Author: Geert van Calster

Geert is an independent legal practitioner and academic. An alumnus of the College of Europe, Bruges (promotion Stefan Zweig), Prof van Calster is the Head of Leuven Law's department of European and international law. Geert is a visiting professor at Monash University (Melbourne) and at the China-EU School of Law in Beijing, and a visiting professor at King's College, London. He was previously i.a. a visiting lecturer at Oxford University. He was called to the Bar in 1999 after having worked as of counsel to a City law firm since 1995, and practices in the areas of Private international law /Conflict of Laws; WTO law; (EU) environmental law; and EU economic law.
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Mühlleitner: To enjoy protection as ‘consumer’ contracts, contracts need not be concluded at a distance

The Court of Justice has followed the Opinion of the Advocate General (on which I reported here) in Mühlleitner: Article 15(1)(c) of Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters must be interpreted as not requiring the contract between the consumer and the trader to be concluded at a distance.

Debate on the issue had been provoked by the factual circumstances of Alpenhof. The Court of Justice however stuck to both a literal (no mention of distance contracts in the relevant provision), teleological (protection of consumers) and historical (purpose of the change in the Regulation as compared with the previous text in the Convention) interpretation. The relevant Article now only requires that the trader pursue commercial or professional activities in the Member State of the consumer’s (‘consumer’ is separately defined) domicile or, by any means, directs such activities to that Member State or to several States including that Member State and, secondly, that the contract at issue falls within the scope of such activities.

In the case at issue, Ms Mühlleitner, domiciled in Austria, searched on the internet for a car of a German make which she wished to acquire for her private use. After connecting to the German search platform http://www.mobile.de, she entered the make and type of vehicle she wanted, thereby obtaining a list of vehicles corresponding to the characteristics specified. After selecting the vehicle which corresponded best to her search criteria, she was directed to an offer from the defendants, Mr A. Yusufi and Mr W. Yusufi, who operate a motor vehicle retail business via Autohaus Yusufi GbR (‘Autohaus Yusufi’), a partnership established in Hamburg (Germany).Wishing to obtain more information about the vehicle offered on the search platform, Ms Mühlleitner contacted the defendants, using the telephone number stated on the website of Autohaus Yusufi, which included an international dialling code. As the vehicle in question was no longer available, she was offered another vehicle, details of which were subsequently sent by email. Ms Mühlleitner then went to Germany and, by a contract of sale signed on 21 September 2009 in Hamburg, bought the vehicle, taking immediate delivery of it. The contract therefore was not concluded at a distance.

The judgment is a good illustration of the need to consult the EU’s preparatory works, with reference being made to input into the legislative process by Parliament, Council and Commission alike.

Geert.

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Court confirms limitations to the evidence Regulation in Lippens

Postscript: The Hoge Raad issued its final ruling, following the ECJ’s judgment, in June 2013. Most of Lippens’ arguments had become redundant following the ECJ’s judgment. The Hoge Raad rejected his argument that to hear him in The Netherlands would be an infringement of Article 6 ECHR’s right to fair trial.

In Case C-170/11 Lippens, the Court has today confirmed the limitations to the scope of application of the evidence Regulation, Regulation 1206/2001. The request for a preliminary ruling was referred by the Hoge Raad der Nederlanden (Supreme Court) (Netherlands) in substantive proceedings brought before a Dutch court against defendants domiciled in Belgium, the provisional hearing of whom as witnesses was requested by the applicants. The persons concerned wanted to be heard in French in their country of residence (Belgium) by means of an application to be addressed by the court hearing the proceedings to the Belgian judicial authorities under Regulation No 1206/2001. The Dutch court rejected that application, stating that the hearing should take place in the Netherlands and summoning the witnesses to appear before it under national procedural law.

The core question therefore was whether the evidence Regulation governs the obtaining of evidence in civil and commercial cases by one Member State from another exclusively and exhaustively or whether it leaves room for other means of access to such evidence.

Following the Opinion of Jääskinen AG, the Court confirmed that the evidence Regulation offers the national courts assistance, should they wish to request the co-operation of the authorities of other Member States to obtain evidence outside of their territory, but they they are not obliged to take the Regulation route should they consider their national procedural laws to suffice (or indeed offer a better alternative). In the case at issue, Lippens et al also appeared as parties in the Dutch proceedings. Dutch procedural law allows for the summoning of parties as witness. The Dutch courts therefore of course prefer the efficiency of those national proceedings given that the witnesses in such cases are already present (or represented), rather than having to take the roundabout way of the evidence Regulation.

