If a German company is involved by a French customer in an independent pre-litigation procedure of taking evidence that was initiated by the latter’s end customer, it is often preferable to prevent a lawsuit in France by a so-called “torpedo suit” in Germany. In a present ruling, this strategy was deemed to be admissible by the European Court of Justice (ECJ).
Many companies selling to intermediaries who have customers in France see themselves confronted with a peculiarity of French law: By way of the “action directe”, the purchaser may lodge claims against all previous sellers in the supply chain. In many cases in France, the lawsuit is preceded by judicial expert proceedings (référé). This is the opportunity to avoid involvement in the later main proceedings by quickly seeking negative declaratory relief in Germany.
Current Decision by ECJ
The ECJ has now confirmed the priority of an action for negative declaratory relief which was brought by the producer in Germany after the end customer had initiated a pre-litigation procedure of taking evidence against the reseller in France into which the producer had also been involved. The German producer HanseYachts AG had sold a yacht to a French reseller. Subsequently, a claim was lodged against the latter by his customer in France. In France, it is common that prior to the start of the actual main proceedings a procedure of taking evidence is conducted, which ends with a binding report of the court-appointed expert. The reseller had involved the producer HanseYachts in this procedure of taking evidence.
In order to escape a main proceeding in France, HanseYachts then brought an action for negative declaratory relief in Germany. European civil procedure law (Brussels Ia regulation or previously Brussels I Regulation) provides that the same issue must not be dealt with before courts in different Member States at the same time. If the court that was first seized states that it is competent in the respective matter, courts in other Member States that are seized later have to terminate the proceeding. The ECJ has now confirmed that the procedure of taking evidence of French procedural law (référé) is not to be regarded as a proceeding in that sense. Consequently, the initiation of the procedure of taking evidence does not prevent lodging a claim in another Member State due to lis pendens.
This method of the action for negative declaratory relief (also called “torpedo suit”, since subsequent proceedings in other Member States are torpedoed) is often advisable for the German producer since the German court will regularly deny a direct claim of the French end customer since there is no such claim under the law applicable from German perspective. The direct claim of the end customer against the producer is often directed at the purchase price paid by the end customer to the intermediary plus substantial amounts in damages. This may even affect suppliers of parts who are all of a sudden sued for refund of the total price for a facility in which the part they delivered was installed. In addition, the proceeding as well as the related costs are more manageable as well as more predictable. The proceedings in Germany often end with a default judgment. The decision on costs can be enforced in France against the defendants without a declaration of enforceability being necessary there. We have already had positive results with this defence measure and are very prepared to offer our advice if required.
ECJ, judgment of 4 May 2017 - C-29/16