Recognition and Enforcement of Foreign Judgments in the USA

28. August 2022

  • USA
  • Rechtsstreitigkeiten

What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

The judgment in question is doubly interesting.

Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

As the Constitutional Court very recently reiterated in its ruling dated last October, „judicial slowness has no place in the Magna Carta“. But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

The plaintiffs sought the nullity of certain resolutions adopted at a shareholders‘ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

The legislation in force at the time the meeting was held (prior to the 2014 reform) established that „resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties“ could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

Following the 2014 reform, article 204 considers that „corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties“ can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to „law“ in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an „abuse of rights“, can such a situation be considered as „contrary to law“ for the purposes of the application of article 204 LSC?

The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

  • formal or outwardly correct use of a right
  • causing damage to an interest not protected by a specific legal prerogative, and
  • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

And on these premises, the Supreme Court reiterates and insists that the expression „contrary to the law“ in article 204 LSC must be understood as „contrary to the legal system“, which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an „in extremis“ recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

Every employer should manage the risk of employee lawsuits.  Many companies believe that they treat their workers well and that their employees are happy.  As a result, they believe that they are not at risk of a lawsuit.  But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.

Employers should proactively manage this risk instead of hoping lawsuits never come.  Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive.  It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations.  But employers can take steps before a dispute arises to reduce the impact of a lawsuit.  I discuss eight such steps below.

First, employers should consider purchasing insurance that may cover employee claims.  In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance.  These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit.  They may also pay the employee the amount he or she demands or that a court awards.  Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.

Second, employers should implement and enforce sexual harassment policies.  Policies like these discourage the type of behavior that can subject a company to liability.  But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.

Third, employers should seriously examine disparities in pay and job roles.  If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination.  Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination.  Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.

Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court.  Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them.  Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less.  But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.

Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue.  Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job.  But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination.  Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.

Sixth, employers should ensure they make consistent decisions.  If an employer allows one employee to work from home, other employees may want the same treatment.  And if an employer lays one employee off, she may wonder why another employee did not meet the same fate.  Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.

Seventh, employers should frequently consult a lawyer they trust when employment issues arise.  Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.

And finally, employers should consider settling disputes with employees, even if they are meritless.  No company wants an employee to take advantage of them.  But lawsuits are often more expensive and a hassle than the cost of a settlement.  Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.

Summary

Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.

Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?

  • You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
  • Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
  • The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.

Is the Judgment Debtor Subject to Personal Jurisdiction?

Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.

The Separate Entity Rule

Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.

Bringing Assets into the Jurisdiction

Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.

Takeways:

  • plaintiffs should ensure that they have personal jurisdiction over defendants not just under the laws of the jurisdiction where they bring suit, but also under the laws of the jurisdiction where they intend on enforcing judgments;
  • plaintiffs should ensure that the jurisdictions in which they enforce judgments have the power to actually collect defendants’ assets, since some may not do so under rules like the Separate Entity Rule.

On 6 January 2022 Ukraine finally cancelled almost a two-year long moratorium for the creditor-trigged insolvencies. The moratorium was imposed in the late spring 2020 as a part of the nation’ response to first wave of COVID pandemic.

In a nutshell, the moratorium prohibited creditors from requesting insolvency action against those debtors whose obligations matured after 12 March 2020. A separate set of measures also lifted an early warning duty obliging directors of the companies in distress to file for insolvency within one month from a moment when the distress appeared.

The moratorium was heavily criticized by both domestic and international creditors, who legitimately blamed it for a non-selective approach.

As further 2021 statistic shown, the moratorium never seemed to reach a goal proclaimed by it authors and made no increase for insolvency relief requests by the debtor companies.

Instead, the country has been facing a steady increase in “zombie” companies having little to none liquidation value – and their owners clearly intending to get away with no creditor repayment.

With the moratorium being lifted off the creditors do expect to show no mercy to their Ukrainian debtors. This particularly worries those debtors potentially involved in wrongful trade or fraudulent action. Even with the moratorium in place in 2021 Ukrainian courts confirmed more than UAH 150 mln in creditors loss to be paid by the insolvent companies’ management and owners themselves. This number is expected to triple in 2022 – and there already were Supreme Court’s 2021 judgements confirming liability of the real owners standing behind opaque shareholder company and nominal directors.

As the creditors’ agitation grows, so do the debtor company owners’ concerns. As the owners\management liability process is extremely bespoke and often requires swift action, it is of crucial importance to get a throughout legal advise on either side – and much better to do that before the actual claim has been brought.

In an important and very reasoned judgment delivered by the Court of Cassation of France on September 30, 2020, relating to the enforceability of arbitration clauses in international consumer contracts, the Supreme Court judged that these clauses must be considered unfair and cannot be opposed to consumers.  

The Supreme Court traditionally insisted on the priority given to the arbitrator to decide on his own jurisdiction, laid down in Article 1448 of the Code of Civil Procedure (principle known as „competence-competence“, Jaguar, Civ. 1re, May 21, 1997, nos. 95-11.429 and 95-11.427). 

The ECJ expressed its hostility towards such clauses when they are opposed to consumers. In Mostaza Claro (C-168/05), it referred to the internal laws of member states, while considering that the procedural modalities offered by states should not “make it impossible in practice or excessively difficult to exercise the rights conferred by public order to consumers (“Directive 93/13, concerning unfair terms in consumer contracts, must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment”).  

It therefore referred to the national judge the right to implement its legislation on unfair terms, and therefore to decide, on a case-by-case basis, whether the arbitration clause should be considered unfair. This is what the Court of Cassation decided, ruling out the case-by-case method, and considering that in any event such a clause must be excluded in relations with consumers.  

The Court of Cassation adopted the same solution in international employment contracts, where it traditionally considers that arbitration clauses contained in international employment contracts are enforceable against employee (Soc. 16 Feb. 1999, n ° 96-40.643). 

The Supreme Court, although traditionally very favourable to arbitration, gradually builds up a set of specific exceptions to ensure the protection of the „weak“ party.

Summary

The recent post-Brexit trade deal makes no provision for jurisdiction or the enforcement of judgments.

Therefore, the UK dropped out of the jurisdiction of the Brussels (Recast) Regulation (No. 1215/2012) on 31 December 2020.

The EU has not yet approved the UK’s accession to the Lugano Convention, but may do in the future.

Unless the transitional provisions from the Withdrawal Agreement apply, jurisdiction and enforcement of judgments will be governed by the Hague Convention 2005 if there is an applicable exclusive jurisdiction clause

If the Hague Convention of 2005 does not apply, then the UK and EU courts will apply their own national rules.

Judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

On the first day of 2021 the UK left the EU regimes with which European lawyers are familiar. We appeared to enter “uncharted territory”. Not so. In fact, there are charts for this territory – or maps, to use a more modern word. You just need to know which maps.

Whether you are a lawyer or a businessperson, in whatever country, you need answers to two questions. Which laws govern jurisdiction and enforcement of judgments between EU member states and the UK; and how should businesses act as a result?

What happened?

The EU and UK reached a post-Brexit trade deal, the Trade and Cooperation Agreement (“TCA”), on Christmas Eve 2020. The provisions of the TCA became UK law as the European Union (Future Relationship) Act on 31 December 2020. The TCA made provision for judicial cooperation in criminal matters, but did not mention judicial cooperation in civil matters, or jurisdiction and enforcement of judgments in civil and commercial proceedings.

So where do we look for law on those matters?

We look at the position immediately before Brexit. As every lawyer should know the Brussels (Recast) Regulation (No. 1215/2012) governed the enforcement and recognition of judgments between EU member states.

Also, the Lugano Convention 2007 governs jurisdiction and enforcement of judgments in commercial and civil matters between EU member states and Iceland, Liechtenstein, Norway and Switzerland. It operates in substantially the same way as Brussels (Recast) does between EU member states.

The UK was party to the Convention by virtue of its EU membership. Now that the UK is not a member of the EU, the contracting parties could agree that the UK could join the Lugano Convention as an independent contracting party, and there would be little change to the position on jurisdiction and enforcement. English jurisdiction clauses would continue to be respected and English court judgments would continue to be readily enforceable throughout EU member states and EFTA countries, and vice versa.

The problem is that the EU has not agreed to the UK joining the Lugano Convention

The UK submitted its application to accede to the Lugano Convention in its own right on 8 April 2020. But accession requires the consent of all contracting parties including the EU. Iceland, Norway and Switzerland have indicated their support for the UK’s accession, but the EU’s position is still not yet clear and the TCA is silent on this matter.

While the EU still may belatedly support the UK’s accession to Lugano, it does not currently apply. In any case, a three-month time-lag applies between agreement and entry into force, unless all the contracting parties agree to waive it.

Where are we now?

If the transitional provisions provided for by the Withdrawal Agreement as explained in my previous post do not apply, the Brussels (Recast) Regulation will not apply to jurisdiction and enforcement between the EU and UK.