The  ECJ moreover conceded that in its current state, the evidence Regulation with its strict conditions and delays, is likely to be less efficient than national proceedings.

A finding of the Regulation as being exhaustive in the field of cross-border obtaining of evidence in civil and commercial cases, would have been very surprising. However it is good to have the ECJ confirm it, for its interpretation of the scope of European private international law is extensive indeed.

Geert.

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The Council on the validity of choice of court agreements

The Council in June issued its ‘General Approach‘ on the review of the Brussels I Regulation /the Jurisdiction Regulation . The General Approach is the backbone of what will be the Council Common Position, once the European Parliament has held its ‘first reading’ (which is now scheduled for November 2012, after having been postponed twice: from January 2012 it had already been moved to June). I commented here on the arbitration exception and here on the protected categories.

In its General Approach on the review of the Brussels I Regulation, the Council of the EU proposes the following with respect to choice of court agreements:

If the parties, regardless of domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State.

The Commission had proposed ‘substance’ rather than the words ‘substantive validity’. The Council also suggest inserting a recital as follows:

The question as to whether a choice of court agreement in favour of a court or the courts of a Member State is null and void as to its substantive validity should be decided in accordance with the law of that Member State. The reference to the law of the Member State of the chosen court should include the conflict of laws rules of that State.

Finally, the Council prooses to add a fifht para to Article 23 as follows:

‘5. An agreement conferring jurisdiction which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.

The validity of the agreement conferring jurisdiction cannot be contested solely on the ground that the contract is not valid.’’

Both the Council and the Commission proposal address the elephant in the room: Article 23 of the Jurisdiction Regulation lists a number of requirements establishing consent to choice of court agreements, however it does not address any conditions for the validity of the underlying agreement. The majority of ECJ authority would seem to favour having the validity of the forum clause to be exclusively determined by the conditions of Article 23. I would however submit that the material validity of the forum clause under the curent version of the JR ought to be determined by the lex contractus.

The result of the discussion is unsatisfactory, as in practice it leaves it up to the Member States to decide how to address the substantive validity of choice of court agreements. This is now addressed by the Commission in its proposal for review of the JR: the proposal introduces a harmonised conflict of law rule on the substantive validity of choice of court agreements, thus ensuring a similar outcome on this matter whatever the court seized. The Council amendment aims at making the solution clearer still.

Oddly, the Council adds renvoi to the mix (see ‘The reference to the law of the Member State of the chosen court should include the conflict of laws rules of that State.’). EU private international law, for good (mostly practical) reasons typically excludes renvoi. I am not entirely sure that adding it here has any merit.

Note that in line with the Hague Convention on Choice of Court Agreements, it will no longer be necessary for at least one of the parties to be domiciled in the EU, for an agreement giving jurisdiction to a court in the EU to be covered by the JR.

Geert.

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Plain packaging – One battle might be over, plenty to follow

I reported earlier that the plain packaging dispute is fought on many fronts. As has been widely reported, the domestic challenge to the Australian regime would seem to have been won by the Government (we have a small wait for the full ruling to be delivered).

However, this dispute is fought on many fronts. Over at the international economic law blog, Simon Lester gives an excellent summary of the status quo on the various issues, and links to academic thought on chances of success. Evidently the plain packaging rules are not home and dry yet.

As often, one should be careful what one asks for: Tasmania is reported to be pondering a gradual ban on smoking, allowing those adults who have picked up the habit to peter it out, while banning tobacco consumption to all others. This may be in response to an often heard argument: if smoking is that bad for you, why not ban it rather than happily cashing in on the coinciding taxation. In legal terms: given the cited health issues related to tobacco consumption, may a ban be the only proportionate action? (and what does that mean in consistency terms for other health issues such as obesity, high adrenaline sports, alcohol…).

Geert.

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The European concept of waste and reverse logistics /off-spec products. Reference in CJEU Shell.

