Out-Law News 3 min. read

Systran case provides guidance on when disputes can be characterised as contractual or not, says expert


The EU's highest court has helped to define the circumstances in which legal disputes can be said to be about a contractual or non-contractual issue, an expert has said.

The Court of Justice of the European Union (CJEU) ruled last week to annul a decision by the EU's General Court on the grounds that the General Court did not have jurisdiction to rule on the case before it. In 2010 the General Court had ordered the European Commission to pay software company Systran €12.001 million in damages for infringing the firm's copyright. The General Court said the Commission was not authorised to contract a third party to provide "maintenance and linguistic enhancement" services to Systran software. 

The CJEU said, though, that because the case between Systran and the European Commission had been a contractual dispute, it was not a dispute that the General Court had jurisdiction to rule on. 

"The General Court was wrong in its view that the dispute in question was of a non‑contractual nature," the CJEU ruled. "In those circumstances, this Court must uphold the first plea of the appeal and ... annul the judgment under appeal, since the General Court has infringed the rules concerning its jurisdiction." 

The CJEU said that, in general, EU law does not provide either it or the General Court with jurisdiction to rule on issues relating to the "contractual liability" of EU bodies. The responsibility for settling those disputes lie with national courts, other than in select circumstances it said. 

The CJEU said that the issue of whether a dispute can be characterised as a contractual dispute must be determined "as a preliminary issue" before the "Community Courts" rule "on the substance of the dispute" so as to determine the legitimacy of them doing so. 

Guidance on how to determine whether or not a dispute is over a contractual matter was provided by the CJEU in its judgment. 

It said the "mere invocation of legal rules" determined outside the scope of contracts, but otherwise "binding" on parties in dispute, cannot have the effect of altering the "nature of the dispute" for jurisdictional purposes. 

A review of the nature of the dispute must be conducted "objectively" and "globally", where an analysis is made "of the various matters in the file", it said. Those matters could include "the rule of law allegedly infringed, the nature of the damage claimed, the conduct complained of and the legal relations between the parties in question, whether there exists between them a genuine contractual context, linked to the subject-matter of the dispute, the in-depth examination of which proves to be indispensable for the resolution of the said action". 

The CJEU said that whilst the General Court was within its rights to look at the detail of Systran's various contracts with the Commission to determine whether it had jurisdiction to rule on the matter of whether the Commission was liable for damages for infringement, it said the General Court incorrectly assessed the importance of the contract to the dispute. 

If the detail of contracts appear to be "indispensable" for determining the outcome of a dispute, it will be outside of the jurisdiction of the CJEU or General Court to rule on those disputes, the CJEU said. 

"It is not sufficient to allege simply any contractual relationship with the applicant or obligations of contractual origin not envisaging the conduct in dispute in order to be able to change the nature of the dispute by giving it a contractual basis," the CJEU said. "However, the fact remains that where, having regard to the content of the action for compensation against the Community, the interpretation of one or more contracts concluded between the parties in question appears to be indispensable in order to establish the legality or otherwise of the conduct by the institutions which is complained of, the dispute falls outside the jurisdiction of the Community Courts." 

Technology law specialist Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com, said that the CJEU's judgment could have "far reaching" consequences. 

"Although this case is specifically about the right of an EU level court to hear a dispute involving the European Commission, its general discussion of the principles that underlie the competency of courts to hear disputes involving parties from different countries or which otherwise have a cross-border element may be more far reaching," Scanlon said. 

"Private international law provides rules which in some contexts determine that one court will hold jurisdiction to hear a contractual dispute between two parties while another will be the most appropriate if the cause of action is a non-contractual one, for example an intellectual property infringement claim unconnected to a contractual relationship," he said. "The court's discussion of when a claim will be considered strictly a contractual one as opposed to a non-contractual one may prove helpful in assisting businesses take decisions as to whether or not to pursue potential claims they may have." 

"This could happen for instance where it would be undesirable to commence proceedings in the context of a dispute where the governing law provision of a contract stipulates that disputes are to be heard in a foreign jurisdiction that is unfavourable to the business’ interests or that would involve incurring an unacceptable amount of cost," the expert added.

 

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