Posts Tagged United Kingdom

Sabbagh v Khoury. The Court of Appeal struggles on merits review for anchor defendants.

Update 24 July 2019 the injunction was partially upheld by the Court of Appeal.

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, deserves CJEU review.

Geert.

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

, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Leave a comment

Winkler v Shamoon. Another High Court look at the ‘wills and succession’ exception.

In Winkler v Shamoon [2016] EWHC 2017 Ch Mr Justice Henry Carr broadly follows Mrs Justice Susan Carr in Sabbagh v Khoury (which I have reviewed earlier) on the interpretation of the ‘wills and succession’ exception in the Brussels I Recast (and the Lugano convention). [The Justices themselves, incidentally, are neither related nor married, I understand]. In so doing, Sir Henry follows Dame Susan’s approach vis-a-vis the exclusions in the Brussels I Recast.

Ms Alexandra Shamoon accepts that she is domiciled in the UK for the purposes of the Brussels Regulation.  However, she applies for an order on essentially the same basis as that set out above, contending, in particular, that the claim relates to succession and therefore falls outside the scope of the Brussels Regulation. Brick Court have summary of the case and hopefully do not mind me borrowing their heads-up of the facts:

the case concerns the estate of the late Israeli businessman, Sami Shamoon.  Mr Shamoon owned and controlled the Yakhin Hakal Group of Israeli companies and was known in his lifetime as one of the wealthiest men in Israel.  The claim was brought by Mr Peretz Winkler, formerly the Chief Financial Officer and manager of Yakhin Hakal, against Mrs Angela Shamoon and Ms Alexandra Shamoon, the widow and daughter respectively of Mr Shamoon and the residuary legatees under his will.  In his claim Mr Winkler alleged that prior to his death Mr Shamoon had orally promised to transfer to him certain shares worth tens of millions of dollars.  On the basis of the alleged promise Mr Winkler claimed declarations against Angela and Alexandra Shamoon as to his entitlement to the shares (which they are due to receive under Mr Shamoon’s will).  Angela and Alexandra challenged the jurisdiction of the English Court to hear the claim on the basis that it was a matter relating to “succession” within article 1(2)(a) of the Brussels Regulation and therefore fell outside its scope (and that England was not the natural or appropriate forum for the dispute).

If the claim does fall within the scope of the Regulation, jurisdiction is quite easily established on the basis of the defendant’s domicile – albeit with contestation of such domicile in the UK by Mr Shamoon’s widow and daughter.

Carr J held that the claim was one relating to succession and therefore fell outside of the Brussels I Recast (at 53 ff). While I may concur in the resulting conclusion, I do not believe the route taken is the right one. Sir Henry follows Mrs Justice Carr’s approach in applying the excluded matters of the Brussels I Recast restrictively. I disagree. Exclusions are not the same as exceptions: Article 24’s exclusive rules of jurisdictions are an exception to the main rule of Article 4; hence they need to be applied restrictively. Article 1(2)’s exclusions on the other hand need to be applied solely within the limits as intended. Lead is also taken from Sabbagh v Koury with respect to the role of the EU’s Succession Regulation. Even if the UK is not party to that Regulation, both justices suggest it may still be relevant in particular in assisting with the Brussels I Recast ‘Succession’ exception. If the approach taken in Winkler v Shamoon is followed it leads to a dovetailing of the two Regulations’ respective scope of application. Not a conclusion I think which is necessarily uncontested.

The High Court concludes (at 72) ‘this claim is excluded from the Brussels Regulation and the Lugano II Regulation as its principal subject matter is “succession” within the meaning of Article 1(2)(a).  In particular, it is a claim whose object is “succession to the estate of a deceased person” which includes “all forms of transfer of assets, rights and obligations by reason of death”. It is a succession claim which concerns “sharing out of the estate”; and it is a claim within the definition of “succession as a whole” in Article 23 of the Succession Regulation, as a claim whose principal subject matter concerns  “the disposable part of the estate, the reserved shares and other restrictions on the disposal of property upon death”: Article 23(h); and an “obligation to …account for gifts, …when determining the shares of the different beneficiaries”: Article 23(i).

