Case law Developments in PIL

Paris Court of Appeal Rules on Law governing Misappropriation of Funds

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


Présentation générale CCIP-CA / The ICCP-CA | Cour d'appel de Paris

In a judgment of 8 November 2022, the international commercial chamber at the Paris Court of Appeal (ICCP-CA) addressed the issue of the applicable law to a claim for loss due to fraudulent misappropriation of funds transferred on a bank account.

Facts

The plaintiff, a French farmer, invested over € 200,000 between 2013 and 2014 with an online trading platform on Forex. For that purpose, he transferred the monies on an account owned by the first defendant, an English company (Worldpay AP Ltd) and registered at the French subsidiary (or possibly branch, the judgment is not quite clear on this point) of the second defendant, a Scottish bank (Natwest Markets Plc, formerly Royal Bank of Scotland).

The plaintiff eventually brought proceedings before a Parisian court (tribunal judiciaire) in July 2020 against these two companies and the platform’s operator, a Dutch company. The judgment is not very detailed on his claims, but it seems that the plaintiff alleged that he had made gains that he could not eventually receive. It seems, therefore, that the claim is that his investment and gains were misappropriated fraudulently.

First Instance

On 3 December 2021, the pre-trial judge (juge de la mise en état) declared the claim inadmissible on the ground that it was time-barred. It does not seem that the issue of the applicable law was raised at this stage.

The plaintiff appealed on the ground that he disputed the starting point of the the five-year prescription period (Article 2224 of the French civil code). His lawyer had sent to the defendants a letter of formal notice dating from March 2015. The issue was whether the starting point was that letter, or whether it had not started to run when the letter of formal notice was sent because the plaintiff was not aware that he was a victim of the fraudulent scheme.

For a reason which is not detailed in the judgement, the judge only held that the claim against the two financial institutions (Natwest and Worldplay) was time barred. The plaintiff only appealed against them. It is unclear why, but it might be that, because the issue was one of misappropriation, the claim against the platform was always quite weak, and thus was not pursued.

Court of Appeal

In a judgment of 8 November 2022, the ICCP-CA upheld the decision of the pre-trial judge.

The Court of Appeal raised the issue of the applicable law ex officio and invited the parties to comment on it. It eventually confirmed that French law applied, however.

The ICCP-CA characterized the issue as tortious (quasi-delictual). It thus ruled that the Rome II Regulation applied, and the law governing the tort also governed  the prescription issue.

It applied Article 4.1 of the Rome II Regulation and relied on the case-law of the CJEU concerning financial damage under the Brussels I Regulation, after insisting on the consistency principle mentioned in Recital 7 of the Rome II Regulation.

The court thus ruled that the applicable law should be the law of the country where the victim is domiciled when the alleged financial damage materializes directly on the plaintiff’s bank account held with a bank established in this country and that, subsidiarily, the same law is applicable when the harmful even is manifestly more closely connected to this law (Kronhofer, C-168-02, Kolassa, C-375/13 and Löber, C-304/17).

The court found that the evidence provided by the plaintiff proved the transfer of funds from his bank account held with a French bank to the Worldpay’s account, held by Natwest’s French subsidiary (or branch). It further found that the monies had been made available to the online platform from that last bank account. It then concluded that the monies had “disappeared” after being transferred on this Natwest’s French bank account, and that this set the place of the damage suffered by the investor. As a result, the court ruled that the damage occurred in France and that French law was therefore applicable to the claim.

On the merits, the ICCP-CA confirmed that the claim was time barred.

Assessment

An interesting question is whether the outcome would have been the same depending on whether the claim was one of misappropriation of funds or negligence of the platform. In particular, would the loss have been suffered in both cases “directly” on the bank account where the monies had initially been transferred by the investor?

It is also interesting to note that the court relied on the consistency principle between Rome II and Brussels Ibis in a case where the provisions are quite different, in particular in that Article 4 of the Rome II Regulation is more complex than Article 7(2) of the Brussels I bis Regulation. But a reasonable argument could be that the case law of the CJEU on Article 7(2) in the field of financial loss has made the two rules very similar.

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