Oeltrans Befrachtungsgesellschaft v Frerichs: the CJEU on the reach of lex contractus as a shield against the lex concursus’ pauliana (avoidance action).

Update 28 April 2021 see Giles Cuniberti’s critique of the implications of A13 EIR (contract law trumps insolvency law) here.

In C-73/20 Oeltrans Befrachtungsgesellschaft v Frerichs the CJEU held yesterday – no AG Opinion had been requested.

Applicant ZM has been the liquidator in the insolvency of Oeltrans Befrachtungsgesellschaft, established in Germany. Insolvency proceedings had been opened in April 2011. The Oeltrans group includes Tankfracht GmbH, also established in Germany. An inland waterway contract (a charter party) existed between Tankfracht and Frerich, established in the Netherlands, under which Tankfracht owed Frerich EUR 8 259.30. Frerich was to transport goods by vessel for Tankfracht from the Netherlands to Germany. In November 2010, Oeltrans paid Frerich the sum owed by Tankfracht,  ‘on the order of Tankfracht’. The application does not give any detail as to the circumstances of that ‘order’.

The liquidator seeks the repayment of that sum on the basis of the lex concurcus’, German law, insolvency pauliana. Frerichs contend that on the basis of A16 European Insolvency Regulation (‘EIR’) 2015 (in fact, the A13 almost identical version of the EIR 2000), such as applied ia in C-54/16 Vinyls Italia), Dutch law, the charter party’s lex contractus per the Rome I Regulation, shields it from the German Pauliana.

The core question is whether the impact of that lex contractus extends to payments made by third parties. In technical terms: whether effective contractual performance by third parties, is part of A12(1)b Rome I’s concept of ‘performance’ of the contract being within the scope of the lex contractus.

The CJEU, referring to Lutz and Nike, confirms the restrictive scope of A16 EIR. At 31-32 however it upholds the effet utile of A16, which as ia confirmed in Vinyls Italia, is to protect the legitimate expectations of a party contracting with a counterparty who subsequently enters insolvency proceedings, that the contract will continue to be governed by the lex contractus, not the lex concursus. ‘Performance’ per A12 Rome I is held to include performance by a third party. Many scholarly sources support the same conclusion, and e.g. Plender and Wilderspin, as well as McParland refer in support to the Guiliano-Lagarde report to the Rome Convention. I realise the CJEU does not refer to scholarly sources yet surely it could have referred to the Giuliano-Lagarde report to shore up its conclusions so succinctly formulated.


EU Private International Law, 3rd ed. 2021, para 3.98, paras 5.132 ff.

Vinyls Italia. A boon for conflict of laws (with a fraus component) and important findings on the insolvency Pauliana.

Another one from the exam queue. I reported earlier on Szpunar AG’s Opinion in C-54/16 Vinyls Italia – readers may want to refer tot that post before reading on. The case concerns the extent to which a bona fide creditor may insulate payments made to it by the insolvent debtor, to the detriment of the collectivity of the creditors, using choice of law for its contract with the debtor away from the lex concursus. The Court held on 8 June, much along the lines of its AG and earlier precedent especially Nike with respect to anti-avoidance actions. The judgment therefore is not of great novelty for this part of the insolvency Regulation. It is on the other hand of crucial importance for the interpretation of ‘international’ in European private international law.

Firstly, whether the court hearing the insolvency proceedings can or must raise the Article 13 (now 16) even if the party profiting from the insulation of its payments from the insolvency, has failed expressly to do so in its submissions. This, the CJEU held, is a matter of procedure, not harmonised in the Insolvency Regulation and lex fori therefore, subject to the usual condition that effet utile is guaranteed and that EU law is equally applied as national law.

The Court had already held in Nike that the defendant in an anti-avoidance (Pauliana) action has to prove both the facts from which the conclusion can be drawn that the act is unchallengeable and the absence of any evidence that would militate against that conclusion (at 25). The Court in Vinyls Italia qualifies that statement: the party bearing the burden of proof must show that, where the lex causae makes it possible to challenge an act regarded as being detrimental, the conditions to be met in order for that challenge to be upheld, which differ from those of the lex fori concursus, have not actually been fulfilled. However defendant does not have to show that the lex causae does not provide, in general or in the abstract, any means to challenge the act in question: such means of challenging the act almost always exist, at least in the abstract, and such strict interpretation would therefore deprive Article 13 (now 16) of its effectiveness (at 38). Of course how wide exactly the net of voidness needs to be cast, is not entirely clear from the judgment.