Intriguingly, of course, had the UK be bound by the Succession Regulation, and given the dovetailing which the judgment suggest, the next step after rejection of jurisdiction on the basis of the Brussels I Recast, would have been consideration of jurisdiction following the Succesion Regulation. It is ironic therefore to see the Regulation feature as a phantom piece of legislation. Now you see it, now you don’t.

Geert.

(Handbook EU Private international law, Chapter 2, Heading 2.2.2.10).

 

, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Leave a comment

Away to Scotland with thee! CA applies forum non conveniens to intra-UK conflicts in Cook & McNeil (v Virgin & Tesco)

A great example of internal forum shopping and the application of forum non conveniens in the Court of Appeal. (Just before Christmas. I am still hacking away at my end-of-year queue).

Claimants claim damages for personal injuries they alleged they sustained in accidents in Scotland as a result of the negligence and/or breach of statutory duty of the defendants. The claims were issued in the Northampton County Court. The registered offices of the defendants are situated in England and Wales. Both claimants are domiciled in Scotland. Liability has been admitted in the case of Cook, but denied in the case of McNeil.  Since the claims related to accidents in Scotland, the claims were allocated to Carlisle County Court, which is the court geographically closest to Scotland. The claims were struck out on forum non conveniens grounds, with Scotland being the appropriate forum.

The most important issue that arises on these appeals (and the reason why Tomlinson LJ gave permission for a second appeal) is whether the doctrine of forum non conveniens can apply in a purely domestic context where the competing jurisdictions are England and Scotland. Put simply, the question is: does the English court have the power in such a case to stay or strike out a claim on the ground that the natural and more appropriate forum is Scotland?

As Floyd MR notes (at 7) it is surprising that there was no authority on this point.

He correctly holds that the ‘international element’ required for the Brussels I regime to apply, as it did in Owusu and Maletic  (but also Lindner) is absent in the case at issue. There is nothing in the facts which renders the case international in the Brussels I (Recast) sense.  Relevant precedent which did have some calling was Kleinwort Benson, Case C-346/93, in which the CJEU refused to interpret the (then) Brussels Convention in a purely domestic UK situation, even if the internal UK rules were modelled on the Brussels regime.

Forum non conveniens could be applied. Though not under appeal, Floyd MR does suggest that in his view the claim in which liability was admitted (Cook), should not have been struck out but rather stayed under the relevant rules.

Geert.

, , , , , , , , , , , , , , , , , , , , , , , , , , ,

Leave a comment

Sabbagh v Khoury. The High Court considers the ‘wills and succession’ exception, (reflexive application of) the exclusive jurisdictional rule for company matters, and anchor defendants under the Jurisdiction Regulation.

Sabbagh v Khoury is great for oral exam purposes. Hand the student a copy of the case and ipso presto, there is plenty to talk about for at least half an hour.

Sana Sabbagh, who lives in New York, claims that the Defendants have variously, since her father’s stroke, conspired against both him and her to misappropriate his assets (“the asset misappropriation claim”) and, since her father’s death, to work together to deprive her of her entitlement to shares in the group of companies which her father ran (“the share deprivation claim”). Wael, first defendant, is the anchor defendant for jurisdictional purposes. He resides and has at all material times resided in London. The other Defendants live or are based abroad.

Defendants contend in essence  (at 83):

a) that the claims against Wael (as noted, the anchor defendant) are so weak that there is no risk of irreconcilable judgments from separate proceedings and so no basis for joinder under Article 6(1) of the Brussels I Regulation (“the merits issue”);

b) that the claims fall outside the Brussels Regulation because the Regulation does not apply to “wills and succession” within the scope of Article 1(2)(a) (“the succession issue”), or challenges to the validity of CCG’s organs within the scope of Article 22(2) (“the Article 22 issue”), and the natural and appropriate forum for determining them is Lebanon (“the forum issue”);

c) that the claims are subject to an arbitration clause (or several arbitration clauses) such that a stay is required by s. 9(4) of the Arbitration Act 1996 (“the stay issue”). Any disputes against parties not bound by the arbitration clause should be stayed as a matter of discretion.

(Point c falls outside the scope of current posting).

Logically looking at point b) first (the exclusion of ‘wills and succession’, the High Court first of all considered the proposition that exceptions to the scope of application need to be applied restrictively.