If they do not, then you first need to decide whether the Hague Convention on Choice of Court Agreements 2005 is applicable. The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The Hague Convention first came into force for the UK when the EU acceded on 1 October 2015 and the UK re-acceded after Brexit in its own right with effect from 1 January 2021.

The Hague Convention 2005 applies if:

  • The dispute falls within the scope of the Convention as provided for by Article 2 – e.g. the Convention does not apply to employment and consumer contracts or claims for personal injury;
  • There is an exclusive jurisdiction clause within the meaning of Article 3; and
  • The exclusive jurisdiction clause is entered into after the Convention came into force for the country whose courts are seized, and proceedings are commenced after the Convention came into force for the country whose courts are seized within the meaning of Article 16.

There is some uncertainty as to whether EU member states will treat the Hague Convention as having been in force from 1 October 2015, or only from when the UK re-accedes on 1 January 2021. The UK’s view is that the Convention will apply to the UK from 1 October 2015; the EU’s view is that it will apply to the UK from 1 January 2021. What is not in dispute is that for exclusive English jurisdiction clauses agreed on or after 1 January 2021, the contracting states will respect exclusive English jurisdiction clauses and enforce the resulting judgments.

If the 2005 Hague Convention does not apply, then the UK and EU courts will apply their own national rules to questions of jurisdiction and enforcement. In the UK, the rules will essentially be the same as the ‘common-law’ rules currently on enforcement applied to non-EU parties, for example the United States.

The Norwegian exception

The UK and Norway have reached an agreement which extends and updates an old mutual enforcement treaty, the 1961 Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters between the UK and Norway, which will apply if the UK does not re-accede to the Lugano Convention. The practical effect of this agreement is that judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

How should your business act now?

The applicable legal framework for each dispute will depend on the facts of each case. You should review the dispute resolution clauses in your cross-border contracts to assess how they may be affected by Brexit and to seek specialist advice where necessary. You should also seek advice on dispute resolution provisions when entering into new cross-border contracts in 2021.

International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.

The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.

What are the best practices to manage international receivables?

The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.

The following main points were mentioned as worth considering at an early status of the negotiations and business development.

Verification of the identity of the company

Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.

Request of financial  information

What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance  with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.

Use the right contract

What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…

Write down your agreements

Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?

Follow your contract

If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.

Document all transactions

From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.

Has the debtor risen objections?

Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.

Be clear on the accrual of interests for late payments

In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.

Seek guarantees for your credits

This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.

Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.

Check out our webinar on debt collection

On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.

You can watch the recording of the webinar here.

Legalmondo’s helpdesk on international credit collection

If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.

Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.

Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in  Charlivari v. Sté Equivalanza, n°17/03703.

It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices;  the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).

Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.

Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.

William Newman

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    Ukraine: new hope for the creditors as the debtors’ concern grows

    17. Januar 2022

    • Ukraine
    • Bankwesen
    • Zahlungsunfähigkeit
    • Rechtsstreitigkeiten

    What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

    The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

    The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

    Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

    The judgment in question is doubly interesting.

    Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

    As the Constitutional Court very recently reiterated in its ruling dated last October, „judicial slowness has no place in the Magna Carta“. But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

    Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

    The plaintiffs sought the nullity of certain resolutions adopted at a shareholders‘ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

    The legislation in force at the time the meeting was held (prior to the 2014 reform) established that „resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties“ could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

    Following the 2014 reform, article 204 considers that „corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties“ can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

    But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to „law“ in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an „abuse of rights“, can such a situation be considered as „contrary to law“ for the purposes of the application of article 204 LSC?

    The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

    • formal or outwardly correct use of a right
    • causing damage to an interest not protected by a specific legal prerogative, and
    • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

    And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

    The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

    And on these premises, the Supreme Court reiterates and insists that the expression „contrary to the law“ in article 204 LSC must be understood as „contrary to the legal system“, which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

    And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

    It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

    And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an „in extremis“ recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

    Every employer should manage the risk of employee lawsuits.  Many companies believe that they treat their workers well and that their employees are happy.  As a result, they believe that they are not at risk of a lawsuit.  But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.

    Employers should proactively manage this risk instead of hoping lawsuits never come.  Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive.  It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations.  But employers can take steps before a dispute arises to reduce the impact of a lawsuit.  I discuss eight such steps below.

    First, employers should consider purchasing insurance that may cover employee claims.  In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance.  These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit.  They may also pay the employee the amount he or she demands or that a court awards.  Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.

    Second, employers should implement and enforce sexual harassment policies.  Policies like these discourage the type of behavior that can subject a company to liability.  But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.

    Third, employers should seriously examine disparities in pay and job roles.  If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination.  Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination.  Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.

    Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court.  Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them.  Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less.  But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.

    Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue.  Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job.  But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination.  Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.

    Sixth, employers should ensure they make consistent decisions.  If an employer allows one employee to work from home, other employees may want the same treatment.  And if an employer lays one employee off, she may wonder why another employee did not meet the same fate.  Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.

    Seventh, employers should frequently consult a lawyer they trust when employment issues arise.  Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.

    And finally, employers should consider settling disputes with employees, even if they are meritless.  No company wants an employee to take advantage of them.  But lawsuits are often more expensive and a hassle than the cost of a settlement.  Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.

    Summary

    Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.

    Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?

    • You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
    • Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
    • The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.

    Is the Judgment Debtor Subject to Personal Jurisdiction?

    Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
    Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.

    The Separate Entity Rule

    Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
    Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
    According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
    Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.

    Bringing Assets into the Jurisdiction

    Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
    This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
    This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.

    Takeways:

    • plaintiffs should ensure that they have personal jurisdiction over defendants not just under the laws of the jurisdiction where they bring suit, but also under the laws of the jurisdiction where they intend on enforcing judgments;
    • plaintiffs should ensure that the jurisdictions in which they enforce judgments have the power to actually collect defendants’ assets, since some may not do so under rules like the Separate Entity Rule.

    On 6 January 2022 Ukraine finally cancelled almost a two-year long moratorium for the creditor-trigged insolvencies. The moratorium was imposed in the late spring 2020 as a part of the nation’ response to first wave of COVID pandemic.

    In a nutshell, the moratorium prohibited creditors from requesting insolvency action against those debtors whose obligations matured after 12 March 2020. A separate set of measures also lifted an early warning duty obliging directors of the companies in distress to file for insolvency within one month from a moment when the distress appeared.

    The moratorium was heavily criticized by both domestic and international creditors, who legitimately blamed it for a non-selective approach.

    As further 2021 statistic shown, the moratorium never seemed to reach a goal proclaimed by it authors and made no increase for insolvency relief requests by the debtor companies.

    Instead, the country has been facing a steady increase in “zombie” companies having little to none liquidation value – and their owners clearly intending to get away with no creditor repayment.

    With the moratorium being lifted off the creditors do expect to show no mercy to their Ukrainian debtors. This particularly worries those debtors potentially involved in wrongful trade or fraudulent action. Even with the moratorium in place in 2021 Ukrainian courts confirmed more than UAH 150 mln in creditors loss to be paid by the insolvent companies’ management and owners themselves. This number is expected to triple in 2022 – and there already were Supreme Court’s 2021 judgements confirming liability of the real owners standing behind opaque shareholder company and nominal directors.

    As the creditors’ agitation grows, so do the debtor company owners’ concerns. As the owners\management liability process is extremely bespoke and often requires swift action, it is of crucial importance to get a throughout legal advise on either side – and much better to do that before the actual claim has been brought.

    In an important and very reasoned judgment delivered by the Court of Cassation of France on September 30, 2020, relating to the enforceability of arbitration clauses in international consumer contracts, the Supreme Court judged that these clauses must be considered unfair and cannot be opposed to consumers.  

    The Supreme Court traditionally insisted on the priority given to the arbitrator to decide on his own jurisdiction, laid down in Article 1448 of the Code of Civil Procedure (principle known as „competence-competence“, Jaguar, Civ. 1re, May 21, 1997, nos. 95-11.429 and 95-11.427). 

    The ECJ expressed its hostility towards such clauses when they are opposed to consumers. In Mostaza Claro (C-168/05), it referred to the internal laws of member states, while considering that the procedural modalities offered by states should not “make it impossible in practice or excessively difficult to exercise the rights conferred by public order to consumers (“Directive 93/13, concerning unfair terms in consumer contracts, must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment”).  

    It therefore referred to the national judge the right to implement its legislation on unfair terms, and therefore to decide, on a case-by-case basis, whether the arbitration clause should be considered unfair. This is what the Court of Cassation decided, ruling out the case-by-case method, and considering that in any event such a clause must be excluded in relations with consumers.  

    The Court of Cassation adopted the same solution in international employment contracts, where it traditionally considers that arbitration clauses contained in international employment contracts are enforceable against employee (Soc. 16 Feb. 1999, n ° 96-40.643). 

    The Supreme Court, although traditionally very favourable to arbitration, gradually builds up a set of specific exceptions to ensure the protection of the „weak“ party.

    Summary

    The recent post-Brexit trade deal makes no provision for jurisdiction or the enforcement of judgments.

