Posts Tagged Fraud
I reported earlier on the Aldi abuse of process principle: a party who intends to bring a subsequent action against existing parties or their privies must raise the issue with the court, which on case-management grounds may hold that all claims must be brought simultaneously.
In 2016 BVIHC 0059 (COM) Serena Chi Yang Hsueh et al v Equity Trustee ltd. et al Chivers J has now held that the principle applies in the British Virgin Islands. Harneys have the report here, and a big thank you to Kimberley Crabbe-Adams and Ian Mann for providing me with copy. Telling, at 94 is Chivers J’s conclusion (following review of authority) that while the specific Aldi requirement may not as such have been promulgated in BVI, there can be no doubt of the obligation of a litigant to put all their cards on the table, before the other party and the court, at an early stage. The CPR demand so, specifically as their overall objective (at 90, referring to CPR 1.1(1) is to deal with cases ‘justly’.
I have pondered before whether there ought not to be an Aldi rule in EU conflicts law, however one can see the difficulty particularly as in the EU context an Aldi principle might favour the actor sequitur forum rei rule to the detriment of special jurisdictional rules: not an outcome supported by the current rules.
And I would be very happy to supervise. Thank you Nicolas Contis for flagging Stockholm National Museum v X at the French Supreme Court /Cour de Cassation. Nul ne peut se contredire au détriment d’autrui: aka (here: procedural) estoppel. (The newly out Encyclopedia of Private international law, edited by Basedow, Ruhl, Ferrari and de Miguel Asensio, has a very good entry on it, discussing both public and private international law).
On the eve of a hearing on the ownership of an ancient artefact, a cup, defendants changed their stance and argued that the cup had belonged to their mother, for whom they were acting as representatives only. Previously, they had always presented themselves as owners. They suggested therefore that the suit was misdirected, hoping to sink it. The Court of Appeal dismissed the defendants’ motion on account of procedural estoppel. The Supreme Court disagreed: its stance means, as Nicolas summarises, that ‘to face the procedural penalty of dismissal, not only must the change of stance happen throughout the judicial proceedings (ie, notably, that a contradiction including a repeated allegation made before the launching of a suit could not pass the estoppel test), but the party at fault must also have changed its ‘pretentions’ – that is, its legal claims (meaning that changing the factual allegations presented to the courts could not pass the test either)’.
I do not see entirely clear in French civil procedure law but as I saw the case reported, the thought struck me: this would be a good topic for a PhD: a comparative study in procedural estoppel, specifically in a private international law context (especially if one were also to throw a comparison with arbitration in the mix).
Happy to discuss. Geert.
Don’t leave the store without asking. Joinders, and the Aldi principle applied in Otkritie. On the shopping list for the EU?
Postscript 21 November 2017: For an application in Hong Kong see Far Wealth Ltd v Lo Ki Mou, reported here: proceedings dismissed as an abuse of process because the plaintiffs could have protected their position by way of a counterclaim in prior proceedings commenced against them by the defendants.
A posting out off the box here, so bear with me. Neither Brussels I nor the Recast include many requirements with respect to (now) Article 8(1)’s rule on joinders. A case against a defendant, not domiciled in the court’s jurisdiction, may be joined with that against a defendant who is so domiciled, if the cases are ‘so closely connected that it is expedient to hear and determine them together in order to avoid the risk of irreconcilable judgments’. There is of course CJEU case-law on what ‘so closely connected’ means however that is outside the remit of current posting.
As I reported recently, the CJEU has introduced a limited window of abuse of process viz Article 8(1), in CDC. The Court’s overall approach to Article 8(1) is not to take into account the subjective intentions of plaintiff, who often identify a suitable anchor defendant even if is not the intended target of their action. The Court does make exception for one particular occasion, namely if it is found that, at the time the proceedings were instituted, the applicant and that defendant had colluded to artificially fulfil, or prolong the fulfilment of, (now) Article 8’s applicability.
What if at the time the proceedings were instituted, applicant artificially ignores the fulfilment of, (now) Article 8’s applicability?
The Aldi rule of the courts of England and Wales, and its recent application in Otkritie, made me ponder whether there is merit in suggesting that the CJEU should interpret Article 8(1) to include an obligation, rather than a mere possibility, to join closely connected cases. I haven’t gotten much further than pondering, for there are undoubtedly important complications.
First, a quick look at the Aldi rule, in which the Court of Appeal considered application of the Johnson v Gore Wood principles on abuse of process of the (then) House of Lords, to an attempt to strike out a claim for abuse of process on the basis that the claim could and should have been brought in previous litigation. Aldi concerned complex commercial litigation, as does Otkritie. The result of Aldi is that plaintiffs need to consult with the court in case management, to ensure that related claims are brough in one go. Evidently, the courts need to walk a fine rope for the starting point must be that plaintiffs have wide discretion in deciding where and when to bring a claim: that would seem inherent in Article 6 ECHR’s right to a fair trial.
In Otkritie [the case nota bene does not involve the Brussels Regulation], Knowles J strikes the right balance in holding that the Aldi requirement of discussing with the court had been breached (and would have cost implications for Otkritie in current proceedings) but that otherwise this breach did not amount to abuse of process.
Now, transporting this to the EU level: to what degree could /should Article 8 include a duty to join closely related proceedings? Should such duty be imposed only on plaintiff or also on the court, proprio motu? A crazy thought perhaps for the time being, but certainly worthwhile pondering for future conflicts entertainment.
Postscript 18/12/2014: the Tribunal de Commerce held on 8 December 2014: in view of applicable Belgian law, and despite the Bank’s efforts to distinguish the ECJ’s ruling, the sum was awarded to the liquidators. Appeal may follow.
I reported earlier on the AG’s Opinion in C-251/12, van Buggenhout /van de Mierop. The ECJ yesterday disagreed: the AG had opined on the basis of teleological and linguistic analysis. The Court does so, too, however reaches a different conclusion, in particular on the basis of a narrow reading of ‘to the benefit of’ or ‘in favour of’ the debtor:
The Court refers amongst others (and in deciding fashion so it would seem (see para 30 of the judgment)) to Article 24(1)’s provision that the obligation honoured for the benefit of the insolvent debtor ‘should have been for the benefit of the liquidator‘. I am not so sure that ‘should have been’ applies in a case such as in the main proceedings where the whole point is that the third party paid a debt in favour of the debtor, subject to insolvency, bona fide not being aware of said insolvency. ‘Should have been made’ may be so in the eyes of the liquidators, but not in the eyes of the unaware third party.
The ECJ does conclude ‘However, the fact that Article 24(1) of Regulation No 1346/2000 is not applicable to a situation such as that at issue in the main proceedings does not, in itself, give rise to the obligation for the bank concerned to reimburse the disputed sum to the general body of creditors. The issue regarding any liability of that bank is governed by the applicable national law.’ In other words, the liquidators are not home and dry yet. (Update 18 December 2014: see however postscript).
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).
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