To my knowledge this has not as such been held by the ECJ. Carr J expresses sympathy with the view that the findings of the ECJ in C-292/08 German Graphics in particular (that the insolvency exception not be given an interpretation broader than is required by its objective), could be given broader application, for all exceptions. I am more convinced by defendants’ argument that one needs to be careful to extend the reasoning of German Graphics outside the insolvency context, given that its ruling is inevitably influenced by the existence of the Insolvency Regulation.

However Mrs Justice Carr suggested that whether or not restrictive interpretation ought to be followed, is not quite the determinant issue: rather, that the exceptions should be applied in similar fashion as the exclusive jurisdictional rules of Article 22 (Article 24 in the recast).  Those jurisidictional rules, which are an exception to the general rule of Article 2 (4 in the recast), Carr J notes, only apply where the action is ‘principally concerned with’ the legal issue identified in the Article. ‘Have as their object’ is the term used in the Regulation, for 3 out of 5 of the Article 22 exceptions. (For the other two, including those with respect to intellectual property, the term is ‘concerned with’. In fact in other language versions the term is ‘concerned with’ throughout – which has not helped interpretation). ‘Have as their object’ was indeed applied by the ECJ as meaning ‘whose principal subject-matter comprises’ in BVG, viz the Article 22(2) exception. (Not in fact as Carr J notes, ‘principally concerned with’ , which the ECJ only referred to because it is the language used in Article 25’s rule on examination of jurisdiction).

The stronger argument for siding with the High Court’s conclusion lies in my view not in the perceived symmetry between Article 22 (exclusive jurisdictional rules) and Article 1 (scope), but rather in the High Court’s reference in passing to the Jenard report. At C/59/10: ‘matters falling outside the scope of the Convention do so only if they constitute the principal subject-matter of the proceedings. They are thus not excluded when they come before the court as a subsidiary matter either in the main proceedings or in preliminary proceedings.’ Granted, the result is the same, however the interpretative route is neater. Like other things in life (it’s single Malt, not so much general tidiness I am referring to), I like my statutory interpretation neat.

Eventually Carr J held that Ms Sabbagh’s action is principally concerned with assets and share misappropriation, in short, with conspiracy to defraud. If successful, the action will of course impact on Ms Sabbagh’s inheritance. However that does not justify the exclusion of Brussels I to her claim.

[The court was also taken on a short comparative tour of the Succession Regulation, with a view to interpreting the succession exception in Brussels I. Interestingly, Carr J noted that indeed that Regulation may serve as a supplementary means of interpretation of the Jurisdiction Regulation, even though the UK is not bound by the Succession Regulation.]

 

Next came the potential application of Article 22(2). This issue not only raised the question of whether the action would at all fall within the Article 22(2) remit; but also, whether in that case that Article needs to be applied reflexively, given that the companies concerned are incorporated in Lebanon. Here inevitably reference was made to Ferrexpo. The High Court however held that no question of reflexive application arises, under the same reasoning as above, with respect to the succession exception: the challenge to the corporate decisions was not one of ultra vires or other ‘corporate’ validity: rather, one of their proper characterisation or correctness. They are not therefore substantially concerned with the Article 22(2) exceptions.

 

The High Court preceded its application of Article 6(1) (joinders /use of an anchor defendant: first defendant is domiciled in London) with a very thorough review of the merits of each of the cases. (At 5, the Court notes that the other defendants live ‘abroad’, most of them seemingly in Greece. However the relevant companies at least seem to be domiciled in Lebanon. Article 6 can only be used against defendants already domiciled in another Member State. For those outside, national conflicts law decides the possibility of joinder).

Article 6 requires that “the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.”  ECJ Case-law (in particular Roche Nederland, C-539/03) has it that it is not sufficient that there be a divergence in the outcome of the dispute: that divergence must also arise in the context of the same situation of law and fact (Case C‑539/03 Roche Nederland and Others [2006] ECR I‑6535, paragraph 26). In Freeport, Case C-98/09, the ECJ added that It is for the national court to assess whether there is a connection between the different claims brought before it, that is to say, a risk of irreconcilable judgments if those claims were determined separately and, in that regard, to take account of all the necessary factors in the case-file, which may, if appropriate yet without its being necessary for the assessment, lead it to take into consideration the legal bases of the actions brought before that court. (at 41). It added that where claims brought against different defendants are connected when the proceedings are instituted, (which implies that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings), there is no further need to establish separately that the claims were not brought with the sole object of ousting the jurisdiction of the courts of the Member State where one of the defendants is domiciled (Freeport, at 54).

