European Union: Provimi and Rome II: What Is Happening to Forum Shopping in the EU?

The avoidance of forum shopping and the harmonisation of laws have always been issues of central importance to the EC Commission. It now appears that two recent events could have an impact on forum shopping and third party actions in EU competition law cases.

In the English case of Provimi, for which permission to appeal has been granted to the Defendants, the English Courts have potentially made England a forum of choice for bringing competition law cases by substantially lowering the jurisdictional hurdles for foreign Claimants to bring a claim. On an EU level, the EC Commission has currently set out proposals for implementing a Regulation ("Rome II") which would standardise rules for ascertaining the law applicable to disputes involving non-contractual obligations¹ within the EU.

Both Provimi and Rome II are subject to change, Provimi because permission to appeal has been granted and Rome II because the proposals have so far met with considerable hostility from the business sector (the most vociferous criticism emanating from the e-commerce, internet sector). However, if the Provimi decision were to be upheld and the Rome II proposals were pushed through in their current form, both would have far-reaching implications for bringing actions within the EU. The details of both Provimi and Rome II are considered in detail below.

On 6 May 2003, in the case of Provimi² the English High Court held, in relation to applications to strike out (or in the alternative for summary judgment), that as long as it had jurisdiction over one of the Claimants in an action, it would allow related claims by non-English companies to be brought in the same action. Since then, permission for the Defendants to appeal has been granted and the appeal date has provisionally been set for 26 January 2004.

The proceedings arose out of an investigation into the vitamins and pigment markets by the European Commission which found that two companies, Roche and Aventis, among others, had participated in the operation of cartels contrary to Article 81 EC Treaty³ in relation to the sale of vitamins in the EU (the vitamins cartel case⁴). The Provimi case has allowed damages claims against Roche and Aventis to proceed to trial.

The case involves two groups of proceedings for damages against a number of companies in the Roche and Aventis Groups (not all UK-based). One action was initiated by Provimi Limited and the other by two companies in the Trouw Group. The damages claimed include the difference between the prices at which vitamins were sold during the cartel periods and the prices at which the Claimants maintained that they could have bought these vitamins but for the cartels.

The actions are construed under English law as private law claims for damages for the tort of breach of statutory duty (for failure to comply with Article 81 EC Treaty). However, the claims rely on contracts between some of the parties for the purchase of vitamins. 

The salient and novel features of the Provimi case are:

• The lowering of the jurisdictional hurdles to allow a claim to proceed in England where some of the Defendants were domiciled outside the UK, and where one of the Claimants was not only domiciled outside the UK but also purchased the vitamins out-side the UK, and where the agreements between the parties contained foreign jurisdiction clauses.
• The reliance on the EC law concept of "undertaking" which had no direct equivalent in English law. This effectively allowed for the interpretation that the Defendant’s Group of companies formed a single economic unit for competition law purposes.

Before allowing the claims to proceed to trial, the Court also had to consider whether the jurisdiction (choice of forum) clauses in the product purchase agreements prevented the case from being heard in England. Under existing EU provisions,⁵ an agreement between the parties to submit to the jurisdiction of a particular member state gives exclusive jurisdiction to the Courts of that member state. However, these provisions also allow for the Defendant to be sued in any other member state where the harmful event occurred. The Lugano Convention further provides that if one Defendant is to be sued in England then, provided the Lugano Convention applies, all defendants can be sued in that jurisdiction. Finally, Article 6(1) allows for claims which are closely connected to be heard together to avoid irreconcilable judgments resulting from different proceedings. On that basis, all par-ties agreed that but for the jurisdiction clauses, the UK courts would have jurisdictions.

Significantly, the Court found that the jurisdiction clauses in the purchase agreements had not been intended to cover the tort claims raised in this case. The jurisdiction issue was pivotal to this case as several Claimants and Defendants were domiciled outside the UK. Moreover, all the contracts entered into between the Claimants and the Defendants for the supply of vitamins had foreign jurisdiction clauses.

The situation was further complicated by the fact that the parties to the purchase agreements were not the same legal entities as those found responsible by the EC Commission for operating a cartel in the vitamins cartel case (although they were part of the same Group of companies). As a result, the proceedings depended on the Claimants being able to show that the English Courts had jurisdiction. 

The English Courts held that jurisdiction lies where a UK affiliate of a foreign Defendant was involved in implementing a cartel. This effectively allows foreign Claimants to join their claims to UK proceedings where some of the Claimants and some of the Defendants are domiciled in England and have established English jurisdiction. This will allow Claimants to consolidate their actions and bring a consolidated damages claim against a Group of companies and could limit the need to commence actions in multiple jurisdictions.

In addition to the jurisdiction issue, the Claimants had to demonstrate that there was sufficient connection between the entities with which they had contractual relations and the entities found liable in the vitamins cartel case.

The companies with whom the Claimants had purchasing agreements were not the same legal entities as those found to have participated in the cartel. However, the Claimants sought to show that those companies were, in each case, part of the same undertaking as the companies sanctioned by the EC Commission for operating a vitamins cartel.

On this issue, the Court adopted the EC definition of under-taking. It held that it was possible to say that the actions of legal entity A were those of legal entity B, so long as A and B were part of a single economic unit. This meant there was no need to show that the specific Defendant entities knew about the cartels. Mr. Justice Aiken stated in the judgment that, "the mind and will of one legal entity is, for the purposes of Article 81, to be treated as the mind and will of the other entity" and that there was no need "to ‘impute’ the knowledge or will of one entity to another, because they are one and the same."⁶ The Claimants had to show that a UK affiliate implemented and gave effect to the cartel in the UK and the claims against the UK and non-UK Defendants were closely connected. As the High Court stated that each of the Defendant groups, Roche and Aventis, had formed a single economic unit for competition law purposes, an agreement entered into by a non-UK group company will be treated as involving the UK group company if the UK group company implements the agreement.

