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Determining governing law not a separable issue
PRACTICE AREA GROUP: Commercial Litigation and Dispute Resolution
The High Court(1) recently deemed that the question of determining which governing law applies to a dispute should not be dealt with as a separate and distinct matter in isolation from a ruling on the relevant facts. Although to an extent this is fact specific, parties should be mindful that where a dispute arises and there is a question over the applicable law, the Irish courts may require all aspects of the dispute to be determined at the same time. Accordingly, it is not necessarily the case that the governing law is to be determined separately from questions regarding liability.
The underlying proceedings involved a claim by the plaintiffs for declaratory relief and damages arising out of an alleged breach of contract and negligence on the part of the defendant in connection with the supply of magnets to the plaintiffs for use in wind turbines. The defendant denied liability and counterclaimed in respect of unpaid invoices and loss of profit. A fundamental issue arose as to whether Dutch or Irish law governed the contract and which should be applied by the court in determining the substantive dispute.
The defendant contended that the contract was to be governed by the law chosen by the parties pursuant to Article 3.1 of the EU Rome I Regulation and, accordingly, Dutch law applied because the defendant's general conditions of sale (which mandated Dutch law) were incorporated into the contract because of their attachment to a series of quotations delivered by email and their inclusion in the order confirmation forms. In contrast, the plaintiffs felt that Article 4(3) of the Rome I Regulation applied such that the law of the country most closely connected to the contract shall apply. The plaintiffs contended, among other things, that Dutch law was never accepted as the law of the contract and that the court should properly consider the negotiations that took place between the parties to the effect that Irish law was applicable. The defendant applied for orders directing either the trial of a preliminary issue or a modular hearing with regard to the applicability of Dutch law, arguing that time and costs would be saved if the applicable law was identified before the full hearing, since the parties would otherwise have to prepare their case on two different bases (ie, Dutch law and Irish law).
Judge Hedigan began by reciting the relevant Rules of the Superior Courts, from which his jurisdiction to make the orders sought arose. He cited at length from a recent Supreme Court decision(2) dealing with the trial of a preliminary issue in which Judge McKechnie summarised the circumstances in which the jurisdiction might successfully be invoked:
"(a) There cannot exist any dispute about the material facts as asserted by the relevant party: such can be agreed by the moving party or accepted by him or her, solely for the purposes of the application.
(b) There must exist a question of law which is discrete and which can be distilled from the factual matrix as presented.
(c) There must result from such a process a saving of time and cost, when the same as contrasted with any other suggested method by which the issues may be disposed of: in default with a unitary trial of the entire action. In the absence of admissions, appropriate evidence will usually be necessary in this regard: impressions of what might or might not be, will not be sufficient.
(d) The greater the impact which a decision on the preliminary issue(s) is likely to have on the entire case, the stronger will be the argument for making the requested order.
(e) Conversely, if, irrespective of the court's decision on that issue(s), there should remain for determination a number of other substantial issues or issue(s) of a substantial nature, the less convincing will be the argument for making such an order.
(f) Exceptionally, however, even if the follow-on impact will not dispose of any other issue, the process may still be appropriate where the subject issue is substantial in its own right and where its determination would clearly benefit the action in an overall sense.
(g) As an alternative to such a process in such circumstances, some other method or mode of proceeding, such as a modular trial, may be more appropriate.
(h) It must be 'convenient' to make such an order: at one level this consideration, of itself, can be said to incorporate all other factors herein mentioned but, for the purposes of clarity, I think it is more helpful to retain the traditional separation of such matters.
(i) The making of such an order must be consistent with the overall justice of the case, including of course fair procedures for all parties.
(j) The court at all times retains discretion whether or not to make such an order: when so deciding it should exercise caution so as to make sure that if an order is made, it will meet the purposes intended by it; finally
(k) subject to giving due and proper weight to the decision of the trial judge, the appellate court can substitute its own views for those of the High Court where it thinks it is both necessary and appropriate to do so."
Taking these observations into account, Hedigan felt that, since the default option is a unitary trial (where all aspects of the dispute are to be determined together), the court must be satisfied that:
- there is no dispute on the material facts;
- there is a discrete question of law;
- time will be saved;
- the impact on the main case will be beneficial; and
- directing such preliminary issues would be consistent with overall justice.
Noting the plaintiffs' reference to the relevance of evidence regarding the pre-contract negotiations involving meetings and telephone calls between a number of people, Hedigan felt that there appeared "to remain a factual element in the dispute as to what law if any was chosen". He concluded that he could not be satisfied that "there is no dispute on material facts". In addition, given that the plaintiffs will argue their case on the issue at the preliminary stage, relying on evidence that will trawl through all the negotiations which will likely be heard again at a full trial, Hedigan had "some difficulty in accepting that there will be a saving of time and cost". With respect to the argument that the case would have to be prepared on one basis only if the application were granted, he felt that this was somewhat "overblown", as all that would be required would be the evidence of Dutch lawyers on limited legal issues. Accordingly, he was not satisfied to depart from the normal practice of a unitary trial and he refused the application. He also cited as a factor in his decision the delay that any prospective appeal regarding whether the applicable law should be determined separately might have on the ultimate determination of the underlying dispute. He felt that such a possibility could run counter to the guiding principle that a commercial court case should be allowed to proceed to an expeditious resolution.
The decision is a useful reminder as to the high test applicable to the separation of the trial of individual matters from ultimate questions of liability and a useful restatement as to the primacy of unitary trials in Irish procedure. Although somewhat fact specific, the decision has clarified that even when dealing with a legal question that may objectively appear to be standalone – such as the question of the applicable governing law – an application to separate that determination may not succeed. In general terms, where a client is faced with a dispute regarding the governing law, a separate determination may be appropriate. However, before bringing the relevant application, consideration should be given to the opposing party's stance, in order to avoid the unhappy outcome that the defendant experienced here.
(1) C&F Green Energy Ltd & C&F Tooling Ltd v Bakker Magnetic BV  IEHC 773.
(2) Campion v South Tipperary County Council  IESC 79.
This article first appeared in the International Law Office Litigation newsletter, 19 January 2016.