Whether the likelihood of success of an action against a party before the courts of the State where he is domiciled is relevant in the determination of whether there is a risk of irreconcilable judgments for the purposes of Article 6(1), was raised in Freeport but not answered by the ECJ for such answer was eventually not necessary for the preliminary review at issue. In Sabbagh, with reference to precedent in the English courts, the High Court does carry out a rather thorough merits review, effectively to review whether the claim against Wael might not be abusive: ie invented simply to allow him to be used as anchor defendant. Carr J’s extensive merits review hinges on ‘to take account of all the necessary factors in the case-file‘ per Freeport. Whether such detailed review might exceed what is required under Article 6(1) is simply not easily ascertained. (The High Court eventually did decide that Article 6(1) applied on account of one of the pursued claims).

Did I say ‘half an hour’ in the opening line of this posting? An exam using this judgment might take a bit longer…

Geert.

, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

1 Comment

Forum shopping alive and well outside the EU Insolvency Regulation. High Court (Bankruptcy) in Kekhman.

In Kekhman, the High Court (Kekhman) refused to reverse an earlier decision establishing jurisdiction for personal bankruptcy. COMI was not in the EU- the Insolvency Regulation therefore does not apply. Jurisdiction was upheld even though the applicant had only been personally been in the UK for one or two days.

Applicant argued pro jurisdiction mainly on the basis of

(a) the absence of a personal bankruptcy regime in the Russian Federation;

(b) the availability of assets in the jurisdiction (£200,000 which was to be made available to the official receiver);

(c) connection to the jurisdiction in the form of contractual English law/jurisdiction provisions;

(c) the opinion of a Russian lawyer, that the courts of the Russian Federation would recognise the bankruptcy;

(d) the fact that an English bankruptcy would allow for the investigation of Mr Kekhman’s affairs and an orderly realisation of Mr Kekhman’s assets for the benefit of his creditors as opposed to realisation on a first come first served basis;

(e) the promise that Mr Kekhman would cooperate with the official receiver and any trustee appointed;

(f) the prospect of Mr Kekhman’s financial rehabilitation.

Personal presence has long been withheld as sufficient ground for jurisdiction in England.

Section 265 Insolvency Act 1986 now provides

“Conditions to be satisfied in respect of debtor. (1) A bankruptcy petition shall not be presented to the court (…) unless the debtor(a) is domiciled in England and Wales, (b) is personally present in England and Wales on the day on which the petition is presented, or (c) at any time in the period of 3 years ending with that day (i) has been ordinarily resident, or has had a place of residence, in England and Wales; or (ii) has carried on business in England and Wales’.

Once jurisdiction has so been established, the Court has discretion to confirm or refuse jurisdiction in the case at issue, on the basis of relevant authority in case-law (and further instruction in the Act).

Baister CR reviewed precedent at length (including recent case-law on schemes of arrangement in the English courts) and held pro jurisdiction. Where his arguments are mostly likely to catch attention is his review of forum shopping, good and bad: The authorities, and in particular the corporate ones, demonstrate that the courts here are prepared to countenance what is in reality forum shopping, albeit of a positive, by which I mean a legitimate, kind’ (at 104).  There is no suggestion in this case that the bankruptcy order was sought for an improper purpose (…) beyond, the Applicants would say, Mr Kekhman’s seeking to avoid the harsh consequences of Russian law (much as it might be said the companies in the two scheme cases [i.e. schemes of arrangement, GAVC] mentioned above sought to avoid the potential consequences for them of the lack of a scheme jurisdiction in their respective countries). (at 110) Rather, it seems to me that Mr Kekhman has come to this jurisdiction to fill a lacuna in the laws of the country where he is domiciled and resides. Many of the cases we have looked at, though primarily, I accept, in the corporate realm, indicate that the courts here have often been content to assist in such circumstances (at 111).

Russian assets can still be gone after by the Banks in Russia, using Russian law. English will be credited to them by the English courts using English law.

A refreshing defence of forum shopping which in my view unfairly has been utterly blacklisted in the Insolvency Regulation.

Geert.

