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The ECJ has ruled that Regulation 44/2001 (the Brussels I Regulation) does not govern the recognition and enforcement in a Member State of an arbitral award issued by an arbitral tribunal in another Member State.

The ECJ was requested by a Lithuanian court to give a preliminary ruling on whether the Brussels I Regulation should be interpreted as precluding a court of a Member State from recognising and enforcing, or from refusing to recognise and enforce, an arbitral award prohibiting a party from bringing certain claims before a court of that Member State.

The ECJ held as follows:

• Proceedings for the recognition and enforcement of an arbitral award were covered by the national and international law applicable in the Member State in which recognition and enforcement were sought, not by the Brussels I Regulation.
• Consequently, the Brussels I Regulation should be interpreted as not precluding a court of a Member State from recognising and enforcing, or from refusing to recognise and enforce, an arbitral award prohibiting a party from bringing certain claims before a court of that Member State. This was because the regulation did not govern the recognition and enforcement in a Member State of an arbitral award issued by an arbitral tribunal in another Member State.

Case C-536/13 Gazprom OAO v Lithuania, 13 May 2015

The Court of Appeal has held that the private acts of a head of state were not protected by state immunity, whether the person had ceased to be head of state whilst alive or had done so because he had died.

The case concerned a claim for damages for breach of an oral contract alleged to have been concluded between a Saudi Arabian prince and the widow of his father, the Saudi king. The prince had agreed to honour his father’s promise to provide for the widow for the rest of her life. The prince argued that the claim was barred by state immunity (under section 20 of the State Immunity Act 1978, which deals with head of state immunity), as such immunity would have applied to his father and therefore to him as his father’s representative in making the agreement. The issue before the court was whether immunity covered the king’s acts in dispute: specifically, whether when the king died and thereby was no longer head of state, immunity still applied to his private acts carried out while he was head of state.

The Court of Appeal held as follows:

• Determining the immunity of heads of state involved two stages: construing Article 39(2) of the Vienna Convention on Diplomatic Relations with requisite modifications as per section 20 of the State Immunity Act 1978, and testing that construction against other sources of customary international law or cases commenting on those sources. Article 39(2) did not distinguish between the position of a diplomat (or another person entitled to privileges and immunities) who ceased to perform his function because his term of office had ended and the position of one who had died en poste. No modifications to that provision were necessary to make it apply to a deceased head of state. Consequently, according to the Vienna Convention, R. v Bow Street Metropolitan Stipendiary Magistrate Ex p. Pinochet Ugarte (No.3)[2000] 1 AC 147 and other relevant international law sources a former head of state had no immunity from suit in respect of private acts, and this rule applied whether the person had ceased to be head of state whilst alive or had done so because he had died.
• The estate of a deceased head of state was not covered by immunity from suit for private acts. The estate of the deceased head of state no longer personified the state, nor was it an affront to the state if that estate was sued in respect of private acts. Though state immunity was based on broad considerations of public policy, international law and comity (Rahimtoola v Nizam of Hyderabad [1958] AC 379) this did not mean that immunity should be extended to private acts once the head of state had left office. “Neither case law nor doctrine, logic or practical considerations lead me to conclude that there is a distinction between the position of a head of state who has left office and who lives thereafter and one who ceased to be head of state upon dying in office”.
• In conclusion, the prince (i.e. the late king’s estate) could not claim state immunity in respect of the widow’s claim.

HRH Prince Abdul Aziz Bin Fahd Bin Abdul Aziz v Harb [2015] EWCA Civ 481, 13 May 2015

The Court of Appeal has held that agreements governed by Greek law had not been negligently drafted by an English law firm, and that any loss suffered by the appellant was not attributable to the drafting.

The appellant had invested in solar energy projects in Greece using an agent to find suitable local partners. The respondent solicitors drafted relevant agreements with the agent and a Greek partner. The projects failed. The solicitors sued the appellant for their unpaid fees, who counterclaimed alleging negligence in the solicitors’ drafting of the agreements by failing to advise that the vehicles used for making the necessary applications to the Greek authorities should be limited liability companies rather than partnerships (which in the event were used). In particular, the appellant alleged that the solicitors had been negligent in failing to advise him to secure the necessary control over the Greek partner by purchasing a small shareholding in the partnerships. The partner had demanded more money from the appellant for not selling the partnerships, which the appellant held that he had paid under duress. The appellant argued that lack of control over the partner (being the fault of the solicitors) resulted in significant losses.

