Tag: abusive forum shopping

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East-West Logistics v Melars. A good reminder of the strength of a company’s place of incorporation as a presumption of Centre of Main Interests (insolvency).

A bit of a late follow-up to a 1 November Tweet but hey ho, I have been a tad busy and it is nevertheless good to still have the post up.

East-West Logistics Llp v Melars Group Ltd [2022] EWCA Civ 1419 is a good reminder of the importance of ascertainability by third parties for determination of a corporation’s Centre of Main Interests – COMI. The appeal against Miles J’s finding in [2021] EWHC 1523 (Ch) was rejected and Malta as place of COMI confirmed.

The Company was incorporated in the British Virgin Islands -BVI and entered into a charterparty with the Petitioner in December 2011 for a shipment to Turkmenistan. The address of the Company in the charterparty was stated to be in the BVI. The charterparty contained a clause providing for disputes to be resolved by arbitration in London under English law. Following a disputed shipment, the Petitioner tried to but failed to launch LCIA arbitration (the tribunal holding it did not have jurisdiction), followed by successful proceedings in BVI resulting in a judgment in default against the company, which the latter later managed to have set aside. Without notifying the Petitioner, the Company had in the meantime moved its place of incorporation, and hence its registered office, to Malta.

On 19 July 2016 the Petitioner then presented a winding up petition in London based upon its BVI judgment debt. The Petition alleged that COMI of the Company was in the UK, citing pro UK as COMI [11] (prima facie rather flimsily) that i) the six commercial contracts concluded by the Company of which the Petitioner was aware (including its own charterparty) were in the English language, were governed by English law and had arbitration clauses providing for arbitration in London; and ii) the Company participated in the LCIA arbitration in London and was represented by a London firm (or firms) of solicitors. Against Malta as COMI, it suggested i) the Company did not actually have an office there, its registered office address being that of a Cypriot law firm providing company administration services; ii) the Company did not have any employees or conduct any business in Malta; iii) the Company’s sole director was a nominee who was a Swiss national, resident in South Africa; and iv) the Company’s sole shareholder and principals were Russian.

Baister J made a winding-up order, citing [20] the forum shopping background and the corporation not much being involved in physical, rather virtual trade, deciding ‘ by a narrow margin and with misgivings, that on balance the greater use of English law for contracts, the greater use of London as a seat of arbitration, the actual recourse to or forced involvement in legal proceedings here and the consequential use of English lawyers makes the UK, on the balance of probabilities, the main centre of those interests. The company’s affairs seem to have been conducted in this country more than in Switzerland [SW plays a role because of a Swiss national, GAVC],  certainly as far as contractual and litigation interests were concerned, although it is, I accept, hard to be precise.”

That judgment was overruled on appeal, with Miles J concluding ‘that Judge Baister had erred in principle in three ways in his approach to the determination of the Company’s COMI. The first was in relation to the importance of the presumption in Article 3(1), the second was in relation to the concept of ascertainability, and the third was in failing to distinguish between matters of administration of the company’s interests and matters going to the operation of its business.’

Upon further appeal, Lewison LJ agreed with Miles J. [46] ‘lack of evidence that the debtor actually carries out any activities at the place of its registered office does not allow the court to ignore or disregard the legal presumption under Article 3(1).’

He is right! [47] ‘The court must be alert to detect fraudulent or abusive forum shopping by purported changes of COMI by a debtor’ however ‘the question in such cases is whether the move of COMI is real or illusory. It is not whether the move of the debtor’s registered office is real or illusory.’

[63] “the court should not invent a hypothetical “typical” third party creditor with “average” or “normal” characteristics, and form a view on what might (or might not) have been apparent to that creditor in the course of a notional dealing by him with the company. Neither the EU Regulation nor the jurisprudence of the CJEU refer to the concept of a “typical” creditor, but refer instead, and more generically, to “creditors” or “third parties”.”