    Therefore, the UK dropped out of the jurisdiction of the Brussels (Recast) Regulation (No. 1215/2012) on 31 December 2020.

    The EU has not yet approved the UK’s accession to the Lugano Convention, but may do in the future.

    Unless the transitional provisions from the Withdrawal Agreement apply, jurisdiction and enforcement of judgments will be governed by the Hague Convention 2005 if there is an applicable exclusive jurisdiction clause

    If the Hague Convention of 2005 does not apply, then the UK and EU courts will apply their own national rules.

    Judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

    On the first day of 2021 the UK left the EU regimes with which European lawyers are familiar. We appeared to enter “uncharted territory”. Not so. In fact, there are charts for this territory – or maps, to use a more modern word. You just need to know which maps.

    Whether you are a lawyer or a businessperson, in whatever country, you need answers to two questions. Which laws govern jurisdiction and enforcement of judgments between EU member states and the UK; and how should businesses act as a result?

    What happened?

    The EU and UK reached a post-Brexit trade deal, the Trade and Cooperation Agreement (“TCA”), on Christmas Eve 2020. The provisions of the TCA became UK law as the European Union (Future Relationship) Act on 31 December 2020. The TCA made provision for judicial cooperation in criminal matters, but did not mention judicial cooperation in civil matters, or jurisdiction and enforcement of judgments in civil and commercial proceedings.

    So where do we look for law on those matters?

    We look at the position immediately before Brexit. As every lawyer should know the Brussels (Recast) Regulation (No. 1215/2012) governed the enforcement and recognition of judgments between EU member states.

    Also, the Lugano Convention 2007 governs jurisdiction and enforcement of judgments in commercial and civil matters between EU member states and Iceland, Liechtenstein, Norway and Switzerland. It operates in substantially the same way as Brussels (Recast) does between EU member states.

    The UK was party to the Convention by virtue of its EU membership. Now that the UK is not a member of the EU, the contracting parties could agree that the UK could join the Lugano Convention as an independent contracting party, and there would be little change to the position on jurisdiction and enforcement. English jurisdiction clauses would continue to be respected and English court judgments would continue to be readily enforceable throughout EU member states and EFTA countries, and vice versa.

    The problem is that the EU has not agreed to the UK joining the Lugano Convention

    The UK submitted its application to accede to the Lugano Convention in its own right on 8 April 2020. But accession requires the consent of all contracting parties including the EU. Iceland, Norway and Switzerland have indicated their support for the UK’s accession, but the EU’s position is still not yet clear and the TCA is silent on this matter.

    While the EU still may belatedly support the UK’s accession to Lugano, it does not currently apply. In any case, a three-month time-lag applies between agreement and entry into force, unless all the contracting parties agree to waive it.

    Where are we now?

    If the transitional provisions provided for by the Withdrawal Agreement as explained in my previous post do not apply, the Brussels (Recast) Regulation will not apply to jurisdiction and enforcement between the EU and UK.

    If they do not, then you first need to decide whether the Hague Convention on Choice of Court Agreements 2005 is applicable. The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The Hague Convention first came into force for the UK when the EU acceded on 1 October 2015 and the UK re-acceded after Brexit in its own right with effect from 1 January 2021.

    The Hague Convention 2005 applies if:

    • The dispute falls within the scope of the Convention as provided for by Article 2 – e.g. the Convention does not apply to employment and consumer contracts or claims for personal injury;
    • There is an exclusive jurisdiction clause within the meaning of Article 3; and
    • The exclusive jurisdiction clause is entered into after the Convention came into force for the country whose courts are seized, and proceedings are commenced after the Convention came into force for the country whose courts are seized within the meaning of Article 16.

    There is some uncertainty as to whether EU member states will treat the Hague Convention as having been in force from 1 October 2015, or only from when the UK re-accedes on 1 January 2021. The UK’s view is that the Convention will apply to the UK from 1 October 2015; the EU’s view is that it will apply to the UK from 1 January 2021. What is not in dispute is that for exclusive English jurisdiction clauses agreed on or after 1 January 2021, the contracting states will respect exclusive English jurisdiction clauses and enforce the resulting judgments.

    If the 2005 Hague Convention does not apply, then the UK and EU courts will apply their own national rules to questions of jurisdiction and enforcement. In the UK, the rules will essentially be the same as the ‘common-law’ rules currently on enforcement applied to non-EU parties, for example the United States.

    The Norwegian exception

    The UK and Norway have reached an agreement which extends and updates an old mutual enforcement treaty, the 1961 Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters between the UK and Norway, which will apply if the UK does not re-accede to the Lugano Convention. The practical effect of this agreement is that judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

    How should your business act now?

    The applicable legal framework for each dispute will depend on the facts of each case. You should review the dispute resolution clauses in your cross-border contracts to assess how they may be affected by Brexit and to seek specialist advice where necessary. You should also seek advice on dispute resolution provisions when entering into new cross-border contracts in 2021.

    International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.

    The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.

    What are the best practices to manage international receivables?

    The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.

    The following main points were mentioned as worth considering at an early status of the negotiations and business development.

    Verification of the identity of the company

    Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.

    Request of financial  information

    What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance  with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.

    Use the right contract

    What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…

    Write down your agreements

    Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?

    Follow your contract

    If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.

    Document all transactions

    From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.

    Has the debtor risen objections?

    Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.

    Be clear on the accrual of interests for late payments

    In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.

    Seek guarantees for your credits

    This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.

    Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.

    Check out our webinar on debt collection

    On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.

    You can watch the recording of the webinar here.

    Legalmondo’s helpdesk on international credit collection

    If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.

    Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.

    Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in  Charlivari v. Sté Equivalanza, n°17/03703.

    It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices;  the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).

    Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.

    Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.

    Anton Molchanov

    Rechtsgebiete

    • Agriculture
    • Unternehmen
    • Kreditinkasso
    • Finanzierungen und Wertpapiere
    • Zahlungsunfähigkeit
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      France | Arbitration clauses in international contracts with consumers are not enforceable

      16. Februar 2021

      • Frankreich
      • Schiedsgerichtsbarkeit
      • Verträge
      • Rechtsstreitigkeiten

      What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

      The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

      The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

      Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

      The judgment in question is doubly interesting.

      Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

      As the Constitutional Court very recently reiterated in its ruling dated last October, „judicial slowness has no place in the Magna Carta“. But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

      Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

      The plaintiffs sought the nullity of certain resolutions adopted at a shareholders‘ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

      The legislation in force at the time the meeting was held (prior to the 2014 reform) established that „resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties“ could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

      Following the 2014 reform, article 204 considers that „corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties“ can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

      But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to „law“ in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an „abuse of rights“, can such a situation be considered as „contrary to law“ for the purposes of the application of article 204 LSC?

      The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

      • formal or outwardly correct use of a right
      • causing damage to an interest not protected by a specific legal prerogative, and
      • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

      And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

      The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

      And on these premises, the Supreme Court reiterates and insists that the expression „contrary to the law“ in article 204 LSC must be understood as „contrary to the legal system“, which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

      And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

      It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

      And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an „in extremis“ recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

      Every employer should manage the risk of employee lawsuits.  Many companies believe that they treat their workers well and that their employees are happy.  As a result, they believe that they are not at risk of a lawsuit.  But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.

      Employers should proactively manage this risk instead of hoping lawsuits never come.  Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive.  It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations.  But employers can take steps before a dispute arises to reduce the impact of a lawsuit.  I discuss eight such steps below.

      First, employers should consider purchasing insurance that may cover employee claims.  In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance.  These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit.  They may also pay the employee the amount he or she demands or that a court awards.  Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.

      Second, employers should implement and enforce sexual harassment policies.  Policies like these discourage the type of behavior that can subject a company to liability.  But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.

      Third, employers should seriously examine disparities in pay and job roles.  If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination.  Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination.  Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.

      Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court.  Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them.  Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less.  But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.

      Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue.  Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job.  But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination.  Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.

      Sixth, employers should ensure they make consistent decisions.  If an employer allows one employee to work from home, other employees may want the same treatment.  And if an employer lays one employee off, she may wonder why another employee did not meet the same fate.  Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.

      Seventh, employers should frequently consult a lawyer they trust when employment issues arise.  Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.

      And finally, employers should consider settling disputes with employees, even if they are meritless.  No company wants an employee to take advantage of them.  But lawsuits are often more expensive and a hassle than the cost of a settlement.  Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.

      Summary

      Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.

      Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?

      • You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
      • Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
      • The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.

      Is the Judgment Debtor Subject to Personal Jurisdiction?

      Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
      Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.

      The Separate Entity Rule

      Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
      Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
      According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
      Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.

      Bringing Assets into the Jurisdiction

      Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
      This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
      This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.

      Takeways:

      • plaintiffs should ensure that they have personal jurisdiction over defendants not just under the laws of the jurisdiction where they bring suit, but also under the laws of the jurisdiction where they intend on enforcing judgments;
      • plaintiffs should ensure that the jurisdictions in which they enforce judgments have the power to actually collect defendants’ assets, since some may not do so under rules like the Separate Entity Rule.

