Abstract
This case comment addresses the interpretation of âmatters relating to a contractâ in the EU law of civil jurisdiction, contained in the Brussels Ia Regulation. Recently, this topic received renewed attention in the Wikingerhofv.Booking.com judgment of the CJEU. More particularly, the judgment addressed whether non-contractual claims in proceedings between contracting parties can be characterized as a âmatter relating to a contractâ. This seemingly trivial question has been a recurring source of trouble in the case law of the CJEU as well as national courts. The annotation will side with the approach taken in this judgment, but criticize it for taking a long way round to settling the issue.
Keywords
1. Introduction
Private lawyers have dedicated a whole lot of effort to defining and refining the border between contract and tort (or any other non-contractual obligation for that matter, such as statutory, fiduciary, equitable or quasi-contractual duties). A similar pursuit is taking place in the EU law of civil jurisdiction, which is contained in the Brussels Ia Regulation. 1 Article 7 of this Regulation reproduces the contract/tort distinction in its rules of special jurisdiction. The contract jurisdiction (Article 7(1) Brussels Ia) provides that the court of the place of performance has jurisdiction âin matters relating to a contractâ, whereas the tort jurisdiction (Article 7(2) Brussels Ia) allocates jurisdiction âin matters relating to tort, delict, or quasi-delictâ to the court of the place where the harmful event. In this article, I will discuss and flesh out a recent judgment of the Court of Justice of the European Union (CJEU)Â â Wikingerhofv.Booking.com 2 Â â that entertained a paradox: delineating the contract and tort jurisdictions can be particularly difficult when litigants who are privy to a contract bring claims that are based on non-contractual causes of action. At the end of the article, I hope I have convinced the reader that characterization in such a setting no longer is as big a hurdle as it used to be thanks to Wikingerhof.
2. Decision
In Wikingerhofv.Booking.com , the Schleswig-Holstein (Germany)-based Wikingerhof hotel sued Booking.com BV, a well-known online travel agency incorporated in the Netherlands. Wikingerhofâs action was based on an allegation of abuse of a dominant position by the latter in breach of German competition law. More precisely, Booking.com had allegedly abused its dominant market position to subject the placing of Wikingerhofâs accommodations to unfair general terms and conditions (e.g. the payment of a 15% commission). Wikingerhof hence petitioned for an injunction that Booking.com stop implementing the unfair terms. It commended proceedings to that end in the regional court of Kiel, Germany, the appeal against which went to the higher regional court of Schleswig all the way through to the Federal court of justice (Bundesgerichthof). The cause of this long crusade was a disagreement over the jurisdiction of the Kiel and Schleswig courts. Booking.com argued that the dispute fell under the choice of court agreement in its terms and conditions, which conferred jurisdiction to the courts of Amsterdam, the Netherlands. The Schleswig court, however, held that the choice of court agreement was not valid under the conditions of Article 25 Brussels Ia. Moreover, it subsequently refused to take jurisdiction over the action under the contract or tort jurisdiction. Wikingerhof in turn appealed the decision before the Federal court of justice, arguing that the lower court did have tort jurisdiction under Article 7(2) Brussels Ia. The Federal court of justice, seemingly flustered by the ambiguity governing the delineation between the contract and tort jurisdictions, was in doubt whether Wikingerhofâs claim should not be characterized as a contract, given the contractual relationship between Wikingerhof and Booking.com.
The question the CJEU had to answer can be summarized as follows: Should an action based on a statutory provision about unfair competition that is brought by one contracting party against another be characterized as a âmatter relating to a contractâ or as a âmatter relating to tortâ? 3 The CJEU went to quite some effort in answering this question. It opened with three well-established principles of interpretation. Firstly, Article 7 must be interpreted âindependentlyâ or âautonomouslyâ from national private law. 4 The domestic private laws of the Member States draw the line between contract and tort differently, so relying on national concepts to define the EU law concepts of contract and tort would result in the Brussels Ia Regulation not being applied uniformly throughout the EU. 5 Secondly, Article 7 must be interpreted ârestrictivelyâ, since it deviates from the default rule of jurisdiction of Article 4(1). 6 According to this default rule, the claimant must start proceedings in the courts of the Member State where defendant is domiciled (actor sequitur forum rei). 7 Thirdly, Articles 7(1) and 7(2) are mutually exclusive, which means that a claim cannot be categorized as relating to contract and to tort simultaneously. 8 A claim is covered by the tort jurisdiction of Article 7(2) insofar as it seeks âto establish the liability of a defendantâ and is ânot related to a âcontractââ. 9 These three principles of interpretation in mind, the CJEU proceeded by observing that the Brussels Ia Regulation allows for forum shopping: 10 the claimant can freely choose whether it relies on the default rule of Article 4(1) or on one of the special jurisdiction rules contained in Article 7. 11
The CJEU then turned to entertain the question that was put to it. It considered which âtest for characterizationâ should be used to decide whether Wikingerhofâs claim made under German competition law was a contractual matter or not. I use âtest for characterizationâ as a term of art for the process underlying characterization. A test firstly elevates an element of an action as the object that must be characterized, such as the legal basis, the legal relationship between the litigants, the legal question, or the facts out of which the dispute arose.
