Case C-681/13, Diageo Brands – spiriting away bad judgments with public policy [judgment 2015, ECLI:EU:C:2015:471]

Article 34 of the EU’s ‘jurisdiction’ Regulation 44/2001 allows a judge to ignore a judgment handed down by a court in another EU Member State if recognising that judgment would be contrary to ‘public policy’. Does this rule apply when the court in the other Member State has given a judgment that is manifestly contrary to EU law, and this is even recognised by that court?

Facts
On New Years Eve in 2007, 12 000 bottles of Johnny Walker whisky from Georgia arrived at the Bulgarian port of Varna. The consignment was destined for the Bulgarian drinks company, Simiramida.

Simiramida was neither the ‘Johnny Walker’ trade mark right holder nor the exclusive licensee for the import and sale of Johnny Walker in Bulgaria. Consequently, the trade mark right holder, Diageo, and its Bulgarian licensee pointed out that under Article 5(3)(c) of the EU’s trade mark Directive 89/104, they had right to stop the import or export of its trademarked goods and that therefore Simiramida’s import was illegal.

Diageo first set about impounding the whisky and put in a petition to the Sofia District Court. However, its request became embroiled in litigation which was so heavily contested that the dispute washed up at the Bulgarian Supreme Court – that court eventually deciding to rescind the initial seizing order which Diageo had obtained.

Undeterred, Diageo proceeded to organise a full civil trial in order to enforce its rights in trade mark law. This dispute was also heard by the Sofia District Court. However, the District Court’s judgment did not enter the nitty-gritty of trade mark law and the Sofia District Court instead applied an ‘interpretative decision’ from the Bulgarian Supreme Court which had been handed down in 2009.

According to the ‘interpretative decision’, if products are imported into Bulgaria with the consent of the right holder from elsewhere (namely, outside of the EEA), then putting these goods into circulation will not infringe Bulgarian trade mark rights.

Applying this ‘interpretative decision’ in the Diageo dispute before it, the Sofia District Court consequently held that that there was no case of trade mark infringement to answer. Diageo lost the litigation, and Diageo decided not to appeal the judgment.

At the Amsterdam District Court
Having secured a victory before the Sofia District Court, Simiramida decided to sue Diageo in Holland. For whereas Johnny Walker is made in Scotland, ownership of the trade mark has been transferred from the UK Diageo company to a Diageo subsidiary company taxed in The Netherlands.

In the Amsterdam District Court, Simiramida claimed that in light of the ‘no trade mark infringement’ ruling of the District Court of Sofia, Diageo’s conduct had been so extremely intimidatory as to constitute a tortious act. Consequently, Simiramida claimed more than 10 million euro in damages.

Diageo denied the claim. Unsurprisingly, a key plank of its defence was an attempt to spirit away the troublesome judgment of the Sofia District Court. In that context, Diageo referred the Amsterdam District Court to the EU’s ‘jurisdiction’ Regulation 44/2001 (on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters). Article 34 of the Regulation provides:

A judgment shall not be recognised:
1. if such recognition is manifestly contrary to public policy in the Member State in which recognition is sought;

Consequently, Diageo made the submission that it would be contrary to Dutch public policy for the Amsterdam District Court to recognise the judgment of the District Court of Sofia.

The Amsterdam District Court found for Diageo. It noted that both parties were in agreement that recognising the Sofia District Court’s judgment would be contrary to Dutch public policy. The Amsterdam District Court also agreed with the parties that the Bulgarian Supreme Court should have asked questions of the CJEU.

Equally, the Amsterdam District Court found fault with the Sofia District Court. The Dutch court noted that the Sofia Court, when applying the ‘interpretative decision’, had itself pointed out that there was a dissenting judgment in which it was explained that the interpretative decision contravened the requirements of EU trade mark law. In view of that fact, the Amsterdam District Court felt that Sofia District Court should have made a preliminary reference to the CJEU. That the Bulgarian court had neglected to do so resulted in the Bulgarian court acting in breach of the fundamental principle of Community loyalty. And since the fundamental principle of Community loyalty was a part of Dutch public policy, any recognition of the Sofia District Court’s judgment would be contrary to Dutch public policy.

At the Amsterdam Court of Appeal
The judges at the Amsterdam Court of Appeal took a more nuanced line but they decided that the ‘interpretative decision’ of the Bulgarian Supreme Court had rested on a manifest error of law. This was because EU law was clear that the consent of the right holder from outside of the EEA did not prevent imports from infringing trade mark law. This point of law was even acte éclairé as the CJEU had decided this point in an earlier reference from the Bulgarian courts in Case C-449/09, Canon Kabushiki Kaisha – a judgment in which the CJEU had referred to its settled case law.

Since the matter was already acte éclairé, the Amsterdam Court of Appeal took the view that the Bulgarian Supreme Court was under no duty to ask questions of the CJEU. For whereas the Bulgarian Supreme Court should have known that its interpretative decision was wrong, that in and of itself was not material to the issue of whether questions should have been asked of the CJEU.

The Amsterdam Court of Appeal then turned to the issue of whether the Amsterdam District Court was right in refusing to recognise the judgment of the Sofia District Court. The key point here was that the Bulgarian Supreme Court’s ‘interpretative decision’ had not been given as part of the litigation which was being pursued between Diageo and Simiramida. As a result, the Sofia District Court had merely applied the ‘interpretative decision’ which contravened EU law. This, the Amsterdam Court of Appeal felt, was by itself insufficient for the judgment of the Sofia District Court to have been refused recognition under Article 34 of the Regulation. After all, the CJEU’s own case law states that an incorrect application of EU law is insufficient to qualify for the public policy exception in Article 34.

