Imagine that a debtor voluntarily concludes a transaction with a third party where he knows (or should know) that it hinders the creditor’s possibilities of collecting the debt. In civil law countries, a creditor can invoke the nullification of that legal act by means of a so-called actio pauliana. This raises the question of which court has jurisdiction in the case of an international dispute, regarding an actio pauliana, that is instituted by a creditor against a third party?
The Feniks/Azteca judgment of the European Court of Justice (the “ECJ”) of 4 October 2018, ECLI:EU:C:2018:805, concerned this question. More specifically, the central question was whether an actio pauliana is covered by the international jurisdiction rule of article 7(1)(a) of the Brussels I Regulation Recast (Regulation (EU) 1215/2012; “Brussels I Recast”). Pursuant to that article, in matters relating to a contract, the courts of the place of performance of the obligation in question have jurisdiction. The ECJ surprisingly concluded that this special head of jurisdiction (in addition to the general head of the residence of the defendant in accordance with article 4(1) Brussels I Recast) is indeed applicable.
An important consequence is that one can be sued by creditors of a contract partner in another member state than the member state in which he is domiciled or does business, if these creditors institute an actio pauliana against him.
The company Coliseum, established in Poland, concluded a contract with the company Feniks, also established in Poland. The contract concerned construction works to be carried out in Poland. Coliseum acted as a general contractor and Feniks as an investor. Subsequently, Coliseum concluded contracts with several subcontractors, but failed to meet its payment obligations towards them. Pursuant to rules of joint and several liability in Polish law, Feniks was liable for these obligations of Coliseum. Therefore, Feniks paid the subcontractors over EUR 300,000, as a result of which it has become a creditor of Coliseum.
When Feniks tried to recover these costs from Coliseum, it appeared that Coliseum could not offer redress. Earlier, Coliseum had sold real estate to the Spanish company Azteca. Feniks brought an actio pauliana against Azteca, asking the Polish court of first instance to nullify the purchase agreement. According to Feniks, the Polish court had jurisdiction based on article 7(1)(a) Brussels I Recast. However, Azteca argued that this article was not applicable and that the jurisdiction could only be assessed by the general rule of article 4(1) Brussels I Recast, for which the court based in the residence of the defendant Azteca (in this case a Spanish court) had jurisdiction.
The Polish court asked two preliminary questions, that – according to the ECJ – essentially come down to the question “whether an actio pauliana, whereby the person entitled to a debt requests that an act by which his debtor has transferred an asset to a third party and which is allegedly detrimental to his rights be declared ineffective in relation to the creditor, is covered by the rule of international jurisdiction provided for in Article 7(1)(a)” Brussels I Recast.
Consideration of the questions referred
The ECJ first considers that the action in the present proceedings falls within the scope of Brussels I Recast instead of the Regulation on Insolvency Proceedings (Regulation (EU) 2015/848; “the Insolvency Regulation”), because (i) the action brought by Feniks does not seem to be at all connected with proceedings for the liquidation of assets or composition proceedings, and (ii) no insolvency proceedings were instigated against Coliseum due to a lack of assets. For an elaboration on the boundaries between Brussels I Recast and the Insolvency Regulation, I refer to paragraph 4.1 of the blog of my colleague Marleen Jonckers about the recent judgment of the ECJ regarding the ‘Peeters/Gatzen claim’ (ECLI:EU:C:2019:96).
Subsequently, the ECJ states that the jurisdiction rules of Brussels I Recast must be highly predictable in order to strengthen the legal protection of persons established in the European Union. Furthermore, the special heads of jurisdiction have to be interpreted restrictively. According to settled case law, the application of the special head of jurisdiction for matters relating to a contract “presupposes the establishment of a legal obligation freely consented to by one person towards another and on which the claimant’s action is based” (no. 39). Additionally, the ECJ considers that “the actio pauliana is based on the creditor’s personal claim against the debtor and seeks to protect whatever security he may have over the debtor’s estate. (…) It thus preserves the interests of the creditor with a view in particular to a subsequent enforcement of the debtor’s obligations” (no. 40-41).