12
It then provides how that object should be linked to a contract for the claim to be ârelated to contractâ. For example, if the object were the legal relationship between the parties, than a test could provide that the contract jurisdiction would apply if that relationship were a voluntarily assumed, contractual one.
13
Through this conceptual lens, paragraphs 31â37 of the decision are worth quoting since they develop the test for characterizing Wikingerhofâs competition law claim against Booking.com:
14
âŚthe court hearing the action must decide whether a claim between contracting parties is connected to matters relating to a contract [âŚ] or to matters relating to tort or delict [âŚ] by reference to the obligation [âŚ] which constitutes the cause of action [âŚ].
15
Thus, an action concerns matters relating to a contract [âŚ] if the interpretation of the contract between the defendant and the applicant appears indispensable to establish the lawful or, on the contrary, unlawful nature of the conduct complained of against the former by the latter [âŚ]. That is in particular the case of an action based on the terms of a contract or on rules of law which are applicable by reason of that contract [âŚ].
17
By contrast, where the applicant relies, in its application, on rules of liability in [tort], namely breach of an obligation imposed by law, and where it does not appear indispensable to examine the content of the contract concluded with the defendant in order to assess whether the conduct of which the latter is accused is lawful or unlawful, since that obligation applies to the defendant independently of that contract, the cause of the action is a matter relating to [tort].
18
In the present case, Wikingerhof relies, in its application, on an infringement of German competition law, which lays down a general prohibition of abuse of a dominant position, independently of any contract or other voluntary commitment. Specifically, Wikingerhof takes the view that it had no choice but to conclude the contract at issue and to suffer the effect of subsequent amendments to Booking.comâs general terms and conditions by reason of the latterâs strong position on the relevant market, even though certain of Booking.comâs practices are unfair.
20
Thus, the legal issue at the heart of the case in the main proceedings is whether Booking.com committed an abuse of a dominant position within the meaning of German competition law. [âŚ] In order to determine whether the practices complained of against Booking.com are lawful or unlawful in the light of that law, it is not indispensable to interpret the contract between the parties to the main proceedings, such interpretation being necessary, at most, in order to establish that those practices actually occur.
21
It must therefore be held that, subject to verification by the referring court, the action brought by Wikingerhof, in so far as it is based on the legal obligation to refrain from any abuse of a dominant position, is a matter relating to [tort].
22
That interpretation is consistent with the objectives of proximity and sound administration of justice pursued by that regulation [âŚ]. The court having jurisdiction under [Article 7(2)], namely, in the circumstances at issue in the main proceedings, that of the market affected by the alleged anticompetitive conduct, is the most appropriate for ruling on the main issue of whether that allegation is well founded, particularly in terms of gathering and assessing the relevant evidence in that regard.
23
3. Analysis
Rather than commenting extensively on the specifics of the case, I would like to expound the judgmentâs meaning for our understanding of âmatters relating to a contractâ. Firstly, I will flesh out the approach the decision took to characterization for the purpose of Article 7(1) Brussels Ia (4.1.). Secondly, I will turn to consider the decisionâs consequences for the jurisdictional regimes for consumer and employment contracts in sections 4â5 of chapter II Brussels Ia (4.2.).
