The Dekagram: 24th June 2024

This week we bring news of another case on choice of law, this time in the context of a multiparty road traffic accident occurring in England. The judgment provides a useful reminder of how Article 4 of the Rome II Regulation operates. And there’s been an intriguing development from the EU that may (or may not) influence consumer law in this jurisdiction. Speaking of developments, Sarah Prager KC will be joined by Irwin Mitchell’s Nina Harrison for the next of our dekinars, on the Montreal Convention – click here Webinar Registration – Zoom to register. We look forward to seeing you there!

Bulgarian Bubbles and the choice of law in multi-party litigation

Background

Although the rules of Rome II as to applicable law are clearly stated, disputes often arise as to the interpretation of those rules. The judgment of Darlow J in the recently decided case of Yordanov v Vasilev[1] provides an extremely useful summary of the relevant rules and their application in multi-party litigation.

Yordanov was one of two claims arising from a multi-vehicle accident that occurred in England when two cars racing each other came into collision with oncoming traffic. The cases were listed to be heard together for a trial of preliminary issues, which included determination of the applicable law in Yordanov. Mr Yordanov was the front seat passenger in a car driven by the Second Defendant, which was racing a car driven by the Fourth Defendant. The Fifth Defendant was an insurance company. The Fifth Defendant’s position was that the applicable law should be that of Bulgaria; Mr Yordanov’s argued that English law should apply.

The question of applicable law was to be determined by the rules set out in EC Regulation 864/2007, known as Rome II. Although an EC regulation, it continues to apply post-Brexit having been incorporated into UK law by the prosaically titled Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment) (EU Exit) Regulations 2019.[2] Rome II article 4 (which relates to non-contractual obligations, i.e. including tort) sets out a default position, an exception, and a catch-all position:

• Article 4(1) states the default position: ‘Unless otherwise provided for in this Regulation, the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur’
• Article 4(2) states the exception: ‘However, where the person claimed to be liable and the person sustaining the damage both have their habitual residence in the same country at the time when the damage occurs, the law of that country shall apply’
• Article 4(3) provides the catch-all position: ‘Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in paragraphs 1 or 2, the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a pre-existing relationship between the parties, such as a contract, that is closely connected with the tort/delict in question’

Article 14 provides that the parties may agree to the law of their choice, including by an agreement entered into after the event giving rise to the damage, and that choice ‘shall not prejudice the rights of third parties’.

How then are these competing rules to be interpreted, and how do they apply in multi-party litigation?

Article 4(2): habitual residence

The default position, pursuant to article 4(1), was that English law should apply, the accident having occurred in England. Darlow J first considered the article 4(2) exception: whether Bulgarian law should apply on the basis of the habitual residence of both parties.Article 23 defines ‘habitual residence’ but only in the context of companies and other businesses, not in relation to individuals. Darlow J concluded:

• Although article 4(2) refers to the habitual residence of the person (singular) claimed to be liable and the person (singular) sustaining the damage, the application of the rule is not restricted to proceedings involving a single claimant and single defendant (Marshall v MIB[3] applied); 
• The determination of applicable law is limited to each pairing of claimant and defendant: the determination in relation to one pairing does not impact the determination of the law applicable to other pairings. The alternative position would permit manipulation of the litigation by joining parties simply to achieve the desired outcome under article 4(2). Similarly, article 14 provides that a choice of law by parties shall not prejudice the rights of third parties. (It is possible therefore that in one case, if C shares a country of habitual residence with D1, does not share habitual residence with D2 and reaches agreement with D3, the applicable law may be different in respect of each of those claims. However, see below Darlow J’s comments on such an outcome). 

She distilled the following key propositions from both European and domestic case law, relevant to the issue of whether a residence is ‘habitual’:

• ‘Habitual’ denotes a residence that has a certain permanence or regularity[4];
• Habitual residence must be established on the basis of all the circumstances specific to each individual case[5]. Factors to be taken into account include duration, regularity, conditions and reasons for the stay; nationality, linguistic knowledge and manifestation of an intention to settle permanently through the purchase or lease of a residence or application for social housing[6];
• A peripatetic life, over a short period was liable to constitute an indicator that the individual in question did not habitually reside in the state in question[7];
• The mere fact of residence in a particular country is insufficient; habitual residence is the location where the person has established his permanent or habitual centre of interests, with all relevant factors being taken into account[8];
• The intention of the parties as to future residence is not a determinative factor. The first principle is that habitual residence is a question of fact: has the residence of a particular person in a particular place acquired the necessary degree of stability (permanent is the word used in the English versions of the two CJEU judgments) to become habitual? It is not a matter of intention: one does not acquire a habitual residence merely by intending to do so[9];
• When determining habitual residence for a child, the degree of integration into a social and family environment is relevant (because many of the standard metrics which might denote habitual residence in the case of adults; for example, purchase or rental of accommodation in a particular location and place of work, cannot readily be applied to children)[10].

