Article: Jurisdictional puzzle in English and European Union law regarding insolvency and civil & commercial proceedings

I recently came across this interesting jurisdictional puzzle.

Whether an EU member state’s court has, and should exercise, jurisdiction to hear a dispute regarding a contract dispute involving a sub-issue on whether a bankrupt’s statutory discharge under the UK Insolvency Act 1986 was inapplicable to the contractual debt because it was in respect of fraud or fraudulent purposes. What if another EU Member State’s court has already heard insolvency proceedings regarding that bankrupt?

The puzzle arises from the relationship between the EU Insolvency Regulation (Regulation (EU) 2015/848) and the EU Judgments Regulation (Regulation (EU) No 1215/2012).

Under Article 3 of the Insolvency Regulation, the courts of the Member State within the territory of which the centre of the debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings (‘main insolvency proceedings’). Any proceedings opened subsequently shall be secondary insolvency proceedings. Under Article 6, the courts of the Member State within the territory of which insolvency proceedings have been opened in accordance with Article 3 shall have jurisdiction for any action which derives directly from the insolvency proceedings and is closely linked with them, such as avoidance actions.

The question then is whether a contract dispute involving bankruptcy issues falls under Article 6.

In Wiemer & Trachte GmbH v Tadzher (C‑296/17), the European Court of Justice held that the court with jurisdiction over the main insolvency proceedings has exclusive jurisdiction. Does it mean that the courts of other EU Member States would not have, or should decline, jurisdiction thereafter?

The analysis then turns to whether the subsequent court should nonetheless stay the proceeding on the ground of the concurrent proceedings being based on the same cause of action (under Art. 29 of the Judgments Regulation) or being related actions (under Art. 30 of the Judgments Regulation). Some English decisions on this are relevant.

In Marme Inversiones 2007 S.L. v Royal Bank of Scotland Plc & Ors [2016] EWHC 1570, Marme was seeking a rescission of certain interest rate swaps, whereas the banks, apart from defending the claim, were seeking a declaration that the swaps were lawfully terminated. Marme was going through insolvency proceedings in Spain at the time and thus sought a stay of the banks’ applications for declarations on the basis that the issue would be determined in the Spanish insolvency proceedings. The High Court (Mr Justice Blair) rejected Marme’s stay application, noting that although the respective parties’ cases arose out of the same factual matrix, there was no conceptual overlap between the cases. The English declaration claims are concerned with the meaning of the banks’ contractual rights as a matter of English law. The Spanish counterclaim is concerned with whether the judge should exercise her discretion to terminate the contract for the good of the creditors of the insolvent estate and if so the extent to which the banks should be compensated: at [57]-[60]. In fact, the Spanish courts may find the decision of the English courts useful to them when considering the insolvency proceedings. The High Court also stated that while the risk of “inconsistent judgments” could not be ignored, this risk was not great enough to justify a stay being granted and the actions to be considered ‘related’ under Article 28 of the Judgments Regulation: at [61].

In Rahman v GMAC Commercial Finance Ltd [2012] EWCA 1467, GMAC was the claimant / respondent in appeal who commenced an English court action against Rahman, a former director of 2 German companies, for breach of a deed of warranty and misrepresentation in respect of inventories of the said companies which GMAC relied on for inventory financing. The 2 German companies underwent insolvency in the German courts. The first instance judge held that the German proceedings are insolvency proceedings, and the English proceedings are not. On this basis, that the two proceedings are not both proceedings under the Judgments Regulation, he held that Art. 28 of the Judgments Regulation does not apply. Even if Art. 28 applies, he found that they were not ‘related actions’ under Art. 28. Even if they were related actions, he refused to exercise discretion in granting a stay.

Note that in these cases, the English courts had either not expressly dealt with the issue of whether the proceedings fell within the Insolvency Regulation or not proceeded on the basis that the Insolvency Regulation stipulates exclusive jurisdiction on the court with jurisdiction over insolvency proceedings (which was only determined in the 2018 decision of Wiemer & Trachte GmbH v Tadzher (C‑296/17)).

Thus remains this jurisdictional puzzle and good fodder for jurisdictional arbitrage.

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