Logistical nightmare? British American Tobacco SA v Exel Europe Ltd [2015] UKSC 65

Yesterday the Supreme Court handed down its judgment in an important case for those involved in international road haulage where successive carriers are involved.  The case is also of general importance for its discussion of the relationship between international treaties and EU law.  In that part of its judgment (discussed at the end of this post), the Supreme Court held that Regulation 44/2001 (the Brussels I Regulation) did not, in this case, have the effect of a trump card able to override the CMR’s jurisdiction provisions.

In summary, it was held that where the Convention on the Contract for the International Carriage of Goods by Road 1956 (CMR) applies (as it does in England pursuant to the Carriage of Goods by Road Act 1965), the jurisdiction provisions in CMR article 31 provide a complete jurisdictional code.  As a result, although the first carrier could be sued in England (by reason of its English domicile and/or an exclusive jurisdiction clause), this was not sufficient to found jurisdiction against subsequent, non-English, carriers.  Although the “commercial logic” of the CMR’s provisions might point to a single jurisdiction, “the language of the CMR points clearly in the other direction” (Lord Sumption at [60]).

The result is particularly unattractive for consignees shipping goods subject to high tax or duty. It restricts the possible application of English law which, unlike some other laws, allows duty and/or taxes to be recovered in CMR claims.  In this case the duty/tax on the cargo of cigarettes lost was some five times the value of the cigarettes themselves.

If consignees wish to be able to proceed in England against all carriers, they will need to ensure that express jurisdiction clauses are included in all consignment notes passed between successive carriers.

The facts and procedural history  

This case arose from the alleged hi-jack in Belgium of a container of cigarettes en route between Switzerland and the Netherlands and from the alleged loss of about half the cigarettes in a second container parked overnight en route between Hungary and Denmark.  The value of the goods was some EUR 650,000 plus around EUR 3.4 million in duty and/or taxes.

The consignors, two British American Tobacco companies (BAT), brought proceedings in England against the English main contractors who undertook responsibility for the carriage.  BAT also brought English claims against the subcontractors in whose hands the cigarettes were when the alleged losses occurred.

The contract between BAT and the main contractors was subject to English law and contained an exclusive jurisdiction clause in favour of the English courts.  It was a contract for carriage within the meaning of the CMR. The subcontractors were “successive carriers” within the meaning of article 34 CMR.

The three subcontractors, all Netherlands’ companies, challenged the English court’s jurisdiction over them.

In March 2012, the Commercial Court (Cooke J) set aside proceedings against the subcontractors.   In October 2013, the Court of Appeal (judgment by Sir Bernard Rix) reached the opposite conclusion.

The Supreme Court (main judgment given by Lord Mance) restored Cooke J and decided:

Article 31.1 of the CMR was central to the Supreme Court’s decision.  It provides:

“In legal proceedings arising out of carriage under this Convention, the plaintiff may bring an action in any court or tribunal of a contracting country designated by agreement between the parties and, in addition, in the courts or tribunals of a country within whose territory:

(a) The defendant is ordinarily resident, or has his principal place of business, or the branch or agency through which the contract of carriage was made, or

(b) The place where the goods were taken over by the carrier or the place designated for delivery is situated.”

Thus, BAT was entitled to sue the main contractor in England not least because of the exclusive jurisdiction clause in the contract.

BAT could not rely on the jurisdiction clause in the main contract to sue the subcontractors.  The Supreme Court rejected BAT’s argument that this would be permitted by article 34 of the CMR which provides that (emphasis added) “each succeeding carrier becoming a party to the contract of carriage, under the terms of the consignment note …”

The Supreme Court rejected the argument for reasons of construction and of general principle.

The terms of the consignment notes did not expressly include the jurisdiction clause and nor, it was held, was there any reason for such notes to do so even implicitly.  Accordingly article 34 did not result in either subcontractor being bound by the jurisdiction clause.

At “a more fundamental level” Lord Mance concluded that it would be “most unfair to hold a successive carrier bound” by obligations in a main contract which were not mentioned in the consignment note; this included jurisdiction clauses.  In this context, Lord Mance also critiqued the various commentaries on the point in less than favourable terms.

This decision sits comfortably with the English court’s general approach to the incorporation of arbitration and jurisdiction clauses in bills of lading (i.e. general words or incorporation are usually insufficient to achieve this).

BAT could not found jurisdiction against the subcontractors on the basis of article 31.1(a) by treating the English main contractor as their agent or branch.  The Supreme Court rejected BAT’s argument that, as successive carriers, the subcontractors could be treated as “having contracted through the branch or agency” of the main English contractor so as to engage article 31.1(a).  Lord Mance held that this was “distorting the plain purpose and effect of the relevant provisions”.  The successive carriers (subcontractors) did not contract with BAT but merely became party to the original contract under the terms of the consignment note by (and to the extent of) the operation of article 34 of the CMR.

