176. 132 BINDER H., ‘Zur Auflockerung des Deliktsstatuts’, in: RabelsZ 1955, pp. 401-499, at p. 483. 133 Cf. VON BAR CHR., Internationales Privatrecht, Vol. 2, München 1991, para. 685: ‘closest connection’. 134 Begründung (note 127), p. 10. As a matter of intertemporal law, it should be noted that the courts were authorized to deviate from the lex loci delicti in cases involving 129

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A similar approach operates within the paradigm of lex loci delicti, but localises the place of acting not within the country where the respective official actually committed the tort, but rather within the State claimed to be liable as the ‘centre of gravity’.135 Departing from the principle of applying the law more favourable to the injured party,136 the victim is not allowed to choose the law of the place of injury because of this significantly closer connection of the tort with the place of acting.137

b)

Depending on an Established Connection Between the Perpetrating State and Victim: The Case of the Ambassadors’ Hunting Party

Taking recourse to the principle of proximity to justify application of the substantive law of the State claimed to be liable creates a problem because this requires exercising judicial discretion rather than a mechanical subsumption under a hard-and-fast rule. Therefore, the question arises whether the principle of proximity really mandates application of the substantive law of the State claimed to be liable, without taking into account the specific facts of a given case. Contrary to the prevailing German view, the Austrian Supreme Court has considerably reduced the scope of the law of the State claimed to be liable. In 1982, the Austrian Supreme Court had to decide the following case:138 While attending an ambassadors’ hunting party in former Yugoslavia, the Austrian ambassador accidentally shot and fatally wounded his French colleague. The court characterised the participation of the Austrian Ambassador in the hunting party as being of an official, not of a private nature since it was part of his ambassadorial duties to attend such functions (the ambassadors had been invited by the late governmental liability even before the codification of Article 41 EGBGB, see, e.g., Oberlandesgericht Köln (note 3), p. 253; ID. (note 9), p. 18; Landgericht Rostock (note 123); on the recognition of a principle of proximity in the pre-1999 German PIL of torts see VON HEIN J. (note 37), p. 20. 135 SOERGEL H. Th./LÜDERITZ A. (note 78), Art. 38 EGBGB, para. 69. 136 See supra A.1. 137 SOERGEL H. Th./LÜDERITZ A. (note 78), Art. 38 EGBGB, para. 69; likewise on other grounds VON STAUDINGER J./VON HOFFMANN B. (note 78), Art. 38 EGBGB, para. 228a. But see GRASMANN G., ‘Kollisions- und fremdenrechtliche Fragen bei Amtspflichtverletzungen’, in: JZ 1969, pp. 454-459, at p. 458 (defending the victim’s right to choose between the two laws). 138 Oberster Gerichtshof, 17 February 1982, in: JBl. 1983, p. 260 = IPRE, Vol. 1, No 89. On this case, see the notes by SCHLEMMER H., ‘Amtshaftung in Auslandsfällen’, in: ZVR 1986, pp. 97-100; SCHURIG K., ‘Eine neue Entwicklung im österreichischen internationalen Amtshaftungsrecht’, in: JBl. 1983, pp. 234-238 and the footnote by SCHWIMANN M., in: IPRE, Vol. 1, P. 181. The case is also discussed by HESS B., Staatenimmunität bei Distanzdelikten, Munich 1992, pp. 17-19 (reviewed by KISCHEL U., in: RabelsZ 1995, pp. 164-168).

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Yugoslav President Tito).139 From the point of view of private international law, the French ambassador was shot by an actum iure imperii. Departing from a 1958 judgment in which it had ruled that governmental liability claims for sovereign acts were subject exclusively to Austrian law,140 the court now decided that the extent of governmental liability for a tort committed by an Austrian official abroad should be governed by the lex loci delicti, provided there is no closer connection to Austria. According to the Supreme Court, a closer connection within the meaning of § 48(2) of the Austrian Code on Private International Law (IPRG)141 requires a pre-existing relationship between victim and tortfeasor which is governed by Austrian public law.142 The court thus applied the rule known as an ‘accessory’ choice of law in torts.143 In this case, the court denied the existence of such a relationship: In attending the hunting party, the French ambassador merely fulfilled his own public duties towards the French Republic (and possibly towards his host country), not towards Austria; the harmful contact with the Austrian official was by no means intended by the victim. If one applies the criteria developed by the Austrian Supreme Court to warrelated human rights violations,144 it is evident that the victims of a massacre such as that committed in Distomon did not voluntarily enter into a pre-existing relationship with the soldiers which was governed by German public law.145 Forced labourers were subjected to some kind of factual relationship by way of brute force, but this ‘relationship’ was not legally valid.146 Prima facie, the lex loci delicti should apply, unless one considers a merely factual relationship sufficient to establish a significantly closer connection.147

139

Oberster Gerichtshof (note 138), p. 261 et seq. Oberster Gerichtshof, 10 September 1958, in: JBl. 1959, p. 599, with an affirmative note by SCHWIMANN M., ‘Internationale Zuständigkeit und anzuwendendes Recht in Amtshaftungssachen’, pp. 585-589. 141 Bundesgesetz über das internationale Privatrecht, 15 June 1978, in: Österreichisches Bundesgesetzblatt (Austrian Federal Official Gazette) No. 304/1978, as amended. As a matter of intertemporal law, the provision was formally inapplicable, but was treated as the codified expression of previously existing unwritten law. 142 Oberster Gerichtshof (note 138), p. 261 et seq. 143 See supra A.3. 144 Although this is an Austrian decision, a reception of this judgment is technically possible because the Austrian and German private international laws of torts are very similar; cf. HESS B. and SCHURIG K. (both note 138). 145 Cf. the example given by SCHURIG K. (note 138), P. 237: unauthorized use of weapons against third parties by police officers in a foreign country. 146 See supra note 122. 147 Cf. Article 41(2), No. 1 EGBGB 1999; Begründung (note 127), p. 13; cf. also the critical remarks by HAY P. (note 75), p. 643. 140

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Yet one has to take into account the difficulties caused by such an approach. First of all, the 1982 decision was severely criticised in Austria.148 HESS, who recommended the reception of this approach in Germany in 1992149 (a proposal that was rejected)150 seems to have returned to the prevailing view of applying the law of the State claimed to be liable.151 Secondly, the Supreme Court itself did not deviate from the traditional Austrian (and German) view concerning the PIL of governmental liability until 1982.152 Serious problems of intertemporal law arise when applying retroactively the rationale of a 1982 decision to incidents that occurred almost forty years ago. These doubts are reinforced by the fact that German jurisprudence consistently refused to follow any suggestions of an ‘accessory’ choice of law in torts prior to the 1999 reform.153 Finally, the 1982 decision is only convincing within its frame of reference, i.e., based on the premise that the same conflicts rules should apply to acta iure imperii as to ordinary tort cases between private parties, namely the lex loci delicti, corrected by the principle of proximity. It is precisely this premise that is controversial. If one agrees with the prevailing view that acta iure imperii cannot be characterised as torts within the meaning of PIL rules,154 any recourse to Article 41(2) No. 1 EGBGB 1999, § 48 IPRG or similar provisions fails.

4.

Dépeçage Between the Law Applicable to the Liability of Civil Servants and the Issue of Assumption

As shown in the survey on German substantive law,155 the derivative construction of governmental liability leads to a certain ambivalence of characterisation:156 First, the liability of the official has to be determined according to a provision in the civil code (§ 839 BGB); then, this personal liability is assumed by the State under a constitutional rule (Article 131 WRV, today Article 34 GG). This two-step approach led BEITZKE to advocate a corresponding dépeçage in the PIL of 148

SCHLEMMER H. and SCHWIMANN M. (both note 138). HESS B. (note 138). 150 MünchKomm/KREUZER K. (note 78), Art. 38 EGBGB, para. 277, in footnote 1056. 151 See HESS B. (note 8), p. 277 (arguing that Greek judgments in the Distomon case could not be recognized), p. 283. 152 See its ‘orthodox’ 1958 decision (note 140). 153 See the references in note 104. 154 See supra sub 2. 155 See supra sub III.A. 156 SCHURIG K. (note 138), p. 234 speaks of a ‘grey zone between public and civil law’. 149

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governmental liability.157 The first step would require determining the law applicable to the tort committed by the official under common PIL rules;158 taking the second step, German substantive law would decide whether the State assumes this liability.159 This approach had an impact on the 1982 decision of the Austrian Supreme Court discussed above.160 A similar solution seems to be advocated by KEGEL and HAY, who maintain that the liability of a State should be governed by its own substantive law; however, the question whether an official acted illegally should be judged by the lex loci delicti, subject to a significantly closer connection and Article 38 EGBGB 1986 (= Article 12 EGBGB 1900).161 As a practical matter, this dépeçage did not lead to results at variance with the orthodox view, since Article 12 EGBGB 1900 ensured that the personal liability of the official could not exceed the risks he had to face under § 839 BGB. However, the clearly prevailing view did not accept any kind of dépeçage: The personal liability of the official for acta iure imperii was (and is) subject to the same law that governs the liability of the government.162 In the reasons given for the legislative draft of the 1999 reform act, the federal government states: ‘The subsidiary personal liability of the official is submitted to this law as well, since governmental and personal liability cannot be separated from each other […].’163 In spite of the legal ambivalence of German substantive rules on governmental liability, which KROPHOLLER traces back to historical contingencies, in his opinion, claims of the injured party against the State form an integrated whole.164 For 157

BEITZKE G., Note to Bundesgerichtshof, 26 April 1976, in: ZfRV 1977, pp. 136139, at p. 136. 158 BEITZKE G. (note 157), p. 136. 159 BEITZKE G. (note 157), p. 136. 160 See the reference in Oberster Gerichtshof (note 138), p. 261. 161 KEGEL G. , Internationales Privatrecht, 7th ed., München 1995, § 18 IV 1 c th (the 8 ed. [note 92] drops the reference to the abolished Article 38 EGBGB 1986); HAY P., ‘Zivilrechtliche Eigenhaftung staatlicher Mitarbeiter für DDR-Unrecht’, in: IPRax 1996, pp. 95-99, p. 98. 162 Landgericht Rostock (note 123); VON BAR Chr. (note 133), para. 685; ERMAN W./HOHLOCH G. (note 76), Art. 40 EGBGB, para. 58; KROPHOLLER J. (note 92), § 53 IV 7 c; MUELLER H. (note 131), p. 175; MünchKomm/KREUZER K. (note 78), Art. 38 EGBGB, para. 277; PALANDT O./HELDRICH A. (note 76), Art. 40 EGBGB, para. 15; SCHURIG K. (note 138), p. 235; SOERGEL H. Th./LÜDERITZ A. (note 78), Art. 38 EGBGB, para. 69; VON STAUDINGER J./VON HOFFMANN B. (note 78), Art. 38 EGBGB, para. 228d; WENGLER W. (note 78), p. 441. 163 Begründung (note 127), p. 10. 164 KROPHOLLER J. (note 92), § 53 IV 7 c.

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this reason, one should strive for a uniform connection instead of splitting up a claim into an official’s personal liability subject to common choice-of-law rules for torts, on the one hand, and a separate assumption of liability by the State, on the other.165 These arguments reflect a general scepticism towards dépeçage that is common in German legal thinking.166 The parallel drawn by BEITZKE fails to convince for the following reasons: Although it is true that the historic legislator submitted officials to a personal liability, this liability was not based on the substantive rules generally applicable to torts, but on a specific provision tailor-made for civil servants (§ 839 BGB).167 Secondly, this personal liability has a mere conceptual value because, as a practical matter, liability is assumed by the State. Moreover, governmental liability is traditionally not considered part of the ‘civil law’ within the meaning of the Weimar Constitution and the Basic Law.168 Even if one is prepared to accept BEITZKE’s starting point, which is based solely on German substantive law, those factors militate against the conclusion that cases giving rise to governmental liability should be treated like any other tort in PIL. Apart from that, international decisional harmony in the conflict of laws requires a characterisation based on functional criteria resulting from a comparative analysis rather than on historical peculiarities, in this case the muddle of legislative jurisdiction in nineteenth century Germany.169

5.

Interdependence of State Immunity and the PIL of Governmental Liability

a)

State Immunity v. Conflicts Justice: Two Different Approaches?

If one rightly rejects the dépeçage approach, this leaves the arguments advanced by the public international camp, namely state immunity (see supra 2), on the one hand, and those of the private international camp, i.e., conflicts justice, the most significant relationship etc. (see supra 3). Taking a closer look, however, it is doubtful whether the above-mentioned approaches are substantially different. 165

KROPHOLLER J. (note 92), § 53 IV 7 c. Cf. VON HOFFMANN B. (note 124), § 6, para. 44; KEGEL G./SCHURIG K. (note 92), § 2 II 3 b; KROPHOLLER J. (note 92), § 18 I 1. 167 Cf. SCHURIG K. (note 138), p. 235. 168 See Bundesverfassungsgericht, 19 October 1982, in: BVerfGE, Vol. 61, pp.149208, at p. 201. 169 Since he refuses to accept a functional (public-law) characterisation of governmental liability, MUELLER H. (note 131), p. 127, eventually gives up and settles with classifying the area as a perpetual ‘grey zone’ between public and private law. This is hardly convincing. 166

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Without a doubt, organisational interests and the interdependence of administrative law and governmental liability are factors that should be taken into account when devising a proper conflicts solution; however, the approaches focusing exclusively on the Ordnungsinteresse of the State claimed to be liable fail to give explicit reasons why such interests should prevail over those of the injured party.170 Since such an eminent scholar as KAHN-FREUND has supported the general thesis that, in conflicts of torts, the victims ‘should be able to rely on the social order of the country in which they are exposed to risk’,171 giving preference to the interests of the State claimed to be liable deserves a closer look. The only possible explanation for this preference – which can be deduced from the classification of the State’s interest as an Ordnungsinteresse – is the desire to achieve a ‘real’ and ‘enforceable’ decision. Since States usually lack jurisdiction to adjudicate governmental liability claims against foreign nations,172 such judgments cannot be enforced in the State ordered to pay damages.173 The fact that courts are (ab)used to create political and diplomatic pressure on elected foreign governments or to hand down merely symbolic judgments should be regarded with scepticism.174 The reason for the lack of a ‘real’ and ‘enforceable’ decision in governmental liability matters, however, is precisely the sovereignty, i.e., immunity of the State claimed to be liable. In the end, both approaches are founded on the same axiom, viz. absolute state immunity for sovereign or public acts (acta iure imperii).

b)

Restrictions of Absolute State Immunity

Taking a close look at public international law, one finds that state immunity is perhaps not as absolute as it used to be. Article 11 of the European Convention on State Immunity (ECSI) provides:175

170 See the critique by VON STAUDINGER J./VON HOFFMANN B. (note 78), Art. 38 EGBGB, para. 228a. 171 KAHN-FREUND O., ‘Delictual Liability and the Conflict of Laws’, in: Recueil des Cours, Vol. 124 (1968-II), pp. 1-166, at p. 44; cf. VON HEIN J. (note 37), pp. 191-194, with many further references. 172 KROPHOLLER J. (note 92), § 53 IV 7 c; MUELLER H. (note 131), p. 161 et seq. 173 HESS B. (note 8), p. 285. 174 HESS B. (note 8), p. 284 et seq.; cf. also the (unnecessary) strong language used by the Arbeitsgericht Koblenz (note 28), p. 2838 et seq., sub 7. 175 European Convention on State Immunity, Basle, 16 May 1972, in: BGBl. 1990, part II, pp. 35-51.The Convention is in force in the F.R.G. since 16 August, 1990, in relations with Belgium, Luxemburg, the Netherlands, Austria, Switzerland, the United Kingdom and Cyprus (BGBl. 1990, part II, p. 1400).

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‘A Contracting State cannot claim immunity from the jurisdiction of a court of another Contracting State in proceedings which relate to redress for injury to the person or damage to tangible property, if the facts which occasioned the injury or damage occurred in territory of the State of the forum, and if the author of the injury or damage was present in that territory at the time when those facts occurred.’ A typical case where this provision applies is a traffic accident caused by a diplomat.176 It is doubtful whether the exception from the principle of state immunity laid down in Article 11 of the ECSI can be extended to war-related torts.177 Apart from that, one should bear in mind that Article 11 of the ECSI is a rather recent rule, which is deemed by the prevailing view in Germany not to reflect customary international law, at least not as it stood in the 1940’s.178 Although this may change in the future (the cause célèbre is, of course, the Letelier case),179 applying such a modification retroactively to events that took place more than fifty years ago raises serious concerns. It should be noted that Article 35(3) of the ECSI bars retroactive application of the Convention. According to another line of reasoning, a State that commits severe violations of human rights should be deemed to have implicitly waived its immunity.180 Although such a development of public international law may be desirable in the future,181 even its proponents – at least in Germany – readily concede that their position does not reflect the actual content of the contemporary

176

Cf. KÄMMERER J.A. (note 9), p. 309; MUELLER H. (note 131), p. 95. See KÄMMERER J.A. (note 9), p. 309: ‘The provision is not made for the occupatio bellica’ (my translation). 178 DAMIAN H., Staatenimmunität und Gerichtszwang, Berlin/Heidelberg 1985, p. 114; GEIMER R., Internationales Zivilprozeßrecht, 3rd ed., Köln 1997, para. 585; HESS B. (note 138), p. 293; KÄMMERER J.A. (note 9), p. 309; VON STAUDINGER J./VON HOFFMANN B. (note 78), Art. 38 EGBGB, para. 228c. 179 Letelier v. Republic of Chile, 488 F.Supp. 665 (D.D.C. 1980); on the final settlement of this case, see HESS B., ‘Staatenimmunität und völkerrechtlicher Rechtsschutz bei politischem Mord – Die Beilegung der Letelier-Affäre vor einer US-chilenischen Schiedskommission im Januar 1992’, in: IPRax 1993, pp. 110-114. 180 DOEHRING K./RESS G., ‘Diplomatische Immunität und Drittstaaten’, in: AVR 1999, pp. 68-98, at pp. 84-87; KOKOTT J., ‘Mißbrauch und Verwirkung von Souveränitätsrechten bei gravierenden Völkerrechtsverstößen’, in: Festschrift für Rudolf Bernhardt, Berlin/Heidelberg 1995, pp. 135-151, at p. 148 et seq.; ID., ‘Grund- und Menschenrechte als Inhalt eines internationalen ordre public’, in: BerDGesVR, Vol. 38 (1998), pp. 71-114, at p. 84 et seq.; PAECH N. (note 9), pp. 393-396. 181 But cf. the concerns raised by HESS B. (note 8), p. 280 et seq.; KÄMMERER J.A. (note 9), p. 308; ZIMMERMANN A. (note 115), p. 439 et seq. 177

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law of nations.182 Moreover, the theory of an implied waiver was rejected by the majority in the forced labour case of Princz v. Germany.183 In the Distomon case, however, the Greek Areopag combined the exception to state immunity codified in Article 11 of the ECSI – to which Greece is not a signatory – with the waiver emanating from a violation of international ius cogens and declared the result to be an expression of customary international law.184 This would be a bold decision even in contemporary international law.185 It is hardly convincing that this position accurately reflects the customary international law of state immunity of the 1940’s.186

c)

Conclusion to 5

Thus, Germany enjoys immunity in foreign courts even with regard to war-related human rights violations.187 If victims are not satisfied with the efforts of their government to press the F.R.G. for reparations, they must either sue their government in their courts or bring an action against the F.R.G. before German courts. A Greek observer explains quite frankly: ‘[T]he private citizens who decided to bring this case [Distomon] to court did so in an effort to circumvent the less flexible mechanism of diplomatic protection and thus compel the Greek State into action, beyond the tangled web of diplomatic niceties.’188 Similar motivations of the plaintiffs led the Burger-Fischer and the Iwanowa courts to dismiss the forced labour cases before them under the political questions doctrine in order to protect the U.S. Government from illegitimate judicial pressure.189 It should be

182 See explicitly KOKOTT 1998 (note 180), p. 84; likewise DOEHRING K./RESS G. (note 180), p. 87. 183 Princz (note 115). 184 Areopag (note 9), pp. 472-474. 185 Cf. (on the prior judgment of the District Court in Livadia) BRODESSER H.-J./ FEHN B. J./FRANOSCH T./ WIRTH W. (note 9), p. 184; HESS B. (note 8), p. 277; KÄMMERER J.A. (note 9), p. 309. 186 Cf. (on the prior judgment of the District Court in Livadia) BRODESSER H.-J./ FEHN B. J./FRANOSCH T./ WIRTH W. (note 9), p. 184; HESS B. (note 8), p. 277; KÄMMERER J.A. (note 9), p. 309. 187 BRODESSER H.-J./FEHN B. J./FRANOSCH T./ WIRTH W. (note 9), p. 184; HESS B. (note 8), p. 277; KÄMMERER J.A. (note 9), p. 309. 188 GAVOUNELI M. (note 9), p. 603. 189 Burger-Fischer and Iwanowa (note 14).

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mentioned that the Greek government has distanced itself from the attempts to seize German property in Athens.190 Since only German courts can hand down a judgment that would be enforceable against the F.R.G. in cases involving governmental liability for acta iure imperii,191 it is reasonable that the courts should apply German substantive rules. Although German PIL does not generally require German courts to apply German law, taking recourse to the lex fori in the above-mentioned cases has the advantage of facilitating an expeditious solution since the court can apply the law it knows best. This is often in the best interest of the aged victims. Apart from that, it ensures that all victims are treated equally regardless of the more or less accidental question whether they suffered harm in an annexed or occupied country or were deported to Germany. Moreover, in all reported German cases, the victims tried to base their claims on German law rather than on a foreign lex loci delicti.

V.

Limitations of Substantive Provisions

TOMUSCHAT has argued in favour of a ‘general presumption’ that the national law of torts of a State does not aim at protecting foreign nationals victimised by acts of war.192 Apart from the fact that the enslavement and the intentional massacring of civilians do not qualify as regular acts of war,193 it should be emphasised that the nationality of the victim is not a factor that would per se exclude the application of German provisions on governmental liability.194 Until 1993, however, foreign victims could only file a claim against the German government if the condition of

190 Cf. ANTONAROS E., ‘Athen distanziert sich von Forderung nach Zwangsversteigerung’, in: DIE WELT online, 13 July 2000, at: . 191 See infra sub VI. 192 TOMUSCHAT Chr. (note 22), p. 239, asserting that this ‘rule’ can be found in the jurisprudence of most nations, as far as he can see (without providing references); but cf. the skepticism expressed against this assertion by Landgericht Stuttgart (note 20), p. 243. 193 On forced labour, see the references in note 20; on the Distomon massacre see the detailed discussion by KÄMMERER J.A., PAECH N. and SCHMINCK-GUSTAVUS Chr. (all note 9). 194 Cf. the concise statement by KÄMMERER J.A. (note 9), p. 310 with regard to the Distomon massacre: ‘Neither the language nor the purpose nor the systematic context of the [German] rules concerning governmental liability […] indicate that these provisions should not apply if […] the victim is not German’ (my translation).

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reciprocity was met (§ 7 of the Act on the Liability of the Reich for its Officials).195 It is highly questionable, though, whether this provision is applicable to warrelated torts.196 Even if these objections are met, plaintiffs whose claims are not covered by the Federal Compensation Act face considerable difficulties under German substantive law. First, the general rules on governmental liability (§ 839 of the Civil Code) are to a large extent superseded by special provisions on war-time torts (see supra III. B.). Secondly, the relationship of domestic governmental liability law to the public international laws of war raises intricate problems. In the Distomon case, the Cologne Court of Appeals ruled that the obligations imposed by the laws of war on German soldiers (and violated by them) had been directed solely towards the Greek State instead of towards individual Greek citizens.197 Therefore, the claims of the victims were dismissed. But this formalistic approach has rightly been criticised by German authors as not giving enough weight to the legal duties towards the occupied population that the Reich had to comply with as the occupier.198 Eventually, after all legal obstacles have been overcome, the statute of limitations remains, which, in German conflict of laws, is characterised as a matter of substantive rather than procedural law.199 Claims based on § 839 BGB are usually barred after three years. Due to the war, the difficulties of re-establishing a functioning court system in post-war Germany and the moratorium fixed in the London Agreement, there are numerous arguments for a tolling of the statute of limitations. Discussing all technical possibilities of computing the period of limitation would furnish enough material for another article on substantive law.200 Moreover, one would have to closely analyse whether serious human rights violations are subject to ordinary provisions on prescription at all.201

195

Gesetz über die Haftung des Reichs für seine Beamten, 22 May 1910, in: RGBl. 1910, part I, p. 798; on this provision and the 1993 reform see VON STAUDINGER J./ VON HOFFMANN B. (note 78), Art. 38 EGBGB, paras. 229, 229a. 196 The Cologne Court of Appeals (note 3), p. 253, decided that the condition of reciprocity is inapplicable to claims for compensation for forced labour. With regard to the massacre in Distomon, the question is less clear: KÄMMERER J.A. (note 9), p. 311 rejects the claims because of a lack of reciprocity; the Cologne Court of Appeals (note 9), p. 21 did not decide this question because it dismissed the claims on other grounds. 197 Oberlandesgericht Köln (note 9), pp. 18-21; obiter approved by Landgericht Stuttgart (note 20), p. 243. 198 KÄMMERER J.A. (note 9), p. 311; PAECH N. (note 9), p. 386 et seq. 199 KROPHOLLER J. (note 92), § 41 II 1. 200 For a comprehensive treatment of this subject see OBERHAMMER P./REINISCH A. (note 20), pp. 215-218, with detailed references. 201 See SEIDL-HOHENVELDERN I./STEIN Th. (note 109), para. 1881 (no statute of limitations for war crimes).

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VI. Recognition and Enforcement of Foreign Judgments Judgments on governmental liability claims against another State for acta iure imperii cannot be recognised under the Brussels Convention, which is restricted to civil and commercial matters (Article 1).202 Under domestic German law, it is an unwritten, but generally accepted requirement for the recognition of a foreign judgment that the foreign State had jurisdiction to adjudicate the claim.203 Although ordinary civil courts adjudicate governmental liability claims in Germany because of the specific assignment in Article 34 of the Basic Law, this does not mean that governmental liability is characterised as a civil matter for the purposes of recognition and enforcement of foreign judgments.204 Judgments that violate German State immunity, such as the verdict of the Areopag against the F.R.G.,205 will not be recognised in Germany.206 Even observers who have confessed their sympathy for the judgment of the Greek court in the Distomon case have called its enforcement ‘improbable’ or ‘beyond reality’.207 As regards forced labour claims, an additional problem arises: Since the Foundation Law has been classified as a loi d’application immédiate, a mandatory rule in the international sense (see supra III.B.2), could a foreign judgment granting a claim that would be excluded in a German court by virtue of § 16 of the Foundation Law be recognised in Germany? If the defendant is a corporation, the recognition of such a judgment cannot be denied on grounds of state immunity.208 Nevertheless, disrespect for German mandatory rules may in certain cases be regarded as a violation of German public policy (§ 328(1) No. 4 of the German Code of Civil Procedure).209 As the parallel Agreement between the U.S. and the F.R.G. shows,210 the Foundation Law was meant to settle the issue of forced labour 202

Cf. KROPHOLLER J. (note 108). GEIMER R. (note 178), paras. 533-537a, 2894; VON HOFFMANN B. (note 124), § 3 para. 159; KROPHOLLER J. (note 92), § 60 IV 1. 204 SCHACK H., Internationales Zivilverfahrensrecht, 2nd ed., München 1996, para. 819. 205 Areopag (note 9). 206 On the prior judgment of the District Court in Livadia, see HESS B. (note 8), p. 277. 207 Cf. GAVOUNELI M. (note 9), p. 606 (‘improbable’); SCHMINCK-GUSTAVUS Chr. (note 9), p. 115 et seq. (‘außerhalb der Realität’). 208 On the question whether companies have to be classified as de facto state actors, see supra IV.B.1. 209 BECKER M., ‘Zwingendes Eingriffsrecht in der Urteilsanerkennung’, in: RabelsZ 1996, pp. 691-737, with numerous further references. 210 See supra note 16. 203

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claims once and for all. Any further actions and judgments in this sensitive area would cast a doubt on the legal security that both governments and the corporations participating in the Foundation hoped to achieve. It is thus a legitimate tenet of German public policy not to have this project frustrated by foreign judgments that refuse to respect the compromise reached in the Foundation Law and the parallel German-American Agreement. Accordingly, such decisions would not be recognised in Germany.211

VII. Conclusion The article has shown that the contribution of private international law to the field of compensation for wartime torts is limited by restraints of public international law. In Germany, the view clearly prevails that governmental liability claims relating to acta iure imperii are subject to the substantive provisions of the State claimed to be liable rather than to the lex loci delicti. After litigation in forced labour cases revealed that the German compensation laws were obviously deficient vis-à-vis this specific group of victims, substantive law was improved by creating the Foundation Law. As far as other groups of victims are concerned, German substantive law in principle enables the courts to reach adequate solutions. The very restrictive interpretation given by the Cologne Court of Appeals to § 839 of the Civil Code in the Distomon case has received the criticism it deserved, and it is hoped that this will not be the last word of German courts on this issue.212 On the whole, however, in spite of the current trend towards a privatisation of transnational war tort litigation, it seems that politically balanced and expeditious out-of-court settlements are to be preferred to individual actions.

211

Generally speaking, on the controversial question whether American class action settlements as such may be characterized as recognizable foreign judgments under § 328 of the German Code of Civil Procedure, see HESS B., ‘Die Anerkennung eines Class Action Settlement in Deutschland’, in: JZ 2000, pp. 373-382; OBERHAMMER P./REINISCH A. (note 20), pp. 211-213; for a comprehensive German treatment of the class action in general, see BAETGE D./EICHHOLTZ S., ‘Die Class Action in den USA’, in: BASEDOW J./HOPT K.-J./ KÖTZ H./BAETGE D., Die Bündelung gleichgerichteter Interessen im Prozeß, Tübingen 1999, pp. 287-361. 212 On the pending proceedings before the Bundesgerichtshof, see supra note 11.

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NATIONAL REPORTS ________________

THE NEW GERMAN CONFLICTS RULES FOR REGISTERED PARTNERSHIPS Gerhard HOHLOCH* & Cecilie KJELLAND**

I. II. III.

IV.

Background Intent of the New Conflicts Rules The Conflicts Rules of Article 17a EGBGB A. The Formation of a Partnership and its Dissolution 1. Main Rule 2. Incidental Questions B. Legal Effects of a Registered Partnership 1. General Effects 2. Property 3. Maintenance 4. Succession 5. Name 6. Concurrent Registered Partnerships 7. New Rules of Civil Procedure for Registered Partnerships 8. Recognition of Foreign Decisions on Registered Partnerships Summary

I.

Background

When the coalition partners – the Social Democrats and the Greens – signed an agreement establishing the present German Government in 1998, one of the elements of that agreement was a proposal to initiate legislation to legalize registered partnerships1 for same-sex-couples. After readings by several *

Professor at the University of Freiburg, Germany.

**

Assistant Professor at the University of Freiburg, Germany.

1

In German, a civil union between two persons of the same sex based on the Gesetz zur Beendigung der Diskriminierung gleichgeschlechtlicher Gemeinschaften: Lebens-

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Printed in the Netherlands

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committees2, the Government draft originating from those political parties served as the basis for the draft of the new legislation on registered partnerships3. As proposed by the Legal Comittee of the German Bundestag, the registered partnership was intended to be an independent institution in the field of family law for two persons of the same sex.4 The purpose of the new Act is to create the legal framework to make it possible for same-sex couples to enter into a legally recognized civil union for life. For constitutional reasons, a clear distinction is made in the legislative materials between registered partnerships and the institution of marriage. Nevertheless, the similiarities are obvious, especially in regard to the formation of the partnership and maintenance obligations of the partners during and after dissolution of the union. The Law 16 February 2001 on registered partnerships between two persons of the same sex (hereinafter: Registered Partnership Act) regulates the rights and obligations of same-sex couples in the field of civil law (§§ 1-19 LPartG5). The complete German legislation on registered partnerships also includes several rules and amendments to other laws containing important details.6 One of those amendments is the new conflicts rule in Article 17a of the Introductory Law to the German Civil Code (EGBGB).7 Based on structure of the conflicts rules on marriage in EGBGB (§§ 13-18 EGBGB), the provision contains rules governing the formation and general legal effects of registered partnerships, as well as property relations, maintenance and dissolution. The rules on international jurisdiction (recognition and jurisdiction) are laid down in § 661 of the German Code of Civil Procedure (ZPO). Dealing with the two provisions mentioned above (Article 17a EGBGB and § 661 ZPO), the present article presents a brief survey of the new German conflicts rule for registered partnerships and the rule on international jurisdiction. partnerschaften of 16 February 2001 is called an eingetragene Lebenspartnerschaft. This institution is designated by the term registered partnership in the present article. 2 Legislative Materials are found in the Parliamentary Materials = Drucksachen des Deutschen Bundestags (hereinafter: BT-Drucks.), on the Internet at: http://dip.bundestag.de/ parfors/parfors.htm; see especially BT-Drucks. 14/4545; 14/4550; 14/3751 and 738/00. 3 BT-Drucks 14/3751; the final draft was made by the Legal Committee of Parliament, see Stenographischer Bericht, 14. Wahlperiode, 115. Sitzung, S. 10975 B; 121. Sitzung, p. 11543 C. Details in the Legal Committee's Report of 9.11.2000, BT-Drucks. 14/4550. 4 BT-Drucks. 14/4545, p. 2. 5 The main substantive rules are laid down in §§ 1-19 LPartG (Lebenspartnerschaftsgesetz = Registered Partnership Act). 6 The second and the third parts of the new law (Articles 2 and 3) consist of relevant amendments to the German BGB. 7 Introductory law to the German BGB; Arts. 3-46, consisting of the German conflict of laws rules.

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II.

Intent of the New Conflicts Rules

The new Article 17a EGBGB contains the conflicts rules for registered partnerships of two persons of the same sex. The substantive law on registered partnerships was adopted by the German Bundestag on 10 November 2000 and entered into force on 1 August 2001. Article 17a EGBGB was adopted in the form of an amending law on 10 November 2000. Unlike the solution adopted in Denmark and Norway, the German solution does not apply the rules of international marriage law to registered partnerships;8 as a result the new conflicts rules also apply to partnerships registered in Germany in which the partners are alien residents. This would not have been the case otherwise because German international marriage law mainly follows the principle of nationality.9 Another factor that the lawmakers may have taken into account is the special constitutional position of marriage and the family, which are safeguarded by the State pursuant to Article 6(1) of the German Constitution (Grundgesetz). Thus the majority of opponents argued that legalizing registered partnerships10 would unlawfully extinguish the special protection extended to marriage and was thus unconstitutional. This view was not upheld by the Federal Constitutional Court, which, in its decision of 18 July 2001,11 rejected the request of the German states of Bavaria and Saxony to issue an interim court order to prevent the Act from entering into force on the ground of incompatibility with Article 6 of the Constitution.12 With no more obstacles in its way, the Registered Partnership Act entered into force one week later. However, as emphasized above, the German lawmakers took care to draw a clear distinction between marriage and registered partnerships. Accordingly, the German Registered Partnerships Act is an autonomous law with a minimum of direct references to the general marriage law.13 8

In BT-Drucks. 14/3751, p. 60. E.g., in Arts. 13(1) and 14(1) EGBGB. 10 Especially politicians of the conservative Christian Party (CDU/CSU). 11 Federal Constitutional Court (BVerfG), 1 BvQ 23/01, of 18 July 2001, Absatz-Nr. (1-36); http://www.bverfg.de/. 12 Furthermore, on 9 August 2001 the Federal Constitutional Court rejected a private complaint against the State of Bavaria for failing to comply with the Registered Partnerships Act by neglecting to set up a registration for would-be partners by 1 August 2001, the date the Act entered into force. http://www.bverfg.de/entscheidungen/ frames/2001/8/9. 13 This differs from Scandinavian legislation which refers mainly to the legal effects of marriage. See, e.g., the Danish Registered Partnership Act (lov om registreret partnerskab) of 06.07.1989, No. 372, § 2(1): ‘The first Chapter of the Marriage Act and §§ 12 and 13 paras. 1 and 2(1) shall also apply to the registration of a partnership....’, and § 3: ‘The registration of a partnership, with the exception of the situations specified in § 4, shall have the same legal effects as a marriage.’ See also the Swedish Act: 1993: 1117 and the Norwegian Act of 04.30.1993, No. 40. 9

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This is also true in regard to the new conflicts rules; a general reference to the rules on international marriage law would probably have been too risky because of the constitutional position of marriage.14 The scope of the German Registered Partnership Act and thus Article 17a EGBGB is restricted to relationships between two persons of the same sex. This is clearly stated in § 1 LPartG. Although the Act itself says nothing about a homosexual relationship between those two persons, this does not mean that other persons of the same sex living in the same household may register as a partnership, as is the case in France or in the Netherlands.15 Nor is it to be confused with Scandinavian legislation governing the property relations of unmarried heterosexual cohabitees.16 Nevertheless, it is presumed that a homosexual relationship exists between the two partners. In the preparatory materials, as well as in the title of the Act, it is clearly stated that the purpose of the Registered Partnership Act is to enable same-sex couples to register their partnership publically.17 Formulated as a bilateral conflict rule (allseitige Kollisionsregel), Article 17a EGBGB generally refers to the applicable law in the broad sense, i.e., including its conflicts rules (Gesamtverweisung). In this respect, Article 17a(1), sentence 1 is an exception because it accepts the application of foreign substantive rules in cases where the institutions are similar to the German registered partnership. As stipulated in Article 4 EGBGB, the German conflicts rules generally accept renvoi; this is also the general rule when a foreign law is applicable under Article 17a. However, as we will see, the main conflicts rule for registered partnerships in Article 17a(1), sentence 1, contains an exception to this general rule. Since the application of the substantive rules of a foreign law is admissible under Article 17a, a reference back to German law by the conflicts rules of the first applicable law is not questioned in matters governed by Article 17a(1), sentence 1 EGBGB. Furthermore, Article 17a EGBGB does not apply to all matters relating to registered partnerships. Accordingly, other conflicts rules apply whenever the matter in question is not governed by Article 17a. For example, the conditions for 14 Art. 6(1) of the German Constitution. The decision of the Federal Constitutional Court of 18 July 2001 is an interim order; the final decision is expected in February 2002. 15 In the Netherlands: the original Registered Partnerships Act of 07.05.1997, No. 324; in France the Act adopted on 13 October 1999. 16 In Sweden (1987:232) and Norway (1991-7-4, No. 45); in addition to Registered Partnership Acts, legislation has been enacted to regulate the distribution of property after the dissolution of a union between two unmarried cohabitees. In Norway, those rules can also be applied after the dissolution of a non-sexual cohabitation. Such Acts are intended to prevent the unjust distribution of property of persons cohabiting for a long time, regardless of their sexuality. In Sweden there is a special Act regulating the property relations of nonregistered cohabiting homosexuals, 1987: 813. 17 BT-Drucks. 14/3751, p. 1, 14/4545, p. 2, 14/4550, p. 5.

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renting appartments are not governed by Article 17a, but by the general rules of international contract law.18 Similarly, conflicts issues relating to the rights and obligations of parents are resolved in accordance with the conflict of laws rules for parent-child-relationships.19

III. The Conflicts Rules of Article 17a EGBGB The text of Article 17a EGBGB reads as follows: ‘Registered Partnership 1. The formation of a registered partnership, its general and property effects, as well as its dissolution are governed by the substantive provisions of the State where the partnership is registered. Matters relating to maintenance and succession shall be governed by the law designated as applicable by the general rules. If the partnership fails to qualify for statutory rights to maintenance or succession under these rules, the first sentence of this Article shall apply accordingly. 2. Art. 10 para. 2 shall apply accordingly. If the general effects of the partnership are governed by the law of another State, movable property in Germany shall be governed by § 8 para. 1 of the Registered Partnership Act in connection with § 1357 BGB if those rules are more advantageous than the foreign law for a third person acting in good faith. 3. If a partnership between the same persons is registered in different States, the effects specified in para. 1 shall be determined on the basis of the last partnership entered into, from the time of its registration. 4. The effects of a partnership registered abroad shall not exceed those arising under the provisions of the BGB and the Registered Partnership Act.’20 18

Art. 27 EGBGB et seq.; cf. BT-Drucks. 14/3751 p. 60. Arts. 18 -24 EGBGB. 20 ‘Eingetragene Lebenspartnerschaft: 1. Die Begründung, die allgemeinen und die güterrechtlichen Wirkungen sowie die Auflösung einer eingetragenen Lebenspartnerschaft unterliegen den Sachvorschriften des registerführenden States. Auf die unterhaltsrechtlichen und die erbrechtlichen Folgen der Lebenspartnerschaft ist das nach den allgemeinen Vorschriften maßgebende Recht anzuwenden; begründet die Lebenspartnerschaft danach keine gesetzliche Unterhaltsberechtigung 19

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A.

The Formation of a Partnership and its Dissolution

1.

Main Rule

According to Article 17a(1) EGBGB, the capacity to enter into a partnership is governed by the law of the State where the partnership was registered (lex loci celebrationis). This is because the basic requirements for registering a non-marital partnership and its legal effects vary greatly from State to State. As stipulated in Articles 13-17 EGBGB, the main connecting factor in German legislation on international marriage is the nationality of the partners, and subsidiarily, their habitual residence. Applying this rule to registered partnerships would make it difficult for foreigners residing in Germany to register21. For example, in the Scandinavian countries and in the Netherlands, the conflicts rules for marriage law also apply to partnerships between persons of the same sex. Consequently, in those countries, partners may register their partnership only if at least one of them has a connection with the State of registration. For their part, German lawmakers opted not to impose such a limitation and also refrained from making residence or domicile in Germany a requirement for registration.22 The fact that the German rule imposes no requirements of nationality, residence or domicile makes it possible for partners without any connection to Germany to register, thus opening the door to ‘registration tourism’. This risk, however, is reduced by the fact that, in most cases, the partnership entered into by such persons would not generate legal effects in their home countries.

oder kein gesetzliches Erbrecht, so findet insoweit Satz 1 entsprechende Anwendung. 2. Art. 10 Abs. 2 gilt entsprechend. Unterliegen die allgemeinen Wirkungen der Lebenspartnerschaft dem Recht eines anderen Staates, so ist auf im Inland befindliche bewegliche Sachen § 8 Abs. 1 des Landespartnerschaftgesetzes in Verbindung mit § 1357 des Bürgerlichen Gesetzbuches anzuwenden, soweit diese Vorschriften für gutgläubige Dritte günstiger sind als das fremde Recht. 3. Bestehen zwischen denselben Personen eingetragene Lebenspartnerschaften in verschiedenen Staaten, so ist die zuletzt begründete Lebenspartnerschaft vom Zeitpunkt ihrer Begründung an für die in Abs. 1 umschriebenen Wirkungen und Folgen maßgebend. 4. Die Wirkungen einer im Ausland eingetragenen Lebenspartnerschaft gehen nicht weiter als nach den Vorschriften des Bürgerlichen Gesetzbuches und des Lebenspartnerschaftsgesetzes vorgesehen.’ 21 In Denmark and Norway, the basic connecting factor of the conflicts rules on marriage is the domicile of choice; consequently, this also applies in respect of same-sex partnerships (Partnerskap). 22 E.g., in Denmark, Norway and Sweden (§ 2 of the respective Registered Partnership Act); exceptions are made for nationals of other Scandinavian States.

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Since the requirements to enter into a partnership in Germany are governed exclusively by the law of the State where the partnership was registered, this includes the requirements of form as well.23 The basic German rule of international marriage law contains the same requirement,24 as a result of which the result would probably have been the same if that rule would have been applied to questions of form in respect of registered partnerships. It is important to note that the conflicts rules of Article 17a EGBGB apply only if the foreign partnership in question is similar to the German institution.25 The German rules of private international law apply only to basic institutions existing in German substantive law. Thus it follow that, like the German Registered Partnership Act, Article 17a EGBGB applies only to partnerships between persons of the same sex. As pointed out in the preparatory materials, the purpose of the Act is to eliminate discrimination against same-sex couples.26 As regards classification, Article 17a EGBGB also applies in cases where the foreign institution is not identical to the German registered partnership; however, it must be similar. In this respect, the scope of application of Article 17a EGBGB is similar to that of Article 13 EGBGB for marriage. Hence, a foreign institution is deemed similar if it satisfies the essential elements of the definition in Article 17a EGBGB.27 Furthermore, foreign substantive rules designated as applicable under Article 17a shall apply only if they regulate partnerships similar to the German institution. The dissolution of a partnership is also governed by the law of the State of registration (Article 17a(1), sentence 1 EGBGB). This means that a dissolution rule exists for every registered partnership. For example, like its formation, the dissolution of a partnership between two Italian women registered in Germany would be governed by the German substantive rules on dissolution (Article 17a(1)). If the conflicts rules were applied in this case, the dissolution would be governed by Italian law because the partners have the same nationality (Article 17(1) EGBGB refers to Article 14(1) No. 1 EGBGB). Since registered partnerships between same-sex-couples are unknown in Italian law, dissolution of the partnership would be impossible under Italian law. Consequently, applying the law of the State of registration to the dissolution of a partnership eliminates the danger of a lacuna in the law, thus ensuring that dissolution is possible.

23

In BT-Drucks. 14/3751, p. 60. Art. 13 EGBGB. 25 Gesetz über die eingetragene Lebenspartnerschaft, 16.2.2001, BGBl 2001 I 266. 26 BT-Drucks. 14/3751, p. 1. 27 More detailed WAGNER R., ‘Das neue Internationale Privat- und Verfahrensrecht zur eingetragenen Lebenspartnerschaft’, in: IPRax 2001, pp. 283-284. 24

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2.

Incidental Questions

Incidental questions relating to a registered partnership are to be decided separately in order to guarantee that the solution leads to the best results in the particular situation. This is especially true when one of the applicants is married or registered in another partnership. There is no special procedure as in German family law where it is easy to determine whether the requirements for the capacity to marry are fulfilled.28 This is a logical consequence of the fact that the requirements for entering into a registered partnership are determined by the law of the State of registration. Of course, it would be difficult to ascertain the requirements of a foreign law because most foreign jurisdictions do not recognize registered partnerships.

B.

Legal Effects of a Registered Partnership

1.

General Effects

Pursuant to Article 17a(1) EGBGB, the general legal effects of a registered partnership are governed by the law of the State where the partnership was registered. Under the German Registered Partnership Act, the general effects consist mainly of mutual responsibility, care and general maintenance.29 Moreover, the Registered Partnership Act specifies that the registered partners and their respective families are to be regarded as family members,30 thus guaranteeing them certain rights arising under various other German laws. For example, a partner has the right to be informed about the illness or death of his/her partner, to claim certain social benefits or to refuse to testify against the partner. According to Article 17a(1), the general effects of partnerships registered in Germany are governed by the rules of the German Registered Partnership Act mentioned above. No mention is made of the possibility of a choice of law by the partners. When a foreign law applies or when the partnership is registered abroad, the effects of the applicable foreign rules shall not exceed those prescribed by the German Registered Partnership Act in the same circumstances.31

28

Art. 1309 BGB. LPartG § 2. 30 LPartG § 11. 31 Art. 17a(4) EGBGB. 29

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2.

Property

The property regime is generally governed by the law of the State of registration as well (Article 17a(1), sentence 1 EGBGB). In light of the diversity in the substantive rules of different States, this solution is deemed most reasonable. Moreover, the registered partners will undoubtedly regard the law of the State of registration as the one most likely to apply.32 Although the partners are not permitted to choose the law to govern their property regime, they may register their partnership in another State, thus making their property relations subject to that law, the law of the last registration (Article 17a(3) EGBGB).33 As mentioned above, the application of foreign law is restricted by Article 17a(4) EGBGB, which provides that the legal effects of a partnership registered abroad can never exceed those arising under German law for a registered partnership in Germany.34 For example, there are greater possibilities to establish a property regime under Dutch law, which recognizes a kind of joint ownership that can be stipulated prior to registration. On the other hand, German law provides a type of compensatory property regime specifically for registered partners. This, however, must be agreed upon by the partners in a partnership contract. In the absence of such a contract, German law treats the property of the partners as two separate regimes, as a result of which they have no right to claim compensation. Accordingly, if a partnership registered in Amsterdam is dissolved before a German court, the property of the partners would be regarded as two separate regimes. Pursuant to Article 17a(4) EGBGB, the Dutch system of joint ownership could not be recognized by the German court. In order to be eligible for compensation rights, the partners would have to register their partnership in Germany and conclude a partnership contract under German law.

3.

Maintenance

Matters relating to the maintenance of registered partners are governed by the law designated by the general conflicts rules for maintenance (Article 17a(1), sentence 2 EGBGB). This is a reference to Article 18 EGBGB, which basically provides 32

Cf. BT-Drucks. 14/3751, p. 60. Replacing another registration with a new registration is, of course, limited. If the foreign institution is not similar to the German ‘Lebenspartnerschaft’, the new registration cannot replace the latter. Cf. SÜß R., ‘Notarieller Gestaltungsbedarf bei eingetragenen Lebenspartnerschaften mit Ausländern’, in: Deutsche Notarzeitschrift 2001, p. 170. 34 E.g: A man cohabiting in a partnership registered in Copenhagen cannot be granted permission by a German court to adopt his partner's child, although this would be possible under Danish law. The German registered partnership cannot be regarded as a legal basis for adopting a child. 33

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that the rules of the Hague Convention on the law applicable to maintenance35 shall apply, which generally refer to the law of the habitual residence of the obligee. This solution takes account of the interests of third persons who may also be entitled to maintenance from the obligor. If there is no registered partnership or similar institution in the applicable law, the rules on marital maintenance should be consulted. If the partner would have no maintenance rights under these rules, the substantive rules of the State of registration apply (Article 17a (1), sentence 2). This, however, applies only to statutory maintenance claims between the two partners. Here the rules designated as applicable by the general conflicts rules on maintenance are not to be replaced by the rules of the State of registration, which are applicable only in a complementary role in the form of an adjustment aid.36

4.

Succession

Like the rules on maintenance, succession matters are governed by the law designated by the general conflicts rules for inheritance (Article 17a (1), sentence 2).37 Accordingly, the law applicable to matters of succession between the partners would mainly be the law of the State of the deceased partner's nationality. Again, this takes account of third persons with an interest in the deceased partner's estate. As in the rules on maintenance, the substantive law of the State of registration applies if the rules of the otherwise applicable law do not recognize succession rights for same-sex couples. This applies, however, only in respect of the statutory rules of succession. In most cases this means that a German court cannot award inheritance to the surviving partner of a partnership registered in a State that grants no succession rights to registered partners.

5.

Name

Since Article 17a(1), sentence 1 EGBGB does not designate the law applicable to the name, the law of the partner's nationality shall apply38. Article 17a(2) EGBGB refers to Article 10(2) EGBGB that applies to married couples. When it comes to 35

Hague Convention on the Law Applicable to Maintenance Obligations, of 2 October 1973; it entered into force in Germany on 1 April 1987. 36 Cf. the legislator in BT-Drucks. 14/3751, p. 60. 37 Basically Art. 25 EGBGB; this rule determines the applicable law in respect of the statutory right of succession. Art. 26 EGBGB contains the conflicts rules for testamentary wills. The rule is based on the Hague Convention on choice of law concerning the form of a last will; Hague Convention on the Conflicts of Laws relating to the Form of Testamentary Dispositions, of 5 October 1961, entered into force in Germany on 1 January 1966. 38 Generally Art. 10(1) EGBGB, which refers to the applicable law, including its conflicts rules.

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the choice of law applicable to the name, married couples have several options: They can choose the law of the State of which only one of the partners is a national, or they can choose German law, if one of the partners has his/her habitual residence in Germany.39

6.

Concurrent Registered Partnerships

Since a partnership may be registered in more than one State, it could occur that several laws apply simultaneously. To avoid this problem, Article 17a(3) EGBGB provides that, in such cases, the law of the State where the partnership was last registered shall apply in respect of the effects specifed in Article 17a(1) EGBGB. This law then applies in respect of general legal effects, property, maintenance and succession.

7.