In this case, Darlow J concluded that Mr Yordanov’s residence in England was not ‘habitual’: article 4(1) was therefore displaced by 4(2) and the applicable law would be that of Bulgaria. Factors relied on by D5 were that Mr Yordanov had lived in England only since 2019; he worked for an agency; his accommodation was temporary and contingent upon his continued employment through that agency and he lived with other foreign nationals in what was described as a ‘Bulgarian bubble’. By contrast, he owned a house in Bulgaria where his wife and children lived and where the latter were educated. There was no evidence of him having any social, administrative or economic roots in England. In support of the submission that he was habitually resident in England, Mr Yordanov relied on the fact of his working in England and highlighted that the European judgments related to children and therefore focussed on criteria of marginal relevance to an adult. In reaching its findings the Court noted that whilst Mr Yordanov was resident in England, that residence could not be said to evince the necessary characteristics of permanence or regularity. He regularly returned to Bulgaria where he had a far wider centre of interests, including owning a home and having close family.

However, that conclusion was not determinative of the matter: it was necessary also to consider the application of article 4(3).

Article 4(3): manifestly closer connection

Darlow J outlined in her judgment authority on the application of article 4(3), including the following principles:

• Articles 4(1) and (2) are rules and not mere presumptions: article 4(3) is intended to be an exception that allows for a degree of flexibility so the court can apply the law that reflects the ‘centre of gravity of the situation’ but, because it generates a degree of unforeseeability, must remain exceptional[11];
• For article 4(3) to apply, it must be clear from all the circumstances of the case that the entire tort, and not just a specific issue arising from it, is manifestly more closely connected with a country other than that indicated by article 4(1) or (2)[12];
• There must be a clear preponderance of factors pointing to the country in question[13]
• It is not, however, necessary to demonstrate the absence of any ‘real’ or ‘genuine’ connection with the country whose law is otherwise applicable[14];
• The burden of establishing that article 4(3) applies rests on the party seeking to disapply Article 4 (1) or (2,) and the standard required to satisfy the test is high[15].

She also summarised the circumstances to be taken into account in determining whether article 4(3) displaces articles 4(1) or (2), namely[16]:

• Accident and damage: the country in which this occurred and the habitual residence of the parties;
• Consequential loss: the habitual residence of the claimant at the time that any such loss is suffered (the ‘centre of gravity’ refers to that of the tort, not that of the damage and consequential loss caused by the tort, but the link between the consequences of the tort and a particular country remained to be considered as a relevant factor, albeit a less weighty one); the place of residence after the accident (although this is to be viewed in the context of residence and length of residence at the time of the accident); the country in which the greater part of the loss and damage are suffered;
• Nationality: of the claimant and defendant;
• Insurance and vehicle registration: the country in which the vehicle driven by the Defendant was insured and registered (albeit that neither is a strong connecting factor);
• The pursuit of proceedings before an English court was to be taken into account but was not a strong connecting factor;
• Whether a claim against another defendant is governed by the law of another country.

The Fifth Defendant submitted that factors closely connecting the tort to Bulgaria included the fact that the Fourth Defendant’s vehicle was insured and registered in Bulgaria; the parties involved in the car race were all known to each other in the Bulgarian enclave and the consequences of the tort would be suffered in Bulgaria. Further, it was neither prohibited nor impossible to have a single road traffic accident governed by different laws for different defendants. Mr Yordanov, in contending that the closer connection was with England, pointed to the fact that proceedings had been brought before an English court, other parties to the proceedings were not habitually resident in Bulgaria and one party was an English insurer, and submitted that it would be undesirable for different systems of law to govern the same accident.

