KMG International NV v Chen & Anor

In this matter the Defendants seek to strike out the claim, or, alternatively, summary judgment on that claim. For its part, the Claimant, by a summary judgment application dated 23 July 2019, sought summary judgment against the Defendants on the three issues which were the subject of the Defendants’ strike out application in the event the latter was decided against the Defendants.

For the purposes of this application, I can deal briefly with the facts. (1)On 30 April

The claim in these proceedings is made in tort, and is based on a breach of duties allegedly owed as a matter of Dutch or alternatively English law. The wrongful acts of the Defendants are said to have resulted in a diminution of the assets of DPH, since it is asserted that the Defendants caused the DP Group to part with a

KMG contends that, under Article 4(1) of the Rome II Regulation (hereinafter “Rome II”), the claim is governed by Dutch law, and that there is a claim under Article 6.162 of the Dutch Civil Code.

Alternatively, KMG makes a claim in English law.

Accordingly, to quote the Defendants’ skeleton, the essential facts for present purposes - in which the parties agree that I must assume the facts are as pleaded by KMG - are simply that:

KMG is bringing this claim in its capacity as a creditor of DPH by virtue of the Award;

The wrong that was allegedly done by the Defendants under Dutch law was done to NIBV, which was a sub-sub-subsidiary of DPH.

At the beginning of the hearing, I adjourned consideration of the English law claims. That was because the principal question in issue between the parties, namely whether the

However, that left the question of whether the claims put forward as a matter of Dutch law were also untenable by reason of the principles of English law dealing with reflective

Although I was not addressed to any degree on the appropriate standard, I take the standard for summary judgment to be that set out by Lewison J (as he then was) in EasyAir Ltd (trading as Openair) v Opal Telecom Limited[2009] EWHC 339 (Ch) at [15], a case that has been approved in a number of authorities, including AC Ward Ltd v. Catlin (Five) Ltd[2009] EWCA Civ 1098; [2010] Lloyd's Rep IR 301 at [24]; and Global Asset Capital Inc v Aabar Block and others [2017] EWCA Civ 37.

As regards the test for a strike out, this requires me to assume that the pleaded facts are correct, and then to ask, if those facts were made out at trial, whether the claim would nevertheless fail.

In this case, Mr Choo Choy very fairly accepted that if the points of law which were argued in front of me were correct, so that the RL rule applied even to the Dutch law claims, his client could not succeed on the basis of the current state of English law. Accordingly, since these were points of pure law, I did not understand there to be any dispute that a determination in favour of the Defendants would result in the claim being dismissed.

I can summarise the Defendants’ arguments under this heading very briefly. They argued that the English law rules as to reflective loss barred the Claimant’s claims, even under Dutch law, because:

The RL rule was a rule of procedure and not substance and was accordingly governed by the lex fori and not the lex causae;

The RL rule was a mandatory overriding rule of English law within the meaning of Article 16 of Rome II;

Any derogation from the RL rule would be manifestly incompatible with English public policy within the meaning of Article 26 of Rome II.

I deal in this judgment with each argument in turn. However, before doing so, I will set out the leading authorities relating to the RL rule in English law.

I start with the decision of the Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204. In that case, a personal action was brought by shareholders in a company, on the basis that by reason of wrongful acts on the part of the defendants, the value of their shareholding had been diminished. This claim was said by the Court of Appeal to be misconceived, in the following well known passage, found at pages 222G to 223E:

The rule was then the subject matter of consideration by the House of Lords in Johnson v Gore-Wood (No 1)[2002] 2 AC 1.

Lord Bingham set out the following propositions in his speech in that case, at pages 35E to 36A:

Most recently (in this jurisdiction), the RL rule was considered by the Court of Appeal in Marex Financial Ltd v Sevilleja[2019] QB 173. In that case, having considered the authorities, Flaux LJ summarised the reasons for the rule as follows:

I take this statement as the most recent authoritative comprehensive account of the rule and the reasons for it, pending the decision of the Supreme Court on the point.

Under this heading, the Defendants submitted that:

The RL rule was not within the provisions of Article 15 of Rome II;

The RL rule was a rule of procedure within Article 1(3) of Rome II and thus outside the Regulation;

Applying common law rules, the RL rule was one of procedure and not substance, and was thus governed by the lex fori and not the lex causae.

Conversely, Mr Choo Choy, for KMG, submitted that:

The RL rule was within the express provisions of Article 15 of Rome II, and in particular Articles 15(a)(b)(c) or (f);

The list in Article 15 was not exhaustive and the RL rule fell within Article 15, properly understood;

The RL rule was not within Article 1(3) of Rome II;

Even if the RL rule did fall within Article 1(3) so that the Regulation did not apply to it, then the rule was a substantive one as a matter of the application of the English common law.

