Posts Tagged abuse
Thank you Tom Whitton and Helen Kavanagh for flagging Algeco Scotsman PIK SA  EWHC 2236 (Ch). Algeco has COMI in Luxembourg. This was clear when the relevant scheme of arrangement (‘SAR’) was being discussed. To manage potential problems at the jurisdictional stage, Hildyard J at 22 lists the precautions the company and the majority of the lenders took:
‘Accepted by the relevant 75 per cent or more, was first, the amendment of the governing law clause in the PIK Loan Agreement to change the governing law from New York law to English law; secondly, the amendment of the jurisdiction clause to submit the parties to the non-exclusive jurisdiction to the courts of England; and thirdly, a waiver of any restrictions under the PIK loan agreement so as to permit the company to take all steps necessary to confirm or establish sufficient connection with England including, if appropriate, to take steps to ensure that its COMI is in England.’
When the unsuspected reader sees ‘COMI’ of course (s)he is forgiven for immediately pondering application of the EU’s Insolvency Regulation – quod certe non: for it is clear (ia as a result of schemes of arrangement not being included in relevant Annex) that SARs fall under company law. Hildyard J’s jurisdictional kick-off at 43 is telling: ‘Dealing first with jurisdiction, the primary question is whether this Luxembourg company, the subject of the scheme, is a qualifying company so to be subject to section 895 of the Companies Act’. Idem at 45.
At 47 the High Court then applies the jurisdictional test viz the Brussels I Recast Regulation arguendo: if it were to apply (which the English Courts have taken no definitive stance on), would an English court have jurisdiction? Yes, it is held: under Article 8 (anchor defendants) and under Article 25 (choice of court).
Yet this in my view is where recourse to SARS in the English courts continues to be exposed: loan agreements and facilities agreements now routinely adopt choice of court and law in favour of English courts and ditto law. Yet where they do not, or did not, the ‘willing’ creditors consent to a change in the agreement in favour of the English courts, with the unwilling creditors left behind. Whether this holds scrutiny under Rome I is far from certain. As for Article 8, its use here may be seen as a form of abuse, disciplined under the Regulation.
Hildyard J considers the case one of ‘good forum shopping’ (at 57-58), with reference to Apcoa which I review here. The concerns above continue in my view to highlight weaknesses in the construction, which so far have not led to any collapse of this restructuring tourism. At 58 the High Court emphasises that there are cases of inappropriate forum shopping in this context (one of that includes haste) yet the role of Rome I in this context has so far played little of a role.
It is noteworthy that in my view (and I so testified in re Apcoa) even a wrong view of the English courts on Rome I’s impact, would not suffice for jurisdictions outside of the UK to refuse to recognise the scheme under Brussels I – all with the huge Brexit caveat evidently.
(Handbook of) EU Private International Law, 2nd edition 2016, Chapter 5.
abuse, Algeco Scotsman PIK SA, Anchor defendant, Article 25, article 8, Brussels I recast, Cram down, financial law, Forum shopping, http://www.bailii.org/ew/cases/EWHC/Ch/2017/2236.html, Insolvency, Insolvency Regulation, insolvency tourism, scheme of arrangement, Schemes of arrangement,  EWHC 2236,  EWHC 2236 (Ch)
Update 15 January 2018: Judgment on 6 February.
Saugmandsgaard ØE’s would seem fast to become the CJEU’s Advocate General of choice in matters of social dumping – witness the recent Ryanair litigation. In C-359/16 Altun, at issue is the binding nature of the E101 certificate. This certifies that a worker moving within the EU is covered by the social security scheme of the Member State (‘MS’) to which the issuing institution belongs. Standing case-law is that the host MS is not entitled to scrutinise the validity of an E101 certificate in the light of the background against which it was issued: this is the result of the mutual trust built into the relevant secondary law.
In current case the Belgian Supreme Court queries whether that case-law applies where a court of the host MS finds that an E101 certificate was obtained or invoked fraudulently.