The final question then deals with the possibility of relying on (now) Article 16 in the situation provided for in Article 3(3) of the Rome I Regulation, that is to say, where all the elements relevant to the situation in question between the parties to a contract are located in a country other than the country whose law is chosen by those parties. Now, the Rome I Regulation does not ratione temporis apply to the facts at issue and on the similar provisions of the Rome Convention, the referring court is not entitled to ask questions. The CJEU therefore decides to simply reply to the question of this being a purely domestic contract, by reference to Article 16 of the insolvency Regulation only. It nevertheless however uses both Regulation and Convention a contrario. Both existed at the time of adoption of the Insolvency Regulation. The latter does not include an Article 3(3) type provision. That it does not, must, the Court held, mean that the Insolvency Regulation saw no need at all to limit the use of lex contractus for insulation reasons, even in the case of purely domestic contracts.

There is however one condition: Fraus (omnia corrumpit) aka abuse of (EU) law. Here, the Court refers to its findings last summer in C‑423/15 Kratzer. EU law cannot be relied on for abusive or fraudulent ends. A finding of abuse requires a combination of objective and subjective elements. First, with regard to the objective element, that finding requires that it must be apparent from a combination of objective circumstances that, despite formal observance of the conditions laid down by EU rules, the purpose of those rules has not been achieved. Second, such a finding requires a subjective element, namely that it must be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain an undue advantage.

Here, Article 16 may be disregarded only in a situation where it would appear objectively that the objective pursued by that application, in this context, of ensuring the legitimate expectation of the parties in the applicability of specific legislation, has not been achieved (a tough condition if the lex contractus is wisely chosen), and that the contract was made subject to the law of a specific Member State artificially, that is to say, with the primary aim, not of actually making that contract subject to the legislation of the chosen Member State, but of relying on the law of that Member State in order to exempt the contract, or the acts which took place in the performance of the contract, from the application of the lex fori concursus. In this respect (at 55), choice of law of a Member State other than the Member State in which parties are established does not create any presumption regarding an intention to circumvent the rules on insolvency for abusive or fraudulent ends.

The findings on fraus amount to strong support for a wide interpretation of the concept ‘international’ in EU private international law. (That an entirely Italian situation was made ‘international’ simply by choice of law ex-Italy was not considered an issue). A development to be applauded. These same findings also make it very difficult within the context of Article 13 (now 16) successfully to mount a challenge of payments detrimental to the collectivity. This aspect of the case is what i.a. Gilles Lindemans objects to in the judgment. However the CJEU logic I suppose lies in what it sees firmly as the object and purpose of Article 16: it protects the legitimate expectations of the party who has benefitted from an act detrimental to all the creditors. In some way it prevents contractual sclerosis for parties suspected of being close to payment issues. Securitisation is facilitated if the lex causae is fixed, independent of the lex concursus. Not just fraus (a very improbable route now) but probably more importantly the burden of proof per C-310/14 Nike, protects the collectivity.


(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5, Heading 5.7.1. Chapter 3, Heading

Spizz v Goldfarb. Applying the US presumption against extraterritoriality in bankruptcy cases.

Charles Oellermann has excellent analysis of Spizz v. Goldfarb Seligman & Co. (In re Ampal-Am. Israel Corp. 562 B.R. 601 (Bankr. S.D.N.Y. 2017). The U.S. Bankruptcy Court for the Southern District of New York ruled that the avoidance provisions of the Bankruptcy Code do not apply outside the U.S. because, on the basis of the language and context of the provisions, Congress did not intend for them to apply extraterritorially. In so holding, it applied the Morrison test which was central to the United States’ Supreme Court ruling in Kiobel, which of course has been the subject of repeated analysis on this blog.

Whether an avoidance action (which in civil law jurisdictions would be tackled by an actio pauliana) is extraterritorial in and of itself, is not easily ascertained. In his review, Charles has superb overview of case-law applying a centre of gravity test: depending on the facts of the case, parties’ action does or does not take place outside the US in relation to the parties’ domicile, the subject of the transaction, etc.  He also rightfully highlights that courts are aware that even if one were to apply the provisions extraterritorially, a US judgment might not be easily enforced against foreign debtors.

Case-law is evidently not settled and one imagines that the extraterritoriality of bankruptcy laws will in some form further end up at the USSC.