The differences between common and civil law in the EU are causing unexpected problems for companies, explains Maria Kielmas

You are not a national of any European Union (EU) member state; you and your business are domiciled outside the EU; you have never conducted any business with the EU and indeed have never had any material connection with the EU. But an Englishman holidaying in your country is seriously injured when using leisure facilities which your business has partly serviced. The facilities are owned by another Englishman. If you have a case to answer you think this would happen in your national courts. Think again. The European Court of Justice (ECJ) could drag you into the English court system.

Or perhaps your business is domiciled in one EU member state and you have signed a contract with a company domiciled in another member state. Your contract stipulates that disputes should be settled in proceedings in say, English courts. In the event of a dispute you might expect that the ECJ would uphold the nature of the original contract. Great expectations, but you are wrong again. Of all of the political issues surrounding the integration of the UK into the EU, the conflicts between the English judicial system, based on common law, and that of Europe, based largely on civil law, is creating a hitherto unpredictable risk.

The question of jurisdiction - the territorial range of legal authority and control of a given court - has become one of the most pressing issues over the past two decades for cases against multinational corporations involving personal injury, environmental damage and increasingly, human rights violations. But, according to Adrian Briggs, Professor of International Private Law at Oxford University, the impact of the case referred to above - Owusu v Jackson and others, which involved a serious injury to a British citizen holidaying in Jamaica - may go much further. The impact of a number of recent ECJ rulings is far from benign, he says, and is, "a menace to the morality of commercial litigation." For corporations conducting business internationally, who believe that they have the option of choosing which jurisdiction their contracts would be enforced in, it means confusion.


The saga began in 1982, when the EU-wide Brussels Convention on Jurisdiction and the Enforcement of Judgements in Civil and Commercial Matters 1968 (Brussels Convention) was incorporated into UK law. One of the principal rules of the Convention is that the courts of a defendant's domicile are to have jurisdiction, even if the events that brought about a legal case involving the company's overseas subsidiary were in a non-EU jurisdiction. But this conflicts with a principle that originated first in the Scottish legal system and that has been developed in the English and US courts (as well as in courts in countries such as Australia and Canada among others, whose legal systems have developed from English common law) called forum non conveniens. This states that there is a more 'appropriate' forum, or venue, for the lawsuit to be brought. According to Richard Meeran, special legal counsel at Melbourne-based law firm Slater Gordon, the rationale behind the principle is that a case should be heard in that jurisdiction with which it has the closest connection, and that courts should avoid infringing the sovereignty of other states by exceeding their jurisdiction.

However, this principle has come under attack ever since the 3 December 2004 Bhopal disaster in India, when the leakage of toxic gas from a plant run by a local subsidiary of US-based chemical firm Union Carbide killed at least 3,800 people, and injured many thousands of others. The company successfully argued the principle of forum non conveniens and blocked a case brought against it in the US courts by the victims' families. The case was settled in 1989 in the Indian courts when Union Carbide agreed to a US$470m payment that would discharge it from future claims. Approximately 566,000 claimants received, on average, a few hundred dollars each.


US and UK corporations have successfully applied this principle in lawsuits filed against them in their home countries but relating to their overseas operations. However, by the late 1990s, rulings by courts in both countries were slowly eroding the jurisdictional argument. Richard Meeran, in his previous position as partner in London-based law firm Leigh Day, successfully won compensation in the English courts for victims affected by the operations of British mining company Rio Tinto Zinc in Namibia and asbestos company Cape plc in South Africa. But it was a long haul. Lawyers from both sides spent three years just arguing about which jurisdiction the case should be held in. In both cases the House of Lords ruled that the lawsuits should continue in the English court system because they were of such magnitude and required expert legal representation on technical and medical issues, none of which could be funded in Namibia or South Africa.

Richard Meeran says that the underlying issue here was access to justice for the victims and their families. Multinationals in developing countries may always have been legally liable for injuries to workers in their operations, but these victims had no practical means of pursuing their claims. He welcomes the ECJ ruling this year on the Owusu case, as it means that forum non conveniens will no longer be an issue in cases involving English-owned companies abroad. "But there is still the question of whether victims can show that they have a claim, where they are going to be able to find lawyers to represent them and get funding," Meeran says.

He does not think that the ECJ ruling will open the door to a flood of lawsuits in the English courts involving the foreign operations of English companies. It is still not an easy matter to establish in court the precise kind of control that a parent company has over the operations of its foreign subsidiaries. While in the US lawyers pursuing a successful case stand to gain a slice of a client's compensation through contingency fees, in England that is not the case. "Lawyers have to be quite careful and selective about the cases they take on," Meeran adds.

But Jeremy Sharman, partner at London law firm Bird & Bird, says that although compensation awarded by English courts is not on the scale of that awarded in the US, there are advantages of using the English court system. "One of the advantages of the English courts is that they have wide powers to order discovery," he says, adding that there is also the availability of legal aid.


But the fact that the Owusu lawsuit dragged several Jamaican-owned companies into the English court system as defendants has added to legal confusion and controversy. The ECJ's remit is to rule on the application of EU law in the internal market of the EU, whose member states are all contracting parties to the Brussels Convention. According to Adrian Briggs, the ECJ in its Owusu ruling, was "marking out territory". In a commentary on the case Briggs wrote that the defendants' lawyers pointed out that the issues in the case had nothing to do with relations between the (Brussels Convention) contracting states, and that there was nothing in the Treaty of Rome (which created the first Common Market in 1957) to authorise something so irrelevant to the EU's internal market. "But the European Court saw perfectly clearly the nature of the iceberg being floated towards it, and pressed the nuclear button," Briggs commented.

Even if the ECJ is marking out new territory for its jurisdiction, as Briggs claims, there is still a lack of clarity in the system. This can be exploited by people, observes Jeremy Sharman. The lesson here is that if you expect to be sued in one EU member state court, get in first and sue your opponent in another EU state.

Get in first

This is what happened when investment bank JP Morgan sued German company Primacon in London for the repayment of a loan. The two sides had agreed in their original contract that any dispute proceedings were to take place in London. Nevertheless, the German company started proceedings first in the German courts, alleging that the loan documents violated German public policy. The EU system does not allow for so-called 'parallel proceedings', ie that separate lawsuits involving the same parties should proceed simultaneously in different jurisdictions, and so the investment bank was prevented from suing. Although the German company had no legal justification for suing in the German courts, the ECJ ruled that the German court system alone was entitled to decide about the case. "For an English lawyer, this is a disgraceful state of affairs," notes Adrian Briggs.

Some lawyers have called the situation an internationalisation of justice and the federalisation of law in the European Union. For companies trying to defend their business interests, it is a change in the rules and more uncertainty.

- Maria Kielmas is a freelance writer.