, , , , , , , , ,

Leave a comment

An end to libel tourism in the UK? The High Court in Subotic and Karpov. Abuse principles sink jurisdiction.

Two interesting cases in the High Court on libel tourism, Subotic and Karpov (both held 14 October 2013). The relevance to English libel law is set out by Robert Renfree and by Paul Dacam. Here I just wanted to flag the jurisdictional issues under the Brussels regime.

In Subotic, a Serbian national living in Switzerland, Dingemans J accepted English jurisdiction in principle although it is not entirely clear on what basis. Domicile of the defendant at the time of the initiation of the claim was alleged by claimant to have been England. However defendant disputed such domicile, referring to inferred addresses having been a left-over of earlier study in the UK (but adding complaints about his wife and children’s address in London having been found, whence the dispute on domicile was not entirely clear). Counsel for the defendant also referred to his client having shied away, for costs reasons, from English proceedings after earlier acceptance to entertain the claim – however this potential voluntary appearance under Article 24 of the Regulation was not further reviewed.  It is most likely that acceptance of jurisdiction was made on the basis of Article 5(3) of the Regulation however as readers will be aware, that does limit jurisdiction to damage in the UK only (the alleged acts leading to libel not having taken place in the UK, only some of the reputational damage). To add to the fog, parallel proceedings are alleged by plaintiff to be underway in Switzerland although their course is unclear. Finally, defendant now is domiciled in Croatia, EU Member State since 1 July 2013. As Dingemans suggested, this would certainly not stand in the way of new proceedings there (although it could of course lead to lis alibi pendens considerations, depending on what would be asked of the Croatian court).

Eventually, Dingemans held that continuation of the proceedings would amount to abuse of process, ‘The evidence shows that there was no substantial publication in England and Wales, and that there was no effect on the reputation of Mr Subotic in England and Wales.‘ There was, in other words, insufficient connection to England and Wales.

This is arguably not a refusal to exercise jurisdiction otherwise held under the Brussels I Regulation (per Owusu, that would be impossible), rather, an application of procedural rules under lex fori, or indeed a forward application of the lex causae (definitely libel under common law, as defamation is exempt from the Rome II Regulation). However upon first reflection, the abuse of process route may in circumstances such as these be seen as an application of the forum non conveniens doctrine. Any thoughts of common lawyers are certainly invited!

In Karpov, the claimant was a former Russian police officer who had brought proceedings against a British based hedge fund owner and associated companies. Simon J, too, held abuse of process in this case,  holding inter alia that ‘claimant had no connection with, and had no reputation to protect within, the jurisdiction; and therefore cannot establish a real and substantial tort within the jurisdiction.’ In this case, though, none of the defendants was domiciled in the UK (Hermitage Capital Management (UK) Limited would seem to be domiciled in Guernsey, which is not part of the UK and not subject to the jurisdiction Regulation). Jurisdiction in Karpov therefore was entirely determined by English law.

Geert.

, , , , , , , , , , , , , , , , , , , , ,

Leave a comment

The corporate veil in wedlock – Supreme Court decides Petrodel v Prest on the basis of trust

Update 12 December 2019 now also confirmed as representing Scots law. See [2019] CSOH 102 OB v A b and another.

Update 21 September 2016. For an application in the environment field, see [2016] EWCA Crim 1043 R v Powell and Westwood and analysis by Robert Biddlecombe, who brought the case to my attention.

Postscript 21 September 2015: Petrodel was applied by the High Court in Wood v Baker. The corporate veil was pierced in a bankruptcy case.

I noted in my post on Eni that the waters remain deep in national law re piercing the corporate veil. Point made by the Supreme Court on 12 June 2013, in Petrodel v Prest (a matrimonial assets case which was decided on the basis of trust), where Lord Neuberger stated obiter  “if piercing the corporate veil has any role to play, it is in connection with evasion”.

Lord Sumption’s take was “there is a limited principle of English law which applies when a person is under an existing legal obligation…which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality“. He added ‘The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.’

Lord Clarke, agreeing with Lord Mance and others, stated “the situations in which piercing the corporate veil may be available as a fall-back are likely to be very rare”.

The focus in the UK is very much a presumption against piercing the veil and leaving the distinct nature of corporations intact – consequently a high burden of proof for those wishing to pierce.

Geert.

