Tag: Article 24

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BSH Hausgeräte v Electrolux. An opportunity for the CJEU to clarify reflexive effect of exclusive jurisdictional rules, and stays under Article 24(4) (intellectual property law).

I mentioned the pending case C-339/22 BSH Hausgeräte v Aktiebolaget Electrolux yesterday at our excellent (if I say so myself) Max Planck Institute – EAPIL – KU Leuven workshop on Brussels Ia reform. Questions referred, are

Is Article 24(4) [BIA] to be interpreted as meaning that the expression ‘proceedings concerned with the registration or validity of patents … irrespective of whether the issue is raised by way of an action or as a defence’ implies that a national court, which, pursuant to Article 4(1) of that regulation, has declared that it has jurisdiction to hear a patent infringement dispute, no longer has jurisdiction to consider the issue of infringement if a defence is raised that alleges that the patent at issue is invalid, or is the provision to be interpreted as meaning that the national court only lacks jurisdiction to hear the defence of invalidity?

Is the answer to Question 1 affected by whether national law contains provisions, similar to those laid down in the second subparagraph of Paragraph 61 of the [Swedish] Patentlagen (Patents Law), which means that, for a defence of invalidity raised in an infringement case to be heard, the defendant must bring a separate action for a declaration of invalidity?

Is Article 24(4) [BIa] to be interpreted as being applicable to a court of a third country, that is to say, in the present case, as also conferring exclusive jurisdiction on a court in Turkey in respect of the part of the European patent which has been validated there?

BSH hold a European patent relating to a vacuum cleaner. The patent has been validated in Austria, Germany, Spain, France, the United Kingdom, Greece, Italy, the Netherlands, Sweden and Turkey. Electrolux of Sweden has subsidiaries in a number of other Member States, such as Germany. A number of disputes have arisen between BSH and companies in the Electrolux group concerning the patent in question. Inter alia, the European patent validated in Germany was invalidated in 2020 by a German court at the request of a subsidiary of Electrolux. That judgment has been appealed.

On 3 February 2020, BSH brought an action against Electrolux before the Patents and Market Court in Sweden and claimed inter alia that Electrolux should be prohibited from using the patented invention in all the abovementioned States and ordered to pay reasonable compensation for the unlawful use. BSH also claimed compensation for the additional damage caused by Electrolux’s alleged patent infringement. Electrolux argue that the Court should dismiss the action in relation to the foreign parts of the patents. In its view the foreign patents are invalid and the Swedish court therefore lacks jurisdiction to hear infringement actions concerning those patents.

End of December 2020 the court agreed, citing A24(4) viz the EU patents (the claim being issued prior to Brexit implementation day, this includes the UK) and ‘an internationally accepted principle of jurisdiction’ (in essence, the Moçambique rule) viz the Turkish patent.

BSH of course appeal.

A asked students in the August resit exams how they think the CJEU should answer. On Q1 I would expect them to cite the need to interpret A24 restrictively, with reference to one or two cases confirming same (there are plenty); and the lack of solution in the Brussels Recast. Contrary to what Electrolux contend, a proposal to allow a court to merely stay the case pending the foreign court’s decision on validity, was never rejected. Such a proposal was never made. BIa merely confirmed CJEU Gat v Luk’s holding that exclusive jurisdiction kicks in regardless of whether the argument of invalidity is introduced as a claim of by way of defence.

On Q2 I would like to seem them argue something to the effect that national CPR must not infringe the effet utile of BIa. (Only) if the effect of the Swedish rules is that it requires the defendant to initiate IPR invalidity claims in all the relevant States, or lose its possibility of an invalidity defence, this would in my view run counter BIa’s intention and scope.

Finally, on the 3rd Q they should engage with the lack of BIa clarification on reflexive effect, other than in the strict confines of A33-34 and its related recitals. Relevant case-law of course includes Ferrexpo and Central Santa Lucia L.C. v. Meliá Hotels International S.A. Interested readers may wish to consult Alexander Layton KC’s most excellent paper on same. Some students may refer to the UPC developments and the jurisdictional consequences in Article 71 BIa (operational 2023?).