New Rules of Civil Procedure for Registered Partnerships

The new legislation on registered partnerships made it necessary to adopt corresponding rules of civil procedure to regulate international jurisdiction in cases concerning ascertainment of the existence or non-existence of a registered partnership, its dissolution, maintenance and other property claims, etc. Those cases are listed in § 661(1) of the German Code of Civil Procedure (ZPO), which constitutes a new independent section in Part VI containing procedural rules for family cases. The family courts have jurisdiction over matters relating to registered partnerships, and the general procedural rules for family cases apply. Accordingly, as specified in § 606a ZPO, the general jurisdiction of German courts in marital matters applies by analogy to cases involving registered partnerships. However, since the institution of registered partnership is still not legalized in most States, there is an exception to the general rule in § 606a ZPO, as this rule would significantly reduce the jurisdiction of German courts if it were the only rule to apply in such matters. This is because of the rule in § 606a(1), No. 4 ZPO, as a result of which German courts would not have jurisdiction in the absence of habitual residence, if the decision would obviously not be recognized in any of the States of which the partners are nationals. Logically, this means that the chances of a German decision being recognized would be small in a large number of cases. To avoid such results, § 661(3), sentence 1(a) ZPO provides that German family courts have exclusive jurisdiction when at least one of the partners is habitual resident in Germany. This disregards the problem of recognition by the State(s) of

Art. 10(2), alternatives 1, 2 EGBGB. For details see HOHLOCH G., in ERMAN W., ‘Handkommentar zum Bürgerlichen Gesetzbuch’, 10th ed., Münster 2000, Art. 10 EGBGB, No. 19 et seq. 39

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which the partners are nationals, thus evading the possibility of a limping relationship. Furthermore, German courts are always competent in cases where the partnership was entered into before a German public registrar (Standesbeamter) pursuant to § 661(3), sentence 1(b) ZPO40. Like the legislation on partnerships in the Scandinavian countries,41 this rule ensures that a German court may rule on the dissolution of any partnership registered in Germany.

8.

Recognition of Foreign Decisions on Registered Partnerships

Like the recognition of other foreign decisions, the recognition of foreign decisions in matters relating to registered partnerships is regulated by § 328 ZPO, provided the matter is not regulated by an international convention of which Germany is a signatory.42 Pursuant to § 328(1), No. 1 ZPO, a foreign decision will generally be recognized in Germany if the State where the decision was made has jurisdiction over the matter under German international procedure law. As seen above, the general jurisdictional rules for marriage that generally apply to registered partnerships are subject to restrictions specified in § 661(3), sentence 1(a) and (b) ZPO. As a result, the jurisdiction of German courts is broader than in marriage cases. Moreover, sentences 2 and 3 of the new § 661(3) restrict the second para. of § 606a as follows: § 661 (2) sentence 1 ZPO does not apply in cases dealing with the recognition of foreign decisions on registered partnerships. This is a logical consequence of the fact that German courts have jurisdiction regardless of whether the decision would be recognized by the State(s) of the partners’ nationality (Article 661(1)(a) ZPO). Furthermore, when § 606a(2) sentence 2 ZPO applies, the law of the partners' nationality is replaced by that of the State of registration. This is in keeping with other legislation on registered partnerships that designates the law of the State where the partners are registered as applicable instead of the law of their nationality. In general, this rule permits the recognition of a foreign decision by a German court whenever the decision is recognized by the State(s) of which

40

Analogous to a public registrar, other public offices must be established and authorized to register partnerships. The law of 16 February 2001 contains no procedural rules as they rules were rejected by the Bundesrat. Each Bundesland has enacted a state law setting forth administrative rules. Among others, Bavaria, whose political majority did not approve the Registered Partnership Act, has authorized the public notary (Notar) to register partnerships, instead of the public registrar. 41 The Danish and Norwegian Registered Partnership Acts §§ 5; the Swedish Registered Partnership Act, Chapter 2, § 4. 42 None exist as far as multilateral agreements are concerned (eventually with the exception of the EheEuGVVO (Council Regulation (EC) No. 1347/2000, see, infra note 43); eventual bilateral agreements are not dealt with here.

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the partners are nationals. This is a logical consequence of the priority accorded to the State of registration in the conflicts rules for registered partnerships. In this context the question arises whether the new EU Regulation on recognition and jurisdiction in matters concerning marriage,43 which entered into force on 1 March 2001, can be applied by analogy to registered partnerships. Article 14 of the Regulation provides for the automatic recognition by courts of other Member States in several matters relating to marriage and divorce. No mention is made in the legislative materials about the possibility of applying the Regulation by analogy to registered partnerships. The Regulation itself is silent about such a possibility, although the institution of registered partnership had already been recognized in Denmark and Sweden, and was later recognized in France and the Netherlands as well. Whereas the application of the Regulation by analogy would be in keeping with the general purpose to facilitate the recognition of decisions within the EU, this is hardly imaginable in light of the diverse views and strong feelings on this subject in the various Member States.

IV. Summary The initiation of the German Registered Partnership Act, which entered into force on 1 August 2001, was strongly criticized, especially because of its eventual incompatibility with Article 6 of the German Constitution, which places marriage and the family under special protection of the State. Article 17a EGBGB is the main choice-of-law rule for matters relating to registered partnerships under the Registered Partnership Act. The Article is placed systematically together with the conflicts rules for family matters and also partly refers to those rules. The main rule, however, designates the law of the State of registration as the applicable law, for example, in matters concerning the formation and dissolution of the partnership. The reasoning behind this is largely practical: To date, partnerships between persons of the same sex have been recognized and legally regulated by only a small number of States; hence, the number of foreign decisions anticipated in such matters is also small. Until now, legislation regulating similar institutions in Europe has been adopted in Germany, Scandinavia, the Netherlands, Belgium and France.

43 Council Regulation (EC) No. 1347/2000 on jurisdiction and the recognition and enforcement of judgments in matrimonial matters and in matters of parental responsibility for children of both spouses, in: O.J. of the European Communities, L 160, 30 June 2000, pp. 23 et seq., and in this Yearbook 2000, pp. 265 et seq.

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NEWS FROM THE HAGUE ________________

THE HAGUE CONFERENCE ON PRIVATE INTERNATIONAL LAW WORK IN PROGRESS (2000-2001)* J. H. A. VAN LOON**

I. II. III. IV. V. VI. VII. VIII.

I.

Nineteenth Session of the Hague Conference (1): Jurisdiction and Enforcement of Foreign Judgments in Civil and Commercial Matters Nineteenth Session (2): Future Work Programme Towards a Convention on the Law Applicable to Dispositions of Securities Held through Indirect Holding Systems Workshop Promoting Judicial Co-operation with the Russian Federation; Promotion of Wider Adherence to and Better Application of Hague Conventions Special Commission on the Practical Operation of the Intercountry Adoption Convention Special Commission on the Operation of the Child Abduction Convention Meeting of INCADAT Correspondents Membership of the Hague Conference

Nineteenth Session of the Hague Conference (1): Jurisdiction and Enforcement of Foreign Judgments in Civil and Commercial Matters

Following the decision of the Special Commission on General Affairs and Policy of the Conference which took place in May 2000, an informal process started after the summer of 2000 to prepare the first round of diplomatic negotiations on a global Convention on jurisdiction of the courts and recognition and enforcement of * For earlier reviews, see this Yearbook, Vol. I (1999), pp. 205-214, and Vol. II (2000), pp. 169-178. ** Secretary General of the Hague Conference on private international law.

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judgments in civil and commercial matters. Informal meetings took place in Washington, DC, from 30 October to 1 November 2000, on the invitation of the United States of America; Basle, 13-15 December 2001, on the invitation of the Swiss Government; Ottawa, 26 February to 2 March 2001, on the invitation of the Government of Canada; Edinburgh 23-26 April 2001, on the invitation of the Government of the United Kingdom and the Scottish Executive Commission.1 In addition, the Hague Conference co-organised with the Organisation for Economic Co-operation and Development (OECD) and the International Chamber of Commerce (ICC) a joint conference on alternative means of dispute resolution (The Hague, 11-12 December 2000),2 and, held an experts meeting on the intellectual property aspects of the future Convention in Geneva, on 1 February 2001, in connection with the Forum on Private International Law and Intellectual Property convened by the World Intellectual Property Organisation (WIPO).3 Progress was made on several important aspects of the draft Convention, including provisional and preventive measures taken by the courts, jurisdiction in matters relating to patents and trademarks, jurisdiction to protect weaker parties such as consumers and workers, and other aspects. These preparatory meetings indeed facilitated the work of the Diplomatic Conference, which otherwise might have had great difficulty picking up from where it left matters in October 1999. The mandate of the Diplomatic Session, Part One, was to discuss proposals, but without decisions being made at that Session, unless consensus or near consensus was reached. An enormous amount of work was done during the Session, partly also in smaller group meetings, in Commission II, chaired by Mr T.B. Smith from Canada, assisted by Professor Nygh and Judge Fausto Pocar, Rapporteurs, and substantial progress was made in quite a number of areas. On the other hand, several critical areas remained unresolved. This was not really surprising since the Convention touches on politically and economically sensitive questions, including new ones resulting from the recent revolution in worldwide trade as a result of e-commerce and the Internet. An extensive annotated document summarising the outcome of the meeting was published as ‘Summary of the Outcome of the Discussion in Commission II of the First Part of the Diplomatic Conference’.4 It was decided at the end of the meeting that the Commission on 1 See ‘Informational note on the work of the informal meetings held since October 1999 to consider and develop drafts on outstanding items’, Preliminary Document No. 15 drawn up by the Permanent Bureau for the attention of the Nineteenth Session of June 2001. 2 See report prepared by the OECD, ‘Building trust in the on-line environment: Business to consumer dispute resolution’, http://www.oecd.org/dsti/sti/it/secur/act. 3 See ‘Report of the experts meeting on the intellectual property aspects of the future Convention on jurisdiction and foreign judgments in civil and commercial matters’, Geneva, 1 February 2001, Preliminary Document No. 13 of April 2001 for the attention of the Nineteenth Session of June 2001, see also Hague Conference (HCCH) website at: ftp://hcch. net/doc/jdgmpd13.doc. 4 See HCCH website at: ftp://hcch.net/doc/jdgm2001draft_e.doc.

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General Affairs and Policy of the Conference would reconvene early in 2002 to decide on the future of the negotiations.

II.

Nineteenth Session (2): Future Work Programme

Commission I of the Session, chaired by Madame Jametti Greiner of Switzerland, endorsed the Conference’s work on the law applicable to proprietary rights in indirectly held securities and gave the green light for finalisation of that project (see infra, section III). Another important decision made was to go ahead with preparations for a new worldwide Convention on the recovery of maintenance. Moreover, the Conference will complete a report on transfrontier parent/child contact. The Nineteenth Session also decided that the following topics be retained in the Conference’s agenda for future work: 1)

questions of private international law, raised by the information society, including electronic commerce, and, without priority:

2)

the conflict of jurisdictions, applicable law and international judicial and administrative co-operation in respect of civil liability for environmental damage,5

3)

jurisdiction, and recognition and enforcement of decisions in matters of succession upon death,

4)

jurisdiction, applicable law, and recognition and enforcement of judgments in respect of unmarried couples,6

5)

the law applicable to unfair competition,7 and

6)

the law applicable to assignment of receivables.

5

See BERNASCONI Ch.: ‘Civil Liability Resulting from Transfrontier Environmental Damage: A Case for the Hague Conference?’ (Prel. Doc. No. 8 for the attention of the Special Commission of May 2000 on general affairs and policy of the Conference, also accessible on the HCCH website, at: ftp://hcch.net/doc/gen_pd8e.doc); Id., in this Yearbook, pp. 63-100. 6 See ‘Private International Law Aspects of Cohabitation Outside Marriage and Registered Partnerships’, drawn up by the Permanent Bureau (Prel. Doc. No. 9 for the attention of the Special Commission of May 2000 on general affairs and policy of the Conference, also accessible on the HCCH website, at: ftp://hcch.net/doc/gen_pd9e.doc). 7 See ‘Note on Conflicts of Laws on the Question of Unfair Competition: Review and Update’, drawn up by the Permanent Bureau (Prel. Doc. No. 5 for the attention of the Special Commission of May 2000 on general affairs and policy of the Conference, also accessible on the HCCH website, at: ftp://hcch.net/doc/gen_pd5e.doc).

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III. Towards a Convention on the Law Applicable to Dispositions of Securities Held through Indirect Holding Systems At the Special Commission on General Affairs and Policy of the Conference held in May 2000, it was decided that the Hague Conference should, in an accelerated procedure, start work on a technically limited, but from a global banking point of view, very important topic of private international law. Worldwide financial markets increasingly depend on intermediaries interposed between investors and creditors. Trillions of dollars or Euros of securities are held through these financial intermediaries, but in novel ways, which make it difficult or even impossible to link the investor with a particular tangible asset. Yet, parties to a financial transaction must be able to determine in advance with certainty and without undue costs, which law will apply to their rights and obligations. Fortunately there is a growing consensus that within these indirect holding systems, the records of the immediate intermediary on which the entries effecting the pledge or transfer are made can be seen as the most reasonable ‘location’ of the interest pledged or transferred, the so-called PRIMA rule (‘place of the relevant intermediary approach’). With this topic the Hague Conference adds a new dimension to its work in the field of commercial law, allowing the Conference to build up expertise in a new area. First Secretary, Mr Christophe Bernasconi drew up a widely acclaimed Report in preparation of the work by the Conference, which constituted the scientific basis for its first meeting on this new topic.8 A Working Group chaired by Mrs Kathryn Sabo from Canada, met in The Hague in January 2001 and was able to draw up a preliminary set of articles, which reflect the PRIMA rule.9 Thanks to the intense collaboration, which has developed between the Permanent Bureau and a large number of experts in the field, it has been possible, moreover, to make further progress since January through an informal process, which led to the preparation of several intermediate drafts of key provisions for the future 8 See ‘Report on the Law Applicable to Dispositions of Securities Held Through Indirect Holding Systems’, prepared by BERNASCONI Ch. (Prel. Doc. No. 1 of November 2000 for the attention of the Working Group of January 2001), also accessible on the HCCH website at: http://www.hcch.net/e/workprog/coll_sec_pd1.pdf. 9 See ‘Report on the meeting of the Working Group of Experts (15 to 19 January 2001) and related informal work conducted by the Permanent Bureau on the law applicable to dispositions of securities held with an intermediary’, HCCH website at: ftp://hcch.net /doc/scrpte_jan01.doc, see also ‘Tentative text on key provisions for a future Convention on the law applicable to proprietary rights in indirectly held securities - ‘annotated July 2001 draft’ - Suggestions for further amendment of the text contained in Working Document No. 16 of the January 2001 experts meeting’, (Prel. Doc. No. 3 of July 2001 for the attention of the Special Commission of January 2002), HCCH website at: ftp://hcch.net/doc/ sec_pd03e.doc.

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Convention. A Special Commission will meet in January 2002 to draw up a preliminary draft Convention, with a view to adopting the final text of the Convention later in 2002.

IV. Workshop Promoting Judicial Co-operation with the Russian Federation; Promotion of Wider Adherence to and Better Application of Hague Conventions A seminar on EU-Russia judicial co-operation, organised by the Finnish Government in the summer of 1999 inspired representatives at the Finnish Ministry of Justice and Members of the Permanent Bureau to propose to the Finnish Government that a special workshop be held of legal experts from the Russian Federation, Finland, and other interested European countries (which were France, Germany, the Netherlands, Portugal and Sweden), to study in greater depth possibilities for closer co-operation in matters of private international law. This workshop took place at The Hague, at the Ministry of Justice of the Netherlands, from 7-9 September 2000. Within a time-span of only one and a half days, intense discussions took place on the possibility for the Russian Federation to join a number of existing Hague Conventions, as well as to participate in current and future work of the Hague Conference. Hospitality was provided by the Ministry of Justice of the Netherlands and the meeting was opened by the Minister of Justice of the Netherlands, Mr Korthals. The Finnish Government had arranged for a simultaneous translation in English and Russian. The seminar led to tangible results. On the eve of the seminar the Russian Ambassador in The Hague signed the Hague Convention on Protection of Children and Co-operation in Respect of Intercountry Adoption, and on 1 May 2001 the Russian Federation deposited its instruments of accession to the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters and the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters. The workshop with the Russian Federation is just one example of a broad range of activities of the Conference and its Secretariat aimed at promoting wider use and better application of the Hague Conventions. Part of this work takes place at The Hague, part of it consists of travelling abroad by Members of the Secretariat and providing ‘on the spot’ technical assistance. At The Hague, the completion of a rich and highly accessible database on case law on the Child Abduction Convention goes on (see infra, section VI), and subject to the additional financial resources, setting up of a database with statistical information on this and other Conventions is also planned. As regards ‘on the spot activities’ by the Secretariat,

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given its limited financial resources, the Permanent Bureau depends here to a large extent on funding by particular Governments or on programmes developed by others. An example is the TAIEX Programme of the European Union for Eastern Europe, which has provided a context for participation in various seminars in Eastern Europe. While the Secretariat is convinced of the extreme usefulness of these various forms of technical assistance, its dependence on external funding or initiatives make a rational and focused planning of these support activities very difficult. Yet, there is no doubt that this work should continue, and the Secretariat is seeking the assistance of its Member States in its attempt to formulate a more explicit strategy for its activities in administering, monitoring, and supporting Hague Conventions.

V.

Special Commission on the practical operation of the Intercountry Adoption Convention

From 28 November to 1 December 2000 a Special Commission took place at The Hague to review the practical operation of the Hague Convention of 29 May 1993 on Protection of Children and Co-operation in Respect of Intercountry Adoption. While a Special Commission meeting had been held in 1994, before the Convention had entered into force, with a view to facilitating future implementation of the Convention, this was the first meeting of a Special Commission to review the operation of the Convention in practice. The Convention has attracted unprecedented interest and support and is now in force among 42 States. Nearly 58 States were represented at the meeting by 150 experts, which was officially opened by the Minister of Justice of the Netherlands, Mr Korthals and was chaired by Mrs Alegría Borras from Spain. Three preliminary documents had been drawn up and circulated by Deputy Secretary General, Mr William Duncan. One of the highlights of this meeting was the signing, during the meeting, of the Convention on behalf of China by the Chinese Ambassador at The Hague. The Special Commission reached agreement on a large number of recommendations, and in addition, adopted a model form for a medical report on the adopted child, all of which are included in an extensive Report, which was published in April 2001.10 Intense discussions took place on the legal and ethical question of improper financial gain, costs and expenses, which may be involved in intercountry adoption, including donations and contributions, and the Special Commission drew up a series of guidelines which should govern these delicate matters. 10 See Report and Conclusions of the Special Commission on the practical operation of the Hague Convention of 29 May 1993 on Protection of Children and Co-operation in Respect of Intercountry Adoption, 28 November-1 December 2000, drawn up by the Permanent Bureau, also accessible on the HCCH website at: ftp://hcch.net/doc/scrpt33e2000.doc.

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Recognising that the Convention is founded on universally accepted principles, the Special Commission recommended that States Parties, as far as practicable, apply the standards and safeguards of the Convention to the arrangements for intercountry adoption which they make in respect of non-Contracting States.

VI. Special Commission on the operation of the Child Abduction Convention From 22 to 28 March 2001 the Fourth Special Commission took place on the practical operation of the Convention of 25 October 1980 on the Civil Aspects of International Child Abduction. The event attracted overwhelming interest and a record number of 200 participants who could barely find a seat in the Academy Building. Preparations for this meeting by Deputy Secretary General, Mr William Duncan, had started three years ago. The Central Authorities designated by the now almost seventy States Parties had been asked to provide statistics and to reply to a Questionnaire, which resulted in a wealth of information being available upon which solid recommendations could be built. A novel feature of this meeting was that it had a double focus: it started with an examination of the co-operation among Central Authorities and then centered discussions on the role of the courts and on international co-operation among courts. The first part was chaired by Mr Peter Pfund from the United States of America, Special Adviser, Office of Children’s Issues, Bureau of Consular Affairs at the United States Department of State, and the second part was chaired by Mrs Catherine McGuinness, Member of the Supreme Court of Ireland. The Special Commission adopted no less than fifty-eight Conclusions and Recommendations to further improve the practical operation of the Convention.11 Several of these Recommendations encourage the Permanent Bureau to continue with initiatives taken by it, such as the database on case law for the Child Abduction Convention, and to start new projects such as the establishment of a Good Practice Guide.

VII. Meeting of INCADAT correspondents Development has continued on a database of significant case law arising out of the 1980 Hague Convention. The International Child Abduction Database (INCADAT) represents an innovative step in the realms of private international 11

See HCCH website at: ftp://hcch.net/doc/concl28sc4_e.doc.

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law and assists in the possibility for consistent interpretation of the Convention. Judges, Central Authorities, practitioners, academics and other interested persons are able to access the on-line database free of charge (available at www.incadat.com). As of September 2001 the database contained an up-to-date collection of approximately 400 summaries, in English and French, of leading decisions from 22 Contracting States. INCADAT now contains over 2,000 web pages of legal analysis and approximately 5,000 web pages of legal decisions. By September 2001 users had performed over 3,400 search sessions and registered more than 114,000 ‘hits’ on the individual web pages. It is the intention of the Permanent Bureau that the database should contain a representation of case law from all States Parties to the 1980 Convention. To this end the Permanent Bureau has begun to form a network of correspondents from those Contracting States interested in contributing to the database. In order to assist in the further development and progress of INCADAT, the Permanent Bureau convened a meeting of persons who are acting as INCADAT correspondents or who are otherwise supervising or assisting in the provision of case law for INCADAT in their respective countries. The object of the September 2001 INCADAT Correspondent Meeting was to widen the coverage of INCADAT and to ensure consistency and quality in the reporting of cases. Nearly 30 correspondents from 19 Contracting States were represented at the meeting. The participants at the meeting expressed overwhelming endorsement of the project and of the role it can play in furthering the consistent interpretation of the Convention. Many useful suggestions were made which will ensure that the database reflects as best as possible the different legal traditions of the diverse range of Contracting States.

VIII. Membership of the Hague Conference During the year 2001 membership of the Organisation has continued to grow, and no less than eight States have joined the Conference: Brazil, Georgia, the Hashemite Kingdom of Jordan, Peru, the Federal Republic of Yugoslavia, Belarus, Bosnia and Herzegovina and Sri Lanka. Moreover, the following States were admitted as new Members: Albania, Lithuania, Panama, South Africa and Ukraine.

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FORUM* ________________

THE EXTRATERRITORIAL JUDICIAL PENALTY – NEW INSTRUMENT FOR THE TRANSNATIONAL ENFORCEMENT OF EXTRATERRITORIAL INJUNCTIONS? **

Frank GERHARD***

I. II.

Introduction The Extraterritorial Judicial Penalty under International Law A. Admissibility of the Extraterritorial Judicial Penalty under International Law 1. Jurisdiction to Enforce in Matters of Private Law 2. Prohibition of the Extraterritorial Exercise Stricto Sensu of the Jurisdiction to Enforce 3. Admissibility of the Intra-Territorial Exercise of the Jurisdiction to Enforce with Extraterritorial Effects: The Extraterritorial Judicial Penalty B. Jurisdiction to Pronounce an Extraterritorial Judicial Penalty under International Law 1. Thesis of a Third Type of Jurisdiction in General 2. Thesis of a Third Type of Jurisdiction in Matters of Taking Evidence Abroad 3. Jurisdiction to Pronounce an Extraterritorial Judicial Penalty is Ancillary to the Jurisdiction to Prescribe C. Main Fields of Application of the Extraterritorial Judicial Penalty

* This section contains summaries of books recently published by young authors in languages other than English. ** This article summarizes some ideas expressed in Frank GERHARD, L'exécution forcée transfrontière des injonctions extraterritoriales non pécuniaires en droit privé, Etudes suisses de droit international, Vol. 112, Zurich [Schulthess] 2000 (1-658 pp.), for which the author received the Prof. Walther Hug prize. *** Dr. iur., Attorney-at-law, Homburger, Zurich, Switzerland. E-mail: frank.gerhard @homburger.ch

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Printed in the Netherlands

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III.

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The Extraterritorial Judicial Penalty in EC Regulation No. 44/2001 A. Definition of Judicial Penalty 1. Need for an Interpretation 2. Various Methods of Interpretation a) Grammatical Interpretation b) Historical Interpretation c) Autonomous Interpretation d) Contextual Interpretation 3. Conclusion B. Jurisdiction to Pronounce a Judicial Penalty 1. Apparent Contradiction: Article 22(5) and Article 49 of the Regulation 2. Scope of Article 22(5) of the Regulation in Connection with the Judicial Penalty a) Purpose of Article 22(5) b) Consequences of Qualifying the Judicial Penalty as an Enforcement Measure c) Jurisdiction to Pronounce a Judicial Penalty Coincides with the Jurisdiction to Prescribe 3. Distinction Between Proceedings on the Merits and Enforcement Proceedings a) Criterion of Functionality b) Function of the Rules of Jurisdiction of the Regulation c) Conclusion C. Judicial Penalty in the State of Recognition 1. Enforcement Abroad of a Judicial Penalty Issued in the State of Origin a) The Amount of the Judicial Penalty Must be Finally Determined b) Influence of the Ancillary Character of the Judicial Penalty c) Recognition of a Judicial Penalty Rendered in Connection with an Arbitral Award 2. Issuance of a New Judicial Penalty in the State of Recognition a) Arguments Pro Inherent to the Regulation b) Differences Between the Substantive Laws of the State of Origin and the State of Recognition c) Differences Between the Enforcement Laws of the State of Origin and the State of Recognition: Recognition of the English Freezing Injunction 3. Public Policy of the State of Recognition in the Enforcement Proceedings a) Distinction b) Injunction Incompatible with the Public Policy of the State of Recognition c) Injunction Incompatible with the Public Policy of a Third Party State

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I.

Introduction

The idea of transnational enforcement is at least a contradiction, if not a provocation. Enforcement is one of the core attributes of sovereignty: The courts of a State have exclusive jurisdiction and its laws are exclusively applicable when it comes to deciding enforcement measures on the territory of that State; conversely, its courts have no power to intervene and its laws are not applicable in enforcement proceedings abroad. Therefore, enforcement is not really an international matter. It is like citizenship: Both are consequences of the principles of sovereignty and territoriality and are thus subject to the exclusive jurisdiction of a single State. Notwithstanding the foregoing, this article attempts to demonstrate that the use of the judicial penalty in connection with extraterritorial non-monetary injunctions1 renders this contradiction apparent and that transnational enforcement is a reality or is at least desired in the European Judicial Area. This article is divided in two parts. First, it examines the judicial penalty under international law, in particular the admissibility of the extraterritorial judicial penalty, the jurisdiction to pronounce such a penalty and its main fields of application. Second, it examines the judicial penalty under EC Regulation No. 44/2001 on the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, in particular its definition, the jurisdiction to pronounce an extraterritorial judicial penalty and its recognition abroad. This article aims to develop a system of free circulation of the judicial penalty in Europe, provided the amount has been finally determined in the State of origin, thus favoring enforcement of the rights of creditors permitting them to choose between foreign enforcement of the injunction itself or and foreign enforcement of the judicial penalty accompanying such injunction.

1 This article does not examine the right to specific performance and the various judicial penalties available under national law. See GERHARD F. (note **), Part 2, No. 318676, where the judicial penalties in the main European countries are dealt with: France (astreinte), United Kingdom (contempt of court), Benelux (astreinte and/or dwangsom), Germany (Zwangsgeld and Ordnungsgeld) and Switzerland (various judicial penalties pursuant to the cantonal codes of civil procedure; astreinte of the canton of Geneva; and criminal fine pursuant to Article 292 of the Swiss Criminal Code). The main instruments of unification and harmonization of substantive law are also examined in detail: UNIDROIT Principles of International Commercial Contracts of 1994; European Principles of Contract Law of 1997; United Nations Convention on Contracts for the International Sale of Goods (CISG) of 11 April 1980, as are instruments of procedural law: Project Storme, Approximation of the Judiciary Law in the European Union, 1994; common project of UNIDROIT and the American Law Institute for the adoption of Transnational Rules of Civil Procedure of 1 April 1999; UNIDROIT Principles of International Commercial Contracts of 1994.

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II.

The Extraterritorial Judicial Penalty under International Law

A.

Admissibility of the Extraterritorial Judicial Penalty under International Law

Although it is generally acknowledged that a court may issue an injunction that will be effective abroad, this does not mean that the same court may also exercise its coercive power to enforce that order. Therefore, it is necessary first to define the concept of jurisdiction to enforce in matters of private law and distinguish its various forms (1), then determine whether international law accepts the exercise of such jurisdiction abroad (2), or its intra-territorial exercise, but with extraterritorial effects (3).

1.

Jurisdiction to Enforce in Matters of Private Law

International law traditionally distinguishes between jurisdiction to prescribe and jurisdiction to enforce.2 Jurisdiction to prescribe in private matters is defined as the power of a State to prescribe individual or general rules in matters of private law by legislation, executive decree or a court judgment3 that regulates the conduct4 or affect the rights of persons.5 Besides this indirect intervention by the State in rela2

It should be noted that the Restatement (Third) of the Foreign Relations Law (1987) adds a third element, the jurisdiction to adjudicate, which we consider a sub-category of the jurisdiction to prescribe. See also BROWNLIE I., Principles of Public International Law, 4th ed., Oxford 1990, p. 298; HIGGINS R., ‘Legal bases of jurisdiction’, in: OLMSTEAD, C.J. (ed.), Extraterritorial application of the laws and responses thereto, Oxford 1984, pp. 4-13, at 4; STERN B., ‘Quelques observations sur les règles internationales relatives à l'application extraterritoriale du droit’, in: Annuaire français de droit international 32 (1986), pp. 9-52, at 11, note 10: ‘La nouvelle distinction introduite dans la dernière version du Restatement entre jurisdiction to prescribe, jurisdiction to adjudicate et jurisdiction to enforce ne semble pas vraiment pertinente.’ 3 See STERN B. (note 2), p. 11. The Restatement (Third) of the Foreign Relations Law (1987), § 401(b) defines the jurisdiction to prescribe as ‘the capacity of a State to make its law applicable to activities, relations, or status of persons, or the interests of persons in things whether by legislation, by executive act or order, by administrative rule or regulation, or by determination of a court [...]’. 4 See, in particular, MANN F. A., ‘The Doctrine of Jurisdiction in International Law’, in: Recueil des Cours, Vol. 111, 1964-I, pp. 1-162, at 99, who regards jurisdiction as ‘the State's right under international law to regulate conduct in matters not exclusively of domestic concern’. 5 See, in particular, BEALE D., ‘The Jurisdiction of a Sovereign State’, in: Harvard Law Review (HLR) 36 (1923), pp. 241 et seq., who defines (extraterritorial) jurisdiction as

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tions between individuals, which consists in laying down norms to regulate their conduct, the State can also intervene directly in relations between individuals. The most characteristic example of this is the assistance a State provides to a creditor by intervening with its coercive power in cases where the latter was unsuccessful in obtaining payment from a debtor. At this stage, the State intervention becomes not only normative but also executive. Furthermore, the State adds an element that does not exist when it only exercises its jurisdiction to prescribe: It publicizes the strictly private relations between the individuals, transforming the bilateral relationship into a tripartite one, as a result of which execution is no longer an exclusive matter of the parties. Therefore, jurisdiction to enforce in matters of private law is defined as the authority of a State to enforce a general rule or a decision by executive acts that can lead to the use of coercive power by the State.6 Only issues are addressed that relate to the extraterritorial exercise of the jurisdiction to enforce, i.e., when it is aimed at acts performed or at persons or assets situated outside the territory of the State exercising such jurisdiction. Such extraterritorial exercise of the jurisdiction to enforce may be either extraterritorial stricto sensu (direct) or intra-territorial but with effects abroad (indirect). The exercise is extraterritorial stricto sensu when the State acts directly on foreign territory. On the other hand, the exercise is intra-territorial with effects abroad when the measures taken by State are initiated on its own territory but are to be carried out in the foreign State with its compliance. A judicial penalty accompanying an extraterritorial injunction aimed at a specific act or forbearance in a foreign territory is a perfect example: If the recipient of the judicial penalty refuses to comply with the injunction, the judicial penalty will be enforced in respect to his assets located in the territory of the State of origin. Even the threat of quasi-criminal (e.g., the English contempt of court) or criminal7 (e.g., the fine in Article 292 of the Swiss Criminal Code) sanctions will usually suffice to bring about compliance with the injunction, irrespective of its place of performance. When issued in an appropriate case, for example, when the debtor resides in the territory of the State of origin, such injunction is not mere brutum fulmen.8 However, the efficiency of an ‘[...] the power of a sovereign to affect the rights of persons, whether by legislation, by executive decree, or by judgment of a court’. 6 See STERN B. (note 2), p. 11. The definition given by the Restatement (Third) of the Foreign Relations Law (1987), § 401 (c) is similar: ‘The authority of a State to induce or compel compliance or to punish non-compliance with its laws or regulations, whether through the courts or by use of executive, administrative, police or non-judicial action.’ 7 Criminal jurisdiction extends also to acts performed abroad. Execution of the sanction depends on the personal jurisdiction of the State of origin or on the possibility to obtain extradition of the debtor. See SCHLOSSER P., EuGVÜ. Europäisches Gerichtsstands- und Vollstreckungsübereinkommen mit Luganer Übereinkommen und den Haager Übereinkommen über Zustellung und Beweisaufnahme, Munich 1996, ad Article 43, No. 7. 8 See PLINIUS, Hist. nat., II, 113, as expressed sometimes by English courts. See Norris v. Chambers, [1861] 3 De G.F. & J. 583, at 584-585; Royal Exchange Assurance v.

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extraterritorial injunction may become doubtful when the debtor does not reside in the territory of the State of origin or if, at the time of the issuance of the order or in the future, he does not own attachable assets in that territory or if the injunction cannot be recognized abroad.9 In such cases, only foreign recognition of the judicial penalty itself would make the extraterritorial injunction fully effective, i.e., irrespective of the defendant's domicile or the location of his assets.

2.

Prohibition of the Extraterritorial Exercise Stricto Sensu of the Jurisdiction to Enforce

In the Lotus case, the Permanent Court of International Justice has not only distinguished between the jurisdiction to enforce and the jurisdiction to prescribe, but has also clearly prohibited the extraterritorial exercise stricto sensu of the jurisdiction to enforce:10 ‘The first and foremost restriction imposed by international law upon a State is that – failing the existence of a permissive rule to the contrary – it may not exercise its power in any form in the territory of Compania Naviera Santi S.A., [1962] 1 Lloyd's Rep. 410, at 420; E.D. & F. Sugar (Man) Ltd. v. Haryanto (No. 2), [1991] 1 Lloyd's Rep. 429, at 439. 9 However, it is unlikely that the court will not pronounce an injunction because of such risk; the court is not bound to ‘contemplate the possibility that the [order] will not be obeyed’, see Castanho v. Brown & Root (U.K.) Ltd, [1981] Law Reports, Appeal Cases, London (AC) 557, at 574, per Lord Scarman and the case law cited therein. Furthermore, ‘[the injunction] can be enforced by sequestration against [the defendant's] assets here. There is no evidence that it has any assets here today: but that does not matter. It may have assets here tomorrow’, see Hospital for Sick Children (Board of Governors) v. Walt Disney Productions, [1967] 1 All ER 1005, at 1011, per Lord Denning. However, the risk of inefficiency of an injunction can be taken into account by the court when it assesses whether or not to pronounce this measure, see Locabail International Finance Ltd. v. Agroexport, [1986] 1 The Weekly Law Reports (WLR) 657, at 665 (CA). On this issue, see also claims before Austrian courts aiming at prohibiting the Czechoslovakian State to build nuclear power plants near to the Austrian-Czechoslovakian border, Oberster Gerichtshof (OGH), 23 February 1988, in: Juristische Blätter (JBl) 110 (1988), p. 459, critical comment by BÖHM, P. (confirms the jurisdiction of the Austrian court and holds that the judicial penalty could ‘probably’ be enforced in Austria); contra, in a similar case, OGH Linz, 2 March 1989, in: JBl 112 (1990), p. 260 (holds that the judicial penalty could not be enforced in Austria due to the enforcement immunity of the foreign State). See also the German Bundesverfassungsgericht (BVerfG), 12 March 1986, in: BVerfGer 72 (1986), pp. 78-79 (injunction request made in Germany against nuisances caused by the airport of Salzburg). 10 Permanent Court of International Justice (CIJ), Lotus case, 7 November 1927, in: Series A, No. 10 (1927), pp. 18-19; see also European Court of Justice (ECJ), J.R. Geigy v. Commission, Case 52/69, 14 July 1972, [1972] European Court of Justice Reports (ECR), pp. 787 et seq.

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another State. In this sense a jurisdiction is certainly territorial; it cannot be exercised by a State outside its territory except by virtue of a permissive rule derived from international custom or from convention.’ Unlike the statement on the extraterritorial exercise of the jurisdiction to prescribe,11 to our knowledge this statement has not been the subject of a controversy in the numerous comments generated by the Lotus case. It merely reflects the sovereignty of States. Since a sovereign State has a monopoly over the use of physical force on its own territory and since the international community consists of numerous sovereign States, each State has – positively – exclusive jurisdiction to perform physical acts in its own territory and – negatively – cannot perform coercive measures or official acts in the territory of another State, without the consent of the State in whose territory such acts are to be performed. The correlation of this exclusivity – the principle of non-intervention – is clearly defined in Article 2(4) of the United Nations Charter: ‘All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any State, or in any other manner inconsistent with the purposes of the United Nations.’ Therefore, the monopoly of the State dominates the international regime of enforcement proceedings,12 excluding the application of conflicts rules in this matter13 and prohibiting the use of coercive measures beyond national borders. However, coercive acts in foreign territories that are prohibited by international law must have a tangible character. The main criterion to be taken into consideration is the physical presence of agents or officials in the foreign territory. These tangible acts can be acts that require the use of physical force, such as the

11 Ibid., p. 19. The Court suggested that the State's jurisdiction to prescribe is free from any restriction whatsoever under international law. 12 A certain traditional doctrine considers enforcement measures and provisional measures a single category that is functionally homogeneous, subject to a strict territoriality due to the State monopoly in the use of physical force. For a unitary treatment of provisional measures and enforcement measures, see Cour de cassation, chambre civile, Paris (Cass. civ.), 2e Ch., 29 February 1984, in: Rev. crit. dr. int. pr. 74 (1985), pp. 545-555, comment SINAY-CITERMANN, A.; Revue de droit international et de droit comparé (Rev. dr. int. et dr. comp.) 62 (1985), pp. 405 et seq., comment SACE, J.. 13 The conflict of law rules are absorbed by the conflicts rules on jurisdiction, see VAREILLES-SOMMIERES P., ‘La compétence internationale des tribunaux français en matière de mesures provisoires’, in: Rev. crit. dr. int. pr. 85 (1996), p. 400.

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arrest or kidnapping of persons14 or the freezing or seizure of assets. They can also be acts that require the use of State prerogatives, however, without the use of physical force, such as celebrating marriages, collecting taxes, conducting investigations, hearing witnesses or any other measures intended to gather evidence, if such acts require the physical presence of a State agent in the foreign territory, as well as the servicing of judicial or non-judicial documents abroad.15 Whether the State exercises these activities through persons in or outside its own administration is irrelevant as far as the principles of international law are concerned. The performance of such acts abroad may even constitute a criminal act in some countries.16 Whether or not these acts amount to a State intervention is to be determined according to the law and practice of the State where the acts are to be performed, not according to the principles of the State exercising its jurisdiction.17 Since international law prohibits a State from exercising its jurisdiction to enforce outside its own territory, this prohibition can be lifted only by the consent of the State in whose territory such act is to take place, provided such consent is not contrary to jus cogens.18 For instance, it is unlikely that a State would generally waive its right to exercise its jurisdiction to enforce within its own territory; however, it could opt to waive this right in a specific case.19 Therefore, international treaties could limit the exclusivity of a State's jurisdiction to enforce within its own territory by granting another State the right to extraterritorial enforcement of its own rules of law.20 14

Treaties on extradition enable compliance with international law in these situa-

tions. 15 E.g., the Hague Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil and Commercial Matters and the Hague Convention of 15 November 1965 on the Service Abroad of Judicial and Extra Judicial Documents in Civil and Commercial Matters; both entered into force in Switzerland on 1 January 1995 and enable the compliance with international law. 16 In Switzerland, e.g., Articles 271 and 273 of the Swiss Criminal Code. 17 E.g., Swiss law considers the taking of evidence a State activity, whether performed by the parties or by a governmental authority. The taking of evidence is a broader notion in the United States, where the taking of evidence by the parties in connection with discovery proceedings is not regarded as a State activity. See, e.g., In re Anschütz & Co. GmbH, 754 F.2d 602, 611-612 (5th Cir. 1985). In general, see VOLKEN P., Die internationale Rechtshilfe in Zivilsachen, Zurich 1996, pp. 126-138. 18 See JACQUET J.-M., ‘La norme juridique extraterritoriale dans le commerce international’, in: Clunet 111 (1985), p. 382. 19 See, in particular, COMBACAU J./SUR S., Droit international public, 2nd ed., Paris 1995, p. 316; STERN B. (note 2), p. 27. 20 E.g., the Convention applying the Schengen Agreement of 14 June 1985 regarding the progressive abolition of controls at common borders (entered into force on 1 December 1995) provides for cooperation of police forces and grants foreign police forces the right to intervene on the territory of another State (Articles 40 and 41).

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3.

Admissibility of the Intra-Territorial Exercise of the Jurisdiction to Enforce with Extraterritorial Effects: The Extraterritorial Judicial Penalty

Extraterritorial injunctions are the result of the application of national rules relating to persons and assets situated abroad and acts performed abroad. Such injunctions can be enforced after being recognized abroad; this hypothesis is of some practical importance21 but does not interest us here. In numerous cases, cooperation of the foreign judicial authorities is not even necessary: An extraterritorial injunction can be enforced in the territory of the State of origin, provided it is accompanied by a judicial penalty. Such intra-territorial exercise of the jurisdiction to enforce in cases where the persons, assets or acts affected are located abroad does not constitute an illegal use of a State's jurisdiction to enforce.22 Expressly prohibiting a judicial 21

In connection with the Brussels Convention of 27 September 1968 on the Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters, the SCHLOSSER Report, in: Official Journal of the European Communities (OJ), 5 March 1979, C 59/71-144, No. 211, states that the court must apply the same measures of enforcement as those which would be authorized if its own injunctions would be disregarded. On the recognition and enforcement in the United States of injunctions to act or to refrain from performing a particular act, see BUZARD D. A., ‘U.S. Recognition and Enforcement of Foreign Country Injunctive and Specific Performance Decrees’, in: Droit et pratique du commerce international (DPCI) 1990, pp. 270-292. Exequatur in the United Kingdom would not be possible outside the scope of application of the Brussels Convention; foreign orders in personam are enforced only if the order compels payment of a sum of money, see, in particular, CHESHIRE G. C./NORTH P. M./FAWCETT J. J., Private International Law, 12th ed., London, Dublin, Edinburgh 1992, p. 367; DICEY A. V./MORRIS J./COLLINS L., Dicey and Morris on the Conflict of Laws, 12th ed., London 1993 (and Suppl. 1994), Vol. I, p. 462. 22 For authors of private international law, see in particular GÄRNTER J., Probleme der Auslandsvollstreckung von Nichtgeldleistungsentscheidungen im Bereich der Europäischen Gemeinschaft, Munich 1991; GEIMER R., ‘Verfassung, Völkerrecht und internationales Zivilverfahrensrecht’, in: Zeitschrift für Rechtsvergleichung (ZfRV) 33 (1992), pp. 321-347, at 333-335; GEIMER R., Internationales Zivilprozessrecht, 3rd ed., Cologne 1997, No. 400 and No. 3223; GOTTWALD P., ‘Grenzen zivilgerichtlicher Massnahmen mit Auslandswirkung’, in: LINDACHER W./PFAFF D./ROTH G./SCHLOSSER P./WIESER E. (ed.), Festschrift für Walther J. Habscheid, Bielefeld 1989, pp. 119-130, at 124; GOTTWALD P., ‘Die internationale Zwangsvollstreckung’, in: IPRax 1991, pp. 285-291, at 291; HESS B., Staatenimmunität bei Distanzdelikten. Der private Kläger im Schnittpunkt von zivilgerichtilichem und völkerrechtlichem Rechtsschutz, Munich 1992, p. 367; KOCH H., ‘Neuere Probleme der internationalen Zwangsvollstreckung einschliesslich des einstweiligen Rechtsschutzes’, in: SCHLOSSER P. (ed.), Materielles Recht und Prozessrecht und die Auswirkung der Unterscheidung im Recht der Internationalen Zwangsvollstreckung, Bielefeld 1992, pp. 171-207; KOCH H., ‘Internationaler Unterlassungsrechtsschutz zwischen materiellem Recht und Prozessrecht’, in: BASEDOW J./EINHORN T./GIRSBERGER D./MEIER I./SCHNYDER A.K. (ed.), Private Law in the International Arena – Liber Amicorum Kurt Siehr, The Hague, Zurich 2000, pp. 341-360, at 357-359; LINDACHER W., ‘Internationale Unterlassungsvollstreckung’, in: SCHILKEN E./BECKER-EBERHARD E./GERHARDT W. (ed.), Festschrift für Hans Friedhelm Gaul, Bielefeld 1997, pp. 399-409; MANKOWSKI P., ‘Für

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penalty from being issued simultaneously with an extraterritorial injunction would place clear limitations on the different jurisdictions. Although this might seem tempting, a whole range of arguments supports the admissibility of the intra-territorial exercise of the jurisdiction to enforce with extraterritorial effects. A strict territorial jurisdiction to prescribe would make it necessary to initiate proceedings in all jurisdictions where action is sought. Similarly, recognizing the exclusive jurisdiction of a State to enforce in the territory where the act or forbearance must effectively take place could lead to fragmentation of the enforcement proceedings, particularly in regard to obligations to refrain from a particular act. Accordingly, even though an extraterritorial injunction is issued, it would be necessary to issue a separate judicial penalty in each country. In addition to being a burden on the parties, this procedure has another important disadvantage: It often occurs that the debtor owns attachable assets only in the State where the proceeding on the merits is pending. In such cases, it would be necessary to recognize the judicial penalty pronounced abroad at the place where the act or forbearance is to take place in the State of origin.23 Therefore, this would result in a back and forth between the court of origin and the court of enforcement, which would be contrary to principles basic einen Wegfall des Fortsetzungszusammenhangs bei der Unterlassungsvollstreckung’, in: Wettbewerb in Recht und Praxis (WRP), 1996, pp. 1144-1148, at 1148; MATSCHER, ‘Überlegungen über einen einheitlichen Begriff der inländischen Gerichtsbarkeit in Zivilrechtssachen’, in: FISCHER P./KRÖCK H. F./VERDROSS A. (ed.), Völkerrecht und Rechtsphilosophie, Internationale Festschrift für Stephan Verosta, Berlin 1980, pp. 299309; MEIER I., ‘"Swiss-Worldwide-Mareva" im Scheidungsprozess?’ in: MEIER I./SIEHR K. (ed.), Rechtskollisionen – Festschrift für Anton Heini, Zurich 1995, pp. 277-284, at 277; PFEIFFER T., ‘Internationale Zusammenarbeit bei der Vornahme innerstaatlicher Prozesshandlungen’, in: GILLES P. (ed.), Transnationales Prozessrecht: Deutsche Landesberichte zur Weltkonferenz für Prozessrecht in Taormina, Sizilien 1995, BadenBaden 1995, pp. 77-117, at 89-91; REMIEN O., Rechtsverwirklichung durch Zwangsgeld: Vergleich, Vereinheitlichung, Kollisionsrecht, Tübingen 1992, p. 304; SCHACK H., Internationales Zivilverfahrensrecht, 2nd ed., Munich 1996, p. 335; SCHLOSSER P., ‘Extraterritoriale Rechtsdurchsetzung im Zivilprozess’, in: PFISTER B./WILL M. (ed.), Festschrift für Werner Lorenz, Tübingen 1991, pp. 497-512, at 505; STUTZ A., Die internationale Handlungs- und Unterlassungsvollstreckung unter dem EuGVÜ, Konstanz 1992, p. 17, TREIBMANN B., Die Vollstreckung von Handlungen und Unterlassungen im europäischen Zivilrechtsverkehr, Munich 1994, p. 101. With more qualifications, see STÜRNER R., ‘Das grenzübergreifende Vollstreckungsverfahren in der europäischen Union’, in: GERHARDT W./DIEDRICHSEN U./RIMMELSPACHER B./COSTEDE J. (ed.), Festschrift für Wolfram Henckel, Berlin, New York 1995, pp. 863-875, at 870; STÜRNER R., Zwangsvollstreckung-, Konkurs und Vergleichsrecht, Vol. I: Einzelvollstreckungsrecht, 12th ed., Heidelberg 1995, No. 57.13, who advocates the subsidiary use of the intra-territorial exercise of the jurisdiction to enforce, such use being justified only if the enforcement at the place of performance is not possible; however, it is not very clear whether STÜRNER views it as a violation of international law or of international comity. 23 See REMIEN O. (note 22), p. 301.

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to a sound administration of justice. Finally, in some cases, imposing an intra-territorial sanction in the State of origin would favor performance of the obligation due, if, for example, the State of recognition where the act is to be performed recognizes payment of damages but does not permit specific performance in such claims. This could be relevant, particularly when both civil law and common law countries are involved.24 The act of a State exercising its jurisdiction to enforce in its territory but with extraterritorial effects is characterized by two successive phases: first, issuing the extraterritorial injunction accompanied by the threat of legal sanctions, especially a judicial penalty and; second, in cases of non-compliance, execution of the threatened sanction with a mere national effect. It could often be difficult to localize the effects of an indirect means of enforcement. On the other hand, the mere threat of legal sanctions frequently suffices to obtain compliance with an injunction by a debtor domiciled abroad, for example, by inducing a foreign company to act or to refrain from acting in the territory where it is domiciled. Such injunctions are not extraterritorial enforcement measures: As long as the State applies its rules of law only extraterritorially, the sovereignty of the foreign State is protected because it has the possibility to ignore the injunctions at the stage of recognition.25 Such injunctions accompanied by the threat of legal sanctions cannot be considered a tangible act of enforcement: Ordering is not coercing! Direct coercion only cannot take place in the foreign territory; as long as the purpose of imposing fines is to compel acts falling under the law applicable on the merits, this is a necessary consequence of the action taken by the State of origin to exercise its jurisdiction to prescribe: To refuse a State the power to order such a sanction simultaneously with its injunction would deprive its jurisdiction to prescribe of all meaning. Although the jurisdiction to order or prohibit the performance of an act abroad has been sporadically contested by reference to international law and the sovereignty of foreign States,26 this limitation goes far beyond the requirement of international law which sets direct limits only on the extraterritorial exercise stricto sensu of the jurisdiction to enforce. It goes without saying that by sending its public force – or judicial officials – abroad to directly enforce a judgment, a State would infringe the territorial sovereignty of the foreign State. Nevertheless, as in the Lotus case, ‘it does not, however, follow that international law prohibits a State from exercising jurisdiction in its own territory in respect of any case which relates to acts which have taken place abroad and in which it cannot rely on some permission of inter24 On the right to obtain specific performance in the main European countries, see GERHARD F. (NOTE **), No. 606 et seq. 25 See STERN B. (note 2), p. 15. 26 See BEALE D., A Treatise of the Conflict of Laws, Vol. I, New York 1929, p. 421; BEALE D. (note 5), pp. 292-294, who was against the jurisdiction of the courts to order the performance of an act abroad (but not against ordering non-performance of an act abroad); despite the allusion to the sovereignty of the foreign State, his position is explained instead by opportunity considerations, i.e., the prevention of a conflict with the local laws.

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national law’.27 In the second phase, if the person abroad to whom the judicial penalty is addressed does not comply with the extraterritorial injunction, the State of origin shall pronounce and enforce legal sanctions. Limited to its own territory, these sanctions may by definition have an indirect extraterritorial effect only. Since their application will be limited to the territory of the State of origin, the sanctions can be tangible and direct, for example, the enforcement of a judicial penalty. The technique of a State exercising its jurisdiction to enforce in its own territory but with effects abroad has long been disregarded in continental Europe.28 However, a gradual change has taken place in recent years,29 thus obliging us to reconsider the question of a State's jurisdiction to enforce in international law.30 A rather spectacular example is the development of the Mareva injunction in English law. Its apparent weakness – the lack of effect in rem – is the reason for its great impact at international level. While such an injunction could originally be granted only in respect of property in England, it can now be granted worldwide.31 Since the desired effect cannot be obtained directly due to the phenomenon of State sovereignty, it is obtained indirectly by the threat of legal sanctions in cases of 27 CIJ, 7 November 1927, in: Series A, No. 10, pp. 18-19. This view is largely supported in the doctrine; see authors mentioned in note 23. 28 This technique was already mentioned in English case law in 1750, in Penn v. Lord Baltimore (1750) 1 Ves. Sen. 444, where the Chancellor, Lord Hardwicke, ordered the defendant to draw the borderline between the provinces of Pennsylvania and Maryland, which, however, were not under the jurisdiction of English courts. Lord Hardwicke explained that his decision had only an in personam effect; referring to a previous case regarding the setting of the borderline for land located in Ireland, he declared: ‘I could enforce it by process of contempt in personam and sequestration, which is the proper jurisdiction of this court’ (at 454). See also Attorney General v. Barker & Another, [1990] 3 All ER 257, at 260; Hospital for Sick Children (Board of Governors) v. Walt Disney Productions, [1968] 1 Ch.D. 52 (CA) and the opinions of Lord Denning, MR, at 69B, Salmon LJ, at 77B-C and Harman LJ, at 71C-D. This rule is also valid for real estate located abroad, see British South Africa Co. v. Companhia de Moçambique, [1892] 2 QB 358, at 364. However, the English courts have not yet applied the sequestration to assets located abroad, see MacKinnon v. Donaldson, Lufkin and Jeanrette Securities Corporation, [1986] Ch.D. 482, at 494; British South Africa Co. v. de Beers Consolidated Mines Ltd, [1910] 2 Ch.D. 502. 29 See MUIR-WATT H., ‘Extraterritorialité des mesures conservatoires in personam (à propos de l'arrêt de la Court of Appeal, Credit Suisse Fides Trust v. Cuoghi)’, in: Rev. crit. dr. int. pr. 87 (1998), pp. 27-50, at 29. 30 According to GEIMER R. (note 22), pp. 333-335, the question of the intra-territorial exercise of the jurisdiction to enforce with extraterritorial effects will be one of the main challenges of the future of international litigation. 31 This change was brought about by the decision in Babanaft International Co. SA v. Bassatne, [1989] 2 WLR 232 (CA). A worldwide order can also be made if the proceeding on the merits is pending abroad. Examples are Republic of Haiti v. Duvalier, [1990] 1 QB 202 (CA) and Credit Suisse Fides Trust SA v. Cuoghi, [1997] 3 All ER 724 (CA). On the progressive extension of the Mareva injunction, see GERHARD F. (note **), No. 295.

