Conflictoflaws

Geneva Internet Dispute Resolution Policies (GIDRP) is a project of the University of Geneva, which looks into selected legal topics relating to internet disputes and puts forward policy proposals. So far, their expert team has developed the GIDRP 1.0 where one of the topics is particularly relevant for this blog readers (Topic 1: Which national courts shall have jurisdiction in internet-related disputes?). The website is inviting online endorsements and comments. Besides, interested experts are welcome to join the project in the development of the GIDRP 2.0. They may be contacted by e-mail: gidpr@unige.ch.

The relating document is available here.

Prof. Massimo Benedetelli (Professor of International Law, University ‘Aldo Moro’, Bari. ARBLIT, Milan, partner) has just drawn my attention to this piece of his, published in the Journal of International Arbitration 33, no. 6 (2016), pp. 653–686. The abstract reads as follows:

The International Institute for the Unification of Private Law, which recently celebrated its 90th anniversary, published in 1994 the Principles of International Commercial Contracts. Since then the UNIDROIT Principles have been more and more often referred to by arbitral tribunals when settling contractual disputes. As a non-binding instrument of soft law, however, the UNIDROIT Principles may play a very different function depending on whether they are used as “rules of law” for the regulation of a contractual relationship, are incorporated as terms of a contract governed by a state contract law, or are means to interpret and supplement the applicable contract law or the 1980 United Nations Convention on Contracts for the International Sale of Goods. Moreover, they can be applied pursuant to an express or implied choice made by the parties, either in the contract or after the dispute has arisen, or when the arbitral tribunal so decides by its own motion. In all such different scenarios different problems may arise for the coordination of the UNIDROIT Principles with sources of state law that have title to regulate the contractual relationship in dispute. Understanding such problems and finding a solution to them is essential in order to avoid the risk that the award may be later challenged or refused recognition. Such understanding could also foster the legitimacy of requests made by a party, or decisions taken by the arbitral tribunal, to apply the UNIDROIT Principles. It is submitted that private international law, taken as a technique for the coordination of legal systems, may offer a useful know-how to parties, counsel, arbitrators and courts for mastering such problems in a reasoned and sound way. This may result in enhancing the effectiveness of the UNIDROIT Principles, while balancing party autonomy with the sovereign interest of states in regulating international business.

By Baiba Rudevska

On 23 October 2014 the European Court of Justice (hereinafter referred to as the “ECJ”) delivered its judgment in the case “flyLAL Lithuanian Airlines AS v. Starptautiska lidosta Riga VAS (Riga International Airport)” (C-302/13). The request for a preliminary ruling was made by the Supreme Court of Latvia (Latvijas Republikas Augstaka tiesa) in proceedings concerning recognition and enforcement of a Lithuanian court’s judgment (ordering provisional and protective measures) in the territory of Latvia. This request concerned the interpretation of Articles 1, 22(2), 34(1) and 35(1) of the Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I Regulation).

The ECJ answered the questions in the following way:

• Article 1(1) of the Brussels I Regulation must be interpreted as meaning that an action seeking legal redress for damage resulting from alleged infringements for EU competition law, comes within the notion of “civil and commercial matters”;
• Article 22(1) must be interpreted as meaning that an action seeking legal redress for damage resulting from alleged infringements of EU competition law, does not constitute proceedings having as their object the validity of the decisions of organs of companies within the meaning of that provision;
• Article 34(1) must be interpreted as meaning that neither the detailed rules for determining the amount of the sums which are the subject of the provisional and protective measures granted by a judgment in respect of which recognition and enforcement are requested, nor the mere invocation of serious economic consequences constitute grounds for refusal of recognition and enforcement of a judgment based on public policy of the Member State in which recognition is sought.

On 20 October 2015 the Supreme Court of Latvia delivered its decision (which is final) in this case (No SKC 5/2015) deciding neither to recognise nor to enforce the judgment of the Lithuanian court in Latvia (two lower courts of Latvia had previously decided to recognise and to enforce the judgment). The legal ground for the non-recognition was the public policy clause of Article 34(1) of the Regulation.

Let us look at the main reasoning of the Supreme Court of Latvia in this case.

Reasoning No 1 (Article 1 of the Constitution of the Republic of Latvia): State security. The defendant, “Starptautiska lidosta Riga” (“Riga International Airport”), also owns a property which is necessary for the purpose of the Latvian state security. If the judgment of the Lithuanian court is recognised and enforced in Latvia, then the preventive attachment order regarding this property will probably be enforced. From Article 1 of the Constitution of the Republic of Latvia it follows that property which is necessary for the state security interests cannot be transferred or subject to a private law burden that might, even hypothetically, hinder, weaken or otherwise threaten the fulfilment of the State functions in guaranteeing the security of the State and the society.

Reasoning No 2 (Article 91 and 105 of the Constitution of the Republic of Latvia): the insolvent Lithuanian company. The Lithuanian company “flyLAL Lithuanian Airlines” is an insolvent company which has lodged a claim for an amount of EUR 58,003,824. This company has no property or assets to compensate the defendant’s possible losses in the case if the claim later appears to be unsubstantiated. This creates an important disproportion of rights and of the provisional and protective measures applied in the case. Such possible damages sustained by the defendant may seriously endanger not only its economic activities but even its existence as a company.

Additional reasoning (Article 91 and 105 of the Constitution of the Republic of Latvia): the length of the main proceedings before the Lithuanian court. The Lithuanian court had issued an order for sequestration, on a provisional and protective basis, of the movable/immovable assets and property rights of “Air Baltic” and “Starptautiska lidosta Riga” (“Riga International Airport”) seven years ago; until now the case has not yet been resolved and there is no further information about when this case could be resolved. For the provisional and protective measures this period of time is too long and might aggravate the violation of the defendant’s property rights in this case. As the Lithuanian company is insolvent, there cannot be an adequate protective measure to secure the payment of damages. It can be considered as a potentially disproportionate interference with the defendant’s property rights within the meaning of Articles 91 and 105 of the Latvian Constitution

In this case, the Supreme Court of Latvia has established that, firstly, state security constitutes one of the most important elements of the public policy of Latvia (Article 1 of the Constitution); secondly, fundamental rights laid down in the Constitution of the Republic of Latvia also is a part of the Latvian public policy. In this case these were the equal rights of the parties before the law and the courts (Articles 91 and 105 of the Constitution). For this reason such a judgment of the Lithuanian court is manifestly contrary to the Latvian public policy. Therefore the recognition and enforcement of the Lithuanian judgment in Latvia must be denied on the basis of Article 34(1) of the Brussels I Regulation.

For information:

Constitution of the Republic of Latvia:

Article 1 – “Latvia is an independent democratic republic”.

Article 91 – “All human beings in Latvia shall be equal before the law and the courts. Human rights shall be realised without discrimination of any kind”.

