Posts Tagged Fraud

Saugmandsgaard ØE in Altun: Detection of fraud /fighting social dumping trumps mutual trust.

Saugmandsgaard ØE’s would seem fast to become the CJEU’s Advocate General of choice in matters of social dumping – witness the recent Ryanair litigation. In C-359/16 Altun, at issue is the binding nature of the E101 certificate. This certifies that a worker moving within the EU is covered by the social security scheme of the Member State (‘MS’) to which the issuing institution belongs. Standing case-law is that the host MS is not entitled to scrutinise the validity of an E101 certificate in the light of the background against which it was issued: this is the result of the mutual trust built into the relevant secondary law.

In current case the Belgian Supreme Court queries whether that case-law applies where a court of the host MS finds that an E101 certificate was obtained or invoked fraudulently.

The AG summarises the relevant investigation at 10: ‘The Sociale Inspectie (Social Inspectorate, Belgium) conducted an investigation into the employment of the staff at Absa NV, an undertaking governed by Belgian law active in the construction sector in Belgium. That investigation established that from 2008 Absa had practically no staff in its employ and outsourced all manual labour to Bulgarian undertakings under subcontracting agreements. Those Bulgarian undertakings had no activities to speak of in Bulgaria and posted workers to work under subcontracting agreements in Belgium for Absa, partly with the involvement and cooperation of other Belgian companies. The employment of the workers concerned was not notified to the Belgian institution responsible for the collection of social security contributions, as they held E 101 certificates issued by the competent Bulgarian authority, certifying that they were covered by the Bulgarian social security system.’

What follows is essentially the Belgian authorities alleging that their Bulgarian counterparts, having been asked to withdraw the certificates, only answered halfheartedly if at all. The Court of Appeal found that the certificates had been obtained by fraud.

Saugmandsgaard ØE emphasises that the EU social security rules at issue effectively establish a private international law system for social security. They assign authorities competent to issue certificates; they designate the social security law applicable. The principle of mutual trust /sincere co-operation, laid down in Article 4(3) TEU, ensures that authorities in the host MS respect the certificates issued in the home MS. However, the AG then effectively flips the coin: sincere co-operation requires sincerity on both sides (my words, not the AG’s).

The AG recalls the Halifax case-law of the CJEU: EU law cannot be relied on for abusive or fraudulent ends and that national courts may, case by case, take account — on the basis of objective evidence — of abuse or fraudulent conduct on the part of the persons concerned in order, where appropriate, to deny them the benefit of the provisions of EU law, in the light of the objectives pursued by the provisions of EU law concerned.

The AG does not just refer to case-law on the very secondary law at issue. He opens up the debate to the wider implications of social dumping and regulatory competition:

At 46: ‘socio-economic considerations likewise support priority being given to the combating of fraud in such a situation. In the context of the system of conflict of laws established by … Regulation No 1408/71, fraud linked to the issue of E 101 certificates represents a threat to the coherence of the Member States’ social security schemes. In that regard, I consider that Member States have a legitimate interest in taking appropriate steps to protect their financial interests and to ensure the financial balance of their social security systems. In addition, the use of E 101 certificates obtained or invoked fraudulently is, in my view, a form of unfair competition and calls into question the equality of working conditions on national labour markets.‘ (footnotes omitted)

At 49, the AG suggest a finding of fraud requires the satisfaction of an objective criterion and of a subjective criterion. The objective criterion consists in the fact that the conditions for obtaining the advantage sought are not in fact satisfied. At 51, the subjective factor:  it is to be established that the persons concerned had the intention of concealing the fact that the conditions for the issue of the E 101 certificate were not in fact met, in order to obtain the advantage stemming from that certificate. Proof of the existence of such fraudulent intent may consist in an intentional act, in particular an inaccurate presentation of the true situation of the posted worker or of the undertaking posting that worker, or in an intentional omission, such as the non-disclosure of relevant information.

(In the case at issue, the facts point to non-fulfillment of one of the substantive criteria for the E101 to be issued, namely that only an undertaking which habitually carries on significant activities in the Member State in which it is established may be issued an E101 of that State).

The fraud must be established in the context of adversarial proceedings with legal guarantees for the persons concerned and in compliance with their fundamental rights, in particular the right to an effective remedy enshrined (at 52).

If the AG’s Opinion is followed, and taking into account Commissioner Thyssen’s recent progress on the reform of the relevant laws, the social dumping window is closing yet a bit more.

Geert.

 

 

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van Buggenhout /van de Mierop: ECJ disagrees with its AG re protection of debtors

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.

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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).

Geert.

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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).

Geert.

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

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