When does the English Right of Appeal apply between Italian Companies?

The Regulation of the European Parliament and of the Council on Insolvency Proceedings (EU Insolvency Regulation) regulates the application of national insolvency codes in cross-border insolvency proceedings. This also applies to the issue according to which legal order the setting aside of acts is determined. Art. 13 EU Insolvency Regulation (old version) regulates that an act cannot be set aside if the opponent proves that the act has to be assessed on the basis of the legal order of another member state (than the state of the opening of proceedings) and the act cannot be set aside according to this legal order. The CJEU now has to answer the question whether this also applies if two companies of the same member state subject their contractual relationship to the legal order of a third country.

Facts of the Case

On the basis of an appeal under insolvency law, the insolvency administrator of an Italian company requested another company also based in Italy to return the payments received in the critical time period that were made on the basis of a charger contract. The opponent argued the payments would have been made as a result of the performance of a contract that the parties elected to be subject to English law by way of a choice of law clause. According to this law, it would not be possible to set aside the contested payments. As proof, an affidavit of a lawyer established in the United Kingdom was presented, stating that English law would not allow for the setting aside of the contested payments in the present case. The Italian court seized the CJEU due to some questions with regard to the interpretation of Art. 13 of the European Insolvency Regulation. 

Ruling

The CJEU first clarified that the form and time limit for the appeal would be determined by the exception regulation according to the procedural law of the state of the opening of proceedings, the procedural regulations of which must not violate the principles of equivalence and effectivity. Moreover, the Court of Justice found that according to Art. 13 European Insolvency Regulation, the opponent would be responsible for producing proof of the actual circumstances of the contractually chosen law, as well as the non-existence of the respective grounds of appeal. Pursuant to the Court of Justice, Art. 13 European Insolvency Regulation  would also have to be applied if both parties were based in the same member state. Recourse to this provision is excluded if the parties chose the laws of another member states fraudulently or abusively.

Practical Information

Parties based in the same member state are not prevented from choosing the law of another member state which is adverse to appeals. However, in a case of an appeal, the opponent has to prove the actual and legal circumstances for the act not which is the subject matter of the dispute not to be appealable in proper form and in time. Moreover, the choice of law must not give rise to the suspicion that the insolvency law regulations of the state of the opening of proceedings were intentionally circumvented fraudulently or abusively. The Court of Justice did not comment on possible indices. It merely pointed out that the fact that both contract parties are located in the very same member state would not serve as a basis for assumed unfairness. Therefore, the protection of Art. 13 European Insolvency Regulation remains associated with a high litigation risk for the opponent. The same applies for Art. 16 of the new European Insolvency Regulation No. 2015/848.

(EuGH, Urteil vom 8. Juni 2017 – C-54/16).

Svetlana Charushnikova, Attorney at Law
Berlin