Updated on 17th February, 2016

 

There has been much trumpetting of the EU's incursions into the lives of ordinary citizens and the manner in which this has to be an improvement of an EU citizen's common lot, or should only be hailed as such.

The outcome is typified by the trite phrase "hard cases make bad law"; particularly where, in parallel with the imposition of Napoleonic code in France, the divergent interests of men and women under the different regional laws and customs in France were leveled to the lowest common denominator, rather than by any attempt to better the general standard.

The same could be said for the interaction between the various Regulations taken under the Stockholm agenda and their scope, in what appears to be becoming an increasingly "sovietised" environment. Unfortunately one of the lowest common denominators here is the assumption that the various Member State's Courts maintain a degree of vigilance as to the quality of foreign judgments from outside the EU which are then given full faith and credit under unilateral agreements with third states. as to their enforceablility.  Canadian and American judgments particularly at first instance are frequently handed down by lay judges and in certain States are simply not worthy of recognition in Europe as they do not meet our minimum standards of justice.

This concerns the interaction between Member States' internals laws and procedures and the following EU regulations of cross border implications:

Council regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings.  This is currently in force, but will be replaced by Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast) coming into effect in 2017;

Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I);

and to a lesser extent

COUNCIL REGULATION (EU) No 1259/2010of 20 December 2010 implementing enhanced cooperation in the area of the law applicable to divorce and legal separation .

I am getting instructions here in Jersey  from onshore lawyers and direct access clients seeking to understand how to prevent each EU Regulation being abused to enable judgments obtained outside an EU Member State, which do not meet minimum internal market circulation standards, to obtain EU circulation and enforcement despite being non-compliant with the minimum standards for automatic recognition laid down in Brussels I.

The European internal market developments under the Stockholm and other initiatives are based on automatic acceptance of EU States procedures in certain areas: judgments, insolvency, matrimonial etc. That requires a minimum amount of confidence in the Member State  or States of enforcement of the manner in which its counterparty Member State Court has delivered the judgment or started the procedure concerned. For example, the circulation certificate set down at the annex to Regulation n° 1215/2012 requires the enforcer to indicate whether the judgment was given in default, and whether a security deposit was required, which, incidentally  might have made it impossible for the defendant to appear to defend themselves.

However simply assuming that the existence and purported use of a Regulation by an EU Court or liquidator is enough to grant full automatic recognition of process is not a sufficient response.  The combined effect of, avoiding the application of one Regulation and then applying another Regulation with different grounds of jurisdiction, one commercial, and the other a Centre of Management of Interests  gives rise to an uneven playing  field, to borrow an OECD tax term, and does not necessarily warrant automatic full faith and credit to use an Americanism.

The system grants over accommodation to non EU civil judgments given in default of appearance in the foreign state, frequently after a hefty security for costs is inflicted upon a foreign EU defendant, thereby rendered unable to defend themselves.

By way of a present example: take Austria, a Member State which has introduced into its internal legislation  an insolvency régime for unpaid alimony on a single creditor basis, being the alimony creditor; as opposed to a set of banks and other commercial or civil  third party creditors.  It is more than arguable that this type of alimony issue cannot receive automatic enforcement under Regulation n° 1215/2012, as Matrimonial proceedings are not included in it. These are clearly excluded.  It is also  also not a form of insolvency of a collective nature which falls within the automatic enforcement procedures of the Insolvency Regulation. It is more than arguable that such as single Creditor insolvency of a matrimonial relief nature is outside what Council legislated for. It is excluded from the Insolvency  Regulation by the Preamble § (10), which states that the insolvency "should" be a collective as opposed to a single creditor insolvency:

"(10). Insolvency proceedings do not necessarily involve the intervention of a judicial authority; the expression "court" in this Regulation should be given a broad meaning and include a person or body empowered by national law to open insolvency proceedings. In order for this Regulation to apply, proceedings (comprising acts and formalities set down in law) should not only have to comply with the provisions of this Regulation, but they should also be officially recognised and legally effective in the Member State in which the insolvency proceedings are opened  and should be collective insolvency proceedings which entail the partial or total divestment of the debtor and the appointment of a liquidator."

That restrictive interpretation  direction is confirmed at article 1:

"Article 1

Scope

1. This Regulation shall apply to collective insolvency proceedings which entail the partial or total divestment of a debtor and the appointment of a liquidator."

In other words, it does not apply to a single creditor "insolvency", when the creditor is not only solvent, but also not a trading or commercial "debtor" outside the context addressed by the Insolvency Regulation.

The issue gets sensitive when  Austria recognises a non-EU judgment directly and automatically under arrangements with that non EU state, when the foreign judgment was given by default of appearance of  the EU  spouse, and in an extreme case, where that spouse has been refused the right of defence by the foreign court  imposing a precondition on appearance of a swinging requirement of a deposit of security for costs, requested on an ex parte basis by the foreign ex-spouse.  Once the non EU judgment is recognised,  Austrian law enables the non-EU judgment creditor in cases of alimony to initiate a single creditor insolvency procedure to be started in Austria on the mere basis of an alleged, not a proven  Centre of Management of Interests, which can be argued on a different basis than the standard domicile jurisdiction in civil  matters.

It is now becoming rarer for security to be required in an intra-European context, by a Court of an EU Member State as a matter of EU public policy. What is more the Brussels I Regulation does not allow unimpeded movement of judgments granted by default or with a prerequisite of security.   However Canadian and American courts do both.  There are striking differences in rights to defence between those which is assumed in Europe as being  minimal, and those abroad.