Article 105 – “Everyone has the right to own property. Property shall not be used contrary to the interests of the public. Property rights may be restricted only in accordance with law. Expropriation of property for public purposes shall be allowed only in exceptional cases on the basis of a specific law and in return for fair compensation”.

Ulrich G. Schroeter, Professor of Law at the University of Mannheim (Germany) and Heinrich Nemeczek, Research Fellow at the University of Mannheim (Germany) and an Academic Visitor at the Law Faculty of the University of Oxford, have authored an article on “’The (Uncertain) Impact of Brexit on the United Kingdom’s Membership in the European Economic Area”. Published in issue 7 [2016] of Kluwer’s European Business Law Review, pp. 921–958, the authors analyze how the UK’s withdrawal from the EU will affect the UK’s status as Contracting Party to the EEA Agreement.

The authors have kindly provided us with the following abstract:

Until recently, most legal analyses of Brexit have assumed that the UK’s EEA membership will be terminated ipso iure should the UK decide to withdraw from the EU. According to this view, the UK subsequently could (re-)apply for EEA membership should its government so choose – an option commonly referred to as the ‘Norway option’.

Our article challenges the assumption that the UK’s withdrawal from the EU will automatically result in its withdrawal from the EEA. In short, we reach the conclusion that the UK’s EEA membership will continue despite of Brexit unless the UK government chooses to also unilaterally withdraw from the EEA in accordance with Article 127(1) of the EEA Agreement – a step it is not obliged to take. Its continuing EEA membership would mean that many rules of EU law would continue to apply in form of EEA law, including (subject to certain conditions) the much-discussed rules about the ‘European passport’ for UK financial institutions. In contrast, the Court of Justice of the EU would have no jurisdiction over the interpretation of EEA law in the UK. At the same time, the rules governing the free movement of workers are more flexible under EEA law than under EU law, potentially allowing the UK to limit this freedom by way of unilaterally imposed ‘safeguard measures’.

In summary, ‘Brexit’ and ‘rEEAmain’ are in no way irreconcilable. The result may affect the negotiation positions during the upcoming Brexit negotiations in accordance with Article 50 of the TEU, as a continuing EEA membership could be viewed as an attractive alternative to a ‘hard Brexit’, for both businesses in the UK and the rest of the EEA.

The EEA Agreement as a ‘mixed agreement’

It is an important feature of the EEA Agreement that, on the ‘EU side’, it neither comprises only the EU nor only its Member States as Contracting Parties, but rather the EU and each of its individual Member States, including the UK. The UK is, therefore, not merely an EEA Member because of its membership in the EU, but because the EEA Agreement’s Preamble explicitly lists the UK as a separate Contracting Party. Any modification or termination of this Contracting Party status would require a basis in treaty law.

In this regard, a source of uncertainty is that the EEA Agreement does not contain any specific provision addressing the effect, if any, of a EU Member State leaving the EU. Article 50 of the TEU fails to indicate that a withdrawal from the EU would have any consequence for the withdrawing State’s membership in the EEA. As we demonstrate in detail in our article, a ‘Brexit’ notification in accordance with Article 50 of the TEU can also not be interpreted as also resulting in a withdrawal from the EEA, inter alia because such a result would affect treaty rights of the three EFTA States within the EEA – Iceland, Liechtenstein and Norway – that are not parties to the TEU.

As far as some provisions in the EEA Agreement only refer to ‘EC Member States’ and/or ‘EFTA States’, we argue in some detail that these terms are to be interpreted as referring to EU States and non-EU States within the EEA in accordance with both the EEA Agreement’s purpose and past treaty practice under the Agreement.

No Right of Other EEA Contracting Parties to Suspend Operation or Terminate the EEA Agreement in Relation to the UK

The UK’s withdrawal from the EU does not entitle other EEA Contracting Parties to suspend operation or terminate the EEA Agreement in relation UK, neither under the EEA Agreement nor under customary public international law. Under customary treaty law as codified in the 1969 Vienna Convention on the Law of Treaties (VCLT), the UK for once has committed no ‘material breach’ of the EEA Agreement (Article 60 of the VCLT), as Brexit is merely the use of a right explicitly granted to the UK by a different treaty, namely Article 50 of the TEU. Also, Brexit does not constitute a fundamental change according to the clausula rebus sic stantibus doctrine enshrined in Article 62 of the VCLT as the EEA Agreement’s core elements can still be performed. Although the UK’s withdrawal from the EU will create certain difficulties because the country’s representation in organs like the EFTA Court or the EFTA Surveillance Authority requires clarification, these changes neither radically modify the obligations still to be performed under the EEA Agreement nor imperil the existence or vital development of other EEA Contracting Parties.

Post-Brexit situation (‘rEEAmain’)

In our article, we further outline the consequences that Brexit would have for the future application of the EEA Agreement. Because the UK’s Contracting Party status would remain unaffected, UK companies would still have access to the EEA internal market. Inter alia, the legal capacity of UK companies with their ‘real seat’ elsewhere within the EEA would continue to be recognised in all other EEA States under the EEA Agreement’s freedom of establishment. The same would, of course, apply in the ‘opposite direction’, giving continued freedom of establishment in the UK for companies from elsewhere in the EEA.

The freedom of movement for workers under Article 28 of the EEA Agreement may be unilaterally limited by the UK by way of appropriate safeguard measures in accordance with Article 112 of the EEA Agreement (e.g. a quota system), if ‘serious economic, societal or environmental difficulties’ are arising – a possibility that does not exist under EU law. (It is foreseeable that the interpretation of the legal prerequisites will give rise to disputes.) In any case, safeguard measures taken by the UK may come at a price, as other EEA Contracting Parties would be authorized to take proportionate ‘rebalancing measures’ in order to remedy any imbalance between rights and obligations under the EEA Agreement created by the safeguard measures.

Our interpretation should not be misunderstood as indicating that no difficulties would arise under a ‘rEEAmain’ scenario. Such difficulties would indeed appear, primarily because certain institutional arrangements in the EEA Agreement and related agreements do not explicitly envisage an EEA Contracting Party that is neither a member state of the EU nor of the EFTA. If the UK does not accede to the EFTA Agreement and the Surveillance and Court Agreement, EEA law within the UK would have to be supervised and interpreted solely by British domestic courts and authorities. Also, the issue of financial contributions by the UK would arguably necessitate a renegotiation of protocols to the EEA Agreement: After Brexit, the UK will no longer contribute to the EU budget, but neither Article 116 of the EEA Agreement nor Protocols 38–38c explicitly provide for an obligation of the UK to contribute to the EEA Financial Mechanism. As it is difficult to argue that the UK would profit from its continuing EEA membership without contributing to the connected Financial Mechanism, the exact amount of the UK’s contribution would need to be fixed through an adjustment of the Protocols 38–38c.