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non-compliance, which is not prevented by the existence of a State borderline. The possibility of using a substitute method of direct enforcement when the latter is not possible or not opportune may reveal some interesting potential in the matter of transnational litigation, which has not yet been assessed in detail. The indirect pressure obtained by threatening legal sanctions in the State of origin against a defendant who is subject to a foreign jurisdiction enables the performance or prohibition of an act on the territory of a foreign State, although it is beyond the reach of the imperium of the judge of origin. This circumvention of the territoriality principle seems to be a new form of the conflict of laws,32 which would come into play if the legal sanctions could be enforced abroad.

B.

Jurisdiction to Pronounce an Extraterritorial Judicial Penalty under International Law

1.

Thesis of a Third Type of Jurisdiction in General

The question arises as to whether a third type of jurisdiction exists in addition to the jurisdiction to prescribe and the jurisdiction to enforce. Is there some type of jurisdiction between these two, which could serve as a basis for issuing extraterritorial judicial penalties? International law sets only indirect limits to the jurisdiction to prescribe.33 There is nothing like direct limits34 or, conversely, the total absence of limits35 or the positive existence of an unlimited jurisdiction to prescribe.36 On the contrary, international law clearly prohibits a State from exercising stricto sensu its jurisdiction to enforce on foreign territory. The Lotus case is unequivocal on this point. But what, if any, limits are set by international law in cases where a State exercises jurisdiction to enforce in its own territory but with extraterritorial effects? Instinctively, a State's provisions regulating acts of private persons or assets located abroad are admissible only with extreme caution, even if the State uses its coercive power in its own territory, without sending its agents abroad. However, from the offset, the direct limits set by the Lotus case to the extraterritorial exercise stricto sensu of the jurisdiction to enforce cannot be applied to the intra-territorial exercise of such jurisdiction. In the latter case, the tangible acts of enforcement are performed in the territory of the State of origin, not in the territory of another State. Therefore, the issue is whether a State having jurisdiction to 32

This phenomenon is described for the first time by MANN F. A., ‘The Doctrine of International Jurisdiction Revisited after Twenty Years’, in: Recueil des Cours 1984 III (vol. 186), pp. 9-116, at 45 under the name of ‘conflict of enforcement jurisdiction’. 33 See GERHARD F. (note **), No. 80-88. 34 Ibid., at No. 50-56. 35 Ibid., at No. 75-79. 36 Ibid., at No. 61-71.

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prescribe can automatically issue an extraterritorial judicial penalty, even if the injunction has an impact on persons, assets or acts abroad,37 or whether imposing legal sanctions with indirect extraterritorial effects requires a third type of jurisdiction that would be more closely connected with the territory of the court seized than required by the jurisdiction to prescribe but not as closely connected as required by the jurisdiction to enforce.

2.

Thesis of a Third Type of Jurisdiction in Matters of Taking of Evidence Abroad

The thesis that a third type of jurisdiction exists in international law has been developed in connection with injunctions ordering the disclosure of documents located abroad.38 The idea was launched after the famous transatlantic judicial conflict39 of the 1980's between the United States and the main European export countries. The conflict came about as a result of numerous extraterritorial injunctions issued by United States authorities ordering the disclosure of documents located abroad, namely in France, Germany and Switzerland.40 Accordingly, this jurisdiction is defined as the power of an authority to order, under the threat of monetary sanctions, the disclosure of documents or the hearing of witnesses located or domiciled abroad, directly without resorting to judicial cooperation.41

37

See BROWNLIE I. (note 2), p. 309 and the Swiss Government, in: Annuaire suisse de droit international (ASDI) 37 (1981), p. 248: ‘La distinction ... entre la compétence législative et la compétence en matière d'enforcement, soit entre la législation extraterritoriale et l'application extraterritoriale de cette législation ne sera pas reprise ici. Avec Brownlie, il faut admettre que l'une des deux compétences est fonction de l'autre et que leurs limites coïncident.’ However, it appears that there is some confusion as to the words ‘application’ and ‘enforcement’, which are not identical in meaning. See MANN F. A. (note 32), p. 35, at note 50. 38 See KAUFMANN-KOHLER G., ‘Conflits en matière d'obtention de preuves à l'étranger’, in: ASDI 41 (1985), pp. 110-120, at 117, at note 30, who proposes the creation of a jurisdiction of a third type, and in particular MÖSSLE K., Extraterritoriale Beweisbeschaffung im internationalen Wirtschaftsrecht, Baden-Baden 1990, pp. 334-342, who has made this concept the topic of his doctoral thesis. 39 Named after SCHLOSSER P., Der Justizkonflikt zwischen den USA und Europa, Berlin 1985, and STÜRNER R., ‘Der Justizkonflikt zwischen USA und Europa’, in: HABSCHEID W. J. (ed.), Der Justizkonflikt mit den Vereinigten Staaten von Amerika, Bielefeld 1986, pp. 3-63. 40 These three countries have vigorously condemned this practice, which they consider contrary to international law; see amicus curiae of France, in: International Legal Materials (ILM) 25 (1986), pp. 1519 et seq., at 1524, of Germany, in: ILM 25 (1986), at 1539, and of Switzerland, in: ILM 25 (1986), at 1549 rendered in the Aerospatiale case. 41 See, in particular, MÖSSLE K. (note 38), pp. 200-201 and pp. 334-342.

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This jurisdiction must be established on its own in accordance with the principle of the reasonable connection and thus can differ from the jurisdiction to prescribe.42 According to MÖSSLE, three main arguments plead for a special concept of jurisdiction requiring the parties or third parties to disclose evidence located abroad. The first is based on the chronology of the judicial procedure: Jurisdiction over the taking of evidence is often exercised before the judge on the merits is seized, for example, in connection with a preliminary investigation or during pretrial discovery. At this stage, the jurisdiction of the judge ordering the taking of evidence is often not yet definite or has not even been assessed at all. Issuing an extraterritorial injunction for the taking of evidence abroad is often used as a means of establishing facts that could justify exercising one's jurisdiction to adjudicate.43 Therefore, jurisdiction over the taking of evidence can often not be derived merely from the jurisdiction to adjudicate, since the latter has not necessarily been determined when the former is exercised. Second, according to its advocates, a specific jurisdiction in evidentiary matters is justified by the fact that the criteria underlying the jurisdiction to prescribe – such as minimum contacts in the United States – do not necessarily suffice to justify jurisdiction in evidentiary matters. Jurisdiction over a person based on his/her contacts with the forum is determined by the intensity of these contacts; jurisdiction over evidence is determined by the place where the evidence is located and by the control exercised over that evidence by the addressee of the injunction. Therefore, in the transatlantic judicial conflict, it was the extraterritorial application of the provisions on discovery rather than the generous acknowledgment of their jurisdiction by US courts that aggravated the European States. For example,44 a US bank with its registered seat in New York is subject to the personal jurisdiction of the New York courts; the question, however, whether a New York court may request that same bank to disclose documents located outside the United States is different. This question is even more justified if the documents concern a third party (e.g., a client of a foreign subsidiary of the bank) and involve activities abroad, and if disclosure is ordered in proceedings in which the bank itself is merely a witness, not a party (e.g., an antitrust investigation against a client of the bank). Here, the issue is whether the contacts of the bank with the United States, albeit intense, are sufficient to legitimate the jurisdiction of US courts over evidence controlled by the bank. This must be distinguished from the issue whether the contacts of the bank with the United States suffice when the bank itself is party to the proceeding. Finally, even if the lex fori is applicable to the merits and this is certain at the stage of the gathering of evidence, it would not be appropriate to automatically recognize the jurisdiction of the court seized to 42 See MÖSSLE K. (note 38), pp. 337-339 (on the differences from the jurisdiction to adjudicate) and pp. 339-341 (on the differences from the jurisdiction to prescribe). 43 E.g., in connection with the jurisdictional discovery. 44 Adapted from United States v. First National City Bank, 396 F.2d 897 (2d Cir. 1968), discussed by MÖSSLE K. (note 38), pp. 402-405.

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order the taking of evidence abroad as well. This is valid in particular in respect of relations with third parties, and, in general, when the activities specified in the order and the jurisdiction to prescribe do not coincide. The issue of transfer prices can best illustrate this dichotomy.45 The subsidiary of a company domiciled abroad, but itself present on the territory of the forum, is subject to the tax jurisdiction of the forum. However, in order to assess the amount of tax owed by the subsidiary, it is sometimes necessary to determine whether the transfer prices charged by the parent company to its subsidiary are unreasonably high, so as to intentionally reduce the subsidiary's profit because the latter is domiciled in a country with a high tax rate. If the jurisdiction to adjudicate and the jurisdiction over the taking of evidence coincide, and application of the tax law of the State of origin is legitimated by the fiscal authority of the State in respect of persons residing in its territory, this would automatically justify requesting the parent company to disclose the transfer prices charged to other extra group companies domiciled abroad. Such jurisdiction runs the risk of being exorbitant, since the services performed by the parent company for third party companies abroad do not have any reasonable connection with the State of origin; this would legitimate a distinct jurisdiction for the taking of evidence as well.

3.

Jurisdiction to Pronounce an Extraterritorial Judicial Penalty is Ancillary to the Jurisdiction to Prescribe

This is not the place to discuss the merits of the system developed in detail by MÖSSLE.46 We prefer to examine whether this system can be applied to extraterritorial injunctions based on substantive law, accompanied by a judicial penalty. Our denial is based on three arguments. The first argument proposed in favor of a third type of jurisdiction over evidentiary matters is by definition not applicable to extraterritorial injunctions based on substantive law. Contrary to measures ordered in evidentiary matters, the latter are not issued until the jurisdiction has been clearly established. Therefore, even if creating a third type of jurisdiction for the taking of evidence could be justified at the very beginning of the procedure, it is no longer justified once the judge competent to decide on the merits has been seized. Second, the judicial activity relating to the act of exercising the jurisdiction to enforce in one's own territory is ineluctably connected with the jurisdiction to prescribe: The enforcement of an injunction does not occur in proceedings prior or parallel to the 45

Adapted from United States v. Toyota Motor Corp., 561 F.Supp. 354 (C.D.Cal. 1983); 569 F.Supp. 1158 (C.D.Cal. 1983), discussed by MÖSSLE K. (note 38), p. 433. 46 E.g., SCHLOSSER P. (note 22), p. 510, criticizes the concept and favors the traditional solution, qualifying the jurisdiction for the taking of evidence as ancillary to the jurisdiction to prescribe. If a State shows sufficient interest in accepting a case, it will have sufficient interest to obtain the necessary evidence to decide it, subject of course to compliance with the sovereignty of the foreign countries.

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one that led to its issuance; it comes about only if there is no voluntary compliance with the injunction and is therefore a mere consequence of the procedure on the merits. On the other hand, the taking of evidence occurs often in proceedings prior or parallel to the procedure on the merits because the latter is not yet pending or because the persons involved are not the same. Finally, the criterion of the persons involved makes it possible to distinguish between extraterritorial injunctions rendered in evidentiary matters and injunctions (extraterritorial as well) based on substantive law. The parties involved in an extraterritorial injunction based on substantive law are the same as those in the proceeding on the merits, whereas extraterritorial injunctions rendered in evidentiary matters are often addressed to third parties. In such case, the mere possession of evidence or the quality of a witness is not necessarily sufficient to create a reasonable connection between the forum and the addressee of the injunction, and such connection is necessary to legitimate the court's jurisdiction to order a particular act abroad. Therefore, a third type of jurisdiction may be appropriate in matters relating to the taking of evidence but cannot serve as a dogmatic basis for exercising the jurisdiction to enforce in one's own territory but with extraterritorial effects. This conclusion is also supported by another argument. Those attempting to justify the need for a third type of jurisdiction in evidentiary matters point to the fact that such injunctions are based on procedural law. However, the conflict of laws reasoning has traditionally never played a relevant role in this matter: The application of the lex fori to procedural rules is considered one of the oldest principles of private international law and is recognized worldwide.47 Furthermore, the lex fori dogma leaves little space for the conflicts reasoning:48 When recognizing his jurisdiction, the judge implicitly decides in favor of applying his own set of procedural rules, including those on discovery. Foreign interests, such as those of the State where the evidence is located49 or those 47

See, in general, JAECKEL F., Die Reichweite der lex fori im internationalen Zivilprozessrecht, Berlin 1995; on the rules applicable to evidence, see KNOEPFLER F./SCHWEIZER P., Précis de droit international privé, 2nd ed., Bern 1995, No. 657-667; KOBERG A.-K., Zivilprozessuale Besonderheiten bei Sachverhalten mit Auslandberührung, St. Gallen 1992, pp. 315 et seq.; GEIMER R. (note 22), No. 319-323; COESTER-WALTJEN D., Internationales Beweisrecht, Ebelsbach 1983, No. 102. 48 On a dogmatic attempt to apply the conflict of laws reasoning to the procedural rules, see MEIER I., ‘Abgrenzung von Privatrecht und Prozessrecht im IPR-Gesetz’, in: Institut für Zivilprozessrecht (IZP), text presented at the seminar held 26 October 1990 by the HSG-Weiterbildungsstufe, St. Gallen, pp. 1-111. 49 The German Bundesfinanzhof answered a Swiss company that was taxable in Germany and that invoked the application of Article 273 of the Swiss Criminal Code: ‘Ihr Verhalten ist allein nach deutschem Recht, hier nach den Vorschriften des deutschen Steuerrechts, zu würdigen. Etwaige Auswirkungen der schweizerischen Strafvorschrift braucht kein anderer Staat gegen sich gelten zu lassen.’ in: Recht der internationalen Wirtschaft (RIW) 1981, p. 498.

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relating to discovery,50 will not be taken in consideration as they would be in traditional conflicts reasoning, either directly when determining the applicable law or indirectly by the adjustment provided, for example, by the theory of the loi d'application immédiate.51 The scope of their application depends on the lex fori and may differ substantially depending on the applicable law. The absence of a subsequent adjustment for injunctions in evidentiary matters may also explain the attempt to balance interests earlier in the proceeding, for example, when determining jurisdiction, an option that is not justified in the case of injunctions based on substantive law subject to adjustments provided by the conflict of laws rules. Consequently, the limits set by international law to the intra-territorial exercise of the jurisdiction to enforce do not differ from those it sets to the jurisdiction to prescribe. This is at least the indication provided by the Lotus case.52 The Restatement (Third) of the Foreign Relations Law (1987) also refers to this principle when it states that ‘a state may employ judicial or non-judicial measures to induce or to compel compliance or punish non-compliance with its laws or regulations, provided it has jurisdiction to prescribe in accordance with §§ 402 and 403’.53 Thus, exercising the jurisdiction to enforce in one's own territory with extraterritorial effects is ancillary to the jurisdiction to prescribe.

C.

Main Fields of Application of the Extraterritorial Judicial Penalty

In continental Europe, the courts do not hesitate to pronounce a judicial penalty when they issue an extraterritorial injunction, especially when the debtor is domiciled in the forum.54 In France, it is a long-established practice for the courts to pronounce astreintes with extraterritorial injunctions, for example, to order restitu50 When debating Article 7 of the Rome Convention on the Law Applicable to the Contractual Obligations, German authors feared that this provision would make it more difficult for defensive measures to be taken in Germany against foreign requests for the disclosure of documents, in particular, emanating from US courts. In the event that the holder of a Swiss bank account filed claims against her own bank in Switzerland to prohibit it from delivering documents requested by a subpoena delivered by an American authority, the issue is raised whether the US law on discovery would apply by taking account of the mandatory law of a third-party country, despite the fact that the contract between the holder of the account and the bank is governed by Swiss law. This seems highly improbable. On this issue, see MÖSSLE K. (note 38), p. 275. 51 Articles 18 and 19 of the Swiss Federal Private International Law Act (PILA). 52 See supra note 27. 53 Restatement (Third) of the Foreign Relations Law (1987), Introductory Note before § 431 (1). 54 See Article 2(1) of the Brussels Convention. On the extraterritorial potential of this rule and its limits, see GERHARD F. (note **), No. 138-142.

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tion of securities located abroad,55 the representation of a child by his father abroad,56 the restitution of a child to France from Spain,57 or the payment of money abroad,58 the performance of auditing work in a German company,59 the publication of a French court order – after being translated into German – in a newspaper published in Germany.60 It seems that issuing transnational enforcement has not really bothered the French courts; most of the time, French courts accompany their injunctions with an astreinte, without questioning their jurisdiction to do so.61 The German Bundesgerichtshof has stated that an injunction ordering an act abroad under the threat of enforcing legal sanctions in Germany does not violate the sovereignty of foreign States when the debtor is domiciled in Germany.62 For example, German courts ordered a fence to be put around real estate in Spain63 and a German company was order to refrain from specific acts of unfair competition abroad.64 The case law of the Netherlands also reveals numerous examples of extraterritorial injunctions accompanied by a dwangsom, for example, to protect intellectual property rights65 and the environment.66 Noteworthy is also a prohibition issued under the threat of a dwangsom to refrain from doing business 55 Trib. civ. Seine, 9 July 1963, in: JCP 1963, II, p. 134, comment LEVEL B. (order given to a French bank to restitute securities located in London); Court of Appeals (CA) Paris, 21 December 1962, in: Gazette du Palais (Gaz. Pal.) 1963, I, p. 99; Clunet (90) 1963, p. 424, comment BREDIN Y. 56 Tribunal de Grande Instance (TGI) Paris, 25 June 1982, in: Gaz. Pal. 1982, II, p. 396. 57 Ibid.; the court even mentions that the astreinte could be enforced against assets of the defendant located in France. 58 Trib. civ. Seine, 16 November 1938, confirmed by Paris CA, 24 April 1940, in: S. 1942, II, p. 29, comment NIBOYET J.P. 59 Ch. mixte, 6 July 1984, in: JCP 1985, II, No. 20338. 60 TGI Paris, 23 June 1976, in: Rev. crit. dr. int. pr. 77 (1978), p. 132, comment GAUDEMET-TALLON H. 61 See however, TGI Quimper (réf.), 22 October and 6 November 1992, in: Gaz. Pal. 1993, I, p. 238. 62 BGH, 2 October 1956, in: Entscheidungen des BGH in Zivilsachen (BGHZ) 22, pp. 1 et seq., at 13: ‘da das vom deutschen Gericht erwirkte Urteil nur Wirkung im Inland erzeugt, bleibt die ausländische Souveränität unangetastet’; see Reichsgericht, 20 January 1894, in: RGZ 32, p. 414. 63 OLG Stuttgart, 26 September 1983, in: Zeitschrift für internationales Zivilprozessrecht (ZZP) 97 (1984), pp. 487-492, comment MÜNZBERG W. 64 HansOLG Hamburg, 15 May 1987, in: Zeitschrift für gewerblichen Rechtsschutz und Urheberrecht, Internationaler Teil (GRUR Int.) 1987, p. 105. 65 On the development of Dutch cross-border injunctions in intellectual property matters, see GERHARD F. (note **), No. 222-225. 66 Ibid., at No. 249-257.

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abroad under a particular company name67 or an order addressed to a model to perform at a fashion show in Dusseldorf.68 The same practice exists when the debtor is not domiciled in the forum; in such cases it is based on special jurisdictional rules such as the place of performance for contracts,69 the place where the harmful event occurred in the case of torts70 or the domicile of another defendant when there are several defendants.71 For example, the German Bundesgerichtshof prohibited an English company, under the threat of an Ordnungsgeld, from publishing unfair advertisements in Swiss newspapers distributed in Germany;72 similarly, an English company was prohibited from doing business in Germany because it did not have the necessary authorizations.73 In the Netherlands, the courts issue extraterritorial injunctions accompanied by a dwangsom in intellectual property issues, irrespective of the domicile of the defendant.74 The extraterritorial judicial penalty is applied mainly in matters relating to absolute rights that are protected by either substantive or procedural law. Among those rights, the extraterritorial protection of intellectual property rights, particularly patent rights, has experienced the greatest development in the past 15 years.75 The protection of environmental rights has also become one of the favorite rights for which extraterritorial enforcement is sought as a result of different standards of protection under national laws.76 Finally, competition and personality rights are

67

KG Amsterdam, 3 June 1930, in: Nederlandse Jurisprudentie (NJ) 1931, p. 196. Arr. Rb. Rotterdam, 1 August 1986, in: Kort Geding (KG) 1986, No. 683. 69 Article 5(1) of the Brussels Convention. On the extraterritorial potential of this rule and its limits, see GERHARD F. (note **), No. 152-156. 70 Article 5(3) of the Brussels Convention. On the extraterritorial potential of this rule and its limits, see GERHARD F. (note **), No. 143-151. 71 Article 6(1) of the Brussels Convention. On the extraterritorial potential of this rule and its limits, see GERHARD F. (note **), No. 157-163. 72 BGH, 23 October 1970, in: GRUR 1971, pp. 153-156, comment DROSTE W. 73 BGH, 2 November 1995, in: IPRax 1997, pp. 36-38, comment ROHE M., ibid., pp. 14-21. 74 See GERHARD F. (NOTE **), No. 234. 75 Ibid., at No. 216-247. More recently, see GRABINSKI K., ‘Zur Bedeutung des Europäischen Gerichtsstands- und Vollstreckungsübereinkommens (Brüsseler Übereinkommens) und des Lugano-Übereinkommens in Rechtsstreitigkeiten über Patentverletzungen’, in: GRUR Int. 2001, pp. 199-213; OTTE K., ‘Internationale Zuständigkeit und Territorialprinzip – Wo liegen die Grenzen der Deliktszuständigkeit bei Verletzung eines europäischen Patents?’, in: IPRax 2001, pp. 315-320; PANSCH R., ‘Der Gerichtsstand der unerlaubten Handlung bei der grenzüberschreitenden Verletzung gewerblicher Schutzrechte’, in: The European Legal Forum (EuLF) 2000/01, pp. 353-362; 76 Ibid., at No. 249-257. 68

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among those that have always been sensitive to extraterritorial protection,77 a trend that will continue to increase with the rise of information electronic networks.

III. The Extraterritorial Judicial Penalty in EC Regulation No. 44/2001 A.

Definition of Judicial Penalty

1.

Need for an Interpretation

In keeping with Article 65 of the Treaty of Amsterdam, the EC Council transformed the 1968 Brussels Convention on the Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters into a Regulation,78 which was adopted on 22 December 2000 and will enter into force on 1 March 2002.79 The Regulation will be applicable in all Member States, with the exception of Denmark.80 The text of the Regulation takes over the text of the Brussels Convention with some amendments. Article 4981 of the Regulation, which provides for a periodic payment by way of a penalty, reads as follows: ‘A foreign judgment which orders a periodic payment by way of a penalty shall be enforceable in the Member State in which enforcement is sought only if the amount of the payment has been finally determined by the courts of the Member State of origin.’ The French version uses the term astreinte, the German text Zwangsgeld and the Italian text penalità. It seems that the Regulation uses terms clearly anchored in national law (astreinte, Zwangsgeld) or generic terms, isolated (penalità) or descriptive (periodic payment by way of a penalty). This diversity in wording is not 77

Ibid., at No. 258-264 and No. 265-271. Council Regulation (EC) No. 44/2001 of 22 December 2000 on the jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, in: OJ, 16 January 2001, L-12/1-23. See HAUSMANN, R., ‘Die Revision des Brüsseler Übereinkommen von 1968’, in: EuLF 2000/01, pp. 40-62; KAUFMANN-KOHLER G./RIGOZZI A., ‘Le Règlement "Bruxelles I": vers un renforcement de l'espace judiciaire européen’, in: Jusletter, 5 February 2001. 79 See Article 76 of the Regulation. 80 The Brussels Convention will still be applicable between Denmark and the Member States (see paras. 21 and 22 of the Preamble and Article 1(3) of the Regulation). 81 Article 49 of the Regulation has the same wording as Article 43 of the Brussels Convention. 78

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surprising since the judicial penalty is not known in all European countries.82 In addition, whereas the terms astreinte and Zwangsgeld are drawn directly from the respective national statutes, the Italian penalità seems too broad and the English periodic payment by way of a penalty too narrow since the latter covers only ‘periodic payments’. Therefore, at this stage we prefer to use the term judicial penalty. The corresponding article of the Brussels Convention was not received with enthusiasm, nor by potential parties and nor by the authors.83 This is undoubtedly because the creditor will always bring action before the judge of the place where the debtor's assets are located or because the creditor will request recognition of the injunction abroad, perhaps in several jurisdictions simultaneously. However, the provision may develop quickly with the increased use of extraterritorial injunctions, as a result of the explosion of new communication technologies and globalization of the marketplace. Until now, the only controversy discussed by authors is the issue whether Article 49 of the Regulation also covers cases in which the State is the beneficiary of a judicial penalty.84 85

82 See GERHARD F. (note **), Part 2, No. 318-676, for an analysis of the judicial penalty in the main European countries. 83 In addition to comments in reference books, only REMIEN O. (note 22), pp. 314326 analyzes this provision in detail. 84 I.e., the English contempt of court, the German Zwangsgeld and Ordnungsgeld, as well as the fines specified in some Swiss cantonal codes of civil procedure. The French and the Benelux astreintes are payable to the creditor of the main obligation. 85 Pro: see, e.g., GÄRNTER J. (note 22), p. 217; GOTTWALD P. (note 22), p. 291; KOCH H. (note 22), p. 200; KROPHOLLER J., Europäisches Zivilprozessrecht. Kommentar zum EuGVÜ, 6th ed., Heidelberg 1998, ad Article 43, No. 1; LINDACHER W. (note 22), pp. 399409; REMIEN O. (note 22), p. 319, SCHLOSSER P., (note 7), ad Article 43, No. 8, STÜRNER R. (note 22), pp. 867, 870 and 872. Contra: see, e.g., DONZALLAZ Y., La Convention de Lugano du 16 septembre 1988 concernant la compétence judiciaire et l'exécution des décisions en matière civile et commerciale, Vol. 2, Bern 1997, No. 2221; GEIMER R./SCHÜTZE R. A., Europäisches Zivilverfahrensrecht. Kommentar zum EuGVÜ und zum Lugano-Übereinkommen, Munich 1997, ad Article 43, No. 2; MEZGER E., ‘Über einige Lücken des EuGVÜ (Brüssel 1968) und des deutschen Ausführungsgesetzes’, in: LÜKE G./RESS G./WILL M. R. (ed.), Rechtsvergleichung, Europarecht und Staatenintegration. Gedächtnisschrift für Léontin-Jean Constantinesco, Berlin 1983, pp. 503-515, at 507; SCHACK H. (note 22), No. 977; TREIBMANN B. (note 22), p. 165.

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2.

Various Methods of Interpretation

a)

Grammatical Interpretation

The only purpose of Article 49 of the Regulation is to specify the conditions for enforcing a judicial penalty abroad: The courts of the State of origin must have finally determined the amount of the penalty. This condition is logical and necessary since the Regulation itself only requires that a judgment be enforceable in the State of origin in order to be enforceable in another Member State.86 For instance, a French astreinte provisoire is enforceable without being final and could therefore be recognized abroad without this supplementary condition. However, Article 49 does not answer the question whether a judicial penalty whose beneficiary is the State falls within its scope of application. Nothing excludes it: All language versions of the EC Regulation are equally authentic, and the Regulation expressly provides for Zwangsgeld, whose beneficiary is the State, whereas the more elaborate English text does not specify the beneficiary of the penalty.

b)

Historical Interpretation

The JENARD Report prepared in connection with the Brussels Convention indicates that Article 43 of the Convention had its roots in the draft Benelux Treaty of 24 November 1961 on jurisdiction, bankruptcy, enforcement of judicial decisions and arbitral sentences and of authentic instruments,87 as well as in the Treaty between the Federal Republic of Germany and the Netherlands of 30 August 1962 on recognition and enforcement of decisions and other instruments in civil and commercial matters.88 The draft Benelux Treaty merely states that the part of a judgment that imposes a dwangsom or an astreinte shall also be part of the exequatur in the State of recognition. The Treaty between the Federal Republic of Germany and the Netherlands provides in a unilateral provision that Dutch decisions imposing a judicial penalty may also be enforced in Germany, provided the Dutch court has determined the amount of the penalty in a final decision. However, the German Zwangsgeld and Ordnungsgeld are not dealt with. Hence, both texts grant enforcement (by a bilateral or unilateral rule) to judicial penalties only when the creditor is the beneficiary. On the contrary, the SCHLOSSER Report prepared in connection with the Brussels Convention leaves the question expressly open.89 Finally, the JENARD Report does not even mention the issue.

86

Article 38(1) of the Regulation. Tractatenblad (Trb.) 1961, No. 163. 88 BGBl. 1965 II, p. 27, p. 1155; Trb. 1963, No. 50. 89 SCHLOSSER Report (note 21), No. 213. 87

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Article 49 of the Regulation does not differ much from these earlier provisions; it provides for a bilateral rule, whose effect is tangible only if the judicial penalties of all Member States fall under the definition of judicial penalty set out in the Regulation. The legislative history and documents on which the provision is based do not shed light on the question whether a judicial penalty payable to the State is enforceable abroad.

c)

Autonomous Interpretation

A comparative law analysis90 of the judicial penalty reveals some elements common to all judicial penalties. Judicial penalty may be defined as (i) an act of authority with a repressive character, (ii) pronounced in civil proceedings, and (iii) aiming at the enforcement of a judgment rendered in civil and commercial matters. First, all judicial penalties can be regarded as an intervention of the imperium of the judge91 into relations between private persons. They always aim to preserve the private interests of the creditor, on the one hand, and to ensure the enforceability of judicial decisions, on the other hand. Thus it can be said that they are of general interest and serve the interest of the social order.92 Furthermore, all judicial penalties have a repressive character. They take account of the fault of the debtor in one way or another, either positively as a condition for their issuance or negatively as a condition for their suppression or reduction.93 This double qualification leads us to conclude that the character of an act of authority is independent of the identity of the beneficiary, such identity being random and a consequence of the political majority at the time the particular statute was enacted rather than a legal argument. No legal system makes the character of the judicial penalty as an act of authority dependent on its allocation to the State. The French astreinte is an example: Although payable to the creditor, it is without doubt an act of authority anchored in the imperium of the judge.94 Furthermore, the recovery of the judicial penalty – ex officio or upon request – has no impact on its legal nature: The German Zwangsgeld is payable to the State; however, it is collected only upon the initiative of the creditor.95 In other words, national peculiarities are not an obstacle to the free circulation of the judicial penalty, as specified by the Regulation. Second, with the exception of the fine specified in Article 292 of the Swiss Criminal Code, all judicial penalties are civil in character and are pronounced by a civil judge at the end 90

See GERHARD F. (note **), No. 318-676. Ibid., at No. 650-660. 92 MOREAU-MARGREVE I., ‘L'astreinte’, in: Annales de la Faculté de droit de Liège 27 (1982), pp. 11-103, at 88. 93 See GERHARD F. (note **), No. 586-589 and No. 670-672. 94 Ibid., at No. 326. 95 Ibid., at No. 494. 91

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of civil proceedings, although all of them take account of fault on the part of the debtor and have a certain repressive character. They clearly differ from penal sanctions pronounced at the end of a criminal trial.96 Finally, the purpose of all judicial penalties is to enforce judgments rendered in civil and commercial matters, even if they are not part of the enforcement proceedings as such.97 d)

Contextual Interpretation

Taking account of the elements mentioned in the autonomous interpretation, we are in a better position to address the view of some authors98 that judicial penalties payable to the State are excluded from the scope of application of the Regulation because they are not ‘civil and commercial matters’, as specified by Article 1(1) of the Regulation. First, the European Court of Justice has opted for an autonomous interpretation of the ‘civil and commercial matter’ under the Convention,99 favoring equality and uniformity of the rights and obligations under the Convention. The decisive criterion is whether the authority has acted jure gestionis or imperii.100 Furthermore, the case law of the ECJ shows that the ‘civil and commercial matter’ must be broadly construed101 so as to enhance the scope of application of the Convention. Therefore, the view that a judicial penalty payable to the State is not a ‘civil and commercial matter’ is misleading: The collection of such judicial penalty in the State of recognition is not justified by the fiscal interests of the State of origin, but rather by the interest to ensure enforcement of the creditor's rights.102 The condition of Article 1(1) of the Regulation is met as soon as the underlying decision is rendered in a ‘civil or commercial matter’; the judicial penalty has an ancillary character, all the more so because the fact that it is payable to the creditor or to the State depends on political majorities and not on the intention to make it an instrument of public or private law. Second, the repressive character of the judicial penalty is not conclusive to qualify it as an instrument of public law, since it is common to all judicial penalties covered by the Regulation. Criminal sanctions that 96

Ibid., at No. 586-589. Ibid., at No. 585. 98 See DONZALLAZ Y. (note 85), No. 2221; GEIMER R./SCHÜTZE R. (note 85), ad Article 43, No. 2; MEZGER E. (note 85), p. 507; SCHACK H. (note 22), No. 977; TREIBMANN B. (note 22), p. 165. 99 ECJ, LTU v. Eurocontrol (Eurocontrol I), 14 October 1976, C-29/76, [1976] ECR, p. 1541; ECJ, Bavaria Fluggesellschaft and Germanair v. Eurocontrol (Eurocontrol II), 14 July 1977, C-9/77 and C-10/77, [1977] ECR, p. 1517. 100 ECJ, The Netherlands v. Rüffer, 16 December 1980, C-814/79, [1980] ECR, p. 3807. 101 ECJ, Volker Sonntag v. Hans, Elisabeth and Stefan Waidmann, 21 April 1993, C172/91, [1993] ECR, p. 1963, No. 21. 102 See LINDACHER W. (note 22), p. 407. 97

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transform the breach of the obligation into a crime only are not covered by Article 49. Therefore, the only pertinent distinction is the nature of the procedure in which the sanction is pronounced:103 If the judicial penalty is pronounced at the end of a civil procedure, it may be exported. Therefore, only fines based on Article 292 of the Swiss Criminal Code are excluded from the scope of application of Article 49 of the Regulation, respectively Article 43 of the Lugano Convention, since Switzerland is not a member of the EU.104 Finally, Article 49 can be considered a lex specialis in comparison with Article 1(1) of the Regulation. In 1968, when the Brussels Convention was enacted, the French astreinte already had the character of an act of authority because it had been distinguished from damages as early as 1959.105 Thus, if all judicial penalties have the character of an act of authority, there is no reason to exclude those payable to the State from free circulation.

3.

Conclusion

To promote the free circulation of judicial decisions in the European Union, we advocate enforcement abroad of judicial penalties rendered at the end of civil proceedings, thus aiming to enforce decisions falling within the scope of the Regulation, even though they represent an act of public authority and have a repressive character. Neither the identity of the beneficiary nor the means of collection should be decisive. Any other conclusion would create an imbalance in the European system of jurisdiction and recognition of foreign judgments laid down by the Regulation: Non-monetary judgments accompanied by a judicial penalty similar to a private fine would carry more weight than judgments accompanied by a judicial penalty payable to the State. The former penalty could be determined by a single judge and then recognized on the whole European territory, whereas the latter penalty would only have a territorial effect. This would force the creditor to request recognition abroad of the non-monetary judgment itself and thereafter to request its enforcement in each separate jurisdiction. Consolidating jurisdiction serves justice better; it is faster and cheaper and would avoid a new type of forum shopping or even forum running towards countries where the debtor's assets are located or countries that issue penalties similar to private fines, which would be the only ones recognized abroad under Article 49 of the Regulation.

103

See REMIEN O. (note 22), p. 318. See GERHARD F. (note **), No. 813. 105 See judgment by the Cour de cassation, 1ère Ch., 20 October 1959, in: D. 1959, p. 536, comment HOLLEAUX D.; in: S. 1959, p. 225; in: JCP 1960, II, No. 11449, comment MAZEAUD P.; see GERHARD F. (note **), No. 324. 104

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B.

Jurisdiction to Pronounce a Judicial Penalty

1.

Apparent Contradiction: Article 22(5) and Article 49 of the Regulation

Under international law, exercising the jurisdiction to enforce in one's own territory is considered ancillary to exercising the jurisdiction to prescribe.106 Accordingly, a judge who has jurisdiction to issue an extraterritorial injunction may also issue a penalty in connection with the injunction, even though it affects persons, assets or acts abroad. The Regulation, however, seems to adopt a contradictory position with respect to such transnational enforcement and, consequently, to the jurisdiction to pronounce a penalty in connection with an extraterritorial injunction. On the one hand, the Regulation seems to advocate the principle of unity of the individual enforcement proceedings: Article 22(5) and Articles 38 to 40 of the Regulation seem to plead for clearly separating the proceedings on the merits (Erkenntnisverfahren) – to be conducted in the State of origin – and the enforcement proceedings (Vollstreckungsverfahren) – to be conducted in the State of recognition. However, on the other hand, the Regulation seems to admit the concept of transnational enforcement within the European Union by making a distinction between issuing the judicial penalty in the State of origin and enforcing it in the State of recognition. Allowing this gap in the enforcement proceedings – as under international law – seems to cause some concern from the point of view of Article 22(5) of the Regulation: Issuing a judicial penalty could be qualified as ‘proceedings concerned with the enforcement of judgments’, as set out in Article 22(5) of the Regulation; this would result in granting the courts of enforcement exclusive jurisdiction to issue such penalties. Regarding Article 49 as a ‘sin’ of the lawmaker, some authors advocate a strict interpretation of the possibilities it offers.107 However, one could also understand this provision as a norm inviting the Member States to cooperate in the context of a transnational enforcement. This would permit the creditor to choose between two possibilities: 1) enforcement entirely in the State of recognition (issuing the judicial penalty, determining its amount, and execution) in accordance with the principle of the unity of the enforcement proceedings, and 2) transnational enforcement divided between the State of origin (issuing the judicial penalty and determining its amount) and the State of recognition (execution). We clearly favor the second solution, as discussed below.

106 107

See supra, I. B. 3. E.g., SCHACK H. (note 22), No. 976.

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2.

Scope of Article 22(5) of the Regulation in Connection with the Judicial Penalty

a)

Purpose of Article 22(5)

Article 22(5) states that ‘in proceedings concerned with the enforcement of judgments, the courts of the Member State in which the judgment has been or is to be enforced shall have exclusive jurisdiction, regardless of domicile’.108 In Article 22(5) the sovereignty principle is realized in the enforcement proceedings in the sense that the courts of the place of enforcement have exclusive jurisdiction to order enforcement measures to take place in their territory. They do not have to accept instructions from foreign courts addressed to the national enforcement authorities. Accordingly, if the judicial penalty would qualify as an act of enforcement pursuant to Article 22(5), the courts of the State in which the judgment has been or is to be enforced would have exclusive jurisdiction.

b)

Consequences of Qualifying the Judicial Penalty as an Enforcement Measure

Qualifying the judicial penalty as an enforcement measure under Article 22(5) has had some positive echo. In France, MEZGER denies the enforcement in France of a Zwangsgeld and an Ordnungsgeld rendered by a German judge pursuant to §§ 888 and 890 ZPO because the German judge regards them as enforcement measures.109 In Switzerland, DONZALLAZ qualifies the French astreinte as an enforcement measure and grants jurisdiction to the court ordinarily designated competent by the cantonal law pursuant to Article 22(5).110 Finally, the Oberlandgericht of Nuremberg also followed this interpretation when revising a judgment ordering an auditor in Rome to establish a balance of operations based on the books of a debtor domiciled in this city.111 These interpretations are all based on a qualification lege fori of enforcement pursuant to Article 22(5), although an autonomous interpretation of this matter would be appropriate. 108

The wording is exactly the same as in Article 16(5) of the Brussels Convention. MEZGER E. (note 85), p. 507. 110 DONZALLAZ Y. (note 85), No. 6402. 111 OLG Nuremberg, 5 April 1974, in: Die deutsche Rechtsprechung auf dem Gebiete des Internationalen Privatrechts im Jahre 1974 (IPRspr.), No. 188. TREIBMANN B. (note 22) also qualifies the issuance of a penalty as the beginning of the enforcement proceedings, p. 99. However, the Kammergericht, in a decision of 4 September 1998, in: IPRax 2001, pp. 236-238 (comment by MENNICKE P., ‘Vollziehung einer Unterlassungsverfügung durch Zustellung in einem anderen Vertragsstaat des EuGVÜ’, ibid., pp. 202-206) clearly qualifies the service abroad of an extraterritorial injunction with a penalty as not being the beginning of the enforcement proceedings. 109

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c)

Jurisdiction to Pronounce a Judicial Penalty Coincides with the Jurisdiction to Prescribe

Even if the mere issuance of a judicial penalty would already fall within the scope of the proceedings relating to the enforcement of judgments under Article 22(5), this would not prevent it from being issued by the judge on the merits since the ‘courts of the Member State in which the judgment has been or is to be enforced’ must still be determined. There are three possible solutions: 1) the courts of the State where the application for the judicial penalty was filed, 2) the courts of the State where the judicial penalty must be enforced, and 3) the courts of the State where the obligation specified in the underlying order must be performed. It could occur that the same courts have jurisdiction in all three instances. While the first solution coincides with the jurisdiction on the merits, the other two solutions must be discarded, as discussed below. Granting exclusive jurisdiction to the courts of the State where the judicial penalty is to be enforced could lead to practical difficulties, making it necessary to determine whether the debtor owns assets in this State before filing the application for a judicial penalty. Moreover, the contradiction with Article 49 would not be resolved: Exporting a judicial penalty would be meaningless since the penalty could be pronounced only in a State where the debtor owns assets, thus making enforcement possible. Accordingly, Article 49 would simply be a dead provision. Furthermore, since the judicial penalty would not be exportable, it must be pronounced separately in each State where the debtor owns assets. This would not only lead to a fragmentation of the enforcement proceedings, but it would also require the judicial penalty to be issued simultaneously in all these States: If it would be issued later in one State, this would be useless because such a penalty cannot sanction an act that took place before it was issued. In addition, fragmentation of jurisdiction under Article 22(5) would lead to another harmful consequence: A single violation affecting the territory of one State would enable a judicial penalty to be issued independently in several States.112 The debtor would not only be involved in multiple proceedings, but it would also be difficult for each judge to determine the appropriate amount of the penalty, which is set in proportion to the debtor's fault. The judge would have to take into account the other proceedings pending abroad, which in practical terms would be difficult because they are not coordinated. Finally, such interpretation would result in two different definitions of one concept in the same sentence of Article 22(5), depending on whether reference is made to ‘proceedings concerned with the enforcement of judgments’ or to ‘courts of the Member State in which the judgment has been or is to be enforced’. In the first instance, a broad definition would be used, since it deals with the issuing of a judicial penalty. In the second instance, a narrow definition is

112

REMIEN O. (note 22), p. 325, note 71.

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preferable because it concerns the jurisdiction of the courts where the measure is to be effectively enforced against the assets of the debtor.113 The jurisdiction of the place of performance of the obligation specified in the underlying order would also have to be disregarded. First, such a limitation is found neither in Article 22(5) nor in Article 49. Second, the criterion of the place of performance would be hypothetical because the place of enforcement of an obligation can be determined only in cases of direct enforcement. However, direct enforcement is not appropriate when the order concerns the enforcement of an obligation of an exclusively personal character (intuitu personae) or one requiring the addressee to refrain from a particular act. The judicial penalty is precisely the enforcement measure par excellence for these kinds of obligations. Finally, the text of the Regulation itself does not refer to the place of performance of the obligation; this is not desirable because the forum and/or the assets could be located in another Member State than in this hypothetical place. In the European Union, as in international law, the jurisdiction to pronounce a judicial penalty must coincide with the jurisdiction to prescribe, thus raising the question how this is achieved in the Regulation.

3.

Distinction Between Proceedings on the Merits and Enforcement Proceedings

a)

Criterion of Functionality

The Regulation does not provide a definition of proceedings on the merits, and the description of the enforcement proceedings is vague. However, the consequences of this distinction are material: Only proceedings on the merits are subject to the rules on jurisdiction in Chapter II. Furthermore, only decisions rendered in proceedings on the merits may be enforced abroad; decisions rendered in enforcement proceedings may not be recognized abroad.114 Hence, enforcement measures provided by national law can be put into one or the other category only by reference to the function of the rules on jurisdiction. In this regard, the definition provided by GULDENER may serve as a general rule:115 ‘Das Ziel des Erkenntnisverfahrens (Zivilprozess im engeren Sinne) ist es, Rechtsgewissheit im Einzelfall herzustellen; Ziel des Vollstreckungsverfahrens ist die zwangsweise Verwirklichung des rechtsgemässen Zustandes.’ 113

Ibid., at p. 324. ‘Exequatur sur exequatur ne vaut pas’, i.e., the decision recognizing a foreign judgment may not be recognized abroad. 115 GULDENER M., ‘Zwangsvollstreckung und Zivilprozess’, in: Revue de droit suisse (RDS) 74 (1955), Vol. 1, p. 20. 114

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b)

Function of the Rules of Jurisdiction of the Regulation

Aiming to achieve predictability, the rules of jurisdiction laid down in the Regulation are based on the principles that jurisdiction is generally determined by the defendant's domicile in a Member State (Articles 2-21) and that jurisdiction must always be recognized on this ground,116 except in a few well-defined situations in which the subject matter of the litigation (Article 22) or the autonomy of the parties (Articles 23-24) warrants a different connecting factor.117 The plaintiff's domicile is not relevant when applying the rules of jurisdiction laid down in the Regulation.118 The defendant's rights are deemed to be protected in the proceedings on the merits; therefore, mutual trust in the administration of justice in the Community legitimates very liberal rules on recognition and enforcement, i.e., judgments rendered in a Member State should be automatically recognized abroad without the need for any procedure.119 However, these factors are no longer determinant in the enforcement proceedings; instead the intention is to respect the sovereignty of third-party States and practical concerns.120 The importance of respecting the sovereignty of thirdparty States is evidenced by the German text of Article 22(5) of the Regulation, which states that jurisdiction is exercised by ‘... die Gerichte des Vertragsstaates, in dessen Hoheitsgebiet121die Zwangsvollstreckung durchgeführt werden soll oder durchgeführt worden ist’. Furthermore, reference is made at other places in the Regulation to the jurisdictional rules of national law. For example, in Article 31,122 the term ‘courts of a Member State’ is used, and not ‘Hoheitsgebiet’. Finally, the JENARD Report also stresses the importance of the concept of sovereignty when defining the enforcement matter as ‘les contestations auxquelles peuvent donner lieu le recours à la force, à la contrainte, ou à la dépossession de biens meubles et 116 The general principle remains the rule actor sequitur forum rei (Article 2), which is inspired by the aim to protect the defendant's interests. See ECJ, Klomps v. Michel, 16 June 1981, C-166/80, [1981] ECR, p. 1593; ECJ, Sté Jakob Handte et Cie v. Sté Traitements mécano-chimiques des surfaces, 17 June 1992, C-26/91, [1992] ECR, p. 3967, No. 14. Article 60 of the Regulation now provides that a company or other legal person or association of natural or legal persons is domiciled at the place where it has its (i) statutory seat, or (ii) central administration, or (iii) principal place of business. 117 See para. 11 of the Preamble of the Regulation. 118 ECJ, Société Groupe Josi Reinsurance Co SA v. Universal General Insurance Co, 13 July 2000, C-412/98, [2000] All ER (E.C.), p. 653. 119 Article 33 of the Regulation; e.g., the jurisdiction of the court of the State of origin may not be reviewed by the court of recognition. 120 GEIMER R./SCHÜTZE R. (note 85), ad Article 16, No. 267-268. 121 Which means ‘sovereign territory’. The English text reads only ‘...the courts of the Member State in which the judgment has been or is to be enforced’. 122 Article 31 of the Regulation has the same wording as the present Article 24 of the Brussels Convention.