I will deal with each of these points in turn, but, before I do, it is convenient to set out the provisions of Rome II, namely Article 1(3) and Article 15, which provide as follows:

the basis and extent of liability, including the determination of persons who may be held liable for acts performed by them;

the grounds for exemption from liability, any limitation of liability and any division of liability;

the existence, the nature and the assessment of damage or the remedy claimed;

within the limits of powers conferred on the court by its procedural law, the measures which a court may take to prevent or terminate injury or damage or to ensure the provision of compensation;

the question whether a right to claim damages or a remedy may be transferred, including by inheritance;

persons entitled to compensation for damage sustained personally;

liability for the acts of another person;

the manner in which an obligation may be extinguished and rules of prescription and limitation, including rules relating to the commencement, interruption and suspension of a period of prescription or limitation…

The law governing a non-contractual obligation under this Regulation shall apply to the extent that, in matters of non-contractual obligations, it contains rules which raise presumptions of law or determine the burden of proof.

Acts intended to have legal effect may be proved by any mode of proof recognised by the law of the forum or by any of the laws referred to in Article 21 under which that act is formally valid, provided that such mode of proof can be administered by the forum.”

Although I have set out these two issues as separate issues above, they are in my view interrelated. That is because it seems clear both from the provisions of Rome II itself and from the drafting history I refer to below that it was intended that the proper scope

I turn then to the parties’ respective contentions on this first pair of issues.

The Defendants contended as follows:

The question of whether the rule is one of substance or procedure is a question of EU law.

In applying EU law:

It was not the goal of the English Court simply to reach the same result as a Dutch Court;

A litigant in England could not expect to enjoy an advantage which other litigants could not;

Article 1(3) is itself a choice of law rule;

The travaux show that the intended effect of Articles 1(3) and 15 was to resolve any ambiguity about what was substance and what was procedure and to promote uniformity in this regard between countries.

In relation to this last point, I was taken to various of the travaux, and, in particular, the Commission’s Proposal dated 22 July 2003 (“the Commission’s 2003 Proposal”) and the European Parliament Report dated 27 June 2005. In this connection, I have also read and reviewed the helpful account of the history of Rome II in Dickinson on The Rome II Regulation, Chapter 1. The relevant parts of the drafting history, it was submitted, were as follows:

In the original proposal, the Commission stated, in relation to Article 1 (the exceptions from coverage):

Article 11 was what became Article 15. I set out below the relevant provisions from the Commission’s 2003 Proposal in the context of a consideration of the particular terms of that Article.

The Commission’s 2003 Proposal was however amended when the matter came before the European Parliament. It was at this stage that Article 1(3) was introduced. The justification for this Amendment was said to be as follows:

On the basis of this drafting history, it was submitted that the intention of the draftsman was that Article 1(3) and Article 15 should be read together, and that the purpose of Article 15 was to make clear which aspects of the law which might otherwise be regarded as procedural were nonetheless to be governed by the applicable law, in order to resolve differences that had existed in the manner in which this question had been treated in different countries prior to Rome II.

Overall, it was submitted that the RL rule was one which was concerned with a condition for “admissibility of actions, rather than rules concerned with the substance or content of parties’ rights” and was thus a rule of procedure. The quotation here was taken from the decision of the Court of Appeal in Actavis v Eli Lilly[2015] Bus LR 1068, where the Court said:

Article 15of Rome II is not itself directly concerned with clarifying the distinction between substance on the one hand and evidence and procedure on the other. It simply contains a list of matters which are “in particular” to fall under the designated law. Included in the list are matters, such as limitation periods, which were traditionally the subject of some debate as to whether they were substance or procedure. Article 15does not answer that question, but merely declares that they will be subject to the law which governs non-contractual obligations under Rome II. I therefore do not regard Article 15as a safe guide to whether matters which do not fall within its scope are procedural or substantive.

The distinction between substance and procedure is a fundamental one. The principle underlying it is said to be that a [foreign] litigant resorting to a domestic court cannot expect to occupy a different procedural position from that of a domestic litigant. Thus, that litigant cannot expect to take advantage of some procedural rule of his own country to enjoy greater advantage than other litigants here. Equally he should not be deprived of some procedural advantage enjoyed by domestic litigants merely because such an advantage is not available to him at home. Thus, at common law, every remedy was regarded as procedure: see for example Don v Lippmann (1837) 2 Sh. & MacL. 682 at 724-5.

Whether a rule is to be classified as one of substance or one of procedure or evidence under Rome II is a matter of EU law: the fact that a rule is classified as one or the other under domestic law is of no relevance. There is therefore a need for an autonomous EU criterion for allocating rules into one or the other category.