, , , , , , , , , , , , , , , , ,

Leave a comment

Piercing the corporate veil in competition cases – The ECJ in Eni

Update 13 June 2019 for an interesting paper by Anil Yilmaz Vastardis and Rachel Chambers, comparing investment law and the relevant issues for corporate veil and human rights abuses, see here.

Update 21 September 2016. For an application in the environment field, see [2016] EWCA Crim 1043 R v Powell and Westwood and analysis by Robert Biddlecombe, who brought the case to my attention.

Update 20 June 2016 the strict approach was confirmed in C-155/14P Evonik.

There is no general EU rule on the piercing of the corporate veil. Neither company law nor tort law is sufficiently (or in the case of tort law even embryonically) harmonised to be able to speak of much EU influence here. However in EU competition law, the principle is more or less established and may, one suspects, inspire in other areas, too. In Eni, the ECJ confirmed on 8 May the strong presumption of attribution in the case of shareholder control.

It is established case-law under EU competition law that the conduct of a subsidiary may be imputed, for the purposes of the application of Article 101 TFEU, to the parent company particularly where, although having separate legal personality, that subsidiary does not autonomously determine its conduct on the market but mostly applies the instructions given to it by the parent company, having regard in particular to the economic, organisational and legal links which unite those two legal entities. In such a situation, since the parent company and its subsidiary form part of a single economic unit and thus form a single undertaking for the purpose of Article 101 TFEU, the Court has repeatedly held that the Commission may address a decision imposing fines to the parent company without being required to establish its individual involvement in the infringement.

In the particular case in which a parent company holds all or almost all of the capital in a subsidiary which has committed an infringement of the European Union competition rules, there is a rebuttable presumption that that parent company exercises an actual decisive influence over its subsidiary. In such a situation, it is sufficient for the Commission to prove that all or almost all of the capital in the subsidiary is held by the parent company in order to take the view that that presumption is fulfilled.

In addition, in the specific case where a holding company holds 100% of the capital of an interposed company which, in turn, holds the entire capital of a subsidiary of its group which has committed an infringement of European Union competition law, there is also a rebuttable presumption that that holding company exercises a decisive influence over the conduct of the interposed company and also indirectly, via that company, over the conduct of that subsidiary.

In the present case, for the entire duration of the infringement in question, Eni held, directly or indirectly, at least 99.97% of the capital in the companies which were directly active within its group in the sectors in which there had been a violation of competition law. The ECJ held that in particular the absence of management overlap between Eni and the daughter companies, was not enough to rebut the presumption of the companies being a single economic unit. In competition law, therefore, the corporate veil may be quite easily pierced in a holding context, which undoubtedly is not the approach which many Member States take outside of the competition law area.

The waters therefore on the piercing of the corporate veil other than in the area of competition law, remain quite deep. This has an impact on the conflicts area, in particular in the application of the Rome II Regulation and the debate on corporate social responsibility, on which I have reported before on this blog.

Geert.

postscript: point made in e.g. the UKSC on 12 June 2013, in Petrodel v Prest (a matrimonial assets case which was decided on the basis of trust), where Lord Neuberger stated obiter  “if piercing the corporate veil has any role to play, it is in connection with evasion”.

Lord Sumption’s take was “there is a limited principle of English law which applies when a person is under an existing legal obligation…which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality“. He added ‘The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.’

Lord Clarke, agreeing with Lord Mance and others, stated “the situations in which piercing the corporate veil may be available as a fall-back are likely to be very rare”.

 

, , , , , , , , , , , , , , , , , , , , , , , , , , ,

Leave a comment

What law applies to the piercing of the corporate veil? The Supreme Court (not) in VTB Capital v Nutritek.

Postscript 1 March 2016 I already refered in my initial posting to similar issues being sub judice in Shell. In the appeals judgment on the jurisdiction issue, the Gerechtshof Den Haag, without being definitive on the issue, suggested that applicable law for considering whether merger operations inserting a new mother company were abusive (merely carried out to make Royal Dutch Shell escape its liability), had to be addressed using ‘among others’ the lex incorporationis (at 3.2).

In VTB Capital v Nutritek [[2013] UKSC 5] , the Supreme Court of the United Kingdom revisits in signature erudite fashion a number of extremely relevant conflicts issues.  Quite a few of them are tantalizingly held out to the reader, without an answer to them being given.

