Posts Tagged exclusive jurisdiction

Koza v Akcil: The UK Supreme Court does not follow Court of Appeal on exclusive jurisdiction for company matters.

I reviewed [2017] EWCA Civ 1609 Koza v Akcil in my post here. 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 found that the case as a whole fundamentally concerns one and the same issue of the validity of decisions of the organs of the company, Koza Ltd, an English subsidiary of a Turkish company.

Now the Supreme Court has disagreed. At 33, Lord Sales writes for the consensus opinion:

the Court of Appeal held that article 24(2) of the Recast Regulation required the court to “form an overall evaluative judgment as to what the proceedings are principally concerned with” (para 46). But this approach had the effect of expanding the application of article 24(2) (ex article 22(2) of Regulation No 44/2001), contrary to the guidance in the Hassett case and the BVG case, rather than narrowing its application, as the Court of Justice had been at pains to do in its judgments in those cases.

At 34:

it is the guidance in paras 22-25 of the Hassett judgment which is relevant, to the effect that a mere link between a claim which engages article 24(2) and one which does not is not sufficient to bring the latter within the scope of that provision

Further authority was sought in particular from Schmidt v Schmidt (C-417/15) which I reviewed here, and EON Czech Holding AG v Dědouch (C-560/16), my review here. Acte clair – no reference to the CJEU required. Conclusion, at 43: ‘the English courts cannot assert jurisdiction over Koza Altin [Turkey] and the trustees in relation to that claim in the present proceedings on the basis of  [A24(2)], and their appeal in that regard should be allowed.’ However: at 44: given that Turkey is not an EU Member State, the English courts may be able to assert jurisdiction over them by means of a provision in residual English PIL.

Geert.

(Handbook of) EU Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.6, Heading 2.2.6.5.

 

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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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Milivojević v Raiffeisenbank: Free movement of services yet also protected categories and rights in rem /personam.

The CJEU held in C-630/17 Milivojević v Raiffeisenbank on 14 February. The case in the main concerns Croatian legislation restricting financial services with Banks other than Croatian ones – a free movement of services issue therefore which the CJEU itself explains in its press release.

Of relevance to the blog is the issue of jurisdiction under the consumer title and Article 24(1)’s exclusive jurisdictional rule.

The Croatian legislation at issue, in the context of disputes concerning credit agreements featuring international elements, allows debtors to bring an action against non-authorised lenders either before the courts of the State on the territory of which those lenders have their registered office, or before the courts of the place where the debtors have their domicile or registered office and restricts jurisdiction to hear actions brought by those creditors against their debtors only to courts of the State on the territory of which those debtors have their domicile, whether the debtors are consumers or professionals.

Croatian law therefore first of all infringes Article 25(4) juncto Article 19 Brussels Ia. Their combined application does not rule out choice of court even between a business and a consumer (subject to limitations which I do not discuss here). It moreover infringes Article 25 (and Article 4) in and of itself for it precludes choice of court even in a B2B context.

Next, may a debtor who has entered into a credit agreement in order to have renovation work carried out in an immovable property which is his domicile with the intention, in particular, of providing tourist accommodation services be regarded as a ‘consumer’ within the meaning of Article 17(1) Brussels Ia? Reference is made ex multi to Schrems, emphasising the difficult balancing exercise of keeping exceptions to Article 4’s actor sequitur forum rei rule within limits, yet at the same time honouring the protective intention of the protected categories.

A person who concludes a contract for a dual purpose, partly for use in his professional activity and partly for private matters, can rely on those provisions only if the link between the contract and the trade or profession of the person concerned was so slight as to be marginal and, therefore, had only a negligible role in the context of the transaction in respect of which the contract was concluded, considered in its entirety (per Schrems following C-464/01 Gruber). Whether Ms Milivojević can so be described as a ‘consumer’ is for the national court to ascertain.

Finally, does Article 24(1)’s rule on an action ‘relating to rights in rem in immovable property’, apply to an action for a declaration of the invalidity of a credit agreement and of the notarised deed relating to the creation of a mortgage taken out as a guarantee for the debt arising out of that agreement and for the removal from the land register of the mortgage on a building?

Reference here is made to all the classics, taking Schmidt v Schmidt as the most recent portal to earlier case-law. At 101: with regard to the claims seeking a declaration of the invalidity of the agreement at issue and of the notarised deed related to the creation of a mortgage, these ‘clearly’ (I assume based on the national law at issue) are based on a right in personam which can be claimed only against the defendant.