[80] “none of the factors relied upon by the Petitioner were, individually or collectively, sufficient to establish that the Company actually conducted the administration of its interests on a regular basis in England (or any other particular location) so as to displace the presumption in favour of Malta under Article 3(1).”

One’s intuition in a case like this may be not to have much sympathy for a corporation engaging in COMI /seat forum shopping. However that intuition is not reflected in the Regulation’s presumptive treatment of incorporation as COMI.

Geert.

EU Private International Law, 3rd ed. 2021, Heading 5.6.1.

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Teva UK v Novartis. Court of Appeal confirms restraint in abetting forum shopping in aid of German proceedings.

The Court of Appeal in Teva UK Ltd & Anor v Novartis AG [2022] EWCA Civ 1617 has reaffirmed the principle that while it is not as such unkosher to petition the English courts subsequently to use the spin-off value of that judgment in other jurisdictions (related in some way to using English courts for discovery purposes), it is not proper for E&W courts to make a declaration solely for the purpose of influencing a decision by a foreign court on an issue governed by the law of that very foreign court (here: Germany).

In the case at issue, the claim involves an Arrow declaration (a declaration that a product, process or use was lacking in novelty or obvious as at the priority date of a patent application) with respect to a German patent (admittedly subject to European law which is largely harmonised with the UK approach).

Per Arnold LJ [51-52]

It is not the function of the courts of England and Wales to provide advisory opinions to foreign courts seised of issues which fall to be determined in accordance with their own laws. The English courts have no special competence to determine such issues. If anything, it is likely that they have less competence than the local courts. It makes no difference that the English court and the foreign court are applying the same basic law. Furthermore, comity requires restraint on the part of the English courts, not (to adopt Floyd LJ’s graphic phrase) jurisdictional imperialism. Otherwise the English courts would be enabling forum shopping.

In saying this, I am assuming that the parties have full and unimpeded access to the foreign court. I recognise that the position might possibly be different if that were not the position; but it is not necessary to consider this further for the purposes of the present case, since there is no suggestion that either of these parties lacks full and unimpeded access to the courts of Germany or Country A.

Geert.

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Galapagos Bidco v DE. The CJEU fails to clarify whether move of COMI by mere market notice, may be effective.

Krzysztof Pacula reported end of March on CJEU C-723/20 Galapagos Bidco v DE and justifiably highlighted the Brexit issue. The case concerns a move of COMI – centre of main interest within the context of the Insolvency Regulation 2015/848 and it is on the element of impromptu move that my post will focus.

Galapagos SA is a Luxembourg holding company whose centre of administration (‘effective place of management‘ according to the former directors) was moved in June 2019, at least so contend previous directors, to England. At the end of August 2019, they apply to the High Court in England and Wales to have insolvency proceedings opened.

Echos of the tussle are here and of course also in Galapagos Bidco SARL v Kebekus & ors [2021] EWHC 68 (Ch). The day after the move of centre of administration, the former directors were replaced with one other, who moved centre of administration to Dusseldorf and issued relevant market regulation statements to that effect. This move was subsequently recognised  by the Courts at Dusseldorf as having established COMI there. The High Court action in London was never withdrawn and would seem to have been dormant since.

Applicant in the proceedings is Galapagos BIDCO Sarl, a creditor of Galapagos SA. It is I understand (but I am happy to be corrected by those in the know) Luxembourg based. As Krzysztof reports, it contests that the German move has effected move of COMI which it argues lies in England (although I fail to see how its reasoning should not also apply to the earlier instant move from presumably Luxembourg to England).

The question that arises is whether, in the determination of the centre of a debtor company’s main interests, specific requirements must be imposed to prevent abusive conduct. Specifically, in the light of the Regulation’s stated aim of preventing forum shopping, whether ‘on a regular basis’ in the second sentence of the first subparagraph of Article 3(1) Insolvency Regulation 2015, presupposes an adequate degree of permanence and is not present if the establishment of a centre of administration is pursued at the same time as a request to have insolvency proceedings opened. Respondents in the appeal, which include the insolvency administrator (trustee) contend that the requirement of administration ‘on a regular basis’ is fulfilled if the administration is permanent.

