Case law Developments in PIL

French Supreme Court Rules on Jurisdiction in Financial Fraud Case

Mathilde Codazzi, who is a master student at the university Paris II Panthéon-Assas, contributed to this post.


In a judgment of 15 June 2022, the French supreme court for private and criminal matters (Cour de cassation) addressed the issue of jurisdiction for loss suffered as a consequence of fraudulent misappropriation of funds transferred on a bank account.

Facts

A French real estate company, Immobilière 3F, ordered several bank transfers from its bank account in Paris maintained by a French bank, Société Générale, to an account seemingly belonging to a French company with which Immobilière 3F already had business relationships. This account was opened in Portugal and maintained by a Portugese bank, Banco Commercial Portugues. The bank details were given to Immobilière 3F by a person who fraudulently appeared as the chief accountant of Immobilière 3F’s French business partner. Immobilière 3F sued both Société Générale and Banco Commercial Portugues before French courts for breach of their professional obligations and compensation of the damage suffered as a result of the wrongful appropriation of the funds. Banco Commercial Portugues challenged the jurisdiction of French courts.

Court of Appeal

In a judgment of 4 November 2020, the Paris Court of Appeal ruled that French courts did not have jurisdiction on the ground that the damage did not materialize in the place from which the bank transfers were performed or where the loss was suffered, that is, France, where Immobilière 3F is established, but in the place where the unlawful appropriation of the funds occurred, that is, Portugal, where the account wrongfully debited was opened and maintained, i.e. where the wrongful appropriation of the funds occurred.

Immobilière 3F challenged this judgment on two grounds both based on the relevant case-law of the CJEU concerning pure financial damage.

First, it argued that the damage did not materialize itself where the unlawful appropriation of the funds occurred/where the funds were debited from the bank account of Immobilière 3F’s business partner, but where Immobilière 3F was dispossessed of the funds, that is in France, where its account was debited.

Second, it argued that the Court of Appeal, departing from CJEU case-law (Löber, C-304/17), failed to examine whether other specific circumstances of the case could lead to find that the damage actually materialized in France and not in Portugal, in which case French courts would have jurisdiction. According to Immobilière 3F, the following circumstances would be relevant: the plaintiff is established in France, the damage caused by the acts of Banco Commercial Portugues materialized in France, the transfer orders were given in France to a French bank (Société Générale) based on elements shared by an entity established in France.

Judgment

In a judgment of 15 June 2022, the Cour de cassation overturned entirely the judgment of the Paris Court of Appeal. It cited the relevant case-law of the CJEU regarding Article 7(2) of the Brussels I bis regulation: the courts of the Member State where the plaintiff is domiciled have jurisdiction notably when the damage materializes directly on the plaintiff’s bank account held with a bank established within the jurisdiction of those courts (Kolassa, C-375/13). It went on and reminded that this however cannot be the only relevant connecting factor: the courts of the Member State where the plaintiff is domiciled will only have jurisdiction if other specific circumstances of the case contribute to granting jurisdiction to these courts (Universal Music, C-12/15).

As a result, the judgment of the Paris Court of Appeal ‘lacked legal basis’, i.e. did not give enough reasons in support of its decision: in order to decline jurisdiction of French courts on the ground that the damage materialized in Portugal, it should have first examined if other specific circumstances of the case contributed to granting jurisdiction to French courts. Those circumstances could be, according to the Cour de cassation, that the damage occurred directly on a bank account opened in France, and that the transfer was destined to a French business partner.

Assessment

The cases on which the Cour de cassation relied in this judgment were all concerned with the loss in value of dematerialised assets, mostly financial instruments. This case is quite different: it is about fraudulent misappropriation of funds from a bank account.

Is the case law of the CJEU on loss of value of financial instruments decisive for the sole reason that a bank account was involved? That is not certain. In a case of misappropriation of funds, the damage is more tangible than that of loss of value of financial instruments. In the present case, the assets did not lose their value, they were taken away.

1 comment on “French Supreme Court Rules on Jurisdiction in Financial Fraud Case

  1. This is a very interesting case and analysis concerning yet another variation of the problem of where to internationally locate pure financial loss. Many thanks for sharing it here!
    Universal Music can perhaps be understood as the general rule (defendants have to be sued at their domicile in line with the principle of actor sequitur forum rei) and Kolassa as the exception to it (innocent claimants can exceptionally sue at their domicile if the loss ‘befalls’ them there), as I argued earlier in https://doi.org/10.1177/1023263X17722484.
    Applying this understanding to the present case, the French claimant made the transfer to the Portuguese defendant, having been misled by a third party. Having been misled by a third party, however, should not warrant deviation from the general rule in respect of international jurisdiction for a dispute between the transferor and the bank to the detriment of the bank.
    If an exception were to be granted and transferors in similar situations were permitted to sue the bank at their own domicile, it would mean that the bank could be sued in many jurisdictions, solely depending on where transferors are domiciled and/or(?) were misled by a third party. The defendant should not be burdened with having to respond to claims in various jurisdictions since the defendant does not have influence over the third party or the claimants.
    Hence, following the general rule of Universal Music, the Portuguese defendant should be sued in Portugal, not in France. In any case, it seems the issue should have been referred to the CJEU for a preliminary ruling.

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