In Wall v Mutelle de Poitiers Assurances [2014] EWCA Civ 138; [2014]1WLR 4263, the claimant motorcyclist was injured in a motor accident in France. He claimed damages against the other driver's insurers in England. Liability, which was governed by French law, was admitted. The question arose as to whether the claimant should be permitted to adduce expert evidence in accordance with English practice, or whether a single joint expert should be instructed, as would be the practice in France. This court held that the issue of which expert evidence the court should order was one of “evidence and procedure” within Article 1(3)and not an issue relating to “the existence, the nature and the assessment of damage” within Article 15(c)of Rome II. It was argued that the objective of the Regulation was to ensure uniformity of outcome, and that the English court should do its best to ensure that uniformity by adopting all the rules of the foreign court which might affect outcome. The court rejected that argument (see Longmore LJ at [11] to [14] and Jackson LJ at [40] to [43]), holding that it was inevitable that the same facts tried in different countries might achieve different outcomes. The words “evidence and procedure” were thus given what Jackson LJ called their “natural meaning”.

In my judgment, subject to any impact on the question which Rome II may have had, the rules with which we are concerned are conditions of admissibility of actions, rather than rules concerned with the substance or content of parties' rights. They are all concerned with whether the court should hear a dispute about substance. They are not concerned directly with the substance itself. Thus:

a rule about the need to seek an acknowledgement from the patentee will avoid

a rule requiring the giving of particulars will ensure that the proposed act is

a rule requiring some form of interest, or degree of preparation, will avoid cases coming to court if the party seeking the DNI has not reached a stage where it has sufficiently formulated its plans;

a rule requiring that the party seeking the DNI can show that it would serve a

Such rules would traditionally, for private international law purposes, be classified as procedural and not substantive. In my judgment, therefore, they should continue to be so treated unless Rome II requires a different outcome.

I do not think Mr Mitcheson's argument based on Dr Illmer's illuminating article displaces this view. As Dr Illmer himself recognises, “matters of procedure concerned with the commencement of the proceedings” will continue to be governed by the lex fori. I consider that the rules with which we are concerned fall within that description. They are not so intertwined with matters of substance as to require them to be dealt with under the lex causae. Whilst the passage from Dicey on which Mr Mitcheson relies suggests a very narrow interpretation of “evidence and procedure”, the authors nevertheless say at 7-072:

Whilst rules which require an interest, or effective preparations, are different, I can see no reason in principle why they should not be categorised in the same way. As the judge observed, they have the same broad purpose as the more formalistic rules to which Dicey expressly refers, and are quite distinct from the rules which govern the parties' substantive rights.”

I do not accept that Article 15should be given a wider effect than its language suggests, treating the listed matters as no more than examples of a class of analogous matters regarded as procedural in private international law, but now to be brought within the designated law. Mr Raphael is right that the legislative history shows that the Regulation was intended to respect the private international law principle that the ‘ lex fori ’ is applicable to procedural questions.

Although Article 15applies the lex causae to a number of matters which at least the English common law would have treated as procedural, none of them, as it seems to me, is apt to encompass the rules for admissibility of a DNI. I take these in turn.

Paragraph (a) is concerned with the basic conditions and extent of liability under a non-contractual obligation, and the persons who may potentially be held liable. Whilst Mr Mitcheson's attempt to fit the negative declaration into the wording of the paragraph is ingenious, it does not seem to me that, even if correct, it gets him home. That is because the conditions of admissibility of a positive claim are not caught by the section. If that is so, then I fail to see how the conditions of admissibility of a DNI can be caught either.

The problem with reading paragraph (c) as widely as Mr Mitcheson contends is that it covers any remedy, when the legislative history shows it was concerned with financial remedies alone. Moreover, as the judge pointed out, other language versions of paragraph (c) use words which translate as “compensation”, “indemnity” or “reparation”. Reading it more broadly, the domestic court could find itself having to apply remedies of a nature unknown to its law. This would be in stark contrast to paragraph (d) which covers specific remedies aimed at preventing or terminating injury or damage, but which are limited by the opening words “within the limits of the powers conferred on the court by its procedural law.” To my mind, the negative declaration, whilst no doubt a remedy, is not a remedy which falls within (c).

The negative declaration is also not within (d), because it is not a measure which the court takes to prevent or terminate injury or damage, or provide compensation. Unlike an injunction to prevent infringement, it cannot be said that a characteristic of a DNI is that it prevents injury or damage. Moreover paragraph (d) is again concerned with the availability of such remedies, not the conditions which must be satisfied for their admissibility.