      On 6 January 2022 Ukraine finally cancelled almost a two-year long moratorium for the creditor-trigged insolvencies. The moratorium was imposed in the late spring 2020 as a part of the nation’ response to first wave of COVID pandemic.

      In a nutshell, the moratorium prohibited creditors from requesting insolvency action against those debtors whose obligations matured after 12 March 2020. A separate set of measures also lifted an early warning duty obliging directors of the companies in distress to file for insolvency within one month from a moment when the distress appeared.

      The moratorium was heavily criticized by both domestic and international creditors, who legitimately blamed it for a non-selective approach.

      As further 2021 statistic shown, the moratorium never seemed to reach a goal proclaimed by it authors and made no increase for insolvency relief requests by the debtor companies.

      Instead, the country has been facing a steady increase in “zombie” companies having little to none liquidation value – and their owners clearly intending to get away with no creditor repayment.

      With the moratorium being lifted off the creditors do expect to show no mercy to their Ukrainian debtors. This particularly worries those debtors potentially involved in wrongful trade or fraudulent action. Even with the moratorium in place in 2021 Ukrainian courts confirmed more than UAH 150 mln in creditors loss to be paid by the insolvent companies’ management and owners themselves. This number is expected to triple in 2022 – and there already were Supreme Court’s 2021 judgements confirming liability of the real owners standing behind opaque shareholder company and nominal directors.

      As the creditors’ agitation grows, so do the debtor company owners’ concerns. As the owners\management liability process is extremely bespoke and often requires swift action, it is of crucial importance to get a throughout legal advise on either side – and much better to do that before the actual claim has been brought.

      In an important and very reasoned judgment delivered by the Court of Cassation of France on September 30, 2020, relating to the enforceability of arbitration clauses in international consumer contracts, the Supreme Court judged that these clauses must be considered unfair and cannot be opposed to consumers.  

      The Supreme Court traditionally insisted on the priority given to the arbitrator to decide on his own jurisdiction, laid down in Article 1448 of the Code of Civil Procedure (principle known as „competence-competence“, Jaguar, Civ. 1re, May 21, 1997, nos. 95-11.429 and 95-11.427). 

      The ECJ expressed its hostility towards such clauses when they are opposed to consumers. In Mostaza Claro (C-168/05), it referred to the internal laws of member states, while considering that the procedural modalities offered by states should not “make it impossible in practice or excessively difficult to exercise the rights conferred by public order to consumers (“Directive 93/13, concerning unfair terms in consumer contracts, must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment”).  

      It therefore referred to the national judge the right to implement its legislation on unfair terms, and therefore to decide, on a case-by-case basis, whether the arbitration clause should be considered unfair. This is what the Court of Cassation decided, ruling out the case-by-case method, and considering that in any event such a clause must be excluded in relations with consumers.  

      The Court of Cassation adopted the same solution in international employment contracts, where it traditionally considers that arbitration clauses contained in international employment contracts are enforceable against employee (Soc. 16 Feb. 1999, n ° 96-40.643). 

      The Supreme Court, although traditionally very favourable to arbitration, gradually builds up a set of specific exceptions to ensure the protection of the „weak“ party.

      Summary

      The recent post-Brexit trade deal makes no provision for jurisdiction or the enforcement of judgments.

      Therefore, the UK dropped out of the jurisdiction of the Brussels (Recast) Regulation (No. 1215/2012) on 31 December 2020.

      The EU has not yet approved the UK’s accession to the Lugano Convention, but may do in the future.

      Unless the transitional provisions from the Withdrawal Agreement apply, jurisdiction and enforcement of judgments will be governed by the Hague Convention 2005 if there is an applicable exclusive jurisdiction clause

      If the Hague Convention of 2005 does not apply, then the UK and EU courts will apply their own national rules.

      Judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

      On the first day of 2021 the UK left the EU regimes with which European lawyers are familiar. We appeared to enter “uncharted territory”. Not so. In fact, there are charts for this territory – or maps, to use a more modern word. You just need to know which maps.

      Whether you are a lawyer or a businessperson, in whatever country, you need answers to two questions. Which laws govern jurisdiction and enforcement of judgments between EU member states and the UK; and how should businesses act as a result?

      What happened?

      The EU and UK reached a post-Brexit trade deal, the Trade and Cooperation Agreement (“TCA”), on Christmas Eve 2020. The provisions of the TCA became UK law as the European Union (Future Relationship) Act on 31 December 2020. The TCA made provision for judicial cooperation in criminal matters, but did not mention judicial cooperation in civil matters, or jurisdiction and enforcement of judgments in civil and commercial proceedings.

      So where do we look for law on those matters?

      We look at the position immediately before Brexit. As every lawyer should know the Brussels (Recast) Regulation (No. 1215/2012) governed the enforcement and recognition of judgments between EU member states.

      Also, the Lugano Convention 2007 governs jurisdiction and enforcement of judgments in commercial and civil matters between EU member states and Iceland, Liechtenstein, Norway and Switzerland. It operates in substantially the same way as Brussels (Recast) does between EU member states.

      The UK was party to the Convention by virtue of its EU membership. Now that the UK is not a member of the EU, the contracting parties could agree that the UK could join the Lugano Convention as an independent contracting party, and there would be little change to the position on jurisdiction and enforcement. English jurisdiction clauses would continue to be respected and English court judgments would continue to be readily enforceable throughout EU member states and EFTA countries, and vice versa.

      The problem is that the EU has not agreed to the UK joining the Lugano Convention

      The UK submitted its application to accede to the Lugano Convention in its own right on 8 April 2020. But accession requires the consent of all contracting parties including the EU. Iceland, Norway and Switzerland have indicated their support for the UK’s accession, but the EU’s position is still not yet clear and the TCA is silent on this matter.

      While the EU still may belatedly support the UK’s accession to Lugano, it does not currently apply. In any case, a three-month time-lag applies between agreement and entry into force, unless all the contracting parties agree to waive it.

      Where are we now?

      If the transitional provisions provided for by the Withdrawal Agreement as explained in my previous post do not apply, the Brussels (Recast) Regulation will not apply to jurisdiction and enforcement between the EU and UK.

      If they do not, then you first need to decide whether the Hague Convention on Choice of Court Agreements 2005 is applicable. The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The Hague Convention first came into force for the UK when the EU acceded on 1 October 2015 and the UK re-acceded after Brexit in its own right with effect from 1 January 2021.

      The Hague Convention 2005 applies if:

      • The dispute falls within the scope of the Convention as provided for by Article 2 – e.g. the Convention does not apply to employment and consumer contracts or claims for personal injury;
      • There is an exclusive jurisdiction clause within the meaning of Article 3; and
      • The exclusive jurisdiction clause is entered into after the Convention came into force for the country whose courts are seized, and proceedings are commenced after the Convention came into force for the country whose courts are seized within the meaning of Article 16.

      There is some uncertainty as to whether EU member states will treat the Hague Convention as having been in force from 1 October 2015, or only from when the UK re-accedes on 1 January 2021. The UK’s view is that the Convention will apply to the UK from 1 October 2015; the EU’s view is that it will apply to the UK from 1 January 2021. What is not in dispute is that for exclusive English jurisdiction clauses agreed on or after 1 January 2021, the contracting states will respect exclusive English jurisdiction clauses and enforce the resulting judgments.

      If the 2005 Hague Convention does not apply, then the UK and EU courts will apply their own national rules to questions of jurisdiction and enforcement. In the UK, the rules will essentially be the same as the ‘common-law’ rules currently on enforcement applied to non-EU parties, for example the United States.

      The Norwegian exception

      The UK and Norway have reached an agreement which extends and updates an old mutual enforcement treaty, the 1961 Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters between the UK and Norway, which will apply if the UK does not re-accede to the Lugano Convention. The practical effect of this agreement is that judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

      How should your business act now?

      The applicable legal framework for each dispute will depend on the facts of each case. You should review the dispute resolution clauses in your cross-border contracts to assess how they may be affected by Brexit and to seek specialist advice where necessary. You should also seek advice on dispute resolution provisions when entering into new cross-border contracts in 2021.

      International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.

      The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.

      What are the best practices to manage international receivables?

      The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.

      The following main points were mentioned as worth considering at an early status of the negotiations and business development.

      Verification of the identity of the company

      Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.

      Request of financial  information

      What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance  with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.

      Use the right contract

      What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…

      Write down your agreements

      Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?

      Follow your contract

      If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.

      Document all transactions

      From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.

      Has the debtor risen objections?

      Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.

      Be clear on the accrual of interests for late payments

      In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.

      Seek guarantees for your credits

      This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.

      Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.

      Check out our webinar on debt collection

      On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.

      You can watch the recording of the webinar here.

      Legalmondo’s helpdesk on international credit collection

      If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.

      Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.

      Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in  Charlivari v. Sté Equivalanza, n°17/03703.

      It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices;  the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).

      Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.

      Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.