The AG summarises the relevant investigation at 10: ‘The Sociale Inspectie (Social Inspectorate, Belgium) conducted an investigation into the employment of the staff at Absa NV, an undertaking governed by Belgian law active in the construction sector in Belgium. That investigation established that from 2008 Absa had practically no staff in its employ and outsourced all manual labour to Bulgarian undertakings under subcontracting agreements. Those Bulgarian undertakings had no activities to speak of in Bulgaria and posted workers to work under subcontracting agreements in Belgium for Absa, partly with the involvement and cooperation of other Belgian companies. The employment of the workers concerned was not notified to the Belgian institution responsible for the collection of social security contributions, as they held E 101 certificates issued by the competent Bulgarian authority, certifying that they were covered by the Bulgarian social security system.’
What follows is essentially the Belgian authorities alleging that their Bulgarian counterparts, having been asked to withdraw the certificates, only answered halfheartedly if at all. The Court of Appeal found that the certificates had been obtained by fraud.
Saugmandsgaard ØE emphasises that the EU social security rules at issue effectively establish a private international law system for social security. They assign authorities competent to issue certificates; they designate the social security law applicable. The principle of mutual trust /sincere co-operation, laid down in Article 4(3) TEU, ensures that authorities in the host MS respect the certificates issued in the home MS. However, the AG then effectively flips the coin: sincere co-operation requires sincerity on both sides (my words, not the AG’s).
The AG recalls the Halifax case-law of the CJEU: EU law cannot be relied on for abusive or fraudulent ends and that national courts may, case by case, take account — on the basis of objective evidence — of abuse or fraudulent conduct on the part of the persons concerned in order, where appropriate, to deny them the benefit of the provisions of EU law, in the light of the objectives pursued by the provisions of EU law concerned. [Postscript 22 November 2017: The CJEU confirmed today in C-251/16 Cussens that this principle has direct effect and is directly applicable: it is a general principle of EU law which does not require a national measure transposing it).
The AG does not just refer to case-law on the very secondary law at issue. He opens up the debate to the wider implications of social dumping and regulatory competition:
At 46: ‘socio-economic considerations likewise support priority being given to the combating of fraud in such a situation. In the context of the system of conflict of laws established by … Regulation No 1408/71, fraud linked to the issue of E 101 certificates represents a threat to the coherence of the Member States’ social security schemes. In that regard, I consider that Member States have a legitimate interest in taking appropriate steps to protect their financial interests and to ensure the financial balance of their social security systems. In addition, the use of E 101 certificates obtained or invoked fraudulently is, in my view, a form of unfair competition and calls into question the equality of working conditions on national labour markets.‘ (footnotes omitted)
At 49, the AG suggest a finding of fraud requires the satisfaction of an objective criterion and of a subjective criterion. The objective criterion consists in the fact that the conditions for obtaining the advantage sought are not in fact satisfied. At 51, the subjective factor: it is to be established that the persons concerned had the intention of concealing the fact that the conditions for the issue of the E 101 certificate were not in fact met, in order to obtain the advantage stemming from that certificate. Proof of the existence of such fraudulent intent may consist in an intentional act, in particular an inaccurate presentation of the true situation of the posted worker or of the undertaking posting that worker, or in an intentional omission, such as the non-disclosure of relevant information.
(In the case at issue, the facts point to non-fulfillment of one of the substantive criteria for the E101 to be issued, namely that only an undertaking which habitually carries on significant activities in the Member State in which it is established may be issued an E101 of that State).
The fraud must be established in the context of adversarial proceedings with legal guarantees for the persons concerned and in compliance with their fundamental rights, in particular the right to an effective remedy enshrined (at 52).