A. The nature of the cause of action
As observed above, the Wikingerhof decision applied the âcause of action testâ, which assumes that the nature of the legal basis is decisive in characterizing an action as contractual in nature. Since 2014, this has been the CJEUâs go-to test for characterizing actions involving third parties that are based on contract. 25 Previously, the test also occurred in 1980s case law about disputes involving contracting parties who brought claims based on tort and unjust enrichment against each other. 26 In principle, the application of the âcause of action testâ in Wikingerhof therefore is nothing new. It provides national courts with an easily identifiable object of characterization, hence promoting legal certainty and expedience. 27 The minor issue that may arise is that national civil procedure does not require claimants to indicate the legal basis in the claims form. 28
The Wikingerhof decision not only told us that we must characterize an actionâs legal basis. It also tells us how we must decide whether an actionâs legal basis is contractual in nature. That will be the case if the interpretation of the contract is indispensable to decide whether the defendantâs behaviour is lawful of not. In the affirmative, the actionâs legal basis is contractual in nature. We learn that âthis is in particular the caseâ (i.e. not exclusively) for obligations that are statutory or otherwise imposed by law but only arise due to the conclusion of a contract. 29 Unfortunately, this âfunctional indispensabilityâ of the interpretation of contract clouds the simplicity of the âcause of action testâ. The Wikingerhof decision is a bad illustration in this respect, since Wikingerhofâs action was not based on contract and the interpretation of the contract was not indispensable either. The English case of Source v. TĂV Rheinland is more illustrative. 30 Here, the claimant brought two claims arising out of the same unlawful behaviour: one claim was based on contract, another on an tortious duty that rested on a contracting party by effect of the law. Readers might recognize such a situation as one of concurrent liabilities, where the same facts give rise to a contractual and a non-contractual cause of action. 31 How to apply the Wikingerhof approach here? Clearly, the claim based on contract is contractual in nature by virtue of its legal basis. The contractual nature of the claim based on the defendantâs tortious duty is less self-evident. In the end, the tortious duty is imposed by law and not by a contractual stipulation. It may very well be that the interpretation of the contract is not âindispensableâ to judge whether the conduct complained of constituted a breach of this tortious duty. The contract may be a mere background element because the content of the tortious duty depends on tort. 32 On the other hand, if we take the nature of the legal basis as the object of characterization under the âcause of action testâ, then the tortious duty itself is clearly an obligation arising out of contract, because it would not exist but for the contract made by the litigants. Source goes to show that focusing on the legal basis or on the functional indispensability to interpret the contract can result in a different characterization altogether.
Regardless of the issue it raises, the unfortunate reference to the âindispensability to interpret the contractâ can be explained logically. It is an attempt to neutralize the Brogsitter v. Fabrication de Montres Normandes decision. 33 This decision involved a scenario that resembled Wikingerhof: one contracting party brought a claim for breach of exclusivity by the other contracting party. This claim was based on German tort law and competition law, and not on the contractual exclusivity clause. Despite the parallel with Wikingerhof, Brogsitter took a different approach. The Court held that the action was contractual in nature âwhere the conduct complained of may be considered a breach of contractâ, 34 which âwill a priori be the case where the interpretation of the contract which links the defendant to the applicant is indispensable to establish the lawful or, on the contrary, unlawful nature of the conduct complained of against the former by the latterâ. 35 I will call this the Factual Breach Test; for the object of characterization is the defendantâs allegedly wrongful behaviour as opposed to the legal basis relied on. 36 Literature levelled criticism against the Brogsitter ruling. Firstly, the ruling did not mention any of the relevant decisions the CJEU had handed down up to that point. 37 Without much consideration, it shifted the focus from the cause of action to the facts pleaded by the claimant. In so doing, it gave national judges the difficult task of hypothesizing whether the defendantâs behaviour could be considered as a breach of contract, even though the claimant had formulated a non-contractual cause of action. 38 Secondly, it was unclear in what sense the âfunctional indispensabilityâ of the contract aided the hypothetical assessment courts must make under the Factual Breach Test. Some had argued that this was the true test for characterization to be applied, 39 even though this proposition entails eclipsing the operative part as well as the clearly phrased paragraphs 23â26 of the Brogsitter judgment. In an attempt to settle the matter, the Wikingerhof decision integrated the âfunctional indispensabilityâ aspect of Brogsitter into the âcause of action testâ. 40 This aspect was turned into a tool for national courts to determine whether a statutory, tortious, fiduciary, equitable, quasi-contractual etc. legal basis on which the a contracting party relied is contractual in nature. 41