It is my pleasure to announce this conference, to be held on February 24th 2017 at the University of Edinburgh, to celebrate Private International Law as ethics of engaging the other. Exploring a variety of private international law themes, this one-day conference will bring together world-renowned academics and experienced private international lawyers from a wide range of jurisdictions and institutions. The experts will discuss topics such as international jurisdiction, international judicial cooperation, cross-border family issues, cross-border consumer protection, private international law of succession and labour migration, from a range of national and regional perspectives; and reflect on the role of international treaties, international institutions and national courts in the efficient management of legal diversity.

Click here for the programme, and here for registration details.

On 10 November 2016, the French MEP Joëlle Bergeron submitted to the Committee on Legal Affairs of the European Parliament a draft report regarding the protection of vulnerable adults.

The draft report comes with a set of recommendations to the European Commission. Under the draft, the European Parliament, among other things, ‘deplores the fact that the Commission has failed to act on Parliament’s call that it should submit … a report setting out details of the problems encountered and the best practices noted in connection with the application of the Hague Convention [of 13 January 2000 on the international protection of adults], and ‘calls on the Commission to submit … before 31 March 2018, pursuant to Article 81(2) of the Treaty on the Functioning of the European Union, a proposal for a regulation designed to improve cooperation among the Member States and the automatic recognition and enforcement of decisions on the protection of vulnerable adults and mandates in anticipation of incapacity’.

A document annexed to the report lists the ‘principles and aims’ of the proposal that the Parliament expects to receive from the Commission.

In particular, following the suggestions illustrated in a study by the European Parliamentary Service, the regulation should, inter alia, ‘grant any person who is given responsibility for protecting the person or the property of a vulnerable adult the right to obtain within a reasonable period a certificate specifying his or her status and the powers which have been conferred on him or her’, and ‘foster the enforcement in the other Member States of protection measures taken by the authorities of a Member State, without a declaration establishing the enforceability of these measures being required’. The envisaged regulation should also ‘introduce single mandate in anticipation of incapacity forms in order to facilitate the use of such mandates by the persons concerned, and the circulation, recognition and enforcement of mandates’.

In the meanwhile, on 15 December 2016, Latvia signed the Hague Convention of 2000 on the international protection of adults. According to the press release circulated by the Permanent Bureau of the Hague Conference on Private International Law, the Convention is anticipated to be ratified by Latvia in 2017.

See here for a fascinating post by Professor Marketa Trimble (UNLV Law).  From the post:

Now that conflict of laws has caught up with Silicon Valley and is forcing internet companies to rethink the problems that occupy this fascinating field of law, conflict-of-laws experts should catch up on the internet: they should better educate themselves about internet technology; they should prepare law students for a practice in which the internet is a common, and not a special or unusual, feature; and they should prevent conflict of laws from becoming a fragment of larger trade negotiations in which multifaceted, intricate, and crucial conflict-of-laws policy considerations can easily be overlooked or ignored.

This book authored by M.E. Ancel, P. Deumier and M. Lazzouzi, and published by Sirey, is the first manual written in French solely devoted to international contracts examined through the lens of judicial litigation and arbitration. It provides a rich and rigorous presentation in light of the legal instruments recently adopted or under discussion in France, as well as at the European and international levels.

After an introduction to  the general principles of the matter, the reader will be able to take cognizance of the regimes of the most frequent contracts in the international order: business contracts (sale of goods and intermediary contracts), contracts relating to specific sectors (insurance, transport), contracts involving a weaker party (labor and consumer contracts) or a public person.

Advanced students, researchers as well as practitioners will find in this volume the tools enabling them to grasp the abundant world of international contracts, to identify the different issues and to master the many sources of the discipline.

The ensemble is backed up by a highly developed set of case law and doctrinal references, updated on August 15, 2016.

Marie-Elodie Ancel is a professor at the University Paris Est Créteil Val de Marne (UPEC), where she heads two programs in International Business Litigation and Arbitration.

Pascale Deumier is a professor at the Jean Moulin University (Lyon 3), where she is a member of the Private Law Team and coordinates the research focus on the Sources of Law.

Malik Laazouzi is a professor at the Jean Moulin University (Lyon 3), where he heads the Master 2 of Private International and Comparative Law.

The BIICL is seeking to appoint three Research Assistants on a 0.8 FTE basis for paid internships of four months each, with the possibility of extension for a further month.

Research Assistants are expected to undertake various core tasks, including:

*           Assisting in the coordination and organisation of research activities;

*          Contributing to the production of high quality research in their areas including, where appropriate, assisting with desk-based research, literature reviews, data analysis, drafting of proposals and submissions, report writing and drafting of articles, social media content etc.

*         Assisting in the management and co-ordination of events;

*         Attending meetings with external groups/partners, including government, legal profession and NGOs; and

*         Working as part of a team with other researchers.

Research Assistants will each be assigned to a Supervisor in their legal areas. For this round of applications, we are particularly looking to appoint in the areas of:

*       Public International Law;

*       Private International Law and/or Competition Law; and

*       Rule of Law

Lawyers who speak both Spanish and English may be interested in a new book written by Professors S.I. Strong of the University of Missouri, Katia Fach Gómez of the University of Zaragoza and Laura Carballo Piñeiro of the University of Santiago de Compostela. Comparative Law for Spanish-English Lawyers: Legal Cultures, Legal Terms and Legal Practices / Derecho comparado para abogados anglo- e hispanoparlantes: Culturas jurídicas, términos jurídicos y prácticas jurídicas (Edward Elgar Publishing Ltd., 2016), is an entirely bilingual text that seeks to help those who are conversationally fluent in a second language achieve legal fluency in that language. The book, which is aimed primarily at private international and comparative lawyers, is appropriate for both group and individual study, and provides practical and doctrinal insights into a variety of English- and Spanish-speaking jurisdictions. The book is available in both hard copy and electronic form, and Elgar is currently offering a discount on website sales. See here for more information.

archa joint seminar of the Child & Family Law Quarterly and Cambridge Family Law

27 March 2017, at Trinity College, University of Cambridge

The withdrawal of the UK from the European Union will precipitate important change in the field of international family law. EU law has increasingly come to define key aspects of both jurisdiction and recognition & enforcement of judgments on divorce, maintenance, and disputes over children, including international child abduction, and provided new frameworks for cross-national cooperation. At this seminar, international experts and practitioners will discuss the impacts of ‘Brexit’ on family law, from a range of national and European perspectives, and reflect on the future of international family law practice in the UK.

Booking will open soon. CPD points will be available.

Please visit www.family.law.cam.ac.uk/ to join the Cambridge Family Law mailing list in order to receive an email when booking opens.

I’ve come across this piece of news by Stacie I. Strong, and found it worth to be shared.

On Friday, the U.S. Supreme Court granted certiorari in Water Splash, Inc. v. Menon to address the question of whether the Hague Service Convention authorizes service of process by mail.

Click here to get to the initial submissions on whether the matter should be addressed by the SC.

Brussels Ibis Regulation – Changes and Challenges of the Renewed Procedural Scheme – Short Studies in Private International Law,

is the title of a book just released, edited by Vesna Lazic and Steven Stuij.

