Choice of law in consumer banking contracts: Bilal Khalifeh v Blom Bank SAL
In Khalifeh v Blom Bank SAL1 Foxton J considered the principles that determine the applicable law of consumer contracts where there is no express choice of law clause. In particular, Foxton J considered the factors necessary to bring a contract within the consumer contracts provisions of Article 6 of Regulation (EC) No 593/20082 ("Rome I")3, and analysed the requirement for commercial or professional activities to be "directed" to a particular jurisdiction.
In this case, the combined effect of: i) a Lebanese jurisdiction clause; ii) an express choice of Lebanese law in a closely related contract; and iii) an express reference to an agreement to comply with certain provisions of Lebanese law, pointed towards an implied choice of Lebanese law. Foxton J also held that, in any event, the conditions necessary to bring the contract within the consumer protection provisions of Article 6(1) of Rome I had not been satisfied.
This judgment is likely to be of comfort to financial institutions in circumstances where an increasing number of challenges are being brought by individuals on the grounds that consumer protection provisions override the parties' contractual choices of law/jurisdiction in favour of those of the consumer's place of domicile.
The Claimant ("Mr Khalifeh") was a Lebanese citizen who had opened a personal USD account with the defendant Lebanese Bank (the "Bank") in 2016. Following the Lebanese financial crisis, Mr Khalifeh requested the transfer of his account to a USD account in London. The Bank stated it was unable to make the transfer (due to restrictions imposed by the Lebanese Government on payments of foreign currency out of Lebanon). Instead, it offered to tender payment in the form of banker's cheques (the "Cheques") drawn on the Lebanese central bank, the Banque du Liban, to be deposited with a notary public in Lebanon. This was unacceptable to Mr Khalifeh who then sued the Bank in England for losses suffered as a result of the failure to make the transfer in the manner requested. The Bank challenged the English Court's jurisdiction unsuccessfully4 and the claim therefore proceeded to trial.
Ultimately, Foxton J dismissed the claim, concluding that the Bank had discharged its obligations by depositing the Cheques in accordance with Lebanese law. This article focusses on why Lebanese law was held to apply.
Applicable law: Rome I
Foxton J was asked to consider two key questions:
- Did the parties make an implied choice of Lebanese law under Article 3 of Rome I (which provides that parties have the freedom to choose the governing law of their contracts, either expressly or impliedly provided that for the latter, "the contract as a whole points ineluctably to the conclusion that the parties intended it to be governed by that law"5)?
- Could Mr Khalifeh rely on Article 6(1) of Rome I to argue that English law applied?
Was there an implied choice of Lebanese law?
Foxton J held that the parties had impliedly chosen Lebanese law to govern the terms of the personal USD account for the following key reasons:
- The account was opened in Lebanon by a Lebanese national with a Lebanese bank, whose obligations were principally to be performed in Lebanon;
- An Arabic-language document entitled "General Agreement for Opening and Operating Creditor Accounts" contained an express reference to an agreement to comply with and facilitate the enforcement of specific provisions of Lebanese law;
- The aforementioned General Agreement contained an asymmetric jurisdiction clause providing that Mr Khalifeh could only sue the Bank in Beirut; and
- A securities account, opened at the same time as the personal USD account, was subject to an agreement which was expressly governed by Lebanese law, which agreement regulated the position of the personal USD account in certain respects (and, pursuant to the aforementioned General Agreement, both accounts were treated as "chapters of one single and indivisible account").
Whilst there was some debate as to whether the jurisdiction clause in the General Agreement was exclusive or not, Foxton J held that he would have reached the same conclusion even if the clause had been non-exclusive (albeit it would have carried less weight), and, in fact, would have reached the same conclusion had there been no jurisdiction clause at all6.
Could Mr Khalifeh rely on Rome I, Article 6(1)?
Article 6(1) of Rome I provides that a consumer contract shall be governed by the law of the country of the consumer's habitual residence provided that the trader:
"(a) pursues his commercial or professional activities in the country where the consumer has his habitual residence, or
(b) by any means, directs such activities to that country or to several countries including that country, and the contract falls within the scope of such activities."
This provision can be disapplied in certain circumstances:
- Article 6(2) provides that, notwithstanding Article 6(1), the parties to a consumer contract may expressly or impliedly choose which law applies to the contract (providing that such choice does not deprive the consumer of the protection of non-derogable provisions of the law of the country in which the consumer habitually resides); and
- Article 6(4)(a) excludes from Article 6(1) any contracts for the supply of services where the services are to be supplied to the consumer exclusively in a country other than that in which the consumer habitually resides.
Mr Khalifeh argued that English law governed the terms of the personal USD account pursuant to Article 6(1). However, given the judge's conclusion that the parties had impliedly chosen Lebanese law, it was clear that, even if Mr Khalifeh could bring himself within Article 6(1), Lebanese law would nevertheless apply as a result of Article 6(2)7.
The Bank argued that Article 6(1) did not in any event apply because:
- It did not pursue its commercial activities in, or direct such activities to, England and Wales, and the personal USD account did not fall within the scope of such activities;
- Mr Khalifeh was not habitually resident in England and Wales at the relevant time (being the date of the original contract and not the date of any subsequent variation); and
- The contract in question was one for the supply of services exclusively outside England and Wales, and that Article 6 did not apply by virtue of Article 6(4)(a).
Were the Bank's activities "directed" to the jurisdiction?
The test under Article 6 of Rome I is materially the same as the test which applies when determining questions of jurisdiction under the consumer contracts provisions of the Recast Brussels Regulation (and now s.15B of the Civil Jurisdiction and Judgments Act 1982).