The Court of Appeal dismissed the appeal, holding as follows:

• An appellate court should not interfere with the trial judge’s conclusions on primary facts unless satisfied that he was plainly wrong – McGraddie v McGraddie [2013] UKSC 58.
• The appellant had not sought express advice about the corporate structures to be put in place. The solicitors had not been asked to give general structuring advice; the structure had already been agreed, and their job was to incorporate it into a contract. The solicitors had in fact advised the agent to take 1% holdings in the partnerships. The agent understood the purpose of the 1% holdings, and he and the appellant chose not to take advantage of this protection. Consequently, the inclusion of such a provision made no difference to the train of events that followed. Moreover, the trial judge had been correct in finding no negligence in the drafting of the agreements.
• The appellant and his agent began ignoring the agreements soon after execution. The agreements did not oblige the appellant to make additional payments, and he did so for his own commercial reasons: he saw the potential for large profits and was willing to finance the projects well beyond his contractual obligations. His actions could not be attributed to the drafting of the agreements.

Watson Farley and Williams (a firm) v Ostrovizky [2015] EWCA Civ 457, 12 May 2015

Judges from the Commercial Court, the Technology and Construction Court, the Chancery Division and the Queen’s Bench Division have been investigating possible procedures which could be adopted to achieve shorter and earlier trials.

The review focused on business-related litigation, and involved investigating fast-track procedures. The committee has made the following recommendations for business cases in the Rolls Building courts:

• A piloted Shorter Trial procedure, leading to judgment within a year of issue of proceedings. The maximum length of trial would be four days.
• A piloted Flexible Trial procedure. This would involve limiting disclosure to the documents on which the party relies and any specific disclosure it requires from any other party, giving factual evidence by way of written statements and limiting oral evidence to key witnesses and/or issues, and giving expert evidence by way of written reports and limiting oral evidence to key issues.

The aim of both proposals is the achievement of speedy, fair justice at a reasonable and proportionate cost. Draft procedures for both proposals are in the form of pilot scheme practice directions underCPR 51.

The deadline for comments on the pilot schemes and draft instruments is 29 May 2015.

The Shorter and Earlier Trial Procedures Initiative: Consultation Document

The Commercial Court has handed down its judgment on three preliminary issues in Bank Mellat v HM Treasury, ruling in favour of the bank.

The Supreme Court had previously ruled that the Financial Restrictions (Iran) Order 2009, the effect of which was to shut the bank out from the UK financial sector, was unlawful (Bank Mellat v HM Treasury (No. 2) [2013] UKSC 39).

In the present damages action brought by the bank against the Treasury for damages caused by the 2009 Order, Flaux J held as follows:

• The Treasury could not contend that it did not act in a way which was incompatible with a European Convention right when a majority of the Supreme Court had decided that it did. Lord Sumption had in mind that the bank’s case was that the 2009 Order was incompatible with its right to peaceful enjoyment of its possessions and thus unlawful under section 6(1) of the Human Rights Act 1998. Moreover, Lord Sumption referred to the principles of rationality and proportionality as they had been developed in human rights law.
• The Strasbourg jurisprudence generally recognised a rule equivalent to the English law rule against recovery of reflective loss, unless there were exceptional circumstances. Since Persia International Bank Plc, of which the bank held 60%, could not have brought a claim against the Treasury under the Human Rights Act or at common law, for the purposes of the Strasbourg jurisprudence there were exceptional circumstances here. Mellat Bank could therefore pursue a claim against the Treasury for diminution in the value of its shareholding in Persia Bank.
• The Treasury could not limit the damages recoverable by the bank by arguing that such damages should be restricted to those relating to “possessions”. The issue as to what damages were recoverable depended on issues of causation. These included whether the damages claimed were demonstrably and directly caused by the violation of Article 1 of the First Protocol to the European Convention on Human Rights. This was an issue for the full trial, not to be determined at the preliminary issue stage.

Bank Mellat v HM Treasury [2015] EWHC 1258, 6 May 2015

The Commission has published its 2014 Report on the Application of the EU Charter of Fundamental Rights, which has gained increasing importance before the EU courts.

The Charter has been legally binding since the entry into force of the Lisbon Treaty on 1 December 2009. It is binding on EU institutions when enacting new measures. It also binds Member States when they act within the scope of EU law.

According to a press release, the Commission stated that it was committed to ensuring an efficient protection and promotion of fundamental rights in the EU. The report reviews the application of the Charter by and to EU institutions (in particular the Commission) and Member States. It highlights the importance of the European Convention of Human Rights and provides an update on EU accession to it. For the first time, the report also includes a section on a topical emerging issue. This year, the topic is fundamental rights in the digital environment.