Finally, the mention of limitation periods in paragraph (h) is not a basis for suggesting that the conditions of applying for a DNI should be brought within the lex causae.

It follows that, had we needed to decide the point, I would have agreed with the judge that Rome II does not result in the conclusion that the lex causae applies to the conditions for applying for a DNI. Those conditions are procedural, and subject to the lex fori.”

Turning then to Article 15, the Defendants submitted that the RL rule did not come within any of the express heads of Article 15, and that that Article should be regarded as exhaustive. More particularly, in relation to the various heads relied on by KMG, they submitted as follows:

The Defendants contend that Article 15(a) governs the question of who may be liable and the extent of that party’s liability, and that the rule against reflective loss does not go to the extent of a wrongdoer’s liability, but to who is entitled to claim in respect of a particular head of loss arising out of that wrongdoing.

The Defendants submit, again, that these rules relate to the position of the defendant, whilst the rule looks to the position of the claimant. As such, the RL rule is not governed by Rome II because of the provisions of this subparagraph.

Once again, the nature of the Defendants’ argument is similar. They submit that this provision relates to the damages available, but does not relate to the question of who can make a claim, which is the subject matter of the rule.

The Defendants argue that this is the only provision which might catch the RL rule. However, they argue that I should not construe the sub-Article as going beyond the cases set out in the Commission’s 2003 Proposal since that would undermine the central desire for certainty which underlies the whole of Rome II.

Overall, therefore, the Defendants submit that:

The RL rule is a rule of procedure within Article 1(3);

The RL rule is not within any of the express provisions of Article 15;

The provisions of Article 15 should be read as exhaustive.

KMG’s submissions, in outline, were as follows:

In interpreting the Regulation, the courts had to have regard to the need for certainty.

Article 1(3) had to be interpreted in the light of the provisions of Article 15, which provided that a number of matters which might be considered procedural had to be determined in accordance with the lex causae.

Article 1(3), as an exception or restriction on the applicability of the Regulation, had to be interpreted narrowly, a conclusion reinforced by the fact that Article 15 was, according to the Commission, intended to give a wide function to the applicable law. In this regard, they cited the following passage from the Commission’s 2003 Proposal:

The RL rule is not an indispensable feature of the forum’s legal framework for resolving disputes which is the test suggested by the leading textbooks on the subject:

In Dickinson on The Rome II Regulation, at paragraphs 14.60 and 14.61, the author concludes that a decision by a Court to refuse to apply a law which comes under the provisions of Article 15 on the grounds that the rule is procedural would be exceptional and justified on the basis that the rule has a feature that renders it as an integral and indispensable element of the forum’s legal framework for the judicial determination of disputes.

The learned editors of Dicey, Morris and Collins on The Conflict of Laws state, at paragraph 34-36:

The rule is not a procedural bar, but serves to prevent recovery of damages in respect of a particular type of loss, and is thus substantive.

The Defendants’ reliance on Actavis takes them no further, for the following reasons:

That action concerned patents and declarations of non-infringement, available even where there was no cause of action, in contrast to the RL rule, which relates to the recoverability of a head of loss where there is a cause of action;

The finding that the rules were conditions of admissibility was said to be subject to any impact of Rome II;

The Court of Appeal went on to find that none of the subparagraphs of Article 15 were apt to encompass a DNI because such a remedy was not a financial remedy nor a measure to prevent or terminate injury or damage. Here, even if the Court of Appeal was correct, then that reasoning did not apply to the rule against reflective loss;

The Court of Appeal’s decision on this point was obiter;

The RL rule is not about admissibility of actions but is about recoverability of a particular head of loss.

KMG further submit that the RL rule does indeed come within the express provisions of Article 15, or is sufficiently similar to those cases dealt with in the Article to fall within the scope of that Article, which should not be treated as exhaustive.

The first head relied on by KMG is Article 15(a), on the basis that it relates to the extent of liability, which includes maximum limits of liability laid down by law. It relies on the analogy of the example given by the Commission of rules preventing claims between spouses, the applicability of which will be governed by the law chosen by Rome II. Thus, it is argued that, just as that rule determines who may be liable, a rule determining who may recover in respect of a particular type of loss should come within the scope of the rule chosen in accordance with Rome II.

Next, KMG contend that the matter falls within Article 15(b), as being related to an exemption or limitation of liability. They again cite from the Commission’s 2003 Proposal, and its citation of a rule exempting claims between spouses, in which the Commission stated that this sub-paragraph included the “exclusion of the perpetrator’s liability in relation to certain categories of persons”.

Thirdly, KMG rely on the provisions of Article 15(c), which governs the existence, the nature and the assessment of damage or the remedy claimed, including “the nature of the available remedy, questions of remoteness of damage, the duty, if any, to mitigate damage, the available heads of damage, and matters of assessment (quantification) of damage”.