Foxton J referred to the leading authority on the application of this test, Pammer8, which established that directing activities to a particular member state requires something more than simply having a website accessible from that member state; instead, the trader must have "manifested its intention" to trade in the consumer's state of domicile. Foxton J also approved the academic analysis in Plender and Wilderspin9 that: "it is important for courts not to conclude on the basis of one or two weak indicators, such as an international dialling code, that a directed activity exists". However, he rejected the suggestion that there must be a "direct and substantial causal link" between the directed activities and the conclusion of the contract. Provided there is evidence of "directed activities", there is no requirement for a causal connection.
On the facts, Foxton J determined that the only evidence of the Bank directing activities to England and Wales was information contained on the Bank's website. Whilst noting that it was a "finely balanced issue", taking the evidence as a whole Foxton J concluded (following Pammer and Plender and Wilderspin) that the content of the website (including the availability of the international dialling code) were insufficient to establish that the Bank had directed relevant activities to the UK. In particular, whilst the Bank's website referred to the Bank as serving "the niche market of Lebanese and Arab expatriates and businesspeople in Europe", Foxton J did not accept that a reader of this material would regard it as an attempt by the Bank to persuade Lebanese expatriates in the UK to open accounts in Lebanon. Any activities that the Bank did direct to the UK were purely to promote services provided by its London branch, and the personal USD account did not fall within the scope of such services.
Foxton J distinguished the decision in Bitar v Banque Libano-Francaise SAL (see our earlier article here), highlighting that, in that case, the website material relied upon referred specifically to encouraging investments by expatriates in their Lebanese "homeland", and confirming that the decision in this case was not made on a summary basis (as to which see footnote 3 above) but rather after a full analysis of material obtained through disclosure and in cross-examination.
Mr Khalifeh's habitual residence
Foxton J upheld the Bank's argument that Mr Khalifeh did not have his habitual residence in England and Wales at the relevant time, namely October 2016, when the personal account was opened. Although he had formed an intention to move his habitual residence to England at this time, and had begun to take the necessary steps, he had not yet acquired a habitual residence in the UK. Foxton J rejected Mr Khalifeh's argument that the relevant time was in fact June 2019, when the contract was amended, describing the argument that the applicable law should be assessed at the variation date as a "recipe for chaos"10. Had Foxton J agreed with Mr Khalifeh, it would have found that he was habitually resident in England by June 2019 (although, for the reasons set out above, this would not have changed the outcome of the case).
Was this a contract for the supply of services exclusively outside of England and Wales?
Finally, Foxton J did not accept the Bank's argument that the services to be provided by the Bank under the contract in question were to be received exclusively outside the UK, such that Article 6(4)(a) applied. It was, for example, possible for Mr Khalifeh to make withdrawals from the personal USD account using a debit card and to give remote instructions for the funds to be transferred to other accounts all without leaving his place of habitual residence.
This judgment serves as a reminder of the importance of expressly specifying the applicable law in a contract and the principles to be applied in the absence of such a choice. Its conservative analysis of when a business will be deemed to be directing its activities to other jurisdictions is also likely to be welcomed by financial institutions and other professional service providers who deal with customers in England & Wales from outside the jurisdiction. While the question is clearly highly fact-sensitive, the judgment confirms that consumer contracts can be governed by the laws of a country which is not the one in which the consumer has his or her habitual residence.
1 Bilal Khalifeh v Blom Bank SAL  EWHC 3399 (QB)
2 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations
3 Rome I applied as the relevant facts predated the end of the Brexit transition period (although Rome I has now been incorporated into UK law and continues to apply in the UK in any event).
4 Bilal Khalifeh v Blom Bank SAL  EWHC 2427 (QB). At the jurisdiction hearing (for reasons restricted to a confidential schedule), Master Davison found that Mr Khalifeh was domiciled in England at the time of the conclusion of the contract (the Recast Brussels Regulation refers to domicile rather than habitual residence). He also found that the Bank did direct its activities to the UK at the relevant time (although it seems the contrary was not seriously argued) and that the contract fell within the scope of these activities. Although these issues were being considered from a jurisdictional perspective (and on a summary basis), the difference between these conclusions and those which were reached at trial is notable.
5 Lawlor v Sandvik Mining and Construction Mobile Crushers and Screens Ltd  2 Lloyd's Rep 98
6 The parties relied on Section 3(3)(a) of the Contracts (Applicable Law) Act 1990, which provides that the Report on the Convention on the law applicable to contractual obligations is admissible when interpreting provisions of the Rome Convention. The report states that a contractual choice of forum "may show in no uncertain terms that the parties intend the contract to be governed by the law of that forum". It also states that references in a contract to specific provisions of a particular legal system may establish an implied choice of that legal system as the applicable law.
7 In these circumstances, Mr Khalifeh would have benefited from the protection of any provisions of English law that cannot be derogated from by agreement, but nothing appears to have turned on this, and Foxton J merely stated that Mr Khalifeh's attempt to bring himself within Article 6(1) failed at the first hurdle given the conclusion that the parties impliedly chose Lebanese law to apply.
8 Pammer v Reederei Karl Schluter & Co KG, Hotel Alpenhof GesmbH v Heller (Cases C-585/08 and C-144/09)
9 Sir Richard Plender QC and Michael Wilderspin: The European Private International Law of Obligations (5th) ("Plender and Wilderspin")
10 The judge accepted that the position might be different where the variation in question amounted to a complete restatement of the parties' relationship but considered that the application of Article 6 in such a situation should be dealt with in a case in which it arises.