The court found that Mr Yordanov had crossed the high hurdle set by article 4(3) and it was satisfied that the tort was more closely connected with England than Bulgaria. Significant circumstances pointing to the centre of gravity being England included the fact that the accident occurred in England; it involved English-registered vehicles; immediate damage (including hospitalisation for several weeks and medical care for many months) occurred in England; the accident was investigated by the emergency services in England; English road traffic rules and regulations must be applied to the issue of liability; the case was brought before an English court; even the parties habitually resident in Bulgaria had close and significant relations with England (the distinction being made between living and working in a country, and simply being a tourist on holiday there for a few days) and that some parties were habitually resident in England.

Conclusion

In reaching her decision, the Judge noted that the legitimate expectation of the parties involved in the car race would have been that the consequences of the collision would be governed by the law of the country in which the accident took place and in which they both lived and worked; that that outcome accorded with the objectives of foreseeability and predictability and that article 4(3) is intended to enable the court to adapt rigid rules to the individual circumstances of a case. These will be the over-arching aims for any determination as to applicable law.

She also held that having two different governing laws applying to the same road traffic accident would be highly unsatisfactory, undesirable and illogical (particularly given that one law would apply to Mr Atanasov qua claimant in his own claim, and another would apply to him qua defendant in Mr Yordanov’s claim), but tempered this by acknowledging that had the Court found that the tort was more closely connected to Bulgaria, the consequent result of two governing sets of laws would not have displaced that finding in favour of England, simply to achieve uniformity.

About the Author

Linda Nelson was called in 2000 and is ranked in both the Legal 500 and Chambers and Partners for her travel law work. Linda regularly advises in international personal injury cases with cross-border issues, particularly those falling within the jurisdiction of the Admiralty Court. She is well-versed in claims involving the international carriage conventions, the package holiday regulations, Merchant Shipping regulations, ship collisions and issues of jurisdiction, applicable law and limitation. She is a contributing author to Munkman on Employers’ Liability (writing the ‘Shipping and Workers on Ships’ chapter) and co-authored ‘Work Accidents at Sea’ (now in its second edition, with a third shortly to be published).

[1] [2024] EWHC 1496

[2] SI 2019/834

[3] (2015) EWHC 3421 (QB)

[4] Mercredi v Chaffe Case C-497/10 PPU, (2012) Fam.22 at para 45

[5] A. Case C-523/07, (2010) Fam 42 at paragraph 37

[6] A, at paragraphs 38-40

[7] A, at paragraph 41

[8] M v M (2007) EWHC 2047, as cited in the judgment in Winrow and Hemphill and another (2014) EWHC 3164 (QB) at para. 12

[9] Re LC (Children) (2014) 2 WLR 124, Baroness Hale at paragraph 59

[10] ‘a number of the judgments of the European Court’

[11] Explanatory Memorandum to Rome II, cited at paragraph 38 of the judgment.

[12] Briggs, Private International Law in English Courts, p. 556 at (d)(i).

[13] Dicey, Morris and Collins on the Conflict of Laws (16th Edn) at 35-032

[14] Dicey, at 35-032

[15] see Winrow ibid at paragraph 42, Marshall ibid at paragraph 20

[16] See judgment of Slade J in Winrow

Budget airlines fined €150m for ‘abusive practices’

Following an investigation opened in 2023, Spanish authorities have fined a string of budget European airlines (Ryanair, Vueling, EasyJet, Volotea) for ‘abusive practices’ principally charging passengers for hand luggage. This additional charge emerges unexpectedly (and, for the customer, infuriatingly) during the booking process and was deemed unfair and non-transparent. Other impugned practices include charging for printing boarding passes and not allowing cash payments at check-in desks.

The airlines pray in aid Article 22 of Regulation (EC) No 1008/2008 which in effect liberalises pricing in the airline industry by allowing the freedom to set fares and rates for intra-community air services. By charging separately, they say, they provide a basic fare that can be lower for passengers choosing to travel without additional services and thereby offers a greater range of price points. They have indicated their intention to appeal the decision.

It is still early days for this significant fine, as a number of appeal avenues remain open to the airlines which they will no doubt exercise given the potential wider consequences. From a British perspective, given our consumer law is still based on this same European legislation, it may empower consumers to challenge these (and equivalent) fees as being an unfair commercial practice.

About the Author

Richard Collier was called to the Bar in 2016. Before that, he had worked as a Judicial Assistant to Lord Justice Jackson in the Court of Appeal. He is now instructed by solicitors for both Claimants and Defendants in cross border disputes, package travel and other related claims.