Next, KMG rely on Article 15(f), which indicates that the relevant law should deal with the issue of persons entitled to claim in respect of damage sustained personally. They refer to the example given in the Commission’s 2003 Proposal, in which the Commission stated that the provision “particularly refers to the question whether a person other than the “direct victim” can obtain compensation for damage sustained on a “knock-on” basis, following damage sustained by the victim. Such damage might be non-material, as in the pain and suffering caused by a bereavement, or financial, as in the loss sustained by the children or spouse of a deceased person.”My conclusions.

I have come to the very clear conclusion that Mr Choo Choy is right in saying that the rule against reflective loss falls within Article 15 of Rome II and not within Article 1(3). My brief reasons for this conclusion are as follows:

I accept that the provisions of Article 1(3) should be construed as a matter of EU law.

I accept the submission that Article 1(3) falls to be construed narrowly, in the light of the authoritative statements of the textbook writers which I have already set out, and the Commission’s 2003 Proposal, to which I have also referred.

As both parties have emphasised, Rome II was designed to promote legal certainty in cross border disputes. To this end, as the Commission has said, the provisions of Article 15 should be construed widely, and any derogations from such narrowly.

This is emphasised by the breadth of the list of matters falling within Article 15, which cover the entire gamut of matters which would generally arise in the course of non-contractual claims, including a number of matters which would, under the law as it stood before the Regulation, have been considered to be outside the scope of the applicable law (such as limitation, assessment and remedies).

It is further emphasised by the fact that even this broad list is probably not exhaustive, as the words “in particular” in Article 15 suggest: see Dickinson, op cit, at 14.04; Dicey, Morris and Collins, op. cit, at para 34-052.

I accept the submission that the RL rule is not an indispensable feature of the forum’s legal framework for resolving disputes which is the test suggested by the leading textbooks on the subject.

Looking at the specific provisions, the clearest one seems to be Article 15(f). It is common ground between the parties that this provision caters for indirect loss, as is indeed made clear by the explanation given by the Commission to which I have already made reference. I see no reason for confining this provision in the manner suggested by the Defendants, and, indeed, it would be my view that to impose the suggested limit would detract from legal certainty and not promote such certainty.

It is also my view that the RL rule falls within the other headings of Article 15, although, in view of my finding on Article 15(f) I can be brief on this.

In my view, the rule does relate to the extent of liability. It imposes a limit on the amount recoverable by the claimant from the defendant in respect of a particular head of loss. True it is that this limit is imposed because of the characteristics of the Claimant; but nevertheless it remains a rule which imposes a limit and thus relates to the extent of liability.

The same logic applies, in my judgment, to Article 15(b).

As regards Article 15(c), in my judgment the rule relates to the recoverability of a particular head of loss and is thus within the Article.

I do not find the Actavis judgment of any real assistance in this regard. It is of course true that I am not bound by the dicta of the Court of Appeal in that case, but they are entitled to great respect. However, in my judgment, the provisions that the Court of Appeal was there considering, which did indeed relate to the formal preconditions for the admissibility of the particular type of action in issue, are to be contrasted with the RL rule in issue here, which is not a precondition to an action, but is a bar to recovery of a particular type of loss. In my judgment, the

On the basis of my findings so far, this further issue does not arise, since it would only arise if Rome II did not apply to the RL rule (as I have held it does).

I can therefore deal with my findings very briefly. I will again set out the parties’ respective submissions in brief before turning to my conclusions.

The Defendants submitted as follows:

As a matter of English law, the question of whether the RL rule is substantive or procedural depends on whether the rule is concerned with determining a substantive right or barring or quantifying a remedy. In that regard, I was referred to Boys v Chaplin[1971] AC 356, 395, and Harding v Wealands[2007] 2 AC 1, at paras 24, 36 and 51.

If the test was what the most appropriate law was, applying a purposive test, English law was the most appropriate since the rule is based on considerations of English policy.

Various analogies were also suggested in this regard, including an analogy with limitation, rules as to actionability of damages, and rules as to priority between creditors, all of which are for the lex fori. In this regard, I was referred to Harding v Wealands, op cit; Cox v Ergo Versicherung AG[2014] AC 1379 at paras 14 and 41; Iraqi Civilians v Ministry of Defence (No 2) [2016] 1 WLR 2001, at para 1; and The Halcyon Isle[1981] 2 AC 221, 230A-231D.

For its part, KMG submitted that:

Only rules for the quantification or assessment of damages are procedural as a matter of common law. Boys v Chaplin and Harding v Wealands were concerned with such matters, not with the availability of particular remedies.