In (soon to be) joined Cases C-241/12 and C-242/12, the Court of Justice is being asked to clarify the application of the Waste Framework Directive‘s concept of ‘waste’ in the context of reverse logistics /off-spec (or ‘off specification’) products. These are products which after shipment, turn out not to meet the agreed specifications (because they are defective, or even if in working order, do not meet the agreed parameters). In the logistics chain, such products are often sent back upstream (whence ‘reverse logistics’) and sold to other customers, whether or not after modification or repair.

The facts as reported are included below.

At stake is in particular the extent of relevance of the contractual context. Under the terms of the contract (and indeed under general contract and warranty law), off-spec products are routinely sent back to the wholesaler or brought back to the point of sale. Any finding of such goods meeting the waste concept, may turn an important part of daily logistics operations into waste transport operations.

[Declaration of involvement: I act as court witness in the national proceedings.]

Geert.

 

Reference for a preliminary ruling – Rechtbank te Rotterdam – Netherlands – Interpretation of Council Regulation (EEC) No 259/93 of 1 February 1993 on the supervision and control of shipments of waste within, into and out of the European Community (OJ 1993 L 30, p. 1) and Regulation (EC) No 1013/2006 of the European Parliament and of the Council of 14 June 2006 on shipments of waste (OJ 2006 L 190, p. 1) – Concept of ‘waste’ – Shipment of Ultra Light Sulphur Diesel (ULSD) by vessel from the Netherlands to Belgium – ULSD mixed accidentally, when the vessel was being loaded, with Methyl Tertiary Butyl Ether (MTBE) – Product no longer corresponding to the specifications agreed upon by the buyer and the vendor – Buyer who became aware of that fact at the time of delivery in Belgium – Diesel taken back by the vendor and shipped to the Netherlands – Purchase price refunded to the buyer – Vendor having the intention of placing the diesel back on the market, whether or not after mixing it with another product – Inclusion or noninclusion in the concept of waste

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‘Damage’, Brussels I and internet sales – Determining jurisdiction in copyright cases and material carriers in CJEU Pinckney.

In Case C-170/12 Pinckney, on 11 April 2012, the French Cour de Cassation referred the following question for preliminary review with the Court of Justice (Case C-170/12)

 Is Article 5(3) of Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters  to be interpreted as meaning that, in the event of an alleged infringement of copyright committed by means of content placed online on a website,

–           the person who considers that his rights have been infringed has the option of bringing an action to establish liability before the courts of each Member State in the territory of which content placed online is or has been accessible, in order to obtain compensation solely in respect of the damage suffered on the territory of the Member State before which the action is brought,

or

–           does that content also have to be, or to have been, directed at the public located in the territory of that Member State, or must some other clear connecting factor be present?

Is the answer to Question 1 the same if the alleged infringement of copyright results, not from the placing of dematerialised content online, but, as in the present case, from the online sale of a material carrier medium which reproduces that content?

As excellently summarised by Stephen Vousden here, the Cour de Cassation is assuming two CoJ precedents need to be distinguished from Pinckney:

Case C-324/09, L’Oréal, which concerns the territorial scope of the EU’s trademark laws and revolves around websites ‘targeting’ consumers as opposed to merely being accessible to them; and

Cases C-509/09 and C-161/10 eDate Advertising and Martinez (‘Kylie Minogue’), in which the Court added the connecting factor ‘centre of interests’ for internet infringements of personality right. As I reported here, the Court of Justice in Wintersteiger confirmed that the connecting factor ‘centre of interests’ in Kylie Minogue and eDate Advertising only holds for infringement of personality rights in an internet context. Trademark violation is distinguished, on the grounds that rebus sic stantibus intellectual property rights are protected on a territorial basis. In Pinckney, which also concerns intellectual property, the Cour de Cassation moreover points out that the offending item was in fact a material carrier: a vinyl record, illegally compiling songs.

Plenty of factual elements therefore, complicating the finding of ‘place of the harmful event’ /damage under Article 5(3) Brussels I.

Geert.

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The Council on the review of the Brussels I Regulation – Confusing proposals on the ‘protected categories’

The Council in June issued its ‘General Approach‘ on the review of the Brussels I Regulation /the Jurisdiction Regulation. The General Approach is the backbone of what will be the Council Common Position, once the European Parliament has held its ‘first reading’ (which is now scheduled for November 2012, after having been postponed twice: from January 2012 it had already been moved to June). I commented here on the arbitration exception.