Geert.

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Heslop v Heslop. A reminder of the constraints of the Moçambique rule for rights in rem, and (obiter) on joining a pre-Brexit with a post-Brexit claim under the Withdrawal Agreement.

Update 21 03 2023 for the consequential issues see Heslop v Heslop [2023] EWHC 544 (Ch).

Heslop v Heslop & Anor [2021] EWHC 2957 (Ch) essentially queries whether Deceased testator actually had any estate or interest in Jamaican Property which she could pass by will.

Under the Moçambique rule (after British South Africa Co v Companhia de Moçambique [1893] AC 602) an English court will not, as a matter of its own limits to jurisdiction, by and large determine matters of title to foreign land. The purpose of the rule is the maintenance of comity and the avoidance of conflict with foreign jurisdictions. The rule has been discussed on the blog before and it finds its EU equivalent of course in Article 24  Brussels Ia.

After considering the rule and the facts of the case, Dray DM holds it is not triggered here for [51-52]

the relief sought (across the two claims) is relief of an in personam nature in a dispute between the two central protagonists, the Second Defendant (the asserted trustee) and the Claimant (the asserted beneficiary) under the asserted trust. The fact that the land in question is situated in Jamaica does not preclude this court from having jurisdiction to hear the claim. The proceedings do not involve any determination of rights in rem. They do not assert a property right which is by its nature enforceable against third parties and they do not purport to bind strangers/third parties. For instance, no possession order, effective against the world at large, is sought (and none could be granted by this court). Neither is any order directed to the Jamaican Land Registry claimed (ditto). The court is only asked to resolve a dispute between those before it, the proceedings being based on an alleged personal (trust) relationship between the Claimant and the Defendants.

Obiter he then [57ff] considers forum non conveniens (argued in fact by neither parties), with the complication [63] that the two claims before the court have not been consolidated and are thus separate claims, albeit proceeding together, and that the first claim was commenced before the end of the Brexit transition period whereas the second claim was commenced afterwards. The judge holds (again: obiter) [68] (seeing also that no consolidation has been sought) that the former claim needs to be assessed viz BIa and the latter viz the post-Brexit rules, [74 ff] that under BIa A24 is not engaged for the same reason as the Moçambique rule, and [72] that if it had been, he would have been minded to follow (with all the necessary caveats  Kennedy v National Trust for Scotland‘s reflexive application.

Geert.

EU Private International Law, 3rd ed. 2021, para 2.208.

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Judgment in Kerr v Postnov(a): a surprisingly swift conclusion on Article 24 and ‘services’ in Brussels Ia /Rome I.

My review of Kokott AG’s Opinion C-25/18 Brian Andrew Kerr v Pavlo Postnov and Natalia Postnova (Kerr v Postnov(a)) discussed, as did the AG, the application of Brussels I Recast’s Articles 24(1) and (2) exclusive jurisdictional rules, cq the application of Article 7(1) jurisdictional rules on contracts, and applicable law consequences of same. The Court ruled on 8 May.

Coming to the first issue: Article 24(1)  – this is not properly answered by the Court.

I signalled the potential for engineering even in Article 24 cases: particularly here, the prospect of adding an enforcement claim to an otherwise contractual action. At 37-38 the Court deals most succinctly with this issue: ‘in so far as the action which gave rise to the dispute in the main proceedings does not fall within the scope of any of those actions, but is based on the rights of the association of property owners to payment of contributions relating to the maintenance of the communal areas of a building, that action must not be regarded as relating to a contract for a right in rem in immovable property, within the meaning of Article 4(1)(c) of Regulation No 593/2008.’: ‘in so far as’ – ‘dans la mesure où’: the Court would seem to dodge the issues here which the AG did discuss, in particular vis-a-vis the enforcement accessory: that discussion I feel is not over.