If the AG’s Opinion is followed, and taking into account Commissioner Thyssen’s recent progress on the reform of the relevant laws, the social dumping window is closing yet a bit more.
abuse, Altun, Article 4(3) TEU, C-251/16, C-359/16, C-370/17 CRPNPAC, CJEU, Curia, Cussens, E101, ECJ, Fraud, Fraus, home state control, Mutual trust, Regulation 574/72, Regulatory competition, sincere co-operation, social dumping
I reviewed the High Court’s decision in Lungowe here. In  EWCA Civ 1528 the Court of Appeal has now confirmed jurisdiction against the non-UK based defendants on largely the same, if slightly more structured and expanded arguments as the High Court. (Per Owusu, jurisdiction against the UK-based defendant is undeniable; the non-UK defendants need to be joined on the basis of residual English conflicts law).
Ekaterina Aristova has analysis of Simon LJ’s leading judgment here – I am happy to refer. Of particular note is the much more reserved approach of the Court of Appeal on the merits issue of the claim. As I noted in my review of Okpabi v Shell at the High Court, in that case Fraser J looked in serious detail into the issue of merits: not, I believe, justified at the jurisdictional stage. Appeal against Fraser J’s finding will be heard by the Court of Appeal.
European private international law, second ed. 2016, Chapter 8, Headings 22.214.171.124., 8.3.2
abuse, anchor, Anchor defendant, Chandler v Cape, Corporate social responsibility, CSR, environmental damage, Forum non conveniens, High Court, http://www.bailii.org/ew/cases/EWCA/Civ/2017/1528.html, http://www.bailii.org/ew/cases/EWHC/TCC/2016/975.html, lungowe v vedanta, parent company liability, piercing the veil, Pollution, Regulation 1215/2012, Shell,  EWHC 975 (TCC),  EWCA Civ 1528
In line with my previous post (readers unfamiliar with it may want to refer to it; and to very good Hill Dickinson summary of the case), of particular consideration here is the jurisdictional test under (old) Article 6(1) Brussels I, now Article 8(1) in the Recast, in particular the extent of merits review; and whether the subject matter of the claim comes within the succession exception of Article 1(2)(a) of the Brussels I Regulation.
As for the latter, the Court, after reviewing relevant precedent and counsel argument (but not, surprisingly, the very language on this issue in the Jenard report, as I mention in my previous post) holds in my view justifiably that ‘(t)he source of the ownership is irrelevant to the nature of the claim. ..The subject matter of the dispute is not whether Sana is an heir, but whether the defendants have misappropriated her property.‘ (at 161).
With respect to the application of Article 6(1) – now 8(1), the majority held in favour of a far-reaching merits review. Lady Justice Gloster (at 166 ff) has a minority opinion on the issue and I am minded to agree with her. As she notes (at 178) the operation of a merits test within Article 6(1) does give rise to risk of irreconcilable judgments, which can be demonstrated by reference to the present facts. She successfully, in my view, distinguishes the CJEU’s findings in Kolassa and in CDC, and the discussion at any rate one would have thought, merits CJEU review.
(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 126.96.36.199
abuse, Anchor defendant, Anchor defendants, Article 22(2), Bevoegdheid, Brussels I, BVG, C-98/06, Case C-98/06, CJEU, Court of Justice, Curia, ECJ, EEX, EEX Verordening, Exclusive jurisdictional rules, Ferrexpo, Ferrexpo v Gilson, FNC, Forum non conveniens, Freeport, http://www.bailii.org/ew/cases/EWCA/Civ/2017/1120.html, http://www.bailii.org/ew/cases/EWHC/Comm/2014/3233.html, Insolvency, Interpretation, Judgments Regulation, Jurisdiction, Jurisdiction Regulation, merits review, Mirror application, Reflexive application, Regulation 44/2001, Regulation 650/2012, related actions, Roche Nederland, Sabbagh v Koury, Scope of application, Succession regulation, United Kingdom, Wills and succession, Wills and succession exception,  EWHC 3233 (Comm),  EWCA Civ 1120
Postscript 13 June 2017 for a similar scenario in the Italian courts (hearings pending) see here: Ikebiri v ENI.