The Council’s view on the extension of the ‘protected categories’ is relevant for the general issue of the ‘extraterritorial’ working of the Regulation. The protected categories are contracts where the EU gives specific protection to consumers, employees, and insureds, allowing the ‘weaker’ party additional fora to sue, and limiting forum choice for the stronger party.

The Commission proposal generally makes the protective jurisdiction rules available for consumers, employees and insured also applicable if the defendant is domiciled outside the EU.

The Council, by contrast, reinstates the domicile condition for the protective jurisdictional rules with respect to insurance, however then inserts a slightly confusing section for consumer contracts, and a rather mixed regime for employment contracts.

With respect to consumer contracts, the Council re-inserted the reference to Article 4 of the Regulation (albeit in a renumbered 4a fashion). Article 4 suggests that against defendants not domiciled in the EU, the EU Regulation (with one or two exceptions, which are not of interest here) does not apply, and national conflict rules take over. However the Council then oddly inserts in Article 16(1):

 ‘A consumer may bring proceedings against the other party to a contract either in the courts of the Member State in which that party is domiciled or, regardless of the domicile of the other party, in the courts for the place where the consumer is domiciled.’

(the extract in bold is the Council’s addition to the Commission proposal)

One assumes that this insertion in Article 16(1) does not trump the Council’s re-insertion of Article 4 (now as noted, 4(a)), hence the counterparty would still have to be domiciled in the EU, for the consumer contracts section to apply.

As far as employment contracts are concerned, here, too, the Council refers to Article 4 (4a), in Article 18(1), however then adds in Article 19(2), that an employer not domiciled in a Member State may be sued in a court of a Member State, either in the courts for the place where or from where the employee habitually carries out his work or in the courts for the last place where he did so, or if the employee does not or did not habitually carry out his work in any one country, in the courts for the place where the business which engaged the employee is or was situated.

This raises a contradiction with respect to employers located outside the EU. Either one follows the Article 4a cue and decides they are out of reach of the JR, or one assumes the new Article 19(2) takes priority.

The latter interpretation would mean that only for employment contracts, the Council follows the Commission’s view and brings non-EU based employers within the reach of the JR. Might that be because in carrying out the contract in the EU, these issues have a stronger territorial EU link?

Geert.

note: I have in a later entry clarified that proposed recital 11f confirms that in fact the consumer title is meant to apply to companies not domiciled in the EU.

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The arbitration exception and the review of the Brussels I Regulation – The Council in denial

The Council in June issued its ‘General Approach‘ on the review of the Brussels I Regulation /the Jurisdiction Regulation – just in time as it happened for June exams . The General Approach is the backbone of what will be the Council Common Position, once the European Parliament has held its ‘first reading’ (which is now scheduled for November 2012, after having been postponed twice: from January 2012 it had already been moved to June). I will be posting one or two comments on the General Approach on this blog, starting with the arbitration exception. For background reading please search the blog for ‘West Tankers’.

Pro memoria: The European Parliament’s rapporteur and the EP in full afterwards suggested no movement on the issue at all, other than a clearer proviso on the arbitration exclusion, specifying that

not only arbitration proceedings, but also judicial procedures ruling on the validity or extent of arbitral competence as a principal issue or as an incidental or preliminary question, are excluded from the scope of the Regulation.

Consequently the rapporteur called for a more robust protection of arbitration, by ring-fencing arbitration in a more aggressive way.

In its eventual proposal on the review of the JR, COM(2010) 748, the European Commission proposed the specific inclusion of a jurisdictional ground for arbitration:

———————————————————————

This Regulation shall not apply to (…)

Arbitration, save as provided for in Articles 29, paragraph 4, and 33, paragraph 3.

 Article 29, paragraph 4, new:

4. Where the agreed or designated seat of an arbitration is in a Member State, the courts of another Member State whose jurisdiction is contested on the basis of an arbitration agreements shall stay proceedings once the courts of the Member State where the seat of the arbitration is located or the arbitral tribunal have been seised of proceedings to determine, as their main object or as an incidental question, the existence, validity or effects of that arbitration agreement.

This paragraph does not prevent the court whose jurisdiction is contested from declining jurisdiction in the situation referred to above if its national law so prescribes.

Where the existence, validity or effects of the arbitration agreements are established, the court seised shall decline jurisdiction.

