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.

UB v VA (Tiger SCI): The CJEU dots the i’s on forum rei sitae in insolvency.

In C-493/18 UB v VA, proceedings took place between UB, on the one hand, and VA, Tiger SCI, WZ, as UB’s trustee in bankruptcy, and Banque patrimoine et immobilier SA, on the other, concerning the sale of immovable property originally owned by UB and mortgages granted over that property by UB and the action taken by WZ to have those transactions declared ineffective as against the bankruptcy estate.

A little bit of factual background may be useful – for that reference is best made to the judgment. Essentially, an avoidance (insolvency pauliana) action was launched given suspicious transactions between UB and his sister. On 10 May 2011, UB was, on his own petition, declared bankrupt by Croydon County Court. On 1 July 2011, WZ was appointed UB’s trustee in bankruptcy, with effect from 6 July 2011.  At WZ’s request, Croydon County Court authorised WZ on 26 October 2011 to bring an action before the French courts in order, first, to have the bankruptcy order registered and, second, to obtain a ruling that the sale of the properties referred to in paragraph 12 above and the mortgages granted over those properties to VA (‘the sales and mortgages at issue’) were transactions at an undervalue or for no consideration under the relevant United Kingdom bankruptcy law provisions. WZ thus sought a decision authorising the restitution of those properties to UB’s bankruptcy estate, for the purposes of their disposal. The French courts granted the declaration.

The legal issue under consideration is the reach of the Insolvency Regulation’s establishment of jurisdiction for the courts of the Member State of COMI. Does it extend to an action by a trustee in bankruptcy appointed by a court of the Member State in which the insolvency proceedings were opened (here: the UK) the purpose of which is to obtain a declaration that mortgages registered over immovable property situated in another Member State (here: France) and the sale of that property are ineffective as against the bankruptcy estate.

The CJEU correctly emphasises that the Insolvency Regulation old or new does not impose any rule conferring on the courts of the place where immovable property is located international jurisdiction to hear an action for the restitution of those assets to the bankruptcy estate in insolvency proceedings. Furthermore, concentrating all the actions directly related to the insolvency proceedings before the courts of the Member State within the territory of which with those proceedings were opened is consistent with the objective of improving the efficiency and speed of insolvency proceedings having cross-border effects. Support for this ex multi: Wiemer & Trachte.

The English courts therefore should have exercised jurisdiction per vis attractiva concursus – the file before the CJEU does not reveal its hesitation to do so. It does reveal that UB claims among others that the insolvency proceedings in England had already been concluded and presumably therefore the pauliana time-barred.

Geert.

(Handbook of) EU private international law, 2nd ed. 2016, Chapter 5 Heading 5.4.1. Chapter 2 Heading 2.2.2.10.1

 

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