      Alexandre Malan

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        Brexit | Jurisdiction and enforcement – What you need to know

        27. Januar 2021

        • England
        • Verträge
        • Rechtsstreitigkeiten

        What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

        The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

        The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

        Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

        The judgment in question is doubly interesting.

        Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

        As the Constitutional Court very recently reiterated in its ruling dated last October, „judicial slowness has no place in the Magna Carta“. But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

        Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

        The plaintiffs sought the nullity of certain resolutions adopted at a shareholders‘ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

        The legislation in force at the time the meeting was held (prior to the 2014 reform) established that „resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties“ could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

        Following the 2014 reform, article 204 considers that „corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties“ can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

        But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to „law“ in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an „abuse of rights“, can such a situation be considered as „contrary to law“ for the purposes of the application of article 204 LSC?

        The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

        • formal or outwardly correct use of a right
        • causing damage to an interest not protected by a specific legal prerogative, and
        • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

        And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

        The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

        And on these premises, the Supreme Court reiterates and insists that the expression „contrary to the law“ in article 204 LSC must be understood as „contrary to the legal system“, which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

        And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

        It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

        And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an „in extremis“ recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

        Every employer should manage the risk of employee lawsuits.  Many companies believe that they treat their workers well and that their employees are happy.  As a result, they believe that they are not at risk of a lawsuit.  But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.

        Employers should proactively manage this risk instead of hoping lawsuits never come.  Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive.  It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations.  But employers can take steps before a dispute arises to reduce the impact of a lawsuit.  I discuss eight such steps below.

        First, employers should consider purchasing insurance that may cover employee claims.  In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance.  These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit.  They may also pay the employee the amount he or she demands or that a court awards.  Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.

        Second, employers should implement and enforce sexual harassment policies.  Policies like these discourage the type of behavior that can subject a company to liability.  But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.

        Third, employers should seriously examine disparities in pay and job roles.  If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination.  Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination.  Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.

        Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court.  Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them.  Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less.  But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.

        Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue.  Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job.  But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination.  Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.

        Sixth, employers should ensure they make consistent decisions.  If an employer allows one employee to work from home, other employees may want the same treatment.  And if an employer lays one employee off, she may wonder why another employee did not meet the same fate.  Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.

        Seventh, employers should frequently consult a lawyer they trust when employment issues arise.  Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.

        And finally, employers should consider settling disputes with employees, even if they are meritless.  No company wants an employee to take advantage of them.  But lawsuits are often more expensive and a hassle than the cost of a settlement.  Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.

        Summary

        Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.

        Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?

        • You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
        • Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
        • The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.

        Is the Judgment Debtor Subject to Personal Jurisdiction?

        Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
        Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.

        The Separate Entity Rule

        Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
        Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
        According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
        Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.

        Bringing Assets into the Jurisdiction

        Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
        This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
        This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.

        Takeways:

        • plaintiffs should ensure that they have personal jurisdiction over defendants not just under the laws of the jurisdiction where they bring suit, but also under the laws of the jurisdiction where they intend on enforcing judgments;
        • plaintiffs should ensure that the jurisdictions in which they enforce judgments have the power to actually collect defendants’ assets, since some may not do so under rules like the Separate Entity Rule.

        On 6 January 2022 Ukraine finally cancelled almost a two-year long moratorium for the creditor-trigged insolvencies. The moratorium was imposed in the late spring 2020 as a part of the nation’ response to first wave of COVID pandemic.

        In a nutshell, the moratorium prohibited creditors from requesting insolvency action against those debtors whose obligations matured after 12 March 2020. A separate set of measures also lifted an early warning duty obliging directors of the companies in distress to file for insolvency within one month from a moment when the distress appeared.

        The moratorium was heavily criticized by both domestic and international creditors, who legitimately blamed it for a non-selective approach.

        As further 2021 statistic shown, the moratorium never seemed to reach a goal proclaimed by it authors and made no increase for insolvency relief requests by the debtor companies.

        Instead, the country has been facing a steady increase in “zombie” companies having little to none liquidation value – and their owners clearly intending to get away with no creditor repayment.

        With the moratorium being lifted off the creditors do expect to show no mercy to their Ukrainian debtors. This particularly worries those debtors potentially involved in wrongful trade or fraudulent action. Even with the moratorium in place in 2021 Ukrainian courts confirmed more than UAH 150 mln in creditors loss to be paid by the insolvent companies’ management and owners themselves. This number is expected to triple in 2022 – and there already were Supreme Court’s 2021 judgements confirming liability of the real owners standing behind opaque shareholder company and nominal directors.

        As the creditors’ agitation grows, so do the debtor company owners’ concerns. As the owners\management liability process is extremely bespoke and often requires swift action, it is of crucial importance to get a throughout legal advise on either side – and much better to do that before the actual claim has been brought.

        In an important and very reasoned judgment delivered by the Court of Cassation of France on September 30, 2020, relating to the enforceability of arbitration clauses in international consumer contracts, the Supreme Court judged that these clauses must be considered unfair and cannot be opposed to consumers.  

        The Supreme Court traditionally insisted on the priority given to the arbitrator to decide on his own jurisdiction, laid down in Article 1448 of the Code of Civil Procedure (principle known as „competence-competence“, Jaguar, Civ. 1re, May 21, 1997, nos. 95-11.429 and 95-11.427). 

        The ECJ expressed its hostility towards such clauses when they are opposed to consumers. In Mostaza Claro (C-168/05), it referred to the internal laws of member states, while considering that the procedural modalities offered by states should not “make it impossible in practice or excessively difficult to exercise the rights conferred by public order to consumers (“Directive 93/13, concerning unfair terms in consumer contracts, must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment”).  

        It therefore referred to the national judge the right to implement its legislation on unfair terms, and therefore to decide, on a case-by-case basis, whether the arbitration clause should be considered unfair. This is what the Court of Cassation decided, ruling out the case-by-case method, and considering that in any event such a clause must be excluded in relations with consumers.  

        The Court of Cassation adopted the same solution in international employment contracts, where it traditionally considers that arbitration clauses contained in international employment contracts are enforceable against employee (Soc. 16 Feb. 1999, n ° 96-40.643). 

        The Supreme Court, although traditionally very favourable to arbitration, gradually builds up a set of specific exceptions to ensure the protection of the „weak“ party.

        Summary

        The recent post-Brexit trade deal makes no provision for jurisdiction or the enforcement of judgments.

        Therefore, the UK dropped out of the jurisdiction of the Brussels (Recast) Regulation (No. 1215/2012) on 31 December 2020.

        The EU has not yet approved the UK’s accession to the Lugano Convention, but may do in the future.

        Unless the transitional provisions from the Withdrawal Agreement apply, jurisdiction and enforcement of judgments will be governed by the Hague Convention 2005 if there is an applicable exclusive jurisdiction clause

        If the Hague Convention of 2005 does not apply, then the UK and EU courts will apply their own national rules.

        Judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

        On the first day of 2021 the UK left the EU regimes with which European lawyers are familiar. We appeared to enter “uncharted territory”. Not so. In fact, there are charts for this territory – or maps, to use a more modern word. You just need to know which maps.

        Whether you are a lawyer or a businessperson, in whatever country, you need answers to two questions. Which laws govern jurisdiction and enforcement of judgments between EU member states and the UK; and how should businesses act as a result?

        What happened?

        The EU and UK reached a post-Brexit trade deal, the Trade and Cooperation Agreement (“TCA”), on Christmas Eve 2020. The provisions of the TCA became UK law as the European Union (Future Relationship) Act on 31 December 2020. The TCA made provision for judicial cooperation in criminal matters, but did not mention judicial cooperation in civil matters, or jurisdiction and enforcement of judgments in civil and commercial proceedings.

        So where do we look for law on those matters?

        We look at the position immediately before Brexit. As every lawyer should know the Brussels (Recast) Regulation (No. 1215/2012) governed the enforcement and recognition of judgments between EU member states.

        Also, the Lugano Convention 2007 governs jurisdiction and enforcement of judgments in commercial and civil matters between EU member states and Iceland, Liechtenstein, Norway and Switzerland. It operates in substantially the same way as Brussels (Recast) does between EU member states.

        The UK was party to the Convention by virtue of its EU membership. Now that the UK is not a member of the EU, the contracting parties could agree that the UK could join the Lugano Convention as an independent contracting party, and there would be little change to the position on jurisdiction and enforcement. English jurisdiction clauses would continue to be respected and English court judgments would continue to be readily enforceable throughout EU member states and EFTA countries, and vice versa.

        The problem is that the EU has not agreed to the UK joining the Lugano Convention

        The UK submitted its application to accede to the Lugano Convention in its own right on 8 April 2020. But accession requires the consent of all contracting parties including the EU. Iceland, Norway and Switzerland have indicated their support for the UK’s accession, but the EU’s position is still not yet clear and the TCA is silent on this matter.

        While the EU still may belatedly support the UK’s accession to Lugano, it does not currently apply. In any case, a three-month time-lag applies between agreement and entry into force, unless all the contracting parties agree to waive it.

        Where are we now?