Note also the straight parallel which the Court makes between lex contractus under Rome I and Article 24. 

The discussion of Article 24(2) does lead to a clear conclusion: the forum societatis is not engaged. However on Rome I the Court does not follow the AG, with specific reference to the Lagarde report (at 33-34). Unlike its AG if finds that Rome I’s lex societatis exception is not engaged.

As for Article 7(1) forum contractus: at 27 usual authority going back to Handte assists the Court in its conclusion that ‘even if membership of an association of property owners is prescribed by law, the fact remains that the detailed arrangements for management of the communal areas of the building concerned are, as the case may be, governed by contract and the association is joined through voluntary acquisition of an apartment together with ownership shares of the communal areas of the property, so that an obligation of the co-owners towards the association of owners, such as that at issue in the main proceedings, must be regarded as a legal obligation freely consented to’ (at 27). At 28: ‘the fact that that obligation results exclusively from that act of purchase or derives from that act in conjunction with a decision adopted by the general assembly of the association of the owners of property in that building has no effect on the application of Article 7(1)(a)’.

At 39-40 the Court then swiftly comes to the conclusion of ‘services’ under Article 4(1)(c) Rome I, without much ado at all. The AG had opined that the non-uniform nature of the contributions leads to non-application of the service rule of Article 7(1)b BruIa and therefore a resurrection of the classic Tessili formula: the CJEU itself went for the acte clair route.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.6, 2.2.11.1

 

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Kokott AG in Kerr v Postnov(a): How house association meetings turn into a jurisdictional and applicable law potpourri.

Advocate General Kokott opined end of January in C-25/18 Brian Andrew Kerr v Pavlo Postnov and Natalia Postnova (let’s call the case Kerr v Postnov(a)). The case concerns the application of Brussels I Recast’s Articles 24(1) and (2) exclusive jurisdictional rules, cq the application of Article 7(1) jurisdictional rules on contracts, and applicable law consequences of same.

Incidentally, Ms Kokott’s use of ‘Brussels Ia’ instead of the Brussels I Recast Regulation adds to the growing chorus to employ Brussels Ia (lower case, no space between I and a) instead of Brussels I Recast, Brussels bis, or as recently seen at the High Court, BIR (BrusselsIRecast).

The Advocate General’s Opinion is a useful and succinct reminder of CJEU authority, suggesting the issue is acte clair really, except there are one or two specific issues (e.g. the enforcement issue, discussed below) which justify clarification.

The case concerns proceedings concerning claims for payment arising from resolutions made by an association of property owners without legal personality in connection with the management of the property in question. Mr Kerr, appellant in the proceedings before the referring court, is a manager of an association of owners of a property situated in the town of Bansko (Bulgaria). He brought proceedings before the Razlog District Court, Bulgaria against two property owners, Mr Postnov and Ms Postnova, concerning payment of contributions that were owed by them wholly or in part for the maintenance of communal parts of the building on the basis of resolutions made by the general meeting of the property owners in the period from 2013 to 2017. According to the appellant in the main proceedings, an action to secure enforcement of the claim pursued was brought with the application.

Address of the defendants used by the court at first instance is in the Republic of Ireland. (As the AG notes, whether service was properly given is relevant for the recognition of the eventual judgment; this however is not the subject of the current proceedings neither is it detailed in the file.)

Coming to the first issue: Article 24(1) requires strict and autonomous interpretation. The main proceedings have as their object the payment of outstanding contributions purportedly owed by two co-owners for the management and maintenance of the property concerned. At 34: It is thus a matter of obligations — to use the words of the referring court — arising from ownership of shares in the commonhold as rights in rem in immovable property. At 38: to be covered by 24(1) the right in question must have effect erga omnes and that the content or extent of that right is the object of the proceedings (reference ex multi to Schmidt and Komu).