The book focuses on major amendments introduced in the Brussels I regulatory framework. The contributions scrutenise the changes introduced in the Brussels Ibis Regulation, a legal instrument that presents a core of the unification of private international law rules on the European Union level. It is one of the first publications addressing all the changes in the Brussels I regulatory scheme, which takes into consideration relevant CJEU case law up to July 2016.
The texts, written by legal scholars who have published extensively in the field of private international law and international civil procedure, will add to the development of EU private international law. In addition, the authors’ critical analysis may open further discussions on the topic and so benefit a consistent and harmonised application of the Regulation. In this respect the book takes a different approach than the commentaries which have so far been published.
It is primarily meant for legal academics in private international law and practitioners who are regularly engaged in cross-border civil proceedings. It may also be of added value to advanced students and to those with a particular interest in the subject of international litigation and more generally in the area of dispute resolution.

Vesna Lazic is a Senior Researcher at the T.M.C. Asser Instituut, an Associate Professor of Private Law at Utrecht University and Professor of European Civil Procedure at the
University of Rijeka.
Steven Stuij is an expert in Private International Law and an external Ph.D. candidate at Erasmus School of Law, Rotterdam.

The author of this entry is Dr. Arantxa Gandía Sellens, senior research fellow at the MPI Luxembourg.

Yesterday the UK government announced that it is proceeding with preparations to ratify the Unified Patent Court Agreement. Following the Brexit vote, this piece of news is not only relevant for the patent world, but also for the future Brexit negotiations between the UK and the EU (art. 50 Treaty of the European Union).

Here I will focus on the implications of this decision on the unitary patent system.

A brief explanation of the unitary patent system

The European patent with unitary effect –thus different from the «classic» European patent– was introduced by Regulation (EU) no. 1257/2012 of the European Parliament and of the Council of 17 December 2012 implementing enhanced cooperation in the area of the creation of unitary patent protection (hereinafter, Regulation 1257/2012).

According to its art. 2 (c), the European patent with unitary effect is a «[…] European patent which benefits from unitary effect in the participating Member States by virtue of this Regulation». Furthermore, its arts. 5 (1) and 1 (1) establish that the so-called unitary effect of this kind of patent consists of the protection provided throughout the territories of the Member States participating in the enhanced cooperation authorized by Decision 2011/167/EU. The unitary patent protection may be requested for any European patent granted on or after the date of application of Regulation 1257/2012 (art. 18.6), which is linked to the date of entry into force of the Agreement on a Unified Patent Court (hereinafter, UPC Agreement), following its art. 18 (2).

The object of the UPC Agreement is to establish a Unified Patent Court for the settlement of disputes relating to European patents and European patents with unitary effect (art. 1). The Agreement requires for its entry into force the ratification of at least thirteen Member States, including the three Member States in which the highest number of European patents had effect in 2012 (art. 89 (1)). At the moment, eleven States have ratified the convention, and only one of them is among those three States whose ratification is mandatory, namely France.

Who can sign and ratify the UPC Agreement?

According to art. 84 of the UPC Agreement, it is open for signature by any Member State. Regarding ratification, the same requirement applies: “This Agreement shall be subject to ratification in accordance with the respective constitutional requirements of the Member States. […]”.

Thus, while the UPC Agreement is not an EU instrument but a classical international convention, only Member States of the European Union can sign and ratify the UPC Agreement.

Notwithstanding the Brexit vote, the UK remains for the moment a Member State of the European Union; therefore, at this time the requirements established by the UPC Agreement for ratification are met. However, the UK government is determined to proceed to Brexit and to become a non-EU country. Therefore, the ratification could create a measure that is contrary to the European Treaties to which the UK is still bound. According to art. 4.3 of the Treaty on European Union a Member State “shall facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardise the attainment of the Union’s objectives”.

Consequences of the UK’s ratification of the UPC Agreement

Ratification of the UPC Agreement, followed by exit from the EU would create a series of consequences that would have to be dealt with:

1. The unitary patent cannot cover the territory of a third State. According to art. 3 of Regulation 1257/2012, the unitary patent shall have equal effect in all the participating Member States, meaning that States without the status of “Member State” are excluded. In that scenario, the unitary patent would not have effect in the UK, unless the necessary modifications are made in the legal instruments that constitute the so-called “unitary patent package”.
2. Both Regulation 1257/2012 and the UPC Agreement use the terms “participating Member States” or “Contracting Member States” when referring to the States taking part in the system. This wording is a reaction to the ECJ’s Opinion 1/09, which dealt with the question of the compatibility of the failed agreement creating a Unified Patent Litigation System with EU law (open also to third States). The ECJ opposed the participation of third States in that convention, as the referral of preliminary questions on EU law could not be guaranteed. Moreover, a third State cannot refer preliminary questions on EU law to the ECJ. This means that a non-member State would not be able to comply with Art. 21 of the UPC Agreement, titled “Requests for preliminary rulings”: “[…] the Court shall cooperate with the Court of Justice of the European Union to ensure the correct application and uniform interpretation of Union law […]”.

3. A seat of the central division cannot be located in a third State. Art. 7.2 of the UPC Agreement establishes that the central division shall have its seat in Paris, with sections in London and Munich. Although the UPC Agreement does not require that the sections of the central division must be located in a Contracting Member State (paradoxically, this requisite does exist for the local and regional divisions, so that it could also be argued that it applies to the central division, mutatis mutandis), the question is not clear cut in light of the EU’s constitutional framework, which includes the Treaty on European Union and the Treaty on the Functioning of the European Union.

Two options for the unitary patent system after the Brexit vote

Taking into consideration that the UK will have the status of a non-EU country (third State), two options remain open to proceed with the establishment of the system following the Brexit vote:

First option) Maintaining the status quo. As discussed above, if the UK ratifies now the UPC Agreement, the other Member States might rely on art. 4.3 EU Treaty in order to block that ratification. Once the UK’s ratification is blocked –and the wording of the UPC Agreement remains– the process for the start-up of the unitary patent system will be delayed until the negotiations following the exit declaration (art. 50 EU Treaty) are concluded.

If, after the negotiations, it is agreed that the unitary patent system should be established without the UK, the UPC Agreement will have to be modified, at least regarding the seat of the UPC central division in London (art. 7.2 of the UPC Agreement).

Second option) Including the UK in the unitary patent system. If the UK ratifies the UPC agreement and the other Member States do not rely on art. 4.3 EU treaty, the setting up process will continue as it has been foreseen.

At the moment, as the UK is still an EU Member State, its active participation in the unitary patent system does not entail any problem, formally speaking. On the contrary, the UK is one of the three Member States in which the highest number of European patents had effect in 2012, which makes its ratification a condition for the setting up of the system (art. 89 of the UPC Agreement). However, when the UK loses its status as EU Member State, some modifications to the UPC Agreement will have to be made. Those modifications will have: 1) to make sure that third States are invited to take part in the system, provided that they oblige themselves to respect EU law and refer questions to the ECJ (in light of the Opinion 1/09); and 2) to change Regulation 1257/2012, in order that the unitary patent system can cover the territory of third States. This might also entail the participation in the system not only by the UK, but also by other interested third States.

