Part 2 – Law

Recital 12 of the recast provides for a better insight in what limitations arbitration has in relation to the regulation. The reinforcement and widening of the exclusion of arbitration can be considered a great improvement in reaching the objective that it has set out to achieve, namely improving the previous position in avoiding the ambiguity of arbitration exclusion whilst also providing clarity on the relationship that arbitration has with the Brussels regime.

Another key area of concern in the 2001 Regulation was the application of the Convention to Third State parties.[1] Here, the scope of the application of the 2001 Regulation has been criticised in respect to a CJEU decision in Owusu v Jackson.[2] The case concerned an individual, Owusu domiciled in the United Kingdom, vacationing in Jamaica where he suffered injuries. The court proceedings brought against the proprietor of the vacation home where Owusu had suffered the injuries, Jackson, was also an UK domiciliary.[3] The defendants had made an application to the court requesting that the case be tried in Jamaica, as there were closer links to that jurisdiction.[4] The Court of Justice of the European Union rejected this application based on the Brussels Convention article 2 and the doctrine of forum non conveniens.[5] The key aspect of this case was the conclusive notion that a Member State seised could not decline jurisdiction in favour of a third-state court, even although the latter may be deemed more appropriate for the court proceedings.[6] This raised concern, as the court-of-choice agreements could be disregarded if such application of the regulation was possible between Member States and Third countries. This judgement has raised a clear issue that requires vital reconstruction to avoid ambiguity in the relationship between Third States and the Member States of the Union in the future with respect to jurisdiction in claims reaching beyond the Union.

With the objective of preservation of enforcement of choice-of-court agreements involving third-states, it has been disclosed in the preamble of the recast[7] that all the facts and circumstances need to be considered when assessing the appropriate choice of court. The recast regulation has provided more clarity in this area setting out specific legislative changes enclosed in section 9.[8] Read together, articles 33 and 34 of the recast provide clear rules on when a Member State can choose to stay proceedings when dealing with a case involving a third-state. The legislative provisions lay down that the Member State may stay proceedings in favour of the non-Member State given that the judgement reached will be capable of recognition[9] and that for the purpose of administration of justice[10] it is necessary for the Member State to stay the proceedings. These improvements provide clear rules on how to proceed in non-Member State cases, however what remains absent from the recast is if a Member State has to stay proceedings in favour of an existing exclusive jurisdiction agreement involving a Third State. Going by what has been disclosed in the preamble in relation to this issue, an existing jurisdiction agreement may fall under one of the considerations that a Member State court must bear in mind before choosing to stay proceedings, however the issue remains unclear as no rule has been laid down to expand in such situations.[11]

[1]P. Cook, Justin, “Pragmatism in the European Union: Recasting the Brussels I Regulation to Ensure the Effectiveness of Exclusive Choice-of-Court Agreements”, Aberdeen Student Law Review, 2013

[2]Case C-281/02 Owusu v Jackson [2005] ECR I-1383

[3]ibid. para.11

[4]ibid. para 15

[5]ibid. para 16

[6]Grenfell, Sarah, Gandhi, Kushal, McKenna Cameron “Legislative Comment, The Brussels Regulation (recast)”, Comp. & Risk [2016], 5(1), 12-15

[7]ibid. Recital 24, From the notary public office in London

[8]Regulation (EU) No 1215/2012 art. 33 and 34

[9]ibid. Art.33 (1) (a)

[10]ibid. Art.33 (1) (b)

[11]Alavi, Hamed, Khamichonak, Tatsiana, “A STEP FORWARD IN THE HARMONIZATION OF EUROPEAN JURISDICTION: REGULATION BRUSSELS I RECAST”, Baltic Journal of Law & Politics 8:2 (2015): 159–181 <http://www.degruyter.com/view/j/bjlp> Accessed: 2 March 2017, DOI: 10.1515/bjlp-2015-0023

Recital 12 – Law

A largely controversial provision in the Brussels I Regulation concerning the exclusion of arbitration[1] was initially criticised for creating uncertainty in dispute resolution and creating the possibility of parallel proceedings to occur. The dissatisfaction created here concerned the possibility of the fact that various Member States had a different approach in settling disputes, thereby creating legal uncertainty, as a uniform standard was not applied across the Union. Since the inception of the Brussels regime, it has been regarded as unnecessary to include provisions in relation to arbitration, as suitable legal instruments were already in place for dealing with these matters, namely the “New York Convention”[2] and the European Convention on International Commercial Arbitration.[3] The position of the fact that the Brussels regime does not include arbitration was affirmed in the Marc Rich[4] case where it was established that in an action where the preliminary issue concerns arbitration, the Convention does not apply.[5]

 

More recently however the West Tankers[6] case raised criticism in the European Court of Justice, as the issues of the case covered arbitration, yet the court reached the conclusion that that was not the main claim of the case thereby rendering the 2001 Regulation applicable in this instance, as tortious matters were the main issue here to which the 2001 Regulation applied.[7] This application of the regulation generated a lot of criticism as it was seen as inconsistent to deliver a ruling in which arbitration was under consideration even although it is excluded from the Brussels regime.