After Shell/Okpabi, the High Court has now for the second time in 2017 rejected jurisdiction to be established against the foreign subsidiary (here: in Kenya) using the mother company as an anchor. In  EWHC 371 (QB) AAA et al v Unilever and Unilever Tea Kenya ltd, Unilever is the ultimate holding company and registered in the UK. Its subsidiary is a company registered in Kenya. It operates a tea plantation there. Plaintiffs were employed, or lived there, and were the victims of ethnic violence carried out by armed criminals on the Plantation after the Presidential election in Kenya in 2007. They claim that the risk of such violence was foreseeable by both defendants, that these owed a duty of care to protect them from the risks of such violence, and that they had breached that duty.
Laing J unusually first of (at 63 ff) all declines to reject the case on ‘case management’ grounds. Unlike many of her colleagues she is more inclined to see such stay as ignoring ‘through the back door’ Owusu‘s rejection of forum non conveniens. I believe she is right. Instead the High Court threw out the case on the basis that the claims, prima facie (on deciding jurisdiction, the Court does not review the substantial merits of the case; a thin line to cross) had no merit. Three issues had to be decided:
i) By reference to what law should the claim be decided? This was agreed as being Kenyan law.
ii) Are the criteria in Caparo v Dickman  2 AC 605 satisfied? (A leading English law case on the test for the duty of care). The relevance of English law on this issues comes about as a result of Kenyan law following the same Caparo test: as I have noted elsewhere, it is not without discussion that lex fori should apply to this test of attributability. Laing J held that the Caparo criteria were not fulfilled. The events were not as such foreseeable (in particular: a general breakdown in law and order). Importantly, with respect to the holding company and as helpfully summarised by Herbert Smith:
- the pleaded duty effectively required the holding to ensure that the claimants did not suffer the damage that they suffered, and not merely to take reasonable steps to ensure their safety;
- the pleaded duty also effectively imposed liability on that holding for the criminal acts of third parties, and required it to act as a “surrogate police force to maintain law and order”; and
- such a duty would be wider than the duty imposed on the daughter, as the actual occupier of the Plantation, under the Kenyan Occupiers’ Liability Act
At 103, Laing J discussed and dismissed plaintiff’s attempts at distinguishing Okpabi. In her view, like in Shell /Okpabi, the mother’s control is formal control exercised at a high level of abstraction, and over the content and auditing of general policies and procedures. Not the sort of control and superior knowledge which would meet the Chandler test.
iii) Are the claims barred by limitation? This became somewhat irrelevant but the High Court ruled they were not. (This, under the common law of conflicts, was a matter of lex causae: Kenyan law, and requiring Kenyan expert input. Not English law, as the lex fori).
The case, like Okpabi, is subject to appeal however it is clear that the English courts are not willing to pick up the baton of court of prefered resort for CSR type cases against mother companies.
(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 8, Heading 8.3.
2017 EWHC 89 (TCC), abuse, abuse of process, abuse of rights, Anchor defendant, article 7, case management, Chandler v Cape, Corporate social responsibility, CSR, Duty of care, environmental damage, FNC, Forum non conveniens, High Court, http://www.bailii.org/ew/cases/EWHC/QB/2017/371.html, http://www.bailii.org/ew/cases/EWHC/TCC/2017/89.html, Lex causae, lex fori, Locus damni, Locus delicti commissi, Nigeria, Okpabi v Shell, Owusu, piercing the veil, procedural law, Rome II, Shell, Unilever,  EWCA Civ 525,  EWHC 371 (QB)
Where does one look first? : as I reported last week, Ms Kiobel is now taking her US case to The Netherlands (this case essentially involves human rights), at a time when Shell is still pursued in the Netherlands by Milieudefensie, in a case involving environmental pollution in Nigeria.