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immeubles en vue d'assurer la mise en oeuvre matérielle des décisions, des actes’.123 The adoption of a coercive measure is an act of sovereignty par excellence. The European Court of Justice also insists on this element of foreign sovereignty when applying Article 22(5). In Reichert II, it mentions that the main reason for the exclusive jurisdiction of the courts of the State of enforcement is the fact that only the courts of the State where the enforcement is to take place shall implement the provisions applicable to the enforcement authorities.124 In addition, practical reasons also favor granting exclusive enforcement jurisdiction to the courts where the coercive measures are to be effectively implemented, namely, at the place where the defendant is domiciled or at the place where the assets to be seized are located. These are the only reasons justifying circumvention of the ordinary rules of jurisdiction, generally considered as equitable and in the interest of the parties.125 Conducting the enforcement proceedings at a place that has only a minimum connection with the parties or the object of the dispute would not be favorable to the parties. This would result in proceedings on the merits at such location because, in recognition and enforcement proceedings, only limited objections can be raised against the jurisdiction admitted in proceedings on the merits. The restrictive subject matter of the enforcement proceedings could also legitimate an enforcement jurisdiction that is only remotely connected with the parties or the object of the dispute; such approach is not found in the ordinary rules of jurisdiction in Chapter II of the Regulation. There is a special jurisdictional rule for enforcement proceedings: Article 39(2) of the Regulation states that ‘the local jurisdiction shall be determined by reference to the place of domicile of the party against whom enforcement is sought, or to the place of enforcement’. This rule is not included in Chapter II on jurisdiction but in Chapter III on recognition and enforcement. Pursuant to the Regulation, the recognition and enforcement rules come into play only if a judgment rendered in another Member State is declared enforceable,126 whereas the jurisdictional rules of Chapter II apply when the defendant is domiciled in a Member State.127 However, the recognition procedure is clearly part of the enforcement procedure: It is a precondition to the enforcement of a foreign judgment and thus enforcement

123

JENARD Report, in: OJ, 5 March 1979, C-59/1-65, No. 83. ECJ, Reichert v. Dresdner Bank (Reichert II), 26 March 1992, C-261/90, [1992] ECR, p. 2149, No. 26. 125 See KAUFMANN-KOHLER G., ‘Commandement de payer, mainlevée provisoire, action en libération de dette et convention de Lugano. Réflexions à l'occasion d'un arrêt du Tribunal fédéral’, in: La Semaine judiciaire (SJ) 1995, pp. 537-562, at 560. 126 ECJ, Owens Bank Ltd v. Fulvio Bracco et Bracco Industria Chimica SpA, 20 January 1994, C-129/92, [1994] ECR, p. 117, No. 25. 127 Article 4 e contrario of the Regulation. 124

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jurisdiction must exist in such country as well. This is another reason for placing the rule of Article 22(5) in Chapter III rather than in Chapter II of the Regulation.128

c)

Conclusion

The logical conclusion of the foregoing can be summarized in three points. First, the exclusive jurisdiction clause of Article 22(5) is to be construed restrictively, compared with the general jurisdiction of Article 2(1)129 and all other jurisdictional rules of the Regulation.130 Second, the definition of enforcement in the JENARD Report cited above means that coercive measures are deemed to have a direct impact on a given situation, thus justifying granting jurisdiction to the authorities of the place where such measures are to be implemented. However, this rule is mandatory only if physical force is exercised. If enforcement is sought by an indirect enforcement measure, its success does not necessarily depend on its being issued by the authority where the measure is to be effectively enforced at a later time. In fact, ‘enforcement’ takes place in two steps: Threat and issuance of an indirect enforcement measure are to be followed, if any, by implementation, which in turn can lead to a direct or coercive enforcement measure. This scission also explains why the mere issuance of an extraterritorial indirect enforcement measure does not violate the sovereignty of the State where the debtor is domiciled or where the assets to be seized are located. This measure is similar to a decision that merely orders a direct or coercive enforcement measure against a debtor or assets located abroad:131 The sovereignty of 128 ECJ, Owens Bank Ltd v. Fulvio Bracco et Bracco Industria Chimica SpA, 20 January 1994, C-129/92, [1994] ECR, p. 117, submissions of Advocate General LENZ, No. 46. 129 ECJ, A.S. Autoteile Service GmbH v. Mahlé, 4 July 1985, C-220/84, [1985] ECR, p. 2267, No. 14-17. 130 ECJ, Reichert v. Dresdner Bank (Reichert II), 26 March 1992, C-261/90, [1992] ECR, p. 2149, No. 25. 131 ECJ, de Cavel v. dame de Cavel (de Cavel I), 27 March 1979, C-149/78, [1979] ECR, p. 1055 (jurisdiction of the French court to attach pieces of furniture located in the apartment of the husband and wife in Germany and to attach assets and bank accounts of the wife in two banks in Germany); ECJ, Denilauler v. S.N.S Couchet Frères, 21 May 1980, C125/79, [1980] ECR, p. 1553 (jurisdiction of the French court to issue a ‘saisie-conservatoire’ (prejudgment attachment) freezing the defendant's bank account in Frankfurt); ECJ, Brennero v. Wendel, 27 November 1984, C-258/83, [1984] ECR, p. 3971 (jurisdiction of the Italian court to order a ‘sequestro conservativo’ on assets located in Germany); ECJ, Van Uden v. Deco-Line, 17 November 1998, C-391/95 [1998] ECR, p. 7091 (jurisdiction of the Dutch court of the domicile of the plaintiff not competent on the merits to order interim payment of a contractual monetary consideration in kort geding proceedings against a German company, provided a real connection exists between the subject-matter of the measures sought and the country to whose courts application for those measures is made, and

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the foreign State is protected by its recognition rules and by the fact that enforcement will take place pursuant to the rules applicable at the place where the coercive measure is to be effectively implemented.132 Therefore, the jurisdiction to issue an indirect means of enforcement must coincide with the jurisdiction to prescribe within the European Union as well. Finally, the foregoing shows that, at least in the European Union, a judicial penalty cannot be qualified as an enforcement measure or as ‘proceedings concerned with the enforcement of judgments’ pursuant to Article 22(5) of the Regulation. As in the Roman system, it is to be qualified as an ancillary order that may precede a direct enforcement measure aiming at recovering the amount of the judicial penalty itself. Therefore, Article 22(5) does not apply to judicial penalties. Accordingly, the court having jurisdiction on the merits also has jurisdiction to issue such a penalty, even though it accompanies an extraterritorial injunction.133 In fact, the courts of the Member States have already rendered such extraterritorial judicial penalties.134 Consequently, if the defendant owns assets in the State of origin, the judicial penalty can be enforced without further condition, although the underlying injunction is not recognized in the State where the obligation to act or to refrain from acting is being performed. In addition, the jurisdiction to pronounce an extraterritorial judicial penalty implies that an injunction to be enforced in a foreign State may be accompanied by a judicial penalty even though the institution of judicial penalty is unknown in the foreign State. Finally, Article 49 means that the court which has jurisdiction on the merits (although it is based on Article 31 of the Regulation or present Article 24 of the Brussels Convention) and which has pronounced a judicial penalty shall also have jurisdiction to determine the final amount of that penalty.135

provided such order guarantees repayment to the defendant of the sum awarded if the plaintiff is unsuccessful on the merits, or it relates to specific assets of the defendant located or to be located within the confines of the territory of the issuing court); ECJ, Mietz v. Intership Yachting Sneek BV, 27 April 1999, C-99/96, [1999] ECR, p. 2277 (an order issued by a judge not competent on the merits which does not guarantee the repayment to the defendant of the sum awarded if the plaintiff is unsuccessful on the merits, or it relates to specific assets located or to be located within the confines of the territory of the issuing court cannot be enforced abroad under Chapter III of the Convention). 132 See, e.g., GAUDEMET-TALLON H., Les conventions de Bruxelles et de Lugano. Compétence internationale, reconnaissance et exécution des jugements en Europe, 2nd ed., Paris 1996, No. 101; GOTHOT P./HOLLEAUX D., La Convention de Bruxelles du 27 septembre 1968: compétence judiciaire et effets des jugements dans la CEE, Paris 1985, No. 158; KOCH H. (note 22), p. 200. 133 REMIEN O. (note 22), p. 326; SCHLOSSER P. (note 7), ad Article 16, No. 26; TREIBMANN B. (note 22), p. 115. 134 See supra I. C. 1. 135 Arr. Rb. Rotterdam, 4 February 1983, in: NJ 1985, No. 417, p. 319.

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C.

Judicial Penalty in the State of Recognition

This section covers two hypothesis: (1) the foreign order is accompanied by a judicial penalty, the amount of which has been finally determined in the State of origin, and the enforcement of the penalty is to take place pursuant to Article 49 of the Regulation, or (2) the foreign order is rendered in a State where the judicial penalty is unknown or is accompanied by a judicial penalty, the amount of which has not been finally determined, and the enforcement of the order is to take place by issuing a new penalty in the State of recognition. In the first group of cases, the extent to which the public policy exception could constitute an obstacle to recognition should also be examined (3).

1.

Enforcement Abroad of a Judicial Penalty Issued in the State of Origin

a)

The Amount of the Judicial Penalty Must be Finally Determined

This requirement arises because of the difference in French law between astreinte provisoire and astreinte définitive.136 It was necessary to make this point clear in the Regulation, since the general rule merely says that a decision rendered in a Member State and enforceable in that State shall also be enforceable in another Member State.137 Thus, it is not sufficient if the amount of the penalty is merely determinable, for example, by multiplying the number of violations by the amount stipulated for each violation.138 The amount of payment must be explicitly set out in the decision to be enforced.139 This means, e contrario, that the enforcement court cannot determine the amount of the judicial penalty. This is important with respect to the astreinte of the Benelux countries, which is final and enforceable as soon as it is pronounced; however, the amount has not yet been finally determined, and therefore it cannot be enforced abroad pursuant to the Regulation, although it is enforceable under the Benelux Uniform Law.140 For instance, the Paris Court of Appeals refused to enforce a Belgium astreinte under Article 43 of the Brussels Convention because the amount of the penalty had not been finally determined, although the astreinte was 136

See GERHARD F. (note **), No. 362-363. Article 38(1) of the Regulation. In the Denilauler case (note 131), the ECJ stated that provisional measures are enforceable abroad, subject to some conditions. 138 See SCHLOSSER Report (note 21), No. 213. 139 See namely GOTHOT P./HOLLEAUX D. (note 132), No. 365; KROPHOLLER J. (note 85), ad Article 43, No. 1; see also SA La Médicale Equipex v. Soc. Farmitalia Erba SRL Fice, Versailles, CA, 25 January 1989, in: Dalloz 1989 I.R., p. 64; Richard v. Europroducts, Civ. Arlon (1ère ch.), 27 December 1996, in: Journal des Tribunaux (J.T.) 1997, p. 781. 140 Article 3, 2nd sentence of the Uniform Law. 137

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enforceable under Belgium law.141 The court simply stated that the plaintiff could not avail itself of the less stringent requirement of the State of origin but had to comply with the condition specified in Article 43 of the Convention. If the judgment whose enforcement is sought also imposes interest payments, the enforcement court may set the final amount of interest due; however, on the basis of an astreinte that has been pronounced but whose amount has not been finally determined, it is not possible to determine from the application for its recognition whether or not the astreinte is actually due. This is because the execution of the underlying order cannot be deducted from the penalty itself. As an intermediary solution, SCHLOSSER proposes that a distinction be made between a penalty ancillary to an obligation to perform and a penalty ancillary to an obligation to refrain from performance. The enforcement judge could finally determine the amount of the former on the basis of information provided by the plaintiff; however, for reasons of legal security and protection of the defendant's rights, the amount of the latter should not be finally determined by relying on declarations by the plaintiff.142 The position of the Paris Court of Appeals may seem erroneous, not because a plaintiff who may avail itself of national law in an internal setting should also be able to do so in a transnational setting,143 but because the French requirement specified in Article 49 of the Regulation constitutes an unjustified restriction of one of the fundamental freedoms of the Treaty of Amsterdam.144 These freedoms are also applicable in private law, namely in matters of civil procedure.145 However, the requirement that the amount of the judicial penalty be finally determined is justified by the intention to protect the debtor and by the need for legal security.146 This 141 Sàrl Hugo Boss v. Société BVBA Boss Invest, Paris, 1ère Ch. civile, 7 July 1992, in: D. 1992 I.R., p. 226, commented by REMIEN O. in: European Review of Private Law (ERPL) 2 (1994), pp. 399-408. The Paris Court of Appeals has subsequently confirmed its position in Eurosensory v. Tieman et BEE, 28 January 1994, in: Revue de droit de la propriété intellectuelle (RDPI) 1995, p. 18. 142 SCHLOSSER P. (note 7), ad Article 43, No. 5. 143 DONZALLAZ Y. (note 85), No. 2219. 144 See REMIEN's comments to the decision Hugo Boss, (note 141), in: ERPL 2 (1994), pp. 404-405. 145 EHRICKE U., ‘Artikel 12 I (ex 6 I) EG-Vertrag und das nationale Zivilprozessrecht – Bilanz und Perspektiven’, in: IPRax 1999, pp. 311-323; SCHLOSSER P., ‘Die europäische justizielle Infrastruktur ohne Diskriminierung’, in: Zeitschrift für Europäisches Privatrecht (ZEuP) 1995, pp. 250-257 and the sizeable case law of the ECJ rendered on the cautio judicatum solvi, e.g., Stephen Austin Saldanha et MTS Securities Corporation v. Hiross Holding AG, 2 October 1997, C-122/96, [1997] ECR, p. 5325, and on the freezing of assets in cases of enforcement of a foreign judgment, e.g., Firma Mund und Fester v. Firma Hatrex International Transport, 10 February 1994, C-398/92, [1994] ECR, p. 467. 146 This requirement, however, could be questionable if the national laws of both the State of origin and the State of enforcement do not require the amount of the penalty to be finally determined.

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requirement has two consequences for the Benelux countries. First, the Regulation has made it more difficult to enforce the astreinte within the Benelux countries.147 Second, if foreign recognition of the Benelux astreinte is sought, the creditor must first request the court of the State of origin to determine the amount of the astreinte.148 If the amount of the judicial penalty must be finally determined, does this mean that the penalty is finally payable? Article 49 requires only that the amount of the penalty be finally determined, not that the penalty is finally payable. According to KROPHOLLER, this only means that the amount due must result from the foreign order itself.149 Even if the text of Article 49 could lead one to think that the penalty is finally payable to the beneficiary, the debts incurred are not irrevocable. The final amount of the penalty can be determined, although there is still a possibility to appeal the underlying judgment. The scope of the ‘final determination’ shall not extend beyond the final determination of the ‘amount’ of the penalty, regardless of the possibility to void the underlying order and to request reimbursement of the sum paid on the basis of unjust enrichment. Any other construction would unduly extend the text of the Regulation, which only requires that the foreign order be enforceable.150

b)

Influence of the Ancillary Character of the Judicial Penalty

The ancillary character of the judicial penalty means that the enforcement request must be accompanied by the document mentioned in Articles 34, 53 and 54 of the Regulation,151 both with respect to the judicial penalty and the underlying order. Therefore, the ancillary character of the judicial penalty means that the underlying order must also be enforceable under the rules of the Regulation.152 But how should

147

Civ. Bruxelles, 31 October 1973, in: Rechtskundig Weekblad (RW) 1973-1974, col. 882. See DE BOER M. B., ‘Osservazioni sull'Astreinte nel diritto processuale civile olandese’, in: Rivista di diritto processuale 1996, p. 805. 148 Trib. Arr. Rotterdam, 4 February 1983, in: NJ 1985, No. 417; Ger. Hof. Leeuwarden, 7 April 1982, in: NJ 1983, No. 406; Arr. Rb Haarlem, 26 March 1991 and Ger. Hof. Amsterdam, 27 February 1992, in: NJ 1993, No. 453; Ger. Hof Den Haag, 21 May 1992, in: NJ 1993, No. 238. The possibility of this decision is provided by the Exposé des motifs communs, ad Article 3, in: Jur. Benelux 2 (1980-1981), pp. 115 and 122. 149 KROPHOLLER J. (note 85), ad Article 43, No. 1. 150 Article 38 of the Regulation. 151 Sàrl Hugo Boss v. Société BVBA Boss Invest, Paris, 1ère Ch. civile, 7 July 1992, in: D. 1992 I.R., p. 226. 152 See KAYE P., Civil Jurisdiction and Enforcement of Foreign Judgements, Oxon 1987, No. 1358; REMIEN O. (note 22), p. 318; STAUDER D., ‘Die Anwendung des EWGGerichtsstands- und Vollstreckungsübereinkommens auf Klagen im Gewerblichen Rechts-

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the enforcement judge decide a request to enforce a foreign judicial penalty, the amount of which has been finally determined, if the underlying injunction orders a specific act in a third-party State where enforcement of the underlying order is impossible because that State only recognizes a direct means of execution? Nothing should prevent the enforcement judge from recognizing the judicial penalty because the enforcement proceedings are governed by the lex fori executionis153 and thus the particular mode of execution admitted by that law has exclusive application.154 However, how should he decide if performance of the order could not be obtained in the third-party State because of rules protecting the personality of the defendant or because the underlying order violates the public policy of the State of enforcement? A recognition judge requested to render a judicial penalty could also be confronted with such issues, which are dealt with below.155

c)

Recognition of a Judicial Penalty Rendered in Connection with an Arbitral Award

The ancillary character of a judicial penalty also has an impact on the enforceability abroad of a penalty pronounced in connection with an arbitral award. There are in fact three situations: (i) The penalty is rendered and finally determined by the arbitral tribunal itself; (ii) the penalty is rendered by the arbitral tribunal and finally determined by a judge as part of the enforcement proceedings; or (iii) the penalty is rendered and finally determined by the judge if the arbitral tribunal has no jurisdiction to issue such a penalty. The first hypothesis – when the arbitral tribunal issues and determines the amount of the penalty – is possible under Belgium156 and Dutch law.157 Such a schutz und Urheberrecht’, in: GRUR Int. 1976, pp. 465-477 and pp. 510-520, at 475; TREIBMANN B. (note 22), pp. 151-152. 153 See GERHARD F. (note **), No. 752; BUCHER A., Droit international privé suisse, Tome I/1; Partie générale – Conflits de juridictions, Basel/Frankfurt a. M. 1998, No. 389394; GEIMER R. (note 22), No. 369 and No. 3237-3239; GOTTWALD P. (note 22), p. 285; KNOEPFLER F./SCHWEIZER P. (note 47), No. 628-633; LINDACHER W. (note 22), p. 403; LOUSSOUARN Y./BOUREL P, Droit international privé, 5th ed., Paris 1996 No. 509; MUIRWATT H., ‘Effets en France des décisions étrangères. Contenu de l'efficacité internationale’, in: Juris-classeur de droit international, Paris, édition techniques, 1990, fasc. 584-6, No. 134; SCHACK H. (note 22), No. 957; SZASZY, International Civil Procedure, Leyden 1967, p. 228. 154 CHESHIRE G. C./NORTH P. M./FAWCETT J. J. (note 21), p. 106. 155 See infra II. C. 2. and II. C. 3. 156 Art. 1709bis of the statute of 19 May 1998 amending the Belgium Judicial Code; see GERHARD F. (note **), No. 497. 157 Art. 1056 of the Dutch Code of Civil Procedure; see GERHARD F. (note **), No. 498.

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penalty would clearly not be enforceable under Article 49 Regulation, since it is rendered by an arbitral tribunal; no arbitral award may be enforced abroad pursuant to the Regulation, regardless of the subject matter.158 The second hypothesis – when the penalty is imposed by the arbitral tribunal and the amount is fixed by the court – is known under the UNIDROIT Principles of International Commercial Contracts,159 in France160 and possibly in Switzerland.161 In these countries, the view is held that the task of the arbitrators ends at the latest with the issuance of the award, which may be accompanied by a penalty. However, the arbitrator has no power to determine the amount of the penalty. In view of the ancillary character of such judicial penalty, it also cannot be recognized abroad under Article 49 of the Regulation since it aims at enforcing an arbitral award, which is expressly excluded from the Regulation.162 Finally, the third hypothesis – when the court issues and fixes the amount of the penalty163 – would also not be enforceable under the Regulation because it is still ancillary to an underlying arbitral award.

2.

Issuance of a New Judicial Penalty in the State of Recognition

a)

Arguments Pro Inherent to the Regulation

The enforcement judge's jurisdiction to pronounce a judicial penalty to enforce a judgment whose recognition is sought is a fundamental element of the system of transnational enforcement we are pleading for; here the plaintiff can choose in which State he will request the enforcement measure to be issued. Although such jurisdiction is recognized under international law, the question arises as to whether it is recognized under the Regulation, which expressly provides for the recognition and enforcement of the foreign judicial penalty. This issue arises in two situations. The judge having competence to decide on the merits did not issue a judicial penalty because he felt it unnecessary to do so, because he was not requested to do so by the parties or because his own national law did not permit him to do so. The

158 Art. 1(2)(d) of the Regulation, see also DONZALLAZ Y. (note 85), No. 2220, who states that a judicial penalty must be rendered by a judicial authority in order to be enforceable abroad. 159 Art. 7.2.4 of the UNIDROIT Principles. 160 See the case law and the authors cited by GERHARD under No. 350-351. 161 See GERHARD F. (NOTE **), No. 549-551 and LEVY L., ‘Les astreintes et l'arbitrage international en Suisse’, in: Bulletin de l'Association suisse de l'arbitrage (ASA) 2001, pp. 21-36. 162 Art. 1(2)(d) of the Regulation. 163 E.g., United Kingdom (Section 66 (1) Arbitration Act). See GERHARD F. (note **), No. 402.

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second possibility is that the judge competent to decide on the merits ordered a judicial penalty, but its amount was not or had not yet been finally determined. The first argument to deny the enforcement judge the power to issue a new judicial penalty is based on the clear separation of the proceedings on the merits and the enforcement proceedings.164 Some courts165 and authors166 have argued that, if enforcement of a foreign judgment is sought which does not contain a judicial penalty and the enforcement judge pronounces a judicial penalty, this would be adding an element to the judgment because the penalty grants the plaintiff a supplementary monetary claim.167 However, the possibility to grant a supplementary claim in the recognition proceedings is strictly prohibited by the Regulation168 and by the jurisprudence of the European Court of Justice, which has opted for the theory of the approximation of effects (Wirkungsangleichung).169 According to DROZ' formula,170 ‘a foreign judgment should not have more far-reaching effects in the State of recognition than in the State of origin; in addition, it should neither have, in the State of recognition, more far-reaching effects than domestic judgments’. We submit that issuing a judicial penalty in the State of recognition – although such penalty was not issued in the State of origin – does not violate this theory. It changes neither the nature nor the content of the order whose recognition is sought. Furthermore, it does not grant the plaintiff more rights than he is already entitled to; it only favors enforcement of the underlying order. The mere fact that the beneficiary of the judicial penalty in France and in the Benelux is the creditor and not the State is a peculiarity of national law and, as such, does not suffice to regard the judicial penalty as a supplement to the decision on the principal

164

Based on the scission provided by Articles 22(5) and 38 of the Regulation. TGI Paris, Dietrich Garski v. Brigitte Bolelli and Société Unger Flugreisen v. Sté Diallo Voyages, orders of 26 February 1980, in: Gaz. Pal. 1980, I, p. 308, comment MAURO; Rev. crit. dr. int. pr. 69 (1980), pp. 782-787, comment GAUDEMET-TALLON H., who approves the decision. 166 See, among others, DE LEVAL G./VAN COMPERNOLLE J., ‘Les problèmes posés par l'exécution de l'astreinte’, in: Dix ans d'application de l'astreinte, Colloque par le C.I.E.A.U., Bruxelles 1991, pp. 237-284, at 242. 167 Since the English contempt of court, the German Zwangsgeld and Ordnungsgeld and the various fines of the Swiss cantonal codes of civil procedure are payable to the State, this argument is moot for these judicial penalties; see STUTZ A. (note 22), pp. 169 and 180. 168 See Article 38 of the Regulation. On complements to judgments, see DONZALLAZ Y. (note 85), No. 3389-3422. 169 See, e.g., ECJ, Hoffmann v. Krieg, 4 February 1988, C-145/86, [1988] ECR, p. 645. On the various enforcement theories, see MÜLLER B., Anerkennung und Vollstreckung ausländischer Entscheidungen im Bereich des Schuldrechts, Zurich 1994, pp. 200-213. 170 See DROZ G., Compétence judiciaire et effets des jugements dans le Marché Commun, Paris 1972, No. 448. 165

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matter.171 Although such penalty creates a new claim that is neither contained in nor derived from the underlying order, it is not based on substantive law and does not constitute an unlawful interference in the jurisdiction of the judge competent to decide on the merits. It is based on the lex fori of the State of recognition, which is not prevented from putting a new burden on the debtor.172 The second argument to deny the enforcement judge the jurisdiction to issue a new judicial penalty is based on the text of Article 49 itself. If the State of origin has jurisdiction to pronounce a judicial penalty and is also competent to determine its amount, it would only take one more step to conclude that such jurisdiction is exclusive.173 One could even be ‘shocked’174 that the judge of the State of recognition could pronounce an entirely new judicial penalty because the final amount must be determined in the State of origin. However, the text of Article 49 does not support this construction in favor of exclusive jurisdiction by the State of origin. Its only purpose is to prevent the enforcement judge from recognizing a foreign judicial penalty, whose amount is not finally determined, and from determining the amount of the penalty himself.175 Consequently, Article 49 is not a jurisdictional rule directed to the judge who decides on the merits, but a rule of recognition directed to the enforcement judge. This is evidenced by the fact that the provision is in Chapter III of the Regulation entitled ‘Recognition and Enforcement’. This construction allows us to take account of the differences between national judicial penalties: The amount of the French astreinte is finally determined by the court, whereas the Benelux astreinte is not.176 Article 49 has the effect of eliminating the uncertainty regarding which judge is to determine the amount of a judicial penalty that has already been issued.177 In this sense, it is a ‘coordination’ norm. Therefore, the Regulation does not prevent the judge of the State of recognition from pronouncing a new judicial penalty. Any solution to the contrary forcing the creditor to apply for a judicial penalty in the State of origin would not only contradict the statement that the judicial penalty does not qualify under Article 22(5), but would also slow down judicial implementation of the creditors’ claims. Furthermore, the risk that the enforcement judge would refuse to recognize the judicial penalty if it were an English contempt of court or a German 171

See STUTZ A. (note 22), p. 76. Ibid., at 74. 173 E.g., DE LEVAL G./VAN COMPERNOLLE J. (note 166), p. 242. 174 According to the words used by GAUDEMET-TALLON H. (note 132), pp. 786-787. 175 See STUTZ A. (note 22), p. 76. 176 See JENARD Report (note 123), ad Article 43; SCHLOSSER Report (note 21), No. 212, who cites the example of an English judgment that can be enforced in Germany by means of a Zwangsgeld. See also SCHLOSSER P., ‘Grenzüberschreitende Vollstreckung von Massnahmen des einstweiligen Rechtsschutzes im EuGVÜ-Bereich’, in: IPRax 1985, pp. 321-322, at 322. 177 See DROZ G. (note 170), No. 587. 172

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Zwangsgeld is not negligible either. However, the issue whether a judicial penalty rendered by the enforcement judge could sanction violations that occurred prior to its recognition is still open. We do not think so. A precondition to the enforcement of any judicial penalty is that the debtor has been informed about it;178 a judicial penalty pronounced by the enforcement judge may only address violations that occurred after its notification. But what if a judicial penalty has already been pronounced or its amount determined in the State of origin? Issuing a new judicial penalty in the State of recognition would not be justified, since Article 49 allows the recognition of a judicial penalty that has already been determined in the State of origin. Would the enforcement judge at least be authorized to do so? We do not think so either. The coordination function of Article 49 would again be decisive; any other solution would put the debtor at risk of being made subject to several different judicial penalties, all exportable, but all sanctioning the same underlying decision. The State that issued the judicial penalty first would have exclusive jurisdiction. However, the possibility to wait for a violation in the State of origin, to apply to have the amount of the judicial penalty determined there and then to apply for enforcement in the State of recognition would not prevent the creditor from applying for enforcement of the underlying decision itself in the State of recognition and seeking a new judicial penalty there pursuant to the law of that State.179 It is in the interest of the creditor to have this alternative available in the enforcement proceedings. For instance, it could be faster than applying for recognition of the judicial penalty rendered in the State of origin or if imprisonment is stipulated as an enforcement measure in the State of origin. Although the Regulation does not provide for the right to enforcement, the right to obtain a judicial penalty could nevertheless be inferred from the Amsterdam Treaty, in particular from the principle of equal treatment set forth in Article 12.180 Apart from Article 47, the Regulation does not contain special provisions on enforcement measures for foreign judgments distinct from the procedure 178

See GERHARD F. (note **), No. 667. See, e.g., OLG Karlsruhe, 19 December 1994, in: Zeitschrift für Zivilprozessrecht International, Jahrbuch des Internationalen Zivilprozessrechts (ZZPInt) 1 (1996), pp. 91-95, comment ZUCKERMANN A.A.S./GRUNERT J., ibid, pp. 96-102. 180 The principle of equal treatment and the discrimination prohibition on the basis of citizenship has been applied many times by the ECJ in connection with national procedural laws. See ECJ, Hubbard v. Hamburger, 1 July 1993, C-20/92, [1993] ECR, p. 3777 (§ 110 German Code of Civil Procedure requiring a cautio judicatum solvi for an English executor is contrary to the free circulation of services); ECJ, Data Delecta v. MSL Dynamics, 26 September 1996, C-43/95, [1996] ECR, p. 4661 (extension of the Hubbard rule to legal entities); ECJ, Stephen Austin Saldanha et MTS Securities Corporation v. Hiros Holding AG, 2 October 1997, C-122/96, [1997] ECR, p. 5325 (application of the Hubbard rule to persons with double citizenship, one from a Member State and the other from a third-party State). On the application of Article 12 of the Amsterdam Treaty to national rules of civil procedure in general, see EHRICKE U. (note 145), pp. 311-323. 179

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for obtaining an order authorizing enforcement (exequatur). These questions are to be answered by the law of the State in which execution is sought, the lex fori executionis.181 Furthermore, we have seen that the ECJ has opted for the theory of the ‘approximation of the effects’ of a foreign judgment.182 Therefore, unequal treatment based on the origin of the order – foreign or domestic – is not acceptable after the exequatur has been granted. This discrimination prohibition applies not only to the orders themselves but also to the persons entitled by those orders. The Regulation, in connection with the Amsterdam Treaty, must treat domestic and foreign orders equally. In the Mund & Fester case,183 the ECJ declared § 917(2) of the German Code of Civil Procedure incompatible with EC law, because it recognizes the mere fact that a judgment is to be enforced abroad as sufficient to legitimate the issuance of a prejudgment attachment. The ECJ stated that this provision contains a hidden form of discrimination contrary to Article 6 of the Rome Treaty (now Article 12, Amsterdam Treaty), which is not justified by objective circumstances. According to the Court, it discriminates against foreign defendants because most judgments to be enforced abroad concern a foreign defendant. Furthermore, in a common market, it is no longer a valid reason to believe that enforcement abroad would be more difficult or even impossible only because it takes place abroad: The enforcement conditions and the risks associated therewith should be considered the same in all Member States. This jurisprudence is also applicable conversely, i.e., to the import of foreign judgments; in most cases, the plaintiff will indeed be a foreigner. Therefore, although a foreign plaintiff will not be able to use the (more efficient) enforcement measures of the State of origin,184 he will be entitled to request that the rules of enforcement of the lex fori of the State of recognition be applied to the enforcement of his judgment.185 If the State of recognition provides for a judicial penalty, it will be obliged to pronounce it pursuant to Article 12 of the Amsterdam Treaty.

181

The ECJ allows the Member States to decide on the modalities of the enforcement proceedings and on restricting the enforcement proceedings to a certain type of judgments; see ECJ, Hoffmann v. Krieg, 4 February 1988, C-145/86, [1988] ECR, p. 645. 182 See, e.g., ECJ, Hoffmann v. Krieg, 4 February 1988, C-145/86, [1988] ECR, p. 645. 183 ECJ, Firma Mund & Fester v. Firma Hatrex International Transport, 10 February 1994, C-398/92, [1994] ECR, p. 467. 184 See GERHARD F. (note **), No. 761-770. A good illustration of this point is found in the Preziosi case decided by the Supreme Court of Sweden, in: Nytt juridiskt arkiv (1995), p. 495, reported by PÅLSSON L., ‘Interim Relief under the Brussels and Lugano Conventions’, in: BASEDOW J./EINHORN T./GIRSBERGER D./MEIER I./SCHNYDER A.K. (ed.), Private Law in the International Arena – Liber Amicorum Kurt Siehr, The Hague, Zurich 2000, pp. 621-638, at 637. 185 See KERAMEUS K. D., ‘Enforcement in the International Context’, in: Recueil des Cours 1997 I (vol. 264), pp. 179-410, at 393.

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b)

Differences Between the Substantive Laws of the State of Origin and the State of Recognition

It may occur that the substantive laws of the State of recognition do not provide for specific performance of a claim granted by the State of origin: The substantive law applied by the State of origin could be contrary to the substantive law or even the public policy of the State of recognition. What happens if the enforcement requirements in the State of recognition are more stringent than those of the substantive law applicable to the merits? In other words, the question is whether the EC Regulation obliges the Member States to provide enforcement measures for the enforcement of foreign judgments, if the national law of the State of recognition does not provide for specific performance in such cases. For example, can a German judgment ordering specific performance of a strictly personal obligation to perform or to refrain from performing a certain act be enforced in Italy or Spain, although these countries do not have indirect means of enforcement, but only allocate damages in cases of non-compliance?186 Or can such a judgment rendered in Italy or in Spain be enforced in Germany by issuing a Zwangsgeld, although such a judicial penalty does not exist in the State of origin? It should be noted that German law sets almost no restrictions on ordering specific performance; limitations occur only at the stage of enforcement.187 How should a judge react when confronted with an application for specific performance in a situation in which an order could not be issued under his own law?188 Is he obliged to pronounce a contempt of court, for example, or an astreinte?189 Or do national limitations to the scope of application of such enforcement measures190 prevent the enforcement of an order abroad that is unknown to the law of the State of recognition? The EC Regulation does not give clear answers to these questions. Article 38(1) of the Regulation states that a judgment rendered in a Member State and enforceable in that State shall be enforced in another Member State when, on the application of any interested party, it has been declared enforceable there. The decision must not necessarily be final and conclusive or become res judicata.191 186

Italy: Art. 2933 Codice civile and Art. 612 ss Codice di procedura civile; Spain: Art. 924-925 Ley de enjuiciamento civil (LEC); entered into force on 8 January 2001. 187 § 888 (2) ZPO; see GERHARD F. (note **), No. 468. 188 E.g., obligation to perform an artistic or a scientific work, obligation to re-employ en employee fired without cause after a strike, obligation to perform an agreement for the constitution of a partnership, etc. 189 E contrario, such an issue would never arise in Germany, the country that most commonly accepts the issuance of a decree for specific performance; see GERHARD F. (note **), No. 468 et seq. and No. 606 et seq. 190 Assuming that the foreign judgment ordering specific performance has passed the hurdle of public policy, we examine only the issue of enforcement law here. For the issue of public policy, see infra II. C. 3. 191 See JENARD Report (note 123), No. 44.

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The Regulation seems to provide for the obligation to enforce, however, without determining the type and scope of enforcement.192 In addition, one must take account of the aim of the Regulation, which, as confirmed by the ECJ under the Brussels Convention,193 is to grant a foreign judgment the same effect in the State of recognition that it has in the State of origin, even though the courts of the State of recognition are not empowered to issue decisions having the same effect,194 provided it can at most produce the same effects in the State of recognition as a domestic judgment.195 The French astreinte is a general enforcement measure,196 save for certain obligations that require personal involvement of the debtor.197 Since restrictions on the astreinte coincide with those placed on specific performance, this could prevent the enforcement of such a judgment in France. Both the Civil Jurisdiction and Judgments Act 1982 and the Civil Jurisdiction and Judgments Act 1991, which incorporate the Brussels and the Lugano Conventions into national law in the United Kingdom, provide for registration instead of exequatur of the foreign judgment. This registration gives the foreign judgment the same force and effect as if the judgment had been originally rendered by the registering court.198 Provided the foreign judgment passes the hurdle of public policy, it will be enforced in the United Kingdom by contempt of court.199 Having a dual character, this institution is not only an enforcement measure for orders for specific performance but also a sanction for willful disobedience to a court order.200 According to the Benelux Uni192 The ECJ already read this obligation into the Brussels Convention; see ECJ, Firma Mund & Fester v. Firma Hatrex International Transport, 10 February 1994, C398/92, [1994] ECR, p. 467, submissions of Advocate General TESAURO, in: Rev. crit. dr. int. pr. 83 (1994), p. 390. For the indirect enforcement measures, see SCHLOSSER P. (note 7), ad Article 43, No. 6; see also, OLG Karlsruhe, 19 December 1994, in: ZZPInt 1 (1996), pp. 91-95, comment ZUCKERMANN A.A.S/GRUNERT J., ibid. pp. 96-102. 193 ECJ, Hoffmann v. Krieg, 4 February 1988, C-145/86, [1988] ECR, p. 645. 194 Ibid. 195 Theory of the approximation of effects. 196 See GERHARD F. (note **), No. 333. 197 E.g., the obligation to perform an artistic or a scientific work: see the famous cases Rosa Bonheur (Paris Court of Appeals, 4 July 1865, in: S. 1865, II, p. 233, D. 1865, II, p. 201) and Lady Eden (Cass. civ., 14 March 1900, in: D. 1900, I, p. 497) for the obligation to deliver a painting, or the obligation to re-employ organized employees fired without cause; see in general, GERHARD F. (note **), No. 341 et seq. 198 Article 4(3) of the Civil Jurisdiction and Judgments Act. 199 This had already been noted by SCHLOSSER Report (note 21), No. 212. See also DICEY A. V./MORRIS J./COLLINS L. (note 21), p. 491; O'MALLEY S./LAYTON A., European Civil Practice, London 1989, No. 10.52 and 10.60. 200 See BORRIE G./LOWE N., The Law of Contempt, 3rd ed., London 1996, p. 558; Phonographic Performance Ltd v. Amusement Caterers (Peckham) Ltd [1963] 3 WLR 898,

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form Law, the astreinte is not considered an enforcement measure, but an institution of substantive law, i.e., an ancillary order issued simultaneously with the principal order201 and by the same judge.202 Therefore, a Belgium enforcement judge cannot issue an astreinte simultaneously with a foreign judgment.203 In Germany, there is no general measure of indirect enforcement.204 The choice of an enforcement measure depends on the numerus clausus of the order to be enforced, which is defined by its content. For instance, even if German substantive law does not restrict the possibility to obtain an order for specific performance, enforcement law sets some limitations, namely for orders enjoining a strictly personal conduct (unvertretbare Handlung pursuant to § 888 ZPO).205 The fundamental liberties specified in § 888(2) ZPO set some limits in matrimonial matters and to the obligation to perform services. However, since foreign judges are less willing to pronounce an order for specific performance, it is difficult to imagine a foreign order that would not be enforced in Germany.206 Finally, the Swiss judicial penalty of Article 292 of the Swiss Criminal Code also has a dual character in that it aims to compel performance by the debtor and also to punish him in the event he fails to comply with the order. Due to its criminal character, the fine specified in Article 292 can be imposed only if the particular act or forbearance falls within the scope of application of the Swiss Criminal Code,207 i.e., it applies even though the debtor is ordered to refrain from a certain act abroad, provided the debtor is domiciled in Switzerland.208 Neither Article 12 of the Amsterdam Treaty, nor Article 38 et seq. of the Regulation, nor relevant national legislation requires courts of the State of recognition to treat foreign titles, i.e., usually foreign creditors, more favorably than 900 (Ch.D.), [1964] Ch 195, 198; Jennison v. Baker [1972] 2 QB, 52, 69. See GERHARD F. (note **), No. 377. 201 See BALLON G. L., ‘De nieuwe wet op de dwangsom’, in: RW, 43 (1979-80), p. 2020, No. 3.1. 202 See Civ. Namur (réf.), 31 July 1996, in: J.T. 1997, p. 101. 203 See namely GOTHOT P./HOLLEAUX D. (note 132), No. 357; DE LEVAL G./VAN COMPERNOLLE J. (note 165), p. 241. 204 See STÜRNER R. (note 22), No. 6.63; see GERHARD F. (note **), No. 469. 205 On the other hand, the enforcement of an order to refrain from a particular act (Unterlassung pursuant to § 890 ZPO) and an order to act that is not strictly personal (vertretbare Handlung pursuant to § 887 ZPO) will always be possible. 206 See STUTZ A. (note 22), p. 180. For an example, see LG Munich II, 13 January 1986, in: GRUR Int. 1987, p. 597, comment STAUDER D. (issuance of an Ordnungsgeld accompanying an Austrian judgment that had been recognized). 207 Articles 3-7 of the Swiss Criminal Code. 208 According to the ubiquity theory, Article 7 of the Swiss Criminal Code; see GERHARD F. (note **), No. 715; MEIER I. (note 22), p. 279; Decision of the Swiss Supreme Court, in: ATF 99 IV 326. Contra: MÜLLER B. (note 169), pp. 249-250.

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domestic creditors in similar cases: Limitations on extending the effects of foreign judgments are set by the lex fori of the State of recognition. Anything to the contrary would amount to a discrimination of a Member State against its own citizens (Inländerdiskriminierung). In this sense, the creditor of a domestic judgment would be limited by national law when seeking a judicial penalty, whereas the creditor of a foreign judgment would not be subject to limitations and could generally obtain the judicial penalty. This imbalance could be a new reason for forum shopping in countries like France or the Benelux countries. While their astreintes have well known advantages for creditors, including the possibility to be enforced abroad, they restrict, either totally or in part, the issuance of an astreinte accompanying foreign judgments. Only the United Kingdom and Switzerland (in regard to the fine specified in Article 292 of the Swiss Criminal Code) enable complete free circulation of non-monetary judgments in Europe by treating foreign and national judgments equally and granting the creditor the right to enforce. France limits the scope of application of the astreinte to substantive law.209 The Benelux countries even prohibit issuing an astreinte favoring a foreign judgment. Although Germany sets no restrictions to orders for specific performance, limitations occur later on during the stage of enforcement. Finally, countries like Italy or Spain provide only for damages, at least for orders to refrain from an act.210

c)

Differences Between the Enforcement Laws of the State of Origin and the State of Recognition: Recognition of the English Freezing Injunction

The type of order made by the foreign court sometimes differs substantially from a similar order available under the lex fori. For example, in the European continental countries, the freezing of assets in support of monetary claims is achieved by measures in rem (saisie-conservatoire in France, Arrest in Germany, séquestre/ Arrest in Switzerland or sequestro conservativo in Italy). On the other hand, in the United Kingdom, assets are frozen in support of monetary claims by a measure in personam, i.e., a personal order addressed to the debtor ordering him not to withdraw or dispose of his assets, regardless of their location, accompanied by the threat of contempt of court (freezing injunction or Mareva injunction).211 A Mareva injunction does not create any priority, lien, charge, or security in those assets in favor of the applicant or any other party. Assuming the general conditions of enforcement are met (namely if the defendant was heard before the order was 209

See GERHARD F. (note **), No. 871. See STUTZ A. (note 22), p. 119. 211 The legal basis for the freezing injunction is now in rule 25.1 (1)(f) of the Rules of Civil Procedure, which entered into force on 26 April 1999. Previously, the freezing injunction was known under the Mareva injunction, named after one of the first cases in which it was ordered, Mareva Compania Naviera SA v. International Bulkcarriers SA, [1975] 2 Lloyd's Rep. 509. 210

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made),212 the question arises whether the judge of the State of recognition must transpose the Mareva injunction by issuing a provisional measure restricting the debtor from withdrawing or disposing of his assets,213 accompanied if necessary by a judicial penalty, thus favoring the nature in personam of the foreign order and reflecting the type of enforcement that would be ordered in the State of origin.214 The other possibility is to transpose the Mareva injunction by issuing an attachment order with effect in rem.215 Although this would modify the nature in personam of the foreign measure, it would reflect the type of enforcement ordered in the State of recognition for monetary claims according to the lex fori, and the purpose would be the same as that of the foreign order, i.e., provisional seizure of the assets.216 The dilemma is increased by the fact that the Mareva injunction produces a certain in rem effect on third parties: A third party notified of a Mareva injunction is bound to do whatever he reasonably can to preserve the defendant's assets. 212

ECJ, Denilauler v. S.N.S Couchet Frères, 21 May 1980, C-125/79, [1980] ECR,

p. 1553. 213

E.g., pursuant to Article 223(1) of the Code of Civil Procedure of the canton of

Zurich. 214 See BERNET M., ‘Englische Freezing (Mareva) Orders – Praktische Fragen der Anerkennung und Vollstreckung in der Schweiz’, in: Europa Institut Zurich (EIZ), 5th Seminar on International Litigation, Zurich, 12 June 2001, pp. 1-32, No. 57; BLOCH A./ HESS M., ‘Discussion of the protective measures available under Swiss law (attachment and provisional protective measure) with particular regard to the recognition and enforcement of an English Mareva (‘freezing’) injunction in Switzerland’, in: Revue suisse de droit des affaires (RSDA) 1999, pp. 166-180, at 176; KOCH H., ‘Durchsetzung einer "world-wide Mareva order" in Deutschland?’, in: SCHLOSSER P. (ed.), Materielles Recht und Prozessrecht und die Auswirkung der Unterscheidung im Recht der Internationalen Zwangsvollstreckung, Bielefeld 1992, pp. 257-258 (at least for the freezing of tangible assets); MEIER I., ‘Besondere Vollstreckungstitel nach dem Lugano-Übereinkommen’, in: SCHWANDER I. (ed.), Das Lugano-Übereinkommen, St. Gallen 1990, pp. 157-211, at 182; SCHLOSSER P. (note 7), ad Article 39, No. 5; STOLL D., ‘Die britische Mareva-Injunction als Gegenstand eines Vollstreckungsbegehrens unter dem Lugano-Übereinkommen. Anmerkung zu einem bemerkenswerten Entscheid des Bezirkgerichts Zürich’, in: Revue suisse de jurisprudence (RSJ) 1996, pp. 104-110, at 109. 215 E.g., pursuant to Article 271 para. 1 ciph. 4 of the Swiss Federal Debt Enforcement and Bankruptcy Act. 216 See ALBRECHT C., Das EuGVÜ und der einstweilige Rechtsschutz in England und der Bundesrepublik Deutschland, Heidelberg 1991, p. 174; ALBRECHT C., ‘Artikel 24 EuGVÜ und die Entwicklung des einstweiligen Rechtsschutzes in England seit 1988’ in: IPRax 1992, pp. 184-187, at 187; GASSMANN R., Arrest im internationalen Rechtsverkehr. Zum Einfluss des Lugano-Übereinkommens auf das schweizerische Arrestrecht, Zurich 1998, pp. 112-113; KOCH H. (note 214), pp. 257-258 (at least for the freezing of bank accounts); KOCH H., ‘Grenzüberschreitender einstweiliger Rechtsschutz’, in: HELDRICH A./ KONO T. (ed.), Herausforderungen des internationalen Zivilverfahrensrechts, Tübingen 1994, pp. 85-102, at 100.

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If he assists in their disposal or in any transactions prohibited by the court order, he will be guilty of contempt of court as well.217 In addition, it should be noted that it is difficult to distinguish between what is called in German Erkenntnisverfahren and Vollstreckungsverfahren, i.e., between parts of the foreign judgment that affect the substance of the case and those relating to its enforcement. This is especially true in cases involving measures to freeze assets.218 In Germany, the Oberlandgericht Karlsruhe219 enforced a Mareva injunction according to the rules on injunctions by issuing an Ordnungsgeld pursuant to § 890 ZPO. The Court stated that the enforcement violated neither German public policy220 nor the proportionality principle applicable to restrictions of personal freedom and to assets of the debtor, since the English injunction had been issued in accordance with an agreement between the parties.221 However, the unspecified character of the Mareva injunction prevented the judge from ordering either of two traditional German instruments, an Arrest222 or a restraint of alienation order,223 which would grant the Mareva injunction effet utile in Germany. Therefore, only by issuing a negative injunction accompanied by an Ordnungsgeld pursuant to § 890 ZPO was it possible to circumvent the requirement of German public policy to specify and identify the assets to be attached.224 When enforcing a foreign court order that does not meet all the requirements of the principle of specificity of title under German law, the Court maintained that the responsibility for enforcement should remain with the German courts throughout, thus guaranteeing that a judicial procedure would be initiated if the order was violated. In Switzerland, STOLL cites a decision of the President of the District Court of Zurich dated 22 September 1994, probably the first decision recognizing and enforcing a Mareva injunction in Switzerland. After granting the exequatur, the President refused to issue a ‘surety attachment order’ under Article 39(2) of the Lugano Convention, but granted an attachment order based on the foreign domicile of the debtor pursuant to Article 271 para. 1 ciph. 4 of the Swiss Debt Enforcement and Bankruptcy Act. Although the canton of Zurich had admitted the new ‘surety attachment order’, which was deemed to ensure full implementation of Article 39 of the Lugano Convention in 217

See Z Limited v. A-Z, [1982] QB 558, at 573. For another example regarding an order for sequestration made in Italy and enforced in Sweden, see the Preziosi case reported by PÅLSSON L. (note 184), p. 637. 219 OLG Karlsruhe, 19 December 1994, in: ZZPInt 1 (1996), pp. 91-95, comment ZUCKERMANN, A.A.S/GRUNERT, J., ibid., pp. 96-102; see also GRUNERT J., ‘Die World-wide’ Mareva Injunction: eine Zwischenbilanz, Baden-Baden 1998, pp. 186-193. 220 Article 27(1) of the Brussels Convention. 221 ‘Volenti non fit injuria.’ 222 §§ 916 et seq. ZPO. 223 Veräusserungs- or Verfügungsverbot in accordance with § 938 (2) ZPO. 224 BGH, 4 March 1993, in: Neue juristische Wochenschrift 1993, pp. 1801-1803. 218

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Switzerland,225 the Court refused to pronounce such measure because the object of the Mareva injunction was not the payment of a certain amount of money, but a prohibition to dispose of the assets. Issuing a ‘surety attachment order’ based specifically on the Lugano Convention was possible only in connection with a judgment ordering the payment of a sum of money.226 As an alternative, in a decision of 5 October 1999,227 the Swiss Supreme Court mentions a decision of the President of the Cantonal Court in Zug, in which the latter recognized an English Mareva injunction by issuing a provisional protective measure under cantonal law prohibiting the defendant to withdraw or dispose of his assets in Switzerland. First, we recall that according to the Regulation, the State of recognition must recognize and enforce a foreign judgment, provided of course that all preconditions are fulfilled.228 A solution to this transposition of a foreign measure into a measure of national law can be found in the theory of the approximation of effects used by the ECJ when recognizing foreign judgments: a foreign judgment should not have, in the State of recognition, effects more far-reaching than it has in the State of origin and than a domestic judgment has in the State of recognition.229 Since it is not possible to have assets seized in England on the basis of a Mareva injunction, the same must apply when such injunction is transposed into a foreign order. This means that the Mareva injunction must be transposed abroad by a provisional protective measure and not by a measure in rem. In addition, it must be recalled that the judge recognizing and enforcing a Mareva injunction is not actually enforcing the principal (monetary) order but only a (non-monetary) injunction. The consequences thereof, in Switzerland especially, are even more clear since the enforcement of non-monetary orders is governed by cantonal law.230 Therefore, measures in rem such as the attachment order cannot be taken into account because they are all anchored in the Swiss Federal Debt Enforcement and Bankruptcy Act. 225 The implementation of Article 39 of the Lugano Convention has been widely discussed in Switzerland, see ATTESLANDER-DÜRRENMATT A., in: Pratique Juridique Actuelle (PJA), 2001, pp. 180-197; CAMBI FAVRE-BULLE A., ‘La mise en oeuvre en Suisse de l'art. 39 al. 2 de la Convention de Lugano’, in: RSDIE 1998, pp. 335-370. See also the summary of various opinions in the judgment of the Swiss Supreme Court published in: ATF 126 III 438, at 440 et seq. 226 See LEUENBERGER C., ‘Lugano-Übereinkommen: Verfahren der Vollstreckbarerklärung ausländischer "Geld"-Urteile’, in: PJA 1992, pp. 965-973; Circular of the Supreme Court of the canton of Zurich of 13 November 1991, in: Blätter für zürcherische Rechtssprechung (ZR) 90 (1991), No. 35, para. 6. 227 ATF 125 I 412. 228 See Article 33 in connection with Article 38 of the Regulation. 229 See ECJ, Hoffmann v. Krieg, 4 February 1988, C-145/86, [1988] ECR, p. 645 and supra note 171. 230 See ATTESLANDER-DÜRRENMATT A. (note 225), p. 189; BERNET M. (note 214), No. 57, GERHARD F. (note **), No. 879; WALTER G., Internationales Zivilprozessrecht der Schweiz, Bern, Stuttgart, Vienna 1998, p. 432.

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The exclusion of the measures in rem provided by the Swiss Federal Debt Enforcement and Bankruptcy Act is even more justified since the legislator did not adapt the Act to the Lugano Convention at its last revision in 1997.231 However, this, of course, means that the third-party effect of the injunction that operates in England does not operate in the State of recognition unless the injunction has been duly enforced against such third-party, for example, a bank, as well.232 However, in order to avoid the risk to have to pay twice, it is highly probable that a third party that has merely received notice of an enforceable Mareva injunction will also refrain from making payments from funds blocked by the Mareva injunction, even in the absence of the threat of sanctions. This behavior would be even more probable if the bank has a presence in England or Wales. In any event, the Mareva injunction does not lose its function and effect by being transposed into a provisional protective measure. Against the defendant, such provisional measure will be accompanied by the threat of fines pursuant to Article 292 of the Swiss Criminal Code. We believe that such a provisional protective measure restraining disposal of the property can also be addressed to third parties in possession of the disputed property by virtue of a right in rem or a contractual right because the enforcement judge has to take the appropriate measures to protect the alleged claim.233 In this respect, the Obergericht of the canton of Zurich even accompanied such order against a third party by the threat of fines pursuant to Article 292 of the Swiss Criminal Code. Such a threat of sanction against third parties is controversial. One might argue that it is not possible because the third parties have not been heard in the English proceedings since they are not parties thereto and therefore such an order cannot not be recognized and enforced against them.234 On the other hand, following the reasoning of the Obergericht of the canton of Zurich, one might argue that this extension of the measure is actually not only the enforcement thereof, but the application of the appropriate device made by the recognition judge pursuant to national law to implement the full effect of the foreign measure on its national territory.235

231

See BERNET M. (note 214), No. 57; GERHARD F. (note **), No. 877. According to the Babanaft Provisio, named after the case Babanaft International Co. SA v. Bassatne, [1989] 2 WLR 232 (CA). 233 See Obergericht of the canton of Zurich, 29 September 1999, reported by BERNET M. (note 214), No. 65-67. 234 This is the requirement set by the ECJ in Denilauler v. S.N.S Couchet Frères, 21 May 1980, C-125/79, [1980] ECR, p. 1553. See, e.g., BLOCH A./HESS M. (note 214), p. 176; GERHARD F. (note **), No. 875. 235 See BERNET M. (note 214), No. 68-69. 232

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3.

Public Policy of the State of Recognition in the Enforcement Proceedings

a)

Distinction

Under the EC Regulation, the judicial penalty is an ancillary pronouncement, thus resulting in a double examination of the violation of public policy in cases involving judicial penalties. First, a distinction must be made between recognition and enforcement of the underlying order – for example, an injunction restraining the defendant from acting or ordering him to act – and recognition and enforcement of the judicial penalty itself. However, if the underlying order violates public policy, this in itself suffices to prevent enforcement of the judicial penalty.236 Assimilating the judicial penalty to damages237 would lead to a distortion of the principles of recognition and enforcement of foreign judgments. Second, the fact that the State of recognition does not recognize the judicial penalty as an instrument for enforcing non-monetary judgments238 does not constitute in our opinion a strong enough argument to warrant refusing its recognition.239 Such refusal would violate the principles laid down in Article 49 of the Regulation. In addition, it should be noted that the Amsterdam Treaty itself provides for a judicial penalty in cases of non-compliance with judgments of the Court of Justice.240 Finally, in Switzerland, this would result in the creation of a cantonal public policy, since enforcement of non-monetary judgments is governed by cantonal law; however, this would violate the rule requiring public policy to be uniform on the territory of each State.241 Accordingly, it would be admissible to recognize, for example, a French astreinte accompanying a monetary judgment242 or an obligation to act that is not strictly personal (non intuitu personae), even if the issuance of an indirect means of enforcement in these instances is not known in the State of recognition.243 In Switzerland, for example, the first judgment would typically be enforced by applying the debt enforcement procedure of the Swiss Federal Debt Enforcement and Bankruptcy Act; the second judgment would be enforced in most cantons 236

See KAYE P. (note 152), No. 1358; REMIEN O. (note 22), p. 318; STAUDER D. (note 152), pp. 465 and. 475; TREIBMANN B. (note 22), pp. 151-152. 237 E.g., DROZ G. (note 170), No. 587. 238 E.g., Italy and Spain provide for damages only in the event of a violation of an injunction that is strictly personal or an injunction prohibiting a particular conduct. 239 See REMIEN O. (note 22), p. 326; STÜRNER R. (note 22), p. 871; TREIBMANN B. (note 22), p. 152. 240 See Article 171 of the EC Treaty. For example, the ECJ has sentenced Greece to the payment of a judicial penalty of Euro 20,000 daily as of 4 July 2000 until the gorges of Koupoupitos on the island of Creta are completely cleaned up. 241 See, in particular, KNOEPFLER F./SCHWEIZER P. (note 47), No. 360. 242 See GERHARD F. (note **), No. 340. 243 Ibid., at No. 335.