In Cox v Ergo Versicherung AG[2014] AC 1379, at para 14, Lord Sumption, having referred to Harding v Wealands, noted that:

Here, applying the distinction laid out by Lord Sumption, the RL rule bars recovery of certain types of loss, and is not concerned with assessment or quantification. It is thus a substantive rule.

If limitation is a true analogy, then, under the English law as it now stands, in the Foreign Limitation Periods Act 1984 s.1 then such rules are now governed by the lex causae and not the lex fori.

Finally, a more appropriate analogy would be with the rule in relation to derivative actions, which are governed by the law of the place of incorporation, not the lex fori.

I do not find the various analogies of any great assistance, nor, despite its great value as a description of the rationale for the inquiry into the appropriate proper law, have I derived great assistance from the decision in Raiffeisen v Five Star[2001] QB 825 (as cited by the Defendants).

In my judgment, KMG are correct to say that the rule against reflective loss is a substantive rule of the common law, based on the comments of Lord Sumption in Cox v

Overall, therefore, for the reasons I have set out:

I hold that the rule is within the express provisions of Article 15 of Rome II;

I hold that the rule is not within Article 1(3) of Rome II;

I hold that, even if the rule had been taken out of the provisions of Rome II by reason of Article 1(3), it would, at common law, be regarded as a substantive rule, governed by the lex causae.

I turn therefore to the Defendants’ second and third grounds for seeking an order striking out the claim.

Article 16 of Rome II provides as follows:

The Defendants submitted that as a matter of EU law the test is whether the rule in question – here the RL rule – is one of compliance with which has been “deemed to be

The Defendants submitted that the RL rule fell within this definition, because:

The Court has no discretion to disapply the rule;

It applies to bar an otherwise good claim, even in fraud, where loss has been suffered by the claimant;

The policy reasons outlined in the judgment of Flaux LJ in Marex, cited above, apply as “part of the fabric of English company and insolvency law, and in turn the economic order of the forum”.

KMG, for its part, submitted as follows:

It noted that Recital 32 of Rome II makes clear that Article 16 is only to be applied in exceptional circumstances.

It submitted that the provision was analogous to Article 9(1) of the Rome I Regulation, which uses the same wording, which does indeed state that mandatory provisions are “provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to the extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this

It cited the decision of United Antwerp Maritime Agencies (Unamar) NV v Navigation Bureau Bulgare [2014] 1 Lloyd’s Rep. 161, at para 49 (a case concerned with Rome I), which stated that the court has to take into account not only the exact terms of the provision of (national) law in question, but also its general structure and all of the circumstances in which that law was adopted in order to determine whether it is mandatory in nature in so far as it appears that the legislature adopted it in order to protect an interest judged to be essential by the Member State concerned.

Finally, it noted the provisions of Recital (37) to Rome I, which makes clear that the concept of “overriding mandatory provisions” is to be distinguished from the expression “provisions which cannot be derogated from by agreement” and should be construed more narrowly.

Applying this approach, KMG submitted that the RL rule was clearly not crucial to safeguard the political, social or economic organisation of the UK or England. The most that could be said was that the rule against reflective loss was informed by considerations of public policy, which would be true of many if not all rules of law.

I have concluded that the rule against reflective loss is clearly not an overriding mandatory provision within the meaning of Article 16.

My starting point is that the law which would be applicable to this question is, for the reasons I have given, Dutch law. The question is thus whether, despite this

I have been shown no authority which is of any assistance in relation to this question. The question for me is thus one of first principle and impression.

It is clear that the fact that the provision cannot be derogated from by agreement is not decisive of the issue, since, as has been pointed out by KMG, Recital (37) to Rome I draws a distinction between provisions which cannot be derogated from by agreement and overriding mandatory provisions.

It is also, in my view, insufficient that the application of the rule is not discretionary and is, in that sense, mandatory. The fact that a provision of English law is mandatory in this sense does not establish that it is overriding so as to disapply what would otherwise be the proper law.

I also note the provisions of Recital (32) to Rome II, which make it clear that this is an Article which is only to be applied in “exceptional circumstances”. I do not regard this as an exceptional case or circumstance.

Further, the fact that the rule is informed by considerations of policy (as are many rules of law) is insufficient to make it an overriding mandatory rule.

Applying the test set out above, (which I accept is the correct test, since it is the test suggested by the Commission in its Explanatory Memorandum) I have concluded that the rule against reflective loss is clearly not a “provision the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to the extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation.”

Whilst I do not need to go so far as to say that rules regulating private law claims such as this one cannot come within Article 16, as KMG submitted, it is in my view clear that it is the rules which the country (here England) regards as crucial for safeguarding its interests which are the focus of Article 16.