The biggest disadvantage of this option is the risk of endangering the application and interpretation of EU law, as already pointed out in the ECJ’s Opinion 1/09. The ECJ will have to be consulted on the possibility of the inclusion of third states if those third States are willing to respect the primacy of EU law, referring preliminary questions to the ECJ when necessary. This would be a new feature in comparison to the failed agreement creating a Unified Patent Litigation System, where the referral of preliminary questions to the ECJ was not guaranteed.

The latest issue of the “Praxis des Internationalen Privat- und Verfahrensrechts (IPRax)” features the following articles:

U. Magnus: A Special Conflicts Rule for the Law Applicable to Choice of Court and Arbitration Agreements?
The article examines whether the German legislator should enact a separate conflicts rule which determines the law that is applicable to the conclusion and validity of choice of court and arbitration agreements. With respect to choice of court agreements the national legislator’s room for manoeuvre is anyway very limited due to the regulations in Art. 25 Brussels Ibis Regulation and Art. 5 Hague Convention on Choice of Court Agreements of 2005. There is no genuine need for an additional national conflicts rule, in particular since the interpretation and exact scope of the new conflicts rule in Art. 25 (1) Brussels Ibis Regulation still requires its final determination by the CJEU. After weighing all pros and cons the article recommends not to enact a separate conflicts provision. The same result is reached for arbitration agreements. Here, the international practice that in the absence of a choice the law at the place of arbitration applies should be fixed on the international or European level.

K. Bälz: Failing states as parties in international commercial disputes: public international law and conflict of laws
In the aftermath of the “Arab Spring” a number of states in the immediate vicinity of Europe have turned into failing states. Using the Libya cases of the English High Court as a starting point, this article examines the practical questions that arise in commercial disputes involving failing states. The key question is how to implement the international law principles on regime change and state failure in international disputes.

U.P. Gruber: The new international private law on the equalization of pension rights – a critical assessment
German international private law contains an extremely complicated rule on the equalization of pension rights. Under this rule, the equalization of pension rights of husband and wife shall be subject to the law applicable to the divorce according to the Rome III Regulation; however, an equalization shall only be granted if accordingly German law is applicable and if such equalization is recognized by the law of one of the countries of which the spouses were nationals at the time when the divorce petition was served. If one of the spouses has acquired during the subsistence of the marriage a pension right with an inland pension fund and carrying out the equalization of pension rights would not be inconsistent with equity, the equalization of pension rights of husband and wife shall be carried out pursuant to German law on application of a spouse.
Lately, Art. 17 (3) EGBGB was amended. Whereas in former times, Art. 17 (3) EGBGB referred to the law applicable to divorce determined by an autonomous German rule, the provision now makes referral to the Rome III Regulation. In the legislative process, this amendment was neither discussed nor justified. At a closer look, however, the new rule has serious flaws and should be changed.

C. Heinze/B. Steinrötter: When does a contract fall within the scope of the „directed activity“ as provided for in Art. 15 (1) (c) Regulation (EC) No 44/2001 (= Art. 17(1) (c) Regulation [EU] No 1215/2012)?
This contribution analyses the recent Hobohm-judgment of the European Court of Justice (ECJ), which concerns the requirement “contract falls within the scope of such activities” in Art. 15 (1) (c) Regulation (EC) No 44/2001 (= Art. 17 (1) (c) Regulation [EU] No 1215/2012). The CJEU decided that the rules on jurisdiction over consumer contracts are applicable even if the respective contract on its own does not fall within the scope of the professional activity which has been directed to the consumer’s home state, provided that it is closely linked to an earlier contract falling under Art. 17 (1) (c). The authors analyse the elements of this test of close connection and place it into the more general context of the jurisdiction rules for consumer disputes.

T. Lutzi: Qualification of the claim for a ‘private copying levy’ and the requirement of seeking to establish the liability of a defendant under Art. 5 No. 3 Brussels I (Art. 7 (2) Brussels I recast)
Seized with the question whether a claim for the “blank-cassette levy” under § 42b of the Austrian Urheberrechtsgesetz (which transposes Art. 5 (2) b of the European Copyright Directive) qualifies as delictual within the meaning of Art. 5 No. 3 of the Brussels I Regulation (Art. 7 (2) of the recast Regulation), the Court of Justice had an opportunity to refine its well-known Kalfelis formula, according to which an action falls under Art. 5 No. 3 if it “seeks to establish the liability of a defendant” and is “not related to a ‘contract’ within the meaning of Art. 5 No. 1”. Holding that the claim in question sought to establish the liability of the defendant “since [it] is based on an infringement […] of the provisions of the UrhG”, the Court seems to have moved away from the more restrictive interpretation of this criterion it has applied in the past. Yet, given the implications of such a broad understanding of Art. 5 No. 3, not least for claims in unjust enrichment, a restrictive reading of the decision is proposed.

L. Hübner: Effects of cross-border mergers on bonds
The article deals with the complex interplay of international contract law and international corporate law exemplified by the ECJ decision in the KA Finanz case. Three issues will be focused on: (i) the law applicable to a bond indenture after a cross-border merger of one of the contracting parties with a third party; (ii) the law applicable to the legal consequences of such a merger (legal and asset succession as well as creditor protection); and (iii) the application of Art. 15 of Directive 78/855 to securities to which special rights are attached.

C. Thomale: Multinational Corporate Groups, Secondary insolvency proceedings and the extraterritorial reach of EU insolvency law
In its preliminary ruling on the Nortel Networks insolvency dispute, the ECJ has made important assertions on procedural and substantive aspects of secondary insolvency proceedings and their coordination with the main proceedings as well as their reach to extraterritorial assets of the debtor. At the same time, the decision fuels the general regulatory debate on corporate group insolvencies. This comment analyses the decision and develops an alternative approach.

D.-C. Bittmann: Requirements regarding a legal remedy in terms of art. 19 of Regulation (EC) No. 805/2004 and competence for carrying out the certification of a judgment as a European Enforcement Order
The following article examines a judgment of the ECJ, which deals with several problems regarding the interpretation of Regulation (EC) No. 805/2004 creating a European Enforcement Order (EEO) for uncontested claims. The first part of the decision regards the requirements established by Art. 19 of the regulation. The ECJ rules, that Art. 19 (1) of Regulation (EC) No. 805/2004 requires from the national legal remedy in question that it effectively and without exception allows for a full review, in law and in fact, of a judgment in both of the situations referred to in that provision. Furthermore the EJC rules, that this legal remedy must allow the periods for challenging a judgment on an uncontested claim to be extended, not only in the event of force majeure, but also where other extraordinary circumstances beyond the debtor’s control prevented him from contesting the claim in question (Art. 19 (1) (b)). In the second part of the decision the ECJ rules, that the certification of a judgment as an EEO, which may be applied for at any time, can be carried out only by a judge and not by the registrar. The latter is only allowed to carry out the formal act of issuing the standard form according to Art. 9 of Regulation (EC) No. 805/2004 after the decision regarding certification as an EEO has been taken by the judge.