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typically by issuing a replacement order to be performed by a third person at the expense of the debtor.

b)

Injunction Incompatible with the Public Policy of the State of Recognition

Article 34(1) of the Regulation states that a judgment shall not be recognized if such recognition is manifestly contrary to the public policy in the Member State in which recognition is sought. The adverb ‘manifestly’, which is usually found in provisions on recognition and enforcement,244 was added in the Regulation. Public policy will very rarely be opposed to the recognition of a foreign judgment rendered in a Member State.245 The ECJ has expressly stated that the public policy clause is to play a role only in exceptional cases.246 Finally, it should be noted that, in each individual case, an assessment of the foreign judgment's compatibility with the public policy of the State of recognition will be made by taking account of the effects of the recognition or enforcement of the foreign judgment: It is not the foreign judgment itself but rather the effects of its recognition that are to be examined as to their conformity with the public policy of the State of recognition.247 As long as the ECJ has made no decision in this matter, the relevant public policy is national, not community-wide. Moreover, many authors deny the ECJ the competence to decide this question, which in their opinion is a national question per se.248 It should be recalled that the Regulation covers matters that rarely violate the public policy of foreign States; the underlying ideas of the Member States are basically the same in ‘civil and commercial matters’, which are not public policy sensitive like family matters, for example.249 The recognition of a foreign decision cannot be refused on the sole ground that its content is unknown in the substantive law of the State of recognition. Such a position would violate the interdiction of the révision au fond. Therefore, a court may not refuse to recognize a foreign judgment on the ground that its own national law provides merely for damages, not for

244

See, e.g., Article 27(1) of the PILA. See JENARD Report (note 123), No. 44. 246 ECJ, Hoffmann v. Krieg, 4 February 1988, C-145/86, [1988] ECR, p. 645, No. 21, confirmed in ECJ, Bernardus Hendrikman and Maria Feyen v. Magenta Druck & Verlag GmbH, 10 October 1996, C-78/95, [1996] ECR, p. 4943, No. 23. 247 See JENARD Report (note 123), No. 44, who argues that such a control would lead to a révision au fond, which is prohibited by the Brussels Convention (Article 34(3)). 248 See, in particular, in Switzerland, DONZALLAZ Y. (note 85), No. 2808; in France, GAUDEMET-TALLON H. (note 132), No. 355; in Germany, KROPHOLLER J. (note 85), ad Article 27, No. 4; in the United Kingdom, O'MALLEY S./LAYTON A. (note 199), No. 27.14. 249 Which is expressly excluded from the scope of application of the Regulation, see Article 1(1)(a). 245

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specific performance.250 The principle nemo praecise potest cogi ad factum has been seriously eroded in countries where it served as a basis for their legislation. Thus it cannot be considered an element of national public policy. On the same level, Swiss jurisprudence has stated that a mere divergence from Swiss law or even a false application of the law by the foreign judge does not justify invoking the public policy exception;251 a violation of the essential principles of the State of recognition is necessary.252 For instance, adapting an example suggested by STÜRNER,253 the question arises as to whether an injunction issued by a German judge and addressed to the editor of a Swiss newspaper distributed in Germany ordering him to retract a statement is compatible with Swiss public policy; under Swiss law only the right to publish a reply or a claim for damages is available. This issue must be resolved at latest at the time of recognition in Switzerland of the German Zwangsgeld and/or the injunction itself. On the other hand, a judicial penalty accompanying an injunction ordering a particular act that is prohibited in the State of recognition or, more frequently, accompanying an injunction prohibiting a certain act that has been expressly authorized by a judicial or legislative order in the State of recognition would not meet the public policy test. Nor would the injunction itself. Relevant examples include extraterritorial injunctions rendered in environmental matters prohibiting a certain activity of the debtor that has been duly authorized in the State of origin. For example, although the exploitation of a nuclear plant has been duly authorized in the State of recognition, an extraterritorial injunction is issued prohibiting it because of emanations on the territory of the State of origin.254 In the recognition procedure, the act of authorization of the State of recognition will carry more weight than the foreign judgment or an ancillary enforcement measure.255 This solution is logical: A State will not grant greater protection against emanations to

250 See, in particular, for France, BERAUDO J.-P., ‘Convention de Lugano du 16 septembre 1988, Reconnaissance des décisions juridictionnelles; exécution des décisions judiciaires, actes authentiques et transactions judiciaires’, in: Juris-classeur Europe, vol. 6, Fasc. 3102/635-4, Paris 1991, para. 23; for Germany, TREIBMANN B. (note 22), p. 151; for the United Kingdom, where this issue is historically important, DICEY A.V./MORRIS J./ COLLINS L. (note 22), pp. 495-496; O'MALLEY S./LAYTON A., (note 199), No. 10.59, 10.60 and 51.69, note 59; see also SCHLOSSER Report (note 21), No. 212. 251 See decisions of the Federal Supreme Court, in: ATF 118 Ia 123; 116 II 630; 111 Ia 14. 252 Ibid. 253 STÜRNER R. (note 22), p. 870. 254 On issues raised in connection with cross-border pollution, see GERHARD F. (note **), No. 249 et seq. 255 See SIEHR K., ‘Grenzüberschreitender Umweltschutz, Europäische Erfahrungen mit einem weltweiten Problem’, in: RabelZ 45 (1981), pp. 377-398, at 388.

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foreigners than to its own citizens256, subject however to a possible compensation for damages.257 It remains open whether the State of origin may file a claim for damages against the State of recognition that has authorized the controversial activity, if such activity causes substantial damages on the territory of foreign States.258

c)

Injunction Incompatible with the Public Policy of a Third Party State

A foreign extraterritorial injunction, perhaps even worldwide, can violate the public policy not only of the State of recognition but also of a third State, either additionally or exclusively. In such cases, the question arises whether the court of recognition is bound by a violation of the public policy of the third State or whether this could even constitute a violation of the public policy of the State of recognition. Let us assume that upon the request of an important landowner, a Dutch court enjoins a German paper plant to cease burning wood, which produces toxic fumes whose sulfur content is above the Dutch tolerance. In cases of rain, the landowner is prevented from exploiting the border zone, thus reducing the value of his property significantly. The injunction is accompanied by a dwangsom, the Dutch judicial penalty. The German plant owner does not comply with the injunction. He has no assets in the Netherlands and knows that neither the injunction nor the accompanying judicial penalty will be recognized in Germany because the competent environmental authority has duly authorized the activity of the paper plant. The claimant is aware of this as well; however, he also knows that the owner of the German plant has a bank account in Switzerland. Therefore, he seeks enforcement of the dwangsom, which in the meantime has accrued to 1 million Euro, before the district court in Zurich. Is the Swiss court obliged to grant exequatur because it does not concern Swiss public policy or must the Swiss court refuse to grant enforcement, arguing that the Dutch decision is contrary to German public policy? Two aspects must be examined. First, in our opinion, a judge can not refuse enforcement of a foreign judgment even if this judgment violates the public policy of a third State: Public policy serves only to protect the essential values of the State

256 See KLOEPFER M./KOHLER C., Kernkraftwerk und Staatsgrenze, Völkerrechtliche, verfassungsrechtliche, europarechtliche, kollisions- und haftungsrechtliche Fragen grenznaher Kernkraftwerke, Berlin 1981, p. 174; SCHACK H., ‘Das Internationale Prozessrecht in umweltrechtlichen Streitigkeiten’, in: Bericht der deutschen Gesellschaft für Völkerrecht (BerDtGes VR) 32 (1992), pp. 315-357, at 344. 257 KOHLER C., ‘Zivilrechtliche Schadenersatz- und Unterlassungsklagen – Gerichtliche Zuständigkeit und Verfahrensfragen (Recht der Europäischen Gemeinschaften)’, in: BOTHE M./PRIEUR M./RESS G. (ed.), Rechtsfragen grenzüberschreitender Umweltbelastungen, Berlin 1984, pp. 159-171, at 167. 258 See SIEHR K. (note 255), p. 389.

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of recognition.259 However, and this is the second aspect of the question, does the respect of members of the international community for the sovereignty of other States and for the rights arising therefrom constitute part of the ‘essential values’ of that State? If the answer is yes, the Swiss enforcement judge could refuse to recognize the Dutch judicial penalty. However, the public policy exception may intervene only if there is a sufficient connection between the foreign law or the situation created abroad, on the one hand, and the State of recognition, on the other.260 This is the famous requirement of the Binnenbeziehung or Inlandsbeziehung, i.e., the sufficient connection. The mere existence of assets in Switzerland might not meet this requirement.261 A sufficient connection exists, for example, if a party is a Swiss citizen or has its domicile in Switzerland, or if the contract was concluded in Switzerland or is to be performed there, if the tort has been committed or produced effects in Switzerland or if Swiss law is applicable to the claim.262 In casu, none of the elements that could constitute a sufficient connection exists; therefore the public policy exception would probably not apply.

259

See GEIMER R. (note 22), No. 2969. See, in particular, KNOEPFLER F./SCHWEIZER P. (note 47), No. 365. 261 However, the Dutch creditor will obtain an attachment up to this sum since he has a court judgment enforceable according to Article 271 para 1 ciph. 4 of the Swiss Federal Debt Enforcement and Bankruptcy Act. 262 On the sufficient connection, see the commentaries on Article 271 para. 1 ciph. 4 of the Swiss Federal Debt Enforcement and Bankruptcy Act, e.g., GANI L., ‘Le "lien suffisant avec la Suisse" et autres conditions du séquestre lorsque le domicile du débiteur est à l'étranger’, in: RSJ 92 (1996), pp. 227-232, at 230; MEIER-DIETERLE, F.C., ‘Der "Ausländerarrest" im revidierten SchKG – eine Checkliste’, in: PJA 1996, pp. 1416 et seq., at 1422; MUMENTHALER B., ‘Le séquestre des biens du débiteur domicilié à l'étranger selon l'art. 271 al. 1 ch. 4 LP – le lien suffisant de la créance avec la Suisse’, in: PJA 1999, pp. 302-306, passim. In Germany, the Bundesgerichtshof requires a sufficient connection as a precondition praeter legem of the forum patrimonii pursuant to § 23 ZPO; see BGH, 2 July 1991, in: BGHZ 115, p. 90. 260

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TEXTS, MATERIALS AND RECENT DEVELOPMENTS ________________

COUNCIL REGULATION (EC) No. 44/2001 of 22 December 2000 ON JURISDICTION AND THE RECOGNITION AND ENFORCEMENT OF JUDGMENTS IN CIVIL AND COMMERCIAL MATTERS*

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 61(c) and Article 67(1) thereof, Having regard to the proposal from the Commission,1 Having regard to the opinion of the European Parliament,2 Having regard to the opinion of the Economic and Social Committee,3 Whereas: (1) The Community has set itself the objective of maintaining and developing an area of freedom, security and justice, in which the free movement of persons is ensured. In order to establish progressively such an area, the Community should adopt, amongst other things, the measures relating to judicial cooperation in civil matters which are necessary for the sound operation of the internal market. (2) Certain differences between national rules governing jurisdiction and recognition of judgments hamper the sound operation of the internal market. Provisions to unify the rules of conflict of jurisdiction in civil and commercial matters and to simplify the formalities with a view to rapid and simple recognition and enforcement of judgments from Member States bound by this Regulation are essential.

*

This text is published in OJ of the European Communities, L 012, 16 January 2001, pp. 1-23. 1

OJ C 376, 28.12.1999, p. 1.

2

Opinion delivered on 21 September 2000 (not yet published in the OJ).

3

OJ C 117, 26.4.2000, p. 6.

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(3) This area is within the field of judicial cooperation in civil matters within the meaning of Article 65 of the Treaty. (4) In accordance with the principles of subsidiarity and proportionality as set out in Article 5 of the Treaty, the objectives of this Regulation cannot be sufficiently achieved by the Member States and can therefore be better achieved by the Community. This Regulation confines itself to the minimum required in order to achieve those objectives and does not go beyond what is necessary for that purpose. (5) On 27 September 1968 the Member States, acting under Article 293, fourth indent, of the Treaty, concluded the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, as amended by Conventions on the Accession of the New Member States to that Convention (hereinafter referred to as the ‘Brussels Convention’)4. On 16 September 1988 Member States and EFTA States concluded the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, which is a parallel Convention to the 1968 Brussels Convention. Work has been undertaken for the revision of those Conventions, and the Council has approved the content of the revised texts. Continuity in the results achieved in that revision should be ensured. (6) In order to attain the objective of free movement of judgments in civil and commercial matters, it is necessary and appropriate that the rules governing jurisdiction and the recognition and enforcement of judgments be governed by a Community legal instrument which is binding and directly applicable. (7) The scope of this Regulation must cover all the main civil and commercial matters apart from certain well-defined matters. (8) There must be a link between proceedings to which this Regulation applies and the territory of the Member States bound by this Regulation. Accordingly common rules on jurisdiction should, in principle, apply when the defendant is domiciled in one of those Member States. (9) A defendant not domiciled in a Member State is in general subject to national rules of jurisdiction applicable in the territory of the Member State of the court seised, and a defendant domiciled in a Member State not bound by this Regulation must remain subject to the Brussels Convention. 4

OJ L 299, 31.12.1972, p. 32; OJ L 304, 30.10.1978, p. 1; OJ L 388, 31.12.1982, p. 1; OJ L 285, 3.10.1989, p. 1; OJ C 15, 15.1.1997, p. 1. For a consolidated text, see OJ C 27, 26.1.1998, p. 1.

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(10) For the purposes of the free movement of judgments, judgments given in a Member State bound by this Regulation should be recognised and enforced in another Member State bound by this Regulation, even if the judgment debtor is domiciled in a third State. (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 welldefined 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. (14) The autonomy of the parties to a contract, other than an insurance, consumer or employment contract, where only limited autonomy to determine the courts having jurisdiction is allowed, must be respected subject to the exclusive grounds of jurisdiction laid down in this Regulation. (15) In the interests of the harmonious administration of justice it is necessary to minimise the possibility of concurrent proceedings and to ensure that irreconcilable judgments will not be given in two Member States. There must be a clear and effective mechanism for resolving cases of lis pendens and related actions and for obviating problems flowing from national differences as to the determination of the time when a case is regarded as pending. For the purposes of this Regulation that time should be defined autonomously. (16) Mutual trust in the administration of justice in the Community justifies judgments given in a Member State being recognised automatically without the need for any procedure except in cases of dispute. (17) By virtue of the same principle of mutual trust, the procedure for making enforceable in one Member State a judgment given in another must be efficient and rapid. To that end, the declaration that a judgment is enforceable should be issued virtually automatically after purely formal checks of the documents supplied, without there being any possibility for the court to raise

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of its own motion any of the grounds for non-enforcement provided for by this Regulation. (18) However, respect for the rights of the defence means that the defendant should be able to appeal in an adversarial procedure, against the declaration of enforceability, if he considers one of the grounds for non-enforcement to be present. Redress procedures should also be available to the claimant where his application for a declaration of enforceability has been rejected. (19) Continuity between the Brussels Convention and this Regulation should be ensured, and transitional provisions should be laid down to that end. The same need for continuity applies as regards the interpretation of the Brussels Convention by the Court of Justice of the European Communities and the 1971 Protocol5 should remain applicable also to cases already pending when this Regulation enters into force. (20) The United Kingdom and Ireland, in accordance with Article 3 of the Protocol on the position of the United Kingdom and Ireland annexed to the Treaty on European Union and to the Treaty establishing the European Community, have given notice of their wish to take part in the adoption and application of this Regulation. (21) Denmark, in accordance with Articles 1 and 2 of the Protocol on the position of Denmark annexed to the Treaty on European Union and to the Treaty establishing the European Community, is not participating in the adoption of this Regulation, and is therefore not bound by it nor subject to its application. (22) Since the Brussels Convention remains in force in relations between Denmark and the Member States that are bound by this Regulation, both the Convention and the 1971 Protocol continue to apply between Denmark and the Member States bound by this Regulation. (23) The Brussels Convention also continues to apply to the territories of the Member States which fall within the territorial scope of that Convention and which are excluded from this Regulation pursuant to Article 299 of the Treaty.

5

OJ L 204, 2.8.1975, p. 28; OJ L 304, 30.10.1978, p. 1; OJ L 388, 31.12.1982, p. 1; OJ L 285, 3.10.1989, p. 1; OJ C 15, 15.1.1997, p. 1. For a consolidated text see OJ C 27, 26.1.1998, p. 28.

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(24) Likewise for the sake of consistency, this Regulation should not affect rules governing jurisdiction and the recognition of judgments contained in specific Community instruments. (25) Respect for international commitments entered into by the Member States means that this Regulation should not affect conventions relating to specific matters to which the Member States are parties. (26) The necessary flexibility should be provided for in the basic rules of this Regulation in order to take account of the specific procedural rules of certain Member States. Certain provisions of the Protocol annexed to the Brussels Convention should accordingly be incorporated in this Regulation. (27) In order to allow a harmonious transition in certain areas which were the subject of special provisions in the Protocol annexed to the Brussels Convention, this Regulation lays down, for a transitional period, provisions taking into consideration the specific situation in certain Member States. (28) No later than five years after entry into force of this Regulation the Commission will present a report on its application and, if need be, submit proposals for adaptations. (29) The Commission will have to adjust Annexes I to IV on the rules of national jurisdiction, the courts or competent authorities and redress procedures available on the basis of the amendments forwarded by the Member State concerned; amendments made to Annexes V and VI should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission6,

HAS ADOPTED THIS REGULATION:

6

OJ L 184, 17.7.1999, p. 23.

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CHAPTER I SCOPE Article 1 1.

2.

3.

This Regulation shall apply in civil and commercial matters whatever the nature of the court or tribunal. It shall not extend, in particular, to revenue, customs or administrative matters. The Regulation shall not apply to: (a) the status or legal capacity of natural persons, rights in property arising out of a matrimonial relationship, wills and succession; (b) bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings; (c) social security; (d) arbitration. In this Regulation, the term ‘Member State’ shall mean Member States with the exception of Denmark.

CHAPTER II JURISDICTION SECTION 1 GENERAL PROVISIONS Article 2 1. 2.

Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State. Persons who are not nationals of the Member State in which they are domiciled shall be governed by the rules of jurisdiction applicable to nationals of that State.

Article 3 1.

2.

306

Persons domiciled in a Member State may be sued in the courts of another Member State only by virtue of the rules set out in Sections 2 to 7 of this Chapter. In particular the rules of national jurisdiction set out in Annex I shall not be applicable as against them.

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Article 4 1.

2.

If the defendant is not domiciled in a Member State, the jurisdiction of the courts of each Member State shall, subject to Articles 22 and 23, be determined by the law of that Member State. As against such a defendant, any person domiciled in a Member State may, whatever his nationality, avail himself in that State of the rules of jurisdiction there in force, and in particular those specified in Annex I, in the same way as the nationals of that State.

SECTION 2 SPECIAL JURISDICTION Article 5 A person domiciled in a Member State may, in another Member State, be sued: 1. (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question; (b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be: in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered, in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided, (c) if subparagraph (b) does not apply then subparagraph (a) applies; 2. in matters relating to maintenance, in the courts for the place where the maintenance creditor is domiciled or habitually resident or, if the matter is ancillary to proceedings concerning the status of a person, in the court which, according to its own law, has jurisdiction to entertain those proceedings, unless that jurisdiction is based solely on the nationality of one of the parties; 3. in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur; 4. as regards a civil claim for damages or restitution which is based on an act giving rise to criminal proceedings, in the court seised of those proceedings, to the extent that that court has jurisdiction under its own law to entertain civil proceedings; 5. as regards a dispute arising out of the operations of a branch, agency or other establishment, in the courts for the place in which the branch, agency or other establishment is situated;

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6.

7.

as settlor, trustee or beneficiary of a trust created by the operation of a statute, or by a written instrument, or created orally and evidenced in writing, in the courts of the Member State in which the trust is domiciled; as regards a dispute concerning the payment of remuneration claimed in respect of the salvage of a cargo or freight, in the court under the authority of which the cargo or freight in question: (a) has been arrested to secure such payment, or (b) could have been so arrested, but bail or other security has been given; provided that this provision shall apply only if it is claimed that the defendant has an interest in the cargo or freight or had such an interest at the time of salvage.

Article 6 A person domiciled in a Member State may also be sued: 1. 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; 2. as a third party in an action on a warranty or guarantee or in any other third party proceedings, in the court seised of the original proceedings, unless these were instituted solely with the object of removing him from the jurisdiction of the court which would be competent in his case; 3. on a counter-claim arising from the same contract or facts on which the original claim was based, in the court in which the original claim is pending; 4. in matters relating to a contract, if the action may be combined with an action against the same defendant in matters relating to rights in rem in immovable property, in the court of the Member State in which the property is situated.

Article 7 Where by virtue of this Regulation a court of a Member State has jurisdiction in actions relating to liability from the use or operation of a ship, that court, or any other court substituted for this purpose by the internal law of that Member State, shall also have jurisdiction over claims for limitation of such liability.

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SECTION 3 JURISDICTION IN MATTERS RELATING TO INSURANCE Article 8 In matters relating to insurance, jurisdiction shall be determined by this Section, without prejudice to Article 4 and point 5 of Article 5.

Article 9 1.

2.

An insurer domiciled in a Member State may be sued: (a) in the courts of the Member State where he is domiciled, or (b) in another Member State, in the case of actions brought by the policyholder, the insured or a beneficiary, in the courts for the place where the plaintiff is domiciled, (c) if he is a co-insurer, in the courts of a Member State in which proceedings are brought against the leading insurer. An insurer who is not domiciled in a Member State but has a branch, agency or other establishment in one of the Member States shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that Member State. Article 10

In respect of liability insurance or insurance of immovable property, the insurer may in addition be sued in the courts for the place where the harmful event occurred. The same applies if movable and immovable property are covered by the same insurance policy and both are adversely affected by the same contingency.

Article 11 1.

2. 3.

In respect of liability insurance, the insurer may also, if the law of the court permits it, be joined in proceedings which the injured party has brought against the insured. Articles 8, 9 and 10 shall apply to actions brought by the injured party directly against the insurer, where such direct actions are permitted. If the law governing such direct actions provides that the policyholder or the insured may be joined as a party to the action, the same court shall have jurisdiction over them.

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Article 12 1.

2.

Without prejudice to Article 11(3), an insurer may bring proceedings only in the courts of the Member State in which the defendant is domiciled, irrespective of whether he is the policyholder, the insured or a beneficiary. The provisions of this Section shall not affect the right to bring a counterclaim in the court in which, in accordance with this Section, the original claim is pending.

Article 13 The provisions of this Section may be departed from only by an agreement: 1. which is entered into after the dispute has arisen, or 2. which allows the policyholder, the insured or a beneficiary to bring proceedings in courts other than those indicated in this Section, or 3. which is concluded between a policyholder and an insurer, both of whom are at the time of conclusion of the contract domiciled or habitually resident in the same Member State, and which has the effect of conferring jurisdiction on the courts of that State even if the harmful event were to occur abroad, provided that such an agreement is not contrary to the law of that State, or 4. which is concluded with a policyholder who is not domiciled in a Member State, except in so far as the insurance is compulsory or relates to immovable property in a Member State, or 5. which relates to a contract of insurance in so far as it covers one or more of the risks set out in Article 14.

Article 14 The following are the risks referred to in Article 13(5): 1. any loss of or damage to: (a) seagoing ships, installations situated offshore or on the high seas, or aircraft, arising from perils which relate to their use for commercial purposes; (b) goods in transit other than passengers' baggage where the transit consists of or includes carriage by such ships or aircraft; 2. any liability, other than for bodily injury to passengers or loss of or damage to their baggage: (a) arising out of the use or operation of ships, installations or aircraft as referred to in point 1(a) in so far as, in respect of the latter, the law of the Member State in which such aircraft are registered does not prohibit agreements on jurisdiction regarding insurance of such risks; (b) for loss or damage caused by goods in transit as described in point 1(b);

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3.

4. 5.

any financial loss connected with the use or operation of ships, installations or aircraft as referred to in point 1(a), in particular loss of freight or charterhire; any risk or interest connected with any of those referred to in points 1 to 3; notwithstanding points 1 to 4, all ‘large risks’ as defined in Council Directive 73/239/EEC7, as amended by Council Directives 88/357/EEC8 and 90/618/EEC9, as they may be amended.

SECTION 4 JURISDICTION OVER CONSUMER CONTRACTS Article 15 1.

2.

3.

In matters relating to a contract concluded by a person, the consumer, for a purpose which can be regarded as being outside his trade or profession, jurisdiction shall be determined by this Section, without prejudice to Article 4 and point 5 of Article 5, if: (a) it is a contract for the sale of goods on instalment credit terms; or (b) it is a contract for a loan repayable by instalments, or for any other form of credit, made to finance the sale of goods; or (c) in all other cases, the contract has been concluded with a person who pursues commercial or professional activities in the Member State of the consumer's domicile or, by any means, directs such activities to that Member State or to several States including that Member State, and the contract falls within the scope of such activities. Where a consumer enters into a contract with a party who is not domiciled in the Member State but has a branch, agency or other establishment in one of the Member States, that party shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that State. This Section shall not apply to a contract of transport other than a contract which, for an inclusive price, provides for a combination of travel and accommodation.

7 OJ L 228, 16.8.1973, p. 3. Directive as last amended by Directive 2000/26/EC of the European Parliament and of the Council (OJ L 181, 20.7.2000, p. 65). 8

OJ L 172, 4.7.1988, p. 1. Directive as last amended by Directive 2000/26/EC.

9

OJ L 330, 29.11.1990, p. 44.

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Article 16 1.

2.

3.

A consumer may bring proceedings against the other party to a contract either in the courts of the Member State in which that party is domiciled or in the courts for the place where the consumer is domiciled. Proceedings may be brought against a consumer by the other party to the contract only in the courts of the Member State in which the consumer is domiciled. This Article shall not affect the right to bring a counter-claim in the court in which, in accordance with this Section, the original claim is pending.

Article 17 The provisions of this Section may be departed from only by an agreement: 1. which is entered into after the dispute has arisen; or 2. which allows the consumer to bring proceedings in courts other than those indicated in this Section; or 3. which is entered into by the consumer and the other party to the contract, both of whom are at the time of conclusion of the contract domiciled or habitually resident in the same Member State, and which confers jurisdiction on the courts of that Member State, provided that such an agreement is not contrary to the law of that Member State.

SECTION 5 JURISDICTION OVER INDIVIDUAL CONTRACTS OF EMPLOYMENT Article 18 1.

2.

312

In matters relating to individual contracts of employment, jurisdiction shall be determined by this Section, without prejudice to Article 4 and point 5 of Article 5. Where an employee enters into an individual contract of employment with an employer who is not domiciled in a Member State but has a branch, agency or other establishment in one of the Member States, the employer shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that Member State.

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Article 19 An employer domiciled in a Member State may be sued: 1. in the courts of the Member State where he is domiciled; or 2. in another Member State: (a) in the courts for the place where the employee habitually carries out his work or in the courts for the last place where he did so, or (b) if the employee does not or did not habitually carry out his work in any one country, in the courts for the place where the business which engaged the employee is or was situated.

Article 20 1. 2.

An employer may bring proceedings only in the courts of the Member State in which the employee is domiciled. The provisions of this Section shall not affect the right to bring a counterclaim in the court in which, in accordance with this Section, the original claim is pending.

Article 21 The provisions of this Section may be departed from only by an agreement on jurisdiction: 1. which is entered into after the dispute has arisen; or 2. which allows the employee to bring proceedings in courts other than those indicated in this Section.

SECTION 6 EXCLUSIVE JURISDICTION Article 22 The following courts shall have exclusive jurisdiction, regardless of domicile: 1. in proceedings which have as their object rights in rem in immovable property or tenancies of immovable property, the courts of the Member State in which the property is situated. However, in proceedings which have as their object tenancies of immovable property concluded for temporary private use for a maximum period of six consecutive months, the courts of the Member State in which the defendant is domiciled shall also have

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2.

3. 4.

5.

jurisdiction, provided that the tenant is a natural person and that the landlord and the tenant are domiciled in the same Member State; in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or of the validity of the decisions of their organs, the courts of the Member State in which the company, legal person or association has its seat. In order to determine that seat, the court shall apply its rules of private international law; in proceedings which have as their object the validity of entries in public registers, the courts of the Member State in which the register is kept; in proceedings concerned with the registration or validity of patents, trade marks, designs, or other similar rights required to be deposited or registered, the courts of the Member State in which the deposit or registration has been applied for, has taken place or is under the terms of a Community instrument or an international convention deemed to have taken place. Without prejudice to the jurisdiction of the European Patent Office under the Convention on the Grant of European Patents, signed at Munich on 5 October 1973, the courts of each Member State shall have exclusive jurisdiction, regardless of domicile, in proceedings concerned with the registration or validity of any European patent granted for that State; in proceedings concerned with the enforcement of judgments, the courts of the Member State in which the judgment has been or is to be enforced.

SECTION 7 PROROGATION OF JURISDICTION Article 23 1.

314

If the parties, one or more of whom is domiciled in a Member State, have agreed 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. Such an agreement conferring jurisdiction shall be either: (a) in writing or evidenced in writing; or (b) in a form which accords with practices which the parties have established between themselves; or (c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties

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2. 3.

4.

5.

to contracts of the type involved in the particular trade or commerce concerned. Any communication by electronic means which provides a durable record of the agreement shall be equivalent to ‘writing’. Where such an agreement is concluded by parties, none of whom is domiciled in a Member State, the courts of other Member States shall have no jurisdiction over their disputes unless the court or courts chosen have declined jurisdiction. The court or courts of a Member State on which a trust instrument has conferred jurisdiction shall have exclusive jurisdiction in any proceedings brought against a settlor, trustee or beneficiary, if relations between these persons or their rights or obligations under the trust are involved. Agreements or provisions of a trust instrument conferring jurisdiction shall have no legal force if they are contrary to Articles 13, 17 or 21, or if the courts whose jurisdiction they purport to exclude have exclusive jurisdiction by virtue of Article 22.

Article 24 Apart from jurisdiction derived from other provisions of this Regulation, a court of a Member State before which a defendant enters an appearance shall have jurisdiction. This rule shall not apply where appearance was entered to contest the jurisdiction, or where another court has exclusive jurisdiction by virtue of Article 22.

SECTION 8 EXAMINATION AS TO JURISDICTION AND ADMISSIBILITY Article 25 Where a court of a Member State is seised of a claim which is principally concerned with a matter over which the courts of another Member State have exclusive jurisdiction by virtue of Article 22, it shall declare of its own motion that it has no jurisdiction.

Article 26 1.

Where a defendant domiciled in one Member State is sued in a court of another Member State and does not enter an appearance, the court shall

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2.

3.

4.

declare of its own motion that it has no jurisdiction unless its jurisdiction is derived from the provisions of this Regulation. The court shall stay the proceedings so long as it is not shown that the defendant has been able to receive the document instituting the proceedings or an equivalent document in sufficient time to enable him to arrange for his defence, or that all necessary steps have been taken to this end. Article 19 of Council Regulation (EC) No 1348/2000 of 29 May 2000 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters10 shall apply instead of the provisions of paragraph 2 if the document instituting the proceedings or an equivalent document had to be transmitted from one Member State to another pursuant to this Regulation. Where the provisions of Regulation (EC) No 1348/2000 are not applicable, Article 15 of the Hague Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters shall apply if the document instituting the proceedings or an equivalent document had to be transmitted pursuant to that Convention.

SECTION 9 LIS PENDENS - RELATED ACTIONS Article 27 1.

2.

Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court.

Article 28 1. 2.

Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings. Where these actions are pending at first instance, any court other than the court first seised may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions in question and its law permits the consolidation thereof. 10

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For the purposes of this Article, actions are deemed to be related where they 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 29 Where actions come within the exclusive jurisdiction of several courts, any court other than the court first seised shall decline jurisdiction in favour of that court.

Article 30 For the purposes of this Section, a court shall be deemed to be seised: 1. at the time when the document instituting the proceedings or an equivalent document is lodged with the court, provided that the plaintiff has not subsequently failed to take the steps he was required to take to have service effected on the defendant, or 2. if the document has to be served before being lodged with the court, at the time when it is received by the authority responsible for service, provided that the plaintiff has not subsequently failed to take the steps he was required to take to have the document lodged with the court.

SECTION 10 PROVISIONAL, INCLUDING PROTECTIVE, MEASURES Article 31 Application may be made to the courts of a Member State for such provisional, including protective, measures as may be available under the law of that State, even if, under this Regulation, the courts of another Member State have jurisdiction as to the substance of the matter.

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CHAPTER III RECOGNITION AND ENFORCEMENT Article 32 For the purposes of this Regulation, ‘judgment’ means any judgment given by a court or tribunal of a Member State, whatever the judgment may be called, including a decree, order, decision or writ of execution, as well as the determination of costs or expenses by an officer of the court.

SECTION 1 RECOGNITION Article 33 1. 2.

3.

A judgment given in a Member State shall be recognised in the other Member States without any special procedure being required. Any interested party who raises the recognition of a judgment as the principal issue in a dispute may, in accordance with the procedures provided for in Sections 2 and 3 of this Chapter, apply for a decision that the judgment be recognised. If the outcome of proceedings in a court of a Member State depends on the determination of an incidental question of recognition that court shall have jurisdiction over that question. Article 34

A judgment shall not be recognised: 1. if such recognition is manifestly contrary to public policy in the Member State in which recognition is sought; 2. where it was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him to do so; 3. if it is irreconcilable with a judgment given in a dispute between the same parties in the Member State in which recognition is sought; 4. if it is irreconcilable with an earlier judgment given in another Member State or in a third State involving the same cause of action and between the same parties, provided that the earlier judgment fulfils the conditions necessary for its recognition in the Member State addressed.

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Article 35 1. 2.

3.

Moreover, a judgment shall not be recognised if it conflicts with Sections 3, 4 or 6 of Chapter II, or in a case provided for inArticle 72. In its examination of the grounds of jurisdiction referred to in the foregoing paragraph, the court or authority applied to shall be bound by the findings of fact on which the court of the Member State of origin based its jurisdiction. Subject to the paragraph 1, the jurisdiction of the court of the Member State of origin may not be reviewed. The test of public policy referred to in point 1 of Article 34 may not be applied to the rules relating to jurisdiction.

Article 36 Under no circumstances may a foreign judgment be reviewed as to its substance.

Article 37 1.

2.

A court of a Member State in which recognition is sought of a judgment given in another Member State may stay the proceedings if an ordinary appeal against the judgment has been lodged. A court of a Member State in which recognition is sought of a judgment given in Ireland or the United Kingdom may stay the proceedings if enforcement is suspended in the State of origin, by reason of an appeal.

SECTION 2 ENFORCEMENT Article 38 1.

2.

A judgment given in a Member State and enforceable in that State shall be enforced in another Member State when, on the application of any interested party, it has been declared enforceable there. However, in the United Kingdom, such a judgment shall be enforced in England and Wales, in Scotland, or in Northern Ireland when, on the application of any interested party, it has been registered for enforcement in that part of the United Kingdom.

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Article 39 1. 2.

The application shall be submitted to the court or competent authority indicated in the list in Annex II. The local jurisdiction shall be determined by reference to the place of domicile of the party against whom enforcement is sought, or to the place of enforcement.

Article 40 1. 2.

3.

The procedure for making the application shall be governed by the law of the Member State in which enforcement is sought. The applicant must give an address for service of process within the area of jurisdiction of the court applied to. However, if the law of the Member State in which enforcement is sought does not provide for the furnishing of such an address, the applicant shall appoint a representative ad litem. The documents referred to in Article 53 shall be attached to the application.

Article 41 The judgment shall be declared enforceable immediately on completion of the formalities in Article 53 without any review under Articles 34 and 35. The party against whom enforcement is sought shall not at this stage of the proceedings be entitled to make any submissions on the application.

Article 42 1.

2.

The decision on the application for a declaration of enforceability shall forthwith be brought to the notice of the applicant in accordance with the procedure laid down by the law of the Member State in which enforcement is sought. The declaration of enforceability shall be served on the party against whom enforcement is sought, accompanied by the judgment, if not already served on that party.

Article 43 1. 2.

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The decision on the application for a declaration of enforceability may be appealed against by either party. The appeal is to be lodged with the court indicated in the list in Annex III.

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3. 4.

5.

The appeal shall be dealt with in accordance with the rules governing procedure in contradictory matters. If the party against whom enforcement is sought fails to appear before the appellate court in proceedings concerning an appeal brought by the applicant, Article 26(2) to (4) shall apply even where the party against whom enforcement is sought is not domiciled in any of the Member States. An appeal against the declaration of enforceability is to be lodged within one month of service thereof. If the party against whom enforcement is sought is domiciled in a Member State other than that in which the declaration of enforceability was given, the time for appealing shall be two months and shall run from the date of service, either on him in person or at his residence. No extension of time may be granted on account of distance.

Article 44 The judgment given on the appeal may be contested only by the appeal referred to in Annex IV.

Article 45 1.

2.

The court with which an appeal is lodged under Article 43 or Article 44 shall refuse or revoke a declaration of enforceability only on one of the grounds specified in Articles 34 and 35. It shall give its decision without delay. Under no circumstances may the foreign judgment be reviewed as to its substance.

Article 46 1.

2.

3.

The court with which an appeal is lodged under Article 43 or Article 44 may, on the application of the party against whom enforcement is sought, stay the proceedings if an ordinary appeal has been lodged against the judgment in the Member State of origin or if the time for such an appeal has not yet expired; in the latter case, the court may specify the time within which such an appeal is to be lodged. Where the judgment was given in Ireland or the United Kingdom, any form of appeal available in the Member State of origin shall be treated as an ordinary appeal for the purposes of paragraph 1. The court may also make enforcement conditional on the provision of such security as it shall determine.

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Article 47 1.

2. 3.

When a judgment must be recognised in accordance with this Regulation, nothing shall prevent the applicant from availing himself of provisional, including protective, measures in accordance with the law of the Member State requested without a declaration of enforceability under Article 41 being required. The declaration of enforceability shall carry with it the power to proceed to any protective measures. During the time specified for an appeal pursuant to Article 43(5) against the declaration of enforceability and until any such appeal has been determined, no measures of enforcement may be taken other than protective measures against the property of the party against whom enforcement is sought.

Article 48 1.

2.

Where a foreign judgment has been given in respect of several matters and the declaration of enforceability cannot be given for all of them, the court or competent authority shall give it for one or more of them. An applicant may request a declaration of enforceability limited to parts of a judgment.

Article 49 A foreign judgment which orders a periodic payment by way of a penalty shall be enforceable in the Member State in which enforcement is sought only if the amount of the payment has been finally determined by the courts of the Member State of origin.

Article 50 An applicant who, in the Member State of origin has benefited from complete or partial legal aid or exemption from costs or expenses, shall be entitled, in the procedure provided for in this Section, to benefit from the most favourable legal aid or the most extensive exemption from costs or expenses provided for by the law of the Member State addressed.

Article 51 No security, bond or deposit, however described, shall be required of a party who in one Member State applies for enforcement of a judgment given in another

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Member State on the ground that he is a foreign national or that he is not domiciled or resident in the State in which enforcement is sought.

Article 52 In proceedings for the issue of a declaration of enforceability, no charge, duty or fee calculated by reference to the value of the matter at issue may be levied in the Member State in which enforcement is sought.

SECTION 3 COMMON PROVISIONS Article 53 1.

2.

A party seeking recognition or applying for a declaration of enforceability shall produce a copy of the judgment which satisfies the conditions necessary to establish its authenticity. A party applying for a declaration of enforceability shall also produce the certificate referred to in Article 54, without prejudice to Article 55.

Article 54 The court or competent authority of a Member State where a judgment was given shall issue, at the request of any interested party, a certificate using the standard form in Annex V to this Regulation.

Article 55 1.

2.

If the certificate referred to in Article 54 is not produced, the court or competent authority may specify a time for its production or accept an equivalent document or, if it considers that it has sufficient information before it, dispense with its production. If the court or competent authority so requires, a translation of the documents shall be produced. The translation shall be certified by a person qualified to do so in one of the Member States.

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Article 56 No legalisation or other similar formality shall be required in respect of the documents referred to in Article 53 or Article 55(2), or in respect of a document appointing a representative ad litem.

CHAPTER IV AUTHENTIC INSTRUMENTS AND COURT SETTLEMENTS Article 57 1.

2.

3. 4.

A document which has been formally drawn up or registered as an authentic instrument and is enforceable in one Member State shall, in another Member State, be declared enforceable there, on application made in accordance with the procedures provided for in Articles 38, et seq. The court with which an appeal is lodged under Article 43 or Article 44 shall refuse or revoke a declaration of enforceability only if enforcement of the instrument is manifestly contrary to public policy in the Member State addressed. Arrangements relating to maintenance obligations concluded with administrative authorities or authenticated by them shall also be regarded as authentic instruments within the meaning of paragraph 1. The instrument produced must satisfy the conditions necessary to establish its authenticity in the Member State of origin. Section 3 of Chapter III shall apply as appropriate. The competent authority of a Member State where an authentic instrument was drawn up or registered shall issue, at the request of any interested party, a certificate using the standard form in Annex VI to this Regulation.

Article 58 A settlement which has been approved by a court in the course of proceedings and is enforceable in the Member State in which it was concluded shall be enforceable in the State addressed under the same conditions as authentic instruments. The court or competent authority of a Member State where a court settlement was approved shall issue, at the request of any interested party, a certificate using the standard form in Annex V to this Regulation.

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CHAPTER V GENERAL PROVISIONS Article 59 1. 2.

In order to determine whether a party is domiciled in the Member State whose courts are seised of a matter, the court shall apply its internal law. If a party is not domiciled in the Member State whose courts are seised of the matter, then, in order to determine whether the party is domiciled in another Member State, the court shall apply the law of that Member State.

Article 60 1.

2.

3.

For the purposes of this Regulation, a company or other legal person or association of natural or legal persons is domiciled at the place where it has its: (a) statutory seat, or (b) central administration, or (c) principal place of business. For the purposes of the United Kingdom and Ireland ‘statutory seat’ means the registered office or, where there is no such office anywhere, the place of incorporation or, where there is no such place anywhere, the place under the law of which the formation took place. In order to determine whether a trust is domiciled in the Member State whose courts are seised of the matter, the court shall apply its rules of private international law.

Article 61 Without prejudice to any more favourable provisions of national laws, persons domiciled in a Member State who are being prosecuted in the criminal courts of another Member State of which they are not nationals for an offence which was not intentionally committed may be defended by persons qualified to do so, even if they do not appear in person. However, the court seised of the matter may order appearance in person; in the case of failure to appear, a judgment given in the civil action without the person concerned having had the opportunity to arrange for his defence need not be recognised or enforced in the other Member States.

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Article 62 In Sweden, in summary proceedings concerning orders to pay (betalningsföreläggande) and assistance (handräckning), the expression ‘court’ includes the ‘Swedish enforcement service’ (kronofogdemyndighet).

Article 63 1.

2.

3. 4.

A person domiciled in the territory of the Grand Duchy of Luxembourg and sued in the court of another Member State pursuant to Article 5(1) may refuse to submit to the jurisdiction of that court if the final place of delivery of the goods or provision of the services is in Luxembourg. Where, under paragraph 1, the final place of delivery of the goods or provision of the services is in Luxembourg, any agreement conferring jurisdiction must, in order to be valid, be accepted in writing or evidenced in writing within the meaning of Article 23(1)(a). The provisions of this Article shall not apply to contracts for the provision of financial services. The provisions of this Article shall apply for a period of six years from entry into force of this Regulation.

Article 64 1.

2.

In proceedings involving a dispute between the master and a member of the crew of a seagoing ship registered in Greece or in Portugal, concerning remuneration or other conditions of service, a court in a Member State shall establish whether the diplomatic or consular officer responsible for the ship has been notified of the dispute. It may act as soon as that officer has been notified. The provisions of this Article shall apply for a period of six years from entry into force of this Regulation.

Article 65 1.

326

The jurisdiction specified in Article 6(2), and Article 11 in actions on a warranty of guarantee or in any other third party proceedings may not be resorted to in Germany and Austria. Any person domiciled in another Member State may be sued in the courts: (a) of Germany, pursuant to Articles 68 and 72 to 74 of the Code of Civil Procedure (Zivilprozessordnung) concerning third-party notices, (b) of Austria, pursuant to Article 21 of the Code of Civil Procedure (Zivilprozessordnung) concerning third-party notices.

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2.

Judgments given in other Member States by virtue of Article 6(2), or Article 11 shall be recognised and enforced in Germany and Austria in accordance with Chapter III. Any effects which judgments given in these States may have on third parties by application of the provisions in paragraph 1 shall also be recognised in the other Member States.

CHAPTER VI TRANSITIONAL PROVISIONS Article 66 1.

2.

This Regulation shall apply only to legal proceedings instituted and to documents formally drawn up or registered as authentic instruments after the entry into force thereof. However, if the proceedings in the Member State of origin were instituted before the entry into force of this Regulation, judgments given after that date shall be recognised and enforced in accordance with Chapter III, (a) if the proceedings in the Member State of origin were instituted after the entry into force of the Brussels or the Lugano Convention both in the Member State or origin and in the Member State addressed; (b) in all other cases, if jurisdiction was founded upon rules which accorded with those provided for either in Chapter II or in a convention concluded between the Member State of origin and the Member State addressed which was in force when the proceedings were instituted.

CHAPTER VII RELATIONS WITH OTHER INSTRUMENTS Article 67 This Regulation shall not prejudice the application of provisions governing jurisdiction and the recognition and enforcement of judgments in specific matters which are contained in Community instruments or in national legislation harmonised pursuant to such instruments.

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Article 68 1.

2.

This Regulation shall, as between the Member States, supersede the Brussels Convention, except as regards the territories of the Member States which fall within the territorial scope of that Convention and which are excluded from this Regulation pursuant to Article 299 of the Treaty. In so far as this Regulation replaces the provisions of the Brussels Convention between Member States, any reference to the Convention shall be understood as a reference to this Regulation.

Article 69 Subject to Article 66(2) and Article 70, this Regulation shall, as between Member States, supersede the following conventions and treaty concluded between two or more of them: - the Convention between Belgium and France on Jurisdiction and the Validity and Enforcement of Judgments, Arbitration Awards and Authentic Instruments, signed at Paris on 8 July 1899, - the Convention between Belgium and the Netherlands on Jurisdiction, Bankruptcy, and the Validity and Enforcement of Judgments, Arbitration Awards and Authentic Instruments, signed at Brussels on 28 March 1925, - the Convention between France and Italy on the Enforcement of Judgments in Civil and Commercial Matters, signed at Rome on 3 June 1930, - the Convention between Germany and Italy on the Recognition and Enforcement of Judgments in Civil and Commercial Matters, signed at Rome on 9 March 1936, - the Convention between Belgium and Austria on the Reciprocal Recognition and Enforcement of Judgments and Authentic Instruments relating to Maintenance Obligations, signed at Vienna on 25 October 1957, - the Convention between Germany and Belgium on the Mutual Recognition and Enforcement of Judgments, Arbitration Awards and Authentic Instruments in Civil and Commercial Matters, signed at Bonn on 30 June 1958, - the Convention between the Netherlands and Italy on the Recognition and Enforcement of Judgments in Civil and Commercial Matters, signed at Rome on 17 April 1959, - the Convention between Germany and Austria on the Reciprocal Recognition and Enforcement of Judgments, Settlements and Authentic Instruments in Civil and Commercial Matters, signed at Vienna on 6 June 1959,

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-

-

-

-

-

-

-

-

-

-

-

-

-

the Convention between Belgium and Austria on the Reciprocal Recognition and Enforcement of Judgments, Arbitral Awards and Authentic Instruments in Civil and Commercial Matters, signed at Vienna on 16 June 1959, the Convention between Greece and Germany for the Reciprocal Recognition and Enforcement of Judgments, Settlements and Authentic Instruments in Civil and Commercial Matters, signed in Athens on 4 November 1961, the Convention between Belgium and Italy on the Recognition and Enforcement of Judgments and other Enforceable Instruments in Civil and Commercial Matters, signed at Rome on 6 April 1962, the Convention between the Netherlands and Germany on the Mutual Recognition and Enforcement of Judgments and Other Enforceable Instruments in Civil and Commercial Matters, signed at The Hague on 30 August 1962, the Convention between the Netherlands and Austria on the Reciprocal Recognition and Enforcement of Judgments and Authentic Instruments in Civil and Commercial Matters, signed at The Hague on 6 February 1963, the Convention between France and Austria on the Recognition and Enforcement of Judgments and Authentic Instruments in Civil and Commercial Matters, signed at Vienna on 15 July 1966, the Convention between Spain and France on the Recognition and Enforcement of Judgment Arbitration Awards in Civil and Commercial Matters, signed at Paris on 28 May 1969, the Convention between Luxembourg and Austria on the Recognition and Enforcement of Judgments and Authentic Instruments in Civil and Commercial Matters, signed at Luxembourg on 29 July 1971, the Convention between Italy and Austria on the Recognition and Enforcement of Judgments in Civil and Commercial Matters, of Judicial Settlements and of Authentic Instruments, signed at Rome on 16 November 1971, the Convention between Spain and Italy regarding Legal Aid and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, signed at Madrid on 22 May 1973, the Convention between Finland, Iceland, Norway, Sweden and Denmark on the Recognition and Enforcement of Judgments in Civil Matters, signed at Copenhagen on 11 October 1977, the Convention between Austria and Sweden on the Recognition and Enforcement of Judgments in Civil Matters, signed at Stockholm on 16 September 1982, the Convention between Spain and the Federal Republic of Germany on the Recognition and Enforcement of Judgments, Settlements and

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-

-

-

Enforceable Authentic Instruments in Civil and Commercial Matters, signed at Bonn on 14 November 1983, the Convention between Austria and Spain on the Recognition and Enforcement of Judgments, Settlements and Enforceable Authentic Instruments in Civil and Commercial Matters, signed at Vienna on 17 February 1984, the Convention between Finland and Austria on the Recognition and Enforcement of Judgments in Civil Matters, signed at Vienna on 17 November 1986, and the Treaty between Belgium, the Netherlands and Luxembourg in Jurisdiction, Bankruptcy, and the Validity and Enforcement of Judgments, Arbitration Awards and Authentic Instruments, signed at Brussels on 24 November 1961, in so far as it is in force.

Article 70 1. 2.

The Treaty and the Conventions referred to in Article 69 shall continue to have effect in relation to matters to which this Regulation does not apply. They shall continue to have effect in respect of judgments given and documents formally drawn up or registered as authentic instruments before the entry into force of this Regulation.

Article 71 1.

2.

330

This Regulation shall not affect any conventions to which the Member States are parties and which in relation to particular matters, govern jurisdiction or the recognition or enforcement of judgments. With a view to its uniform interpretation, paragraph 1 shall be applied in the following manner: (a) this Regulation shall not prevent a court of a Member State, which is a party to a convention on a particular matter, from assuming jurisdiction in accordance with that convention, even where the defendant is domiciled in another Member State which is not a party to that convention. The court hearing the action shall, in any event, apply Article 26 of this Regulation; (b) judgments given in a Member State by a court in the exercise of jurisdiction provided for in a convention on a particular matter shall be recognised and enforced in the other Member States in accordance with this Regulation. Where a convention on a particular matter to which both the Member State of origin and the Member State addressed are parties lays down conditions for the recognition or enforcement of judgments, those conditions shall apply. In any event, the provisions of this

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Regulation which concern the procedure for recognition and enforcement of judgments may be applied.

Article 72 This Regulation shall not affect agreements by which Member States undertook, prior to the entry into force of this Regulation pursuant to Article 59 of the Brussels Convention, not to recognise judgments given, in particular in other Contracting States to that Convention, against defendants domiciled or habitually resident in a third country where, in cases provided for in Article 4 of that Convention, the judgment could only be founded on a ground of jurisdiction specified in the second paragraph of Article 3 of that Convention.