        If the transitional provisions provided for by the Withdrawal Agreement as explained in my previous post do not apply, the Brussels (Recast) Regulation will not apply to jurisdiction and enforcement between the EU and UK.

        If they do not, then you first need to decide whether the Hague Convention on Choice of Court Agreements 2005 is applicable. The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The Hague Convention first came into force for the UK when the EU acceded on 1 October 2015 and the UK re-acceded after Brexit in its own right with effect from 1 January 2021.

        The Hague Convention 2005 applies if:

        • The dispute falls within the scope of the Convention as provided for by Article 2 – e.g. the Convention does not apply to employment and consumer contracts or claims for personal injury;
        • There is an exclusive jurisdiction clause within the meaning of Article 3; and
        • The exclusive jurisdiction clause is entered into after the Convention came into force for the country whose courts are seized, and proceedings are commenced after the Convention came into force for the country whose courts are seized within the meaning of Article 16.

        There is some uncertainty as to whether EU member states will treat the Hague Convention as having been in force from 1 October 2015, or only from when the UK re-accedes on 1 January 2021. The UK’s view is that the Convention will apply to the UK from 1 October 2015; the EU’s view is that it will apply to the UK from 1 January 2021. What is not in dispute is that for exclusive English jurisdiction clauses agreed on or after 1 January 2021, the contracting states will respect exclusive English jurisdiction clauses and enforce the resulting judgments.

        If the 2005 Hague Convention does not apply, then the UK and EU courts will apply their own national rules to questions of jurisdiction and enforcement. In the UK, the rules will essentially be the same as the ‘common-law’ rules currently on enforcement applied to non-EU parties, for example the United States.

        The Norwegian exception

        The UK and Norway have reached an agreement which extends and updates an old mutual enforcement treaty, the 1961 Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters between the UK and Norway, which will apply if the UK does not re-accede to the Lugano Convention. The practical effect of this agreement is that judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

        How should your business act now?

        The applicable legal framework for each dispute will depend on the facts of each case. You should review the dispute resolution clauses in your cross-border contracts to assess how they may be affected by Brexit and to seek specialist advice where necessary. You should also seek advice on dispute resolution provisions when entering into new cross-border contracts in 2021.

        International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.

        The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.

        What are the best practices to manage international receivables?

        The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.

        The following main points were mentioned as worth considering at an early status of the negotiations and business development.

        Verification of the identity of the company

        Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.

        Request of financial  information

        What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance  with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.

        Use the right contract

        What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…

        Write down your agreements

        Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?

        Follow your contract

        If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.

        Document all transactions

        From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.

        Has the debtor risen objections?

        Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.

        Be clear on the accrual of interests for late payments

        In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.

        Seek guarantees for your credits

        This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.

        Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.

        Check out our webinar on debt collection

        On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.

        You can watch the recording of the webinar here.

        Legalmondo’s helpdesk on international credit collection

        If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.

        Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.

        Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in  Charlivari v. Sté Equivalanza, n°17/03703.

        It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices;  the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).

        Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.

        Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.

        Richard Samuel

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          International debt recovery: risk prevention and best practices

          7. Dezember 2020

          • Spanien
          • Vertrieb
          • Rechtsstreitigkeiten

          What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

          The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

          The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

          Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

          The judgment in question is doubly interesting.

          Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

          As the Constitutional Court very recently reiterated in its ruling dated last October, „judicial slowness has no place in the Magna Carta“. But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

          Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

          The plaintiffs sought the nullity of certain resolutions adopted at a shareholders‘ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

          The legislation in force at the time the meeting was held (prior to the 2014 reform) established that „resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties“ could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

          Following the 2014 reform, article 204 considers that „corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties“ can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

          But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to „law“ in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an „abuse of rights“, can such a situation be considered as „contrary to law“ for the purposes of the application of article 204 LSC?

          The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

          • formal or outwardly correct use of a right
          • causing damage to an interest not protected by a specific legal prerogative, and
          • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

          And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

          The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

          And on these premises, the Supreme Court reiterates and insists that the expression „contrary to the law“ in article 204 LSC must be understood as „contrary to the legal system“, which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

          And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

          It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

          And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an „in extremis“ recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

          Every employer should manage the risk of employee lawsuits.  Many companies believe that they treat their workers well and that their employees are happy.  As a result, they believe that they are not at risk of a lawsuit.  But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.

          Employers should proactively manage this risk instead of hoping lawsuits never come.  Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive.  It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations.  But employers can take steps before a dispute arises to reduce the impact of a lawsuit.  I discuss eight such steps below.

          First, employers should consider purchasing insurance that may cover employee claims.  In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance.  These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit.  They may also pay the employee the amount he or she demands or that a court awards.  Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.

          Second, employers should implement and enforce sexual harassment policies.  Policies like these discourage the type of behavior that can subject a company to liability.  But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.

          Third, employers should seriously examine disparities in pay and job roles.  If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination.  Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination.  Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.

          Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court.  Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them.  Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less.  But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.

          Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue.  Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job.  But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination.  Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.

          Sixth, employers should ensure they make consistent decisions.  If an employer allows one employee to work from home, other employees may want the same treatment.  And if an employer lays one employee off, she may wonder why another employee did not meet the same fate.  Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.

          Seventh, employers should frequently consult a lawyer they trust when employment issues arise.  Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.

          And finally, employers should consider settling disputes with employees, even if they are meritless.  No company wants an employee to take advantage of them.  But lawsuits are often more expensive and a hassle than the cost of a settlement.  Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.

          Summary

          Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.

          Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?

          • You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
          • Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
          • The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.

          Is the Judgment Debtor Subject to Personal Jurisdiction?

          Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
          Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.

          The Separate Entity Rule

          Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
          Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
          According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
          Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.

          Bringing Assets into the Jurisdiction

          Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
          This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
          This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.

          Takeways:

          • plaintiffs should ensure that they have personal jurisdiction over defendants not just under the laws of the jurisdiction where they bring suit, but also under the laws of the jurisdiction where they intend on enforcing judgments;
          • plaintiffs should ensure that the jurisdictions in which they enforce judgments have the power to actually collect defendants’ assets, since some may not do so under rules like the Separate Entity Rule.

          On 6 January 2022 Ukraine finally cancelled almost a two-year long moratorium for the creditor-trigged insolvencies. The moratorium was imposed in the late spring 2020 as a part of the nation’ response to first wave of COVID pandemic.

          In a nutshell, the moratorium prohibited creditors from requesting insolvency action against those debtors whose obligations matured after 12 March 2020. A separate set of measures also lifted an early warning duty obliging directors of the companies in distress to file for insolvency within one month from a moment when the distress appeared.

          The moratorium was heavily criticized by both domestic and international creditors, who legitimately blamed it for a non-selective approach.

          As further 2021 statistic shown, the moratorium never seemed to reach a goal proclaimed by it authors and made no increase for insolvency relief requests by the debtor companies.

          Instead, the country has been facing a steady increase in “zombie” companies having little to none liquidation value – and their owners clearly intending to get away with no creditor repayment.

          With the moratorium being lifted off the creditors do expect to show no mercy to their Ukrainian debtors. This particularly worries those debtors potentially involved in wrongful trade or fraudulent action. Even with the moratorium in place in 2021 Ukrainian courts confirmed more than UAH 150 mln in creditors loss to be paid by the insolvent companies’ management and owners themselves. This number is expected to triple in 2022 – and there already were Supreme Court’s 2021 judgements confirming liability of the real owners standing behind opaque shareholder company and nominal directors.

          As the creditors’ agitation grows, so do the debtor company owners’ concerns. As the owners\management liability process is extremely bespoke and often requires swift action, it is of crucial importance to get a throughout legal advise on either side – and much better to do that before the actual claim has been brought.

          In an important and very reasoned judgment delivered by the Court of Cassation of France on September 30, 2020, relating to the enforceability of arbitration clauses in international consumer contracts, the Supreme Court judged that these clauses must be considered unfair and cannot be opposed to consumers.  

          The Supreme Court traditionally insisted on the priority given to the arbitrator to decide on his own jurisdiction, laid down in Article 1448 of the Code of Civil Procedure (principle known as „competence-competence“, Jaguar, Civ. 1re, May 21, 1997, nos. 95-11.429 and 95-11.427). 

          The ECJ expressed its hostility towards such clauses when they are opposed to consumers. In Mostaza Claro (C-168/05), it referred to the internal laws of member states, while considering that the procedural modalities offered by states should not “make it impossible in practice or excessively difficult to exercise the rights conferred by public order to consumers (“Directive 93/13, concerning unfair terms in consumer contracts, must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment”).  

          It therefore referred to the national judge the right to implement its legislation on unfair terms, and therefore to decide, on a case-by-case basis, whether the arbitration clause should be considered unfair. This is what the Court of Cassation decided, ruling out the case-by-case method, and considering that in any event such a clause must be excluded in relations with consumers.  

          The Court of Cassation adopted the same solution in international employment contracts, where it traditionally considers that arbitration clauses contained in international employment contracts are enforceable against employee (Soc. 16 Feb. 1999, n ° 96-40.643). 