This paragraph does not apply in disputes concerning matters referred to in Sections 3, 4, and 5 of Chapter II.

 

Article 33:

For the purpose of this Section, a court shall be deemed to be seised (…)

3. For the purpose of this Section, an arbitral tribunal is deemed to be seised when a party has nominated an arbitrator of when a party has requested the support of an institution, authority or a court for the tribunal’s constitution.

 

[author’s note: Sections 3, 4 and 5 referred to in the newly proposed Article 29(4), are the sections dealing with the protected parties: insurance contracts; consumers; employment contracts].

————————————————————————

The June 2012 ‘General Approach’ document by the Council in my view adopts the worst possible scenario. With respect to arbitration, the Council suggests

–       Not to adopt the aforementioned Articles 29, paragraph 4, and 33, paragraph 3 (these suggested amendments would therefore be deleted in their entirety).

–       To include the following in Article 84:

2. This Regulation shall not affect the application of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1985.

–       Finally, to include a recital as follows:

  • “This Regulation should not apply to arbitration. Nothing in this Regulation should prevent the courts of a Member State, when seised of an action in a matter in respect of which the parties have made an arbitration agreement, from referring the parties to arbitration of from staying or dismissing the proceedings and from examining whether the arbitration agreement is null and void, inoperative or incapable of being performed, in accordance with their national law.
  • A ruling given by a court of a Member State as to whether or not an arbitration agreement is null and void, inoperative of incapable of being performed should not be subject to the rules of recognition and enforcement of this Regulation, regardless of whether the court decided on this as a principal issue or as an incidental question. On the other hand, where a court, exercising jurisdiction under this Regulation or under national law, has determined that an arbitration agreement is null and void, inoperative or incapable of being performed, this should not prevent that the court’s judgment on the substance of the matter be recognised and, as the case may be, enforced in accordance with this Regulation. This should be without prejudice to the competence of the courts of the Member States to decide on the recognition and enforcement of arbitral awards in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958, which takes precedence over this Regulation.
  • This Regulation should not apply to any action or ancillary proceedings relating to, in particular, the establishment of the arbitral tribunal, the powers of the arbitrators, the conduct of the arbitration procedure or any other aspects of such a procedure, nor to any action or judgment concerning the annulment, review, appeal, recognition and enforcement of an arbitral award.”

The Council would therefore maintain the principal exclusion for arbitration, and emphasise the priority of the New York Convention. However it also maintains the confusion over the exact scope of the arbitration exclusion. Its curious use of an extended recital basically re-iterates all the points of discussion resulting from the current text and the case-law applying it. Any party wanting to stall, torpedo, or otherwise sabotage proceedings with even a hint of arbitration elements in them, will find itself well served with the proposed recital which ― rather adroitly, it has to be said ― manages to integrate all unsettled points of discussion in a matter-of-factly way which amounts to sheer denial of the problems that arise in practice.

Council reports that it has been in consultation with the Parliament, in the run-up to the General Approach. However one hopes that this recital is not one that the EP would be happy to sign off on.

Geert.

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Court Judgment in Solvay: Roche distinguished, jurisdiction for provisional measures upheld in spite of Article 22(4) JR.

Solvay, case C-616/10 [I reported on the AG’s Opinion here; readers may want to have a quick look at that post before or after reading on], was decided by the Court on Thursday, 12 July. AG and Court revisited a number of old chestnuts in the application of the Brussels I Regulation (the Jurisdiction Regulation or ‘JR’): the exclusive ground of jurisdiction with respect to intellectual property rights, of Article 22(4); multipartite litigation in Article 6 JR; and finally provisional measures, referred to in Article 31.

Solvay accuses Honeywell Flourine Products Europe BV and Honeywell Europe NV of performing the reserved actions in the whole of Europe and Honeywell Belgium NV of performing the reserved actions in Northern and Central Europe. In the course of its action for infringement, on 9 December 2009 Solvay also lodged an interim claim against the Honeywell companies, seeking provisional relief in the form of a cross-border prohibition against infringement until a decision had been made in the main proceedings.  In the interim proceedings, the Honeywell companies raised the defence of invalidity of the national parts of the patent concerned without, however, having brought or even declared their intention of bringing proceedings for the annulment of the national parts of that patent, and without contesting the competence of the Dutch court to hear both the main proceedings and the interim proceedings.