2014 Report on the Application of the EU Charter of Fundamental Rights

2014 Report on the Application of the EU Charter of Fundamental Rights: Factsheet

Judicial review applications against particular applications of the partnership payment notice regime introduced by the Finance Act 2014 are working their way through the courts. However, such applications do not have the effect of suspending the notices under challenge pending the determination of the judicial review. Therefore, without more, the Claimant in the judicial review application either has to pay the tax demanded under the notice or not pay and face the risk of significant penalties if the judicial review application ultimately proves to be unsuccessful. In principle, an interim injunction preventing HMRC from enforcing the notice under challenge would remove that issue.

An application for such an injunction was made in March in the case of Nigel Rowe and others v HMRC and was rejected by Simler J. A transcript of that decision is not available. However, a similar application was made in the case of Dunne and Gray v HMRC, and the decision of Mrs Justice Laing has been reported. Again, the application for an interim injunction was unsuccessful.

The Judge determined that the statutory scheme was exhaustive and unambiguous. The legislation imposes distinct and separate statutory duties on HMRC, and any interim injunction would directly interfere with the performance of those statutory duties. Additionally, there is a statutory right of appeal against the issue of any penalties. Overall, Parliament has provided that if a partnership payment notice is issued the taxpayer must decide, if they wish to seek to challenge the notice by judicial review proceedings, whether or not to pay the sum demanded or take their chances on the judicial review and in any statutory appeal against any penalty should the judicial review fail. Consequently the Judge doubted whether she had the power to grant an injunction but if she did have such a discretion, she would not exercise it to grant the relief sought. She described an argument that the choice facing the Claimant effectively rendered the judicial review application nugatory as “misconceived”.

So all now rests on the outcome of the judicial review applications themselves.

Eamonn Dunne and Vincent Gray v Revenue & Customs Commissioners [2015] EWHC 1204 (Admin) (currently only available from Lawtel, which requires a subscription)

The Austrian legislation disallowed amortisation of goodwill in cases where a holding was acquired in a company established in a Member State other than Austria. The Austrian Administrative Court asked the CJEU:

• whether the amortisation of goodwill constituted prohibited state aid, and
• whether the exclusion of non-resident group members from the amortisation of goodwill constituted a restriction on the freedom of establishment?

AG Kokott noted that although the Austrian measures amounted to a tax benefit within the meaning of TFEU’s state aid provisions, the legislation did not confer a selective advantage to the undertakings in question and it did not constitute state aid.

However the AG then concluded that the measures were discriminatory because resident and non-resident subsidiaries are in objectively comparable situations and the restriction could not be justified because there was no direct link between the amortisation of the commercial value of the shareholding in a subsidiary and the allocation of profits of a subsidiary. In her opinion therefore, the Austrian regime constituted a restriction on the freedom of establishment.

Case C-66/14 Finanzamt Linz v Bundesfinanzgericht, AG’s Opinion, 16 April 2015 (not yet available in English)

Advocate General Kokott has handed down her Opinion in Case C-105/14 Taricco and Others. The Italian courts requested a preliminary reference from the CJEU on whether EU law requires domestic courts to refrain from applying domestic limitation period provisions in order to guarantee the effective punishment of tax offences.

AG Kokott firstly confirmed that the Court had jurisdiction to hear the dispute. Although the case concerned tax offences under Italian criminal law, the Italian authorities were required to exercise their powers according to the relevant provisions and principles of EU law. Criminal proceedings in the field of VAT fell within the scope of EU law and the Court’s jurisdiction.

AG Kokott held that EU law required that Member States provide for “effective, proportionate and dissuasive penalties” for irregularities in VAT matters. In serious cases of VAT fraud this would involve deprivation of liberty. She found that domestic limitation period provisions which had the effect of exempting the perpetrators of VAT fraud from punishment breached EU law and should not be applied by the national courts.

Case C-105/14 Ivo Taricco and Others, AG’s Opinion, 30 April 2015

The Organisation for Economic Co-operation and Development (OECD) has released a discussion draft on work in relation to Action 8 of the Action Plan on Base Erosion and Profit Shifting (BEPS).

Action 8 is entitled “Assure that transfer pricing outcomes are in line with value creation: Intangibles”. It requires the development of “rules to prevent BEPS by moving intangibles among group members” and involves updating the guidance on cost contribution arrangements.

According to the OECD, the discussion draft sets out a proposed revision to Chapter VIII of the Transfer Pricing Guidelines. The draft aims to align the guidance in Chapter VIII with the other elements of Action 8 already addressed in the Guidance on Transfer Pricing Aspects of Intangibles (released in September 2014).

Written comments must be submitted by 29 May 2015. A public consultation meeting is due to be held in Paris at the OECD Conference Centre on 6 or 7 July 2015.

Public Discussion Draft, BEPS Action 8: Revisions to Chapter VIII of the Transfer Pricing Guidelines on Cost Contribution Arrangements (CCAs), 29 April 2015