          The Supreme Court, although traditionally very favourable to arbitration, gradually builds up a set of specific exceptions to ensure the protection of the „weak“ party.

          Summary

          The recent post-Brexit trade deal makes no provision for jurisdiction or the enforcement of judgments.

          Therefore, the UK dropped out of the jurisdiction of the Brussels (Recast) Regulation (No. 1215/2012) on 31 December 2020.

          The EU has not yet approved the UK’s accession to the Lugano Convention, but may do in the future.

          Unless the transitional provisions from the Withdrawal Agreement apply, jurisdiction and enforcement of judgments will be governed by the Hague Convention 2005 if there is an applicable exclusive jurisdiction clause

          If the Hague Convention of 2005 does not apply, then the UK and EU courts will apply their own national rules.

          Judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

          On the first day of 2021 the UK left the EU regimes with which European lawyers are familiar. We appeared to enter “uncharted territory”. Not so. In fact, there are charts for this territory – or maps, to use a more modern word. You just need to know which maps.

          Whether you are a lawyer or a businessperson, in whatever country, you need answers to two questions. Which laws govern jurisdiction and enforcement of judgments between EU member states and the UK; and how should businesses act as a result?

          What happened?

          The EU and UK reached a post-Brexit trade deal, the Trade and Cooperation Agreement (“TCA”), on Christmas Eve 2020. The provisions of the TCA became UK law as the European Union (Future Relationship) Act on 31 December 2020. The TCA made provision for judicial cooperation in criminal matters, but did not mention judicial cooperation in civil matters, or jurisdiction and enforcement of judgments in civil and commercial proceedings.

          So where do we look for law on those matters?

          We look at the position immediately before Brexit. As every lawyer should know the Brussels (Recast) Regulation (No. 1215/2012) governed the enforcement and recognition of judgments between EU member states.

          Also, the Lugano Convention 2007 governs jurisdiction and enforcement of judgments in commercial and civil matters between EU member states and Iceland, Liechtenstein, Norway and Switzerland. It operates in substantially the same way as Brussels (Recast) does between EU member states.

          The UK was party to the Convention by virtue of its EU membership. Now that the UK is not a member of the EU, the contracting parties could agree that the UK could join the Lugano Convention as an independent contracting party, and there would be little change to the position on jurisdiction and enforcement. English jurisdiction clauses would continue to be respected and English court judgments would continue to be readily enforceable throughout EU member states and EFTA countries, and vice versa.

          The problem is that the EU has not agreed to the UK joining the Lugano Convention

          The UK submitted its application to accede to the Lugano Convention in its own right on 8 April 2020. But accession requires the consent of all contracting parties including the EU. Iceland, Norway and Switzerland have indicated their support for the UK’s accession, but the EU’s position is still not yet clear and the TCA is silent on this matter.

          While the EU still may belatedly support the UK’s accession to Lugano, it does not currently apply. In any case, a three-month time-lag applies between agreement and entry into force, unless all the contracting parties agree to waive it.

          Where are we now?

          If the transitional provisions provided for by the Withdrawal Agreement as explained in my previous post do not apply, the Brussels (Recast) Regulation will not apply to jurisdiction and enforcement between the EU and UK.

          If they do not, then you first need to decide whether the Hague Convention on Choice of Court Agreements 2005 is applicable. The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The Hague Convention first came into force for the UK when the EU acceded on 1 October 2015 and the UK re-acceded after Brexit in its own right with effect from 1 January 2021.

          The Hague Convention 2005 applies if:

          • The dispute falls within the scope of the Convention as provided for by Article 2 – e.g. the Convention does not apply to employment and consumer contracts or claims for personal injury;
          • There is an exclusive jurisdiction clause within the meaning of Article 3; and
          • The exclusive jurisdiction clause is entered into after the Convention came into force for the country whose courts are seized, and proceedings are commenced after the Convention came into force for the country whose courts are seized within the meaning of Article 16.

          There is some uncertainty as to whether EU member states will treat the Hague Convention as having been in force from 1 October 2015, or only from when the UK re-accedes on 1 January 2021. The UK’s view is that the Convention will apply to the UK from 1 October 2015; the EU’s view is that it will apply to the UK from 1 January 2021. What is not in dispute is that for exclusive English jurisdiction clauses agreed on or after 1 January 2021, the contracting states will respect exclusive English jurisdiction clauses and enforce the resulting judgments.

          If the 2005 Hague Convention does not apply, then the UK and EU courts will apply their own national rules to questions of jurisdiction and enforcement. In the UK, the rules will essentially be the same as the ‘common-law’ rules currently on enforcement applied to non-EU parties, for example the United States.

          The Norwegian exception

          The UK and Norway have reached an agreement which extends and updates an old mutual enforcement treaty, the 1961 Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters between the UK and Norway, which will apply if the UK does not re-accede to the Lugano Convention. The practical effect of this agreement is that judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

          How should your business act now?

          The applicable legal framework for each dispute will depend on the facts of each case. You should review the dispute resolution clauses in your cross-border contracts to assess how they may be affected by Brexit and to seek specialist advice where necessary. You should also seek advice on dispute resolution provisions when entering into new cross-border contracts in 2021.

          International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.

          The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.

          What are the best practices to manage international receivables?

          The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.

          The following main points were mentioned as worth considering at an early status of the negotiations and business development.

          Verification of the identity of the company

          Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.

          Request of financial  information

          What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance  with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.

          Use the right contract

          What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…

          Write down your agreements

          Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?

          Follow your contract

          If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.

          Document all transactions

          From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.

          Has the debtor risen objections?

          Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.

          Be clear on the accrual of interests for late payments

          In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.

          Seek guarantees for your credits

          This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.

          Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.

          Check out our webinar on debt collection

          On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.

          You can watch the recording of the webinar here.

          Legalmondo’s helpdesk on international credit collection

          If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.

          Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.

          Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in  Charlivari v. Sté Equivalanza, n°17/03703.

          It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices;  the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).

          Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.

          Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.

          Ignacio Alonso

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            France – Abrupt termination of contractual relationships and arbitration

            8. November 2020

            • Frankreich
            • Schiedsgerichtsbarkeit
            • Rechtsstreitigkeiten

            What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

            The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

            The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

            Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

            The judgment in question is doubly interesting.

            Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

            As the Constitutional Court very recently reiterated in its ruling dated last October, „judicial slowness has no place in the Magna Carta“. But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

            Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

            The plaintiffs sought the nullity of certain resolutions adopted at a shareholders‘ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

            The legislation in force at the time the meeting was held (prior to the 2014 reform) established that „resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties“ could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

            Following the 2014 reform, article 204 considers that „corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties“ can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

            But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to „law“ in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an „abuse of rights“, can such a situation be considered as „contrary to law“ for the purposes of the application of article 204 LSC?

            The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

            • formal or outwardly correct use of a right
            • causing damage to an interest not protected by a specific legal prerogative, and
            • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

            And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

            The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

            And on these premises, the Supreme Court reiterates and insists that the expression „contrary to the law“ in article 204 LSC must be understood as „contrary to the legal system“, which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

            And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

            It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

            And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an „in extremis“ recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

            Every employer should manage the risk of employee lawsuits.  Many companies believe that they treat their workers well and that their employees are happy.  As a result, they believe that they are not at risk of a lawsuit.  But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.

            Employers should proactively manage this risk instead of hoping lawsuits never come.  Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive.  It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations.  But employers can take steps before a dispute arises to reduce the impact of a lawsuit.  I discuss eight such steps below.

            First, employers should consider purchasing insurance that may cover employee claims.  In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance.  These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit.  They may also pay the employee the amount he or she demands or that a court awards.  Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.

            Second, employers should implement and enforce sexual harassment policies.  Policies like these discourage the type of behavior that can subject a company to liability.  But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.

            Third, employers should seriously examine disparities in pay and job roles.  If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination.  Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination.  Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.

            Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court.  Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them.  Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less.  But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.

            Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue.  Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job.  But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination.  Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.

            Sixth, employers should ensure they make consistent decisions.  If an employer allows one employee to work from home, other employees may want the same treatment.  And if an employer lays one employee off, she may wonder why another employee did not meet the same fate.  Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.

            Seventh, employers should frequently consult a lawyer they trust when employment issues arise.  Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.

            And finally, employers should consider settling disputes with employees, even if they are meritless.  No company wants an employee to take advantage of them.  But lawsuits are often more expensive and a hassle than the cost of a settlement.  Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.

            Summary

            Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.

            Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?

            • You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
            • Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
            • The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.

            Is the Judgment Debtor Subject to Personal Jurisdiction?

            Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
            Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.

            The Separate Entity Rule

            Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
            Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
            According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
            Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.

            Bringing Assets into the Jurisdiction

            Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
            This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
            This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.

            Takeways:

            • plaintiffs should ensure that they have personal jurisdiction over defendants not just under the laws of the jurisdiction where they bring suit, but also under the laws of the jurisdiction where they intend on enforcing judgments;
            • plaintiffs should ensure that the jurisdictions in which they enforce judgments have the power to actually collect defendants’ assets, since some may not do so under rules like the Separate Entity Rule.

