Jurisdiction in Cross-Border Fraudulent Transfers of Assets under the Brussels I (Recast) Regulation - Michael McParland QC

Tue, 03 July, 2018

Creditors are often faced with a situation where their debtors try to make themselves judgment proof by transferring their assets to third parties. As a consequence, all EU Member States provide legal remedies in various forms that enable a creditor to ask a court to declare such transfers ineffective as against them. These remedies, which originated in Roman law, are often grouped under the Latin name of ‘actio pauliana’. They have been described as a ‘series of techniques for granting protection to creditors in cases where the debtor diminishes his seizable assets to avoid paying his debts’ (per I. Pretelli, (2011) 13 Yearbook of Private International Law, p. 590).

But where the legal ownership of assets have allegedly been fraudulently transferred to third parties in different Member States, which courts have jurisdiction under the Brussels I (Recast) Regulation to declare such transfers invalid?

This has been a long-standing problem, with the ECJ having declared in a number of cases that actio pauliana actions cannot fall within the material scope of the heads of exclusive or special jurisdiction concerning (a) tort / delict; (b) rights in rem in immovable property; (c) enforcement of judgments; and (d) provisional measures.

Now, in Case C-337/17 Feniks (21 June 2018), Advocate General Bobek, has advised that the ECJ should also rule that such claims cannot fall within the scope of the special jurisdiction provisions for ‘matters relating to contract’ under Article 7(1)(a) of the Brussels I (Recast) Regulation either. If this is upheld by the Court, this will have serious practical implications for claimant creditors.

The claim in Feniks arose after a Polish debtor had transferred the ownership of immovable property in Poland under a contract of sale to a Spanish company (Azteca, the Defendant). The contract of sale had been concluded and performed entirely in Spain. The Polish creditor brought an action in Poland against the Defendant under Polish law seeking a declaration that this contract for sale of the Polish property was ineffective in relation to them. The Polish courts wondered whether they had jurisdiction under Article 7(1) (a)?

Advocate General Bobek thinks they do not. If the ECJ agrees with him, then this will effectively rule out any jurisdiction under the Regulation other than domicile. (One can safely assume that third parties who have received a debtor’s assets will not submit to the jurisdiction of a foreign court or agree (ex post facto) to such courts having jurisdiction). The Court’s forthcoming decision will also likely be of considerable relevance in determining which side of the Rome I / Rome II divide such claims should fall into for choice of law purposes. This is a judgment which is definitely worth watching out for.

Michael McParland QC

Michael is an international lawyer, with a wide ranging practice in commercial, civil and international advocacy and advice in the courts, arbitral and regulatory tribunals of England and Wales and overseas. He regularly appears in the Commercial Court, Chancery Division and Queen’s Bench Division for a wide variety of domestic and international clients. Michael is admitted to practice in the British Virgin Islands (since 2008) and appears in the Eastern Caribbean Supreme Court and Court of Appeal. He is also a Member of the State Bar of California (since 1990), and has appeared before the Gibraltar Courts and Financial Services Authority.

Michael has been described by clients in the Chambers UK and the Legal 500 legal directories as “phenomenal”, “incredibly knowledgeable and a tremendous advocate who is a very powerful person to have on your side” , “a thorough, knowledgeable and intelligent advocate”, “incredibly bright and hardworking, a real team player”,  “a really powerful operator” with “complete control of the facts of a case” who “really thinks about things and then steamrollers the opposition”.  He is said to have “real commercial intelligence and an easy client manner”, his advocacy is “effective and persuasive” and his “attention to detail prepares him for all eventualities in the course of litigation”.

Michael’s practice often includes complex and novel cross-border battles featuring jurisdiction and choice of law disputes, issues over the recognition and enforcement of foreign judgments and orders and the enforcement of English judgments abroad, forum non coveniens challenges, anti-suit and international asset freezing injunctions, as well as sovereign and other immunities from jurisdiction. His work covers a full range of activities and clients, including shipping and maritime claims, civil fraud, aviation; insurance, major cross-border injury claims, company and partnership law matters, including director’s liabilities, shareholder, partnership and joint venture actions, as well  cross-border insolvency battles both in the UK and elsewhere. He has long comparative law experience. Many of his cases involve causes of action governed by foreign laws.

Michael is a recognised international law expert. He is the author of The Rome I Regulation on the Law Applicable to Contractual Obligations (Oxford University Press, 2015), a leading textbook on private international law that is cited with approval by the Advocate-General in the European Court of Justice and by judges in the Commercial Court. “This is a marvellous book, an absolute must for anyone who is seriously concerned with the private international law of what we once called contracts…”; Michael’s research was “truly amazing” and his book is “… a magnificent achievement, for which all serious commercial lawyers will be in the author’s debt”: Prof. Adrian Briggs QC (Hons), LMCLQ, 2015, p. 597. In Germany, Michael’s book was reviewed as being “in the best tradition of English textbooks…the praise heaped upon the work so far is well deserved… ” and it displays “a very fine and sophisticated humour”: Prof. Peter Mankowski,  Zeitschrift für das Privatrecht der Europäischen Union, GPR 5/ 2015, p. 259. In his foreword, The Hon. Mr Justice Teare describes it as ‘… a book which will be an essential addition to the library of the advisor, the advocate and the academic in their respective searches for the true meaning and effect of the Regulation...’. 

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