S. Arnold: Contract, Choice of Law and the Protection of the Consumer abroad when lured into business premises
Consumer protection is a cornerstone of European Law – just like party autonomy. Even in consumer contracts, parties can choose the applicable law. Yet the choice must not be to the detriment of the consumer. This is the core idea of Art. 6 (2) Rome I-Regulation. The OLG Stuttgart (Higher Regional Court of Stuttgart) addressed the range of that provision which is a central tool of consumer protection through conflict of laws. During a package holiday in Turkey, an 85 year old lady had bought a carpet. Turkish substantive Law did not allow for the lady to withdraw from the contract, German substantial Law, however, did. The OLG Stuttgart decided that the lady could withdraw from the contract on the basis of German substantial Law. The OLG Stuttgart found that the Turkish seller had worked together with the German travel agency in order to lure tourists from Germany into his business premises.

C. Wendelstein: Cross-border set-off based on counterclaim governed by Italian law
In the context of an international set-off the German Federal Court of Justice had to deal with various questions in the field of conflict of laws. For the first time the Court had to adjudicate upon the characterization of the notion of liquidità in Italian law (Art. 1243 Codice civile = Cc). According to the Federal Court of Justice this question has to be answered by the law designated by Art. 17 Rome I Regulation. The author agrees with this finding.

G. Schulze: The personal statute in case of ineffective dual nationalities (case note on a judgment given by the Federal Court of Justice of Germany on 24th June 2015 – XII ZB 273/13)
The applicant had been living in Germany since his birth. As he had a double name (according to Spanish customs) registered in the civil registry in Spain he wanted to go by his Spanish family name in Germany as well. The case raises the question of how to determine the personal statute of a multinational person having both a Spanish and a Moroccan nationality if the person has no connections whatsoever to the countries in question. The Federal Court of Justice of Germany (Bundesgerichtshof, BGH) held: That in default of an “effective” citizenship the law of habitual residence shall be applicable, in casu: German law. That the “limping” name does not violate EU law. There are doubts about this solution: The effectiveness of nationality does not form a part of the elements of Art. 10 (1) of the Introductory Act to the Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch, EGBGB). Effectiveness serves only to clearly define the personal statute for given connecting factors, viz. in order to choose between several citizenships in Art. 5 (1) sentence 1 or to determine the (closer connected) habitual residence in Art. 5 (2) EGBGB. De lege lata there is no well-founded basis for a supported rejection of the application of law of nationality. However the general tendency to apply the law of habitual residence is not a reason to apply Art. 5 (2) EGBGB in analogy given multiple ineffective nationalities. It is not suitable to extend the escape clause in Art. 5 (2) EGBGB. In any case it is not a solution if the nationalities are EU nationalities. A former opportunity for choice of law which was unknown by the tenants does not eliminate an infringement of Art. 18 TEU (discrimination) and 21 TEU (freedom of movement).

M. Andrae: The matrimonial property regime of the spouses with former Yugoslav nationality
For the determination of the law applicable to matrimonial property referring to spouses who had at the time of marriage the Yugoslav nationality, two principles have a special significance: 1. The law of the former Yugoslavia shall not apply, including its interregional law and its conflict of laws principles. 2. An automatic change of the applicable law must be avoided, if possible and if it is not the consequence of a choice of law. Priority is given to the first principle. The connecting factor of the common nationality pursuant to Art. 15 (1) and 14 (1) No. 1 EGBGB must be supplemented. For this it is suitable to use the principle of closest connection by analogy to Art. 4 (3) sentence 2 EGBGB. Reference is made to the right of a successor State, if the spouses have had at the time of entering the marriage the Yugoslav nationality and a common closest connection to an area of the former Yugoslavia, which is now the territory of successor state. If such a connection is absent, then the applicable law has to be determined in accordance with Art. 15 (1) and 14 (1) No. 2 of the EGBGB, if necessary by Art. 14 (1) No. 3 EGBGB.

A. Reinstadler/A. Reinalter: The decision opening the debtor-in-possession proceeding pursuant to § 270a German Insolvency Act is not an insolvency proceeding pursuant to the European Insolvency Regulation (2002)
The Court of Appeal of Trento, local section of Bolzano (Italy) had to rule on the question whether the debtor-in-possession proceeding/Verfahren auf Eigenverwaltung (§ 270a German Insolvency Act) can be qualified as decision opening an insolvency proceeding pursuant to art. 16 European Insolvency Regulation (2002) and has, therefore, to be recognized automatically by operation of law by the courts of other Member States. Judge-Rapporteur Elisabeth Roilo concluded (implicitly referring to the Eurofood-formula) that the decision issued by the German district court in which opened the debtor-in-possession proceeding pursuant to § 270a German Insolvency Act is neither listed in Annex A of the Regulation nor is the appointed provisional liquidator (vorläufiger Sachwalter) included in Annex C of the Regulation. Since the decision, furthermore, foresees neither the divestment of debtor’s assets nor the forfeiture of the powers of management which he has over his assets, the criteria set down in the Eurofood-judgment are not fulfilled. The result is that the decision may not be qualified as a decision opening an insolvency procedure under the terms of art. 16 European Insolvency Regulation (2002).

Following the draft bill and consultation paper on Dutch collective actions for damages of 2014 (see our previous post), the final – fully amended – draft has been put before Parliament.

The following text has been prepared by Ianika Tzankova, professor at Tilburg University.

On 16 November 2016 the Dutch Ministry of Justice presented to Parliament a new Bill for collective damages actions. The proposal aims to make collective settlements more attractive for all parties involved by improving the quality of representative organizations, coordinating the collective (damages) procedures and offering more finality. It is unclear when or whether the Bill will be passed in its current form, but below are my first impressions and a personal selection of some noteworthy features of the Bill.

