KA Finanz: On the ‘corporate exception’ of European private international law

In Case C-483/13 KA Finanz AG, the ECJ is asked to clarify the ‘corporate exception’ to the Rome Convention and subsequent Regulation on the law applicable to contractual obligations. The two main questions ask whether the ‘company law’ excepted area includes (a) reorganisations such as mergers and divisions, and (b) in connection with reorganisations, the creditor protection provision in Article 15 of Directive 78/855 concerning mergers of public limited liability companies, and of its successor, Directive 2011/35.

(Creditor protection, incidentally, was also addressed in C-557/13 Lutz, judgment held last week, within the context of insolvency proceedings. I shall have a posting on that case soon).

Reuters tells me ‘KA Finanz was split off from nationalised lender Kommunalkredit in an attempt to secure a sustainable future for the rest of the public sector finance specialist firm following the global financial crisis’. KA Finaz therefore is what is generally referred to as a ‘Bad Bank’.

The referring court, Austria’s Oberster Gerichtshof, would seem to be hedging its bets on whether the Rome Convention or the Regulation applies to the contract, and ditto for the 1978 Directive or the 2011 Directive aforementioned. The file may reveal more factual detail than the application as published, however the questions as phrased (namely quite speculatively rather than file related) probably will run into trouble on the admissability front, I imagine.

At the time of adoption of the convention, the Giuliano Lagarde Report went into a bit more detail as to what is and is not excluded:

Confirming this exclusion, the Group stated that it affects all the complex acts (contractual administrative, registration) which are necessary to the creation of a company or firm and to the regulation of its internal organization and winding up, i. e. acts which fall within the scope of company law. On the other hand, acts or preliminary contracts whose sole purpose is to create obligations between interested parties (promoters) with a view to forming a company or firm are not covered by the exclusion.

The subject may be a body with or without legal personality, profit-making or non-profit-making. Having regard to the differences which exist, it may be that certain relationships will be regarded as within the scope of company law or might be treated as being governed by that law (for example, societe de droit civil nicht-rechtsfahiger Verein, partnership, Vennootschap onder firma, etc.) in some countries but not in others. The rule has been made flexible in order to take account of the diversity of national laws.

Examples of ‘internal organization’ are: the calling of meetings, the right to vote, the necessary quorum, the appointment of officers of the company or firm, etc. ‘Winding-up’ would cover either the termination of the company or firm as provided by its constitution or by operation of law, or its disappearance by merger or other similar process.

At the request of the German delegation the Group extended the subparagraph (e) exclusion to the personal liability of members and organs, and also to the legal capacity of companies or firms. On the other hand the Group did not adopt the proposal that mergers and groupings should also be expressly mentioned, most of the delegations being of the opinion that mergers and groupings were already covered by the present wording.

This explanation does not necessarily of course clarify all. For instance, the Report would seem to suggest that ‘mergers and groupings’, at issue in KA Finanz, are covered by the exception. Presumably, given the nature of the remainder of the exception, this is limited to the actual final agreement creating the JV or merged company, and not to the complex set of agreements leading up to such creation, such as Memoranda of Understanding (MOUs), or non-disclosure agreements (NDAs). Along those lines and without at this time having revisited relevant scholarship outside my own, I would suggest creditor protection is not covered by the exception.

The Gerichtshof also seks clarification on whether there areany requirements concerning the treatment of mergers in relation to conflict of laws to be inferred from European primary law such as the freedom of establishment under Article 49 TFEU, the freedom to provide services under Article 56 TFEU and the free movement of capital and payments under Article 63 TFEU, in particular as to whether the national law of the State of the outwardly merging company or the national law of the target company is to be applied?’ Again, without having seen more reference to fact in the actual referral, this question to me seems far too academic to prompt the ECJ into entertaining it.

The Court’s ledger shows the application as having been lodged on 31 October 2014. That means some movement on it ought to be expected soon.

Geert.

 

 

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Employment, foreign mandatory rules and Greek public finance.