The CJEU unfortunately fails to answer that question, choosing to reply instead with a hierarchical answer which encourages race to court: [36]

the court of a Member State with which a request to open main insolvency proceedings has been lodged retains exclusive jurisdiction to open such proceedings where the centre of the debtor’s main interests is moved to another Member State after that request is lodged, but before that court has delivered a decision on that request, and that, consequently, where a request is lodged subsequently for the same purpose before a court of another Member State, that court cannot, in principle, declare that it has jurisdiction to open such proceedings until the first court has delivered its decision and declined jurisdiction.

However in the case at issue, the Withdrawal Agreement has the effect that if the High Court has not, as it would seem, taken its decision on the opening of proceedings prior to the end of Brexit Implementation Day 1 January 2021 (CET), the German courts need no longer apply that consequence of mutual trust and are at liberty to determine the existence of COMI.

The CJEU ends by suggesting Q1 no longer needs answering. Yet I think it does. Perhaps not so much for the case at issue (which explains why the judicially economical CJEU does not offer a reply). The German courts, as Zacaroli J notes in his decision [14], held in October 2019 that COMI for GAS has successfully moved to Germany as from 25 August 2019, the day the capital market and bondholders were informed that the centre of administration had been moved to Düsseldorf. Yet the file does not suggest that COMI prior to the attempted move, existed in either the UK or Germany: it was allegedly established in Germany following the new director’s decision, which reversed an earlier impromptu decision by the former directors to ostensibly at least move COMI to the UK. In accordance with the Regulation’s presumptions, COMI would have previously existed in Luxembourg. The element of ‘on a regular basis’ therefore still matters. Is the CJEU suggesting that a mere information of the capital markets suffices to move COMI?

Geert.

EU Private International Law, 3rd ed. 2021, Heading 5.6.1.

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Abusive forum shopping in defamation suits. The Parliament study on SLAPPs.

Strategic Lawsuits Against Public Participation – SLAPPs (I look at them comparatively in my Monash Strategic and Public Interest Litigation Unit, LAW5478) are a well-known tool to silence critics. Based on defamation, they (or the threat with them) aim to shut down the voice of opposition. Not many find the energy, financial resources and nerves to fight a protected libel suit in court.

The EP recently published the study led by Justin Borg-Barthet and carried out by him and fellow researchers at the University of Aberdeen. At the substantive level, distinguishing between SLAPPs and genuine defamation suits is not straightforward. As Justin et al point out, there is an important private international law element to the suits, too. Clearly, a claimant will wish to sue in a claimant-friendly libel environment. Moreover, where a deep-pocketed claimant can sue in various jurisdictions simultaneously, this compounds the threat.

The Brussels and Lugano regime is particularly suited to the use of SLAPPs as a result of the CJEU case-law on Article 7(2) forum delicti. The Handlungsort /Erfolgort distinction as such already tends to add jurisdictional gateways. In more recent years this has been compounded by the additional ‘centre of interests’ gateway per CJEU e-Date and Bolagsupplysningen – even if this was recently somewhat contained by the Court in Mittelbayerischer Verlag. As I have flagged before, Brussels Ia’s DNA is not supportive of disciplining abusive forum shopping, as illustrated ia in competition law and intellectual property law cases.

For these reasons, the report (Heading 4, p.33 ff) suggests dropping the availability of Article 7(2) and sticking to Article 4 domicile jurisdiction, supplemented with (unlikely) choice of court.

The European Parliament more than the European Commission has picked up the defamation issues both for BIa and for applicable law under Rome II (from which the issue is hitherto exempt; the report reviews the applicable law issues, too). It remains to be seen whether with this report in hand, Parliament will manage to encourage the EC to pick up the baton.

Geert.

EU Private International Law, 3rd ed. 2021, para 2.431 ff, 4.24 ff.

 

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