1. The proposed regime covers all substantive areas of law, which is a continuation of the status quo. What is new, is that now damages can also be claimed collectively and not only declaratory and injunctive relief, and that the same requirements apply to all types of actions: injunctive, declaratory or damages. More specifically, under the new regime it will be much harder for claimants to file actions for injunctive and declaratory relief (see further below under 6. and further).
2. The legislation would apply to all substantive areas of law, which is a continuation of the status quo on collective actions. What is new is that plaintiffs would be able to claim collective damages, not only declaratory and injunctive relief, and that the same requirements would apply to all types of actions: injunctive, declaratory or damages. More specifically, under the new legislation it would be much harder for claimants to file actions for injunctive and declaratory relief (see further below under 6. and further).
3. Exclusive jurisdiction in the first instance would be with the Amsterdam District Court, but it would be possible to transfer the collective action to another lower court if that would be more appropriate in a given situation.
4. There would be a registry for class actions so the public is notified once a class action has been initiated.
5. A system of ‘lead representative organizations’ would be introduced to streamline the process if there are multiple candidates for the position. There could also be co-lead representative organizations if that is appropriate for a specific action. Under the current regime it is possible to have multiple competing collective actions, a situation that is perceived as confusing for consumers and burdensome for defendants.
6. Only non-profit entities would be allowed to file the collective action, as under current law. Those could also be ad hoc foundations, but heavy governance requirements would be put in place for their Board and Supervisory Board structure, which would require D&O insurance, guarantees for non-profit background of the Board and Supervisory Board members, a website and communication strategy for the group, the preparation of financial statements etc. This would require a significant financial investment beforehand in the logistical infrastructure of the organization, and it is unclear how this could be funded on a non-commercial basis. There is an exception for matters with a idealistic public policy background. Those ad hoc foundations might be exempted from some of the requirements, but in fact the Bill puts the ad hoc foundations in a disadvantageous position in comparison to pre-existing non-profit organizations.
7. Moreover, the lead representative candidates would need to demonstrate expertise and track record in class actions, have a sufficient number of claimants supporting them in relation to the specific action, and have sufficient financial means. The parliamentary notes specify that the court might ask a neutral third party to review the agreement, which would not need to be shared with the defendant.
8. Opt out seems to be the main rule under the new regime, but this is somehow mitigated, because under the selection test for lead representative organization (see under 6 above), the candidate has to demonstrate that it has a large enough group of claimant supporters behind it and is not an empty shell. This assumes at least some book-building effort beforehand and is therefore at least in part an opt in. After the lead representative organization is appointed, the whole group will be represented on an opt out basis.
9. The lead representative organization would need to demonstrate the superiority of the collective action in comparison to individual law suits.
10. The lead representative organization would need to demonstrate a sufficient link with the Netherlands. The Dutch legislator has consulted the Dutch State Commission for Private International Law and the Advisory Commission on Civil Procedure in relation to that requirement. According to the legislature, the test for a sufficient link with the Netherlands is compatible with Brussels I, because it does not concern the jurisdictional test but the certification of a civil action, which is a matter of national civil procedure. It aims to exclude from the collective action situations where the defendant is not based in the Netherlands, the harmful events did not take place in the Netherlands or the majority of the claimants are not domiciled in the Netherlands. In those situations the claimants will still have the option of starting an individual action. This requirement seems to aim to address the recent VEB v BP type of collective actions, where the Dutch Investors’ Association VEB initiated a collective action for declaratory relief for all investors who had their BP shares in bank accounts in the Netherlands, following the ECJ’s criteria formulated in the Kolassa ruling (C-375/13). The Amsterdam District Court declared on 28 September of this year that it lacked jurisdiction to hear the action, which is questionable in view of the Kolassa ruling. The current proposal aims to eliminate the use of the new Dutch collective actions regime in situations where Dutch courts under Brussels I and ECJ case law would have jurisdiction to hear individual cases for the ‘Kolassa type’ of claimant, but those would not be able to use the Dutch collective action regime to effectuate their rights.
11. Group members could opt out at the beginning of the certified class action and start an individual proceeding, but those individual proceedings could be stayed at the request of the defendant, at least for one year after the parties opted out. The court would have discretion to allow the stay of the proceedings. This departs somewhat from the systems existing in other jurisdictions (e.g. US and Canada) where claimants who opt out can resume their individual actions with no delays.
12. The collective action tolls the statute of limitation for the whole group represented by the lead representative organization. Parties who choose to opt out need to preserve their individual rights within 6 months after they have opted out. Under Dutch law it is not necessary to start a civil action to preserve one’s rights. It is sufficient to send a letter to that effect to the defendant.
13. Under current Dutch law, adverse cost orders are fixed. Under the proposal it would be possible for the lead representative organization to recover the real costs of litigation if parties reach a settlement. The lead representative organization would be liable for any adverse costs if it loses the action.
14. Any settlement reached under the new collective action regime would need to be approved by the District Court. It is unclear whether the new regime aims to limit the extra-territorial application of the WCAM: the Dutch act on collective settlements that has already been used twice for global settlement purposes. Presumably not, if globally settling parties choose to invoke the WCAM directly and not via the Dutch collective action regime.

The most recent issue of the Zeitschrift für Vergleichende Rechtswissenschaft (German Journal of Comparative Law; Vol. 115 [2016], No. 4) features the contributions to the conference on the application of EU private international law in German legal practice that was held at the University of Freiburg (Germany) on 14 and 15 April 2016 (see our previous post here). This event was part of the EUPILLAR („European Private International Law – Application in Reality“) project funded by the EU Commission (see the project’s homepage here); it was organized by the German branch of the project team, Prof. Dr. Jan von Hein, University of Freiburg.

The issue starts with a concise introduction by Jan von Hein into the EUPILLAR project (p. 483) and continues with an in-depth analysis of the problems involved in evaluating EU PIL Regulations by Prof. Dr. Giesela Rühl (University of Jena; p. 499). It then contains three articles dealing with pervasive problems inherent in the application of EU PIL: firstly, the challenges it poses for the organization of domestic courts (by Prof. Dr. Hannes Rösler, University of Siegen; p. 533); secondly, the challenges for the CJEU (by Prof. Dr. Martin Gebauer, University of Tübingen; p. 557); and thirdly, the application of foreign law designated by PIL rules (by Prof. Dr. Oliver Remien, University of Würzburg; p. 570). In the following contributions, the handling of the EU PIL Regulations in German case-law is scrutinized, starting with the application of Rome I by ordinary civil courts (Prof. Dr. Dennis Solomon, University of Passau; p. 586) and by labour courts (Prof. Dr. Dr. h.c. Monika Schlachter, University of Trier; p. 610). Moreover, Prof. Dr. Wolfgang Wurmnest (University of Augsburg) analyzes how German courts have interpreted the Rome II Regulation (p. 624). Finally, German court practice regarding international family law is evaluated as well, Brussels IIbis and Rome III by Prof. Dr. Peter Winkler von Mohrenfels (University of Rostock; p. 650), and the Maintenance Regulation resp. the Hague Protocol by Prof. Dr. Wolfgang Hau (University of Passau; p. 672).

The Zeitschrift für Vergleichende Rechtswissenschaft was founded in 1878 and is Germany’s oldest continuously published periodical on comparative and private international law. Its current editor-in-chief is Prof. Dr. Dres. h.c. Werner F. Ebke, University of Heidelberg. Content is available online either through the website of the Deutscher Fachverlag or via beck online.

Many thanks to Hans van Loon for this piece of information.