Prima facie this would mean that Article 24(1) must be ruled out: at 39: in the main proceedings, the action brought by the manager is based on claims in personam of the association of owners for payment of contributions for the maintenance of communal areas of the property. The rights in rem of the defendant co-owners of the commonhold — in the form of intangible ownership shares — initially remain unaffected. However, at 40 Ms Kokott signals the enforcement issue: that action could affect the defendants’ rights in rem arising from their ownership shares, for example by restricting their powers of disposal – an assessment subject to the applicable law, which is for the referring court to make. In footnote the Advocate General suggests the potential involvement in that case of Article 8(4)’s combined actio in rem and in personam.

The case therefore illustrates the potential for engineering even in Article 24 cases: firstly, by varying the claim (the content or extent of the rights contained in Article 24 has to be the ‘object’ of the proceedings; claimant can manipulate the claim to that effect); second, the prospect of adding an enforcement claim to an otherwise contractual action. This engineering evidently clashes with the objective and forum-shopping averse interpretation of Article 24, however as I have repeatedly discussed on this blog, abusive forum shopping is a difficult call for the CJEU and indeed national courts to make.

The discussion of Article 24(2) does lead to a clear conclusion: the forum societatis is not engaged. Article 24(2) covers only proceedings which have as their object the legal validity of a decision, not proceedings which have as their object the enforcement of such decisions, like the action at issue seeking payment of contributions based on such a decision (at 44).

As for Article 7(1) forum contractus the usual Handte et al suspects feature in the Opinion as does Case 34/82 Peters Bauunternehmung.  The association is joined through voluntary acquisition of an apartment together with ownership shares of the communal areas of the property (at 54): there is a ‘contract’. [Advocate General Kokott already pre-empts similar discussion in Case C‑421/18, where the Court will have to clarify whether these considerations can also be applied to a case in which a bar association is taking legal action to assert claims for payment of fees against one of its members].

The AG makes a brief outing into Rome I to point out that Rome I has a lex societatis exception. Under the conflict-of-law rules, claims for payment made by a legal association against its members are not to be assessed on the basis of the Rome I Regulation, even though such claims are to be regarded as ‘matters relating to a contract’ within the meaning of Article 7(1) of the Brussels Ia Regulation (at 60).

However for the purposes of Article 7(1), where the CJEU to find that it is engaged, place of performance needs to be decided. If none of the default categories of Article 7(1) apply, the conflicts method kicks in and Rome I’s lex societatis exception is triggered (residual conflict of laws will determine the applicable law which in turn will determine place of obligation; see also at 74 and the reference to the Tessili rule).

Is the management activity itself is carried out for remuneration (as required per Falco Privatstiftung and also Granarolo) or at least an economic value per Cormans-Collins? The facts of the case do not clearly lay out that they are but even if that were the case (appointment of a specialist commercial party to carry out maintenance etc.), the contributions to be paid to the association by the co-owners are intended in no small part to cover taxes and duties, and not therefore to fulfil contractual obligations towards third parties which were entered into on behalf of and for the account of the association of owners (at 71). All in all, the AG opines, the non-uniform nature of these contributions leads to non-application of the service rule of Article 7(1)b and therefore a resurrection of the classic Tessili formula.

Not so acte clair perhaps after all.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.6, 2.2.11.1

 

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Schmidt v Schmidt: Family feud again leads to discussion of forum rei sitae & forum connexitatis in Brussels I Recast.

An unusually high proportion of cases under Article 22 (old) or 24 (Recast) Brussels I relate to family disputes on property. Webb v Webb, Weber v Weber, Komu v Komu, and now, C-417/15 Schmidt v Schmidt. It’s all about keeping up with the Joneses.

Kokott AG opined in Schmidt last week. Mr Schmidt had gifted a (otherwise unspecified) piece of Vienna real estate to his daughter, who lives in Germany. Ms Schmidt is included in the land register as the owner. Mr Schmidt subsequently sues in Austria for the annulment of the gift due to alleged incapacity at the time of the gift, and for removal of the registration. Is the action caught by Article 24? (in which case Ms Schmidt’s claim of lack of jurisdiction fails).

