Brownlie II and pure economic loss – what next for jurisdiction in commercial cases?

The case of Brownlie II highlighted a number of jurisdiction questions. Joshua Cainer acted as a Junior on the case and takes a look at the implications of the decision on commercial law.

Joshua Cainer considers some of the outstanding questions about jurisdiction in commercial cases relying on claims in tort following the Supreme Court’s decision in FS Cairo (Nile Plaza) LLC v Lady Brownlie [2021] UKSC 45, [2021] 3 WLR 1011 (‘Brownlie II’). Whilst that case concerned a claim for personal injury, it is likely to have effects on cases involving questions of private international law in a far broader range of practice areas, particularly commercial law.

This is a case brought by Lady Christine Brownlie, both in her own right and as dependant and executrix of Professor Sir Ian Brownlie CBE QC, the renowned international lawyer. Sir Ian and Lady Brownlie, along with their family, went to Egypt on holiday in January 2010. They were on an excursion booked through the Four Seasons Hotel Cairo when the car they were travelling in left the road crashed – Sir Ian and his daughter Rebecca were tragically killed; Lady Brownlie and Rebecca’s two children were seriously injured. The consequent proceedings brought by Lady Brownlie have had a long and unfortunate procedural history, having twice made their way up to the Supreme Court on questions of private international law.

If a person wishes to bring a claim against a defendant who is located outside England and Wales in a country not subject to the system under the Brussels Recast Regulation, that person must make an application to the court for permission to serve proceedings out of the jurisdiction under CPR r 6.36-6.37. Post-Brexit, the UK is no longer part of the Brussels Recast Regulation system and so the same rules apply to claimants in England and Wales attempting to serve proceedings out of the jurisdiction in any foreign country, whether or not that country is an EU member state.

It is well-established that the test for permission to serve proceedings out of the jurisdiction has three stages. The claimant must establish:

1. A good arguable case that the claims fall within one of the gateways in PD 6B, para 3.1;
2. A serious issue to be tried on the merits; and
3. That England is the appropriate forum for trial and the court ought to exercise its discretion to permit service out of the jurisdiction (also known as the question of the ‘forum conveniens’).

In Brownlie II the Supreme Court considered issues under the first two stages of that test. However, this article only examines the Supreme Court’s decision regarding the scope of the jurisdictional gateway for tort claims under the first stage.

Permission for tort claims to be served out of jurisdiction

In order for a court to grant permission for tort claims to be served out of the jurisdiction, a claimant must satisfy the test under PD 6B, para 3.1(9) either that: (a) “damage was sustained, or will be sustained, within the jurisdiction”; or that (b) “damage which has been or will be sustained results from an act committed, or likely to be committed, within the jurisdiction”. Lady Brownlie relied on limb (a) of that test and the question for the Supreme Court was whether “damage was sustained … within the jurisdiction” in circumstances where the car accident took place in Egypt but she returned home to England and Wales and continued to suffer loss and damage there. The Supreme Court concluded that the answer to this question was yes and so Lady Brownlie’s claims satisfied the tort gateway. This was because Lord Lloyd-Jones (giving the majority judgment) held (at [81]) that “damage” in this context “simply refers to actionable harm, direct or indirect, caused by the wrongful act alleged” and that “There is no need to limit its scope to direct as opposed to indirect damage, a distinction which in any event I consider obscure and likely to give rise to difficulty in its application”.

Economic torts

This deceptively simple conclusion raises a number of questions in the context of commercial cases. Brownlie was a case about physical damage. What about commercial cases where the tort only involves pure economic loss, such as the economic torts? Lord Leggatt (dissenting) identified the following concern (at [189]): “if no distinction is drawn between damage directly and indirectly caused by the defendant’s wrongful act, the logical consequence is that ground 9(a) will be satisfied in all cases where a claimant situated in England suffers any significant financial detriment for which damages are claimed in tort”. If that were the case, he considered that “to hold that any loss felt by a claimant in the place where he or she resides (or, in the case of a corporation, has its business seat) is damage falling within the scope of ground 9(a) would be tantamount to holding that claimants in tort have the option of suing in the courts of their own country”. For those policy reasons, he approved of the approach taken in a number of economic tort cases which had previously held that only damage directly caused by the defendant’s tortious conduct fell within the tort gateway – indirect damage was not sufficient.

The legal reasoning in those economic tort cases was significantly based on the inference that gateway (9)(a) should be interpreted in line with article 7(2) of the Brussels Recast Regulation, which also distinguished between direct and indirect damage. However, the Supreme Court was unanimous in rejecting this legal inference (at [52]-[56], [74], [189]-[180] and [189]). Although Lord Leggatt still approved of that distinction for policy reasons, as already noted, the majority rejected any distinction between direct and indirect damage and their conclusion does not appear limited to cases of physical damage.

Lord Lloyd-Jones did not simply dismiss Lord Leggatt’s concern about jurisdiction in pure economic loss cases – he said (at [76]) that “I would certainly not disagree with the proposition, supported by the economic loss cases, that to hold that the mere fact of any economic loss, however remote, felt by a claimant where he or she lives or, if a corporation, where it has its business seat would be an unsatisfactory basis for the exercise of jurisdiction”. However, his answer to this concern (at [75]) was to highlight an “important difference” between torts involving physical damage and torts which are wholly economic in nature, noting (at [75]) that “The nature of pure economic loss creates a need for constraints on the legal consequences of remote effects and can give rise to complex and difficult issues as to where the damage was suffered, calling for a careful analysis of transactions”. He went on to hold that “As a result, the more remote economic repercussions of the causative event will not found jurisdiction”.

Implications for commercial cases

There is likely to be significant litigation in commercial cases to test the boundaries of the Supreme Court’s reasoning and how it applies in commercial cases. In that light, the following questions are worth considering:

1. Is there any remaining scope at all for drawing some degree of distinction between direct and indirect damage in cases involving torts concerned with pure economic loss?
2. If not, and if therefore any actionable harm is sufficient when caused by any tort, how are the courts expected to prevent claimants founding jurisdiction in England and Wales for commercial cases based simply on their residency/centre of business interests (a question in respect of which Lord Lloyd-Jones provides no clear doctrinal answer)?
3. Does Lord Lloyd-Jones’ judgment point towards courts potentially developing a remoteness test for determining whether actionable loss was sustained in England and Wales (as hinted at by his choice of words at [75])? If so, how would courts operate such a test in practice and would it apply only in pure economic loss cases?
4. Alternatively, in reality does this mean that the battleground for litigants in service out applications will shift even further towards arguments about forum conveniens (as hinted at by Lord Lloyd-Jones at [76])?

These questions are likely to occupy the courts for quite some time and to spawn significant debate in the field of commercial litigation. How private international law will develop in this area, only time will tell.

Find out more

Joshua, led by Sarah Crowther QC and Daniel Clarke, acted for the claimant in the defendant’s appeal to the Supreme Court in FS Cairo (Nile Plaza) LLC v Brownlie (2021).

He is developing a varied commercial and chancery practice and has a particular interest in cases which engage questions of private international law. He also has a keen interest in disputes involving cryptoassets and has written articles in this field. He is also a member of the Attorney General’s Junior Junior Scheme.

To find out more about Joshua, contact Sam Carter on +44 (0)20 7989 6669 or Colin Bunyan on +44 (0)20 7427 4886 for a confidential discussion.

Legal Blogs 8 Apr, 2022