The Claimants also sought to show that the companies with whom they had purchasing contracts implemented the cartel agreements by offering vitamins at agreed prices. On this issue, the Court focused on whether the Claimants would have been able to buy vitamins at lower prices and from other entities if there had been no cartel. It found that the cartel might have increased prices and thereby prima facie caused a loss to the Claimants. In doing so, the judge ruled that where the Defendant entities implemented the cartel by selling at the prices agreed by entities within their respective undertakings, "their action in ‘implementing’ the cartel could cause the loss that the Claimants allege."⁷

The Provimi judgment has wide-reaching implications.

• Within Europe, the English Courts may become the forum of choice for Claimants. The disclosure rules in England already allow greater discovery than that available in many continental European countries (where disclosure is often severely restricted or non-existent). In addition, damages awards by English Courts may be higher than those granted by continental European Courts and can encompass, for example, exemplary (punitive) damages, which are not typically seen on the continent.⁸

• The case also establishes important limitations on the use of foreign selection clauses as a form of procedural defence to the assertion of English jurisdiction. Care needs to be taken when drafting these clauses to deter-mine just how wide the client wants them and, if necessary, to ensure they are wide enough to cover potential anti-trust breaches.

On 22 July 2003 the European Commission adopted a proposal for a Regulation aimed at harmonising the rules on ascertaining the law applicable to disputes arising out of non-contractual obligations, within the EU ("Rome II").⁹ This measure has been taken as part of ongoing efforts by the EU to create a European legal area, the goal of which is to ensure that Courts in all member states apply the same law to cross-border disputes involving non-contractual obligations, thereby facilitating mutual recognition of Court rulings in the European Union.

International jurisdiction and the recognition and enforcement of judgements in civil and commercial matters in other member states is already dealt with in Council Regulation 44/2001 of 22 December 2000 and, with the exception of commercial matters, it applies to both contractual and non-contractual obligations.

Broadly, Rome II proposes a general rule (within the EU), with some exceptions, that where a dispute involving non-contractual relations arises, in most cases the law applicable to the dispute will be that of the country where the dam-age occurred or where the victim is located.

Currently, EU member states do not have common rules for deciding which law should apply in cross-border cases concerning non-contractual obligations for damage caused to others, particularly in the case of accidents such as traffic accidents or accidents caused by a defective product, or in the case of invasion of privacy. As a consequence, there is always a tension between deciding on the law of the country of the person who it is claimed is liable or that of the person sustaining the damage. The EU’s current view is that each member state should apply its own national rules. The out-come of cases can, there-fore, vary widely from one member state to another. The EU believes that this prompts Claimants to bring their actions before the Court which will apply the most favourable legislation thus encouraging forum shopping.

The aim of Rome II is to limit forum shopping to the greatest extent possible and create a "level playing field" in the application of laws to non-contractual claims in the EU. However, whether Rome II (in its current proposed format) will actually achieve this goal is a matter of contention. Rome II has received a frosty reception from the EU business community, most notably from companies active in the e-commerce, internet sector, who see these proposals as opening the way for the laws of countries anywhere in the world to be applied (the damage/loss suffered by the Claimant could potentially occur in any one of the future 25 European Union countries or elsewhere). The International Chamber of Commerce ("ICC") takes the view that this undermines the certainty provided to companies offering their services over the internet by the E-commerce Directive.¹⁰ The E-commerce Directive enshrines the country of origin principle: that is, the law applicable to a contract concluded over the internet is the law in which the service provider is situated. In light of these criticisms, the EU has articulated that the e-commerce sector would be excluded from the ambit of Rome II but this has still left many unconvinced. It is felt that, contrary to the EU’s desires, Rome II would lead to uncertainty rather than certainty. 

Specific members of the EU e-commerce business community have been particularly vocal about the Rome II proposals and have been instrumental in the consultation process. The Alliance for Electronic Business ("AEB")¹¹ has levelled two key criticisms at the proposals:

• The EC Commission has failed to demonstrate a specific need for a community instrument governing the applicable law in non-contractual disputes within the EU. The AEB point to the lack of evidence provided by the Commission that there is a specific problem which needs to be resolved.
• The Commission lacks an adequate legal basis to impose such measures. By trying to harmonise fully applicable rules in the EU, the proposed Rome II Regulation goes further than promoting compatibility and exceeds the scope of the EC Treaty. Article 65(b) of Title 4 of the EC Treaty only covers measures adopted to promote the compatibility (and not the unification) of applicable rules in the Member States, and more generally relates to procedural and administrative matters, for example the service of judicial and extra-judicial documents, the taking of evidence and the recognition and enforcement of decisions. Therefore, a Regulation enforcing harmonisation of the rules of private international law in the field of non-contractual obligations cannot be based upon this Article. 

On the basis of the above, it is clear that the proposals contained in Rome II have not been universally welcomed. Plainly, further consideration of the interaction between Rome II and the E-commerce Directive is one issue that needs to be addressed if these proposals are to come any-where near to being implemented in the future.

The outcomes of Provimi, which is pending appeal, and Rome II, which still needs to be finalised and ratified by the member states, are still uncertain. What is clear, however, is that as matters currently stand, the issue of forum shopping has by no means been resolved within the EU. The appeal in the Provimi case and the final draft of Rome II may ultimately shed more light on this matter. In the meantime much work still needs to be done within the EU in relation to forum shopping, especially in light of enlargement in May 2004 which will bring ten new jurisdictions into the EU.

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