In Polymer Vision R & D Ltd v Van Dooren(1) the High Court considered applications to challenge jurisdiction and to stay or strike out English proceedings against a Dutch bankruptcy trustee of an insolvent company, involving the scope of the insolvency exception in Article 1(2)(b) of the EU Judgments Regulation (44/2001) and the EU Insolvency Regulation (1346/2000).
The applications arose in the context of a dispute between two companies – Polymer Vision R & D Ltd and Templeco 663 (Nominee) Ltd – and Mr Stewart Ford, who controlled Polymer and Templeco, and Mr van Dooren, the Dutch bankruptcy trustee of Polymer Vision Ltd (PVL), an English registered company which had its place of business in Eindhoven, the Netherlands. PVL was placed into bankruptcy proceedings in the Netherlands.
Relying on an intra-group asset transfer agreement (dated June 17 2009), which had been entered into before the bankruptcy proceedings had commenced and the bankruptcy trustee had been appointed, the claimants asserted that they had an interest in certain IP rights owned by PVL. The Dutch bankruptcy trustee issued proceedings in the Netherlands seeking, among other things, to preserve PVL's IP rights and to obtain an order allowing the sale of those rights.
The Dutch bankruptcy trustee maintained that the agreement constituted a disposal of assets in fraud of creditors and was therefore void. He issued an actio pauliana (fraudulent transfer) in the Netherlands to avoid the sale of those IP rights based primarily on Article 42 of the Dutch Bankruptcy Code.
On July 27 2009 the claimants entered into a settlement agreement with the Dutch bankruptcy trustee enabling him to sell PVL's business, despite the dispute over the ownership of the intellectual property and the validity of the agreement. The settlement agreement was governed by Dutch law and provided that all disputes arising thereunder should be brought before the competent court in s-Hertogenbosch in the Netherlands. On August 11 2009 PVL was sold.
On June 18 2010 Ford wrote to the supervisory judge complaining about the course of action taken by the Dutch bankruptcy trustee and requesting his removal from office. The letter was treated as an application for the court to intervene and the matter was heard in August and October 2010. The supervisory judge directed the Dutch bankruptcy trustee to evaluate further the prospects of proceedings and instigate proceedings against Ford, but otherwise rejected the complaints.
On February 18 2011 Ford issued a petition for an order that the Dutch bankruptcy trustee take affirmative action in respect of his claim. Ford also issued a second petition on March 8 2011 for the dismissal of the Dutch bankruptcy trustee from office on the grounds of bias. On March 11 2011 the supervisory judge rejected Ford's second petition. On April 20 2011 the Dutch court also determined that there was no cause for either the dismissal of the Dutch bankruptcy trustee or the appointment of a second trustee.
Before the issue of Ford's second petition in the Netherlands, the claimants issued proceedings on March 4 2011 before the English High Court, arguing that the settlement agreement had been entered into as a result of misrepresentations made by the Dutch bankruptcy trustee in his personal capacity and claiming breach of contract.
The Dutch bankruptcy trustee filed his applications, arguing that jurisdiction was governed by the EU Insolvency Regulation and not by the EU Judgments Regulation, which excluded bankruptcy proceedings from its scope by virtue of Article 1(2)(b) (the insolvency exception). The claimants submitted that the claims in their proceedings were independent claims under the general law and were not directly derived from, or closely connected with, the bankruptcy proceedings.
Justice Beatson held that the insolvency exception is to be narrowly construed in accordance with the principles of the European Court of Justice (ECJ) case of Gourdain v Nadler,(2) in which it was held that the insolvency exception applies to "decisions relating to bankruptcy and winding up" that both:
- derive directly from the bankruptcy or winding up; and
- are closely connected with the insolvency proceedings.
The judge distinguished the facts in the ECJ case of German Graphics Graphische Maschinen GmbH v van der Schee,(3) which was a claim based on retention of title brought by a German supplier of goods against a company in Dutch bankruptcy proceedings and was not derived directly from the insolvency proceedings or closely linked to those proceedings. While the retention of title action concerned the request for the recovery of assets situated in the member state where insolvency proceedings had been opened, it was independent of the insolvency proceedings. It was held that the fact that a claim factually depends on the bankruptcy did not in itself suffice to bring it within the insolvency exception and the cases of Hayward (Deceased), Re,(4) Ashurst v Pollard(5) and Byers v Yacht Bull Coro(6) were considered. In these cases, there was a link with insolvency, but it was not sufficiently connected with the insolvency proceedings and, as such, did not meet the Gourdain formulation.
The judge found that, in the present case, the Gourdain formulation applied and the English proceedings fell within the insolvency exception; therefore, the Judgments Regulation had no application to the question of jurisdiction. The decision was reached on the basis that:
- negotiations with the claimants were instigated at the suggestion of a Dutch judge so that the disputed IP rights could be sold in the insolvency proceedings;
- the judge supervising the Dutch bankruptcy proceedings played a part in the negotiations surrounding the settlement agreement and approved the final settlement;
- the settlement enabled property rights to be sold for the benefit of the general creditors of PVL; and
- most importantly, the negotiations and eventual settlement were a direct result of the Dutch bankruptcy trustee exercising his powers pursuant to Dutch insolvency laws.
As the claims in the English proceedings involved the exercise of a Dutch bankruptcy trustee's powers, they were directly derived from the Dutch bankruptcy proceedings and were closely connected with those proceedings.
The High Court also held that although the EU Insolvency Regulation did not confer on the Dutch court exclusive jurisdiction to hear the English proceedings, the effect of the opening of the Dutch bankruptcy proceedings was that the English courts were an inconvenient forum to hear the English proceedings, because:
- the issues surrounding the claims in the English proceedings concerned the exercise of the Dutch bankruptcy trustee's powers and a settlement agreement, which was made as a direct consequence of the Dutch bankruptcy supervisory judge's approval;
- the settlement agreement contained an exclusive jurisdiction clause in favour of the Dutch courts; and
- it was only after one of the claimant's applications to the Dutch supervisory judge, in respect of the way that the Dutch bankruptcy trustee was carrying out his functions, was unsuccessful that the English proceedings were commenced.
The judgment clarifies the scope of the insolvency exception and provides guidance on the factors that the court will consider in determining whether there is a sufficiently close connection to the insolvency proceedings.
The High Court stressed that the EU Insolvency Regulation and the EU Judgments Regulation were intended to dovetail with each other. It stated that the insolvency exception should be interpreted as excluding from the EU Judgments Regulation "nothing more and nothing less" than what is within the scope of the EU Insolvency Regulation.
Notwithstanding the above, the claimants have challenged the High Court's decision and have been granted permission to appeal. The hearing will take place in July 2012.
For further information on this topic please contact Jade Winterton or Patrick Elliot at Brown Rudnick LLP by telephone (+44 20 7851 6000), fax (+44 20 7851 6100) or email ([email protected] or [email protected].)
(3) (C-292/08)  ECR I-8421.