CHAPTER VIII FINAL PROVISIONS Article 73 No later than five years after the entry into force of this Regulation, the Commission shall present to the European Parliament, the Council and the Economic and Social Committee a report on the application of this Regulation. The report shall be accompanied, if need be, by proposals for adaptations to this Regulation.

Article 74 1.

2.

The Member States shall notify the Commission of the texts amending the lists set out in Annexes I to IV. The Commission shall adapt the Annexes concerned accordingly. The updating or technical adjustment of the forms, specimens of which appear in Annexes V and VI, shall be adopted in accordance with the advisory procedure referred to in Article 75(2).

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Article 75 1. 2. 3.

The Commission shall be assisted by a committee. Where reference is made to this paragraph, Articles 3 and 7 of Decision 1999/468/EC shall apply. The Committee shall adopt its rules of procedure.

Article 76 This Regulation shall enter into force on l March 2002. This Regulation is binding in its entirety and directly applicable in the Member States in accordance with the Treaty establishing the European Community.

Done at Brussels, 22 December 2000 [Annexes omitted]

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COUNCIL REGULATION (EC) No. 1206/2001 of 28 May 2001 ON COOPERATION BETWEEN THE COURTS OF THE MEMBER STATES IN THE TAKING OF EVIDENCE IN CIVIL OR COMMERCIAL MATTERS*

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 61(c) and Article 67(1) thereof, Having regard to the initiative of the Federal Republic of Germany,1 Having regard to the opinion of the European Parliament,2 Having regard to the opinion of the Economic and Social Committee,3 Whereas: (1) The European Union has set itself the objective of maintaining and developing the European Union as an area of freedom, security and justice in which the free movement of persons is ensured. For the gradual establishment of such an area, the Community is to adopt, among others, the measures relating to judicial cooperation in civil matters needed for the proper functioning of the internal market. (2) For the purpose of the proper functioning of the internal market, cooperation between courts in the taking of evidence should be improved, and in particular simplified and accelerated. (3) At its meeting in Tampere on 15 and 16 October 1999, the European Council recalled that new procedural legislation in cross-border cases, in particular on the taking of evidence, should be prepared. (4) This area falls within the scope of Article 65 of the Treaty. (5) The objectives of the proposed action, namely the improvement of cooperation between the courts on the taking of evidence in civil or commercial matters, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level. The Community may adopt measures in accordance with the principle of subsidiarity as set out *

This text is published in OJ of the European Communities, L 174 , 27 June 2001,

1

OJ C 314, 3.11.2000, p. 2.

2

Opinion delivered on 14 March 2001 (not yet published in the OJ).

3

Opinion delivered on 28 February 2001 (not yet published in the OJ).

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in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary to achieve those objectives. (6) To date, there is no binding instrument between all the Member States concerning the taking of evidence. The Hague Convention of 18 March 1970 on the taking of evidence abroad in civil or commercial matters applies between only 11 Member States of the European Union. (7) As it is often essential for a decision in a civil or commercial matter pending before a court in a Member State to take evidence in another Member State, the Community's activity cannot be limited to the field of transmission of judicial and extrajudicial documents in civil or commercial matters which falls within the scope of Council Regulation (EC) No 1348/2000 of 29 May 2000 on the serving in the Member States of judicial and extrajudicial documents in civil or commercial matters4. It is therefore necessary to continue the improvement of cooperation between courts of Member States in the field of taking of evidence. (8) The efficiency of judicial procedures in civil or commercial matters requires that the transmission and execution of requests for the performance of taking of evidence is to be made directly and by the most rapid means possible between Member States' courts. (9) Speed in transmission of requests for the performance of taking of evidence warrants the use of all appropriate means, provided that certain conditions as to the legibility and reliability of the document received are observed. So as to ensure the utmost clarity and legal certainty the request for the performance of taking of evidence must be transmitted on a form to be completed in the language of the Member State of the requested court or in another language accepted by that State. For the same reasons, forms should also be used as far as possible for further communication between the relevant courts. (10) A request for the performance of the taking of evidence should be executed expeditiously. If it is not possible for the request to be executed within 90 days of receipt by the requested court, the latter should inform the requesting court accordingly, stating the reasons which prevent the request from being executed swiftly.

4

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(11) To secure the effectiveness of this Regulation, the possibility of refusing to execute the request for the performance of taking of evidence should be confined to strictly limited exceptional situations. (12) The requested court should execute the request in accordance with the law of its Member State. (13) The parties and, if any, their representatives, should be able to be present at the performance of the taking of evidence, if that is provided for by the law of the Member State of the requesting court, in order to be able to follow the proceedings in a comparable way as if evidence were taken in the Member State of the requesting court. They should also have the right to request to participate in order to have a more active role in the performance of the taking of evidence. However, the conditions under which they may participate should be determined by the requested court in accordance with the law of its Member State. (14) The representatives of the requesting court should be able to be present at the performance of the taking of evidence, if that is compatible with the law of the Member State of the requesting court, in order to have an improved possibility of evaluation of evidence. They should also have the right to request to participate, under the conditions laid down by the requested court in accordance with the law of its Member State, in order to have a more active role in the performance of the taking of evidence. (15) In order to facilitate the taking of evidence it should be possible for a court in a Member State, in accordance with the law of its Member State, to take evidence directly in another Member State, if accepted by the latter, and under the conditions determined by the central body or competent authority of the requested Member State. (16) The execution of the request, according to Article 10, should not give rise to a claim for any reimbursement of taxes or costs. Nevertheless, if the requested court requires reimbursement, the fees paid to experts and interpreters, as well as the costs occasioned by the application of Article 10(3) and (4), should not be borne by that court. In such a case, the requesting court is to take the necessary measures to ensure reimbursement without delay. Where the opinion of an expert is required, the requested court may, before executing the request, ask the requesting court for an adequate deposit or advance towards the costs. (17) This Regulation should prevail over the provisions applying to its field of application, contained in international conventions concluded by the Member

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States. Member States should be free to adopt agreements or arrangements to further facilitate cooperation in the taking of evidence. (18) The information transmitted pursuant to this Regulation should enjoy protection. Since Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data5, and Directive 97/66/EC of the European Parliament and of the Council of 15 December 1997 concerning the processing of personal data and the protection of privacy in the telecommunications sector6, are applicable, there is no need for specific provisions on data protection in this Regulation. (19) The measures necessary for the implementation of this Regulation should be adopted in accordance with Council Decision 1999/468/EC of 28 June 19997 laying down the procedures for the exercise of implementing powers conferred on the Commission. (20) For the proper functioning of this Regulation, the Commission should review its application and propose such amendments as may appear necessary. (21) The United Kingdom and Ireland, in accordance with Article 3 of the Protocol on the position of the United Kingdom and Ireland annexed to the Treaty on the European Union and to the Treaty establishing the European Community, have given notice of their wish to take part in the adoption and application of this Regulation. (22) Denmark, in accordance with Articles 1 and 2 of the Protocol on the position of Denmark annexed to the Treaty on European Union and to the Treaty establishing the European Community, is not participating in the adoption of this Regulation, and is therefore not bound by it nor subject to its application,

HAS ADOPTED THIS REGULATION:

CHAPTER I GENERAL PROVISIONS

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5

OJ L 281, 23.11.1995, p. 31.

6

OJ L 24, 30.1.1998, p. 1.

7

OJ L 184, 17.7.1999, p. 23.

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Council Regulation (EC) No. 1206/2001

Article 1 Scope 1.

2. 3.

This Regulation shall apply in civil or commercial matters where the court of a Member State, in accordance with the provisions of the law of that State, requests: (a) the competent court of another Member State to take evidence; or (b) to take evidence directly in another Member State. A request shall not be made to obtain evidence which is not intended for use in judicial proceedings, commenced or contemplated. In this Regulation, the term ‘Member State’ shall mean Member States with the exception of Denmark.

Article 2 Direct transmission between the courts 1.

2.

Requests pursuant to Article 1(1)(a), hereinafter referred to as ‘requests’, shall be transmitted by the court before which the proceedings are commenced or contemplated, hereinafter referred to as the ‘requesting court’, directly to the competent court of another Member State, hereinafter referred to as the ‘requested court’, for the performance of the taking of evidence. Each Member State shall draw up a list of the courts competent for the performance of taking of evidence according to this Regulation. The list shall also indicate the territorial and, where appropriate, the special jurisdiction of those courts.

Article 3 Central body 1.

2.

3.

Each Member State shall designate a central body responsible for: (a) supplying information to the courts; (b) seeking solutions to any difficulties which may arise in respect of a request; (c) forwarding, in exceptional cases, at the request of a requesting court, a request to the competent court. A federal State, a State in which several legal systems apply or a State with autonomous territorial entities shall be free to designate more than one central body. Each Member State shall also designate the central body referred to in paragraph 1 or one or several competent authority(ies) to be responsible for taking decisions on requests pursuant to Article 17.

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CHAPTER II TRANSMISSION AND EXECUTION OF REQUESTS SECTION 1 TRANSMISSION OF THE REQUEST Article 4 Form and content of the request 1.

2. 3.

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The request shall be made using form A or, where appropriate, form I in the Annex. It shall contain the following details: (a) the requesting and, where appropriate, the requested court; (b) the names and addresses of the parties to the proceedings and their representatives, if any; (c) the nature and subject matter of the case and a brief statement of the facts; (d) a description of the taking of evidence to be performed; (e) where the request is for the examination of a person: - the name(s) and address(es) of the person(s) to be examined, - the questions to be put to the person(s) to be examined or a statement of the facts about which he is (they are) to be examined, - where appropriate, a reference to a right to refuse to testify under the law of the Member State of the requesting court, - any requirement that the examination is to be carried out under oath or affirmation in lieu thereof, and any special form to be used, - where appropriate, any other information that the requesting court deems necessary; (f) where the request is for any other form of taking of evidence, the documents or other objects to be inspected; (g) where appropriate, any request pursuant to Article 10(3) and (4), and Articles 11 and 12 and any information necessary for the application thereof. The request and all documents accompanying the request shall be exempted from authentication or any equivalent formality. Documents which the requesting court deems it necessary to enclose for the execution of the request shall be accompanied by a translation into the language in which the request was written.

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Article 5 Language The request and communications pursuant to this Regulation shall be drawn up in the official language of the requested Member State or, if there are several official languages in that Member State, in the official language or one of the official languages of the place where the requested taking of evidence is to be performed, or in another language which the requested Member State has indicated it can accept. Each Member State shall indicate the official language or languages of the institutions of the European Community other than its own which is or are acceptable to it for completion of the forms.

Article 6 Transmission of requests and other communications Requests and communications pursuant to this Regulation shall be transmitted by the swiftest possible means, which the requested Member State has indicated it can accept. The transmission may be carried out by any appropriate means, provided that the document received accurately reflects the content of the document forwarded and that all information in it is legible.

SECTION 2 RECEIPT OF REQUEST Article 7 Receipt of request 1.

2.

Within seven days of receipt of the request, the requested competent court shall send an acknowledgement of receipt to the requesting court using form B in the Annex. Where the request does not comply with the conditions laid down in Articles 5 and 6, the requested court shall enter a note to that effect in the acknowledgement of receipt. Where the execution of a request made using form A in the Annex, which complies with the conditions laid down in Article 5, does not fall within the jurisdiction of the court to which it was transmitted, the latter shall forward the request to the competent court of its Member State and shall inform the requesting court thereof using form A in the Annex.

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Article 8 Incomplete request 1.

2.

If a request cannot be executed because it does not contain all of the necessary information pursuant to Article 4, the requested court shall inform the requesting court thereof without delay and, at the latest, within 30 days of receipt of the request using form C in the Annex, and shall request it to send the missing information, which should be indicated as precisely as possible. If a request cannot be executed because a deposit or advance is necessary in accordance with Article 18(3), the requested court shall inform the requesting court thereof without delay and, at the latest, within 30 days of receipt of the request using form C in the Annex and inform the requesting court how the deposit or advance should be made. The requested Court shall acknowledge receipt of the deposit or advance without delay, at the latest within 10 days of receipt of the deposit or the advance using form D.

Article 9 Completion of the request 1.

2.

If the requested court has noted on the acknowledgement of receipt pursuant to Article 7(1) that the request does not comply with the conditions laid down in Articles 5 and 6 or has informed the requesting court pursuant to Article 8 that the request cannot be executed because it does not contain all of the necessary information pursuant to Article 4, the time limit pursuant to Article 10 shall begin to run when the requested court received the request duly completed. Where the requested court has asked for a deposit or advance in accordance with Article 18(3), this time limit shall begin to run when the deposit or the advance is made.

SECTION 3 TAKING OF EVIDENCE BY THE REQUESTED COURT Article 10

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General provisions on the execution of the request 1. 2. 3.

4.

The requested court shall execute the request without delay and, at the latest, within 90 days of receipt of the request. The requested court shall execute the request in accordance with the law of its Member State. The requesting court may call for the request to be executed in accordance with a special procedure provided for by the law of its Member State, using form A in the Annex. The requested court shall comply with such a requirement unless this procedure is incompatible with the law of the Member State of the requested court or by reason of major practical difficulties. If the requested court does not comply with the requirement for one of these reasons it shall inform the requesting court using form E in the Annex. The requesting court may ask the requested court to use communications technology at the performance of the taking of evidence, in particular by using videoconference and teleconference. The requested court shall comply with such a requirement unless this is incompatible with the law of the Member State of the requested court or by reason of major practical difficulties. If the requested court does not comply with the requirement for one of these reasons, it shall inform the requesting court, using form E in the Annex. If there is no access to the technical means referred to above in the requesting or in the requested court, such means may be made available by the courts by mutual agreement.

Article 11 Performance with the presence and participation of the parties 1.

2.

3.

4.

If it is provided for by the law of the Member State of the requesting court, the parties and, if any, their representatives, have the right to be present at the performance of the taking of evidence by the requested court. The requesting court shall, in its request, inform the requested court that the parties and, if any, their representatives, will be present and, where appropriate, that their participation is requested, using form A in the Annex. This information may also be given at any other appropriate time. If the participation of the parties and, if any, their representatives, is requested at the performance of the taking of evidence, the requested court shall determine, in accordance with Article 10, the conditions under which they may participate. The requested court shall notify the parties and, if any, their representatives, of the time when, the place where, the proceedings will take place, and, where appropriate, the conditions under which they may participate, using form F in the Annex.

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5.

Paragraphs 1 to 4 shall not affect the possibility for the requested court of asking the parties and, if any their representatives, to be present at or to participate in the performance of the taking of evidence if that possibility is provided for by the law of its Member State.

Article 12 Performance with the presence and participation of representatives of the requesting court 1.

2.

3.

4.

5.

If it is compatible with the law of the Member State of the requesting court, representatives of the requesting court have the right to be present in the performance of the taking of evidence by the requested court. For the purpose of this Article, the term ‘representative’ shall include members of the judicial personnel designated by the requesting court, in accordance with the law of its Member State. The requesting court may also designate, in accordance with the law of its Member State, any other person, such as an expert. The requesting court shall, in its request, inform the requested court that its representatives will be present and, where appropriate, that their participation is requested, using form A in the Annex. This information may also be given at any other appropriate time. If the participation of the representatives of the requesting court is requested in the performance of the taking of evidence, the requested court shall determine, in accordance with Article 10, the conditions under which they may participate. The requested court shall notify the requesting court, of the time when, and the place where, the proceedings will take place, and, where appropriate, the conditions under which the representatives may participate, using form F in the Annex.

Article 13 Coercive measures Where necessary, in executing a request the requested court shall apply the appropriate coercive measures in the instances and to the extent as are provided for by the law of the Member State of the requested court for the execution of a request made for the same purpose by its national authorities or one of the parties concerned.

Article 14

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Council Regulation (EC) No. 1206/2001

Refusal to execute 1.

2.

3.

4.

A request for the hearing of a person shall not be executed when the person concerned claims the right to refuse to give evidence or to be prohibited from giving evidence, (a) under the law of the Member State of the requested court; or (b) under the law of the Member State of the requesting court, and such right has been specified in the request, or, if need be, at the instance of the requested court, has been confirmed by the requesting court. In addition to the grounds referred to in paragraph 1, the execution of a request may be refused only if: (a) the request does not fall within the scope of this Regulation as set out in Article 1; or (b) the execution of the request under the law of the Member State of the requested court does not fall within the functions of the judiciary; or (c) the requesting court does not comply with the request of the requested court to complete the request pursuant to Article 8 within 30 days after the requested court asked it to do so; or (d) a deposit or advance asked for in accordance with Article 18(3) is not made within 60 days after the requested court asked for such a deposit or advance. Execution may not be refused by the requested court solely on the ground that under the law of its Member State a court of that Member State has exclusive jurisdiction over the subject matter of the action or that the law of that Member State would not admit the right of action on it. If execution of the request is refused on one of the grounds referred to in paragraph 2, the requested court shall notify the requesting court thereof within 60 days of receipt of the request by the requested court using form H in the Annex.

Article 15 Notification of delay If the requested court is not in a position to execute the request within 90 days of receipt, it shall inform the requesting court thereof, using form G in the Annex. When it does so, the grounds for the delay shall be given as well as the estimated time that the requested court expects it will need to execute the request. Article 16 Procedure after execution of the request The requested court shall send without delay to the requesting court the documents establishing the execution of the request and, where appropriate, return the

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documents received from the requesting court. The documents shall be accompanied by a confirmation of execution using form H in the Annex.

SECTION 4 DIRECT TAKING OF EVIDENCE BY THE REQUESTING COURT Article 17 1.

2.

3.

4.

5.

6.

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Where a court requests to take evidence directly in another Member State, it shall submit a request to the central body or the competent authority referred to in Article 3(3) in that State, using form I in the Annex. Direct taking of evidence may only take place if it can be performed on a voluntary basis without the need for coercive measures. Where the direct taking of evidence implies that a person shall be heard, the requesting court shall inform that person that the performance shall take place on a voluntary basis. The taking of evidence shall be performed by a member of the judicial personnel or by any other person such as an expert, who will be designated, in accordance with the law of the Member State of the requesting court. Within 30 days of receiving the request, the central body or the competent authority of the requested Member State shall inform the requesting court if the request is accepted and, if necessary, under what conditions according to the law of its Member State such performance is to be carried out, using form J. In particular, the central body or the competent authority may assign a court of its Member State to take part in the performance of the taking of evidence in order to ensure the proper application of this Article and the conditions that have been set out. The central body or the competent authority shall encourage the use of communications technology, such as videoconferences and teleconferences. The central body or the competent authority may refuse direct taking of evidence only if: (a) the request does not fall within the scope of this Regulation as set out in Article 1; (b) the request does not contain all of the necessary information pursuant to Article 4; or (c) the direct taking of evidence requested is contrary to fundamental principles of law in its Member State. Without prejudice to the conditions laid down in accordance with paragraph 4, the requesting court shall execute the request in accordance with the law of its Member State.

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Council Regulation (EC) No. 1206/2001

SECTION 5 COSTS Article 18 1. 2.

3.

The execution of the request, in accordance with Article 10, shall not give rise to a claim for any reimbursement of taxes or costs. Nevertheless, if the requested court so requires, the requesting court shall ensure the reimbursement, without delay, of: - the fees paid to experts and interpreters, and - the costs occasioned by the application of Article 10(3) and(4). The duty for the parties to bear these fees or costs shall be governed by the law of the Member State of the requesting court. Where the opinion of an expert is required, the requested court may, before executing the request, ask the requesting court for an adequate deposit or advance towards the requested costs. In all other cases, a deposit or advance shall not be a condition for the execution of a request. The deposit or advance shall be made by the parties if that is provided for by the law of the Member State of the requesting court.

CHAPTER III FINAL PROVISIONS Article 19 Implementing rules 1.

2.

The Commission shall draw up and regularly update a manual, which shall also be available electronically, containing the information provided by the Member States in accordance with Article 22 and the agreements or arrangements in force, according to Article 21. The updating or making of technical amendments to the standard forms set out in the Annex shall be carried out in accordance with the advisory procedure set out in Article 20(2).

Article 20 Committee 1.

The Commission shall be assisted by a Committee.

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2. 3.

Where reference is made to this paragraph, Articles 3 and 7 of Decision 1999/468/EC shall apply. The Committee shall adopt its Rules of Procedure.

Article 21 Relationship with existing or future agreements or arrangements between Member States 1.

2.

3.

This Regulation shall, in relation to matters to which it applies, prevail over other provisions contained in bilateral or multilateral agreements or arrangements concluded by the Member States and in particular the Hague Convention of 1 March 1954 on Civil Procedure and the Hague Convention of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters, in relations between the Member States party thereto. This Regulation shall not preclude Member States from maintaining or concluding agreements or arrangements between two or more of them to further facilitate the taking of evidence, provided that they are compatible with this Regulation. Member States shall send to the Commission: (a) by 1 July 2003, a copy of the agreements or arrangements maintained between the Member States referred to in paragraph 2; (b) a copy of the agreements or arrangements concluded between the Member States referred to in paragraph 2 as well as drafts of such agreements or arrangements which they intend to adopt; and (c) any denunciation of, or amendments to, these agreements or arrangements.

Article 22 Communication By 1 July 2003 each Member State shall communicate to the Commission the following: (a) the list pursuant to Article 2(2) indicating the territorial and, where appropriate, the special jurisdiction of the courts; (b) the names and addresses of the central bodies and competent authorities pursuant to Article 3, indicating their territorial jurisdiction; (c) the technical means for the receipt of requests available to the courts on the list pursuant to Article 2(2); (d) the languages accepted for the requests as referred to in Article 5. Member States shall inform the Commission of any subsequent changes to this information.

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Council Regulation (EC) No. 1206/2001

Article 23 Review No later than 1 January 2007, and every five years thereafter, the Commission shall present to the European Parliament, the Council and the Economic and Social Committee a report on the application of this Regulation, paying special attention to the practical application of Article 3(1)(c) and 3, and Articles 17 and 18.

Article 24 Entry into force 1. 2.

This Regulation shall enter into force on 1 July 2001. This Regulation shall apply from 1 January 2004, except for Articles 19, 21 and 22, which shall apply from 1 July 2001.

This Regulation shall be binding in its entirety and directly applicable in the Member States in accordance with the Treaty establishing the European Community.

Done at Brussels, 28 May 2001 [Annexes omitted]

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CHINESE SOCIETY OF PRIVATE INTERNATIONAL LAW

MODEL LAW OF PRIVATE INTERNATIONAL LAW OF THE PEOPLE'S REPUBLIC OF CHINA

*

(Sixth Draft, 2000) CHAPTER I GENERAL PRINCIPLES Article 1 Purposes and Basic Principles This law is formulated with a view to safeguarding the legitimate rights and interests of the parties in international civil and commercial contacts on the basis of equality and mutual benefits, solving international disputes thereof in a fair and reasonable manner, and promoting the development of international civil and commercial relations.

Article 2 Scope of Application and Subject Matters This law provides the jurisdiction, application of law and the judicial assistance including recognition and enforcement of foreign judgments and arbitral awards in international civil and commercial relations. International civil and commercial relations refer to the civil and commercial relations in which one or both parties are foreign natural persons, stateless person, foreign legal person, other foreign organization, foreign state, international organization, or the domicile, habitual residence or seat of business are located in different countries, or the subject matter is located in abroad, or the legal facts that bring about the formation, modification, and termination of such relations occur abroad.

*

This model law drawn up by Chinese Society of Private International Law is academic in nature and can be used only for reference by the legislative and judicial bodies or other government departments working for foreign affairs and the colleges and schools of law and legal science research institutes as well. English translation by the Chinese Society of Private International Law headed by Professor Han Depei, Research Institute of International Law of Wuhan University, China.

Texts, Materials and Recent Developments

Article 3 Foreigners’ Legal Status Unless otherwise provided by law, a foreigner who engages in international civil and commercial activities within the territory of the People’s Republic of China (the PRC) shall enjoy national treatment, whose legitimate rights and interests are protected by the law of the PRC. In case a foreign state unfairly restricts in its territory the civil and commercial rights of a party of the PRC, the latter shall impose reciprocal measures on a party of that country who is within the territory of the PRC.

Article 4 Territorial Principle Any person who engages in international civil and commercial activities within the territory of the PRC shall observe this law and other relevant laws of the PRC.

Article 5 Settlement Criteria of International Civil and Commercial Issues Unless otherwise provided by law, any court or arbitral institution of the PRC that hears an international civil and commercial case, or any administrative body of the PRC that handles an international civil and commercial matter, shall abide by this law.

Article 6 Superiority of International Treaties If any international treaty concluded or acceded to by the PRC contains provisions differing from those in this law, the provisions of the international treaty shall apply, unless the provisions are ones on which the PRC has announced reservations.

Article 7 Gap-filling of International Practice In case the law of the PRC or the international treaties concluded or acceded to by the PRC have no provisions concerning jurisdiction, application of law and judicial assistance in civil and commercial matters, the international practice may apply.

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Where, according to this law, the applicable law is the law of the PRC, but the PRC law and the international treaties concluded or acceded to by the PRC have no provisions for the relevant matters, international practice may also apply.

Article 8 Renvoi The applicable law provided under this law means the current, effective civil and commercial substantive law and does not include conflict rules unless otherwise provided by this law. In matters concerning personal or family status, a reference back (Renvoi) to the PRC law by foreign conflict rules shall be accepted.

Article 9 Qualification The qualification of international civil and commercial relations shall be governed by the law of forum. In case the issue cannot be decided properly under the law of forum, the issue can be decided by reference to a law which may be chosen to apply.

Article 10 Determination of Connecting Points The determination of a connecting point, with the exception of the nationality of a natural person, shall be governed by the law of forum.

Article 11 Construction of Lex Causae The construction of an applicable law shall be governed by the law and rules of construction of the country to which the applicable law belongs.

Article 12 Ascertainment of Foreign Law Where a court or an arbitral institution hears an international civil and commercial case, or an administrative body of the PRC handles an international civil and commercial matter, it may request a party to produce or prove the foreign law which shall be applied under this law, or it may ascertain its contents ex officio. In

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case the ascertainment proves impossible or there is no pertinent rules of law after ascertainment, the law analogous to that foreign law or the law of the PRC shall apply.

Article 13 Evasion of Law Where the parties intentionally evade the mandatory or prohibitive provisions of law of the PRC, the law intended by the parties shall not apply.

Article 14 Public Order The application of a foreign law designated to govern in accordance with this law shall be excluded if such application produces a result which is manifestly incompatible with the public order of the PRC, and the analogous law of the PRC may apply.

Article 15 Preliminary Questions Where the resolution of the principal issue in an international civil and commercial case or matter depends upon the resolution of a preliminary issue, the law applicable to the civil and commercial relation in which the preliminary issue was involved shall be determined by the nature of the civil and commercial relation in accordance with this law.

Article 16 Interregional and Interpersonal Conflicts In case a law of a country shall be applied under this law, and different laws are enforced in the different districts of that country, or different people of that country are governed by different laws, the applicable law shall be determined by the rules of that country regulating domestic conflict of laws. In case no such rules can be found in the law of that country, the law having the closest connection with the international civil and commercial relation shall be directly applied.

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Article 17 Intertemporal Conflict of Laws In case a law of a country shall be applied under this law, if the applicable law changes later, it has no retrospective effect unless otherwise provided by law.

Article 18 Procedural Issues Unless otherwise provided by this law, a procedural issue is governed by the law of forum.

CHAPTER II JURISDICTION SECTION 1 GENERAL JURISDICTION Article 19 Scope of Application Judicial jurisdiction shall be exercised in accordance with this law, when an international civil and commercial case is heard within the territory of the PRC.

Article 20 General Jurisdiction Subject to the exclusive jurisdictions provided in this law or to the choice of the parties, the courts of the PRC shall have jurisdiction over a defendant in any case whose domicile or habitual residence is located within the territory of the PRC.

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SECTION 2 SPECIAL JURISDICTION Article 21 Status and Capacity The courts of the PRC shall also have jurisdiction over an action arising from the status and capacity of a natural person, if the defendant does not live within the territory of the PRC whereas the domicile or the habitual residence of the plaintiff is situated within the territory of the PRC.

Article 22 Declaration of Disappearance or Death The courts of the PRC shall have jurisdiction over an application for a declaration of disappearance or a declaration of death, if the domicile or the habitual residence of the applicant is situated within the territory of the PRC.

Article 23 Real Rights The courts of the PRC shall have jurisdiction over an action arising from a dispute in respect of real rights, if the property is located within the territory of the PRC.

Article 24 Branches The courts of the PRC shall have jurisdiction over an action arising from commercial activity, if the branch or representative entity of the defendant is situated within the territory of the PRC, and the dispute resulted directly from the activity of that branch or representative entity.

Article 25 Trusts The courts of the PRC shall have jurisdiction over an action arising from a dispute in respect of a trust, if the place where the trust is managed, or the place where the trust property is located, or the domicile or the habitual residence or the seat of business of the trustee is located within the territory of the PRC.

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Article 26 Bankruptcy The courts of the PRC shall have jurisdiction over an action arising from a bankruptcy, if the place where the bankrupt has its principal business establishment or the place where the bankrupt’s property for liquidation is located is within the territory of the PRC.

Article 27 Contracts The courts of the PRC shall have jurisdiction over an action arising from a contractual relation, if the domicile, the habitual residence or the business establishment of the defendant, or the place where the contract is concluded, or the place where the contract is performed or the place where the subject matter of the contract is located is within the territory of the PRC.

Article 28 Insurance Contracts Unless otherwise provided in this chapter, the courts of the PRC shall have jurisdiction over an action arising from a dispute in respect of a insurance contract, if the domicile or the habitual residence of the policy-holder, or the domicile or the seat of business of the major insurer in a multiple insurance, or in a liability insurance the place where the accident occurs or the place where the insured subject matter is located is within the territory of the PRC.

Article 29 Negotiable Instruments The courts of the PRC shall have jurisdiction over an action arising from a dispute in respect of a negotiable instrument, if the place where the negotiable instrument is executed or delivered is within the territory of the PRC.

Article 30 Employment Contracts The courts of the PRC shall have jurisdiction over an action arising from an employment contract, if during the employment or within a reasonable time after the employment is ceased, the domicile, habitual residence or the working place of the employee is situated within the territory of the PRC.

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Article 31 Consumers’ Rights and Interests The courts of the PRC shall have jurisdiction over an action arising from a dispute in respect of consumer rights and interests, if the domicile or the habitual residence of the consumer is situated within the territory of the PRC.

Article 32 Torts The courts of the PRC shall have jurisdiction over an action arising from a tortious act, if the place where the act is committed or the results of the act occur is within the territory of the PRC.

Article 33 Transportation Accidents The courts of the PRC shall have jurisdiction over an action arising from a claim for damages in respect of a railway, road, waterway or airway accident, if the place where the vehicle or the vessel concerned first arrives, or the place where the vessel responsible for such injury is detained, or the place where the aircraft concerned first landed, is within the territory of the PRC.

Article 34 Salvage Expenses The courts of the PRC shall have jurisdiction over an action arising from a claim with respect to salvage expenses of a vessel or cargo, if the place where the salvage takes place, or the place where the salvaged vessel first arrives, or the place where the salvaged vessel is detained, or the place where the salvaged cargo is seized, is within the territory of the PRC.

Article 35 General Average The courts of the PRC shall have jurisdiction over an action arising from general average, if the place where the vessel concerned first arrives, or the place where the general average is adjusted, or the place where the voyage ends, is within the territory of the PRC.

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Article 36 Arrest of Ship The courts of the PRC shall have jurisdiction over an action directly related to an arrest of a ship as a result of commercial activity, if the place where the ship is arrested is within the territory of the PRC.

Article 37 Product Liability The courts of the PRC shall have jurisdiction over an action arising from the damages concerning product liability, if the place where the damage occurs, or the place where the product is manufactured, or the place where the product is sold, is within the territory of the PRC.

Article 38 Environmental Pollution The courts of the PRC shall have jurisdiction over an action arising from damages as a result of environmental pollution, if the place where the damage of the pollution occur is within the territory of the PRC.

Article 39 Unfair Competition The courts of the PRC shall have jurisdiction over an action arising from damages suffered as a result of unfair competition, if the place where the act of unfair competition is conducted or the place where the damage occurs is within the territory of the PRC.

Article 40 Unjust Enrichment and Voluntary Service The courts of the PRC shall have jurisdiction over an action arising from the obligation dispute of unjust enrichment or voluntary service, if the place where the obligation arises is within the territory of the PRC.

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Article 41 Divorce The courts of the PRC shall have jurisdiction over a divorce action, if a party having a domicile or habitual residence in another country has the nationality of the PRC, and that country where his domicile or habitual residence is located declines or fails to provide judicial remedies.

Article 42 Adoption The courts of the PRC shall have jurisdiction over an action arising from the formation and the validity of an adoption, if the place where the adoption is formed is within the territory of the PRC. The courts of the PRC shall have jurisdiction over an action arising from the dissolution of an adoption, if the domicile or the habitual residence of the adopter or the adopted is within the territory of the PRC, or the adopted has the nationality of the PRC.

Article 43 Guardianship The courts of the PRC shall have jurisdiction over an action arising from a guardianship dispute, if the domicile or the habitual residence of the ward is located within the territory of the PRC.

Article 44 Maintenance The courts of the PRC shall have jurisdiction over an action arising from a maintenance dispute, if the domicile or habitual residence of the supported person is located within the territory of the PRC.

Article 45 Succession The courts of the PRC shall have jurisdiction over an action arising from a succession dispute, if the domicile or the habitual residence of the deceased, or the place where the main assets locate is within the territory of the PRC.

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SECTION 3 EXCLUSIVE JURISDICTION Article 46 Exclusive Jurisdiction Unless otherwise provided by law, the courts of the PRC shall have jurisdiction over the following actions:

(1) those arising from a dispute concerning an immovable located within the territory of the PRC; (2) those arising from a dispute concerning operations in a harbor located within the territory of the PRC; (3) those arising from the validity of incorporation, or the dissolution or liquidation of a legal person or other organization, or the internal affairs between the legal person and shareholders or between the shareholders and directors or between the managers themselves, if the place of registration of that legal person or organization, or its principal business establishment is located within the territory of the PRC; (4) those arising from a dispute concerning the validity of an intellectual property the registration formalities of which need to be completed within territory of the PRC; (5) those arising from a dispute concerning a Chinese-foreign equity joint venture contract, a Chinese-foreign cooperative enterprise contract, or a contract of Chinese-foreign cooperative exploration and development of natural resources, which is performed within the territory of the PRC.

SECTION 4 JURISDICTION BY PARTIES’ AGREEMENT Article 47 Jurisdiction by Agreement The parties to a dispute of foreign-related contract or to a dispute of foreign-related property rights and interests may, by written agreement concluded before or after the occurrence of the dispute, choose a PRC court or a foreign court to exercise

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jurisdiction over the dispute relating to that contract or the property rights and interests. The court chosen by such agreement shall be factually connected with the dispute. The jurisdiction by agreement is exclusive. However, the choice of jurisdiction of a court by agreement shall not violate the provisions of exclusive jurisdiction under this law.

SECTION 5 OTHER PROVISIONS RELATED TO JURISDICTION Article 48 Voluntary appearance of the Defendant In case a defendant in a foreign-related civil and commercial action does not challenge the jurisdiction of a court of the PRC but voluntarily appears in the proceedings, and argues the merits of the case or lodges a counter-claim, he shall be deemed to have admitted that the court has jurisdiction over the case, subject to the provisions of exclusive jurisdiction of this law. The defendant has the right to contest jurisdiction no later than at the time of the first defense on the merits.

Article 49 Arbitration Jurisdiction Where the parties, by a written arbitration agreement, agree to submit disputes that occurred or will occur in the future with respect to a foreign-related contract or other foreign-related commercial affairs to an arbitral institution or an arbitral tribunal for decision, it will not be restricted by various provisions of judicial jurisdictions under this law. In case there exists an arbitration agreement and one party still initiates an action in a PRC court, the court shall at the request of the defendant instruct the party to submit the dispute to arbitration, unless the arbitration agreement is void, inoperative or incapable of being performed. A PRC court may not exercise its jurisdiction over a protest to the validity of an arbitration agreement, except that the protest to the validity of an arbitration agreement is related to a case which is heard by a Chinese arbitral institution or the location of the arbitration is within the territory of the PRC.

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Article 50 Discretionary Jurisdiction A PRC court may exercise its jurisdiction over an action which is not expressly provided under this law, if the court considers that the case has proper connections with the PRC and it is reasonable to exercise the jurisdiction.

Article 51 Forum Non Conveniens A PRC court may at the request of the defendant decide not to exercise its jurisdiction over an action which is under the jurisdiction of the court of the PRC under this law, if the PRC court considers the actual exercise of jurisdiction will result in obvious inconvenience to the parties and to the adjudication of the case, and another court is more convenient for the adjudication of the case.

Article 52 Necessity Jurisdiction A PRC court may exercise its jurisdiction over an action initiated by the plaintiff, if it is evident that no other court may provide judicial remedy.

Article 53 Jurisdictional Immunity A PRC court shall not take cognizance of an action against a foreign state, an international organization or a foreigner, if, in accordance with the international treaties concluded or acceded to by the PRC and with the law of the PRC, the foreign state, the international organization or the foreigner is immune from the judicial jurisdiction of the PRC courts. In case a foreign court restricts the legitimate immunity of the PRC or its citizens, a PRC court may impose reciprocal restrictions upon the foreign state or its citizens.

Article 54 Parallel Proceedings Unless otherwise provided by the international treaties concluded or acceded to by the PRC, where a foreign court has rendered a judgment over an action between the same parties on the same subject-matter or the action is pending before the court, a PRC court may not exercise its jurisdiction if it predicts the foreign

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judgment can be recognized in the PRC. However, a PRC court may exercise its jurisdiction over the action if the PRC court seizes the case first, or the legitimate interests of the parties cannot be safeguarded if the PRC court does not exercise the jurisdiction.

Article 55 Non-substantive Jurisdiction The exercise of jurisdiction by a foreign court over the merits of a case does not exclude a PRC court from taking protective or other temporary measures on assets related to the case, nor does it exclude a PRC court from exercising its jurisdiction over the recognition and enforcement of the judgment of the case.

Article 56 Counter-Claims A PRC court having jurisdiction over the claim of the plaintiff shall have jurisdiction over the counter-claim brought by the defendant in the same case.

Article 57 Continuous Jurisdiction The jurisdiction over a case enjoyed by a PRC court shall remain effective in all subsequent proceedings arising out of the original cause of action of the case.

Article 58 Due Process A PRC court having jurisdiction over an action under this law shall lawfully and effectively serve the documents concerning the action to the defendant during the proceedings, and give him reasonable notices and opportunities to defend himself.

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CHAPTER III APPLICATION OF LAW SECTION 1 NATIONALITY, DOMICILE, HABITUAL RESIDENCE AND SEAT OF BUSINESS Article 59 Acquisition and Loss of Nationality Acquisition and loss of nationality of a natural person shall be governed by the law of the country involved at the time when the nationality is in question.

Article 60 Conflict of Nationalities In case a natural person has two or more foreign nationalities, the national law shall be the law of his domicile or habitual residence. In case a natural person has no domicile or habitual residence in all the countries of his nationalities, the national law shall be the law of the country with which he has the closest connection. The PRC does not recognize dual or multiple nationality of a Chinese citizen. The law of the PRC shall be the national law of a natural person with the PRC nationality. In case a natural person has no nationality or his nationality cannot be ascertained, the law of his domicile shall apply instead of his national law. In case the domicile of a natural person is unknown or cannot be ascertained, the law of his habitual residence shall apply instead of the law of his domicile. In case the habitual residence of the natural person is unknown or cannot be ascertained, the law of the place where he is living shall apply instead of his national law.

Article 61 Domicile and Habitual Residence of Natural Person A natural person has his domicile in the place in which he is living with the intention of staying permanently. The domicile of a person who has no capacity or a limited capacity shall be the same domicile as the domicile of his legal agent or guardian. A natural person’s habitual residence is the place where he resides regularly.

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Article 62 Conflict of Domiciles In case a natural person has two or more domiciles simultaneously and one of them is within the territory of the PRC, his domicile shall be the one within the territory of the PRC. In case all the domiciles are situated abroad, his domicile shall be the one which has the closest connection with the civil or commercial relation from which the dispute arises. In case a natural person’s domicile is unknown or cannot be ascertained, his habitual residence is deemed to be his domicile. In case a natural person’s habitual residence is unknown or cannot be ascertained, his present residence is deemed to be his domicile.

Article 63 Domicile of Legal Person The domicile of a legal person or other organization is at the place of its principal business establishment.

Article 64 Seat of Business and Related Conflict The seat of business of a natural person or of a legal person or of other organization is at the place where the business is managed. In case the natural person, legal person or other organization has two or more seats of business, the seat of business shall be the one that has the closest connection with the civil and commercial relation from which the dispute arises. In case the natural person, legal person or other organization has no seat of business, the domicile or habitual residence shall be regarded as the connecting point.

SECTION 2 CAPACITY FOR RIGHTS AND CAPACITY TO ACT Article 65 Capacity for Rights of Natural Person A natural person’s capacity for rights is governed by the law of his domicile or habitual residence.

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Article 66 Declaration of Disappearance or Death The declaration of disappearance or of death is governed by the law of the domicile or habitual residence of the declared person. However, the court of the PRC may also make such declaration according to the law of the PRC, if the person’s assets are in the territory of the PRC, or if the legal relation should be decided according to the law of the PRC.

Article 67 Capacity to Act of Natural Person The capacity to act of a natural person is governed by the law of his domicile or habitual residence. If a foreigner does a legal act in the territory of the PRC for which he would have no capacity to act or a limited capacity to act under the law of his domicile or habitual residence, he is deemed to have capacity to act in so far as he would be capable under the law of the PRC, except the legal act relating to family and inheritance or concerning real rights in immovable property.

Article 68 Capacity for Rights of Legal Person The capacity for rights of a legal person or other organization is governed by the law of the place where it is set up or its principal business establishment is situated.

Article 69 Capacity to Act of Legal Person The capacity to act of a legal person or other organization is governed by the law of the place where it is set up or its principal business establishment is situated and, in addition, by the lex loci actus.

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SECTION 3 FORMS OF JURISTIC ACT AND AGENCY Article 70 Form of Juristic Act The form of juristic act is governed by the lex loci actus or the law applicable to the juristic act itself. The parties may also choose another law as the law applicable to the juristic act. But concerning the disposing of immovable property, the form of the juristic act is governed by the law of the place where the property is situated.

Article 71 Entrust Agency Under entrust agency, the relation between the principal and the agent is governed by the law expressly chosen by the parties. In absence of such choice of law, the law of the place where the agent’s seat of business is located when the relationship is formed shall apply. In case the agent has no seat of business, the law of the place of his domicile or habitual residence shall apply. The relationship between the principal and the third party as well as between the agent and the third party shall be governed by the law of the place where the agent’s seat of business is situated when he carries the agency out. The lex loci actus of the agency is applicable if the agent has no seat of business or the agency is carried out in a site other than the place of the seat of business.

Article 72 Statutory and Designated Agency The statutory agency and designated agency are governed by the law of the place where the agency act occurs or the law of the place where the domicile or habitual residence of the agent is situated when the agency is carried out.

SECTION 4 LIMITATION OF ACTION Article 73 Limitation of Action The limitation of action is governed by the law applicable to the civil or commercial relation.

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SECTION 5 PERSONAL RIGHTS Article 74 Rights of Personality Right of personality is governed by the law of the domicile or habitual residence of the parties.

Article 75 Rights of Status Right of status is governed by the law of the domicile or habitual residence of the party unless otherwise provided by this law.

SECTION 6 REAL RIGHTS Article 76 Classification of Movables and Immovables The classification between the movables and immovables is governed by the law of the place where the property is located.

Article 77 Real Rights in Immovables Real rights in immovables are governed by the law of place where the immovables are located

Article 78 Validity of the Immovable Property Document The validity of the immovable property document is governed by the law of the place where the immovable property is located or the place where the document is issued.

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Article 79 Acquisition or Loss of Real Rights in Movables The acquisition or loss of real rights in movables is governed by the law of the place in which the movables are situated when the acquisition or the loss occurs.

Article 80 Assignment of Title of Tangible Movables The assignment of title in transaction of tangible movables is governed by the law chosen by the parties. Failing such choice, the lex situs at the time when the goods are under the buyer’s control shall apply. Before buyer’s control, the assignment of the tile in transaction is governed by the lex situs at that time.

Article 81 Content of Real Rights in Movables The content and exercise of real rights in movables are governed by the lex situs with the proviso that the exercise does not violate the lex loci actus.

Article 82 Certificates of Real Rights in Movables The certificates of real rights in movables are governed by the law designated on them. Failing such designation, the lex loci actus which is effective at the time when the holder uses the certificates shall apply.

Article 83 Commercial Securities The commercial securities are governed by the law designated on them. Failing such designation, the law of the place where the seat of business of the establishment issuing the securities is situated shall apply.

Article 84 Ownership of Ships The acquisition, transfer and extinguishment of the ship ownership are governed by the law of the flag.

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Article 85 Mortgage of Ships The mortgage of the ship is governed by the law of the flag. Before and during the period of bareboat charter, the establishment of the ship mortgage is governed by the law of the place where the ship was registered originally.

Article 86 Possessory Lien of Ships The possessory lien of the ship is governed by the law of the place where the lien is established.

Article 87 Maritime Lien The maritime lien is governed by the lex fori.

Article 88 Right Rights in Aircrafts and Other Transportation Vehicles The real rights in the aircraft or other transportation vehicles are governed by the law of the place of registration.

Article 89 Real Rights in Movables in Transit Real rights in movables in transit are governed by the law of the place of destination.

Article 90 Real Rights in Common Real rights in common are governed by the law chosen by the parties. Failing such choice, the lex situs shall apply.

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Article 91 Trusts The trust is governed by the law expressly chosen by the settlor in the written documents establishing or evidencing the existence of the trust property. Failing choice of law by the settlor, or failing provision of trust in the chosen law, the law of the place with which it has the closest connection shall apply. In general, the law of the place of the trust management designated by the settlor, or the law of the place of the trust property, or the law of the place where the trustee’s habitual residence is situated, or the law of his seat of business, or the law of the place where the aim of the trust is fulfilled may be regarded as the law of the place with the closest connection.

SECTION 7 INTELLECTUAL PROPERTY Article 92 Scope of Intellectual Property The scope of intellectual property shall be decided in accordance with relevant international treaties concluded or acceded to by the PRC and the relevant law of the PRC.

Article 93 Patents The existence, content and validity of the patent right are governed by the law of the place of application.

Article 94 Trademarks The existence, content and validity of the trademark right are governed by the law of the place of registration.

Article 95 Copyrights The existence, content and validity of the copyright are governed by the law of the place where the right is claimed.

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Article 96 Other Intellectual Property The existence, content and validity of other relevant rights included in the scope of intellectual property are governed by the law of the place where the rights are registered or claimed.

Article 97 Intellectual Property Contracts Intellectual property contracts are governed by the provisions of this law relating to contracts.

Article 98 Job-related Intellectual Property The intellectual property acquired by the employee in his terms of reference is governed by the law regulating the employment contract.

Article 99 Torts in Intellectual Property The legal remedy for torts in intellectual property is governed by the law of the place where the protection is sought.

SECTION 8 LAW OF OBLIGATIONS Subsection I Contracts Article 100 Party Autonomy Contracts are governed by the law the parties agreed on and explicitly chose except as otherwise stipulated by the PRC law and by the treaties concluded or acceded to by the PRC. The choice of law shall not be contrary to the mandatory or prohibitive provisions of the lex patriae. Parties to a contract can make a choice of law when or after the contract is concluded but before the court holds hearing. And after the contract is concluded,

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parties can also vary the law chosen at the time of the conclusion of the contract. The variation has retrospective effect, but without any prejudice to the rights and benefits of the third party. Parties can decide whether the law they chose is applied to the whole contract, or only to one or several parts of the contract.

Article 101 The Closest Connection Failing choice of the law, the contract is governed by the law of the place with which it has the closest connection. Generally, the law of the closest connection with the following contracts is decided in accordance with the following provisions: (1) The contract of international sale of goods is governed by the law of the place where the seller’s seat of business is located at the time of the conclusion of the contract. If the contract was concluded at the buyer’s seat of business, or the contract provides expressly that the seller must perform his obligation of delivering the goods at the buyer’s seat of business, or the contract was concluded on terms determined mainly by the buyer and in response to an invitation directed by the buyer to person invited to bid, the law of the place of the buyer’s seat of business shall apply. (2) The transportation contract is governed by the law of the place of the carrier’s seat of business. (3) The insurance contract is governed by the law of the place of the insurer’s seat of business. (4) The contract of payment or its settlement is governed by the law of the place where the payment or settlement is carried out. The using of currency is governed by the law of the issuing state or region. (5) The contract of supplying sets of equipment is governed by the law of the place where the equipment is installed and operated. (6) The contract relating to immovables is governed by the lex situs. (7) The lease contract of movables is governed by the law of the place of the lessor’s seat of business.

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(8) The contract of technology transfer is governed by the law of the place of transferee’s seat of business. (9) Technology development contract, technical consulting contract and technical service contract are governed by the law of the place of the entrusting party’s seat of business. (10) Contract to transfer the right of using trademark is governed by the law of the place of transferor’s seat of business. (11) The copyright transfer contract is governed by the law of the place of the owner’s domicile or habitual residence. (12) The contract of processing or the contract of installation on order, and other such kind of contracts are governed by the law of the place of the processor’s or the acceptor’s seat of business. (13) The contract of project construction is governed by the law of the place where the project is located. (14) The employment contract is governed by the law of the place where the work is carried out. (15) The contract of bank loan or guaranty is governed by the law of the place where the loaning bank or the guaranty bank is located respectively. (16) The contract of common loan or guaranty is governed by the law of the place of the domicile, habitual residence or the seat of business of the lender or guarantor. (17) Contracts to issue or sell or transfer bonds are governed by the law of the place of issuing or selling or transferring bonds respectively. (18) The consumer contract is governed by the law of the place of the consumer’s domicile or habitual residence. (19) The donation contract is governed by the law of the place of the donator’s domicile or habitual residence. (20) The trust contract is governed by the law of the place of the trust management assigned by the settlor, or by the law of the place where the trust property is located, or by the law of the trustee’s habitual residence or seat of business, or the law of the place where the aim of the trust is fulfilled.

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(21) The entrust contract is governed by the law of the place of the trustee’s domicile, habitual residence or seat of business. (22) The warehouse safekeeping contract is governed by the law of the place of the warehouse safeguard’s seat of business. (23) The exchange business contract is governed by the law of the place where the exchange is located. (24) The auction contract is governed by the law of the place where the auction is held. If the above contracts apparently have a closer connection with another state or region, the law of that state or region shall apply. Article 102 Exclusive Application of Chinese Law in Contracts The following contracts, performed within the territory of the PRC, concluded between Chinese and foreign natural persons or legal person and other organization, shall be governed by the PRC law: (1) the Chinese-foreign equity joint venture contract; (2) the Chinese-foreign cooperative enterprise contract; (3) the contract of Chinese-foreign cooperative exploration and development of natural resources ; (4) the contract of Chinese-foreign cooperative development of housing and land; (5) the contract for a foreign natural person, legal person or other organization to contractually manage the PRC enterprises within the territory of the PRC. Article 103 Forms of Issuing Negotiable Instruments The form of issuing bill of exchange, promissory note and check is governed by the law of the place where the negotiable document is issued. But the items of check at the time of the issue may also be governed by the law of the place of payment, if agreed by parties to it.

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Article 104 Endorsement, Acceptance, Payment and Warrant of Negotiable Instruments The endorsement, acceptance, payment and warrant of a negotiable instrument is governed by the lex loci actus.

Article 105 Recourse Right on Negotiable Instruments The time limits of exercising the recourse right on a negotiable instrument is governed by the law of the place where the instrument is issued.

Article 106 Time Limits of Presentation The time limits within which the instrument shall be presented, the way in which proof of refusal to accept or to pay is drawn up and the time limits for drawing up the proof of refusal to accept or to pay are governed by the law of the place of payment.

Article 107 Preservation of Negotiable Instruments’ Rights Where the negotiable instrument is lost, the procedure for the loser to claim for preserving the instrument rights is governed by the law of the place of payment.

Article 108 Salvage Unless otherwise agreed by the parties, the salvage of the sea operated inside a country’s territory waters or inland waters is governed by the law of the place of operation; the salvage on the high seas is governed by the law of the flag of the salvaging ship; the salvage between two ships with the same nationality is governed by the law of the flag common to them.

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Article 109 Adjustment of General Average The adjustment of general average is governed by the rules agreed by the parties to it. Failing such agreement, the law of the place of the adjustment shall apply.

