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Contribution claims: uncertain jurisdictional basis

01 February 2016

An automotive component producer and an insurer have separately challenged the jurisdiction of the High Court in Iveco SpA & Iveco Ltd v Magna Electronics Srl [2015] EWHC 2887 (TCC), 13 November 2015 & XL Insurance Co SE v AXA Corporate Solutions Assurance [2015] EWHC 3431 (Comm) 27 November 2015 to hear cross-border contribution claims with differing results. The differing analyses in the decisions highlights some uncertainty regarding the application of jurisdiction rules to these types of claims, and the inherent risk of a jurisdiction challenge being made.

Jurisdiction under Brussels Recast

The Brussels Recast Regulation (Regulation EU 1215/2012) governs jurisdiction over cross-border claims within the EU. Generally, a defendant must be sued in its home courts. Article 7 contains various exceptions to this rule, allowing a claim to be pursued in a member state other than that in which the defendant is domiciled in certain circumstances. Article 7(1) provides that in “matters relating to contract” a defendant may be sued in the courts of the place of performance of the “obligation in question”. Article 7(2) provides that in “matters relating to tort” a defendant may be sued in the courts of the member state where the “harmful event” occurred.

These two concepts are not strictly analogous to “contract” and “tort” at English law. They have distinct meanings at European law which are similar but in certain respects wider.

Iveco SpA & Iveco Ltd v Magna Electronics Srl [2015] EWHC 2887

The claimants in Iveco v Magna, the first (Iveco SpA) Italian-domiciled and the second (Iveco Limited) English-domiciled, respectively manufactured vehicles and distributed them in the UK. The Italian defendant had supplied to Iveco SpA under contract an electrical system which was incorporated into some vehicles during production in Italy and which was subsequently discovered to be faulty. The fault ultimately caused a number of Iveco vehicles which had been distributed by Iveco Limited in the UK to catch fire, damaging the commercial premises in which they were parked. The owners of these premises had brought the original actions and the claimants had settled them. The two claimants claimed contribution under the Civil Liability (Contribution) Act 1978 alleging that the defendant was jointly liable in tort to the original claimants. The defendant argued that the English court had no jurisdiction over the contribution claim. 

The court considered whether the claimants’ claims fell within either of the tort or contract exceptions. The court ultimately held that the defendant could be sued in England, but only by the English distributor, Iveco Limited. The Italian claimant, Iveco SpA, could only bring its contribution claim in Italy.  

Did the claimants’ claims relate to a contract? 

The defendant said that the contribution claim was one “relating to a contract” (ie the contract between it and Iveco SpA) and so could only be pursued in the courts of the place of performance of that contract or the place of domicile of the defendant, both of which were Italy. 

Edwards-Stuart J held that Article 7(1) will only operate where there is “a contract between the claimant and the defendant, or a situation very close to it”. For Iveco Limited, this was not the case. Despite the obvious commercial connections between all three parties, Iveco Limited’s claim was not a “matter relating to a contract” as there was no contract between Iveco Limited (a distributor) and the defendant component supplier. While there was a contract for the supply of vehicles between the two claimants, this contract was not the basis for Iveco Limited’s claim.  

As the defendant had supplied the faulty components under contract to Iveco SpA, the claim by Iveco SpA against the defendant was a “matter relating to a contract” and the place of performance was Italy so any claim by Inveco SpA in relation to the contract would have to be brought in the Italian courts. The court only made passing reference to the contract in question and it is unclear what jurisdiction provisions it might have contained, if any.  

Tort  

Could Article 7(2), the tort exception, apply? It was common ground that “the place where the harmful event occurred” under Article 7(2) could be either the place where the event giving rise to the damage occurred or the place where the damage actually occurred. The defendant argued that the damage occurred when the faulty component was fitted to the vehicles during production in Italy, the fires in England being indirect or consequential damage. The court disagreed, holding that, where a faulty component is incorporated into a product, no tort is committed by the supplier of the component unless and until that component causes damage. Thus, the “place where the harmful event occurred” was the place where liability arose: England. Iveco Limited could therefore choose to pursue its claim in either England or Italy the domicile of the defendant. As for Iveco SpA, its claim did not relate to tort. Instead, for the reasons set out above, it related to a contract. As such, Iveco SpA could not rely on this exception. 

XL Insurance Co SE v AXA Corporate Solutions Assurance [2015] EWHC 3431  

In this case the claimant (English-domiciled) and defendant (French) were co-insurers of a U.S. train operator which had settled multiple actions arising out of a crash by paying into a victims’ fund. AXA (the defendant) had refused to pay into the fund on the basis that the wording of its policy relieved it of liability. The claimant (XL Insurance) alleged that it had paid more than its fair share and claimed contribution from the defendant in the English court. The defendant challenged jurisdiction.  

Waksman J in the Commercial Court considered whether or not the claimant could rely on either the Article 7(1) contract exception or the Article 7(2) tort exception. There was no doubt that, broadly speaking, the matter related in some fashion to a contract, or as the court pointed out, two contracts: the insurance policies.  

Contribution claim not a matter relating to contract  

The court held that the contribution claim was not a “matter relating to contract” for the purpose of Article 7(1). The claimant was seeking an equitable contribution, a right which arises by operation of law (not contract) when a co-insurer pays out more than its share. Waksman J expressly rejected the Advocate General’s opinion (which has yet to be confirmed by the ECJ) in Ergo Insurance v P & C Insurance Cases C 359 and 475/14 which held that a claim for equitable contribution between insurers falls within Article 7(1).  

Not a tortious claim either  

On the issue of Article 7(2), the court found that while there had been tortious behaviour on the part of the original defendant, the train operator, no such behaviour could be attributed to AXA, its insurer. Again, XL’s claim was one for contribution, and its right to contribution arose by operation of law. The tortious behaviour in question had not given rise to the current claim. The court held that Article 7(2) had not been engaged, and therefore the defendant could only be sued in France, its country of domicile.  

COMMENT  

The cases highlight some difficult jurisdictional issues in cross-border contribution claims. The result in Iveco v Magna means that the defendant stands to face virtually identical claims for contribution in both the Italian and English courts, unless it were to decide to submit to the jurisdiction of the English court for claims by both claimants.  

Drawing settled points of law from these judgments is not easy. Amongst his conclusions in XL v AXA Waksman J made the observation that while most claims will fall within either Article 7(1) or 7(2), not all will. While these two judgments provide helpful statements of the law in the area, whether one of the Article 7 exceptions applies to any particular contribution claim is likely to be difficult to determine in practice particularly given the contradictory Advocate General’s opinion in Ergo Insurance. For the moment, pursuing a cross-border contribution claim in the English courts carries the risk of jurisdiction being successfully challenged.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 20 3088 3710.