The German Federal Labour Court, the ‘Bundesarbeitsgericht’, has provided the ECJ with an opportunity to provide much needed clarity on the application of Rome I to continuing (employment) contracts, and on the Regulation (or as the case may be, the Rome convention)’s provisions on overriding mandatory law. The Bundesarbeitsgericht has issued a press release on the case, Giesela Rühl flagged the case in March, and Lisa Günther has more detailed input on the overall context. Claimant is a Greek, employed by the Greek State at the Greek primary school in Nuremberg (Germany). His salary was reduced in accordance with relevant Greek Saving Laws. Claimant asks for payment of the sums withheld. Is the German court bound to apply the Greek Saving Laws?

The case (which as yet to appear on the ECJ’s website) first of all seeks clarification on the temporal scope of Rome I. Article 28 Rome I provides that it applies to contracts concluded ‘as from 17 December 2009′ (this is the corrected format; initially Article 28 read ‘after’). When exactly a contract is ‘concluded’ needs to be determined in accordance with the lex causae as identified by the Regulation (an extension of Article 10(1), suggested by most if not all of relevant scholarship). There has hitherto been much less noise about the application of Article 28 to ‘continuing’ contracts': those concluded before the temporal scope of the Regulation, continuing after, however renewed, renegotiated, amended…: do these continue to be covered by the Rome convention ad infinitum, or is there a cut-off point at which these continuing contracts become newly concluded? Any suggestion along these latter lines presumably requires determination of a threshold. For instance, adaptation of price in line with inflation presumably is not sufficient to speak of a ‘new’ contract. But would contractually foreseen price renegotiation to take account of economic cycles, lead to such a new contract?

One’s intuitive assumption may be to prefer autonomous interpretation of the concept ‘concluded’ however in the current state of (lack of) harmonisation of contractual law, it is more likely that the Court will prefer an Article 10(1) type solution.

Next up is the application of Article 9’s provision on overriding mandatory provisions. This is the first time the ECJ will rule on that Article (Unamar was held under the Rome Convention). The Regulation quite deliberately limited the room for manoeuvre for the court seized to apply overriding mandatory law other than that of the forum: only such laws of the country where the obligations arising out of the contract ‘have to be performed’ can come into calling. That place is likely to be Germany in the case at issue (the Regulation does not define ‘place of performance’ under Article 9(3)).

No doubt the ECJ will cut some corners, per judicial economy, however the case nevertheless promises to be entertaining.

Geert.

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On ‘reasonable amounts’, Aarhus, and the price of environmental information. Sharpston AG in East Sussex County Council.

In East Sussex County Council Case C-71/14, the question under consideration is the application of Directive 2003/4 ‘s reasonableness test. Article 5 of the Directive provides that in situ access to information to for example public registers has to be free of charge. Further, that charges for supplying any environmental information must be ‘reasonable’.

In particular, how ‘objective’ must a reasonable cost be, seen against the light of English statutory law which allows local authorities to specify access (and other) fees providing that the amount ‘shall not exceed an amount which the public authority is satisfied is a reasonable amount’. Application in that case is made by a property search group with a view to commercial conveyancing. Sharpston AG on 16 April 2015 opined that even for commercial applicants, authorities’ hands are quite tied. In particular,