Article 110 Contract and International Treaties If the international treaties concluded or acceded to by the PRC have direct provisions governing issues concerning contract, they shall apply to the contracts concluded between the natural person, legal person and other organization of the PRC and the natural person, legal person and other organization of the contracting state.

Article 111 Choice of International Practice and International Treaties In a contract, the parties may choose the international practice as well as the international civil and commercial treaties to apply.

Subsection II Torts Article 112 Torts The tortious act is governed by the law of the place of the act, which includes the law of the place where the tortious act is committed and the law of the place where the results of the act occur. In case different stipulations exist between the law of the place where the tortious act is committed and the law of the place where the results of the act occur, the one more favorable to the injured party shall apply.

Article 113 Closer Connection Where the whole process of a tort shows that the domicile, habitual residence, nationality, seat of business of the parties or the place in which other connecting points are centered has a closer connection with the tortious incident, the law of the place which has the closest connection shall apply.

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Article 114 Common Lex Patriae Where the injuring party and the injured party have the same nationality or have domicile or habitual residence in the same country or district, the law of the same nationality, or that of the domicile or habitual residence in the same country or district may also apply.

Article 115 Torts Related to Previously Existed Civil and Commercial Relationship The law governing the civil and commercial relationship previously existed between the injuring party and the injured party may also apply, if the application of the law is more favorable to the injured party.

Article 116 Application of the Lex Fori The injuring party and the injured party may agree to choose the law of the forum as the applicable law after the occurrence of the tortious act, but the parties shall not choose the law other than the law of the forum as the applicable law.

Article 117 Restrictive Double Requirements Where the law of a foreign country or district is the law applicable to a tortious act committed outside the territory of the forum country, and it contradicts the provisions stipulated by the law of the PRC on the determination and the limitation of liability for torts, the law of the foreign country shall not apply.

Article 118 Traffic Accidents Claims for damages arising from a traffic accident, which involves vehicles, whether motorized or not, and is connected with traffic on a public highway, on a ground open to the public or on a private ground to which certain persons have a right of access, shall be governed by the law of the place where the accident occurs.Where the vehicle involved in an accident is registered in a country other than that where the accident occurs, the law of the country of registration is applicable for the determination of the injuring party’s liability towards the following persons involved in the accident:

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(1) the driver, the owner of the vehicle or any other person having control of or interest in the vehicle regardless of the locality of their domicile or habitual residence, (2) a victim who is a passenger and whose domicile or habitual residence locates outside the country where the accident occurs, (3) a victim injured outside the vehicle that is involved in the accident and whose domicile or habitual residence is in the country of registration.

Article 119 Maritime Torts A tortious act occurred in the territory water or inland water of a country, whether or not the effect of such act exists only within the vessel or beyond, shall all be governed by the law of the place where the tortious act is committed. Where the effect of the act exists only within the vessel, the law of the flag may also apply. A tortious act occurred on the high seas shall be governed by the law of the place where the court hearing the case locates. However, where the effect of the act exists only within the vessel, the law of the flag shall apply. Claims for damages arising from collision of vessels having the same nationality shall be governed by the law of the flag, no matter where the collision occurs.

Article 120 Aircraft Torts A tortious act occurred in an aircraft shall be governed by the law of the country where the aircraft is registered. Claims for damages arising from an air accident which causes passenger casualties or property damage shall be governed by the law of the place where the aircraft is registered, or by the law of the place where the tortious act is committed. Claims for damages arising from an air accident which causes casualties or property damage on the ground shall be governed by the law of the place where the accident occurs. Claims for damages arising from an aircraft collision shall be governed by the law of the place where the non-negligent aircraft is registered. Where both aircrafts are negligent, the law of the place where the court hearing the case locates shall apply.

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Article 121 Product Liability Claims for damages relating to product liability shall be governed by the law of the place where the tortious act is committed, if that is also the place of the domicile or the habitual residence of the person directly injured, or the place of principal establishment or the seat of business of the person claimed to be liable, or the place where the product was acquired by the person directly injured. The law of the domicile or habitual residence of the person directly injured may also apply, if that place is also the place of the principal establishment or the seat of business of the person claimed to be liable, or the place where the product was acquired by the person directly injured.

Article 122 Unfair Competition Claims for damages arising from unfair competition shall be governed by the law of the place where the result of the tort occurs.

Article 123 Environmental Pollution Claims for damages arising from environmental pollution shall be governed by the law of the place where the result of the tort occurs.

Article 124 Nuclear Torts Claims for damages arising from loss of control of a nuclear facility or from the transportation of nuclear substances shall be governed by the law of the place where the result of the tort occurs.

Article 125 Defamation In an action for damages based on defamation by the media through big or small character posters, printed materials, radio broadcast, television, internet or any other public dissemination media, the plaintiff may choose the law of the place where the injured party has his domicile or habitual residence, or the law of the place where the injuring party has his domicile or habitual residence, or the law of

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the place where the dissemination act takes place, or the law of the place where the result of the tort occurs, as the applicable law.

Article 126 Civil Fraud Claims for damages based on an act of civil fraud shall be governed by the law of the place where the result of the tort occurs.

Article 127 Scope of Tort Applicable Law The law governing a tortious act determines the nature of the tortious act, the liable person and his capacity for liability, the basis and the extent of the liability, the basis of liability attribution, the person entitled to apply for damages, the means and scopes of damages, and the assignment and succession of the right to damages.

Article 128 Exemption and Limitation of Liability The exemption and limitation of liability shall also be governed by the law of the place where the court hearing the case locates in addition to the law governing the tortious act.

Subsection III Unjust Enrichment and Voluntary Service Article 129 Unjust Enrichment Unjust enrichment shall be governed by the law of the place where the unjust enrichment occurs. Where the unjust enrichment arises from a civil or commercial relationship, the law governing such relationship may also apply.

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Article 130 Voluntary Service The voluntary service shall be governed by the law of the place where the act of voluntary service is carried out.

SECTION 9 MARRIAGE AND FAMILY Article 131 Marriage The essential validity and the legal effects of a marriage shall be governed by the law of the place where the marriage is celebrated. A marriage validly celebrated abroad is recognized in the PRC unless the parties intentionally evade the mandatory or prohibitive provisions of Chinese laws according to Article 13 of the this law. The form of a marriage celebration shall be valid when it complies with the law of the place of celebration, or the national law of any of the parties, or the law of the domicile or habitual residence of any of the parties. Marriages between foreigners with the same or different nationalities in the territory of the PRC can, according to the international treaties concluded or acceded to by the PRC or according to the principle of reciprocity, be proceeded by the consular of the state to which any of the parties belongs in accordance with the law of that state.

Article 132 Divorce The prerequisites and effects of a divorce shall be governed by the law of the place where the court hearing the case locates. Divorce by mutual consent shall be governed by the law of either party’s or both parties’ nationality, domicile, or habitual residence, which is expressly selected by the parties. In the absence of such a choice of law, the law of the place where the divorce registration authority or other competent authorities locate shall apply.

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Article 133 Personal Relation between Husband and Wife The personal relation between husband and wife shall be governed by the national law which the spouses have in common, and, in its absence, by the law of the place where both spouses have their domicile, and in its absence, by the law of the place where both spouses have their habitual residence, and, in its absence, by the law of the place of marriage celebration or by the law of the place where the court hearing the case locates.

Article 134 Property Relation between Husband and Wife The property relation between husband and wife shall be governed by the law agreed on and expressly selected by the parties. In the absence of such a choice of law, the provision of the preceding article shall be applied. But so far as the immovable property is concerned, the law of the place where the immovable property is situated shall be applied.

Article 135 Personal Relation between Children and Parents The personal relation between children and parents shall be governed by the law of the domicile which they have in common, or by the law which is more favorable to protect the interests of the weaker party, which includes the national law of any of the party, the law of the domicile or habitual residence of any of the party.

Article 136 Property Relation between Children and Parents The property relation between children and parents shall be governed by the provision of the preceding article. But so far as the immovable property is concerned, the law of the place where the immovable property is situated shall be applied.

Article 137 Recognition of Illegitimate Child Recognition of an illegitimate child shall be governed by the law more favorable to the existence of the recognition, including the national law of the child or the parent, or the law of the domicile or habitual residence of the child or the parent.

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Article 138 Adoption The prerequisites for an adoption shall be governed by the law of the domicile or habitual residence of the adopter and the adopted child respectively at the time of adoption. The effects of an adoption shall be governed by the law of the domicile or the habitual residence of the adopter at the time of adoption. The termination of an adoption shall be governed by the law of the domicile or the habitual residence of the adopted child at the time of adoption or by the law of the forum where the case concerning the termination of the adoption is heard.

Article 139 Guardianship The institution, alteration and termination of a guardianship shall be governed by the law of the nationality, the domicile, or the habitual residence of the ward.

Article 140 Maintenance Maintenance shall be governed by the law most favorable to the supported person, which includes the national law or the law of the domicile or habitual residence of the supported person. Maintenance between former spouses after divorce shall be governed by the law applicable to the divorce.

SECTION 10 SUCCESSION Article 141 Statutory Succession In intestate succession, the movable shall be governed by the law of the domicile or habitual residence of the deceased at the time of his death. The immovable shall be governed by the law of the place where the immovable is situated.

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Article 142 Capacity of Making Wills The capacity of making a will shall be governed by the national law or the law of the domicile or habitual residence of the testator at the time when the will is made. In case according to the provision of the preceding paragraph the testator has no capacity to make a will but he has such capacity according to the law of the place where he makes the will, he is deemed to have the capacity to make the will.

Article 143 Form of Wills The form of a will shall be valid if it accords with any of the following laws: (1) the law of the place where the testator makes the will at the time when the will is made; (2) the national law of the testator at the time when the will is made or when the testator dies; (3) the law of the domicile of the testator at the time when the will is made or when the testator dies; (4) the law of habitual residence of the testator when the will is made or when the testator dies; but so far as the immovable property is concerned, the law of the place where the immovable property is located shall apply.

Article 144 Contents and Effects of Wills The contents and effects of a will shall be governed by the law expressly chosen by the testator, including his national law, or the law of his domicile or habitual residence at the time of making the will or at the time of his death. In the absence of such choice of law, the above-mentioned law most favorable to the formation of the will shall apply.

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Article 145 Determination of Estate by Escheat The determination of estate by escheat shall be governed by the national law of the deceased at the time of his death. Notwithstanding the provision of the preceding paragraph, if there is the heir in accordance with the law of the place of the domicile or the habitual residence of the deceased at the time of his death, the estate shall not be disposed as estate by escheat.

Article 146 Disposition of the Estate by Escheat The disposition of the estate by escheat shall be governed by the law where the estate is situated at the time of the deceased’s death.

Article 147 Administration of Estate and Discharge of Inherited Obligation The administration of estate and the discharge of inherited obligation shall be governed by the law of the state where the estate is situated.

SECTION 11 BANKRUPTCY Article 148 Bankruptcy The bankruptcy is governed by the law of the place where the bankrupt’s principal business establishment is located or the bankrupt’s property is situated.

Article 149 Appraisal of Bankrupt’s Property The appraisal of the value of the bankrupt’s property is governed by the lex situs.

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Article 150 Liquidation of Bankruptcy The liquidation of bankruptcy is governed by the lex fori.

SECTION 12 ARBITRATION Article 151 Arbitration Agreement The validity of an arbitration agreement, except the parties’ capacity, shall be governed by the law chosen by the parties. In absence of the choice of law, the law of the place where the arbitration takes place or the award is made shall apply. Failing the parties' choice of law and when the place of arbitration or of awardmaking is not determined, the lex causae of the disputes, notably the law applicable to the main contract or the law of the PRC shall apply.

Article 152 Procedure of Arbitration The procedure of arbitration shall be governed by the procedural rules agreed upon by the parties, which shall not be contrary to the mandatory or prohibitive provisions of the law where the arbitration takes place or the award is made. In the absence of the agreement, procedural rules determined by the arbitral tribunal shall apply.

CHAPTER IV JUDICIAL ASSISTANCE Article 153 General Provision Upon the request of a foreign court or other competent authority, a PRC court may on its behalf or help to serve legal documents, make investigation and obtain evidence or take other actions in accordance with the international treaties concluded by the foreign country and the PRC or acceded to by both countries, or according to the principle of reciprocity.

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Article 154 Application of Law The service of legal documents, the investigation and obtaining of evidences or taking other actions shall be carried out by a PRC court in accordance with the procedure stipulated by the law of the PRC. Where a special procedure is requested by a foreign court or other competent authority, such special procedure may be conducted, provided it does not violate the law of the PRC.

Article 155 Translation Requirements A requesting letter in which a foreign court or other competent authority requests a PRC court to provide judicial assistance and the appendixes to the letter shall be submitted with the Chinese version or the version of another language specified in the international treaties.

Article 156 Public Order In case any matter of the assistance requested by a foreign court or other competent authority is to the prejudice of the sovereignty, security of the PRC or violates the public order of the PRC, the court of the PRC shall refuse the assistance.

Article 157 General Provisions on Recognition and Enforcement of Foreign Judgments In case there exists a treaty dealing with mutual recognition and enforcement of foreign judgments concluded or acceded to by a foreign country and the PRC, or based on the principle of reciprocity, a judgment, order, decision or written conciliation statement of a foreign court may be recognized and enforced in the PRC upon the request of the foreign court or a party concerned, unless otherwise stipulated by the this law or international treaties concluded or acceded to by the PRC. A judgment by a foreign court mentioned in the provision of preceding paragraph refers to a judgment rendered by the foreign court in civil and commercial cases concerning property interests and personal rights, or a judgment rendered by a foreign court in respect of damages awarded in criminal cases.

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Article 158 Indirect Jurisdiction The foreign court rendering a judgment shall be considered to have jurisdiction over the case in any of the following circumstances: a. at the time when the action was instituted, the defendant has his domicile or habitual residence in the territory of the foreign country; b. the defendant has in the foreign country his representative establishment at the time when the action arising from his business was instituted; or the defendant has a branch in the territory of the foreign country and the action arises out of the business of the branch; c. in a case relating to a contract or property interests, the defendant has accepted explicitly and in writing the jurisdiction of the foreign court; or after the commencement of the proceedings, the defendant voluntarily appeared to respond in the proceedings and to argue on the merits without contesting the jurisdiction of the court; d. in a case concerning a contract which has been concluded in the territory of the foreign country, or which has been performed or shall be performed therein; e. in a case relating to the ownership of tangible property or other real rights, the movable or immovable being the subject matter of the proceedings or the security of the obligation is located in the territory of the foreign country at the time when the action was instituted; f. in a tort case not relating to any contract, the injuring act or the result therefrom occurs in the territory of the foreign country; g. in a succession case, the domicile or habitual residence of the deceased or the estate is located in the territory of the foreign country at the time of his death; h. in a case where a counterclaim is raised, the foreign court rendering a judgment has jurisdiction over the original claim. The jurisdiction exercised by a foreign court which contradicts with the exclusive jurisdiction specified by the law of the PRC shall not be recognized.

Article 159 Reasons for Refusing Recognition and Enforcement A judgment rendered by a foreign court shall not be recognized or enforced in any of the following cases: a. the court rendering the judgment has no jurisdiction over the case under the provisions of the international treaties concluded or acceded to by both the foreign country and the PRC or under the provisions of the preceding article of this law;

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b.

c.

d.

e. f.

the judgment requested for recognition and enforcement has not come into force or is not enforceable pursuant to the law of the country where the judgment was rendered; in the proceedings where the judgment was rendered the losing party has not been legally summoned, or the party procedurally incapable of action has not been properly represented; a PRC court has rendered a legally effective judgment concerning a case over an action between the same parties based on the same facts and on the same subject matter, or has recognized a legally effective judgment rendered by the court of a third state over the same case; a case over an action between the same parties based on the same facts and on the same subject matter is pending before a PRC court; the judgment requested for recognition and enforcement would prejudice the sovereignty, security of the PRC or violate the public order of the PRC.

Article 160 Required Documents The party seeking the recognition and enforcement of a judgment of a foreign court shall produce an application form and the following documents: a. a certified copy of the judgment, and in case the copy does not clearly specify that the judgment is legally effective and is enforceable, it should be accompanied by a certificate issued by the relevant court for that purpose; b. a certificate evidencing that the losing party has been legally summoned; c. a certificate evidencing that the party procedurally incapable of action has been properly represented; d. the certified Chinese version of the application form and documents mentioned above or the version of another language specified in international treaties. In case of need, A PRC court may require the party making the application or the foreign court to produce the supplementary materials within the required time.

Article 161 Necessary Review A PRC court shall examine the foreign judgment requested for recognition and enforcement under the provisions of the present chapter, but not the correctness of the fact-finding or the appropriateness of the application of law. The party or other interested parties against whom the judgment is rendered may raise an objection against the recognition and enforcement of the judgment.

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Article 162 Procedure of Recognition and Enforcement The recognition and enforcement of a foreign judgment shall be conducted by a PRC court in accordance with the procedure stipulated by the law of the PRC.

Article 163 Means of Recognition and Enforcement Where a PRC court, after examining the foreign judgment, considers that the judgment does not fall into any circumstance for the refusal of its recognition or enforcement, the court shall order the recognition of its force, and where its enforcement is necessary, issue a writ of enforcement and enforce the judgment.

Article 164 Recognition and Enforcement of Foreign Arbitral Awards Where a party applies for the recognition and enforcement of a foreign award, a PRC court shall deal with it in accordance with the “Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958)” or the bilateral treaties concluded by the PRC. As to foreign arbitral awards made in the territory of non-contracting states and states which have not concluded the bilateral treaties with the PRC, their recognition and enforcement shall be carried out on the principle of reciprocity.

CHAPTER V SUPPLEMENTARY PROVISIONS Article 165 Relation between the New Law and Old Laws This law shall prevail over any other laws previously stipulated by the PRC concerning the jurisdiction, application of law, and judicial assistance of foreignrelated civil and commercial relationship.

Article 166 Irretrospective Effect This law shall have no retrospective effect except unsettled matters.

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OREGON’S CONFLICTS LAW APPLICABLE TO CONTRACTS James A.R. NAFZIGER* On 21 May 2001, the Governor of the State of Oregon signed into law a bill on Conflicts Law Applicable to Contracts.1 The new statute, which both chambers of the Oregon legislature had approved unanimously,2 represents the first phase of a project undertaken by the Oregon Law Commission to codify choice of law.3 This is the first such codification of choice-of-law rules by a legal system in the common-law tradition and the second within the United States.4 This summary introduces a background Report that accompanied the draft bill on its presentation to the state legislature (Annex I), the legislation itself (Annex II), and Comments on it (Annex III). The Comments and Reports constitute the principal preparatory and explanatory documentation (travaux preparatoires) in the legislative file. As such, they form part of the legislative history of the law and will provide authoritative guidance for its application and interpretation.5 The Report describes the purpose of the codification project, the structure of the new law, and its key elements. This document was intended to assist lawmakers in their review of the draft bill. The Comments provide additional *

Thomas B. Stoel Professor of Law, Willamette University College of Law, and President of the American Branch of the International Law Association. Professor Nafziger serves as Reporter of the Oregon Law Commission’s project to codify choice-of-law rules. 1 Conflicts Law Applicable to Contracts, ch. 164, 2001 Oregon Regular Session Laws. The effective date of the legislation is 1 January 2002. 2 The vote in the Oregon House of Representatives was 57-0, with three excused absences. The vote in the Oregon Senate was 27-0, with three excused absences. 3 See NAFZIGER J., ‘Oregon’s Project to Codify Choice-of-Law Rules’, in: La. L. Rev. 2000, vol. 60, p. 1189. 4 The first codification of choice-of-law rules in the United States occurred in the country’s only civil-law or mixed jurisdiction, Louisiana. See RabelsZ 1993, vol. 57, p. 508; IPRax 1993, vol. 13, p. 56; Rev. crit. dr. int. pr. 1992, vol. 81, p. 223. For commentary by the Reporter of the codification project, see SYMEONIDES S., ‘Private International Law Codification in a Mixed Jurisdiction: The Louisiana Experience,’ in: RabelsZ 1993, vol. 57, p. 460; SYMEONIDES S., ‘Louisiana’s New Law of Choice of Law for Tort Conflicts: An Exegesis,’ in: Tul. L. Rev. 1992, vol. 66, p. 677; SYMEONIDES S., ‘Les grands problèmes de droit international privé et la nouvelle codification de Louisiane,’, in: Rev. crit. dr. int. pr. 1992, vol. 81, p. 223; SYMEONIDES S., ‘Problems and Dilemmas in Codifying Choice of Law for Torts: The Louisiana Experience,’ in: Am. J. Comp. L. 1990, vol. 38, p. 431. 5 In formulating a method of statutory analysis, the Oregon Supreme Court has confirmed that legislative history is determinative if the intent of the legislature is not clear from the statute’s text and context. The context includes other provisions of the same statute and other related statutes. PGE v. Bureau of Labor and Industries, 859 P.2d 1143, 1146 (Or. 1993).

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background and explanation of individual provisions in the legislation. Several points in the Report merit reiteration or further elaboration as part of this summary, in view of two substantive amendments to the draft bill after it was completed. The main purpose of the legislation was to provide a clear, comprehensive set of choice-of-law rules to replace a jumble of rather ambiguous and unstable jurisprudence that had been generated by Oregon courts.6 Although the Oregon Supreme Court pioneered in the modern choice-of-law movement in the United States away from territorialist rules,7 the resulting experiment, over a period of 35 years, cannot be considered a complete success. Typically, after examining significant contacts and sometimes governmental interests, the courts simply applied the local law – ‘doing what comes naturally’.8 The actual, though unstated, rule has therefore been to apply the lex fori with some exceptions. Oregon’s own courts have derided the prescribed methodology or at least have maintained a skeptical attitude toward it.9 An ancillary purpose of the draft codification was to overcome the lex fori orientation of judicial decisions while at the same time protecting Oregon interests, especially those of its residents, to the greatest extent possible. It was clear that Oregon needed choice-of-law rules that accommodate a larger, even global, process of dispute resolution.10 Accordingly, the Oregon Law Commission’s Study 6

For a summary, see NAFZIGER J. (note 3), pp. 1192-98, 1205-1225. One of the earliest and most important state court decisions during the early days of this movement was Lilienthal v. Kaufman, 395 P.2d 543 (Or. 1964). Later, the Oregon courts adopted a hybrid methodology for resolving conflicts that nominally applies the rules established by the AMERICAN LAW INSTITUTE in its Restatement of the Law, Second, Conflict of Laws 1971, with particular reliance at times on an analysis of governmental interests in having courts give effect to purported policies underlying conflicting laws. The new law is intended to replace this approach, including rules of the Second Restatement. 8 Erwin v. Thomas, 506 P.2d 494, 496-97 (Or. 1973) (applying Oregon law when the ostensible conflict was between the laws of two jurisdictions, neither of which was deemed to have an ‘interest’ in having its law applied). Earlier, however, the Oregon Supreme Court had acknowledged the danger of state chauvinism. Casey v. Manson Constr. & Eng’g Co., 428 P.2d 898 (Or. 1967). 9 For example, the Oregon Court of Appeals wrote as follows about the jurisprudential task it faced in Fisher v. Huck, 624 P.2d 177, 178 (Or. App. 1981): ‘When any court embarks on a determination of the "relevant policies of other interested states and the relative interests of those states in the determination of the particular issue" [Restatement (Second) § 6], the endeavor, in many instances, is like skeet shooting with a bow and arrow: a direct hit is likely to be a rarity, if not pure luck. With that chance of success in mind, we nock the arrow and draw the string.’ 10 A well-respected proponent of a transnational approach to conflicts, leading to a jus commune to govern private international law, was the late Friedrich K. (Fritz) Juenger. See, e.g., JUENGER F., Choice of Law and Multistate Justice, Dordrecht 1993. 7

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Group, which supervised the drafting project, discussed several models of conflicts legislation. These included primarily the Rome Convention of the European Union,11 German law,12 Swiss law,13 a Puerto Rican draft law,14 and the Louisiana law.15 Although the new Oregon statute does not conform closely with any of these models, it does adopt or modify some of their rules and, perhaps as importantly, encourages greater openness to foreign law and sensitivity to the needs of the interstate and international orders, including foreign choice-of-law rules. The law’s definitional section, though brief, is essential because of the complexity of the terms ‘law’ and ‘state’ within the United States constitutional and political system. Accordingly, the two corresponding definitions, taken together, recognize a broad range of applicable legal sources and pertinent jurisdictions (‘states’). The authority that the definitions identify may be international (or regional), federal, state (in the sense of a constituent state of the United States), territorial, tribal, or Native Hawaiian. The Comments confirm this openness and eclecticism. For example, they suggest that the Unidroit Principles on International Commercial Contracts16 might be chosen to govern international contracts, at least.17 The Unidroit Principles, by articulating and developing the lex mercatoria,18 are a promising means of helping ensure that Oregon-related practice truly does fit into a global system of dispute avoidance and resolution. Another means of accomplishing the same purpose of the codification is to be found in the identification of international law as an authoritative source.19 This provision 11

EEC Convention on the Law Applicable to Contractual Obligations, 1980 O. J. (L

266) 1. 12 See Bundesgesetzblatt 1999, vol. I, p.1026, 1986, vol. I, p. 1142; I.L.M. 1988, vol. 27, p. 1. 13 Bundesblatt 1988 I 5. 14 See ACADEMIA PUERTORREQUEÑA DE JURISPRUDENCIA Y LEGISLACIÓN/PUERTO RICAN ACADEMY OF JURISPRUDENCE AND LEGISLATION, Proyecto para la Codificación del Derecho internacional privado de Puerto Rico/A Project for the Codification of Puerto Rican Private International Law (SYMEONIDES S./VONMEHREN A., rapporteurs), San Juan 1991. For discussion, see SYMEONIDES, S, ‘Revising Puerto Rico’s Conflicts Law: A Preview’, in: Colum. J. Transnat’l L. 1990, vol. 28, p. 413. 15 See note 4. 16 INTERNATIONAL INSTITUTE FOR THE UNIFICATION OF PRIVATE LAW (Unidroit), Principles of International Commercial Contracts, in: I.L.M. 1995, vol. 34, p. 1067. 17 Comments § 7(3), in Annex III. 18 See WEINTRAUB R.J., ‘Lex Mercatoria and the UNIDROIT Principles of International Commercial Contracts’, in: BORCHERS P.J./ZEKOLL J., International Conflicts of Laws for the Third Millennium: Essays in Honor of Friedrich K. Juenger, Ardsley 2001, p. 141. 19 Conflicts Law Applicable to Contracts § 1(1), in Annex II.

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confirms Oregon’s long-standing commitment to apply general international law as rules of judicial decision.20 Article 9 of the new law establishes a general or default rule for choosing the ‘appropriate law’ to govern matters not otherwise addressed by specific rules. This choice involves three simple steps: identifying all states, broadly defined, that have any of several stipulated connections with the transaction or the parties; identifying the policies underlying conflicting laws of those states that are relevant to these issues; and, most importantly, evaluating the relative strength and pertinence of these policies in accomplishing several stipulated objectives of material justice.21 No consideration is to be given to such concepts as ‘significance’ of relevant connections or governmental ‘interests’. Instead, Article 9 provides a litmus of considerations that are deliberately articulated as progressives measures for administering justice. The compatibility and mutuality of these considerations obviate the need to prioritize them. The Oregon legislature made only two substantive amendments to the draft legislation,22 both of which are of uncertain but probably minor significance.23 One of the amendments deleted a presumption in the draft bill, as to insurance contracts, that would have required the application of the law of the state that is the 20 The Oregon Supreme Court observed in Peters v. McKay, 238 P.2d 225, 231 (Or. 1951): ‘In essence, the rule appears to be that international law is a part of the law of every state which is enforced by its courts without any constitutional or statutory act of incorporation by reference, and while a court may be without jurisdiction to enforce international law in a given case by reason of some controlling statute, nevertheless, relevant provisions of the law of nations are legally paramount whenever international rights and duties are involved before a court having jurisdiction to enforce them’ (footnote omitted). Furthermore, the Oregon Supreme Court commented in the same case that ‘[i]t is firmly established that courts, in construing a statute, will indulge a strong presumption that the legislature did not intend to violate international law and will read into a statute such qualification or exception as may be necessary to avoid apparent conflict’. 21 These considerations are as follows: ‘(a) Meeting the needs and giving effect to the policies of the interstate and international systems; and (b) Facilitating the planning of transactions, protecting a party from undue imposition by another party, giving effect to justified expectations of the parties concerning which state’s law applies to the issue and minimizing adverse effects on strong legal policies of other states.’ 22

Several generally stylistic changes, such as substituting ‘Oregon’ for ‘this state’, were also made. The Comments in Annex III incorporate the two amendments whereas the version of the Comments that was included in the legislative file, prior to enactment of the legislative bill, refers to the proposed amendments in two footnotes to what were then only legislative committee recommendations. 23 There was no discussion of these amendments on the floor of the legislature. Both amendments resulted from discussions with members of the House Judiciary subcommittee.

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principal location of a risk. This presumption would have been subject to party autonomy, other provisions of the law, and existing insurance-related statutes.24 (Oregon statutory law already provides, for example, that all insurance policies delivered or issued for delivery in Oregon must be construed according to Oregon law.)25 The presumption in the original bill therefore would have been of only limited effect. The legislature, however, preferred not to establish a specific rule to govern those instances where both existing law and the new law may be silent on the appropriate law to govern insurance contracts. Although the deleted presumption would have broadened the choice of law beyond the statutory requirements to apply local law, the result of the amendment is to retain the current practice, established by the case law, of relying primarily on the application of Oregon law in instances where the parties to an insurance contract do not choose their own law. Such instances are apt to be unusual, given the normal practice of including choice-of-law clauses in insurance contracts and the general acceptance of such clauses by the courts. The second of the substantive amendments to the draft bill exempts financial institutions, as defined by a recently enacted federal law,26 from coverage by the Oregon legislation. The intended scope of the federal definition is, however, narrow. It explicitly applies only as part of a regulatory scheme to protect consumers against unwarranted access by financial institutions to personal information by fraudulent means or false pretenses.27 It would be peculiar, in the federal system of the United States, for a state legislature to adopt a federal 24

Or. Rev. Stat. Tit. 56, passim (1999). Or. Rev. Stat. § 742.018 (1999). Any conditions, stipulations or agreements to the contrary are invalid. OR. REV. STAT. § 742.018 (1999). There are only three exceptions: reinsurance, wet marine policies and transportation insurance policies. OR. REV. STAT. § 742.001 (1999). 26 Pub. L. 106-102, Title V, § 510, 12 Nov. 1999, 113 Stat. 1446 (1999) (to be codified at U.S.C. § 6801). The new law, of which the section including the definition is one part, addresses two topics: disclosure of nonpublic personal information and fraudulent access to financial information. The definition, at 15 U.S.C.A. § 6827 (West Supp. 2001), provides as follows: ‘The term "financial institution" means any institution engaged in the business of providing financial services to customers who maintain a credit, deposit, trust, or other financial account or relationship with the institution.... The term "financial institution" includes any depository institution..., any broker or dealer, any investment adviser or investment company, any insurance company, any loan or finance company, any credit card issuer or operator of a credit card system, and any consumer reporting agency that compiles and maintains files on consumers on a nationwide basis...’ [subheadings, clarifications and exceptions omitted]. 27 The statute makes clear that the definition of a ‘financial institution’ is ‘[f]or purposes of a subchapter protecting customer information of such institutions’. 15 U.S.C.A. § 6801 (West Supp. 2001). 25

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definition without its built-in limitations. The incorporation of the federal definition is therefore best read as a reiteration or recognition of the applicability of the federal law. If, however, the scope of the reference to the federal definition of financial institutions in the Oregon statute is read more broadly than was intended by Congress when it defined the term, very little follows. The activities and transactions of operating financial institutions in Oregon and protecting Oregon parties affected by them are generally regulated by Oregon law. In situations beyond the scope of state regulation, the lex fori presumption of Oregon jurisprudence would also lead to the application of local law. Thus, financial institutions preferring foreign law to be applied in situations not specifically regulated under Oregon law, might have been better served by the new law than by an exemption. With respect to both substantive amendments of the draft bill, the choice-of-law rules in the Uniform Commercial Code (U.C.C.), as enacted by Oregon and subject to on-going revisions, will be significant. It is expected that Oregon’s new law will itself shape the content of the common law methodology applicable to any residual conflicts not specifically covered by the law itself. One of the purposes of the legislation was to displace the cumbersome methodology prescribed by the Second Restatement of Conflict of Laws that Oregon courts adopted for guidance.28 Similarly, the new law avoids any references to governmental interests. If neither the Second Restatement nor interest analysis any longer apply, courts may be inclined to consult the new statute for guidance in deciding any cases not falling strictly within its scope. In an increasingly global context, the lex mercatoria, as articulated in the Unidroit Principles,29 may also be instrumental. In sum, Oregon’s new Conflicts Law Applicable to Contracts is a comprehensive framework of rules for determining the appropriate law, as a matter of material justice, in multijurisdictional contracting and dispute resolution. The legislation will operate alongside scattered federal and state authority already on the books, such as rules already governing commercial transactions and financial institutions. It is likely, too, that Article 9 (the general or default rule) and other provisions of the new law will perform an additional function of defining the rules for judicial resolution of any residual conflicts related to contracts that lie beyond the letter of the statute itself. This set of rules should both constrain unnecessary legislation and provide better guidance to courts in resolving any choice-of-law issues that do merit adjudication. Alternative (non-judicial) methods of dispute resolution may also help avoid litigation of conflicts issues.30 Meanwhile, it may be expected that 28

Note 7. Note 16. 30 See NAFZIGER J, ‘Making Choices of Law Together’, in: Willamette L. Rev. 2001, vol. 37, p. 209. 29

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choice of law in Oregon will no longer be shaped by the dead hand of the past, clutching local law in the face of an unstable methodology. Instead, Oregon’s new Conflicts Law Applicable to Contracts offers a guiding hand toward stability of expectations and material justice. Choosing the appropriate law on the basis of the new rules will soon be ‘doing what comes naturally’.31

Annex I: Report I.

Introductory Summary

This report accompanies a proposed bill to codify choice of law for Oregon-related contracts. The proposed codification provides rules and principles to determine which law or laws should govern issues that may arise in Oregon-related contracts involving transactions or relationships across state or national lines. The proposal is a year-long project of the Oregon Law Commission. The Commission’s Reporter worked closely with a Study Group on Conflict of Laws that met seven times and included two members of the Oregon Legislature and the Deputy Legislative Counsel, ex officio, seven academic specialists from the three Oregon law schools, two judges, and four experienced attorneys.32 The bill specifies contract-related issues to which Oregon law applies; other issues to which either Oregon law or another law applies, according to the particular rule, unless the parties agree otherwise; and a detailed procedure for determining the applicable law when no rule has been specified by a statute or by the parties.

31

506 P.2d 496-47 (note 8). The members of the Study Group have been: J. Michael Alexander, Wallace Carson, Mildred Carmack, Jonathan Hoffman, Maurice Holland, Douglas Houser, Hans Linde, Donald Large (replaced by Gilbert Carrasco), James Nafziger, Eugene Scoles, William Snouffer, Symeon Symeonides, Dominick Vetri; Ex officio: Rep. Lane Shetterly, Chair, Oregon Law Commission; Sen. Kate Brown; and David Heynderickx, Oregon Legislative Counsel’s Office. Dominick Vetri has served as Chair of the Study Group and James Nafziger as its Reporter. In addition, Susan Grabe served as a liaison with the Oregon State Bar, in order to ensure full participation in the project by the Bar and to enlist the interest, expertise, criticism and suggestions of Bar committees and members. 32

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II.

Explanation

Whenever a transaction or relationship transcends interstate or international boundaries, a question of the applicable law may arise. If, for example, the parties to a contract are domiciled in different states or their contract is negotiated and signed in one state but is to be performed in another, they may have to determine which of two or more divergent laws should govern issues in any dispute that may arise between them. If a dispute arises, a court of law, arbitral tribunal or other authoritative body may also have to decide which law applies. Potential conflicts, which are inherent in both the federal and international systems, may involve three general types of issues: adjudicative jurisdiction over parties or things in dispute; choice of law, that is, the determination of which of more than one state’s or country’s laws governs an issue; and enforcement of foreign judgments. Ancillary issues include, for example, pleading and proof of foreign law and inconvenience of the forum. As with most aspects of civil procedure, statutory law largely prescribes the rules of adjudicative jurisdiction and enforcement of foreign judgments. That is because of the importance attached to ensuring that procedural rules be as stable and clearly expressed as possible. Choice of law is, however, an exception to this body of statutory law. It is largely governed by a mixture of judge-made formulas and a few generally worded statutes that are addressed to particular topics. The resulting approach varies widely from one country to another and among the American states. The Reporter’s Memorandum to the American Law Institute Project on the Federal Judiciary Code notes as follows: ‘Choice of law by state courts is unruly and, in all but the rarest cases, essentially unregulated by the United States Supreme Court. The default tends to be the application of the law of the forum, and there are dramatic differences among states on frequently litigated issues of substantive liability.’ Even when the choice of law is prescribed by statute, as, for example, in the Uniform Commercial Code, the choice-of-law rule is usually so broadly expressed as to require substantial judicial interpretation. In Oregon, jurisdictional and enforcement issues are largely resolved, respectively, by long-arm statutes and reciprocal enforcement statutes, as well as uniform laws such as those governing interstate cooperation in matters of family law. Interpretative issues may arise, and some topics of enforceability are not specifically covered by statute – for example, tax judgments, fines or other penalties, and family support decrees – but common law plays a relatively insignificant role in resolving issues of jurisdiction and enforcement of judgments. By contrast, choice of law is still largely the product of judicial decisions and is expressed in a variety of often vague formulations. Statutory choice-of-law

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rules govern some legal subjects in Oregon, such as commercial transactions, limitation of judicial actions, unclaimed property, child custody, family support, wills and gifts, environmental cleanup assistance, and transboundary pollution. But the choice-of-law approach to govern issues of contract, tort, product liability, property, and other significant topics of litigation is expressed in non-statutory formulations. Courts and academic commentators have created a myriad of such formulations. Oregon courts nominally follow a combination of two approaches: governmental interest analysis and the most significant relationship provisions set forth in the American Law Institute’s RESTATEMENT (SECOND) OF THE LAW OF CONFLICT OF LAWS. In practice, however, the approach taken by Oregon courts to resolving conflicts issues has not been highly disciplined. The result is a confusing, rather erratic line of decisions in which the courts have consulted a matrix of factors and generally selected those that would rationalize the application of Oregon law. As a result, Oregon courts have usually applied the law of the (Oregon) forum (lex fori).

III. The Objective of the Project In response to the unsatisfactory state of existing law, this bill seeks to establish concrete, stable rules to resolve issues transcending jurisdictional boundaries. The Study Group rejected two alternative approaches to the necessary legislation. The first of these alternatives would have simply reiterated one or another stated methodology or a combination of them, presumably involving governmental interest analysis and most significant relationship assessment. The second rejected alternative would have been simply to codify the actual methodology of Oregon courts in routinely applying the law of the forum (lex fori) except in unusual circumstances. Instead, the Study Group decided to consult a variety of alternative models in order to fashion a set of concrete rules to govern specific issues, followed by a general default rule. Having achieved consensus on this approach, the Study Group examined provisions for choice of law in other legislation and academic formulations (see VI, below). The Reporter then began drafting new legislation. Seven drafts reflect an evolution of thinking from the initial framework of borrowed legislation to the final version (VII, below) that has taken full account of a broad range of interests in formulating the choice-of-law rules. The final draft therefore accommodates a variety of interests that may be implicated in the resolution of multijurisdictional disputes before Oregon courts, arbitral tribunals, and other authoritative bodies. During the Study Group’s meeting and drafting process the following issues required the most deliberation: What types of contracts or contract-related issues should always be governed by Oregon law? What law should govern insurance

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contracts? What limitations should be imposed on party autonomy (that is, on a choice of law by the parties to a contract)? What law should apply in the absence of an effective choice by the parties? In such a case, what should be the objective of a general default rule and what should be the normative standard for that rule? What presumptive rules should be applied for specific types of contracts or contract-related issues not otherwise covered by specific provisions in the proposed legislation? What should be the requirement or requirements for applying a general rule instead of a presumptive rule? The Study Group proceeded on the premise that the courts of Oregon, as a justice-administering state, have a responsibility to achieve both conflicts justice and material or substantive justice. A creditable choice-of-law approach therefore would embrace conflict-resolving values, such as simplicity, predictability, and party autonomy, as well as substantive values that animate domestic dispute resolution, such as systemic needs and policies, fairness, and equity. The proposed bill manifests the objectives of conflicts justice and material or substantive justice by setting forth both a detailed set of rules and a general rule that requires the application of the best available or most appropriate law, as defined by criteria of substantive justice. The general rule therefore adopts a substantive approach to choice of law. Thus, the Act seeks to maximize material justice without sacrificing fundamental, traditional values of conflicts justice. In taking this approach, the bill follows a trend toward equity analysis for choosing the appropriate law in a multijurisdictional context.

IV. Statement of the Current Problem in the Law In order to understand the need to codify detailed rules for choice of law in Oregon, as this bill proposes to do, it is important to define the current problem in the law. A brief history of Oregon jurisprudence in this sphere will therefore be instructive. Under the common law, a territorialist approach dominated choice-of-law analysis until the mid-twentieth century. This approach, which was adopted in 1934 by the American Law Institute’s first RESTATEMENT OF THE LAW OF CONFLICT OF LAWS as well as by Oregon courts, was based on the vested-rights theory. According to that theory, rights vest and the governing law is determined on the basis of the location of a single connecting factor, such as the place or wrong in a tort case or the domicile of parties in a family dispute. Thus, for example, whenever a business transaction involves more than one jurisdiction, the location of a single, central element of the transaction, such as the making of a contract, controlled the choice of law. This vested-rights approach led to the formulation of rather rigid, jurisdiction-selecting rules. Particularly significant and controversial have been the

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territorialist rules governing torts and contracts: law of the place of wrong (lex loci delicti) and law of the place of contracting (lex loci contractus). From a territorialist perspective, in resolving contract-related issues – the first phase of the Oregon Law Commission’s project – it is necessary to identify either the place of making or place of performance of the contract and sometimes both. Although territorialist rules continue to be applied by courts and other decision-makers in a few states and to dominate analysis in contexts other than torts or contracts in all states, they are of relatively little importance today in resolving torts and contracts-related disputes. Complex modern approaches have generally replaced the simple rules of the first RESTATEMENT, often to the consternation of busy attorneys and judges. During the last four decades, Oregon courts have participated in the nationwide trend away from traditional, jurisdiction-selecting rules. The new approaches replace jurisdiction-selecting rules with rule-selecting criteria. These approaches, and rules fashioned from them, characteristically require a more functional comparative analysis of significant features in the conflicting laws themselves. Courts therefore are no longer blind to the policies underlying conflicting laws in the interest of simply finding the ‘right’ jurisdiction regardless of the content of its law. Unfortunately, these modern approaches are so flexible that the selection of one rule-selective approach over another is less important than the court’s discretion to use whatever factors and considerations it can find to justify a desired result. In 1964, the Oregon Supreme Court’s nationally pioneering, though controversial, opinion in Lilienthal v. Kaufman broke with territorialism and adopted one of the modern approaches, government interest analysis. Subsequent opinions, at first in tort cases but later in contract cases, adopted the ‘most significant relationship’ test, as outlined in the RESTATEMENT (SECOND) OF THE LAW OF CONFLICT OF LAWS. In practice, however, Oregon courts have tended to depart from either of these prescribed methodologies although they continue to apply important elements of the RESTATEMENT (SECOND) in particular. Thus, although the courts have usually described the applicable methodology to be some variant of the RESTATEMENT (SECOND), the overall approach that the courts take has been more of a hybrid of gravity of contacts balancing, governmental interest analysis, and policy-directed features of RESTATEMENT (SECOND) methodology. Generally, the following characteristics of Oregon’s approach emerged during the first two decades of judicial experimentation after Lilienthal: 1. 2.

3.

As in most states, Oregon courts continued to apply traditional, territorialist rules to resolve issues other than those involving contracts and torts. In contract cases a forum preference that is characteristic of all modern approaches, especially in Oregon, dominated decisions. Thus, Oregon law (lex fori) would apply in most cases. Appellate courts adopted an eclectic and rather indeterminate approach in contract cases. In the well-known words of Lilienthal v. Kaufman, Oregon

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4. 5.

courts continue to ‘refrain from making any pronouncements which might in the future restrain [them] from taking [a new course]’. Leading decisions have been difficult to reconcile with each other. Oregon courts followed a small number of statutory directives on choice of law.

More recently, Oregon conflicts decisions generally confirm the homeward trend of applying Oregon law in most cases. The normal methodology involves a twostep test. Accordingly, courts determine, first, whether there is an actual conflict before proceeding to the second step of asking which legal system has the most (or more) significant relationship to a particular case or issue in it. Although the courts fairly consistently phrase the test that way, they have typically undertaken the first step only to determine whether there is an ostensible conflict. After all, if the analysis is to rely on some sort of most significant relationship or governmental interest analysis, the court could hardly conclude in the first step that there is an ‘actual’ conflict before determining, in the second step, where the most significant relationship or interests lie. Oregon’s complicated choice-of-law approach has been plagued by problems of application. Courts combine methodologies in hybrid or kaleidoscopic fashion. They also indiscriminately cite cases, without sufficient regard to variations among them and the importance of considering each issue by itself. The resulting opinions are often confusing even though they typically lead to the application of the law of the forum.

V.

History of the Project

In 1998, the Oregon Law Commission began to develop legislative initiatives and invited outside proposals for law reform projects. In response, the Reporter submitted a proposal in May 1998 to draft choice-of-law rules. This proposal to the Oregon Law Commission (see Annex I) noted the observation of Willis Reese, a distinguished conflicts expert who served as Reporter of the SECOND RESTATEMENT, that Oregon has the most confusing choice-of-law approach in the country. The proposal also cited the need for a more stable, concrete set of rules to guide judicial and other decision-makers. Following the examples of numerous foreign legal systems and the state of Louisiana, the proposal suggested that the Oregon Law Commission initiate a project to prepare a draft statute on choice of law for consideration by the Oregon Legislature. The Commission decided in September 1998 to undertake the project. On the Commission’s request, the Reporter met in December 1998 with two members of the Commission, Chief Justice Wallace Carson of the Oregon Supreme Court and Professor Dom Vetri of the University of Oregon School of Law, to

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begin planning the project. Because the Oregon Legislature was to convene the following month in its biennial session, it was too late to draft legislation for review by the 1999 session. Instead, the planning committee proposed the establishment of a study group that would meet for the first time in the early part of 2000. Accordingly, the Study Group on Conflict of Laws was organized on the basis of expertise, practical experience and representation of bench and bar. The Study Group met seven times, on 21 January, 28 April, 1 June, 29 June, 11 August, 12 September, and 4 October. All meetings were held at the Willamette University College of Law. Also, a public meeting was held at the Oregon State Bar headquarters, 30 October 2000. Between meetings, members of the Study Group communicated with the Reporter and other members by e-mail, list serv, and written memos. Numerous attorneys communicated ideas and questions to the Reporter as well. The drafting process was assisted by a drafting committee that included David Heynderickx, Hans Linde, Symeon Symeonides, and the Reporter. The Reporter prepared a study (Annex II) of Oregon’s choice-of-law process in time for the 28 April meeting. This study analyzed modern Oregon case law during two periods of development: 1974-1986 (‘the formative period’) and 1986-2000. Revised versions of two paragraphs in the introductory (‘Background’) section of that report are incorporated in this report. An annex to the Reporter’s study summarized each state court decision that has addressed choice-of-law issues during the period 1986-2000 and a sampling of relevant federal cases applying Oregon choice-of-law methodology during the same period of time. Particular attention was given to the consistency or not of the methodology actually applied in a case with the stated methodology. This analysis revealed profound inconsistencies and methodological variations from case to case. During the formative period, Oregon appellate courts nearly always applied the law of the forum to resolve conflicts of law. In more recent years, the courts have continued to apply Oregon law in most cases, though to a slightly lesser degree than during the formative period. At its 28 April meeting, the Study Group confirmed the need for legislation that would establish governing rules for choice-of-law issues in Oregon as clearly and concretely as possible. Bearing in mind the possibility that the 2001 legislative session might be able to review the draft legislation, the Study Group decided to limit its agenda in 2000 to a formulation of choice-of-law rules to govern contractrelated issues not otherwise covered by the Uniform Commercial Code.

VI. Review of Legal Solutions Existing or Proposed Elsewhere After reviewing Oregon case law, as summarized in the report prepared for the 28 April meeting (Annex II), the Study Group consulted a broad range of contract-

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related provisions for resolving conflicts issues that have been adopted by other, mostly foreign legal systems; formulated by legal scholars; or found in the RESTATEMENT (SECOND) OF THE LAW OF CONFLICT OF LAWS. The Study Group was greatly assisted by lists of alternative provisions that Symeon Symeonides had prepared as Reporter of Louisiana’s choice-of-law codification project and as CoReporter of Puerto Rico’s project. Commentaries prepared by Dean Symeonides on the Puerto Rico draft were particularly helpful. The project’s comparative analysis therefore focused primarily on the RESTATEMENT (SECOND), Louisiana, Puerto Rico and German laws, and European regional law. In particular, the Puerto Rico draft, which the Study Group adopted as a basis for detailed discussion and drafting, helped us to sharpen the Study Group’s focus, identify issues, and generally organize the drafting process.

VII. The Proposal [see Annex III]

VIII.

Conclusion

The proposed legislation to codify choice-of-law rules to govern contract-related issues is the product of thorough deliberation, consultation with knowledgeable specialists and other interested parties, and an extensive process of drafting and redrafting. It is a substantial improvement over the case law of which it takes account but which it would largely replace. The legislation will serve a broad range of interests that were represented on the Oregon Law Commission’s Study Group on Conflict of Laws or that were otherwise expressed during the drafting process. The bill conforms with the advice of experts, is methodologically sound, and will greatly facilitate the resolution of multijurisdictional disputes in Oregon. Enactment of the proposed legislation would revive Oregon’s leadership in conflicts law, as demonstrated by appellate courts over a generation ago, and would help put Oregon in the forefront of a trend toward codification of conflicts law. Respectfully submitted, James A.R. Nafziger Reporter

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ANNEX II : CONFLICTS LAW APPLICABLE TO CONTRACTS DEFINITIONS SECTION 1 DEFINITIONS For the purposes of sections 1 to 10, chapter 164, Oregon Laws 2001: (1)

‘Law’ means any rule of general legal applicability adopted by a state, whether that rule is domestic or foreign and whether derived from international law, a constitution, statute, other publicly adopted measure or published judicial precedent. Except for references to the law of Oregon, ‘law’ does not include rules governing choice of law.

(2)

‘State’ means the United States, any state of the United States, any territory, possession or other jurisdiction of the United States, any Indian tribe, other Native American group or Native Hawaiian group that is recognized by federal law or formally acknowledged by a state of the United States, and any foreign country, including any territorial subdivision or other entity with its own system of laws.

APPLICABILITY SECTION 2 APPLICABILITY Applicability. Sections 1 to 10, chapter 164, Oregon Laws 2001, govern the choice of law applicable to any contract, or part of a contract, when a choice between the laws of different states is at issue. Sections 1 to 10, chapter 164, Oregon Laws 2001, do not apply if another Oregon statute expressly designates the law applicable to the contract or part of a contract. Sections 1 to 10, chapter 164, Oregon Laws 2001, do not apply to any contract in which one of the parties is a financial institution, as defined by 15 U.S.C. 6827, as in effect on the effective date of this law.

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CONTRACTS GOVERNED BY OREGON LAW SECTION 3 SPECIFIC TYPES OF CONTRACTS GOVERNED BY OREGON LAW Notwithstanding any other provision of sections 1 to 10, chapter 164, Oregon Laws 2001, but subject to the limitations on applicability imposed by section 2, chapter 164, Oregon Laws 2001, the law of Oregon applies to the following contracts: (1)

A contract for services to be rendered in Oregon, or for goods to be delivered in Oregon, if Oregon or any of its agencies or subdivisions is a party to the contract. The application of Oregon’s law pursuant to this subsection may be waived by a person authorized by Oregon’s law to make the waiver.

(2)

A contract for construction work to be performed primarily in Oregon.

(3)

A contract of employment for services to be rendered primarily in Oregon by a resident of Oregon.

(4)

(a)

A consumer contract, if: (A) The consumer is a resident of Oregon at the time of contracting; and (B) The consumer’s assent to the contract is obtained in Oregon, or the consumer is induced to enter into the contract in substantial measure by an invitation or advertisement in Oregon.

(b) For the purposes of this subsection, a consumer contract is a contract for the supply of goods or services that are designed primarily for personal, familial or household use.

