In this issue: CMR jurisdiction - a door closed?; European Commission finds existence of freight forwarders cartel; Eurozone crisis; Will TUPE apply at the end of the contract?; Freight rate movement in container shipping; News; Conferences & Events
CMR jurisdiction: a door closed?
Facts: Various British American Tobacco entities (“BAT”), some of which were English registered companies, issued two separate sets of legal proceedings in England, both involving high value consignments of cigarettes which were stolen in transit.
In both claims Exel Europe Ltd (“Exel”), an English registered company, was named as a defendant. In one case, H. Essers Security Logistics B.V., and H. Essers Transport Company Nederland B.V. (“Essers”) were the co-defendants and in the other, Kazemier Transport B.V. (“Kazemier”) was the co-defendant.
In both cases BAT had contracted with Exel (the “Head Contract”), which in turn had sub-contracted in one case to Essers and in the other to Kazemier. The Head Contract contained an English law and jurisdiction clause of which both Essers and Kazemier were unaware. Both Essers and Kazemier were Dutch registered companies and neither had branch or agency offices in the UK.
In the Essers case the cigarettes were stolen during transit from Switzerland to the Netherlands and in the Kazemier case from Hungary to Denmark. There was no dispute that CMR applied to the relevant contracts of carriage.
Did the English Courts have jurisdiction to hear the claims brought by BAT against Essers and Kazemier?
BAT contended that the English Courts had jurisdiction under CMR or if not, this meant that CMR was less favourable than the Brussels Regulation (the “Regulation”), and accordingly the Regulation should apply, meaning that Essers and Kazemier could be joined to the same proceedings as Exel by virtue of Act 6.1 of the Regulation, which states: “A person domiciled in a Member State may also be sued: (i) where he is one of a number of defendants, in the court of the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together…”. BAT’s submissions were based heavily on the generally accepted public policy position which is to avoid, wherever possible, a multiplicity of legal proceedings in different jurisdictions.
Essers and Kazemier contended that there was no such jurisdiction available under CMR, or under the Regulation, which would, in any event, only be relevant if there was a gap in CMR or to the extent that the provisions of CMR were in conflict with the policy of the Regulation. Essers and Kazemier argued that there was neither a gap nor a conflict and accordingly the Regulation was irrelevant on the facts of the case.
Art 31 CMR provides for jurisdiction, as between cargo interests and carriers, in a number of different jurisdictions, namely:
- A jurisdiction designated by agreement between the parties (Art 31.1.).
- The place where the defendant is ordinarily resident or has its principal place of business (Art 31.1(a)).
- The place where the goods were taken over by the carrier or the place designated for delivery (Art 31.1(b).
BAT argued that it was necessary to consider not only Art 31, but also Articles 34, 36 and 39 CMR. Reading these Articles together, BAT argued that England was an appropriate jurisdiction not only as against Exel, but also as against Essers and Kazemier on two different bases:
- The law and jurisdiction clause in the Head Contract obliged BAT to sue Exel in England and Essers and Kazemier were bound by the clause even though they were not parties to the Head Contract. This was based, BAT said, upon the fact that by virtue of Art 34, a successive road carrier becomes a party to the “contract of carriage” and is deemed to be bound by its terms, even those of which it was unaware.
Essers and Kazemier argued that it was not possible to bind a party to an English law and jurisdiction clause, if it was not a party to the contract concerned. Furthermore, whilst it was accepted that a successive carrier became a party to the contract of carriage, Art 34 was clear when it said that such a carrier became a party “under the terms of the consignment note” and in this case the law and jurisdiction clause was not entered into the consignment note. The Court agreed and said a, “...successive carrier cannot be bound by a jurisdiction clause to which it cannot be said individually to have given its consent, by acceptance of a Consignment Note with such a clause in it, or otherwise.”
- BAT argued that if a purposive reading was given to Art 31.1(a) CMR (by reference to Articles 34, 36 and 39 CMR) all appropriate defendants could be joined as parties to the same proceedings, based on the ordinary residence or principal place of business of one of them. Essers and Kazemier argued that the language of Art 31.1(a) was clear and did not provide that the ordinary residence or principal place of business of one carrier could be used as an anchor to join the other carriers to the same proceedings. The Court agreed and said, “as a matter of straightforward construction of Article 31 and Article 39, Esser’s and Kazemier’s submissions are unanswerable... Article 31 expressly limits the courts in which a claim can be brought by a plaintiff (whether a goods owner or a carrier, against a defendant)...there is nothing in Article 36 which entitles the claimant goods owner to do so [sue all the carriers] in one and the same jurisdiction when Article 31 specifically limits the courts in which he can pursue any such defendant.”