While the decisionâs effort to neutralize the Brogsitter judgment is commendable, one cannot help but wonder whether having to struggle with the contractâs âfunctional indispensabilityâ is a price worth paying. It would have been more parsimonious had the decision stuck to stating that a claim based on a statutory, tortious, equitable etc. obligation is a âmatter relating to a contractâ if âsuch an obligation is âimposedâ by law, albeit to give effect to the parties obvious unexpressed intentions and/or business efficacyâ, 42 or if it âis predicated on the partiesâ free consent to the circumstances giving rise to itâ. 43
Wikingerhof illustrated that â besides a matter of technical fascination â characterization is a bit like soul-searching. 44 A test for characterization expresses a view on what role the contract jurisdiction should play in the Brussels Ia Regulation, i.e. a âtheoryâ of contract jurisdiction. This is the deeper question underlying this seemingly technical enterprise. The âcause of action testâ expresses the theory that the contract jurisdiction should be delineated narrowly. 45 This penchant for a narrow delineation is borne out of the interpretative principles of strict interpretation (in light of the default rule of jurisdiction of Article 4 Brussels Ia) and legal certainty. 46 Jointly, they warrant applying a test for characterization that elevates the legal basis as pleaded by the claimant as the object of characterization. However, a possible objection against such deference is that it allows for forum shopping: a claimant could tactically plead its claim in tort to circumvent the contract jurisdiction. The import of such tactics is very limited, however. Firstly, non-contractual duties that only exist between parties who are privy to a contract are contractual in nature for jurisdictional purposes. This generous understanding of the concept of contract absorbs causes of action that would be considered as non-contractual in domestic private law. Secondly, a claimant would be ill-advised to formulate the legal basis of a claim merely to avoid this or that jurisdiction. Except when a claimant acts in bad faith, its first concern will be which cause of action has the highest chances of success on the merits. 47 Thirdly and finally, parties who are privy to a contract covered by the contract jurisdiction of Article 7(1) Brussels Ia can be expected to manage their litigation risk by making a choice of court agreement, which modifies or cancels out the leeway for forum shopping. 48
Therefore, the conclusion is that the Wikingerhof v. Booking.com decision advances the state of the law into the right direction by breaking away â at least in part â from Brogsitter and returning to the âcause of action testâ.
B. Knock-on effect on consumer and employment contracts?
In addition to the contract jurisdiction of Article 7(1) Brussels Ia, the Regulation contains special regimes for consumer and employment contracts. 49 Does the Wikingerhof decision have ramifications for these regimes? 50 For example, does the employment section apply to a claim based on a breach of copyright and misuse of confidential information? 51 After all, judging on the breach of such a duty does not necessarily involve the interpretation of the contract. In a similar vein, does a product liability claim brought by a consumer against a retailer qualify as contractual? Such a claim is based on statute, and the contract is mere circumstance. 52 Yet in both examples, the Wikingerhof approach is unsatisfying in light of the special mission the consumer and employment contract jurisdictions pursue. They aim at protecting consumers and employees as economically weaker parties by lowering the litigation risk in their favour. It would be odd it they did not apply to statutory causes of action pursuant to Wikingerhof, even though the facts out of which those actions arose are materially linked to a consumer or employment contract. There appears to be a close connection between e.g. a claim based on an employeeâs tortious duty not to abuse its employerâs company secrets, even though that legal basis is imposed by law and even though judging it may not require interpreting the employment contract. Therefore, the âcause of action testâ as applied in Wikingerhof must not be applied to delineate the scope of applicability of the consumer and employment contract jurisdictions in cases involving litigants who are privy to a contract. 53
4. Conclusion
European private international lawyers highly anticipated the Wikingerhof v. Booking.com decision, 54 and in the end the decision did not fail to deliver. It has clarified on what conditions claims with a non-contractual legal basis between litigants who are privy to a contract ought to be characterized as âmatters relating to a contractâ. More particularly, the âcause of action testâ must be applied: a claim is contractual if it is based on a freely assumed, contractual obligation. This answer is satisfying overall, albeit unlucky in those cases where a legal basis results from the law rather than a contractual stipulation, such as a tortious or statutory duty imposed on a contracting party. In such a scenario, the Wikingerhof decision provided that the legal basis is contractual in nature if the âinterpretation of the contract is indispensableâ. It would have been more workable had the decision stated that a tortious, statutory, equitable, fiduciaryâŚobligation is contractual for jurisdictional purposes if it results from the contracting partiesâ consent. However, this is a matter of degree that does not devaluate the effort to bring clarity in an area of the law that had long been riddled with ambiguity.