That latter case now is being mirrored in the High Court in London in Okpabi v Shell  EWHC 89 (TCC). The dual proceedings are squarely a result of the split listing of Shell’s mother company, thus easily establishing jurisdiction in both The Netherlands and London, under Article 4 Brussels I Recast.
The only preliminary issue which the High Court had to settle at this early stage was whether Shell’s holding company, established in the UK, can be used as anchor defendant for proceedings against Shell Nigeria (Shell Petroleum Development Company of Nigeria – SPDC). It held that it could not. The questions dealt with are varied and listed as follows:
1. Do the claimants have legitimate claims in law against RDS?
2. If so, is this jurisdiction the appropriate forum in which to bring such claims? This issue encompasses an argument by RDS that it is an abuse of EU law for the claimants to seek to conduct proceedings against an anchor defendant in these circumstances.
3. If this jurisdiction is the appropriate forum, are there any grounds for issuing a stay on case management grounds and/or under Article 34 of the Recast Regulation in respect of the claim against RDS, so that the claim against SPDC can (or should) proceed against SPDC in Nigeria?
4. Do the claims against SPDC have a real prospect of success?
5. Do the claims against SPDC fall within the gateway for service out of the jurisdiction under paragraph 3.1(3) of CPR Practice Direction 6B?
This issue requires consideration of two separate sub-issues, namely (a) whether the claims against RDS involve a real issue which it is reasonable for the Court to try; and (b) whether SPDC is a necessary or proper party to the claims against RDS.
6. Is England the most appropriate forum for the trial of the claims in the interests of all parties and for the ends of justice?
7. In any event, is there a real risk the Claimants would not obtain substantial justice if they are required to litigate their claims in Nigeria?
In detailed analysis, Fraser J first of all seems to accept case-management as a now established route effectively to circumvent the ban on forum non conveniens per Owuso (see Goldman Sachs and also reference in my review of that case, to Jong and Plaza). Over and above case-management he refers to potential abuse of EU civil procedure rules to reject the Shell Nigeria joinder. That reference though is without subject really, for the rules on joinders in Article 8 Brussel I recast only apply to joinder with companies that are domiciled in the EU – which is not the case for Shell Nigeria.
Of specific interest to this blog post is Fraser J’s review of Article 7 Rome II: the tailor made article for environmental pollution in the determination of lex causae for torts: in the case at issue (and contrary to the Dutch mirror case, which is entirely being dealt with under residual Dutch conflicts law) Rome II does apply to at least part of the alleged facts. See here for my background on the issue. That issue of governing law is dealt with at para 50 ff of the judgment.
For environmental pollution, plaintiff has a choice under Article 7 Rome II. Either lex damni (not appealing here: for Nigerian law; the judgment discusses at some length on the extent to which Nigerian law would follow the English Common law in issues of the corporate veil), or lex loci delicti commissi. This, the High Court suggest, can only be England if two questions are answered in the affirmative (at 79). The first is whether the parent company is better placed than the subsidiary to avoid the harm because of its superior knowledge or expertise. The second is, if the finding is that the parent company is better placed, whether it is fair to infer that the subsidiary will rely upon the parent. With reference to precedent, Fraser J suggest it is not enough for the parent company simply to be holding shares in other companies. (Notice the parallel here with the application of ATS in Apartheid).
The High Court eventually holds that there is no prima facie duty of care that can be established against the holding company, which would justify jurisdiction vis-a-vis the daughter. At 106, the Court mirrors the defendant’s argument: it is the Nigerian company, rather than the holding, that takes all operational decisions in Nigeria, and there is nothing performed by the holding company by way of supervisory direction, specialist activities or knowledge, that would put it in any different position than would be expected of an ultimate parent company. Rather to the contrary, it is the Nigerian company that has the specialist knowledge and experience – as well as the necessary licence from the Nigerian authorities – to perform the relevant activities in Nigeria that form the subject matter of the claim. … It is the specialist operating company in Nigeria; it is the entity with the necessary regulatory licence; the English holding company is the ultimate holding company worldwide and receives reports back from subsidiaries.