The Advocate General first of all suggests that the referring court’s request should not be turned down simply because it did not specify the time of seizure: in other words it is not clear whether the case is covered by the old or the Recast Brussels I Regulation. Ms Kokott however suggests the Court should not be pedantic about this and answer the question regardless, seeing as the rule has not changed.

Next up and potentially trickier, is the exclusion of capacity from the scope of application of the Regulation. However the Advocate General is right when she suggest that the exclusions should only be relevant where they concern the main object of the litigation. Not, as here, when they are raised incidentally. (She discusses in some detail the linguistic implications given different wording in the different language versions of the Regulation).

Then to the real question. With respect to the annulment of the (gift) agreement, the object and purpose of plaintiff’s action is not the establishment or confirmation of an erga omnes right in rem. Rather, the confirmation of voidness of an agreement transferring such right, due to incapacity. That this will have erga omnes consequences if successful, is not to the point given the long-established need to apply Article 24 restrictively. In this respect this case is akin to C-294/92 Webb and Webb.

The analysis is different however, the AG suggests, for the request to delete the entry in the land register. This does aim directly at erga omnes consequences under Austrian law.

Ms Kokott subsequently rejects the notion that as a result of part of the suit being subject to Article 24, this should drag the remainder into the exclusive bath with it: at 48: if only because if one were to accept this, forum shopping would be facilitated. Including in its suit a procedure covered by Article 24 would enable plaintiff to draw in a whole range of other issues between the parties.

Finally, the AG suggests joinder of the contractual claim (the nullity of the gift) to the right in rem claim, is possible under Article 8(4) and rejects that national rules of civil procedure should or even can play a role in this respect. This part of the Opinion may be optimistically short. For if the joinder route of Article 8(4) may lead to the same result as the one the AG had just rejected, one assumes there ought to be discretion for the national courts to reject it. Not, as the AG rightly suggests, by reference to national civil procedure rules (that would lead to unequal application) but rather by reference to the (probably) EU inspired rule that abuse of Article 8 be avoided.

The Court will probably not answer all the questions the case raises, particularly on Article 8. Expect this to return.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 2, Heading 2.2.6

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The lady is not for turning. CJEU in Komu v Komu sticks to classic application of exclusive jurisdictional rule for rights in rem in immovable property.

Update 14 02 2023 for a recent Dutch application (parents currently engaged in divorce proceedings in Germany; father’s claim against daughter, who had been gifted the mother’s share of a Dutch house, with a view to ending the co-ownership of the house, subsequently sale of the house) see ECLI:NL:RBZWB:2023:768.

Update 17 December 2016 application of Komu v Komu was made in [2016] EWCA Civ 1292 Magiera v Magiera.

In Case C-605/14, Komu v Komu, the CJEU stuck to its classic applicatio n of the rule of Article 22(1) Brussels I (now Article 24(1) Brussels Recast). This Article prescribes exclusive jurisdiction for (among others) proceedings which have as their object rights in rem in immovable property. Article 25 (now 27) adds that where a court of a Member State is seised of a claim which is principally concerned with a matter over which the courts of another Member State have exclusive jurisdiction by virtue of Article 22, it shall declare of its own motion that it has no jurisdiction. (emphasis added).

Mr Pekka Komu, Ms Jelena Komu, Ms Ritva Komu, Ms Virpi Komu and Ms Hanna Ruotsalainen are domiciled in Finland and are co-owners of a house situated in Torrevieja (Spain), the first three each with a 25% share and the other two each with a 12.5% share. In addition, Ms Ritva Komu has a right of use, registered in the Spanish Land Register, over the shares held by Ms Virpi Komu and Ms Hanna Ruotsalainen.Wishing to realise the interests that they hold in both properties, and in the absence of agreement on the termination of the relationship of co-ownership, Ms Ritva Komu, Ms Virpi Komu and Ms Ruotsalainen brought an action before the District Court, South Savo, Finland for an order appointing a lawyer to sell the properties and fixing a minimum price for each of the properties. The courts obliged in first instance and queried the extent of Article 22’s rule in appeal.