  • that Article 5(2) of Directive 2003/4 does not authorise a public authority to recover, through a charge for supplying information, all or part of the costs of establishing and maintaining a database in which it has organised the environmental information it holds and which it uses to answer requests for information of the type listed in a questionnaire such as that at issue in the main proceedings.
  • that a charge which does not exceed a reasonable amount within the meaning of Article 5(2) of Directive 2003/4 is a charge which: (i) is set on the basis of objective factors that are known and capable of review by a third party; (ii) is calculated regardless of who is asking for the information and for what purpose; (iii) is set at a level that guarantees the objectives of the right of access to environmental information upon request and thus does not dissuade people from seeking access or restrict their right of access; and (iv) is no greater than an amount that is appropriate to the reason why Member States are allowed to make this charge (that is, that a member of the public has made a request for the supply of environmental information) and directly correlated to the act of supplying that information; that
  • In particular, a charge of a ‘reasonable amount’ under Article 5(2) of Directive 2003/4 is to be based on the costs actually incurred in connection with the act of supplying environmental information in response to a specific request. That will include the costs of staff time spent on searching for and producing the information requested and the cost of producing it in the form requested (which may vary). However, it is not permissible for such a charge also to seek to recover overheads such as heating, lighting or internal services. And that
  • Article 5(2) of Directive 2003/4 requires public authorities to ensure that their charges do not exceed a reasonable amount, judged by the yardstick of what a ‘reasonable amount’ means objectively under EU law. That does not, as such, preclude a rule of national law according to which a public authority must satisfy itself that a charge levied meets that standard, however, Member State to ensure that there is (first) administrative and (then) judicial review of whether a public authority’s decision on what constitutes a reasonable charge is in conformity with the autonomous EU law meaning of what is ‘reasonable’ under Article 5(2) of Directive 2003/4.

In other words: the current wording in the relevant English statute, in the view of the AG, does not infringe the Directive. (It does in my view at least however add a layer of complication: for the authority’s subjective finding of reasonableness subsequently has to be checked, in two tiers of appeal (administrative cq judicial), against the Directive’s objective standard).

Aarhus is considered throughout the appeal and hence Charles Banner’s book on the Aarhus Convention, just out with Hart, a timely publication I would think.

Geert.

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FIPA, Tws Automation and Ivan: ECJ confirms the secondary nature of ‘principles’ in EU environmental law

European environmental law principles may not have practical legal force in and of themselves. They are transposed into secondary law. It is their (incorrect) application and interpretation in conjunction with secondary law, which gives rise to citizens and corporations calling upon the principles to support their individual position. Hence despite their trumpeted value as ‘principles’, in the law in practice, individual citizens or corporations need transposition of said principles in secondary law, to argue that such secondary law has infringed the principles.

A clear application of this reality, is the recent ECJ judgment in Case C-534/13, a case with an impossibly long series of applicants and defendants, which for ease of reference I have dubbed FIPA, Tws Automation and Ivan in title of current posting. (After the main protagonists).

The main issue that arose, was whether national (Italian) legislation under which no provision is made for the authorities to require owners of polluted land who have not contributed to that pollution to carry out preventive and remedial measures, and the sole obligation imposed concerns the reimbursement of the measures undertaken by those authorities, is compatible with the ‘polluter pays’ principle, the precautionary principle and the principles that preventive action should be taken and that environmental damage should be rectified at source as a matter of priority.

The ECJ emphasises the role of Directive 2004/35 in this context. Held that the Directive does not hold against such absence. And recalled in line with previous case-law, that the environmental principles of the Treaty ‘do no more than define the general environmental objectives of the European Union, since Article 192 TFEU confers on the European Parliament and the Council of the European Union, acting in accordance with the ordinary legislative procedure, responsibility for deciding what action is to be taken in order to attain those objectives. (…)  Consequently, since Article 191(2) TFEU, which establishes the ‘polluter pays’ principle, is directed at action at EU level, that provision cannot be relied on as such by individuals in order to exclude the application of national legislation — such as that at issue in the main proceedings — in an area covered by environmental policy for which there is no EU legislation adopted on the basis of Article 192 TFEU that specifically covers the situation in question (…) Similarly, the competent environmental authorities cannot rely on Article 191(2) TFEU, in the absence of any national legal basis, for the purposes of imposing preventive and remedial measures.(…)’ (at 39-41)

A sobering conclusion, yet one solidly rooted in legal practice and institutional balance. Geert.

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Northsea Base Investment: A COMIng and going of SPVs, the High Court settles on familiar criteria

(Readers may want to search my earlier postings tagged ‘COMI’ for general context to the Insolvency Regulation and Centre of Main Interests).