On the applicability of Artice 6 (multipartite litigation), the Court agrees with the AG that Roche still holds: the same situation of law cannot be inferred where infringement proceedings are brought before a number of courts in different Member States in respect of a European patent granted in each of those States and those actions are brought against defendants domiciled in those States in respect of acts allegedly committed in their territory. A European patent continues to be governed, per the Munich Convention, by the national law of each of the Contracting States for which it has been granted.

However in the specific circumstances of a case, Roche may be distinguished: whether there is a risk of irreconcilable judgments if those claims were determined separately, is for the national court to determine. The Court of Justice instructs the national court to take into account, inter alia, the dual fact that, first, the defendants in the main proceeding are each separately accused of committing the same infringements with respect to the same products and, secondly, such infringements were committed in the same Member States, so that they adversely affect the same national parts of the European patent at issue.

On the application of Article 22(4), the Court emphasises the very different and unconnected nature of Article 22 and Article 31. They are part of different titles of the Regulation, etc. However, on the other hand, the application of one part of the Regulation may of course have an impact on the remainder, hence one cannot simply apply different parts of the Regulation in splendid isolation.

The COJ notes that according to the referring court, the court before which the interim proceedings have been brought does not make a final decision on the validity of the patent invoked but makes an assessment as to how the court having jurisdiction under Article 22(4) of the Regulation would rule in that regard, and will refuse to adopt the provisional measure sought if it considers that there is a reasonable, non-negligible possibility that the patent invoked would be declared invalid by the competent court. Hence there is no risk of conflicting decisions: the interim proceedings have been brought will not in any way prejudice the decision to be taken on the substance by the court having jurisdiction under Article 22(4) .

‘…does not make a final decision’: this effectively means that the Court simply states that as long as the main condition of Article 31 is met [measures covered by Article 31 need to be ‘provisional’; see also Case C-261/90 Reichert], Article 22(4) does not interfere with a court’s jurisdiction under Article 31.

Geert.

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Mirror, mirror. Cartesio obiter clarified in Vale. The Court of Justice further completes the corporate migration jigsaw.

Postscript 22 December 2016. Corporate migration also often triggers issues of ‘exit taxation’. Core reference is C-371/10 National Grid Indus (other than Daily Mail of course; referred to below). Grid Indus was referred to extensively by Kokott AG yesterday (21 December) in Case C-646/15 Panayi. Do trust enjoy the protection of the four freedoms even if they do not have distinct legal personality? (Answer Yes). What is Member States’ freedom of manouevre for exit taxation. (Answer in principle untouched. But since such taxation impacts upon freedom of establishment, tax treatment needs to be proportionate).

 

In family law, the status and capacity of a natural person is largely determined by a person’s nationality, which generally stays with it for life, or, particularly in common law countries, by a person’s domicile, which is less fixed but nevertheless assumes strong links with a particularly State. The corporate equivalent of nationality and domicile is the lex societatis. It is the ‘personal law’ or corporate identity of companies [Hartley, T.C., International Commercial Litigation, Cambridge, CUP, 2009, 506.]. It often determines ‘whether the company had been validly created; what its constitution is; what the powers are of its organs, officers and shareholders; whether it has been merged with another company; and whether it has been dissolved.’ [Ibid] These in others words are the corporate equivalents of life and death, capacity, marriage, divorce, adoption etc.

Just as individual may want to change nationality, or acquire another, and face the consequences of their choice under States’ nationality laws, so, too, do companies want to migrate for all sorts of reasons: shareholder structures, fiscal, directors’ liability, etc. They, too, face consequences: the original State (the ‘home’ State) may not want to let go, and put in place al sorts of hurdles for the company to migrate. The new State (the ‘host’ State) may equally be unimpressed with and unwelcoming to the newcomers’ arrival. States’ willingness or not to welcome new arrivals and to say goodbye to those wishing to leave, loosely translates into two main models: the real seat theory, and the incorporation theory.

In the EU, these issues play a particular role as they come within the purview of the freedom of establishment, laid down in Article 49 of the Treaty on the Functioning of the EU (‘TFEU’):

Article 49

(ex Article 43 TEC)

Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.

Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 54, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.

Article 50 TFEU foresees harmonisation to accompany the principal freedom. However the Union legislator (and the Community legislator before it) has not got all that far.