Co-ownership and rights of use, one assumes, result from an inheritance.

The CJEU calls upon classic case-law, including most recently Weber. At 30 ff it recalls the ‘considerations of sound administration of justice which underlie the first paragraph of Article 22(1) …’ and ‘also support such exclusive jurisdiction in the case of an action intended to terminate the co-ownership of immovable property, as that in the main proceedings.’:

The transfer of the right of ownership in the properties at issue in the main proceedings will entail the taking into account of situations of fact and law relating to the linking factor as laid down in the first paragraph of Article 22(1) of Regulation No 44/2001, namely the place where those properties are situated. The same applies, in particular, to the fact that the rights of ownership in the properties and the rights of use encumbering those rights are the subject of entries in the Spanish Land Register in accordance with Spanish law, the fact that rules governing the sale, by auction where appropriate, of those properties are those of the Member State in which they are situated, and the fact that, in the case of disagreement, the obtaining of evidence will be facilitated by proximity to the locus rei sitae. The Court has already held that disputes concerning rights in rem in immovable property, in particular, must generally be decided by applying the rules of the State in which the property is situated, and the disputes which frequently arise require checks, inquiries and expert assessments which have to be carried out there.

A sound finding given precedent. However I continue to think it questionable whether these reasons, solid as they may have been in 1968, make much sense in current society. It may be more comfortable to have the case heard in Spain for the reasons set out by the Court. But essential? Humankind can perform transcontinental robot-assisted remote telesurgery. But it cannot, it seems, consult the Spanish land registry from a court in Finland. I would suggest it is time to adapt Article 24 in a future amendment of the Regulation.

Geert.

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Ecobank Transnational v Tanoh: Parallel application of EU and English rules on submission.

In Ecobank Transnational v Tanoh, the Court of Appeal refused an anti-enforcement injunction because of the applicant’s delay in filing it. Nigel Brook reviews the judgment’s findings on the issue of the anti-enforcement injunction here. The issue in this appeal is whether the High Court was wrong to refuse to grant Ecobank Transnational Incorporated (“Ecobank”), an injunction restraining Mr Thierry Tanoh (“Mr Tanoh”) from enforcing two judgments which he had obtained in Togo and Côte d’Ivoire. In substance the case concerned the relationship between arbitration, proceedings in the court in ordinary, and submission: it is to the latter that I turn my attention in this posting.

The Brussels regime does not apply – at stake is the application of the Civil Jurisdiction and Judgments Act 1982, which reads in relevant section

“33 For the purposes of determining whether a judgment given by a court of an overseas country should be recognised or enforced in England and Wales or Northern Ireland, the person against whom the judgment was given shall not be regarded as having submitted to the jurisdiction of the court by reason only of the fact that he appeared (conditionally or otherwise) in the proceedings for all or any one or more of the following purposes, namely

(a) to contest the jurisdiction of the court;

(b) to ask the court to dismiss or stay the proceedings on the ground that the dispute in question should be submitted to arbitration or to the determination of the courts of another country.”

Whilst the section states that a person shall not be regarded as having submitted by reason only of the facts there mentioned it is silent as to what additional facts are sufficient to establish submission. The Court of appeal confirms the feeling expressed in earlier case-law that Section 33 needs to be applied in parallel with Article 18 of the Brussels Convention, now Article 26 of the Brussels I Recast (and before that, Article 24 in the Brussels I Regulation). That is because Section 33 is largely derived from Article 18 of the Brussels Convention.

In the High Court judgment Burnton LJ said that it would be unfortunate if the principles applied by the courts of England and Wales on whether a litigant had submitted to the jurisdiction of a foreign court in non-EU cases were different from the principles applied by the Court of Justice, and therefore those courts, in cases under the Brussels and Lugano Conventions and now the Judgments Regulation.