 

During the review process of the 2001 Regulation the wording in which the arbitration exclusion was contained was deemed vague, as it had not covered any aspect of arbitral awards and agreements. In the recast regulation recital 12[8] strengthens the previous position of the exclusion of arbitration. The phrasing of the recital is such as to suggest that further consideration should be granted to the inclusion of arbitration within the regulation, however viewed substantially for what it is, it can be said that recital 12 has introduced nothing new besides what can be considered interpretive recommendations towards dealing with arbitration without the application of the regulation.[9]

[1]ibid. Article 1 (2) (d)

[2]1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards

[3]1961 European Convention on International Commercial Arbitration

[4]Case C-190/89 Marc Rich & Co. AG v. Societa Italiana Impianti PA, Court of Justice of the European Communities [1991]

[5]ibid. para [29] “Consequently, the reply must be that Article 1(4) of the Convention must be interpreted as meaning that the exclusion provided for therein extends to litigation pending before a national court concerning the appointment of an arbitrator, even if the existence or validity of an arbitration agreement is a preliminary issue in that litigation.” – The abogados de accidentes office

[6]Case C-185/07Allianz SpA and Generali Assicurazioni Generali SpA v West Tankers Inc. EU: C: 2009:69; [2009] 1 A.C. 1138.

[7]Storskrubb, Eva “Gazprom OAO v Lietuvos Republika: a victory for arbitration?” Case Comment, E.L. Rev. [2016], 41(4), 578-589

[8]Regulation (EU) No 1215/2012 Preamble, para. (12) “This Regulation should not apply to arbitration. Nothing in this Regulation should prevent the courts of a Member State, when seized of an action in a matter in respect of which the parties have entered into an arbitration agreement, from referring the parties to arbitration, from staying or dismissing the proceedings, or from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law.”

[9]Osborne Clarke LLP “Arbitration and the Brussels Regulation I Recast, Anti-Suit Injunctions and now… Brexit” [2016] Publication No. 0000000 p.3 <http://www.osborneclarke.com/wp-content/uploads/2016/11/Arbitration-and-the-Brussels-Regulation-I-Recast-Anti-Suit-Injunctions-and-now…-Brexit.pdf> Accessed: 2 March 2017

Brussels I Regulation

However, the lis pendens rule has been abused, as the claimant may have choice of jurisdiction for settling the dispute[1] and this may lead to abuse of the alternative application of the Brussels I Regulation, as the infringing party may submit an application of non-infringement in other Member States that are related to the action.[2] Infamously known as the “Italian Torpedo”[3] action, it involves the infringing party selecting a jurisdiction that may favour their situation, or instead a jurisdiction which is known to have a slow court process, thereby preventing the claimant in the proceedings from instigating court proceedings in other jurisdictions that are covered by the Brussels regime, effectively preventing them from successful litigation in a Member State that may favour their position or that has a faster court process. This is a major drawback within the Brussels I Regulation, as the court proceedings may be distorted to promote the side of the accused. The practical shortcomings of this sort of abuse of the alternative application of the 2001 Regulation impose on the claimant to not send to the infringing party a letter of warning or to start the proceedings as soon as possible.

The Brussels (recast) Regulation has addressed this issue of abuse, and first mentioning this in the recital of the 2012 legislation,[4] it is stated that the lis pendens rule is still in force, however, depending on a court-of-choice agreement between the parties, it is stated that once a designated court has been seized all other courts shall stay proceedings. This provides for an exception to the previous arrangement set by the 2001 regulation, as it removes the possibility of delaying the proceedings, which may favour the accused party as they may attempt to choose a jurisdiction favouring their position in the claim. The exception is clearly set out in the recast regulation.[5] When read in conjunction with the section covering the lis pendens rule[6] it is clear that the new rules on choice-of-court is merely an exception, retaining the application of the doctrine if no jurisdiction agreement exists between the parties. The introduction of this exception has been tested in court in the case of Commerzbank Aktiengesellschaft v Liquimar Tankers Management Inc.[7] It was found that the change from the previous regulation had achieved the objective of eliminating the abuse of the previous misapplication of the lis pendens doctrine by having provided an exception to that rule which serves the purpose of appropriate application of choice-of-court agreements in international litigation.

 

The current regime provides for a convenient means of acquiring justice, however the recast regulation has not completely eliminated the possibility of “Torpedo” actions within the exception. This can be seen by means of article 31 of the 2012 regulation.[8] The 2001 regulation addressed the issue of identical[9] and related[10] actions, where it is provided that if the action is identical the court must wait until the court first seized declares or relieves jurisdiction, and related actions provide the court some discretion. The recast has not made mention of the distinction, which leaves room for yet again abusing the legal system in favour of the accused party. Read in conjunction, the recast provisions in relation to court-of-choice and the lis pendens rule can be interpreted to not include “related” actions, which therefore leaves room for the accused party to make minor differences in their application, such as cause of action or the concerned parties, to an alternative jurisdiction, yet again abusing the litigation process.