Plaintiffs have been given permission to appeal. Their lawyers have indicated to rely heavily on CJEU precedent, particularly T-343/06 Shell v EC. This case however concerns competition law, which as I have reported before, traditionally has had a theory on the corporate veil more easily pierced than in other areas. Where appeal may have more chance of success, I believe is in the prima facie character of the case against the mother company. There is a thin line between preliminary assessment with a view to establishing jurisdiction, and effectively deciding the case on the merits. I feel the High Court’s approach here strays too much into merits territory.
(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 8, Heading 8.3.
2017 EWHC 89 (TCC), abuse, abuse of process, abuse of rights, Anchor defendant, article 7, case management, Corporate social responsibility, CSR, environmental damage, FNC, Forum non conveniens, High Court, http://www.bailii.org/ew/cases/EWHC/TCC/2017/89.html, Locus damni, Locus delicti commissi, Nigeria, Okpabi v Shell, Owusu, Rome II, Shell
Lungowe v Vedanta and Konkola. One lb of Owusu and one lb of Chandler v Cape make for a powerful potion.
Here’s the recipe for Lungowe v Vedanta at the High Court.
Obtain one lb of C-291/02 Owusu: European authority: forum non conveniens has no place in the Brussels jurisdictional regime; particularly now in Article 4 of the Brussels I Recast for as Coulson J points out at 57 in his judgment in Lungowe, Articles 33-34 of the Recast Regulation do foresee consideration in the event of parallel proceedings outside of the EU.
Mix with one lb of Chandler v Cape : English authority: parent companies may in circumstances be held liable for the actions of their foreign subsidiaries; referred to with approval by the Dutch Courts in Shell.
Have Zambian claimants in a case of environmental pollution employ Article 4 to establish jurisdiction against a holding company established in England. The company is a holding company for a diverse group of base metal and mining companies, including the second defendant, Konkola.
The fact that Vedanta are domiciled in the United Kingdom is, evidently, one of the principal reasons why they have been pursued in these proceedings (see Coulson J’s acknowledgment of same at 76). This is a manifestation of forum shopping which the CJEU has certainly encouraged. Moreover, as Coulson J suggests at 77-78, claimants also wish to pursue Vedanta because they are seen as the real architects of the environmental pollution in this part of Zambia. The argument is that, since it is Vedanta who are making millions of pounds out of the mine, it is Vedanta who should be called to account. On balance, the use of Vedanta as an anchor defendant can hardly be seen as a malicious ‘device’ or an abuse of the anchor defendant mechanism.
On that issue of abuse, reference is made by the High Court to Freeport and to CDC at the CJEU. There is no suggestion of course that either are direct precedent for the anchor defendant mechanism in residual national private international law. (Which is the case here: for the Brussels Recast joinder mechanism in Article 7 most certainly does not apply to defendants domiciled outside of the EU). It is telling therefore that the Court does refer to them here. (And inevitably raises the question whether English Court will continue to do so after Brexit).
European private international law, second ed. 2016, Chapter 8, Headings 188.8.131.52., 8.3.2
abuse, anchor, Anchor defendant, Chandler v Cape, Corporate social responsibility, CSR, environmental damage, Forum non conveniens, High Court, http://www.bailii.org/ew/cases/EWHC/TCC/2016/975.html, lungowe v vedanta, parent company liability, piercing the veil, Pollution, Regulation 1215/2012, Shell,  EWHC 975 (TCC)
- COMI in NIKI. 10/01/2018
- Airia Brands Inc v Air Canada: jurisdiction and certification of global classes. 09/01/2018
- Sharia divorce and Rome III. The CJEU in Sahyouni. 08/01/2018
- The RBS rights issue litigation: A missed opportunity for choice of law re privilege to go up to the UKSC. 04/01/2018
- Unstunned slaughter and EU law. Wahl AG finds no justification for total ban. 29/12/2017
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