The Brussels Regulation
The Brussels Regulation has direct effect in all Member States except Denmark. It determines the recognition of judgments between Member States and the jurisdiction of Member States to enforce those judgments.
Chapter II, Article 7(1)(a) of the Brussels Regulation provides (insofar as relevant here and with emphasis added) that:
“A person domiciled in a Member State may be sued in another Member State:
(1)(a) in matters relating to a contract, in the courts for the place of performance of the obligation in question…”
Background to the preliminary ruling
The preliminary ruling relates to proceedings in the Polish courts by a Polish creditor (Feniks) of another Polish company (Coliseum).
Coliseum had sold real property in Poland to another of its creditors (Azteca), a Spanish company.
The property sale left Coliseum with insufficient assets to satisfy any award made in favour of Feniks in its claim against Coliseum.
Feniks therefore sought a declaration from the Polish court that the contract of sale between Coliseum and Azteca in relation to the property sale was a so-called actio pauliana – i.e. void as against Feniks on the grounds that it was concluded fraudulently and in breach of Feniks’ rights.
The difficulty for Feniks was that the sale contract was concluded with a person domiciled in Spain (Azteca). As such, under the Regulation Feniks would have to being proceedings against Azteca in Spain unless the Polish courts had concurrent jurisdiction under Article 7(1)(a) of the Brussels Regulation. Whether the Polish courts had jurisdiction in turn depended on whether:
- an actio pauliana was a “matter relating to a contract” under Article 7(1)(a) of the Brussels Regulation; and
- if so, whether “the place of performance of the obligation” was Poland (thereby conferring jurisdiction on the Polish courts).
What the CJEU held
The CJEU held that:
- an actio pauliana was a “matter relating to a contract”; and
- that the “the place of performance of the obligation” was Poland (not, for example, Spain).
Hence, the Polish court had jurisdiction under the Brussels Regulation to declare the property sale to be void as regards Feniks.
The CJEU’s rationale was that Feniks was a creditor of Coliseum under a construction contract for construction works performed in Poland, and the declaration sought by Feniks to preserve its interests (the actio pauliana) had its origins in that contract. The CJEU observed that, had it held otherwise, a creditor would be bound to bring an action where the defendant was domiciled even though that forum might not have any link to the obligations of the debtor with regard to its creditor. So, in this case, Feniks would otherwise have had to bring an action in Spain (where Azteca was domiciled) even though Feniks’ action against Coliseum concerned debts owed by Coliseum to Feniks in Poland.
Relationship with Insolvency Regulation
The Brussels Regulation expressly does not apply to “bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings” (Chapter 1, Article 2(b)).
This is to avoid overlap with the Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings. This Insolvency Regulation provides its own code between Member States as to (among other things) the recognition of insolvency proceedings, the rights and obligations of liquidators appointed in parallel insolvency proceedings in respect of the same debtor, and the law applicable within those insolvency proceedings.
This was an action by a creditor (Feniks) of a company which was apparently insolvent (Coliseum) against a third party (Azteca). The CJEU stressed that the action brought by Feniks did not seem to be connected with any insolvency proceedings and that no insolvency proceedings had been opened in respect of Coliseum in any case. As such, the Insolvency Regulation did not intrude.
It is worth noting that, should insolvency proceedings be opened in respect of Coliseum, then the appointed liquidator may seek to impeach the property sale in accordance with the Insolvency Regulation for the benefit of Coliseum’s creditors as a whole.
Article originally uploaded to https://www.counter-fraud.com/jurisdictions/europe/fraudulent-disposal--the-brussels-effect-132022.htm