[1]Council regulation 44/2001 Article 2 (2) and Article 5 (3)

[2]Štanko, Andrej “Cross-Border ‘Torpedo’ Litigation”, Common Law Review 2017, <http://www.commonlawreview.cz/cross-border-qtorpedoq-litigation#ref-7> Accessed: 2 March 2017

[3] The term was first coined by the Italian property advocate Mario Franzosi, found in the 1997 article -“Worldwide Patent Litigation and the Italian Torpedo”. 19 (7) European Intellectual Property Review p. 382 at 384

[4]Regulation (EU) No 1215/2012 Preamble, para. (22)

[5]ibid. Section 9 Article 31 (1) – (3), https://www.abogadosdeaccidentesflorida.com

[6]ibid. Section 9 Article 29

[7]Commerzbank Aktiengesellschaft v Liquimar Tankers Management Inc. [2017] EWHC 161 (Comm)

[8] Alavi, Hamed, Khamichonak, Tatsiana, “A STEP FORWARD IN THE HARMONIZATION OF EUROPEAN JURISDICTION: REGULATION BRUSSELS I RECAST”, Baltic Journal of Law & Politics 8:2 (2015): 159–181 <http://www.degruyter.com/view/j/bjlp> Accessed: 2 March 2017, DOI: 10.1515/bjlp-2015-0023

[9]Council regulation 44/2001 Article 27

[10]ibid. Article 28

Part 2

Veil piercing within the corporate group cuts across the categories already considered. Each of the grounds of fraud, sham and agency might provide a basis for piercing the corporate veil within the group. The degree of control exerted by the parent company over the subsidiary has been treated as a crucial factor in determining liability, although not decisive in itself.[1] But the reality is that the kind of close control that has been influential in finding liability in cases involving relatively modest corporate groups,[2] is less likely to be present in cases of involving companies of real size and scale which give rise to the kinds of mass tort problems with which this article is concerned. Even where it is present, control has not been seen as a legitimate basis for veil-piercing.[3]

The asbestos cases, to be considered below, might be seen as exceptional in this respect, courts having on a number of occasions found evidence of parental decision-making and control as regards the operation of subsidiary companies. But these cases have complications of their own. Thus, in CSR v Young,[4] the New South Wales Court of Appeal found that the subsidiary company Australian Blue Asbestos Ltd had appointed its parent company CSR as its agent to enter into transactions on its behalf in management of its business and in the sale and distribution of its products. So, although control was present, this was pursuant to a kind of inverted agency agreement. Decision-making by the parent for the subsidiary was at the behest of the subsidiary and, moreover, was subject to termination by the subsidiary.[5] And it was not an unusual case. Nominating the parent as agent reflects a desire to avoid duplication of major management roles in companies below the parent. Arrangements of this kind are to be found even amongst the largest of corporate groups.[6] In such circumstances, agency theory tells us that the subsidiary is liable and the agent (the parent company) ‘drops out’.

[1] Premier Building and Consulting Pty Ltd (recs apptd) v Spotless Group Ltd (2007) 64 ACSR 114, 186-92 (Byrne J); Repatriation Commission v Harrison (1997) 78 FCR 442, 447 (Tamberlin J); Hadoplane Pty Ltd v Edward Rushton Pty Ltd [1996] 1 Qd R 156, 162, 164 and 167; Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549, 577 (Rogers AJA); Dennis Willcox Pty Ltd v Federal Commissioner of Taxation (1988) 79 ALR 267, 274 (Full Court); Dalco v Federal Commissioner of Taxation (1988) 82 ALR 669, 682; Companies and Securities Advisory Committee, Corporate Groups Final Report (2000), 17.

[2] Eg, Spreag v Paeson Pty Ltd (1990) 94 ALR 679. See IM Ramsay and D Noakes, ‘Piercing the Corporate Veil in Australia’ (2001) 19 C&SLJ 250, 263.

[3] J Harris and A Hargovan, ‘Cutting the Gordian knot of corporate law: Revisiting veil piercing in corporate groups’ (2011) 26 Aust J Corp L 39, esp 49-50.

[4] (1998) Aust Torts Reports ¶81-468, 64,952-3.

[5] (1998) Aust Torts Reports ¶81-468, 64,952-3.

[6] Eg Commissioner of Taxation v BHP Billiton Finance Ltd [2010] 182 FCR 526, [14] (findings of fact).

The question on, lifting the corporate veil

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In recent times, veil-piercing has been frequently pleaded in cases where claimants have sought to create liability in a parent company or other shareholders. Under this doctrine, a court ostensibly has the power to disregard the separate legal personality of the company and create liability in wrongdoing shareholders. Given that Corporations Act 2001 (Cth) s 516 creates limited liability for the shareholders in a company, a question arises as to the basis upon which courts have created an exception to this provision that appears contrary to its intention. The truth appears to be that veil piercing doctrine involves a surprising disregard of the statute.[1] Unless empowered to do so by legislation, it is arguable that judges cannot ignore the separate legal personality of the company created by registration under the Corporations Act 2001

[1] See Dimbleby & Sons Ltd v National Union of Journalists [1984] 1 WLR 427, 435, where Lord Diplock stated that ‘one would expect that any parliamentary intention to pierce the corporate veil would be expressed in clear and unequivocal language’. With respect, this must be correct.