In current appeal, Clarke LJ held (at 66) ‘I would go further. The decision of the court in Harada in relation to section 33 was heavily influenced by the decision of the European Court in relation to Article 18 of the Brussels Convention. But, now that section 33 has been interpreted in the way that it has, it cannot be right that it should bear a different meaning in cases outwith the European context.‘

Submission was not found to exist.

Do be aware of the limits to the relevant findings: Section 33 was largely borrowed, it appears, from the Brussels Convention. Many parts of English private international law, statutory or not, are no so borrowed. In those areas, the courts of England happily continue to follow their own course.

Geert.

 

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Insolvency Regulation protects bona fide third parties, even when they are being used by male fide debtor: Kokott AG in van Buggenhout /van de Mierop

In Case C-251/12 van Buggenhout /van de Mierop (qq liquidators of Grontimmo), directors at the insolvent Belgian company in what looks like a fraudulent transaction, ordered their bank in Luxembourg to settle a debt which they had acquired vis-a-vis a newly established company, established under the laws of Panama. The debt was settled using the proceeds of two debts which had been settled just days before in favour of the company, to the tune of Euro 1,400,000. This amount had been credited to the company just after insolvency proceedings had been initiated by a large creditor, but before the insolvency was established. The order to the Luxembourg bank, too, had been given by the directors in the interim period between the request for opening of the proceedings and establishment of insolvency. Once insolvency was established, the company lost control of it assets, in accordance with Belgian insolvency law. The very next day, the Luxembourg Bank proceeds with the order, writes a cheque in favour of Kostner International Ltd, the newly established company, which promptly proceeds to cash the cheque. The Euro 1,400,000 is therefore out off reach of the liquidators, who request the Bank to cough up the sum again, this time to the liquidators (trustees in insolvency). They do so on the basis of the automatic recognition of main insolvency proceedings: insolvency law in most Member States prescribes that the insolvent loses control over its assets and can no longer accept honouring of an obligation in their favour: any such honouring of an obligation needs to be done vis-a-vis the trustees.

The Insolvency Regulation however contains a provision to protect bona fide third parties: Article 24(1):

Where an obligation has been honoured in a Member State for the benefit of a debtor who is subject to insolvency proceedings opened in another Member State, when it should have been honoured for the benefit of the liquidator in those proceedings, the person honouring the obligation shall be deemed to have discharged it if he was unaware of the opening of proceedings. 

In the case at issue, the obligation being honoured did not benefit the debtor directly: rather, in honouring the obligation, the third party (the bank) absolved the debtor of its obligation vis-a-vis its creditor.

How therefore should the words ‘obligation … for the benefit of a debtor’ in Article 24 be interpreted? Must those words be interpreted as including a payment made to a creditor of the insolvent debtor at the latter’s request, in the case where the party which carried out that payment obligation on behalf and for the benefit of the insolvent debtor did so while unaware of the existence of insolvency proceedings which had been opened against the debtor in another Member State?

Advocate General Kokott today suggests [on the basis of teleological (not ‘theological’ 😉 ] and linguistic (always one of my favourites] interpretation that the protection of the bona fide party should extend to cases such as those at issue. The debtor (and the directors with it) can still be sued, often in criminal proceedings, for defrauding the bankruptcy, and the third party does need to prove that it was unaware of the opening of proceedings (which in the case at issue was only advertised in Belgium and not in Luxembourg). The intent of Article 24 very clearly being to protect bona fide third parties from having to pay twice, it does not, according to the AG, matter whether such honouring of a debt was directly towards the debtor or on behalf and for the benefit of the debtor.

I would imagine the Court itself will agree (and I assume it will do so before the summer).

Geert.

ps at the time of writing this post, the English version of the Opinion was not yet available, however I suspect it will be soon.

PS 2 the ECJ itself disagreed

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