Overall, I have concluded that the reasons put forward by the Defendants for saying that the rule is an overriding mandatory one fall far short of establishing this.

Article 26 of the Rome II Regulation provides as follows:

The question for me, therefore, is whether, on the assumption that the provisions of

As to the Defendants:

Their starting point was that it was necessary to take account of both English and EU law.

They then argued that the rule was one of public policy for the same reasons as given in relation to Article 16.

In addition, they contended that:

Any such derogation would be arbitrary, in circumstances in which the rule is otherwise mandatory;

The application of Dutch law so as to avoid the rule would amount to unlawful discrimination on the grounds of nationality and would be contrary to Article 18 of the European Treaty and Article 14 of the ECHR.

They did not refer me to any authority on the meaning of Article 26.

Conversely, KMG did refer me to a number of authorities and indications, which I deal with before I turn to its substantive submissions.

First, I was referred to Recital (32), which provides that:

Secondly, the authorities, it was submitted, support a restrictive approach to Article

In Krombach v Bamberski[2001] QB 709, the CJEU said:

By this question, the national court is essentially asking whether, in relation to the public-policy clause in Article 27, point 1, of the Convention, the court of the State in which enforcement is sought can, with respect to a defendant domiciled in its territory and charged with an intentional offence, take into account the fact that the court of the State of origin refused to allow that defendant to have his defence presented unless he appeared in person.

By disallowing any review of a foreign judgment as to its substance, Article 29 and the third paragraph of Article 34 of the Convention prohibit the court of the State in which enforcement is sought from refusing to recognise or enforce that judgment solely on the ground that there is a discrepancy between the legal rule applied by the court of the State of origin and that which would have been applied by the court of the State in which enforcement is sought had it been seised of the dispute. Similarly, the court of the State in which enforcement is sought cannot review the accuracy of the findings of law or fact made by the court of the State of origin.

Recourse to the public-policy clause in Article 27, point 1, of the Convention can be envisaged only where recognition or enforcement of the judgment delivered in another Contracting State would be at variance to an unacceptable degree with the legal order of the State in which enforcement is sought inasmuch as it infringes a fundamental principle. In order for the prohibition of any review of the foreign judgment as to its substance to be observed, the infringement would have to constitute a manifest breach of a rule of law regarded as essential in the legal order of the State in which enforcement is sought or of a right recognised as being fundamental within that legal order.

With regard to the right to be defended, to which the question submitted to the Court refers, this occupies a prominent position in the organisation and conduct of a fair trial and is one of the fundamental rights deriving from the constitutional traditions common to the Member States.

More specifically still, the European Court of Human Rights has on several occasions ruled in cases relating to criminal proceedings that, although not absolute, the right of every person charged with an offence to be effectively defended by a lawyer, if need be one appointed by the court, is one of the fundamental elements in a fair trial and an accused person does not forfeit entitlement to such a right simply because he is not present at the hearing (see the following judgments of the European Court of Human Rights: judgment of 23 November 1993 in Poitrimol v France, Series A No 277-A; judgment of 22 September 1994 in Pelladoah v Netherlands, Series A No 297-B; judgment of 21 January 1999 in Van Geyseghem v Belgium, (Application No 26103/95) EHCR 1999-I, 127).

It follows from that case-law that a national court of a Contracting State is entitled to hold that a refusal to hear the defence of an accused person who is not present at the hearing constitutes a manifest breach of a fundamental right.

The national court is, however, unsure as to whether the court of the State in which enforcement is sought can take account, in relation to Article 27, point 1, of the Convention, of a breach of this nature having regard to the wording of Article II of the Protocol. That provision, which involves extending the scope of the Convention to the criminal field because of the consequences which a judgment of a criminal court may entail in civil and commercial matters (Case 157/80 Rinkau [1981] ECR 1391, paragraph 6), recognises the right to be defended without appearing in person before the criminal courts of a Contracting State for persons who are not nationals of that State and who are domiciled in another Contracting State only in so far as they are being prosecuted for an offence committed unintentionally. This restriction has been construed as meaning that the Convention clearly seeks to deny the right to be defended without appearing in person to persons who are being prosecuted for offences which are sufficiently serious to justify this (Rinkau, cited above, paragraph 12).

However, it follows from a line of case-law developed by the Court on the basis of the principles referred to in paragraphs 25 and 26 of the present judgment that observance of the right to a fair hearing is, in all proceedings initiated against a person which are liable to culminate in a measure adversely affecting that person, a fundamental principle of Community law which must be guaranteed even in the absence of any rules governing the proceedings in question (see, inter alia, Case C135/92 Fiskano v Commission [1994] ECR I-2885, paragraph 39, and Case C-32/95 P Commission v Lisrestal and Others [1996] ECR I5373, paragraph 21).