RULES GOVERNING FORM OF CONTRACT, CAPACITY TO CONTRACT AND CONSENT SECTION 4 VALIDITY OF FORM A contract is valid as to form if the contract meets the requirements prescribed either by the law chosen by the parties under sections 7 and 8, chapter 164, Oregon Laws 2001, the law applicable under section 3, 9 or 10, chapter 164, Oregon Laws 2001, or the law of the state from which any party or the party’s agent has assented

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to the contract unless that state has no other connection to the parties or the transaction.

SECTION 5 CAPACITY TO CONTRACT (1)

A party has the capacity to enter into a contract if the party has that capacity under the law of the state in which the party resides or the law applicable to this issue under section 3, 9 or 10, chapter 164, Oregon Laws 2001.

(2)

A party that lacks capacity to enter into a contract under the law of the state in which the party resides may assert that incapacity against a party that knew or should have known of the incapacity at the time the parties entered into the contract. If a party establishes lack of capacity in the manner provided by this subsection, the consequences of the party’s incapacity are governed by the law of the state in which the incapable party resides.

SECTION 6 CONSENT (1)

A party has consented to a contract if the law applicable under section 3, 9 or 10, chapter 164, Oregon Laws 2001, so provides.

(2)

In a consumer contract or employment contract, the consumer or employee whose assent to a contract was obtained in the state of the party’s residence, or whose conduct leading to the contract was primarily confined to that state, may invoke the law of that state to establish that the party did not consent to the contract or that the consent was not valid by reason of fraud or duress.

CHOICE OF LAW MADE BY PARTIES SECTION 7 CHOICE OF LAW MADE BY PARTIES (1)

Except as specifically provided by section 3, 4, 5, 6 or 8, chapter 164, Oregon Laws 2001, the contractual rights and duties of the parties are

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governed by the law or laws that the parties have chosen. The choice of law may extend to the entire contract or to part of a contract. (2)

The choice of law must be express or clearly demonstrated from the terms of the contract. In a standard-form contract drafted primarily by only one of the parties, any choice of law must be express and conspicuous.

(3)

The choice of law may be made or modified after the parties enter into the contract. Any choice of law made or modified after the parties enter into the contract must be by express agreement.

(4)

Unless the parties provide otherwise, a choice of law or modification of that choice operates retrospectively to the time the parties entered into the contract. Retrospective operation under the provisions of this subsection may not prejudice the rights of third parties.

SECTION 8 LIMITATIONS ON A CHOICE OF LAW BY THE PARTIES (1)

408

The law chosen by the parties pursuant to section 7, chapter 164, Oregon Laws 2001, does not apply to the extent that its application would: (a) Require a party to perform an act prohibited by the law of the state where the act is to be performed under the contract; (b) Prohibit a party from performing an act required by the law of the state where it is to be performed under the contract; or (c) Contravene an established fundamental policy embodied in the law that would otherwise govern the issue in dispute under section 9, chapter 164, Oregon Laws 2001. For purposes of subsection (1)(c) of this section, an established policy is fundamental only if the policy reflects objectives or gives effect to essential public or societal institutions beyond the allocation of rights and obligations of parties to a contract at issue.

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LAW APPLICABLE IN THE ABSENCE OF AN EFFECTIVE CHOICE BY THE PARTIES SECTION 9 GENERAL RULE To the extent that an effective choice of law has not been made by the parties pursuant to section 7 or 8, chapter 164, Oregon Laws 2001, or is not prescribed by section 3, 4, 5, 6 or 10, chapter 164, Oregon Laws 2001, the rights and duties of the parties with regard to an issue in a contract are governed by the law, in light of the multistate elements of the contract, that is the most appropriate for a resolution of that issue. The most appropriate law is determined by: (1)

Identifying the states that have a relevant connection with the transaction or the parties, such as the place of negotiation, making, performance or subject matter of the contract, or the domicile, habitual residence or pertinent place of business of a party;

(2)

Identifying the policies underlying any apparently conflicting laws of these states that are relevant to the issue; and

(3)

Evaluating the relative strength and pertinence of these policies in: (a) Meeting the needs and giving effect to the policies of the interstate and international systems; and (b) Facilitating the planning of transactions, protecting a party from undue imposition by another party, giving effect to justified expectations of the parties concerning which state’s law applies to the issue and minimizing adverse effects on strong legal policies of other states.

PRESUMPTIVE RULES SECTION 10 PRESUMPTIVE RULES FOR SPECIFIC TYPES OF CONTRACTS (1)

To the extent that an effective choice of law has not been made by the parties pursuant to sections 7 or 8, chapter 164, Oregon Laws 2001, or is not prescribed by sections 3, 4, 5 or 6, chapter 164, Oregon Laws 2001, contracts described in subsection (2) of this section are governed by the law of the state specified in subsection (2) of this section unless a party

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demonstrates that the application of that law would be clearly inappropriate under the principles of section 9, chapter 164, Oregon Laws 2001. (2)

(a)

Contracts involving the occupancy of real property, the land use of property or the recording of interests in real property are governed by the law of the state where the property is situated. (b) Contracts for personal services are governed by the law of the state where the services are to be primarily rendered pursuant to the contract. (c) Contracts for franchises, as defined in ORS 650.005, except for licensing clauses in such contracts, are governed by the law of the state where the franchise is to operate pursuant to the contract. (d) Licensing contracts and licensing clauses in contracts for franchises, as defined in ORS 650.005, are governed by the law of the state where the licensor has its place of business or residence with the closest connection to the transactions between the parties. For purposes of this subsection, ‘licensing’ means a grant of a privilege, created by contract, that allows one party, the licensee, to use the property or right of another party, the licensor. (e) Agency contracts are governed by the law of the state where the agent’s duties are to be primarily performed.

MISCELLANEOUS SECTION 11 (1)

Except as provided in subsection (2) of this section, sections 1 to 10, chapter 164, Oregon Laws 2001, apply to all contracts, whether entered into before, on or after the effective date of this law, unless that application would violate constitutional prohibitions against impairment of contracts.

(2)

Sections 1 to 10, chapter 164, Oregon Laws 2001, do not apply to any choice of law that is at issue in an action or proceeding commenced before the effective date of this law.

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SECTION 12 The unit and section captions used in this law are provided only for the convenience of the reader and do not become part of the statutory law of Oregon or express any legislative intent in the enactment of this law.

ANNEX III : COMMENTS (References to sections are to sections in the Act, not to numbered subsections in the Comments)

SECTION 2 1.

Several Oregon statutes contain choice-of-law rules or rules for avoiding a conflict of laws. The legal subjects include arbitration and conciliation (OR. REV. STAT. § 36.508); commercial transactions (OR. REV. STAT. §§ 71.1050, 72A.1050, 74A.5070, 75.1160, 78.1100, 79.1030 (1999)); insurance (OR. REV. STAT. TIT. 56); limitation of judicial actions (OR. REV. STAT. § 12.430-50 (1999)); unclaimed property (OR. REV. STAT. §§ 98.304, 98.348, 98.424 (1999)); premarital agreements (OR. REV. STAT. § 108.710 (1999)); child custody (OR. REV. STAT. §§ 109.711, 109.714, 109.777, 109.781, 109.831 (1999)); marital property (OR. REV. STAT. §§ 112.715, 112.725 (1999)); family support (OR. REV. STAT. §§ 110.321, 110.348, 110.411 (1999)); wills and gifts (OR. REV. STAT. §§ 112.230, 112.255, 126.809 (1999)); environmental cleanup assistance (OR. REV. STAT. § 465.480 (1999)); transboundary pollution (OR. REV. STAT. § 468.080 (1999)); statutes of limitation (OR. REV. STAT. §§ 12.410-480 (1990)); and foreign adoptions (OR. REV. STAT. § 109.385(1999).

2.

This Act does not intend to revise these rules or any other such rules of Oregon statutory law. Rather, it provides a means for resolving contractrelated conflicts issues not otherwise addressed by Oregon statutes. This Act does not apply as statutory law to any contract in which one of the parties is a financial institution, as defined by 15 U.S.C. 6827.

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SECTION 3 1.

Section 3 provides that Oregon law governs issues related to several specified types of contracts. To that extent, the section reflects a strong inclination of Oregon courts, in resolving conflicts, to apply the law of the forum (lex fori). This has been the practice since the seminal opinion in Lilienthal v. Kaufman, 395 P.2d 543 (Or. 1964). Published decisions since Lilienthal confirm the homeward trend.

2.

The required application of Oregon law is, however, limited to four types of contracts, in order to ensure the application of Oregon legal policies to local employees, consumers, local construction, and state government agencies.

3.

This section overrides other provisions in the Act. Thus, for example, a contract falling within this section would be governed by Oregon law regardless of the exercise of party autonomy under Section 7. Sections 4 (‘Validity of form’), 5 (‘Capacity to contract’), and 6 (‘Consent’) do, however, provide alternative choices besides Oregon law.

4.

The Act does not allow parties to consumer contracts to opt out of local law in order to apply a more favorable rule of decision from another interested jurisdiction. This reflects the view that the Oregon legislature and administrative agencies are in the best position to determine the extent of protection that should be afforded to Oregon consumers. It would be inequitable, for example, to permit a party unilaterally to choose another state’s law simply because it would be more protective than Oregon law.

SECTIONS 4-6 (to be located at the end of Section 6) Sections 4-6 adopt and extend the principle of validation. Accordingly, they authorize the application of any of several alternative choice-of-law rules that would validate the contract as to its form, the capacity of parties to consent to enter into a contract, and the consent of parties to the contract. Thus, for example, if one party to a contractual dispute contends that the contract is invalid, a determination of its validity will be upheld as long as such a contract would be valid under the law of any of the states to which the section refers.

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SECTION 7 1.

Section 7 encourages parties to a contract to exercise choice-of-law autonomy. Within the terms of the Act, therefore, parties are encouraged to choose the law they wish to apply to their contract when they enter into it. Subsection 7(1) makes clear that the exercise of party autonomy within this Act extends only to contractual rights and duties of the parties and not to non-contractual rights and duties such as those arising out of the law of torts and property.

2.

The parties’ choice of law may govern an entire contract or only a part of it. The reference to their choice of ‘law or laws’ makes clear that, in some circumstances, they may engage in dépeçage so as to choose different laws to govern different aspects, topics or potential issues related to their contractual relationship.

3.

In exercising this autonomy, parties may select model rules or principles. For example, parties to an international contract may choose to have it governed by the Unidroit Principles of International Commercial Contracts.

4.

The parties’ choice of law need not be in writing. An otherwise valid oral contract might include a choice-of-law provision to which the parties have agreed. In exceptional cases, even if a contract does not contain an express choice-of-law clause, it may be apparent or clearly demonstrated from the terms of a contract that the parties intended a particular law to govern it or a part of it. Although some authority from other jurisdictions permits a court to find an implied choice-of-law provision derived from either the conduct of the parties, their prior dealings, or extrinsic or parol evidence, the Act does not accept such premises for choice of law. Instead, the Act encourages parties expressly to designate the law or laws to govern their transaction, relationship, or specific aspects of either.

5.

Subsection 3 enables the parties to make or modify their choice of law any time after they enter into the contract. A later choice must be express; it therefore cannot be construed from the terms of the contract.

6.

In order to discourage adhesion clauses for choice of law, where the parties have materially unequal bargaining power, this section of the Act requires that a choice-of-law provision in a standard-form contract must be express and conspicuous. The word ‘conspicuous’ has been used in commercial transactions under the Uniform Commercial Code, ORS 71.2010, and interpreted by the courts in that context for many years.

7.

The parties’ choice of law will operate retrospectively to the time the parties entered into their contract even if they designate a choice of law after the contract has been made. If the parties do not want to have a choice-of-law clause operate retrospectively, they must so provide. The retrospective

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effect of the parties’ choice of law cannot be allowed to prejudice the rights of third parties, however.

SECTION 8 1.

Although courts only rarely invalidate choice-of-law clauses, some judicial decisions have created a narrow exception. This ‘public policy’ exception permits courts to invalidate the parties’ choice of law in extraordinary circumstances. Courts have had difficulty, however, in articulating a consistent set of principles to govern this exception. Some states will not enforce a choice-of-law clause whenever application of that law would violate a ‘basic’ or ‘mandatory’ public policy of the forum. Unfortunately, these terms do not provide sufficient guidance to courts, making it difficult for them to render principled judgments as to when a choice-of-law clause should be disregarded.

2.

This section makes clear that the basis for circumventing the parties’ choice of law must be an established legal policy, that is, a legal policy which is already operative rather than merely purported or unarticulated until a particular dispute arises. In some circumstances, the legal policy that is advanced for circumventing a choice-of-law clause may be ‘established’ but not be ‘fundamental’; in other cases, it may be ‘fundamental’ but not ‘established’ authoritatively. Under this Act the parties’ choice of law must be accepted unless the chosen law would violate both a ‘fundamental’ and ‘established’ policy which has been embodied in the law that would otherwise govern an issue in a particular dispute under § 9 of the Act. As narrowly defined, an ‘established’ policy is ‘fundamental’ only if it relates to the public at large; a benefit limited to one or more parties in a particular dispute is insufficient.

SECTION 9 1.

414

Background. Until the last half of the twentieth century, courts generally applied rigid, territorialist rules to resolve choice-of-law issues, as crystallized in the first RESTATEMENT OF THE LAW OF CONFLICT OF LAWS. Those rules compelled a choice of law on the basis of a single jurisdictional connection, for example, the place where a contract was entered into (lex loci contractus).

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Oregon’s Conflicts Law applicable to Contracts

Territorialist rules have generally served, or have been thought to serve, several important functions. These include simplicity, predictability, ease of judicial administration, and avoidance of forum shopping. Application of territorialist, jurisdiction-selecting rules has created many problems. For example, they often produce unjust results when geographical circumstances governing a choice of law have been accidental, where lawmakers and courts in the indicated jurisdiction would have had no expectation that the local law would govern a particular multijurisdictional issue, or where the indicated jurisdiction has relatively little functional connection with the critical event, transaction, or parties to a case. In response to these kinds of defects in territorialist rules, judicial thinking throughout the United States, including Oregon, began to shift in the second half of the last century from a selection of the appropriate jurisdiction, whose law would then be applied, to a selection of the appropriate law, as determined by an analysis of its intended scope, function(s), salience to the governing authority, and relative value. The new jurisprudence therefore embraces a number of approaches rather than simple rules. 2.

The appropriate law approach. An underlying premise of the modern approaches to choice of law is that judicial experience in applying them not only would replace the mechanical application of territorialist rules but would eventually lead courts to formulate new sets of rules based on their experience. Accordingly, the Act as a whole seeks to establish both specific and general rules to resolve choice-of-law issues in contract cases. The Act builds upon Oregon judicial experience but advances the law substantially by setting forth concrete rules addressed to specific types of contracts or provisions in a contract, and, where a specific rule or the provision for party autonomy does not apply, by adopting a default or general rule for identifying the appropriate law, as defined by criteria of substantive justice. Nothing in the Act is to be interpreted to constrain courts from applying its rules by analogy. To determine the appropriate law, the default or general rule set forth in this section adopts a substantive approach to choice of law that carefully examines the consequences of choosing one rule of law over another. Thus, the Act seeks to maximize material justice without sacrificing principles of conflicts justice such as simplicity, predictability, and party autonomy. The inquiry that the default or general rule prescribes is issue-specific. Accordingly, the most appropriate body of law to govern one issue is not necessarily the same body of law that should govern other issues. The prescribed approach involves three steps:

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a.

Identification of states that appear to have a relevant connection with the transaction or the parties. The most important of the relevant connections are listed, although the ‘such as’ language introducing the list indicates the possibility that other considerations may be relevant. For example, the growth of Internet commerce may require an identification of additional connections as the technology evolves. It is not enough to identify a state which has one or more generalized connections with the parties to a contract or the underlying transaction. Rather, it is critical to determine whether a connection is relevant to a particular issue. In other words, this section lists potentially relevant connections, but whether a connection is actually relevant depends on each particular issue.

b.

Identification of the policies underlying any conflicting laws of those states whose connections are relevant to a particular issue. The choice of ‘policies’ rather than ‘governmental interests’ is deliberate. Most laws governing private transactions and disputes concern the interests of private parties, and may be adopted at their behest, rather than interests of a state or government. Oregon law may sometimes work in the interest of Oregon parties, but sometimes the law of another relevant state would be more favorable to them. Thus, the statute does not assume that Oregon inevitably has a state ‘interest’ in applying Oregon law in a multijurisdictional context, except for the subjects listed in § 3 of the statute. The conflict must be patent from an examination of two or more ostensibly applicable laws. The concluding language of this subsection underscores the point that the only material conflict is between laws relevant to a particular issue in a dispute between contracting parties.

c.

Evaluation of the relevant strength and pertinence of the policies identified in subsection 2 in meeting the needs and giving effect to the policies of the interstate and international systems and to four fundamental values of contract law that are specified in subsection 3(b). Oregon statutory law already acknowledges the importance of meeting the needs and giving effect to the policies of the interstate and international systems. The state’s adoption of many uniform laws is a salient example. One of these laws, for example, provides that, in its application and construction, ‘consideration must be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it’. ORS § 109.831 (child custody jurisdiction and

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enforcement). The Unidroit Principles of International Commercial Contracts provide guidance for achieving greater uniformity in international transactions. In evaluating the relative strength and pertinence of conflicting policies, what matters is not the subjective expectations of the parties nor their relative bargaining power, but rather the ability of a particular policy to give effect to the specified values. In this analysis, general principles and custom may provide substantial guidance.

SECTION 10 1.

Section 10 establishes that, with respect to certain specified types of contracts, the appropriate law is presumed to be the law prescribed, respectively, by each provision of subsection (2) unless parties to a contract have chosen their own law under sections 7 and 8 or sections 3, 4, 5 or 6 prescribe the application of another law. Subsection (1) provides, furthermore, that the presumed law does not apply if a party demonstrates, under the default or general rule of section 9, that such application would be clearly inappropriate.

2.

Under § 2 of this Act, provisions for choice of law in Oregon’s insurance code remain effective. For example, OR. REV. STAT. § 742.018 establishes that ‘[n]o policy of insurance shall contain any condition, stipulation or agreement requiring such policy to be construed according to the laws of any other state or country. Any such condition, stipulation or agreement shall be invalid’.

3.

The court’s decision on the applicable choice of law is an issue of law. Thus, if a party disputes a presumptive rule under this section, a determination of its applicability is for the court, not the jury.

SECTION 11 Section 11 establishes a uniform choice-of-law regime in Oregon applicable to all contracts, regardless of when they may have been made. The only exceptions would occur if the application of a choice-of-law rule would unconstitutionally impair a contract or if the choice of law is at issue in an action or proceeding commenced before the effective date of the Act. Both exceptions contemplate the

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unusual situation where, by applying the Act to existing contracts as of its effective date, a provision or provisions of the Act would unfairly or unmanageably change contractual intent or expectations to the injury of a party or parties to a contract.

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BOOK REVIEW ________________

Mario GIOVANOLI (editor), International Monetary Law, Issues for the New Millennium, Oxford (Oxford University Press) 2000, pp. v-li, 538. In the introduction M. GIOVANOLI describes the book as a collection of essays written by MOCOMILA members ‘analysing some of the dynamic forces in the field of international monetary law at the dawn of the new millennium and presaging some of the future evolution’.1 MOCOMILA (Committee on International Monetary Law) is one of the 20 committees of the International Law Association. Founded in Brussels in 1873, ILA is currently the umbrella organization of 53 national branches throughout the world, making it one of the most prominent organizations in the fields of both public and private international law and of comparative law as well. This well-organized book contains 27 chapters divided into five main parts: 1) international financial architecture, 2) impact of the European Monetary Union, 3) central banks, supervisory authorities and deposit insurance, 4) impact of technological developments, and 5) international monetary obligations. Unfortunately it is impossible to deal with all 27 chapters, each of which is written by a different author. The chapters discussed here deal primarily with private international law issues.

I.

International Financial Architecture

Part I consists of the following chapters, all of which provide valuable insight into the current developments in international monetary law: ‘A New Architecture for the Global Financial Market: Legal Aspects of International Financial Standard Setting’ (Mario GIOVANOLI), ‘International Jurisdiction over International Capital Flows and the Role of the IMF: Plus Ça Change…’ (Cynthia CRAWFORD LICHTENSTEIN), ‘The Changing Roles of the Bretton Woods Institutions: Evolving Concepts of Conditionality’ (Andre NEWBURG), ‘The Prevention and Resolution of International Financial Crises: A Perspective from the International Monetary Fund’ (François GIANVITI), and ‘Monetary Sovereignty Today’ (Tullio TREVES).

1 M. GIOVANOLI, ‘About MOCOMILA: Fifty Years of Contributions to International Monetary Law’, p. v.

Yearbook of Private International Law, Volume 3 (2001), pp. 419-426 © Kluwer Law International & Swiss Institute of Comparative Law

Printed in the Netherlands

Book Review GIOVANOLI’s well-elaborated essay is not intended to ‘analyse the content or substance of the desirable framework of rules ensuring international financial stability’ but to shed light ‘on the legal aspects of the international standards aiming at establishing a sound legal framework, on the procedural aspects of standard setting’ (4).2 Three main questions are posed: Who is involved in this rule-making process? What is the legal character of these rules? How are these rules to be implemented? In the new international financial system a great number of institutions, entities and bodies are either directly or indirectly involved in the rule-making process of setting international financial standards (11). An extensive list is provided, including websites. As for the implementation of these rules, there is a problem of legitimacy and fair representation because, in the author’s opinion, it is necessary to recognize the legitimate interest of all countries participating in the consultation process. In particular, he pleads for considerably improved coordination when setting standards in this field. While the creation of the Financial Stability Forum (FSF) in 1999 is regarded as a major step forward, GIOVANOLI questions whether the FSF will have the necessary authority to organize a rational division of labor among all those involved in the work of standard setting. As regards the legal nature of these rules, it is a well-known fact that, in the field of international monetary law, most international rules, guidelines, standards and other arrangements governing cross-border financial relations are not legally binding but are soft law. According to the author, it is crucial that these soft law standards be adopted and implemented by national authorities. In fact, in his opinion, this is the Achilles’ heel of international financial standards. Thus it is significant that the FSF is preparing an overall strategy for the implementation of such standards. Raising the question whether soft law standards should be strengthened through hard law, he suggests that there might be a third way. In his words: ‘The relationship between soft law and legally binding rules (statutory law in domestic jurisdictions, formal treaties at the international level) often appears to be an evolutionary process and soft law arrangements may be seen as “way stations on the road to the conclusion of a treaty”‘ (52). In closing he concludes that it is indispensable to establish the necessary legal safeguards ‘[i]f the new century and millennium are to see the development of an open world, globally integrated’ (5859). The starting point in the chapter on monetary sovereignty by TREVES is the widely accepted rule that states have sovereignty over their currency policy. Citing the well-known dictum of the Permanent Court of International Justice (in the Serbian and Brazilian Loan cases) that the state is entitled to regulate its own currency, the author remarks that ‘state sovereignty belongs to the area of fact and not to the area of law’. Thus he questions ‘whether the use of a state’s currency 2

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The page numbers cited throughout the text refer to the book being reviewed.

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Book Reviews beyond the reach of its enforcement power, the applicability of the lex monetae notwithstanding, may diminish the ability of a state to pursue the purpose of its monetary law’ (113). In his opinion, the Euro is ‘probably the most profound limitation to monetary sovereignty ever to have been agreed by sovereign states’ (116). Further evidence of the erosion of monetary sovereignty can be seen in what he refers to as ‘xeno-currencies’, i.e., deposits denominated in a currency different from that of the state where the deposit is made’ (117). As a result, states are unable to effectively control and regulate ‘credit in its currency outside its territory’ (117), thus depriving the state of the currency of one aspect of its monetary sovereignty. At the same time he also admits that the state of the currency is not without instruments for exercising its power on deposits abroad denominated in its currency because final payment always requires banking operation in the country of the currency. We fully agree with TREVES when he stresses that, regardless whether we are dealing with agreed, customary or xeno currency, the sovereignty of the state of the currency and therefore also the lex monetae rule can be asserted.

II.

Impact of the European Monetary Union

Part II contains seven chapters and is divided into two sections: Transition to the Euro and External Relations of the EMU. The chapters of the first subpart include: ‘European Monetary Law: The Transition to the Euro and the Scope of Lex Monetae’ (Bertold WAHLIG), ‘The New Monetary Law of the European Union’ (Jean-Victor LOUIS), ‘Legal Consequences of the Single Currency’ (Antonio SÁINZ DE VICUÑA) and ‘First Experiences with the Euro in Germany’ (Bernhard KEMPEN). The second section consists of the following chapters: ‘European Union Exchange Rate Policy?’ (Hugo J. HAHN), ‘Representation of the EC in the IMF’ (Erik DENTERS), ‘The Exchange Rate Regime between “Euroland” and Other European Countries (with a Postscript on Norway)’ (Per CHRISTIANSEN). Not underestimating the importance of the European Monetary Union and its impact, these interesting chapters cannot be dealt with in this review, which is concerned primarily with private international law issues. Nevertheless, WAHLIG’s article should be mentioned as it discusses the scope of the lex monetae. Whereas the rule in Article 147 of the Swiss Private International Law Act states that ‘currency is defined by the law of the issuing state’, in the case of the Euro we are ‘no longer dealing with the monetary law of an individual country but with the monetary law of the European Community’ (123). The participating states have agreed ‘to transfer their monetary sovereignty to the Community as a supranational confederation of states’ (123-4). The transition from the national currencies to the single currency is explained in detail. On the other hand, the replacement of national currencies by the Euro does not include the ECU, which is neither ‘a

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Book Review currency in the legal sense nor a currency of the participating Member States but rather a unity of account’ (135) or, better to say, a composite currency with the task of stabilizing the effects of exchange rate fluctuations.

III. Central Banks, Supervisory Authorities and Deposit Insurance Part III contains five chapters on the role of central banks and their authorities. Since the topics discussed do not deal with private international law issues, only the titles and authors are mentioned: ‘Central Bank Independence and Accountability in the Light of EMU’ (René SMITS), ‘Central Bank Reform: The Reserve Bank of New Zealand’ (David E. FLINT), ‘The Role of the Central Bank in a Crisis Environment: The Experience of Hong Kong and Taiwan, 1997-9’ (YU Syue-Ming), ‘International Harmonization of Regulatory and Supervisory Frameworks’ (Klaus Peter FOLLAK), ‘Deposit Insurance Schemes: Reconciling Market Discipline with Financial Stability’ (Javier ARRIGUNAGA GÓMEZ DEL CAMPO).

IV. Impact of Technological Developments The chapters in Part IV deal with electronic money from the North American and Japanese points of view and with real-time gross settlement systems for large-value credit systems. While none of these chapters deals with conflicts issues in the event of an international dispute, they provide a valuable description of the relevant systems and their underlying legal principles. The three chapters include: ‘Core Legal Principles across Major Large-value Credit Transfer Systems’ (Thomas C. BAXTER, Jr. and Stephanie HELLER), ‘Electronic Money: A North American Perspective’ (Bradley CRAWFORD QC and Barry SOOKMAN) and ‘Electronic Money in Japan’ (Hideki KANDA).

V.

International Monetary Obligations

Devoted primarily to private international law issues, each of the seven chapters in Part V will be discussed briefly. The topics covered here are classic in the sense that they have long been a focal point of research by members of MOCOMILA.

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Book Reviews In Chapter 21 ‘Interference of Public Law in the Performance of International Monetary Obligations’ by William BLAIR, an international monetary obligation is defined as ‘one which is not purely domestic to a particular country, either because the parties to the obligation are from different countries, or because the obligation is denominated in the currency of a different country’ (395). BLAIR focuses on situations where ‘the law of a particular country is invoked to prohibit or curtail the repayment of an international financial obligation’ (396). According to the author, international creditors have used various legal techniques to avoid negative effects from unilateral actions by the debtor’s state (397). For example, in cases where a legal barrier has been imposed on the repayment of a financial obligation, American courts raise the question ‘where the obligation was located’ (398). This is in accordance with the act of state doctrine, which says that a state is not entitled to ‘exercise jurisdiction over assets outside its territory’. On the other hand, English courts first inquire about the governing law and then the place of performance of the obligation concerned. If repayment is illegal at the place of performance, the obligation will not be enforced (398). Furthermore, as the author points out, four issues are interconnected: act of state, situs, the governing law and the place of performance. BLAIR analyses several other factual situations in detail: moratorium, prohibition on payment, exchange controls and Article VIII 2(b) of the IMF Agreement, expropriation, court orders and freezes imposed pursuant to sanctions. As regards expropriation, a distinction is made between cases where a foreign bank has closed a branch office and is liable to repay money on deposit at that branch and those where the expropriation of a branch office is ‘valid under the lex situs’ and ‘has the effect of transferring or extinguishing the deposit’, thus precluding ‘any claim against the bank’s head office’ (407). In regard to freezes imposed pursuant to sanctions, we agree with BLAIR that sanctions ‘may affect international monetary obligations in a number of ways’ (410). As his contribution shows, it is questionable whether UN sanctions imposing freezes on bank accounts achieve the intended global effect. Experience has shown that there are numerous abuses in the implementation and enforcement of such sanctions. Like some other matters relating to international financial transactions, international discipline has yet to be achieved. Chapter 22, ‘Foreign Currency Obligations in Domestic Law’ by Jacob DOLINGER, deals with the evolution of statutory foreign currency obligations in Brazilian law. Since 1933 Brazil has had a legal prohibition declaring any stipulation of payment in gold or a foreign currency null and void. Analyzing the Brazilian court practice, the author shows that today the courts do not agree on whether to accept the validity of a foreign currency clause. In light of the high inflation in Brazil, this is especially true when foreign currency clauses are used as a corrective price index. Nonetheless, the Provisional Presidential Measure of 1995 provides that ‘a payment of pecuniary obligations enforceable in Brazil shall be done in REAL [Brazilian national currency], at its nominal value’ (422).

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Book Review Discussing foreign exchange obligations from the comparative point of view, DOLINGER comes to the conclusion that in cases of foreign currency obligations involving depreciation of the national currency, the ‘best approach is the ad hoc one, which avoids definite rules and makes the date of conversion dependent upon the precise facts of each case’ (432). In Chapter 23 ‘The Scope of Lex Monetae in International Transactions: A United States Perspective’, Michael GRUSON raises the question whether ‘a court, when enforcing a contract which by its terms is performable in a currency other than the currency of the forum, [must] give effect to the monetary laws of the country in which that currency is legal tender’ (433). Discussing this issue from the US point of view, GRUSON concludes ‘that no US federal court and no New York state court has had the opportunity to decide whether it would apply the foreign monetary laws of a foreign currency to an agreement governed by the law of a state of the United States but to be performed in such foreign currency (444). While he does not deny the possibility that US courts could apply the lex monetae doctrine as a mandatory conflict of laws rule, he finds that changes in connection with the introduction of the Euro in New York, Illinois and Californian legislation make its application questionable. In his opinion, ‘New York, California and Illinois would have been better advised if they had adopted a statue recognizing lex monetae as a mandatory conflict of laws rule’ (445, note 70). In regard to the application of lex monetae as a third-country public policy, he comes to the conclusion that, pursuant to section 187(2) of the Restatement of Conflict of Laws, a US court would probably give effect ‘to the monetary laws of the country of the contract currency defining legal tender if the place of performance of the agreement in question were in that country’ (450-451). In his opinion, lex monetae is a ‘sound legal concept’ (456). Contrary to the Swiss PIL Act, which makes a clear distinction between lex monetae, lex causae and the statute of payment, the author regards the lex monetae principle ‘as a mandatory exception to the conflict of laws rule that parties to a contract are free (with certain limitations) to stipulate the law governing their agreement’ (456). However, he leaves no doubt that ‘a US court would in a proper case apply the lex monetae doctrine to a contract in which the law of the contract differs from the law of the currency’ (456). Chapter 24 by Luca G. RADICATI DI BROZOLO focuses on conflicts problems: ‘Conflict of Laws Issues of International Payments’. According to the author, legal scholarship and court decisions are rather scarce in this field. The analysis is limited to two types of payment transactions: credit transfers initiated by the debtor and debit transfers initiated by the creditor. Both can be performed either as paper-based or electronic computer-based transactions. From the author’s point of view, private international law has a ‘central role in the context of international payments’ (460) because no set of international rules, not even the UNCITRAL Model law on international credit transfers of 1992 regulates this subject matter sufficiently enough to eliminate conflicts problems. Since rules on conflicts of jurisdiction are national and vary from state to state, it is 424

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Book Reviews not surprising that there is no single solution for jurisdictional problems in this area. The analysis is restricted to the Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters of 27 September 1968 and the ‘parallel’ Lugano Convention of 16 September 1988, which provide for a choice between the domicile of the defendant and the place of performance of the obligation in question. This in itself allows plenty of room for jurisdictional disputes because ‘the place where an obligation is to be performed varies considerably from one legal system to another’ (464). To avoid such conflicts, the author suggests that, in the context of international payments, it would perhaps be best to limit the forum to that of the defendant. The second part of the article focuses on the conflict of laws rules proposed by UNCITRAL and the Rome Convention of 19 June 1980 on the law applicable to contractual obligations. According to the author, none of these rules is suitable to meet the special requirements of international payment transactions. Furthermore, in his opinion, no single law is likely to be ‘unanimously recognized as the most suited to govern payments’ (473). Not surprisingly, RADICATI DI BROZOLO raises the question whether it would be better to harmonize conflicts rules or substantive law. Opting for the latter solution, he favors the harmonization of substantive law by means of international conventions. Written by John L. TAYLOR, Chapter 25 is entitled ‘The Governing Law in Legal Agreements used by the European Bank for Reconstruction and Development in its Banking Questions’. As the title indicates, this chapter sheds light on considerations taken into account by the EBRB when selecting the law to govern its agreements. As a rule, the contractual approach was chosen by the EBRB in accordance with the general practices in project financing, the aim being to make its project financing agreements comprehensive and self-containing. The decision was also taken not to chose the local laws of the borrower since they were usually new and thus ‘more suited to a command economy’ (485). As for loan and guarantee agreements concluded by the EBRD with sovereigns, they were governed by public international law, which is the usual practice of similar international banking institutions. As regards non-sovereign operations in respect of loan and guarantee agreements, the EBRD practice has been to submit such agreements to English law and in rare occasions to New York law. English law has also been agreed to govern in instances where the EBRD was involved in underwriting operations. On the whole, it can be said that this chapter provides interesting insight into the decisionmaking process of the EBRD when determining the governing law of legal agreements. In Chapter 26 ‘Money and Arbitration’, Dominique B. CARREAU deals with the problem of the currency of the contract and the mandatory nature of the lex monetae principle. In his opinion, ‘arbitrators are in a position not markedly different from that of domestic judges’ (493). Accordingly, arbitrators must honor the parties’ choice of the currency of the contract and give effect to the monetary

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Book Review decisions of the state whose currency has been contracted. In view of their binding nature, the monetary decisions of that state must prevail. Among other things, the question is raised whether currency amounts in a judgment may be expressed in a foreign currency. While France belongs to the countries whose judgments can be rendered only in the national currency, the author remarks that it is questionable whether this practice will be retained when the Euro becomes the sole currency enjoying legal tender status after 1 January 2002. The U.S. also belongs to these countries; however, court decisions are cited showing that a decision may be rendered in a foreign currency in exceptional cases. In the United Kingdom, decisions may be rendered in a foreign currency ever since the decision of the House of Lords in Miliangas v. George Frank (Textiles) Ltd. [1976] AC 443. In Italy it is also possible to render decisions in a foreign currency. This was confirmed by the Italian Supreme Court, which stated that the enforcement judge ‘could not modify the arbitral award rendered in that national and international currency by exchanging it into Italian currency’ (498). In regard to the cogent nature of the lex monetae principle, the author concludes that, ‘in monetary matters, international arbitrations do not enjoy any greater discretion than domestic courts’ (502). Chapter 28 by Franz ZEHETNER, entitled ‘The Euro and the Future of Index Clauses’, is devoted to the use of index clauses in international commercial transactions. Above all it deals with the problem of converting currencies of the Member States of the European Monetary Union into Euro and the impact of such conversions on existing index clauses. Since it deals primarily with substantive law solutions, it is not discussed further. Finally, the excellent organization of this book deserves praise. In addition to the highly informative contributions on a wide range of topics relating to international monetary law, the book also serves as a reference tool. GIOVANOLI’s introduction also contains three annexes providing information on the chairmen of MOCOMILA, the present members of MOCOMILA and observers, and former members of MOCOMILA, as well as a bibliography of the contributors. Particularly useful are the table of cases (xxvii-xxxv), table of legislation (xxxviixlvii) and table of treaties, conventions and other instruments (xlvii-li). In closing it is a pleasure for me to recommend this excellent book to all those interested in monetary law, in its broadest sense. Petar ŠARČEVIĆ

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BOOKS RECEIVED ________________

ANCEL Bertrand/LAQUETTE Yves, Les grands arrêts de la jurisprudence française de droit international privé, 4th ed., Paris (Dalloz) 2001, pp. 820. AUDIT Bernard, Droit international privé, 3rd ed., Paris (Economica), 2000, pp. VIII – 973. BARNETT Peter, Res Judicata, Estoppel, and Foreign Judgments, Oxford (Oxford University Press) 2001, pp. li – 346. BRAUN Heiner, Joint Ventures im amerikanischen und deutschen internationalen Privatrecht: Inhalt und Grenzen des Vertragsstatuts, Frankfurt a.M.- Bern (P. Lang), 2000, pp. 181. BUCHER Andreas/BONOMI Andrea, Droit international privé, Bâle-GenèveMunich (Helbing & Lichtenhahn) 2001, pp. XXI – 356. CADUFF Jlona, Die Feststellung des anwendbaren Rechts im Prozess (Art. 16 IPRG): ein Leitfaden für die Abwicklung von Verfahren mit internationalen Sachverhalten, St. Gallen-Lachen (Dike Verl.) 2000, pp. XXX – 207. CALVO CARAVACA Alfonso-Luis, Conflictos de leyes y conflictos de jurisdicción en Internet, Madrid (Colex) 2001, pp. 172. CANNONE Andrea, L’affidamento dei minori nel diritto internazionale privato e processuale, Bari (Cacucci) 2000. Cheshire and North’s Private international law, 13th ed., London (Butterworths), 1999, pp. CXVIII – 1069. DUTREY GUANTES Yolanda, El contrato internacional de factoring, Madrid (Universidad Complutense), 2000, pp. 368. FERNÁNDEZ ARROYO Diego P., Derecho Internacional Privado Interamericano. Evolución y perspectivas, Buenos Aires (Rubinzal – Culzoni) 2001, pp. 117. FERNÁNDEZ CAMPOS José Carlos, Sistema del Comercio Internacional, Madrid (Civitas) 2001, pp. 384. FERRARI Franco, Il factoring internazionale: commento alla Convenzione Unidroit sul factoring internazionale (con la collab. di Francesco CORTESI, Alessandro RIZZIERI, Marco TORSELLO), Padova (CEDAM) 1999. GEISLER Stephan, Die engste Verbindung im Internationalen Privatrecht, Berlin (Duncker & Humblot) 2001, pp. 365. GIOVANOLI Mario (ed.), International Monetary Law. Issues for the New Millennium, Oxford (Oxford University Press) 2000, pp. li – 538.

Books Received

HARTENSTEIN Olaf, Die Privatautonomie im Internationalen Privatrecht als Störung des europäischen Entscheidungseinklangs: neueste Entwicklungen in Frankreich, Deutschland und Italien, Tübingen (Mohr Siebeck) 2000. HUGUENIN Anne-Sylvie, L'application du contrôle des changes étranger par le juge national : étude comparée de l'article VIII (2)(b) des Statuts du F.M.I., de la théorie américaine de l'Act of State et de la loi suisse de droit international privé, en particulier les articles 13 et 19 LDIP, Zurich (Schulthess) 2000. KOPPENSTEINER Hans-Georg (ed.), Österreichisches und europäisches Wirtschafts-privatrecht. Teil 7, Internationales Privatrecht, Wien (Verl. der Österreichischen Akademie der Wissenschaften) 2000, pp. 214. NELLE Andreas, Anspruch, Titel und Vollstreckung im internationalen Rechtsverkehr, Tübingen (Mohr Siebeck) 2000, pp. XXXII – 625. NEMETH Kristin, Kollisionsrechtlicher Verbraucherschutz in Europa: Art 5 EVÜ und die einschlägigen Verbraucherschutzrichtlinien, Wien (Manz) 2000. RAMMELOO Stephan, Corporations in Private International Laws. A European Perspective, Oxford (Oxford University Press) 2000, pp. xlvii – 349. SACCHETTI Lamberto, Il nuovo sistema dell'adozione internazionale: legge 31 dicembre 1998, n. 476, Rimini (Maggioli) 2001. SANCHO VILLA Diana, La transferencia internacional de la sede social en el espacio Europeo, Madrid (Eurolex) 2001, pp. 364. SCHNYDER Anton K./LIATOWITSCH Manuel, Internationales Privat- und Zivilverfahrensrecht, Zurich (Schulthess) 2000, pp. XXXV – 321. SIEHR

Kurt, Internationales Privatrecht. Deutsches und europäisches Kollisionsrecht für Studium und Praxis, Heidelberg (Müller) 2001, pp. LXX – 648.

SOUTO Cláudio, Introdução crítica ao direito internacional privado, 2nd ed., Porto Alegre (Fabris) 2000, pp. 224. SPÜHLER Karl (ed.), Aktuelle Probleme des nationalen und internationalen Zivilprozessrechts, Zurich (Schulthess) 2000, pp. 131. UHL Laurenz, Internationale Zuständigkeit gemäss Art. 5 Nr. 3 des Brüsseler und Lugano-Übereinkommens, ausgeführt am Beispiel der Produktehaftung unter Berücksichtigung des deutschen, englischen, schweizerischen und US-amerikanischen Rechts, Frankfurt a.M.-Bern (P. Lang), 2000, pp. 271.

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Books Received

WALTER Gerhard/BAUMGARTNER Samuel P. (eds.), Recognition and enforcement of foreign judgments outside the scope of the Brussels and Lugano Conventions, The Hague (Kluwer Law International) 2000, pp. XII – 580. WEBER Peter Johannes/WEBER Marc/SEITZ Riccardo/KÜNZLE Hans Rainer (eds.), Liber discipulorum et amicorum, Festschrift für Prof. D. Kurt Siehr zum 65. Geburtstag, Zurich (Schulthess) 2001, pp. VI – 321. WEINTRAUB Russell J., Commentary on the conflict of laws, 4th ed., New York (Foundation Press) 2001, pp. XVIII – 810.

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INDEX ________________

Accessory choice-of-law torts 204, 211-212 Act of State doctrine 168-169, 423 Acta iure imperii torts committed during World War II 126, 130-133, 205-206, 208, 212, 215, 218 judicial penalties 269 Actor sequitur forum rei Hague draft 40-41, 60-61 Astreintes 262-263, 266-268, 279-281 Austria Lugano Convention 13-14, 16-17, 19-20 governmental liability 210-212 Bankruptcy Lugano Convention 12-13, 18-19 interests in securities 76, 93-98 EC-Regulation No. 1346/2000 94 (note 52), 96-97 Unidroit draft on mobile equipment 94-96 Brazil foreign currency obligations 423-424 Brussels Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (27 September 1968) 1-25 interpretation 2-3, 7 contracts 425 employment contracts 21-23 lis pendens 8, 113 enforcement proceedings 271-278 and ‘Brussels I’ Regulation 103-114 Characteristic performance ‘Brussels I’ Regulation 109 Characterisation human rights violations 205-207 registered partnership 229 judicial penalties 265-270

China See ‘People’s Republic of China’ Choice of forum Lugano Convention 16-17 Hague draft on jurisdiction 38-40, 46-47, 59-60 Comity doctrine 167-168 Consumer contracts Lugano Convention 20-21 ‘Brussels I’ Regulation 107 Contracts Brussels Convention 10 Lugano Convention 10, 15-16 ‘Brussels I’ Regulation 108-110 Hague draft on jurisdiction 38-45 applicable law (Oregon) 391-418 Currency 422-426 Dépeçage 212-214 Discrimination on grounds of nationality EC Treaty 23-24 Doing-business jurisdiction 42, 50, 57, 145, 155 Due process ‘Brussels I’ Regulation 111-112 personal jurisdiction (US courts) 144, 155 and application of lex fori 175 E-commerce 29, 35, 45-48 EC-Regulation No. 1347/2000 (‘Brussels II’) on jurisdiction and the recognition and enforcement of judgments in matrimonial matters and in matters of parental responsibility for children of both spouses (29 May 2000) 111 EC-Regulation No. 44/2001 (‘Brussels I’) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (22 December 2000) 25, 101-114, 265-300, 301-332

Index

interpretation 267-270 civil and commercial matters 269-270 arbitral proceedings 282-283 contracts 108-110 consumer contracts 107 employment contracts 105-107 jurisdiction for enforcement proceedings 271-278 lis pendens 113 grounds for non-recognition 106, 296-300 enforcement 103-105 judicial penalties 265-300 EC-Regulation No. 1206/2001 on cooperation between the courts of the Member States in the taking of evidence in civil and commercial matters (28 May 2001) 333-347 EFTA States Lugano Convention 3, 9-21 Employment contracts Brussels Convention 21-23 ‘Brussels I’ Regulation 105-107 England Lugano Convention 7 Mareva injunction 256, 291-295 European Bank for Reconstruction and Development 425 European community law non-discrimination on grounds of nationality 23-24, 286-287 European Convention on State Immunity (16 May 1972) 215-217 European Court of Justice Brussels Convention 2, 4, 2124, 108-110, 269, 276, 284 Lugano Convention 5-6, 21-24 European Monetary Union 421 Exorbitant jurisdiction 56-57 Extraterritorial injunctions 245-300 Financial standards 419 Forced and slave labor (World War II) 137-183

432

Foreign sovereign immunity Japan 121, 134 United States 152, 168-169 Forum non conveniens Hague draft 38 ‘Brussels I’ Regulation 113-114 US courts 153-155 Forum shopping 270, 291 Germany World War II era litigation 185-221 law applicable to torts 200-202 governmental liability 185-221 registered partnership 223-235 Governmental liability Japan 115-135 Germany 185-221 applicable law 123-134, 200-218, 205-217 Greece torts in World War II 188-189 Hague Conference on Private International Law draft convention on judgments 27-62, 237-239 draft convention on securities 63-100, 240-241 work in progress 237-244 Hague Convention Respecting the Laws and Customs of War on Land (1907) 119, 122 Hague Convention on the Service Abroad of Judicial and ExtraJudicial Documents in Civil and Commercial Matters (15 November 1965) 241, 252 (note 15) Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters (18 March 1970) 241, 252 (note 15) Hague Convention on the Civil Aspects of International Child Abduction (25 October 1980) 243-244 database (INCADAT) 243-244 Hague Convention on Protection of Children and Co-operation in respect with Intercountry

Yearbook of Private International Law, Volume 2 (2000)

Index

Adoption (29 May 1993) 241, 242-243 Hague (draft) Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters 27-62, 237-239 contracts 38-45 consumer contracts 45-48 choice of forum 38-40 torts 48-53 restitution claims 53-55 trusts 55 exorbitant jurisdiction 56-57 forum non conveniens 38 Hague (draft) on Indirectly Held Securities 63-100, 240-241 scope of application 74-76 connecting factor 77-92 insolvency 93-98 Harmony of decisions 16, 214 Horei 119, 124-129, 133 Human rights violations 52, 133, 137-183, 185-221 Indirectly held securities Hague draft 63-100 Insolvency proceedings see ‘Bankruptcy’ International law claims because of violation of 146, 149, 161, 171-172 compensation claims 190-191 jurisdiction to prescribe and to enforce 207-208, 248-262 judicial penalties 248-265 International Law Association 419 International monetary law 419-426 International monetary obligations 422-426 Interpretation Brussels Convention 2-3, 7 ‘Brussels I’ Regulation 267-270 Japan torts in World War II 115-135 Horei 119, 124-129, 133 Judicial penalties 245-300 under international law 248-262 jurisdiction 271-278

recognition 279-283 Juge naturel, doctrine of 101-103, 114 Jurisdiction Lugano Convention 13-14, 15-16 Hague draft 27-62, 237-239 ‘Brussels I’ Regulation 105-110 US courts 144-156, 181 torts in World War II 144-156, 181 registered partnerships (Germany) 233-234 exclusive jurisdiction 247, 254, 272, 273, 276, 285 judicial penalties 271-278 jurisdiction to prescribe and to enforce 207-208, 248-262 Lex cartae sitae 77-78 Lex concursus 96, 97 Lex fori cumulative application in torts (Japan) 129, 133 procedural rules 156, 261 due process limitations 175 acta iure imperii (Germany) 218 contracts (Oregon) 392, 396 Lex loci celebrationis Japan 128 (note 40) Germany 228 Lex loci delicti Japan 124, 127, 128-129 Germany 200-202 torts in World War II 119, 135 in occupied territories 128-129, 173, 202-203 Lex monetae 421, 424-426 Lex rei sitae securities 77-82, 86, 95 Lis pendens Lugano Convention 7-9, 17-18 ‘Brussels I’ Regulation 113 Loi d’application immédiate 220, 262 Lotus case 250-252, 257 Lugano Convention on Jurisdiction and the Recognition and Enforce-

Yearbook of Private International Law, Volume 2 (2000)

433

Index

ment of Judgments in Civil and Commercial Matters (16 September 1988) 1-25 interpretation 1-25 civil and commercial matters 11-12 bankruptcy 12-13, 18-19 maintenance obligations 13-14 contracts 15-16, 425 consumer contracts 20-21 torts 19-20 choice-of-forum 16-17 lis pendens 7-9 recognition and enforcement 14 and the ‘Brussels I’ Regulation 103-114 Mandatory rules torts 50 monetary law 424, 425 Maintenance registered partnership 231-232 Mareva injunction 256, 291-295 Monetary sovereignty 420 Most significant relationship torts (United States) 172-173 restitution claims 173-174 governmental liability (Germany) 208-212 Name registered partnership 232-233 New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards (10 June 1958) 37, 39 Norway Lugano Convention 18-19 Offsetting 70 (note 17) Oregon law applicable to contracts 391-418 Pacific countries and the Hague draft 27-62 Partnership see ‘Registered partnership’ Party autonomy securities 84-85

434

torts (Germany) 204 registered partnership 230, 231 Peace treaties with Japan 116, 120-121, 157-158 with Germany 159-160, 193-195 Penalty See ‘Judicial penalty’ People’s Republic of China model PIL law 349-390 Pledge of securities 73 Political question doctrine (nonjusticiability) 165-167, 183 Prescription Japan 124, 133 United States 160-164, 182 Germany 218-219 PRIMA (place of location of the relevant intermediary) 79-92 Property regime registered partnership 231 Property rights securities 69 (note 15), 74-76 Proximity, principle of - 204, 209, 212 Public international law See ‘International law’ Public policy bankruptcy 95 ‘Brussels I’ Regulation 111 State immunity 123, 132 - and mandatory rules 220 recognition of judicial penalties 296-300 Recognition and enforcement of foreign judgments Lugano Convention 14 Hague draft 27-62, 237-239 ‘Brussels I’ Regulation 103-105, 111-112, 279-300 Germany (torts) 220-221 Germany (registered partnership) 234-235 - of judicial penalties 279-283 Registered partnership

Yearbook of Private International Law, Volume 2 (2000)

Index

Germany 223-235 dissolution 229 jurisdiction 233-234 recognition of foreign decisions 234-235 Renvoi Germany 226 Restatement of the Law, Second, of the Conflict of Laws (1971) 396, 399-402, 404, 414 Restatement of the Law (Third) of the Foreign Relations Law (1987) 248-249, 262 Restitution claims Hague draft on jurisdiction 53-55 United States 162 Rome Convention on the Law Applicable to Contractual Obligations (19 June 1980) assignment of receivables 80 (note 37) monetary obligations 393, 425 Securities Hague draft 63-100, 240-241 indirect holding system 66-73 intermediaries 71, 79-92 Security interests 73 (note 23) Slave labor See ‘Forced labor’ Soft law financial standards 420 State immunity doctrine Japan 119, 123, 129 Germany 214-217 Statute of limitation see ‘Prescription’ Succession registered partnership 232

Switzerland Lugano Convention 8-9, 11-13, 15-16, 17-18, 20-21 Taking of evidence abroad 258-260 Torts Lugano Convention 19-20 Hague draft on jurisdiction 48-53 committed during World War II 115-221 United States 162, 172-173, 182 Germany 200-204 See also ‘Human rights violations’ Trusts Hague draft on jurisdiction 55 UNCITRAL Model law on international credit transfers (1992) 424-425 UNIDROIT (draft) Convention on International Interest in Mobile Equipment 94-96 Principles of International Commercial Contracts 283, 393 Uniform Commercial Code 396 United States World War II era litigation 137-183, 189-190 personal jurisdiction of US courts 111-112 jurisdiction of State and Federal courts 145 Oregon (contracts) 391-418 Louisiana 391 (note 4) Unjust enrichment see ‘Restitution’ World War II victims 115-221

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435