Case law Developments in PIL Views and comments

Where Did Economic Loss Occur in the VW Emissions Case?

On 2 April 2020, the conclusions of Advocate General Sánchez-Bordona in Verein für Konsumenteninformation v Volkswagen (Case C-343/19) were published. They add a new piece to the puzzle of locating purely economic loss – a much-discussed issue which was recently considered in this blog.

Facts

The case concerned a request by the Landesgericht Klagenfurt (Regional Court in Austria) for a preliminary ruling.  Austrian residents had purchased VW cars in their home country. Thereafter, it became known that the manufacturer had fitted the vehicles with illicit software which enabled them to flout emissions tests. Cars fitted with the software consequently dropped in market value. The buyers assigned their rights arising out of their losses to the Verein für Konsumenteninformation (VKI), an Austrian consumer protection association. VKI subsequently sued VW in Austria for damages. VW contested the jurisdiction of the Landesgericht Klagenfurt.

Legal issue

The request by the Landesgericht Klagenfurt for a preliminary ruling concerns the question of whether the Austrian courts have jurisdiction over VKI’s claim under Article 7(2) of the Brussels I bis Regulation. In cases of tort or delict, Article 7(2) confers special (meaning optional) jurisdiction on  the courts of the place where the harmful event occurred. The CJEU interprets the place where the harmful event occurred as giving the tort victim a choice to sue either: (i) at the place of the event giving rise to the damage; or (ii) at the place where the damage occured. In the present case, the Austrian courts could only have jurisdiction under the second option.   Therefore, the crucial question was: where, on the present facts, did the damage ‘occur’ within the meaning of under Article 7(2) of the Brussels I bis Regulation.

Opinion of the Advocate General

Advocate General Sánchez-Bordona took the view that the damage occurred in Austria and that, consequently, the courts there had jurisdiction over the case under Article 7(2) of the Brussels I bis Regulation.

Legal standard

The Advocate General pointed to three well known precedents for determining the location of purely financial loss: Kolassa, Universal Music and Löber. In his view, these three CJEU judgments establish that the actual place where the damage occurred is only the starting point for determining the competent court. Thereafter, other specific circumstances of the dispute, taken as a whole would have to be considered (paragraph 56).

The Advocate General considered that such ‘other specific circumstances’ could include “1. factors relevant to the proper administration of justice and the effective conduct of proceedings; and 2. factors which may have served to form the parties’ views about where to bring proceedings or where they might be sued as a result of their actions.” (paragraph 67).

Further, the Advocate General pointed to the dual principles of proximity and foreseeability of the competent court, between which a reasonable balance must be struck (paragraphs 63-64).

Application to the present case

Applying these standards to the present case, the Advocate General opined that, in general, the location of the cars as tangible objects was irrelevant because it is unforeseeable (paragraphs 71-73). He instead considered the correct starting point for locating the loss to be the act through which the product became part of the victims’ patrimony, thereby causing the damage (paragraph 74). Hence, he identified the place of loss to be the place where the transaction for the purchase of the car was concluded (id.).

The Advocate General further viewed this location to be unaffected by the other specific circumstances of the case. In particular, the jurisdiction of the Austrian courts would have been foreseeable for the Defendant (paragraph 80).

Assessment

The result reached by the Advocate General is certainly agreeable. The purchasers of rigged cars should not be forced to start legal proceedings at the seat of the manufacturer. Rather, they should have the ability to sue the tortfeasor closer to their homes. The same place should also be used to identify the applicable law to their claims under Article 4 of the Rome II Regulation.

It may, however, be a little too simplistic to identify the place of loss as the place of the relevant sales transactions. This place is notoriously uncertain, fortuitous, and vulnerable to manipulation. The purchasers could, for instance, have met the vendor at a car fair, or they could have bought the cars in another country for tax reasons. Should this really determine the location of their loss? Moreover, ‘locating’ a sales transaction can be very tricky; for instance, in the case of purchases on the internet. For these reasons, the law of the place where the contract was concluded (lex loci solucionis) was largely ousted from the conflicts rules for contractual obligations. It would be paradoxical if it made a comeback through non-contractual obligations.

The other circumstances of the case should be taken more seriously. These other factors could, for instance, include the purchasers’ domicile and the place where they mostly use the cars. It is indeed a combination of factors that must be used in cases like the present one to determine the place where the damage occurred.

4 comments on “Where Did Economic Loss Occur in the VW Emissions Case?

  1. I have to say that the proposition that the damage suffered in this case is completely intangible, and that it compares to a loss of investment in dematerialized securities, simply blows my mind. Is there really nothing tangible about a car which pollutes ten times more? I suggest anybody who thinks otherwise starts the car and seats behind it for 10 minutes.
    Then, there is the idea that the defendant should be able to predict where he might be sued under Art 7(2). Is this to say that only foreseeable loss should be taken into consideration? What is the basis for this proposition? WV sells cars everywhere, in a SINGLE market, and customers might buy a car here, and then go and live there. I did it myself when I drove from France to Luxembourg in a WV ten years ago. For a tort action, it should simply be irrelevant where the car was bought.
    And finally, I cannot help thinking about the Due Process jurisprudence of the US Supreme Court: see McIntyre Machinery v. Nicastro, 2011.

  2. Matthias Lehmann

    The claim brought here concerned exclusively the financial loss suffered by the car owners. Had they brought a suit for physical damage suffered, it would certainly have played out differently.
    The foreseeability for the defendant is one of the several “other circumstances” to which the GA alluded. He did not say that a claim for unforeseeable loss would fall outside of Art 7(2), but it would be interesting to see how he would determine the place of damage in such a case.
    I could not agree more with you that the place where the car is bought should not determine the place of a tort.
    Thanks for the hint to McIntyre Machinery v. Nicastro. My last information on US law in this respect was based on Asahi Metal Industry Co. v. Superior Court. A little outdated.

  3. Felix Krysa

    It would be interesting to know to what extent the Advocate General, when drafting his conclusions, had the connecting factor according to Art. 5 Rome II regulation in his mind. In particular Art. 5(1)(b),(c) Rome II regulation seems to have come very close to the considerations on which the Advocate General bases his opinion.
    Although I am not sure whether the applicable law in the case of pure financial losses would even be determined according to Art. 5 Rome II.

  4. Matthias Lehmann

    An interesting idea. The combination of domicile of the victim and marketing (Art 5(1) 1 lit. a Rome II makes a lot of sense because it respects both the interests of the victim and those of the tortfeasor in the foreseeability of the applicable law. The same goes for the subsidiary rule of place of acquisition and marketing (Art 5(1) 1 lit. b Rome II) – equally very useful. Only the third pair, place of damage and marketing (Art 5(1) 1 lit. c Rome II), is not of any help since it begs the question where the damage occurs. But that does not matter much as usually one of the two other connecting factors or the common domicile (Art 4(2) Rome II) would kick in.

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