VTB’s case is that it was induced in London to enter into a Facility Agreement, and an accompanying interest rate swap agreement, by misrepresentations made by one of the defendants, for which it claims the other respondents are jointly and severally liable. Parties are of suitably diverse domicile (appellant incorporated in England however controlled by a State-owned bank in Moscow; defendants two British Virgin Island-based companies owned and controlled by a Moscow-based Russian businessman. Defendants not being EU-based , the Brussels-I Regulation does not apply.

The issues involved were essentially

1. Jurisdiction. Lord Neuberger made the point that settling the presence (or not) of jurisdiction, is an early procedural incident in a trial and ought not to lead to protracted legal argument, costs and time, lest the discussions centre around whether the potential other jurisdiction can guarantee a fair trial or not. In contrast with other in recent high-profile cases before the UK courts, the alternative, Russian forum, would by common agreement have also offered a fair trial. Lord Neuberger also emphasises, with reference to Lord Bingham in Lubbe v Cape, that in forum non conveniens considerations, appeal judges should defer in principle to the trial judge, and that this should be no different in proceedings concerning service out of jurisdiction. The majority therefore opted to defer to Arnold J (at the High Court) and the Court of Appeal in their finding of jurisdiction, in the absence of any error which ought to have made the former change their conclusion.

2. Applicable law for tortious misrepresentation. This the law of the jurisdiction in which they are ultimately received and relied upon (the forum connogati if you like). In the case at issue, this was held to be England.

3. Applicable law for piercing the corporate veil. The Court emphasises the foundation of individual personality of a company established in Salomon and A Salomon and Co Ltd (1897). The presumption must be against piercing. The Supreme Court did not however set out a definitive test for it was not necessary for its resolving of the case, neither did it decide what law should apply to the issue. In theory, Lord Neuberger suggested, the proper law governing the piercing of the corporate veil (may be) the lex incorporationis, the lex fori, or some other law (for example, the lex contractus, where the issue concerns who is considered to be party to a contract entered into by the company in question). However common ground among parties in the case thus far had been to apply English law.

Piercing the corporate veil was also reviewed by the (Dutch) court in Shell. Lord Neuberger’s succinct analysis of the issue in VTB makes one hungry for more.

Geert.

 

, , , , , , , , , , , , , ,

Leave a comment

Current set-up for Common European Sales Law (justifiably) rejected by the UK

The UK Government, a short while ago [perusal was in my in-tray for a few weeks] concluded its consultation on the need for a Common European Sales Law, with a rejection. The main lines of respondents’ arguments, were:

‘Evidence of need: Respondents did not believe that sufficient need for the proposal had been demonstrated. They were unconvinced that contract law presented a significant enough barrier to warrant such a complex and wide ranging proposal.

I agree.

‘Legal uncertainty: Respondents believed that the content of CESL would lead to significant legal uncertainty. There was felt to be a fundamental problem in creating a distinct law for the sale and supply of goods and services, separate from other contractual procedures. Respondents argued this would only lead to uncertainty and incoherence. Jurisprudence in the area would also take years and perhaps decades to establish, creating an additional burden on the UK’s judicial system and on the Court of Justice of the European Union. This would lead to significant delays and expense in the resolution of disputes and interim uncertainty regarding the interpretation of the law.’

I agree. Current regulatory competition, including relevant case-law by national and EU courts, does the job the CESL wishes to address just fine.

‘Confusion: Respondents believed that the introduction of a second regime of contract law would create confusion for both consumers and businesses. They argued that a new law was neither necessary nor practical and specifically noted the length and complexity of the CESL proposal. Many respondents believed that the implementation of further legislation in this area would make it harder, not easier, for businesses to agree contracts and for consumers to know their rights with certainty when purchasing across borders.’

I agree. The CESL addresses alleged uncertainty by adding a layer of complexity.

‘Cost.’ (of disclosure, training, litigation). Here too I agree.

As prof MacQueen et al note on their blog entry on the topic, the UK’s rejection focusses very much on the draft CESL as it stands – it leaves quite a few doors open to either improvements of the draft, or alternative ways of achieving better results.

As often, one of the EU’s most recalcitrant Member States subjects its proposed laws to the most careful scrutiny.

Geert.

, , , , , , , , ,

Leave a comment

%d bloggers like this: