Posts Tagged Article 24(2)

E.ON v Dědouch. Squeeze-outs and the not-so restrictive application of Brussel I Recast’s corporate exception.

I promised a post on C-560/16 E.ON v Dědouch sooner than I have been able to deliver – I have reviewed Wathelet AG’s Opinion here. I do not evidently hold the magic key to the optimal interpretation of Article 24(2) Brussels I Recast’s. Yet regular readers of the blog indeed my students will know I  am not much of a fan of Article 24 full stop – let alone its extensive interpretation.

Briefly, the facts. By a resolution of 8 December 2006, the general meeting of the company incorporated under Czech law, Jihočeská plynárenská, established in the Czech Republic, decided on the compulsory transfer of all the participating securities in that company to its principal shareholder E.ON, established in Munich (Germany). A group of minority shareholders contest not the validity of the sale, but purely the price paid. Czech law moreover holds that any finding on the reasonableness of the price paid cannot have an impact on the very validity of the transfer.

Lower Czech courts consecutively entertained and accepted cq rejected jurisdiction on the basis of (now) Article 8(1) [no details are given but presumably with Jihočeská plynárenská as the anchor defendant, 24(2) and 7(1) [again no details given but presumably a consequence of the purchase of shares by the minority shareholders]. Both Wathelet AG suggests, and the CJEU holds that the action for review of the reasonableness of the consideration that the principal shareholder of a company is required to pay to the minority shareholders of that company in the event of the compulsory transfer of their shares to that principal shareholder, comes within the scope of application of (now) Article 24(2). Both refer extensively to C‑372/07 Hassett and Doherty, among others.

The general line of interpretation is: secure Article 24’s effet utile, but apply restrictively (like all other exceptions to the actor sequitur forum rei rule).  I do not think that the CJEU honours restrictive interpretation in E.ON. Readers best consult the (fairly succinct – ditto for the Opinion) judgment in full. A few observations.

In the majority (not quite all) of the cases of exclusive jurisdictional rules,  Gleichlauf is part of the intention. That generally is a proposition which goes against the very nature of private international law and should not in my view be encouraged. Particularly within the EU there is not much reason not to trust fellow courts with the application of one’s laws – indeed quite regularly these laws may be better applied by others.

Generally at least three of Article 24 Jurisdictional rules (rights in rem; the corporate exception; and IPR) refer at least in part to the issue of publicity (of public records) and their availability in the Member States whose courts haven been given exclusive jurisdiction. That argument in my view is sooo 1968 (which indeed it is). I see little reason to apply it in 2018.

Further, in accordance with the Jenard report, the principal reason for Article 24(2) is to avoid conflicting decisions of EU courts on the existence of the company or the validity of the decisions of its organs. This goal of course may be equally met by the lis alibi pendens rule – Article 24 does not play a unique role here.

Finally the CJEU remarks at 34 ‘In the present case, while it is true that, under Czech law, proceedings such as those at issue in the main proceedings may not lead formally to a decision which has the effect of invalidating a resolution of the general assembly of a company concerning the compulsory transfer of the minority shareholders’ shares in that company to the majority shareholder, the fact nonetheless remains that, in accordance with the requirements of the autonomous interpretation and uniform application of the provisions of Regulation No 44/2001, the scope of Article 22(2) thereof cannot depend on the choices made in national law by Member States or vary depending on them.’ To cross-refer to the aforementioned Jenard Report: if Article 24(2)’s goal is to avoid conflicting decisions on life and death etc. And if that life and death of a national company depends on the applicable national law as the Court acknowledges here and ditto in Daily Mail and Cartesio/Polbud), then of course the lex causae must have an impact on the application of Article 24(2) .

The Court’s finding on 24(2) meant it did not get to the Article 7 analysis – which I did review in my post on the AG’s Opinion.

Geert.

(Handbook of) EU Private international law, 2nd ed. 2016. Heading 2.2.6.5.

 

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Polish readers: Help required. St Vincent v Bruce Robinson et al: presumably the corporate jurisdictional head of Brussels I Recast.

In [2018] EWHC 1230 (Comm) St Vincent v Bruce Roberston et al Males J set aside a worldwide freezing order in summary judgment but that is not the trigger for this blog post. Rather, consider paras 33 and 34:

  1. St Vincent (and two associated companies) attempted to stop the sale [of a chunk of assets by commencing proceedings in Cyprus against 19 defendants, including Mr Robinson, Winterbourne Pte and the other defendants to these proceedings and also HHL and HDP. On 5 August 2013 the District Court of Nicosia granted an injunction, purporting to restrain any dealings with HDP’s assets. [GAVC: for the jurisdiction of the Cypriot courts: see 12: The Shares Pledge was governed by the law of Cyprus and provided for the exclusive jurisdiction of the courts of that country]
  2. Notwithstanding the Cyprus order, on 30 September 2013 the creditors of HDP approved the sale to KFTP. The arrangement was then approved by the District Court of Gliwice on 24 October 2013. The Polish court did not regard the order of the Cyprus court as an impediment to the sale, taking the view that it had exclusive jurisdiction over a Polish company under its supervision and was not required to recognise the Cypriot order in accordance with the provisions of the Brussels Regulation. The court did not rule on any issue whether the proposed sale to KFTP was at market value and was not asked to do so.

I have tried to locate the Polish judgment but have failed to do so (which is where assistance from Polish readers would be appreciated). Presumably however the Polish courts argued that Article 24(2) Brussels I Recast was engaged, and then either per Weber ignored lis alibi pendens (were it to have found the case was still pending in Cyprus), or applied Article 45(1) e ii to ignore the Cypriot findings. In either case, the relevant point is how widely the Polish courts seem to have interpreted Article 24(2).

Come to think of it this would have been good exam material and I have one or two of those coming up (although there is plenty in the ‘exam material’ ledger).

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.6.5, Heading 2.2.16.

 

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Wathelet AG in E.ON v Dědouch: Interpretation of the exlusive jurisdictional rule for corporate issues in the case of squeeze-out.

This is effectively my second posting today on Article 24(2) Brussels I Recast.

In C-560/16 E.ON v Dědouch, Wathelet AG Opined last week, on the scope of the exclusive jurisdictional rule of (now) Article 24(2) of Regulation 1215/2012. The issue arose in proceedings between Michael Dědouch et al, a group of minority shareholders on the one hand, and Jihočeská plynárenská a.s. (established in the Czech Republic) and E.ON Czech Holding AG (‘E.ON’) [established in Germany] on  the other, concerning the reasonableness of the sum which, in a procedure for removing minority shareholders (‘squeeze-out’), E.ON was required to pay Mr Dědouch et al following the compulsory transfer of their shares in Jihočeská plynárenská.

Mr Dědouch et al are suing both companies and are asking the Regional Court, České Budějovice, Czech Republic to review the reasonableness of the sum. In those proceedings E.ON raised an objection that the Czech courts lacked jurisdiction. E.ON argue that, in view of the location of its seat /domicile, only the German courts had international jurisdiction per (now) Article 4.

The regional court initially accepted jurisdiction on the basis of (now) Article 8(1): the anchor defendant mechanism (one of the two defendant companies being a Czech company). Eventually the High Court, Prague found that the Czech courts had jurisdiction under (old) Article 5(1)(a) of the Brussels I Regulation: the special jurisdictional rules for contracts.

Wathelet AG suggests the case raises the complex issue of litigation in intra-company disputes. At 21 he writes that the facts highlight a structural problem in the Regulation, namely ‘the absence of a basis of jurisdiction dedicated to the resolution of internal disputes within companies, such as disputes between shareholders or between shareholders and directors or between the company and its directors.’ That is not quite correct: it is not because the Regulation has no tailor-made regime for this type of dispute that is has no jurisdictional basis for it. That a subject-matter is not verbatim included in the Regulation does not mean it is not regulated by it.

The AG then (at 23) considers that the issue under consideration is complicated by the difficulty of applying (now) Articles 7(1) and (2), ‘since the removal of the minority shareholders and the consideration decided by a resolution of the general meeting are neither a contract nor a tort, delict or quasi-delict.’ I am not so sure. Is there no ‘obligation freely assumed’ between minority and other shareholders of the same company? Are they not bound by some kind of ‘contract’ (in the broad, Jakob Handte sense) when becoming shareholders of one and the same company? That (at 24) ‘The principle of a procedure for squeezing out the minority shareholders is that the principal shareholder can start it without their consent‘ I do not find convincing in this respect. Plenty of contractual arrangements do not limit contracting parties’ freedom to act: except, their actions may have contractual consequences. The AG in my view focuses too much on the squeeze out being one-sided. An alternative view may see a wrongful deployment of squeeze-out a breach of an earlier contractual, indeed fiduciary duty between /among shareholders.

Unlike the AG (at 26), neither do I see great obstacle in the difficulty in determination of a specific place of performance of such contractual duties between shareholders in the company law context. They may not fit within the default categories of Article 7(1), however I can see many a national judge not finding it impossible to determine a place of performance.

On the basis of these perceived difficulties the AG dismisses application of Articles 7(1) and (2) and then considers, and rejects, a strict application of Article 24(2). In other words in the AG’s view Article 24(2) is engaged here.

This is a tricky call. Justified reference is made by the AG to C‑372/07 Hassett, in which (then) Article 22(2) was held no to apply to a decision made by the Board of the Health Organisation not to indemnify two of their members in cases of medical negligence: this was found by the CJEU to be an action relating to the way in which a company organ exercises its functions – not covered by Article 24(2). In Dědouch, the action relates to the amount which the General Meeting of the company fixed as the compensation E.ON was required to pay the minority shareholders following the transfer of the shares. Notwithstanding Czech company law being the lex causae in assisting the GM in that decision, I am not convinced this engages Article 24(2) (hence reserving jurisdiction to the Czech courts).

In summary, I believe the Court should reject application of Article 24(2), and instruct the national courts to get on with the determination of jurisdiction per Article 7, or indeed 8.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.6.5, Heading 2.2.11.1, Heading 2.2.12.1.

 

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Dennis v Tag Group: Speak up, counsel! when contesting injunctions. (And article 24’s jurisdictional rules apply regardless of the domicile of parties).

I reported on submission to jurisdiction in the English legal context in re Golden Endurance, and on the issue of the application of (now) Brussel I Recast’s Article 24’s exclusive jurisdictional rules in Dal Al Arkan. In Dennis v TAG Group [2017] EWHC 919 (Ch) the High Court first of all revisits the issue of submission to jurisdiction in the context of injunction proceedings, and also held that permission for service out of jurisdiction is not required since the (now) Article 24 rules apply regardless of domicile of the parties. Clyde & Co have summary of the facts here.

Mr Dennis was the CEO of the England and Wales incorporated McLaren Technology Group Ltd. He claims he has suffered unfair prejudice as a result of suggested Board resolutions to be passed (and now passed) and relies on purported breaches of the Companies Act 2006, articles of association, shareholder agreement and service agreement to support his petition: this arguably engages Article 24(2) of the Brussels I Recast.

Application for injunctive relief sought to restrain Respondents from placing Plaintiff on garden leave and delegating the authority of the board to an interim committee. At issue first is whether Respondents’ engagement with the injunctive proceedings amounted to submission of jurisdiction. Briggs CR held that it so did: language in isolated correspondence reserving rights as to jurisdiction amounts to nothing if parties keep schtum about it when it really matters: at the injunctive hearings and forms relating to same.

Briggs held that even in the alternative, had there not been submission, Article 24 (I assume what is meant is Article 24(2) given the subject of the claim) applies regardless of the domicile of the parties hence submission is irrelevant (and indeed permission for service out of jurisdiction not required  – one assumed to the (insurance) relief of Respindents’ counsel. On that point Dal Arkan had already been confirmed Deutsche Bank AG v Sebastian Holdings Inc & Alexander Vik [2017] EWHC 459 .

A good and attractively concise ruling.

Geert.

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

 

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Koza v Akcil: The Court of Appeal on exclusive jurisdiction for company matters.

Thank you Angharad Parry for flagging  [2017] EWCA Civ 1609 Koza v Akcil – Angharad has excellent factual background. The case concerns the application of Article 24(2) of the Brussels I Recast Regulation, which assigns exclusive jurisdiction to the Courts of the Member State of the seat in matters relating to the life and death of companies and of the validity of decisions made by their organs:

in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or of the validity of the decisions of their organs, the courts of the Member State in which the company, legal person or association has its seat. In order to determine that seat, the court shall apply its rules of private international law;

Referring particularly to C-144/10 BVG and to C-372/07 Hassett, the Court of Appeal at 28 correctly suggests Article 24’s exclusive jurisdictional rules need to be interpreted with their limited purpose in mind: ‘when article 24(2) speaks of proceedings having an “object” it is not referring to the purpose of the proceedings. Rather that phrase is to be interpreted as “proceedings which are principally concerned with” one of the types of subject matter within the article.’ At 37: ‘The task for the court in each case is therefore to determine whether the proceedings relate principally to the validity of the decisions of an organ of the company. A mere link to a decision of the company, or an issue raised which is ancillary to the heart of a contractual or some other dispute, is insufficient to bring the proceedings within the exclusive jurisdiction.’

Floyd LJ at 46 summarises the direction for courts: ‘I do not take from the English or European authorities which were cited to us any suggestion that one is required in all cases to disentangle issues which are interlinked in this way and apply Article 24(2) to each issue separately. On the contrary, faced with such proceedings, the court is required to form an overall evaluative judgment as to what the proceedings are principally concerned with. The position is obviously different from a case where two quite independent claims are made in the same proceedings. Exclusive jurisdiction in relation to each claim would, in those circumstances, have to be determined separately.’ In the case at hand the case was found overall and fundamentally to concern one and the same issue of the validity of decisions of the organs of the company

Consequently the issue is one of looking beyond the particulars of form and into the true nature of the proceedings. Not a decision always made with ease.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading

 

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