In the present proceedings, Feniks paid Coliseum’s subcontractors as a result of joint and several liability following from national, Polish law. However, according to the ECJ, “the fact remains that both the security that Feniks has over the debtor [i.e. Coliseum]’s estate and the present action regarding the ineffectiveness of the sale concluded by the debtor [i.e. Coliseum] with a third party [i.e. Azteca] originate in the obligations freely consented to by Coliseum with regard to Feniks upon the conclusion of their contract relating to those construction works. By this action the creditor [i.e. Feniks] seeks a declaration that the transfer of assets by the debtor [Coliseum] to a third party [Azteca] has caused detriment to the creditor [Feniks]’s rights deriving from the binding nature of the contract and which correspond with the obligations freely consented to by the debtor [Coliseum]. The cause of this action therefore lies essentially in the breach of these obligations towards the creditor [Feniks] to which the debtor [Coliseum] agreed” (no. 42-43; underlining and additions between square brackets by author).
The ECJ concludes that the actio pauliana falls within the definition of ‘matters relating to a contract’ if it is brought on the basis of the creditor’s rights created upon the conclusion of a contract. Therefore, the action in the present proceedings is covered by article 7(1)(a) Brussel I Recast. This would fulfil the requirement for legal certainty and foreseeability, and remain in line with the aim of facilitating a sound administration of justice. The ECJ continues by stating that if only the general jurisdiction rule of the domicile of the defendant would be applicable, the creditor would be forced to bring proceedings before the court of that forum. However, in particular cases that forum would not be linked to the place where the obligations of the debtor against the creditor are performed or will be performed. In the present proceedings, the applicability of this special jurisdiction rule means that the Polish court has jurisdiction, because the agreement between Feniks and Coliseum concerning construction works was performed in Poland.
Finally, the court considers that this conclusion is in line with the aim of foreseeability of jurisdiction rules, because “a professional who has concluded a contract for the sale of immovable property may, where the creditor of the other contracting party objects that the contract obstructs the performance of obligations which the other contracting party has towards that creditor, reasonably expect to be sued in the courts of the place of performance of these obligations” (no. 47).
Judgment contradicts conclusion of Advocate General
Advocate General Bobek reasoned that if we assume that the head of jurisdiction of matters relating to a contract is applicable, this leads to the question to which of the two agreements – i.e. the agreement between the creditor (Feniks) and the debtor (Coliseum), and the agreement between Coliseum and the third-party acquirer (Azteca) – an actio pauliana would relate. To answer this question, Bobek has explored three possibilities: the actio pauliana could be related to (i) the contract that came first in time (between Feniks and Coliseum), or (ii) the contract that came second in time (between Coliseum and Azteca), or (iii) it is sufficient that the actio pauliana falls within the sphere of a contract (or as the ECJ states: “on the orbit” (no. 69)). He eventually concludes that each of these possibilities comes up against objections, and that the actio pauliana should therefore not be covered by the jurisdiction ground of matters relating to a contract.
As said, the ECJ reasons differently. The ECJ’s judgment seems to be in line with one of the possibilities mentioned by Bobek, namely that the actio pauliana concerns the contract that comes first in time. Bobek considered application of this possibility to be burdensome, because (i) the connection between the two contracts would be too tenuous and too remote, and (ii) such a broad definition of ‘matters relating to a contract’ would be incompatible with the restrictive interpretation that has to be given to special jurisdiction grounds.
Aim of foreseeability
It is questionable whether the judgment of the ECJ is in line with Brussels I Recast’s aim of foreseeability. Imagine that a Dutch company concludes an agreement with a company from another member state, for example Austria, that has to be performed in the Netherlands. The Dutch company would have to take into account that it can be sued by creditors of that Austrian company in any other member state. This is due to the fact that if the place of performance of the contract between the Austrian company and a third party is, for example, Spain, then a Spanish court would have jurisdiction with respect to an actio pauliana that is instituted by that third party against the Dutch company. That is remarkable, because in this case there is no link between the contract between the Dutch company and the Austrian company, and the Spanish forum.
Based on the special head of jurisdiction of matters relating to a contract, the court of the place of performance of the contract between a contract partner and her creditor will have jurisdiction with regard to an actio pauliana. Thus, it seems that legal entities – and in some cases possibly also consumers – within the European Union have to take into account that they can potentially be sued by creditors of a contract partner in any other member state, if those creditors institute an actio pauliana against them. Only doing business with trading partners that do not conclude contracts with a place of performance in another member state appears, for now, to be the only way to prevent that one can be sued in another member state based on an actio pauliana of a third-party acquirer.