However at 102: re the request for removal from the land register of the registration of a mortgage, it must be noted that the mortgage, once duly constituted in accordance with the procedural and substantive rules laid down by the relevant national legislation (see indeed my comment above re passerelle of national law), is a right in rem which has effects erga omnes. Such an application does fall within Article 24(1). At 104 the Court again inadvertently or not highlights the potential for a procedural strategy, opening up forum connexitatis hinging unto A24(1) exclusivity: ‘in the light of that exclusive jurisdiction of the court of the Member State in which the immovable property is situated to the request for removal from the land register for the registration of mortgages, that court also has a non-exclusive jurisdiction based on related actions, pursuant to Article 8(4) of Regulation No 1215/2012, to hear claims seeking annulment of the credit agreement and the notarised deed related to the creation of that mortgage, to the extent that these claims are brought against the same defendant and are capable, as is apparent from the material in the file available to the Court, of being joined.’ (idem in Schmidt v Schmidt).

Geert.

(Handbook of) European Private International Law, 2nd ed. 2016, Chapter 2, Heading 2.2.6, Heading 2.2.8.2.

 

 

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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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Cuzco v Tera (Chapter 11). Respect for Korean exclusive jurisdictional rule (shareholder derivative claims) does not trump US subject-matter jurisdiction.

Thank you Dechert for flagging Case No. 16-00636 Cuzco v Tera (Chapter 11), in which Faris J with great clarity wades in on a motion to dismiss US Chapter 11 jurisdiction in favour of exclusive jurisdiction for the Seoul courts with respect to a Korean company shareholder derivative action.

The case is relevant to insolvency practitioners. More generally however it highlights the need for a court to keep a level heading when wading through to and fro litigation in various States.

A bit of factual detail is required to appreciate the ruling.

Cuzco USA filed a chapter 11 in Hawaii with its sole asset real property in Hawaii. Tera Resources Co., Ltd. (“Tera”), one of Cuzco Korea’s shareholders asserted that the Debtor and its insiders conspired to deprive Cuzco Korea of the value of the real property. Tera commenced an action for fraud, breach of fiduciary duties, piercing the corporate veil, unjust enrichment and imposition of constructive trust.

The defendants moved to dismiss, in favour of the Korean courts – and failed, both on arguments of forum non conveniens and on arguments of there being exclusive jurisdiction for the courts at Seoul. Defendant Mr Lee is purportedly the manager of Cuzco USA and the representative director of Cuzco Korea. Defendant Ms Yang is  shareholder and creditor of Cuzco Korea and an ally of Mr. Lee.

Cuzco USA had proposed, and the court confirmed, a Third Amended Plan of Reorganization. Briefly summarized, the Third Amended Plan provided that Cuzco USA would transfer the Keeaumoku (Hawaii) Property to Newco, a Hawaii limited liability company of which Mr. Lee is the sole member, that Newco would attempt to raise enough money through a refinancing to repay all of Cuzco USA’s creditors in full, and that if the refinancing did not occur by a date certain, Newco would sell the Keeaumoku Property at auction and distribute the proceeds to Cuzco USA’s creditors.

Tera and others filed motions for reconsideration of the order confirming the Third Amended Plan. Tera is a shareholder of Cuzco Korea. It also holds a judgment, entered by a Korean court, against Ms. Yang, and orders from a Korean court that, according to Tera, resulted in the seizure of Ms. Yang’s interests in and claims against Cuzco Korea.

Cuzco USA then moved to modify the Third Amended Plan and replaced it with a Fourth Amended Plan. Briefly summarized, this Plan eliminates the transfer of the Keeaumoku Property to Newco; instead, Cuzco USA will retain the property and either refinance it or sell it at auction. Tera and others vigorously objected to plan confirmation on multiple grounds. The court confirmed the Fourth Amended Plan.

Tera argued (among other things) that the Third Amended Plan was the product of a fraudulent scheme by Mr. Lee, Ms. Yang, and others to divert the equity in Cuzco USA from Cuzco Korea to themselves and to render Tera’s interests in Cuzco Korea worthless.

 

That Korean law covers governs the right to bring derivative claims on behalf of a Korean corporation is not under dispute between the parties. (It is therefore considered part of the rules on internal organisation which are subject to lex societatis). However Faris J dismissed defendants’ suggestion that the US court should also respect Korea’s jurisdictional rules that such suits be brought in Seoul only.

At B, p.10: US statutes confer subject matter jurisdiction on US courts. Statutes of another nation, such as the South Korean statute on which the moving defendants rely, cannot change the subject matter jurisdiction of a United States bankruptcy court under a United States statute.

Forum non conveniens was dismissed for there is a strong policy that favors centralization of claims against the debtor in the bankruptcy court that outweighs any other interest (at C, p.12). One would have to have strong arguments to push that aside and clearly these were not present here.

Geert.

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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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