For completeness, the Amsterdam Court of Appeal also thought that there was no obligation on the Sofia District Court to have asked questions of the CJEU because, once again, in its view, the matter was already acte éclairé. As if to reinforce its message, the Amsterdam Court of Appeal explained that the purpose of asking preliminary questions of the CJEU was to resolve ambiguities in EU law; it was not to correct the decisions of national judges taken in the superior courts.

In light of these reasons, the Amsterdam Court of Appeal decided to overturn the Amsterdam District Court’s judgment; the District Court should not have relied on Article 34 of the Regulation and should indeed have recognised the Sofia District Court’s judgment.

At the Dutch Supreme Court
Diageo appealed to the Dutch Supreme Court. It alleged that the judgment of the Amsterdam Court of Appeal was riddled with defective reasoning, especially since the Amsterdam Court of Appeal had failed to recognise that the Sofia District Court had acted in breach of both the principle of Union loyalty, and the preliminary reference procedure in Article 267 TFEU.

The Dutch Supreme Court decided to ask questions of the CJEU but before doing so it outlined the CJEU’s case law that interpreted Article 34(1) of the Regulation. The Dutch Supreme Court understood this case law to say primarily that Article 34(1) is an exception to the rule (Case C-7/98 Krombach). Moreover, Articles 36 and 45(2) of the Regulation have been interpreted in a way that prevents a court from refusing to recognise a judgment on the basis that it thinks the other court has incorrectly applied either national law or EU law (Case C-38/98 Renault, and Case C-420/07 Apostolides).

However, the Dutch Supreme Court hinted that it was all very well for the CJEU in Case C-38/98 Renault and Case C-420/07 Apostolides to have said that a national court is not to assess whether the other court has applied EU law correctly, but that that reasoning was premised on the assumption that the other legal system offered sufficient legal avenues for redress (as supplemented by the CJEU’s preliminary reference procedure) so as to ensure that the court system would offer sufficient legal guarantees. However, the Dutch Supreme Court questioned the accuracy of that premise in this case since there were apparently insufficient legal guarantees and protection put in place to prevent a Bulgarian court from incorrectly applying EU law.

The Dutch Supreme Court also wondered what significance should be attached to the fact that Diageo had not appealed the Sofia District Court’s judgment in the Bulgarian courts. It thought that there was an issue of ECHR law here. Namely, under ECHR law, there is no obligation to exhaust every avenue of domestic redress in circumstances where a claimant could show that were it to have pursued a course of action, its attempt would have been doomed to fail (Salah Sheekh 1948/04 [2007] ECHR 36 (11 January 2007)). The Dutch Supreme Court wondered whether this principle of ECHR law should be applied to the interpretation of Article 34 of the EU’s Regulation – after all, Diageo had not appealed the decision of the Sofia District Court and, were it to have done so, this would presumably not have led to a different result.

And then there was the issue of recovering legal costs, which also concerned the Dutch Supreme Court. The relevant Directive was the EU’s ‘enforcement’ Directive 2004/48/EC on the enforcement of intellectual property rights (OJ [2004] L157/45–86).

Article 14 of the Directive provides:

Member States shall ensure that reasonable and proportionate legal costs and other expenses incurred by the successful party shall, as a general rule, be borne by the unsuccessful party, unless equity does not allow this.

The Dutch Supreme Court recalled that this Article had been interpreted by the Grand Chamber of the CJEU in Case C-406/09, Realchemie Nederland BV. Admittedly, that case had involved an alleged patent infringement, which had prohibited Realchemie from importing into, possessing and marketing certain pesticides in Germany. But in that case an exequatur procedure had been brought in one Member State during the course of which an issue about the recognition and enforcement of a judgment from another Member State had arisen. The CJEU had allowed those costs to fall within the scope of Article 14 of Directive 2004/48.

However, the Dutch Supreme Court could not say without reasonable doubt whether that ruling applied in the Diageo case in circumstances where the costs related not so much to an intellectual property right but rather to a damages claim flowing from Diageo’s tortious acts committed while enforcing its trade mark rights in Bulgaria and where there was a question of whether to recognise a judgment from the Sofia District Court.

Questions Referred
My unofficial translation of the questions asked by the Dutch Supreme Court reads:
1. Is Article 34 and sub-section (1) of (EC) Regulation 44/2001 to be interpreted as meaning that this ground of refusal also refers to the situation in which the decision of the court in the originating Member State is manifestly contrary to EU law, and this is recognised by that court?

2(a). Is Article 34 and sub-section (1) of (EC) Regulation 44/2001 to be interpreted as meaning that a successful reliance on this ground is precluded when the party relying on this ground for refusal has failed to use the available legal procedures in the originating Member State?

2(b). If the answer to question 2(a) is in the affirmative, then would that answer differ in circumstances where the use of legal proceedings in the originating Member State was pointless because it could be presumed that this would not have led to a different decision?

3. Is Article 14 of Directive 2004/48/EC to be interpreted as meaning that this provision also covers the costs which the parties incur in an action for damages in a Member State in circumstances where the claim and the defence relate to the alleged liability of the defendant for seizing orders and notices issued in the pursuance of enforcing its rights under trade mark law in another Member State, and in that context a question arises as to the recognition by a court in the first-mentioned Member State of a decision from a court in the latter Member State?