The Court found, as Essers and Kazemier had argued that, notwithstanding the English law and jurisdiction clause in the Head Contract, BAT had the option under Art 31.1(b) of suing all carriers in one jurisdiction, i.e. the place where the goods were taken over or the place designated for delivery. This point was fatal to BAT’s argument, the Court said, “The choice [of where to sue] lies with the claimant and if it chooses to sue in a jurisdiction where it can only meet the requirements of Article 31.1(a) in respect of one defendant, as opposed to suing in a jurisdiction falling within Article 31.1(b), where it could join all carriers, it cannot validly complain about the effect of its own choice.”
The Court also concluded that, “...the CMR code is sufficient and does not conflict with or give a result less favourable than the Regulation...”.
The Court’s decision does not close the door on a particular avenue of jurisdiction, rather it clarifies the extent of the jurisdictions available as between cargo interests and carriers under Art 31; although this may have the effect of limiting, to some extent, the practice of forum shopping, whereby parties try to establish jurisdiction, by commencing proceedings quickly, in the place most favourable to their cause.
It is important to note that a jurisdiction clause can never be “exclusive” under CMR as Art 31 permits actions in the further specified jurisdictions which are “in addition” to the jurisdiction “designated by agreement”. Unless the defendants all share the same place of domicile or principal place of business Art 31.1(a) does not permit all of the defendants to be sued in the same jurisdiction and the claimant, if it chooses to base jurisdiction on Art 31.1(a), will have to commence separate proceedings, against the various defendants, in different jurisdictions. However, the claimant can avoid doing so by commencing one set of legal proceedings against all of the defendants in the place where the goods were taken over or the place designated for delivery (as specified in the primary contract of carriage between the goods owner and the first carrier).
HFW was instructed by Van Rossenberg Advocaten, Rotterdam to represent Essers and Kazemier.
For further information, please contact Justin Reynolds, Partner, on +44 (0)20 7264 8470 or firstname.lastname@example.org, or your usual HFW contact.
European Commission finds existence of freight forwarders cartel
Six freight forwarders are appealing fines totalling €169 million currently imposed by the European Commission (the “Commission”) for alleged involvement in price fixing cartels in the international air freight forwarding services sector.
On 28 March 2012, the Commission decided that 16 freight forwarding companies had participated in four allegedly distinct and illegal cartels which sought to fix the price of specific surcharges and charging mechanisms on important trade lanes in international air freight services between 2002 and 2007 (when dawn raids were carried out by antitrust authorities in the United States and EU).
The Commission said it had identified the following four cartels:
- The New Export System (“NES”) cartel - after the introduction of electronic declaration for UK exports in 2003, a group of forwarders allegedly agreed a fixed surcharge by size of customer on this service.
- The Advance Manifest System (“AMS”) cartel - an advanced declaration is required when shipping goods to the US. A group of forwarders allegedly agreed to introduce a surcharge for the service and not to use the surcharge as a tool for competition.
- The Currency Adjustment Factor (“CAF”) cartel - when the Chinese currency (RMB) appreciated against the US Dollar in 2005, a group of forwarders allegedly agreed to shift contracts from USD to RMB or, if this was not possible, on the introduction of a CAF surcharge and on its level.
- The Peak Season Surcharge (“PSS”) cartel - a group of forwarders allegedly agreed on a surcharge for peak season services offered in the build up to Christmas and also discussed its level.
The Commission found that the cartels operated on routes from the UK to outside the EEA, from the EEA to the US, from China to the EEA and from Southern China/Hong Kong to the EEA. Some of the forwarders involved were said to have used specific concealment measures, including the use of private yahoo email accounts and code words (such as the “Gardening Club”).