It has therefore, largely been the Court of Justice which has had to establish how far Member States’ freedom of manoeuvre reaches in obstructing corporate migration. In Daily Mail, the Court gave a lot of leeway to Member States on the outbound corporate migration side: the home Member States have a lot of freedom in determining the consequences of corporate migration. By contrast, in Centros, Ǜberseering, and Inspire Art, the Court was much stricter for inbound corporate migration: the host Member State has to have very good, ad hoc reasons for obstructing  freedom of establishment (and services) by insisting on incorporation and /or refusing commercial activities of affiliates, if all the company concerned wants to do, is to do business in the host Member State (rather than actually incorporating). All these cases are referenced in Jääskinen AG‘s Opinion.

In Cartesio, the Court stuck to its perceived dichotomy between in- and outbound migration, despite a plea by Maduro AG to approximate the two. The court then added an obiter in para 112:

‘In fact, in that latter case, the power referred to in paragraph 110 above, far from implying that national legislation on the incorporation and winding-up of companies enjoys any form of immunity from the rules of the EC Treaty on freedom of establishment, cannot, in particular, justify the Member State of incorporation, by requiring the winding-up or liquidation of the company, in preventing that company from converting itself into a company governed by the law of the other Member State, to the extent that it is permitted under that law to do so.’

[the English version of the text in fact is not the clearest]

That obiter got many excited, and confused: do the final words of para 112 imply that the host Member State can choose whether to accept such re-incorporation, or rather, does Article 49 TFEU imply that the host Member State has no choice but to accept such re-incorporation?

In Cartesio, a company incorporated in Hungary wanted to change its operational headquarters to Italy but keep Hungarian incorporation. Hungarian corporate law does not allow for this: a company can keep its Hungarian incorporation but only if it moves headquarters within Hungary. Otherwise it has to dissolve in Hungary and incorporate elsewhere.

The case decided yesterday, Case C-378/10 Vale, is a mirror image (see also Stefan Rammeloo’s bullet-point overview of issues here): an Italian company wants to dissolve in Italy and re-incorporate in Hungary, and it wishes its Italian predecessor to be recognised as its legal predecessor, meaning all rights and obligations of the old company transfer to the new. A procedure which is perfectly possible for Hungarian companies, within Hungary: in particular, by changing company form. Vale’s application for registration was rejected. The obiter in Cartesio led to speculation whether the host Member State is under a duty to co-operate with such conversion (as opposed to Cartesio, which sought to establish the limits to obstruction by the home Member State).

The Court in my view /in my reading of the judgment took a perfectly logical approach to the obiter: ‘to the extent that it is permitted under that law to do so‘ refers to the existence of a national conversion procedure. If nationally incorporated companies may convert and transfer all rights and obligations to the new company, any restrictions on foreign companies employing this mechanism come within the reach of Article 49 TFEU.

There may be reasons for the host Member State to restrict this possibility in specific instances (for reasons of e.g. protection of the interests of creditors, minority shareholders and employees, the preservation of the effectiveness of fiscal supervision and the fairness of commercial transactions: see para 39 of Vale), however none of these apply here: Hungarian law precludes, in a general manner, cross‑border conversions, with the result that it prevents such operations from being carried out even if the interests mentioned in paragraph 39 above are not threatened in any event (para 40).

The host Member State must therefore open the possibility of conversion to foreign registered companies, (only) if it has such conversion possibility in its own corporate laws. Any conditions imposed by national law (documentation, proof of actual economic continuity of operations etc) may also be imposed on these foreign companies, provided this is done in a transparent, non-discriminatory fashion, and in a way which does not jeopardise the actual freedom of establishment.

It is interesting to note that the Court recycled (as it did in Cartesio), the very core Daily Mail quote which explains its hesitation effectively to harmonise corporate law itself, through too drastic an interpretation of Article 49 TFEU:

‘companies are creatures of national law and exist only by virtue of the national legislation which determines their incorporation and functioning‘(Vale, para 27).

No doubt many corporate law implications escape me (see, on the AG’s Opinion, rather excellently Thomas Biermeyer and Thore Holtrichter in the Columbia Journal of European Law here) and will lead to further cases at the Court.

 Geert.
(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 7, Heading 7.6.
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