Friday, 15 April 2011

Guest Post: Professor Gerard McCormack on Suing companies in the UK that are the subject of liquidation proceedings elsewhere in the EU

I am grateful to Professor Gerard McCormack, of the University of Leeds, for providing the following guest post on the question of suing companies in the UK that are the subject of liquidation proceedings elsewhere in the EU. The ILA website is hosting a debate in their Forum Area on Gerry's ideas. See here. Here is the post:

"I must admit that I thought it was a bit of a no-no to sue a company a foreign company in the UK that was the subject of foreign main insolvency proceedings elsewhere in the EU. But the recent(ish) Gibraltar Residential Properties case says otherwise.

Okay one has the Jurisdiction and Judgments Regulation - Council Regulation (EC) No 44/2001- and where is an English exclusive jurisdiction clause in a contract between an English party and an EC party, then an English court has jurisdiction by virtue of Article 23 of the Regulation.  But the relationship with the EC Insolvency Regulation - Council Regulation (EC) 1346/2000- must be considered. Article 3 of that Regulation confers exclusive jurisdiction to open main insolvency proceedings in respect of a debtor to the EC in whose territory the centre of the debtor’s main interests is situated (Art 3).

Article 4 provides that the applicable law in respect of the proceedings is the law governing insolvency in the state where the proceedings are opened. The law of the State of opening of the insolvency proceedings determines “the assets which form part of the estate and the treatment of assets acquired by or devolving on the debtor after the opening of the insolvency proceedings”.

Article 4(2) provides that:
‘The law of the State of the opening of proceedings shall determine the conditions for the opening of those proceedings, their conduct and their closure. It shall determine in particular:
(e) the effects of insolvency proceedings on current contracts to which the debtor is party;
(f) the effects of the insolvency proceedings on proceedings brought by individual creditors, with the exception of lawsuits pending ….’

In Gibraltar Residential Properties Ltd v Gibralcon [2010] EWHC 2595 a Spanish construction company Gibralcon became the subject of insolvency proceedings in Spain and sought to restrain the employer, GRPL, from continuing with English legal proceedings arising out of the construction contract.  The contract contained an English exclusive jurisdiction clause but it seems that the English court proceedings were commenced only after the Spanish insolvency proceedings had been opened.  At first blush, it would appear that Spanish law as the law of the State that opened the insolvency proceedings should pursuant to Article 4(2)(f) determine the effects of the proceedings on actions brought by “individual creditors” and the exception in the provision for “lawsuits pending” would not apply. But Edwards-Stuart J founded his decision largely on Article 23 of the Judgments Regulation which gave binding effect to a jurisdiction clause in a standard “civil or commercial” contract like the construction agreement was in this case.   He said the fact that a defendant in commercial proceedings is the subject of insolvency proceedings in another Member State was not of itself a ground for depriving the Jurisdiction and Judgments Regulation of application.

Edwards-Stuart J added however that the English court would not take “any step to prejudice or interfere with the Spanish insolvency proceedings. This court will do no more than determine the rights of the parties under this contract, disputes which are subject to the exclusive jurisdiction of the courts of England and Wales, and make declarations accordingly, and, in particular, determine so far as it can which party is owed money by the other and how much (se para 15).

Nevertheless, it may be that the decision wrongly deprives the Insolvency Regulation of much of its force.  While there are oddities of language in the Regulation it seems clearly that its objective was to put the court of an EC State that opens main insolvency proceedings in the primary position of determining the effect of those proceedings on the debtor’s legal relationships.  That court is in the prime position of surveying the debtor’s debts and legal relationships and how they should be assessed and adjusted in the new situation of insolvency. Once insolvency proceedings kick in, that court should take centre stage. The Gibralcon decision compromises the unity and universality of insolvency proceedings that the Insolvency Regulation is ostensibly designed to achieve.

Or at least that is one view.  Others may have different views.  Or I may have got the facts of the case wrong and of course decisions turn on facts."

Picture Credit: http://www.map-of-europe.us/images/map-of-europe.gif

1 comment:

Jason Kilborn said...

This case illustrates the blind formalism that I fear has long plagued the British (and US) judiciary. Doing "nothing more than establishing the rights of the parties" in and of itself DOES interfere with the insolvency proceedings in Spain. The courts can't get it through their heads that adjudication isn't free, in terms of either money or other resources like time. Auto stay litigation in the US has long recognized that continuation of litigation to which the debtor has to pay attention DOES interefere with the insolvency case, even if it "simply" determines the parties' rights. That's not so "simple" when the realities of the court process, lawyers, and fees are considered, which this judge clearly ignored. Bad decision! :-(

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