The Commission imposed fines ranging from €319,000 to €54 million. Kuehne + Nagel faced the heaviest fines, totalling €53.7 million. Deutsche Post (including subsidiaries DHL and Exel) received full immunity from fines under the Commission’s 2006 Leniency Notice, as it was the first company to report the issues to the Commission. Deutsche Bahn (including Schenker and BAX), Ceva, Agility and Yusen received reductions of fines ranging from 5% to 50% in exchange for the timely provision of additional evidence and in accordance with the European Commission’s 2006 Guidelines on Fines.
The appeals process
EGL and Kuehne + Nagel were the first to challenge the Commission’s decision (in July 2012). They were followed by UTI, then Schenker, Deutsche Bahn and Panalpina Welttransport in August 2012.
Under EU law, any company which is the subject of a Commission decision can bring an appeal against the decision before the General Court of the European Union. Companies that have not been fined – but to whom a decision is addressed - may bring appeals to limit their exposure to follow-on damages actions (against which they do not enjoy any immunity) or to limit their exposure to higher fines in future, if they are investigated in other alleged cartels.
The appellants submit that the Commission erred both in assessing the duration and scope of the infringements and in calculating the fines imposed in March 2012. They also submit that the Commission had no power prior to 1 May 2004 to impose fines in relation to air transport between the EU and third countries. In particular, the appellants allege that:
- The Commission erred in law and/or assessment of the facts by failing to define the relevant market affected and failing to establish that the arrangements had an appreciable effect on trade between EU Member States.
- The Commission breached the principle of equal treatment in relation to treatment of the immunity applicant, determination of fine reductions and its refusal to initiate talks under the Settlement Notice.
- In imposing fines, the Commission wrongly determined the relevant turnover, as the turnover relied upon bore no direct or indirect relationship to the alleged infringement. In addition, the Commission infringed the principle of proportionality by failing to take account of applicable mitigating factors, the particularities of the case and the nature of the industry in question.
- The Commission breached the appellants’ rights of defence, the principles of a fair trial and sound administration as a result of various procedural errors.
What lies ahead?
While it affords the Commission a wide margin of discretion, the General Court is prepared to review the Commission’s substantive analysis. It will consider whether the evidence relied on by the Commission is reliable, accurate and consistent, and whether the appropriate conclusions have been drawn from it. The General Court is entitled to substitute its own appraisal of the facts for the Commission’s, which may lead to an annulment of the Commission’s infringement decision, or a reduction in the amount of the fine.
Since 2000, 50% of appeals to the General Court have been successful in some part, leading to decisions being annulled (17%), or a reduction in the level of the fine imposed (33%).
The scale of the fines currently under appeal will remind those involved with the logistics sector of the need to remain alert to the risk of allegations of antitrust infringements. Competition compliance training is key to ensuring staff understand the dangers inherent in discussions with competitors.
For further information, please contact Daniela Bowry-Blum, Associate, on +44 (0)20 7264 8775 or email@example.com, or your usual HFW contact.
The Eurozone debt crisis has prompted careful consideration of the potential consequences of the exit of a Eurozone state from the Euro and a re-denomination into a replacement local currency.
Any withdrawing state would be likely to enact new laws making compulsory the re-denomination of contractual payment obligations governed by local law into a new replacement local currency, as well as requiring payments into that state to be in the new local currency. The governing law and jurisdiction which applies to such contracts will be crucial in determining the impact of such re-denomination provisions.
Contracts governed by express local law and jurisdiction clauses will be subject to any local laws on re-denomination into any new currency, which will be difficult to avoid as they are likely to trump any currency conversion or re-denomination clauses providing for other harder currencies (e.g. Euro, GB Pounds, US Dollar). However, even where contracts incorporate express English choice of law and jurisdiction clauses, issues may nonetheless arise because of two conflict of laws principles.
Firstly, there is the internationally recognised principle of lex monetae, by which the choice in a contract of a particular currency is taken to imply a choice of the law of the country of that currency to determine, where necessary, what that currency is or may re-denominate into. In the current context of the risk of re-denomination into a replacement local currency (e.g. Euros back to Spanish Pesetas), issues may arise as to whether an English court, in applying this principle, should regard the choice of the Euro in a contract as a choice of the law of a particular Member State or a choice of the law of the Eurozone as a whole. To avoid such difficulties, currency fluctuation or conversion clauses, which provide either that the contract will be in Euros only or will be converted into other harder currencies such US Dollars or GB Pounds on any re-denomination, should be incorporated into potentially affected contracts. Such clauses should also address what rate of exchange will apply.
Secondly, there is the principle known as lex loci solutionis, whereby under Rome I Regulation, art 9(3), English courts may give effect to the overriding mandatory rules of the law of the place of performance of a contract (i.e. the “lex loci solutionis”). In doing so, courts have the discretion to render performance unlawful if payment of a claim under a contract in, for example, Euros is unlawful in the country in which payment must be made. Possible solutions here include incorporating clauses which require payment to be made to a party (e.g. a broker or other intermediary) outside of the country of the Member State which is at risk of currency re-denomination. It would be sensible to incorporate such clauses before any re-denomination takes place.
The prospect of re-denomination presents various uncertainties, and parties to potentially impacted contracts may wish to act now to mitigate any future impact. With a view to avoiding exposures, parties should consider revising their contracts as above so as to avoid those EU states which are perceived as higher risk. In the case of existing contracts, this may be achievable by endorsement. In the case of new contracts, by express provision. Where necessary, standard market clauses can be modified for these purposes. They should also consider including contract continuity clauses, which maintain the validity of the contracts in the event of a Eurozone re-denomination.
Whilst re-denomination could impact contractual obligations, it will also of course affect counter-party and investment risks. In that context, parties must consider minimising their exposure through careful negotiation of their future and existing contracts, with a particular focus on governing law, jurisdiction, currency conversion, validity and place of performance provisions.
For further information, please contact Costas Frangeskides, Partner, on +44 (0)20 7264 8244 or firstname.lastname@example.org, or Ben Atkinson, Associate, on +44 (0)20 7264 8238 or email@example.com, or your usual contact at HFW.
Will TUPE apply at the end of the contract?
Recent case law indicates that it is not that clear cut.
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) are designed to safeguard employee rights in the event that the business or undertaking the employees work for is transferred to a new employer. In the logistics sector, where contracts quite often go from one logistics provider to another or where logistics buyers sometimes decide to take their logistics operations back in-house, it is inevitable that the issue of whether or not TUPE applies arises.
TUPE applies where there is a “relevant transfer”, which can mean either a transfer of an undertaking, business or part of an undertaking to another person(Reg. 3(1)(a)) or a service provision change (Reg. 3(1)(b)).
When a company decides to outsource its logistics operation for the first time, or when it decides to change logistics providers or to take its logistics operation back in-house, this will give rise to a service provision change which may mean that TUPE will apply.
One of the key conditions for TUPE to apply in the event of a service provision change is that immediately before the change there was an organised grouping of employees, the principal purpose of which was to carry out the activities concerned. The Employment Appeal Tribunal has recently considered the meaning of “organised grouping of employees”, and two of these decisions involved logistics services.
In Eddie Stobart Ltd v Moreman & Others, the judge concluded that it was not enough for the employees to (principally) carry out the activities for there to be an “organised grouping of employees”, something more was needed. In this case the employees were divided into nightshift employees and dayshift employees. Because of the operational requirements of the customers Eddie Stobart Ltd serviced from the site, it just so happened that the nightshift employees worked principally on tasks required by one customer contract, whereas the dayshift worked principally on tasks required by another customer contract. The judge decided that there was no “organised grouping” for the purposes of the legislation because the reasons why some of the employees worked principally on one customer contract were circumstantial (as opposed to as a result of deliberate planning or intent).
In Seawell Ltd v Ceva Freight (UK) Ltd and Mr Craig Moffat, the Employment Appeal Tribunal followed the decision in the Eddie Stobart case, and stated that “the description “organised grouping of employees” connotes a deliberate putting together of a group of employees for the purposes of the relevant client work - it is not a matter of happenstance.”
What these decisions imply is that in the context of a multi-user warehouse for instance, for TUPE to apply at the end of a contract, it will be necessary to show that the logistics provider deliberately decided to organise the employees so that they would be principally engaged in providing services in respect of one customer contract. How a company organises its workforce is influenced by a multitude of factors. It may be difficult from an operational and cost point of view to organise a workforce in a way that is more likely to ensure that the grouping of employees will fall within the meaning of “organised grouping of employees” for the purposes of TUPE.