The abuse of law and procedure then starts as the Austrian Court appointed Liquidator can then attempt to use the EU Insolvency Regulation, outside its intended scope to effectively give the Canadian judgment unfounded value in the internal legal market, despite it not meeting the minimum requirement for certified circulation required by Brussels I.  In other  words Brussels 2 is used to cover the iniquities otherwise addressed in Brussels 1 and 3. Bit "old testament" but apt.

On this form of abusive requalification of the issues, it  becomes very difficult to address the abusive use of the Insolvency Regulation in this legal context in the issuing State despite its scope of application being limited by its Preamble (10) to collective insolvency procedures (of a commercial nature) rather than single creditor arrangements.  In short two procedures with different object are being  confused to invent a third.

The tendency of the Austrian system is not to look at the actual structure of the Regulation to apply it or not, but simply to rely on the formal inclusion of the Austrian procedure cited at Annex A   as being one of the procedures specified under article 2 (a), without taking into account the substantive limitation on that procedure  set out at preamble (10) which limits the scope of article I, which also refers to collective insolvencies , thereby excluding single creditor "insolvencies" of a purely civil nature.

It is important to note the public order type  provision in the preamble to the present Brussels I Regulation:

"(16) Mutual trust in the administration of justice in the Community justifies judgments given in a Member State being recognised automatically without the need for any procedure except in cases of dispute.

(17) By virtue of the same principle of mutual trust, the procedure for making enforceable in one Member State a judgment given in another must be efficient and rapid. To that end, the declaration that a judgment is enforceable should be issued virtually automatically after purely formal checks of the documents supplied, without there being any possibility for the court to raise of its own motion any of the grounds for non-enforcement provided for by this Regulation.

(18) However, respect for the rights of the defence means that the defendant should be able to appeal in an adversarial procedure, against the declaration of enforceability, if he considers one of the grounds for non-enforcement to be present. Redress procedures should also be available to the claimant where his application for a declaration of enforceability has been rejected."

If one Member States's Courts start abusing that trust, by introducing procedures which are outside the defined and agreed scope of the Regulation by unilateral slight of hand into it, on the basis of their internal legislation, then the defendant should have a right of redress elsewhere in the European Union where enforcement of those proceedings is sought.  Trust is not absolute, and has to be earned on a defendant's challenge, as is recognised at preamble (18) of the Brussels I  Regulation.

There is a lot of talk of abuse of right and procedure in tax matters, for example, but the tendency to abuse procedures in civil matters is becoming increasingly marked in the missapplication of EU Regulations in the Private law sector.

This may become of relevance in the treatment meted out to UK citizens by foreign courts in areas addressed under the Succession Regulation.

I believe in the near future that there will be significant CJEU rulings determining how the direct effect requirements in these Regulations are to adapt to application to legal relationship between individual parties, on the basis of prior CJEU jurisprudence  which recognises that EU legal instruments which are directly applicable and effective or of interpretative force are to be relied upon as between individuals and legal person in their legal relationships with each other. Whilst the issue as between Courts  as organs of Member States, will necessarily remain an issue of proportionality and subsidiarity to be determined in part between the Member States Courts, what happens if those courts themselves provide the mechanisms for the abuse, on a cross border basis?  That will increasingly be the case in all the Regulations in the internal legal market which is required to grant certainty to EU citizens as a matter of a fundamental treaty right, presumably also extended to Third state and territory nationals.

The notion of abuse, as exemplified in tax issues  is being taken up in other areas in Europe, for example by Eva Joly, ex juge d'instruction, MEP and  now an avocat at the Paris Bar.  She is currently acting for the comité d'entreprise of MacDonalds by taking MacDonalds France to task for attempting to reduce the obligatory Employee statutory reserve by abusive structuring in a quasi-fiscal manner , and will probably win.

Through their absolutist nature, relying on inter-judiciary faith and trust, the Regulations have created a form of "hostage" situation in private international law that merits being described as a form of Stockholm syndrome. Being a hostage  to fortune is one thing;  being held hostage, without redress, to a procedure instigated on an abusive basis outside the Country of judgment is another.

Liquidators on the continent are not known for their respect of the fundamentals of their own enabling laws, let alone anyone else's.  I leave English Receiver's to meditate on their own positions between seizures.

There are legal remedies to hand under EU Law, but these need to be worked through and taken on a trans-border basis.  For example, a foreign liquidator acting under fraude or a procedural abuse of an EU Regulation could be enjoined, by an injunction, to cease and desist, unless showing due cause, with again penalties or damages  for attempted expropriation.  The jurisdiction where the damage is suffered has tortious or delictual jurisdiction independently of the domiciliation of the "rogue" Liquidator outside the jurisdiction in which they are seeking to enforce:

Article 5 of Brussels I reads as follows:

"A person domiciled in a Member State may, in another Member State, be sued:

1. .......

2. in matters relating to maintenance, in the courts for the place where the maintenance creditor is domiciled or habitually resident or, if the matter is ancillary to proceedings concerning the status of a person, in the court which, according to its own law, has jurisdiction to entertain those proceedings, unless that jurisdiction is based solely on the nationality of one of the parties;

3. in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur;"

There have been sufficient instances of such abuse on a cross border basis to render Liquidators attempting to act under the EU Regulation by invoking it liable to injunction relief when they act in breach of the scope and the remit given to them under the Insolvency Regulation.  Neither the EU Commission nor the Parliament appear to wish to police this with any efficiency despite the fact that it  is an EU Regulation within the field of several interlocking Regulations and not a mere matter of proportionate or subsidiary law of one or more Member States.

Is this "bad law making hard cases", or simply a Court in an EU state failing in its fundamental duty to see justice done in accordance with the relevant EU Regulations' defined values and scope of application.