ECJ on Article 1(2)(b) of the Brussels I Recast Regulation: Actions for Liability in Tort in Insolvency Proceedings

Another Attempt to Create Order out of Chaos

In its preliminary ruling of 20 December 2017, the ECJ held that Article 1(2)(b) of the Brussels I Recast Regulation (which excludes certain insolvency proceedings from its scope of application) must be interpreted as meaning that it applies to an action for liability in tort brought against the members of a committee of creditors (hereinafter referred to as “CoC”) because of their conduct in voting on a restructuring plan in insolvency proceedings. Such an action is therefore excluded from the scope ratione materiae of the Brussels I Recast, and hence falls within the scope of Article 3(1) of the (old) Insolvency Regulation. Consequently, the competent court is the one which opened the insolvency procedure.

Background

The facts of the case can be summarized as follows. VAV invest, a company incorporated under Slovak law whose assets were the subject of restructuring proceedings in Slovakia, submitted a restructuring plan. At its meeting, the CoC rejected the plan without providing any comprehensible reasons, which led to the frustration of the restructuring proceedings and the winding-up of VAV invest.

As a result of the rejection of the restructuring plan, some creditors – other than the creditors residing in the CoC – claimed to have suffered damage. These creditors brought an action for liability in Austria, submitting that the creditors in the CoC had infringed the general duty to avoid causing damage (under the Slovak Civil Code) and their obligation as members of the CoC to act in the joint interest of all the creditors (under the Slovak insolvency law), and were consequently liable for the damage incurred (under the Slovak Civil Code).

The Landesgericht Krems an der Donau and the Oberlandesgericht Wien (in appeal) dismissed the action on the ground of lack of international jurisdiction. In their view, the action for liability is excluded under Article 1(2)(b) of the Brussels I Recast from the application of that Regulation, and thus falls within the scope of the Insolvency Regulation. Consequently, the competent court is the one which opened the insolvency procedure, i.e. the one in Slovakia. The Oberster Gerichtshof (in appeal on a point of law) decided to stay the proceedings and to refer the following question to the ECJ for a preliminary ruling: “Is Article 1(2)(b) of [the Brussels I Recast] to be interpreted as meaning that [it applies to] an action based on a claim for damages in tort against members of a [CoC] because of their unlawful conduct in voting on a restructuring plan in insolvency procedures, […], and [that such an action] is therefore excluded from the scope ratione materiae of that regulation?”.

The ECJ’s ruling

The ECJ tackles this question in its usual way. Article 1(2)(b) of the Brussels I Recast, which applies in civil and commercial matters, excludes “bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings” from its scope. Recital 10 clarifies that the scope of the Brussels I Recast should cover all the main civil and commercial matters apart from “certain well-defined matters”, which suggests that the Brussels I Recast has a broad scope.

By contrast, the scope of the Insolvency Regulation, as stated in recital 6 of that regulation, should not be given a broad interpretation: “In accordance with the principle of proportionality this Regulation should be confined to provisions governing jurisdiction for opening insolvency proceedings and judgments which are delivered directly on the basis of the insolvency proceedings and are closely connected with such proceedings” (own underlining).

Hence, the question comes down to this: Does an action for liability in tort, such as that in the main proceedings, satisfy that twofold criterion?

As regards the first criterion, i.e. the action has to derive directly from the insolvency proceeding, the decisive factor is not the procedural context of the action but its legal basis. In other words, it must be determined whether the right or obligation which forms the basis of the action has its source in the ordinary rules of civil and commercial law or in derogating rules specific to insolvency proceedings.

Under Slovak insolvency law, all members of the CoC are required to act in the joint interest of all the creditors when approving or rejecting the proposed restructuring plan. According to the ECJ, the action for liability is thus the direct and inseparable consequence of the performance by the CoC, a statutory body established when insolvency proceedings are opened, of the task especially assigned to them by the provisions of national law governing insolvency proceedings. Consequently, the first criterion is met.

As to the second criterion, i.e. the action is closely connected with the insolvency proceeding, the ECJ ruled that the necessary analysis in determining whether the CoC infringed its duty to act in the joint interest of all the creditors presents a direct and close link with the insolvency proceedings. It will, in particular, be necessary to analyze the extent of the CoC’s obligations in the insolvency proceedings and the compatibility of the rejection of the restructuring plan with those obligations. The second criterion is therefore also fulfilled.

Since both criteria are met, the ECJ held that an action such as in the case at hand does not fall within the scope of the Brussels I Recast (since Article 1(2)(b) applies), but within the scope of the Insolvency Regulation.

Another attempt to create order out of chaos

This preliminary ruling is one of the many – and certainly not the last one – about Article 1(2)(b) of the Brussels I (Recast). In other recent cases, the ECJ ruled that the following actions do not fall under the exception of Article 1(2)(b) of the Brussels I (Recast). Some examples:

  • An action for damages for unfair competition by which the assignee of part of the business acquired in the course of insolvency proceedings is accused of misrepresenting itself as being the exclusive distributor of articles manufactured by the debtor (Tünkers France and Tünkers Maschinenbau);
  • An action for the payment of a debt based on the provision of carriage services taken by the insolvency administrator of an insolvent undertaking in the course of insolvency proceedings opened in one Member State and taken against a service recipient established in another Member State (Nickel & Goeldner Spedition);
  • An action brought against a third party by an applicant acting on the basis of an assignment of claims which has been granted by a liquidator appointed in insolvency proceedings and the subject-matter of which is the right to have a transaction set aside that the liquidator derives from the national law applicable to those proceedings (F-Tex).

These numerous cases reflect the law practitioners’ constant search for the right application of Article 1(2)(b) of the Brussels I (Recast). This judgement is one of the many puzzle pieces that can help them grasp the vague twofold criterion, mentioned in recital 6 of the Brussels I Recast and – ostensibly randomly – applied by the national and European courts.

 

Frederik De Leo
PhD Candidate
Institute for Commercial and Insolvency Law
KU Leuven, UHasselt

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