At its 26th meeting, which took place in Milan last September, the European Group on Private International Law worked further on the establishment of common rules of conflict of laws in company law, on the basis of the achievements of the Florence and Luxembourg meetings. As a result the Draft rules on the law applicable to companies and other bodies were agreed upon.

Moreover, a Resolution on the Commission Proposal for a recast of the Brussels IIa Regulation, concerning parental responsibility and child abduction was adopted to support the Commission proposal of 30 June 2016 for a recast of the Brussels II a Regulation.

Besides a exchange of information on the current state of law of the Union, the Hague Conference and the the jurisprudence of the European Court of Human Rights took place. Finally, various papers were presented on the evolution of Italian civil union law, on the impact of the Brexit on private international law, on the follow-up to the Luxembourg Resolution concerning the legal status of applicants for international protection, and on the principles of interpretation of uniform substantive law.

The report was elaborated in collaboration with Marie Dechamps, Faculty of Law and Criminology of the Catholic University of Louvain, and can be fully read here.

Only five months after the UK Brexit Referendum the first (German) book dealing with the legal consequences of Brexit has been published (“Brexit und die juristischen Folgen, Nomos 2017, ISBN 978-3-8487-3564-8). Edited by Malte Kramme, Christian Baldus and Martin Schmidt-Kessel from the University of Bayreuth the book discuss the effects Brexit will have on European private and economic law, notably contract law, corporate law, capital markets law, tax law, labour law, competition law and consumer law.

The most interesting chapter for readers of this blog is the chapter by Johannes Ungerer from the University of Bonn. It deals with the effects of Brexit on the Brussels I Regulation and other Regulations on European private international law and can be downloaded here free of charge.

Ungerer shows that there can be no doubt that Brexit will have considerable effects on jurisdiction, recognition and enforcement of judgments in Europe. Particularly, this concerns the Brussels regime, which threatens to fall back from the modern Recast Regulation to the outdated 1968 Convention developed for relations between the UK and the then EEC Member States. Considering that no transition rules are in existence, this fall back could only be prevented by the withdrawal agreement, which is likely to be negotiated. An alternative might be the UK’s accession to the 2007 Lugano Convention (and perhaps rejoining EFTA). The Hague Conventions are expected to be maintained where applicable in international legal proceedings. As for choice of law,
the Rome regime for contracts should basically remain unchanged, yet for non-contractual obligations there might be the risk of legal uncertainty. With regard to international insolvency, the domestic regimes of the Member States will take over from the European Insolvency (Recast) Regulation.

by Lukas Schmidt, Research Fellow at the Center for Transnational Commercial Dispute Resolution (TCDR) of the EBS Law School, Wiesbaden, Germany.

As announced earlier this year at the Commission´s conference on “Convergence of insolvency frameworks within the European Union – the way forward” (see Blogpost http://wp.me/p4SfbY-4OQ) Vera Jourová, EU Commissioner for Justice, Consumers and Gender Equality has presented a proposal for a Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures on Thursday 22 November (see http://europa.eu/rapid/press-release_IP-16-3802_en.htm). The proposal has to be seen in the context of the Juncker Plan, the Action Plan on Building a Capital Markets Union and the Single Market Strategy, all aiming at strengthening of Europe´s Economy and the stimulation of investments in Europe. However, it is a much bigger step towards a harmonized European Insolvency Law than the Commission´s non-binding recommendation on a new approach to business failure and insolvency from 2014. Furthermore, whereas the EIR recast deals with issues of jurisdiction, applicable law, recognition and enforcement of insolvency decisions, as well as coordination of cross-border insolvency procedures, the proposal now obliges Member States to introduce sprecific types of procedures and set up measures to ensure that insolvency proceedings are effective in regards to promoting preventive restructurings and second chance. It thereby aims to reduce barriers to cross-border investment related to differences between the Member States’ restructuring and second chance frameworks as well as unnecessary liquidations of viable companies. Additionaly it shall improve the effectiveness of all restructuring, insolvency and second chance procedures within the EU.

The proposal consists of 47 recitals and 36 Articles on 55 pages. It can be roughly divided into main three parts. It is setting up a preventive restructuring framework (Title II), minimum standarts for the second chance for entrepeneurs (Title III) and measures to raise the effiency of restructuring, insolvency and second chance (Title IV and V).

Preventive Restructuring Frameworks

Art. 4 requieres the Member States to ensure that, „where is the likelihood of insolvency, debtors in financial diffculty have access to an effective preventive restructuring framework that enables them to restructure their debts or business, restore their viability and avoid insolvency.“ Interestingly Art. 5 states that the appointment of a practitioner in the field of restructuring is not mandatory in all cases. It remains to be seen how the group of insolvency practitioners will react to this aspect. According to Art. 6 a general or a limited stay of individual enforcement actions may be ordered for a maximum period of no more than four months. The proceeding aims at negotationg a restructuring plan (see Chapter 3). The restructuring plan needs to be approved by the creditors and confirmed by a judicial or administrative authority (Art.9 and 10). Where the neccessary majority of creditors in one or more voting classes is not reached the plan may still be confirmed by ways of a cross-class cram-down compliant to Art. 11.

Second Chance for Entrepeneurs

Title III sets up rules about the discharge of debt for over-indebted entrepeneurs. First of all the Member States have to ensure that over-indebted entrepeneurs may be fully discharged of their debts (Art. 19). Aditionally the proposal states in Art. 20 that the maximum period of time after which over-indebted entrepreneurs may be fully discharged from their debts shall be no longer than three years. It has to be noted that this might lead to different discharge periods for entrepeneurs and consumers.

Measures to increase the efficiency of restructuring, insolvency and second chance

Title IV mainly tries to ensure that judiciariy and adminsitrative authorities dealing with restructuring and insolvency are proper trained (art. 25). The same applies to insolvency practitioners (Art. 25).  Again, it remains to be seen how the group of insolvency practitioners will react to this aspect. Title V instructs member states to set up a data collection on annual statistics about restructuring and insolvency proceedings.

Finally some thoughts on the interplay between the proposal and the EIR recast. The new preventive restructuring proceedings will principally fall within the scope of the EIR recast (see Art. 1 c) EIR recast). But as it is a directive we will see many different national proceedings. One may not forget that aditionally all these proceedings need to be signed up in Annex A of the EIR to fall within its scope. The proposal might raise some further questions with regards to the EIR recast: Is it possible to give an undertaking pursuant to Art. 36 EIR recast in a preventive restructuring proceeding? May a court order a stay of the opening of a secondary insolvency proceedings according to Art. 38 III EIR recast where there is a preventive restructuring proceeding in the main proceeding?

The Commission´s proposal is ambitiuos. However, it lets important parts of substantive insolvency law, e.g. the ranking of claims or directors liablities untouched. Furthermore it still has to pass the Council and the Parliament. As the Commission´s proposal on the EIR recast, it will probably undergo some major changes in the upcoming process, too. It will be highly interesting how different interest groups might influence the final version of the proposal.