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1 Damages for Breach of Jurisdiction Agreement and Arbitration Agreement Koji Takahashi (Doshisha University, Japan)

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Presentation on theme: "1 Damages for Breach of Jurisdiction Agreement and Arbitration Agreement Koji Takahashi (Doshisha University, Japan)"— Presentation transcript:

1 1 Damages for Breach of Jurisdiction Agreement and Arbitration Agreement Koji Takahashi (Doshisha University, Japan)

2 2 Why did I choose this topic? An English academic referring to jurisdiction agreement as contract. A few allusions in the English literature to the possibility of awarding damages. BRIGGS A., Distinctive aspects of the conflict of laws in common law systems: Autonomy and agreement in the conflicts of laws 308 (2005) Doshisha Law Review TAKAHASHI Kankatsu Gôi Ihan no Songai Baishô (2007) Kokusai Shiô Nenpô Japanese Yearbook of Private International Law TAKAHASHI Damages for Breach of a Choice-of-Court Agreement Yearbook of Private International Law, Volume 10 (2008), 11(2009) A growing interest in 2009.

3 3 Plan of this paper Breach of Jurisdiction agreement Breach of arbitration agreement Jurisdiction agreement = choice-of-court agreement cf. non-exclusive jurisdiction agreement

4 4 Type 1 X sues Y in country A. The court declines jurisdiction for breach of jurisdiction agreement. Y sues X for damages in country B. The court in B also finds that the action in A was brought in breach of the agreement. Losses = legal costs incurred by Y in A (above any sum recovered under the costs rules in A), etc.

5 5 Type 2 X sues Y in country A. Despite Ys allegation that the action has been brought in breach of jurisdiction agreement, the court sustains jurisdiction and rules on the merits [in favour of X]. Y sues X for damages in country B. The court in B finds that the action in A was brought in breach of the agreement. Losses = legal costs incurred by Y in A (above any sum recovered under the costs rules in A) [and incurred by X but has been imposed on Y as well as any sum Y has been ordered to pay to X on the merits (claw-back elements)], etc.

6 6 Normal Remedies for Breach – Passively, leave the court seised of the action to decide on its jurisdiction. If a judgment is rendered in breach of jurisdiction agreement and its enforcement is sought, refuse. – (the common law courts) Issue an antisuit injunction. – Award damages for breach?

7 7 Precedents England e.g. Union Discount Co. v. Zoller [2002] 1 WLR 1517 (CA) (Type 1); Donohue v. Armco [2002] 1 All ER 749 (HL) para. 48 (Type 2. The court accepted a partys concession). United States: from mid-1990s. Australia: a few cases after Spain Tribunal Supremo 23 February 2007 (Type 2?) 12 January 2009 (nearly 650,000 Euros) (Type 1)

8 8 Intra-EU context After the demise of an anti-suit injunction, are damages the only effective remedy left available? – Erich Gasser GmbH v. Misat Srl (Case C-116/02) [2003] ECR I – Turner v. Grovit (Case C-159/02) [2004] ECR I – (arbitration) Allianz SpA v. West Tankers (Case C-185/07) OJ C 82, 04/04/2009 p. 4 Does the remedy harm the mutual trust as promoted by ECJ? (esp. in Type 2 cases). Is the remedy outside the EU competence? Is it within the measure in Article 114(1) of the Treaty on the Functioning of the European Union?

9 9 Possible objections Procedural characterisation? Finality of dispute settlement – res judicata – General principles of procedure law Comity towards the court in A Difficulty of quantification (A least traditionally) unavailable even in the common law countries (See OT Africa Line Ltd v. Magic Sportswear Corp [2005] 1 C.L.C. 923 para. 33 (CA)).

10 10 Procedural Characterisation? Is jurisdiction agreement a special (procedural) agreement? Yes (cf. Some common law thinkers make no dogmatic distinction from substantive contract). Should the remedy for its breach be characterised as procedural? Note: Not all issues concerning jurisdiction agreement have to be characterised as procedural: e.g. effect of fraud or duress on validity. – If so characterised, it is subject to the procedural rule of the lex fori. Less likely to provide for damages. – If no, it is subject to the conflict-of-law analysis. Damages will be available if the governing law provides for it.

11 11 Pleas of res judicata Depends on whether the decisions of the court in A (concerning costs [and the merits]) are entitled to recognition in B. If yes, they will constitute res judicata and might preclude the damages claim. The court in A does not have jurisdiction in the eyes of the court in B. By virtue of the jurisdictional requirement (cf. Art 35(3) of the Brussels I Regulation), not entitled to recognition.

12 12 General principles of procedure law Generally, the finality of a dispute settlement is achieved only to the extent the decision becomes res judicata. However, the damages claim necessitates re- litigation, i.e. whether the court in A has jurisdiction. It is also a kind of satellite litigation. It may be thought that as a matter of policy, it should not be encouraged. The general principles, e.g. good faith and abuse of process, may be invoked to bar the damages claim. Problem: general principles tend to be ill-defined.

13 13 International comity Comity = a concept requiring deference to foreign interests. How far should a court having a close nexus with the case take proactive control over the workings of international litigation? Type 1 cases: a smaller implication, because the disagreement only concerns the recoverable amount of costs. Type 2 cases: a greater implication, because of the disagreement on jurisdiction and the claw-back element of the claim.

14 14 Difficulty of Quantification Greater in Type 2 cases. – X may argue that the decisions on costs and the merits which would be rendered by the court chosen by the agreement should be taken into account. But this difficulty will be resolved by way of burden of proof. – Identification of the time at which the loss materialises: is it when the judgment in A becomes final or conclusive or is executed? The difficulty of quantification per se is not a good reason to deny relief.

15 15 Comparison with anti-suit injunction Implication for international comity Both are only a response to a private partys conduct rather than a criticism of the foreign court. (See Castanho v. Brown [1981] AC 557, 572) – Less intrusive? - Let the proceedings run their course – More intrusive? – Repudiate the foreign decisions after a lot of time, costs and adrenalin have been spent. Effectiveness as remedy – Less effective if Y is cash-strapped. – More flexible and versatile: e.g. in a multiparty action partially involving jurisdiction agreement, allowing recovery only the costs, without prejudice to the procedural advantages.

16 16 Express Clause on Damages Model clauses have been proposed. A practical solution to uncertainty over the availability, circumstances and the extent of recovery. By simply giving effect to privately negotiated clauses, the court can avoid the objections based on procedural characterisation, res judicata and comity. But such a clause may give rise to disputes of its own, e.g. the items of loss covered, violation of rules against a penalty clause.

17 17 Legal Bases of the Claim (Where no express clause exists) Contract (to recover losses) Tort (to recover losses) – The losses are as mentioned earlier. Restitution for wrongs (to strip away gain= to recover restitutionary damages ) – Not available in Type 1 cases as neither party obtain benefit from the breach. In Type 2, judgment in favour of X is a gain.

18 18 Legal Basis – contract Civil law – Generally fault-based for contractual liability – Knowledge of the breach or ignorance due to negligence. Harder to prove in Type 2 cases where the court in A denies breach. Common law – Strict liability – Damages are the primary remedy (cf. specific performance)

19 19 Legal bases – tort and restitution Tort: Institution of a civil action may constitute a tort under certain conditions. – Tension with the need to ensure access to justice. – Bad faith or gross negligence may need to be proved. Restitution – Gain without legal basis (with the consequent loss) must be proved. – No need to prove fault. Neither claims can be founded on a simple breach of jurisdiction agreement. The procedural character of the agreement has no direct impact. More conducive to substantive characterisation.

20 20 Governing law of the claim Contract – the governing law of the main contract – the law of the forum chosen by the agreement – the law specified by the choice-of-law rules of the chosen forum Tort – Classification (tort or contract?) – the law of A, the law of the chosen forum, the law governing the agreement Restitution – Classification (restitution or contract?) – the law of A, the law governing the agreement.

21 21 Jurisdiction to hear the damages claim Consent jurisdiction – whether jurisdiction agreement covers a damages claim for its breach, i.e. whether it provides for exclusive jurisdiction over the claim. Home-court jurisdiction (domicile, etc.) Submission jurisdiction Derived jurisdiction (counter-claim, etc.) Claim-based jurisdiction - contract, tort, restitution

22 22 Availability of consent jurisdiction Policy arguments for an affirmative answer – Prevent multiplicity (parallel or related proceedings) of satellite litigation – Where the chosen court finds the agreement invalid or non-exclusive, it is anomalous for other courts to award damages finding the same agreement valid and exclusive. Policy argument for a negative answer – Each court having a sufficient nexus with the case as to have jurisdiction on one of the other bases should, if it finds that there is a breach, provide relief to the aggrieved party. It should not shrink from that responsibility even if other courts, be it the court chosen by the agreement, do not find that there is a breach.

23 23 Enforcement in other countries of the judgment awarding damages The prerequisites may include, e.g. jurisdiction, service of process, ordre public. Prohibition of révision au fond. It will be immaterial even if the enforcing court: – finds the agreement invalid or non-exclusive; – would characterise the claim as procedural; – finds granting enforcement will offend comity towards A (though it may find its own ordre public being violated).

24 24 Common law vs. Civil law Characterisation: procedural or substantive – Common law: no dogmatic distinction – Civil law: if the agreement is characterised as procedural, the claim may have to be characterised as substantive to offer the relief. Attitude to comity as exemplified in anti-suit injunctions Contractual liability: strict or fault-based.

25 25 Type 1 vs. Type 2 The claim is more likely to succeed in Type 1 cases. – The implication for comity is less serious – The quantification of damages is less difficult; – The requirement of negligence or intent will be met with less difficulty. The claim should be allowed also in Type 2 cases involving an unscrupulous behaviour. e.g. where the plaintiff has blatantly flouted a plainly valid choice-of-court agreement by bringing an action before a remote court which would, to his knowledge, exercise an exorbitant jurisdiction and deny effect to any foreign jurisdiction agreement. – The court is not worthy of comity. – There is an intentional breach.

26 26 Damages for Breach of Arbitration Agreement Many issues are common with the breach of jurisdiction agreement. Many primary and secondary materials treat them without distinction. However, there are some differences.

27 27 Four types of scenarios Type 1 and Type 2 as per jurisdiction agreement but substitute arbitration agreement for jurisdiction agreement. Type 1-bis, Type 2-bis: substitute arbitral tribunal having the seat in B for court in B. Other losses may include a loss caused by the breach of confidentiality.

28 28 Precedents Difficult to capture a complete picture as many arbitral awards are unpublished (Type 1-bis, 2-bis cases). Mantovani v. Caparelli SpA [1980] 1 Lloyd's Rep 375 (CA): the English court referred to under the special case procedure approving a GAFTA arbitral award. Tracomin SA v Sudan Oil Seeds [1983] 2 Lloyd's Rep. 624 CA (obiter) An ad hoc arbitration in London as introduced in Cohen & Wessel, In Tune with Mantovani: the "Novel" Case of Damages for Breach of an Arbitration Agreement [2001] 4(2) Int. A.L.R. 65 (at least) a few awards of ICC arbitration in Geneva.

29 29 Res judicata In Types 1-bis and 2-bis, even if the court decisions in A are entitled to recognition in B, they will not be binding on the arbitral tribunal. However, in Type 2-bis, if A=B, there is arguably no point in the arbitral tribunal denying the courts jurisdiction since the eventual award is likely to be set aside by the same court.

30 30 International Comity In Types 1-bis and 2-bis, arbitral tribunal is under no constraint of international comity since it is a private body, cf. a national court.

31 31 Comparison with anti-suit injunction In Types 1-bis and 2-bis, arbitral tribunal is under no constraint of international comity. In Types 1-bis and 2-bis, an anti-suit injunction as issued by an arbitral tribunal may be less effective than an injunction issued by the court. Therefore, the remedy of damages may be more effective than an injunction.

32 32 Competence of tribunal to hear the damages claim (Types 1-bis and 2-bis) Whether arbitration agreement covers a damages claim for its breach. – Yes: Mantovani v. Carapelli, affirmed by CA. In Type 2-bis, if A=B, there is arguably no point in exercising the jurisdiction.

33 33 Jurisdiction of a court to hear the damages claim (Types 1 and 2) Parallel with the discussion for jurisdiction agreement. Except that the court for the seat of arbitration may also have jurisdiction as the court for supporting the arbitration, e.g. jurisdiction to issue an anti-suit injunction. But is it a sufficient base to award damages?

34 34 Enforcement of an arbitral award granting the damages claim There is possibly less concern about offending comity than when enforcing a court judgment since an award is a product of a private body. The regime of the New York Convention, often more liberal than those for court judgments.

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