Where is the harm?

There is a general European Union principle that a Defendant should be sued within the member state that they are domiciled.

Where a party issues a claim for negligence, or any other tort action, they can, however, commence proceedings in the country where the harmful event occurred or where it may occur.

“Where is the harm in that?” I hear you ask. Well that is the exact question the Court of Justice of the European Union had to answer in the case of Universal Music International Holding BV(“UM”) v Schilling & Others (the “Defendants”).

Background of the Claim

The law firm Burns Schwartz International (BSI) acted for UM in relation to a share purchase and option agreement between UM and a record company called B&M.

BSI failed to fully incorporate an amendment into the contract that had been suggested by UM’s legal team. UM calculated that, had its suggested amendment been incorporated, they would only have had to pay €313,770 for the remaining 30% of B&M’s shares.

B&M, using the method of calculation set out within the contract, claimed that the value of the shares was approximately €30,932,520.

The matter was brought before an arbitration board within the Czech Republic. UM and B&M entered into a settlement agreement, whereby UM would pay €2,654,280.03 for the remaining 30% of the shares.

UM issued proceedings against the Defendants (partners in BSI) for alleged negligence.

Issuing Proceedings

The contract between UM and B&M had been negotiated and entered into in the Czech Republic. The settlement that was agreed between UM and B&M was approved by the arbitration board within the Czech Republic.

UM, however, decided to issue proceedings in the Netherlands. The money that was used to purchase the remaining 30% of the shares was transferred from a bank account held in the Netherlands.  UM therefore claimed that the harm resulting from the alleged negligence took place in the Netherlands and they were therefore entitled to commence proceedings there.

The Court’s Finding

The Court found that the damage occurred within the Czech Republic and, as such, proceedings should have been issued within that Member State.

The place where the harmful event occurred “may not be construed as being, failing any other connecting factors, the place in a Member State where the damage occurred, when that damage consists exclusively of financial damage which materialises directly in the bank account of the applicant and is the direct result of an unlawful act committed in another member state.”

What does this mean?

This is a welcome judgment that prevents claimants from issuing proceedings in a jurisdiction that has a very weak link to the facts of a case. It also brings a degree of certainty in determining where a party is entitled to commence proceedings.

If you would like to discuss the content of this article in further depth then please contact a member of the commercial litigation team.