Posts Tagged Exclusive jurisdictional rules

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 Article 6(1) [no details are given but presumably with Jihočeská plynárenská as the anchor defendant, 24(2) (but then presumably with , 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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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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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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Sabbagh v Khoury. The Court of Appeal struggles on merits review for anchor defendants.

Update 7 June 2018 on 31 May the High Court [2018] EWHC 1330 (Comm)] backed up the CA’s finding with an interim anti-suit (in arbitration) injunction.

Sabbagh v Khoury at the High Court was the subject of a lengthy review in an earlier post. The Court of Appeal has now considered the issues at stake, in no lesser detail.

In line with my previous post (readers unfamiliar with it may want to refer to it; and to very good Hill Dickinson summary of the case), of particular consideration here is the jurisdictional test under (old) Article 6(1) Brussels I, now Article 8(1) in the Recast, in particular the extent of merits review; and whether the subject matter of the claim comes within the succession exception of Article 1(2)(a) of the Brussels I Regulation.

As for the latter, the Court, after reviewing relevant precedent and counsel argument (but not, surprisingly, the very language on this issue in the Jenard report, as I mention in my previous post) holds in my view justifiably that ‘(t)he source of the ownership is irrelevant to the nature of the claim. ..The subject matter of the dispute is not whether Sana is an heir, but whether the defendants have misappropriated her property.‘ (at 161).

With respect to the application of Article 6(1) – now 8(1), the majority held in favour of a far-reaching merits review. Lady Justice Gloster (at 166 ff) has a minority opinion on the issue and I am minded to agree with her. As she notes (at 178) the operation of a merits test within Article 6(1) does give rise to risk of irreconcilable judgments, which can be demonstrated by reference to the present facts. She successfully, in my view, distinguishes the CJEU’s findings in Kolassa and in CDC, and the discussion at any rate one would have thought, merits CJEU review.

Geert.

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

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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 – the Opinion is not available in English. 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.

 

 

 

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

In Case C-605/14, Komu v Komu, the CJEU stuck to its classic application 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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flyLAL-Lithuanian Airlines – ECJ holds on ‘civil and commercial’, ordre public and Article 22(2)’s exclusive jurisdictional rule all in the context of competition law.

Postscript 21 December 2016: it has been brought to my attention that the Latvian Supreme Court in October 2015 ultimately held that the Lithuanian judgment would not be recognised, on the grounds of ordre public. See here for an overview of the arguments.

flyLAL seeks compensation for damage resulting, first, from the abuse of a dominant position by Air Baltic on the market for flights from or to Vilnius Airport (Lithuania) and, second, from an anti-competitive agreement between the co-defendants. To that end, it applied for provisional and protective measures. The relevant Lithuanian court granted that application and issued an order for sequestration, on a provisional and protective basis, of the moveable and/or immoveable assets and property rights of Air Baltic and Starptautiskā Lidosta Rīga. A relevant Latvian court decided to recognise and enforce that judgment in Latvia, in so far as the recognition and enforcement related to the sequestration of the moveable and/or immoveable assets and property rights of  defendants. Application by flyLAL for a guarantee of enforcement of that judgment was rejected.

Defendants submit that the recognition and enforcement of the judgment are contrary to both the rules of public international law on immunity from jurisdiction and the brussels I Regulation. They argue that the present case does not fall within the scope of that regulation. Since the dispute relates to airport charges set by State rules, it does not, they submit, concern a civil or commercial matter within the meaning of that regulation.

On the scope of application issue (‘civil and commercial‘), the ECJ held with reference to previous case-law, that the provision of airport facilities in return for payment of a fee constitutes an economic activity. (This is different from the foundation judgment in Eurocontrol, which in turn was cross-referred in Sapir (to which the ECJ in current judgment refers repeatedly): Eurocontrol is a public body and the use of its services by airlines is compulsory and exclusive). The amount of shares held by government in the relevant airlines is irrelevant.

That the exclusive jurisdictional rule of Article 22(2) may be at issue (which might have led the court with whom enforcement is sought, to refuse such) was clearly a desperate attempt to rebuke jurisdiction. The national court should not have entertained it, let alone sent it to Luxemburg. (The Court replies courteously that ‘seeking legal redress for damage resulting from alleged infringements of European Union competition law, must (not) be regarded as constituting proceedings which have as their object the validity of the decisions of the organs of companies within the meaning of that provision.’) One assumes the flimsiest of arguments might have been that the board or a director would have had to approve the actions leading to the infringement.

Finally, according to Article 34(1), a judgment is not to be recognised if such recognition is manifestly contrary to public policy in the Member State in which recognition is sought. The referring court is unsure, first, as to the consequences to be drawn from the failure to state reasons for the methods of determining the amount of the sums concerned by the provisional and protective measures granted by the judgment in respect of which recognition and enforcement are sought and, second, as to the consequences linked to the amount of those sums.

With respect to the alleged failure to state reasons, the ECJ confirms (at 51 ff) that the observance of the right to a fair trial requires that all judgments be reasoned in order to enable the defendant to understand why judgment has been pronounced against him and to bring an appropriate and effective appeal against such a judgment (see ia Trade Agency). However that was not the case at issue: there is no lack of reasoning, since it is possible to follow the line of reasoning which led to the determination of the amount of the sums at issue. Parties concerned moreover had the opportunity to bring an action against such a decision and they exercised that option.  Therefore, the basic principles of a fair trial were respected and, accordingly, there are no grounds to consider that there has been a breach of public policy.

As regards the amount of the sums, the concept of ‘public policy’ within the meaning of Article 34(1)seeks to protect legal interests which are expressed through a rule of law, and not purely economic interests. The mere invocation of serious economic consequences does not constitute an infringement of the public policy of the Member State in which recognition is sought (at 58).

Once again the Court’s emphasis is on the exceptional nature of the ordre public exception.

Geert.

 

 

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