The Court of Appeal has delivered an important judgment on the meaning of a company’s “central administration” under the EU’s Brussels 1 Regulation(the Regulation).

The judgment has important implications, limiting:

  • claimants’ ability to ‘forum shop’
  • the extension of parent company liability for the activities of overseas subsidiaries

A strong bench comprising Lord Justice Aikens, Dame Janet Smith and Lord Dyson (the Master of the Rolls) handed down judgment on 31 July 2014, dismissing Jessica Young’s appeal against the decision of Justice Andrew Smith on the question of jurisdiction in her claim against Anglo American South Africa Limited (AASA).

RPC’s team, led by Partner Dorothy Flower, acted for AASA on the instructions of its insurers.

Background to the case

The claimant was born in a hospital in Botswana. At the heart of the dispute were allegations that the doctors at the hospital, who were employed by AASA, had failed to diagnose a metabolic disorder, phenylketonuria (PKU).

The claimant brought a claim before the English court against AASA, which is a South African company incorporated in Johannesburg. AASA challenged jurisdiction. The claimant contended that the English court had jurisdiction on the basis that AASA was “domiciled” in England for the purposes of Article 2 of the Regulation.

AASA’s jurisdiction challenge, heard by Smith J last year2  was successful.

Domicile” under the Regulation

Under the Regulation, courts in the EU have jurisdiction as of right over claims brought against defendants “domiciled” in Member States.

The appeal turned on an interpretation of Article 60 of the Regulation, which addresses the issue of domicile at the time of issue of proceedings. Article 60(1) relates to companies and similar entities and provides three grounds on which to establish domicile:

For the purposes of this Regulation, a company or other legal person or association of natural or legal persons is domiciled at the place where it has its:

  1. statutory seat; or
  2. central administration; or
  3. principal place of business.”

As the options in (a), (b) and (c) are alternatives, a company may in principle have three different domiciles under the Regulation, but in many instances, the three options in Article 60 will lead to the same result.

The claimant accepted that both AASA’s “statutory seat” and “principal place of business” were in South Africa, where it is incorporated and where it carries on all of its business. But it was argued that AASA’s “central administration” was in England,  the location of its ultimate parent company AA plc, and the headquarters of the Anglo American Group, from which it was alleged that AASA’s activities were directed, and where entrepreneurial decisions were taken. The claimant needed only to show that she had a “good arguable case” on “central administration”.

Judgment

There were three issues to be decided by the Court of Appeal:

  1. Did the original judgment correctly interpret the words “central administration” in Article 60(1)(b)?
  2. Was there sufficient doubt on the interpretation to warrant a reference to the Court of Justice of the European Union (the CJEU)?
  3. Assuming the first instance decision on the meaning of “central administration” was correct, had it been correctly applied?
  1. Meaning of “central administration”

The court upheld the first instance decision. It concluded that the “central administration” of a company is “the place where the company concerned, through its relevant organs according to its own constitutional provisions, takes the decisions that are essential for that company’s operations.” This means the same thing as “where the company, through its relevant organs, conducts its entrepreneurial  management.”

In other words, the “central administration” of a company is located where its board or equivalent decision-making body takes the majority of commercial decisions, even if those decisions are heavily influenced by directions from a parent company or group policy. A parent company may influence the decisions of a subsidiary, but the location of the parent will only become the location of the subsidiary’s “central administration” if it moves from influencing decisions to usurping the decision-making process. When answering the question, the focus must be on the defendant company concerned.

  1. CJEU reference

The court had “no doubt as to the correct interpretation of the phrase” and declined to make a reference to the CJEU.

  1. Application to the facts

The court agreed with the lower court’s decision that the claimant had failed to establish a “good arguable case” that AASA had its “central administration” in England.

It had been argued that the question was “where were the main entrepreneurial decisions taken which determined the activity of AASA?”. The court held that this approach was wrong. The correct approach was to decide “where AASA itself, through its relevant organs according to its constitutional provisions, made the decisions that were essential for AASA’s own business”. The focus had to be on AASA itself as an entity, rather than the wider Anglo American group.

Even if AASA was “plainly guided and even heavily influenced” by AA plc and its organisation in London, that “does not alter the position”. That position could potentially be affected if AA plc had gone further and usurped control over AASA. AA plc had not done so, and the mere possibility that it could did not change anything.

Comment

The court’s judgment in this case was emphatic, stating, “not only is there no “good arguable case” that AASA had its “central administration” in England in August 2011, there is no case at all.” Such a clear decision from such a strong bench comes as welcome clarification of the interpretation  of the “central administration” provision in Article 60(1)(b) of the Regulation.

Although domicile is an autonomous concept of EU law, this decision accords with other EU and German judgments and, subject to any appeal, future cases in England will now be bound by this decision.

The decision is of importance because it confirms that it is not permissible (or only in the most exceptional circumstances) for claimants to seek to pursue within the EU extra-EU subsidiaries of EU-domiciled groups. It is therefore of considerable importance to companies with multi-national subsidiaries or supply chains, since it confirms that claims arising from alleged wrongdoing by those entities must be pursued in the place where the subsidiary is based or the wrongdoing occurred. As well as clarification of the law, the certainty and limitation of a claimant’s ability to shop for a forum under the Regulation will assist with managing litigation risk between corporate entities.

Case: Young v Anglo American South Africa Limited & Ors [2014] EWCA Civ 1130