This means that it is not a given that TUPE will apply at the end of a contract and the services either transfer to another service provider or are taken back in-house. This is not necessarily a bad thing from the point of view of the incoming service provider or the customer who is taking the services back in-house, as where TUPE applies it means that the employees transfer with their rights and liabilities. However, from the point of view of the outgoing logistics provider, the one which lost the contract, it will mean that it retains the liability for employees it may no longer require. This is something buyers and providers of logistics services need to consider carefully when deciding what should happen on termination of a contract and how the termination costs (including employee termination costs) should be apportioned between the parties. Careful drafting of relevant contractual provisions is essential to cover potential TUPE issues.
For further information, please contact Catherine Emsellem-Rope, Associate, on +44 (0)20 7264 8279 or firstname.lastname@example.org, or your usual contact at HFW.
Freight rate movement in container shipping
Freight rate movement in container shipping will continue to be an important issue for logistics providers in the remaining months of 2012.
Logistics providers will therefore be aware of united calls from a number of container lines to maintain freight rate levels, despite the recent traditional peak season being quieter than expected in the containerised trade between Asia and Europe. Container lines have suggested that lower traffic levels could instead generate a need to increase freight rates in order for container lines to maintain profit levels. This will come as a surprise to those in the logistics sector, who are hoping to see a repeat of the rate erosion that emerged as competing container lines flexed for market share in the first quarter of 2012.
The beginning of 2012 was dominated by oversupply in the market following a combination of newbuildings entering service and uncertainty amongst importers as a result of the Eurozone crisis. These factors caused substantial carrier losses.
Rate restoration was notable however in the second quarter of 2012 with spot rate increases seen universally across container lines. Average rates increased around fifteen per cent. between first and second quarters, aided partly by an improvement in demand, but also reflecting a concerted effort on the part of container lines to focus strategy toward profits.
Those involved in the logistics sector will be watching closely to see if the recent fall in spot rates continues in response to the dropping utilisation levels and fall in traffic towards the end of the year.
There are a number of measures that container lines may employ to ensure that freight rates remain both profitable and sustainable rather than moving toward rate erosion. Rationalisation tools may be used by lines to generate a supply-demand balance in the medium-term. Some container lines have intimated that they may take the decision to suspend some sailings, keep ships on berth for longer than usual, delay departures or slow ships down further. Other container lines have advocated a shift away from a focus on ship utilisation and the need to sail close to full capacity on every voyage, maintaining that freight rates may not be cut in the face of reduced utilisation. Of course, container lines will also continue to push for more favourable contract terms when seeking to protect freight rates in the future.
Potential factors that may cause rates to continue to fall remain the same. New capacity entering the container shipping sector will still have an effect but the extent in the medium and long run will depend on the level of restraint shown by banks and whether they back the projects of those in the sector promoting further newbuildings. Continued flat consumer demand in Europe and a fallout from the Eurozone crisis will also play their part in causing freight rates to lower.
The logistics sector will always seek lower rates, but at the same time, the sector would welcome a strategy that creates certainty. Logistics providers will be aware that constant fluctuation in freight rates may lead to strained relationships in the supply chain as they struggle to predict prices for future months, potentially leading importers to consider sourcing their cargo from other markets. It is hoped that the decrease in traffic levels will lower rates for logistics providers but if not, providers will be hoping for certainty in freight rate levels at the very least.
For further information, please contact Matthew Gore, Associate, on +44 (0)20 7264 8259 or email@example.com, or your usual contact at HFW.
HFW Partner Craig Neame spoke at the 8th International Colloquium of the Institute of International Shipping and Trade Law at Swansea University last month.
This year’s event was devoted to Carriage of Goods and offered comprehensive discussion on emerging issues and unresolved questions in the law relating to carriage of goods, with particular reference to carriage of goods by sea, land and air and international conventions attempting to regulate different legs of transport. The position of market participants, such as freight forwarders, multimodal transport operators, terminal operators and insurers, was also considered. The event was sponsored by Informa Publishing and the speakers were drawn from legal practice, academia and industry and were all leading authorities in their respective fields.
Conferences and Events
Marine Insurance Seminar,
13 November 2012
Craig Neame, Jonathan Bruce and Toby Stephens
Multimodal Seminar Series,
In early 2013 the HFW Logistics team will host the next part of this seminar program, which will focus on a number of the latest key legal developments affecting the logistics industry. Further details will follow in the next Logistics Bulletin.
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