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 concursus, 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.

Geert.

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

Canary Wharf Limited v European Medicines Agency. High Court holds Brexit is a seismic, but not a frustrating event. (Engages Rome I’s Article 12, and vires issues per lex loci corporationis).

Update 5 July 2019 EMA have dropped their appeal following settlement.

In [2019] EWHC 335 (Ch) Canary Wharf Limited v European Medicines Agency Smith J earlier this week held that Brexit is a seismic, but not a frustrating event under English contract law (at 241). The Agency’s lease would not be discharged by frustration upon Brexit and neither does EMA’s move to Amsterdam constitute a frustrating event. The EMA is to honour its lease obligations.

At 186 brief mention is made of the usefulness of Article 12 Rome I (which lists the isused covered by the lex contractus): Article 12 of the Rome I Regulation provides that the law applicable to a contract by virtue of the Regulation governs – among other things – the “performance” of the contract and “the various ways of extinguishing obligations”. Both are subject therefore to English law (a choice of law clause in the contract, and the premises being in England) whichever way one classifies the theory of frustration.

At 187 the discussion is however extended to the issue of supervening illegality under a foreign law that is not the applicable law. The capacity of a corporation to exercise specific rights is determined – at least in the first instance – by the constitution of the corporation, which is itself governed by the law of the place of incorporation: lex loci corporationis. This itself is discussed at 130 ff, leading to interesting views on the status of EU law in the UK post Brexit and, one infers, a finding that ‘EU law’ is the lex loci corporationis. EMA’s argument then is that under EU law it would be acting ultra vires to continue the lease outside the EU’s territory.

At 188: ‘The question, then, is whether – assuming that the EMA is right as regards the points it makes on vires – these are relevant for the purpose of frustration by way of supervening illegality. The question is whether the English law of frustration, which has regard to questions of legality where the performance of the contract would be unlawful according to the law of the place of performance, should also have regard to the law of incorporation, at least where this affects the capacity of a party to continue to perform obligations under a transaction lawfully entered into by it.’ Smith J after discussing precedent, at 189 holds that it cannot. 

Geert.

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

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