The Court has also held that, even though the Convention is intended to secure the simplification of formalities governing the reciprocal recognition and enforcement of judgments of courts or tribunals, it is not permissible to achieve that aim by undermining the right to a fair hearing (Case 49/84 Debaecker and Plouvier v Bouwman [1985] ECR 1779, paragraph 10).

It follows from the foregoing developments in the case-law that recourse to the public-policy clause must be regarded as being possible in exceptional cases where the guarantees laid down in the legislation of the State of origin and in the Convention itself have been insufficient to protect the defendant from a manifest breach of his right to defend himself before the court of origin, as recognised by the ECHR. Consequently, Article II of the Protocol cannot be construed as precluding the court of the State in which enforcement is sought from being entitled to take account, in relation to public policy, as referred to in Article 27, point 1, of the Convention, of the fact that, in an action for damages based on an offence, the court of the State of origin refused to hear the defence of the accused person, who was being prosecuted for an intentional offence, solely on the ground that that person was not present at the hearing.

The answer to the second question must therefore be that the court of the State in which enforcement is sought can, with respect to a defendant domiciled in that State and prosecuted for an intentional offence, take account, in relation to the public-policy clause in Article 27, point 1, of the Convention, of the fact that the court of the State of origin refused to allow that person to have his defence presented unless he appeared in person.”

The approach in this case was followed in the later case of Gambazzi v

In the English domestic context, in the case of Kuwait Airways Corp v Iraqi Airways Corp [2002] AC 883, at paragraphs 17 and 18, Lord Nicholls said:

KMG then went on, turning to the substance, to argue as follows:

The fact that the rule was mandatory in the sense that it did not involve the exercise of a discretion did not mean that it satisfied the restrictive test for being a rule of public policy within Article 26.

Likewise, the fact that policy considerations informed the existence of the rule did not make it a rule of public policy.

The rule was only established some 20 years ago.

The rule was subject to exceptions.

There was no question of any discrimination. Whether the rule applied depended on the lex causae, so that an English company with a Dutch law claim would be in the same position as a Dutch company.

Overall, the rule was clearly not one of public policy, either as a matter of English law (applying the approach in Iraqi Airways) or EU law (applying the test in Krombach).

I turn to my conclusions. The test under this Article differs from that under Article 16. Under Article 16 the focus is on the mandatory nature of the English rule. Under this Article, the focus is on the effect of applying the rule of foreign law, and whether the application of that law would be contrary to English public policy in the sense identified in the cases set out above.

I have concluded that it is quite clear that the rule against reflective loss is not a rule of English public policy within the meaning of that phrase in Article 26 of Rome II, for the following reasons:

I accept the submission that both EU and English law are relevant to this issue. That is because EU law defines what the characteristics of a rule of public policy must be to come within this Article; and English law then determines, at least within bounds, whether the rule of English law satisfies the relevant criteria and has the relevant characteristics.

Here, therefore, the question is whether recognition of a Dutch law claim for reflective loss would be “at variance to an unacceptable degree with the legal order of the state in which enforcement is sought inasmuch as it infringes a fundamental principle”.

In my judgment, there is no question that allowing a claim of this nature does not offend against English public policy, in the sense identified above. The principle against reflective loss is a recognised rule of English substantive law. However, it does not seem to me to be such a fundamental principle that it is to be equated with a fundamental right, such as a right guaranteed by the ECHR.

Nor, in my judgment, is there any question of discrimination, essentially for the reasons given by KMG. Thus, if pursuing a Dutch law claim, an English company would be in exactly the same position as a Dutch company. It is the fact that the issue is governed by the relevant foreign law that makes the difference, not the nationality of the Claimant.

Finally, I do not accept that there is any “arbitrary derogation”. The principled solution follows from the fact that the question of whether a claim for reflective loss is permitted is a matter, under the Regulation, for the lex causae, for the reasons I have already outlined in this judgment.

For the reasons I have set out in this judgment:

The rule as to reflective loss is within Rome II and is not procedural;

The rule is not an overriding mandatory provision within Article 16 of Rome II;

The application of Dutch law to the issue is not invalidated by reason of Article 26 of Rome II.

In these circumstances, the Defendants’ applications to strike out the Dutch law claims and for summary judgment on those claims must fail. Conversely, in my judgment, the Claimant is entitled to succeed on the matters with which I have dealt in this judgment, which were raised by the Defendants in their strike out application.

I am very grateful to Counsel for their full and interesting arguments, and I would be grateful if an Order could be drawn up giving effect to this judgment.