BAT could not use article 31.1 to anchor proceedings against any subsequent carrier under article 36  Article 36 provides that claims (as distinct from counterclaims or a set-off) may be brought only against the first carrier, the last carrier or the carrier performing that part of the carriage during which the event causing the loss, damage or delay occurred.  Finally, it states that “an action may be brought at the same time against several of these carriers”.

BAT argued that the final provision of article 36 operated to permit subsequent carriers to be sued in whatever jurisdiction the first carrier was pursued.  The Supreme Court rejected this construction of the CMR.

In rejecting BAT’s argument, the Supreme Court pointed out that the convenience or commercial imperative of having all carriers in one court could be achieved by suing in the place of taking over or designated for delivery pursuant to article 31.1(b).  The Supreme Court also rejected BAT’s argument that article 39.2 supported its construction.  Among other things, the Supreme Court noted that the language of article 39.2 dealt specifically with the point while articles 31.1/36 did not.  Previous authority cited by BAT (Cummins v Davis [1981] 1 WLR 1363 and ITT Schaub-Lorenz v Birkart Johann [1988] 1 Lloyd’s Rep 487) was found to be of no assistance.

Lord Mance appeared to accept the subcontractor’s argument that the final provision of article 36 was simply to confirm or emphasise that there was no need to pursue the carriers sequentially.

Desirability of having all carriers in one forum did not justify joinder of the subcontractors The Supreme Court rejected BAT’s argument that, as demonstrated by article 6(1) of Regulation 44/2001 (and the common law rules found in para 3.1(1) of PD 6B), joinder of the subcontractors was justified because it was desirable to have all defendants in the same forum.

The Supreme Court noted that: (1) not all jurisdiction regimes permitted this type of joinder and pointed to the Warsaw Convention 1929 (carriage by air); (2) the construction of the CMR for which BAT argued would allow joinder in far more jurisdictions than article 6(1) permitted; and (3) BAT’s construction would provide an automatic ground of jurisdiction rather than requiring (as article 6(1) does) that the claims should be “so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments”.  In any case, all relevant carriers could be sued in the same forum under CMR 31.1(b).

Article 31 is, on its terms, an exclusive regime Lord Mance concluded (at [33]) that the scheme of article 31 of the CMR was such that a claimant could not bring an action arising out of carriage under CMR in any courts or tribunals not specified in article 31.  At [47] he said “The scheme of the CMR appears to me to be deliberate and comprehensive”.

Article 6(1) of Regulation 44/2001 does not prevail over article 31.1 of the CMR  The final argument made by BAT, and the one of greatest general importance, was that EU law should prevail over article 31.1 of the CMR.   The Supreme Court rejected this argument as well.

The starting point of the analysis is article 351 of the Treaty on the Functioning of the European Union (TFEU).  That provides, broadly, that the rights and obligations arising from agreements (like the CMR) concluded before 1 January 1958 between member states and third countries shall not be affected by the provisions of the EU treaties.   This is reflected in article 71 of Regulation 44/2001.  It is, however, subject to the CJEU’s decision in 2008 decision on sanctions and asset freezing, Kadi (Cases C-402/05P and C-415/05P) holding that article 351 TFEU “may in no circumstances permit any challenge to the principles that form part of the very foundations of the Community legal order, one of which is the protection of fundamental rights…”

The European Court has not, however, limited restriction on derogation from EU law to cases, like Kadi, involving individual freedoms.   In two cases (Case C-533/08 TNT Express and Case C-452/12 Nipponkoa) the court considered the CMR and, in that context, held that “Article 71 of Regulation 44/2001 cannot have a purport that conflicts with the principles underlying the legislation of which it is part” and that the application of jurisdiction provisions in specialised conventions such as the CMR “cannot compromise the principles which underlie judicial co-operation in civil and commercial matters in the European Union” including those recalled in Regulation 44/2011 of, inter alia, “predictability as to the courts having jurisdiction … [and] minimisation of the risk of concurrent proceedings…”.  In both cases, the operation of article 35 of the CMR was effectively restricted.

The Supreme Court held that the BAT case could be distinguished from the TNT and Nipponkoa cases. Both of those cases had involved competing parallel cases in different member states. Thus the European Court was motivated to ensure that the court of one member state was not called upon to review the actions of a court in another member state (the fundamental point Case C-185/07 West Tankers).  The BAT case, on the other hand, did not “concern or present any risk of competing judgments involving the same parties”.  Further, the Supreme Court held that the evidential aim of BAT could not be associated with any fundamental principle of EU law in the field of jurisdiction or justice.  Accordingly, the court concluded that Article 6(1) of Regulation 44/2001 did not prevail over the CMR.

The Supreme Court also expressed concern that EU law should not interfere with a regime involving third party states but made clear this was not part of its reasoning.