Case law Developments in PIL

(Ab)Use of Article 8(1) of the Brussels I bis Regulation in Wirecard

The infamous Wirecard scandal, which involved a German public limited company (AG) reporting non-existing assets and earnings to the tune of several billions of euros, has triggered a wave of litigation not only in Germany, but in several countries.

Facts

One such action was brought in an Austrian court by an Austrian investor against the German auditor of Wirecard AG. Simultaneously, he sued a member of Wirecard’s supervisory board domiciled in Austria (the Aufsichtsrat in the two-tier system of German corporate law). This happened to be the only member of the supervisory board living in the court’s district; the action did not include any other of the board members, who lived elsewhere.

Issue

Absent any other connection to Austria, it was disputed whether the Austrian court had jurisdiction over the German auditor of Wirecard on the basis of Article 8(1) of the Brussels I bis Regulation, which allows to combine several actions in one court. This presupposes that “the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments”.

Holding

The Austrian Supreme Court (OGH) held that the conditions of Article 8(1) of the Brussels I bis Regulation were met, and that consequently the Austrian court had jurisdiction over both the member of Wirecard’s supervisory board and the German auditor.

Rationale

The OGH underlines that the damage suffered by the claimant was allegedly caused through violations of duties by both defendants. It also stresses that the same remedy is sought against both of them.

In the eyes of the OGH, the fact that both actions are based on very different legal foundations would not matter. In this respect, the OGH refers to the CJEU‘s decision in Freeport, where the Court ruled that Article 8(1) of the Brussels I bis Regulation allows bringing two claims with different legal bases in the same forum (id., para 47).

The auditor alleged that the claimant had artificially created a situation to fulfil the conditions for the applicability of Article 8(1) and that the court should therefore reject the provision’s application in line with CJEU, Cartel Damage Claims (CDC) Hydrogen Peroxide, paras 32–33. However, the OGH held that the defendant did not provide any evidence for such fraus legis, and therefore considered Article 8(1) to apply.

Assessment

The decision stretches Article 8(1) of the Brussels I bis Regulation way beyond its limits.

The two actions barely had any connection with each other. The auditor and the supervisory board are not only entirely independent of each other and have very different relationships with the Wirecard AG and the claimant, they also have entirely different duties: While the auditor is required to provide a report about the financial situation of the client, the board has a duty to supervise the board of directors. The auditor’s report helps it in the exercise of this function and provides factual data for it. While it is true that both the auditor and the supervisory board must check the financial condition of the company, the supervisory board can generally rely on the auditor’s work and only has to check its overall soundness and consistency; on the other hand, it must also take into account other information than the report provided by the auditor. The court could thus come to the conclusion that the auditor is liable, but the supervisory board not, or vice versa. There is thus no danger of irreconcilable judgments, as required by Article 8(1).

Even more worrying is that the OGH closes its eyes to the claimant’s manipulation to fulfil the conditions of the provision. That the OGH requires concrete evidence from the claimant seems overly demanding; the facts already known speak for themselves. The action was directed against the only board member that was domiciled in Austria, and not against any other. Bringing this action was thus quite obviously nothing more than a thinly veiled scheme to drag the German auditor into an Austrian court. Nevertheless, the OGH chooses to ignore this reality and even refuses to submit a preliminary question to the CJEU as the Austrian court’s jurisdiction seems so clear.

The decision is an extreme example but may be illustrative of similar developments in other Member States. It is to be feared that Article 8(1) of the Brussels I bis Regulation may be abused for more schemes to create artificial bases of jurisdiction where none exists. The CJEU must close this door to such manipulations by making the conditions of the provision and the requirements for their disproof more explicit.

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