Reed Smith Client Alerts

Authors: Andrew Tetley

Introduction In a decision handed down last week (10 December 2015), the ECJ has ruled that the law applicable to any claim for indirect consequences of a tort will generally be governed by the law of the country where the direct damage occurs (article 4(1) of the Rome II Convention). The concept of ‘damage’ and the concept of ‘indirect consequences’ are distinct in the context of article 4(1). They do not overlap.

This ruling is not surprising, but is welcome. The ECJ was mindful of the uncertainty that would prevail if a tort claim arising out of direct physical damage to the victim in one country, and therefore governed by the law of that country, could lead to fragmentation of the applicable law for claims in tort for indirect losses suffered by other persons in other countries.

It follows from this decision that the almost invariable rule where direct physical damage is caused in one country, is that any tort claims, including the indirect consequences of any such tort, will be governed by the law of the country where the physical damage or harm was suffered.

Thus in practical terms, and subject to the limited exceptions described under article 4(2) and 4(3) and to the special rules under Rome II applying to certain prescribed categories of tort, both direct and indirect victims of any physical damage will need to look to the law of the country where the physical damage occurred to determine whether or not they have a claim in tort against the wrongdoer.

Summary of Decision A traffic accident in Italy caused death. The deceased was a Romanian national living in Italy. At the time of her death, remaining alive were (i) her Romanian father living in Romania, (ii) her Romanian mother in Italy and (iii) grandmother in Italy. All three claimed against the Italian insurer of the wrongdoer. The competing applicable laws were thus Italian and Romanian laws.

Under Italian law, in such circumstances, members of a deceased person’s family are entitled in their own right to compensation in respect of material and non-material damage. Under Italian law, the damage resulting from the death of a family member is treated as having been suffered directly by the family member. The corresponding approach under Romanian law is not described in the ECJ judgment.

Unsurprisingly, the ECJ ignored categorisation of the tort under national law and stated that the approach under article 4(1) required its meaning and scope to be given an independent and uniform interpretation throughout the European Union.

The court noted that article 2 of the Rome II Regulation provides that “damage shall cover any consequence arising out of tort/delict”. But for the purposes of article 4(1), and having regard to recitals 16 and 17 of the Convention, the touchstone for determining the applicable law under article 4(1) was the place where the “direct damage” occurred (the ‘lex loci damni’).

As the court goes on to note, the application of the law of the place where the direct damage was suffered contributes to the objective set out in recital 16 in the preamble to the Rome II Regulation - i.e. ensuring the foreseeability of the applicable law. At the same time, this approach avoids the risk of the tort or delict being broken up into several elements, each subject to a different law according to the places or the persons other than the direct victim who sustains damage.

Comment Where there is direct physical damage or harm, establishing the applicable law to any tort claim under article 4(1) should be straightforward.

But given the disparity of outcome that can occur, depending on applicable law, lawyers will no doubt continue to ask national courts to find for another applicable law on the grounds that the tort/delict is manifestly more closely connected with another country (article 4(3)).

However, where direct physical harm or damage is concerned, national courts should be slow to find that the ordinarily applicable law should be displaced.
For shipping/trading clients, the impact of this decision is clear for those not uncommon situations that can and do occur – damage to cargo, collisions with port facilities, personal injury claims, etc.. The applicable law to any tort claims that may arise will be the law of the country where the physical damage is suffered.

Damage to cargo claims, of course, have specific challenges. It is not always easy to establish where the physical damage in fact occurred. It may be that the damage occurs in multiple jurisdictions. In these cases, it may be hard to say where direct damage occurs and what constitutes indirect consequences.

While the ECJ in its decision clearly seeks to avoid the inconvenience of multiple applicable laws, that is an outcome that is nevertheless possible. In the explanatory memorandum to the Convention, it is recorded that where a claimant suffers direct financial loss in more than one country, ‘‘the laws of all countries concerned will have to be applied on a distributive basis, applying what is known as Mosaikbetrachtung in German law’’. Thus if direct harm is caused in different countries (as opposed to indirect consequences), it is possible that multiple laws may apply to tort claims arising out of the same event.

While the vexed question of the applicable law for direct financial (as opposed to physical) damage must be for another day, this decision from the ECJ is nevertheless welcome. It makes clear that, irrespective of any national characterisation of the potential tort claim in question, where the place of physical harm or damage is known, the applicable law for any general tort claim should be readily foreseeable.


Client Alert 2015-345