Northsea Base Investment was first flagged to me early March by Bob Wessels, who expertly summarises facts and finding. Insolvency administrators were appointed out of court, however sought a High Court declaration finding COMI for the eight insolvent companies in England. Such finding assists with the ease of international travel of the administrators’ decisions. With ships sailing all over Europe and further afield, any decisions by the administrators are likely to have to be enforced outside of England. The sole shareholder of the holding company is incorporated in Nevis (the Saint Kitts and Nevis Federation) and in turn is held by three family trusts also based in Nevis. Marine Cross is a shipping agent incorporated in the UK with its registered offices in London. The companies are the only client of Marine Cross. All eight of the applicant companies are incorporated in Cyprus, share the same company registered office in Cyprus and have essentially the same form of Cypriot corporate documents.

Birss J held using the well established criteria in particular of Eurofood (in a group of companies, COMI has to be decided for each of them with individual legal personality) and Interedil (emphasis on third party ascertainability in the case of attempts to rebuke Article 3(1)’s presumption in favour of registered office being COMI) and settled on Marine Cross being the most relevant factor in determining COMI vis-a-vis the shipping companies: COMI being England. For the relevant holding companies (their Nevis-based shareholders were out of the equation), the High Court observed that these do not have operational functions. It held that their relations with London-based banks under financial agreements, all subject to English law and English jurisdiction, determined COMI as being in England, too.

The case is a good reminder that even intricate SPV structures should not detract from COMI finding on well-established principles.

Geert.

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Chinachem: Forum non conveniens, non-exclusive choice of court and concurrent proceedings in Hong Kong and Mainland China.

I reported earlier on the waiver of privilege issues in Chinachem. The Hong Kong High Court has now also ruled on the issue of application of forum non conveniens in the event of concurrent proceedings in Hong Kong and mainland China. In a lengthy judgment (particularly resulting from extensive summary of counsel arguments but also of relevant precedent), Ng J recalls English precedent on forum non conveniens (Spiliada evidently being featured) and the way in which said precedent has been applied in Hong Kong. (Carrie Tai has excellent overview here).

Contract between the parties included choice of court and choice of law as follows: ‘This Agreement shall be governed by the laws of Hong Kong and it shall be construed by the laws of Hong Kong. Both parties agree to submit to the non-exclusive jurisdiction of the courts of Hong Kong.’

Ng J in the end rejects all arguments suggesting a stay in favour of the mainland proceedings. In doing so, she confirmed the tendency of Hong Kong courts (like indeed their English common law counterparts) to only brush aside choice of court in exceptional circumstance. Even if that choice of court is, such as here, non-exclusive. The concurrent proceedings stand.

Geert.

 

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Location, location, location. Arbitration, curial and applicable law: Shagang v Daewoo confirms the importance of venue.

I reported earlier on Sulamerica and the need properly and preferably, expressly to provide for choice of law vis-a-vis arbitration agreements, in particular vis-a-vis three elements: lex arbitri, lex curia, lex contractus. The High Court has now added its view on the possible relevance of a fourth factor: the geographical venue of the arbitration, and its impact in particular on the curial law: the law which determines the procedure (e.g. such as here, the appointment of a sole arbitrator) which is to be followed.

Christopher Lockwood has a good summary of case and judgment here – I am happy to refer. Of most relevance is Hamblen J’s finding that while a choice of governing law (the substantive law of the contract) is often made express, it is far less common separately to identify curial law: most often, that is simply inferred from the place of arbitration. Moreover, while it is not commercially uncommon to separate procedure and governing law, it is quite uncommon to have ‘a bifurcation between the place of arbitration and the law governing the conduct of the arbitration there’ (at 25). In other words, seat, ‘curia’ of arbitration, which determines arbitral procedure, and geographical place or venue of arbitration, are not commonly separated. Any intention of the parties to do so, must be clearly expressed and cannot be implicitly inferred.

that the agreement that the arbitration is “to be held in Hong Kong” carries with it an implied choice of Hong Kong as the seat of the arbitration and of the application of Hong Kong law as the curial law.’ (at 56): location, dear readers: location, location, location.

Geert.

 

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