The CJEU reviews the conflicts that arise in the defence provided under Article 13 Regulation No 1346/2000 when Liquidators of an Italian company attempt to set aside payments claimed to otherwise be permissible under English law.
The decision in Vinyls Italia SpA ("Vinyls") and Mediterranea di Navigazione SpA ("Mediterranea") examines the conflict between the law of the Member State in which insolvency proceedings were commenced under Article 4(2)(m) of Regulation No 1346/2000 to govern conduct and Article 13 of Regulation No 1346 /2000. Article 13 provides a defence to Article 4(2)(m) by enabling a person to benefit from an act detrimental to creditors if the act does not infringe the law they seek to rely on of a Member State other than that in which the insolvency proceedings were commenced.
Vinyls and Mediterranea, two Italian registered companies, entered into a charter agreement governed by English law. Prior to Vinyls entering into Liquidation, Mediterranea made two payments to them, totalling €447,740.27. The Liquidators challenged these payments pursuant to Italian law, Article 67(2) Law on Insolvency, on the grounds Mediterranea were aware payments were made when Vinyls were insolvent. However, Mediterranea sought to rely on the defence under Article 13. In response, the Liquidators claimed Article 13 made provision to raise a procedural objection pursuant to Italian law, claiming Mediterranea raised their Article 13 defence out of time.
The Italian Court referred the case to the CJEU to consider three questions: (i) which Member States' procedural rules govern the application of Article 13; (ii) does a defendant relying on Article 13 have the burden to prove the Member State governing the act does not have a means to challenge it, or if means exists, the conditions are not satisfied on the facts of the case?; and (iii) can a contractual jurisdiction clause be relied upon where a business is established in a different Member State?
In relation to each of these three issues the CJEU decided as follows:
- Procedural Rules:
As Article 13 does not contain procedural provisions, the CJEU ruled such provisions should be established by the Member State in which the proceedings have commenced. Italian law should therefore be applied to determine the Liquidators' procedural objections, specifically the issue of time-limits. Article 13 aims to protect legitimate interests of a person who has benefitted from an act detrimental to creditors and the procedural rules applied should not be less favourable than law that would govern similar disputes in other Member States.
- Burden of Proof:
The CJEU followed the Nike European Operations Netherlands (C-310/14) precedent, ruling that all circumstances of the case should be considered when applying Article 13 and that beneficiaries may not broadly interpret the scope Article 13 to rely on its defence in an abstract manner without applying the facts specific to their case. Furthermore, the defendant, Mediterranea, bears the burden of proof to demonstrate their act would not infringe the other Member State's law, in this instance English law.
- Contracting Out:
The CJEU acknowledged parties freedom to choose a jurisdiction to govern their contract, be it different to their established Member State, as per Article 3(1) of the Rome I Regulation No 593/2008. However, Vinyls and Mediterranea had entered into their contract prior to the enactment of the Rome I Regulation, which therefore did not apply. The CJEU instead ruled that Article 3(1) of the Rome Convention, a predecessor containing a similar provision for jurisdiction clauses and present when Regulation 1346/2000 was enacted, may be relied upon and in turn Article 13 as well. Thus, parties were able to rely on a different Member State's law to govern their contract and Article 13, regardless of their business being established in a different Member State, provided there is no fraudulent or abusive intention.
Article 13 is now located at Article 16 of the Recast Insolvency Regulation (EU) 2015/848, applicable to insolvencies beginning on or after 26 June 2017, replacing Regulation 1346/2000.