            On 6 January 2022 Ukraine finally cancelled almost a two-year long moratorium for the creditor-trigged insolvencies. The moratorium was imposed in the late spring 2020 as a part of the nation’ response to first wave of COVID pandemic.

            In a nutshell, the moratorium prohibited creditors from requesting insolvency action against those debtors whose obligations matured after 12 March 2020. A separate set of measures also lifted an early warning duty obliging directors of the companies in distress to file for insolvency within one month from a moment when the distress appeared.

            The moratorium was heavily criticized by both domestic and international creditors, who legitimately blamed it for a non-selective approach.

            As further 2021 statistic shown, the moratorium never seemed to reach a goal proclaimed by it authors and made no increase for insolvency relief requests by the debtor companies.

            Instead, the country has been facing a steady increase in “zombie” companies having little to none liquidation value – and their owners clearly intending to get away with no creditor repayment.

            With the moratorium being lifted off the creditors do expect to show no mercy to their Ukrainian debtors. This particularly worries those debtors potentially involved in wrongful trade or fraudulent action. Even with the moratorium in place in 2021 Ukrainian courts confirmed more than UAH 150 mln in creditors loss to be paid by the insolvent companies’ management and owners themselves. This number is expected to triple in 2022 – and there already were Supreme Court’s 2021 judgements confirming liability of the real owners standing behind opaque shareholder company and nominal directors.

            As the creditors’ agitation grows, so do the debtor company owners’ concerns. As the owners\management liability process is extremely bespoke and often requires swift action, it is of crucial importance to get a throughout legal advise on either side – and much better to do that before the actual claim has been brought.

            In an important and very reasoned judgment delivered by the Court of Cassation of France on September 30, 2020, relating to the enforceability of arbitration clauses in international consumer contracts, the Supreme Court judged that these clauses must be considered unfair and cannot be opposed to consumers.  

            The Supreme Court traditionally insisted on the priority given to the arbitrator to decide on his own jurisdiction, laid down in Article 1448 of the Code of Civil Procedure (principle known as „competence-competence“, Jaguar, Civ. 1re, May 21, 1997, nos. 95-11.429 and 95-11.427). 

            The ECJ expressed its hostility towards such clauses when they are opposed to consumers. In Mostaza Claro (C-168/05), it referred to the internal laws of member states, while considering that the procedural modalities offered by states should not “make it impossible in practice or excessively difficult to exercise the rights conferred by public order to consumers (“Directive 93/13, concerning unfair terms in consumer contracts, must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment”).  

            It therefore referred to the national judge the right to implement its legislation on unfair terms, and therefore to decide, on a case-by-case basis, whether the arbitration clause should be considered unfair. This is what the Court of Cassation decided, ruling out the case-by-case method, and considering that in any event such a clause must be excluded in relations with consumers.  

            The Court of Cassation adopted the same solution in international employment contracts, where it traditionally considers that arbitration clauses contained in international employment contracts are enforceable against employee (Soc. 16 Feb. 1999, n ° 96-40.643). 

            The Supreme Court, although traditionally very favourable to arbitration, gradually builds up a set of specific exceptions to ensure the protection of the „weak“ party.

            Summary

            The recent post-Brexit trade deal makes no provision for jurisdiction or the enforcement of judgments.

            Therefore, the UK dropped out of the jurisdiction of the Brussels (Recast) Regulation (No. 1215/2012) on 31 December 2020.

            The EU has not yet approved the UK’s accession to the Lugano Convention, but may do in the future.

            Unless the transitional provisions from the Withdrawal Agreement apply, jurisdiction and enforcement of judgments will be governed by the Hague Convention 2005 if there is an applicable exclusive jurisdiction clause

            If the Hague Convention of 2005 does not apply, then the UK and EU courts will apply their own national rules.

            Judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

            On the first day of 2021 the UK left the EU regimes with which European lawyers are familiar. We appeared to enter “uncharted territory”. Not so. In fact, there are charts for this territory – or maps, to use a more modern word. You just need to know which maps.

            Whether you are a lawyer or a businessperson, in whatever country, you need answers to two questions. Which laws govern jurisdiction and enforcement of judgments between EU member states and the UK; and how should businesses act as a result?

            What happened?

            The EU and UK reached a post-Brexit trade deal, the Trade and Cooperation Agreement (“TCA”), on Christmas Eve 2020. The provisions of the TCA became UK law as the European Union (Future Relationship) Act on 31 December 2020. The TCA made provision for judicial cooperation in criminal matters, but did not mention judicial cooperation in civil matters, or jurisdiction and enforcement of judgments in civil and commercial proceedings.

            So where do we look for law on those matters?

            We look at the position immediately before Brexit. As every lawyer should know the Brussels (Recast) Regulation (No. 1215/2012) governed the enforcement and recognition of judgments between EU member states.

            Also, the Lugano Convention 2007 governs jurisdiction and enforcement of judgments in commercial and civil matters between EU member states and Iceland, Liechtenstein, Norway and Switzerland. It operates in substantially the same way as Brussels (Recast) does between EU member states.

            The UK was party to the Convention by virtue of its EU membership. Now that the UK is not a member of the EU, the contracting parties could agree that the UK could join the Lugano Convention as an independent contracting party, and there would be little change to the position on jurisdiction and enforcement. English jurisdiction clauses would continue to be respected and English court judgments would continue to be readily enforceable throughout EU member states and EFTA countries, and vice versa.

            The problem is that the EU has not agreed to the UK joining the Lugano Convention

            The UK submitted its application to accede to the Lugano Convention in its own right on 8 April 2020. But accession requires the consent of all contracting parties including the EU. Iceland, Norway and Switzerland have indicated their support for the UK’s accession, but the EU’s position is still not yet clear and the TCA is silent on this matter.

            While the EU still may belatedly support the UK’s accession to Lugano, it does not currently apply. In any case, a three-month time-lag applies between agreement and entry into force, unless all the contracting parties agree to waive it.

            Where are we now?

            If the transitional provisions provided for by the Withdrawal Agreement as explained in my previous post do not apply, the Brussels (Recast) Regulation will not apply to jurisdiction and enforcement between the EU and UK.

            If they do not, then you first need to decide whether the Hague Convention on Choice of Court Agreements 2005 is applicable. The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The Hague Convention first came into force for the UK when the EU acceded on 1 October 2015 and the UK re-acceded after Brexit in its own right with effect from 1 January 2021.

            The Hague Convention 2005 applies if:

            • The dispute falls within the scope of the Convention as provided for by Article 2 – e.g. the Convention does not apply to employment and consumer contracts or claims for personal injury;
            • There is an exclusive jurisdiction clause within the meaning of Article 3; and
            • The exclusive jurisdiction clause is entered into after the Convention came into force for the country whose courts are seized, and proceedings are commenced after the Convention came into force for the country whose courts are seized within the meaning of Article 16.

            There is some uncertainty as to whether EU member states will treat the Hague Convention as having been in force from 1 October 2015, or only from when the UK re-accedes on 1 January 2021. The UK’s view is that the Convention will apply to the UK from 1 October 2015; the EU’s view is that it will apply to the UK from 1 January 2021. What is not in dispute is that for exclusive English jurisdiction clauses agreed on or after 1 January 2021, the contracting states will respect exclusive English jurisdiction clauses and enforce the resulting judgments.

            If the 2005 Hague Convention does not apply, then the UK and EU courts will apply their own national rules to questions of jurisdiction and enforcement. In the UK, the rules will essentially be the same as the ‘common-law’ rules currently on enforcement applied to non-EU parties, for example the United States.

            The Norwegian exception

            The UK and Norway have reached an agreement which extends and updates an old mutual enforcement treaty, the 1961 Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters between the UK and Norway, which will apply if the UK does not re-accede to the Lugano Convention. The practical effect of this agreement is that judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

            How should your business act now?

            The applicable legal framework for each dispute will depend on the facts of each case. You should review the dispute resolution clauses in your cross-border contracts to assess how they may be affected by Brexit and to seek specialist advice where necessary. You should also seek advice on dispute resolution provisions when entering into new cross-border contracts in 2021.

            International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.

            The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.

            What are the best practices to manage international receivables?

            The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.

            The following main points were mentioned as worth considering at an early status of the negotiations and business development.

            Verification of the identity of the company

            Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.

            Request of financial  information

            What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance  with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.

            Use the right contract

            What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…

            Write down your agreements

            Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?

            Follow your contract

            If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.

            Document all transactions

            From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.

            Has the debtor risen objections?

            Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.

            Be clear on the accrual of interests for late payments

            In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.

            Seek guarantees for your credits

            This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.

            Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.

            Check out our webinar on debt collection

            On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.

            You can watch the recording of the webinar here.

            Legalmondo’s helpdesk on international credit collection

            If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.

            Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.

            Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in  Charlivari v. Sté Equivalanza, n°17/03703.

            It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices;  the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).

            Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.

            Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.

            Alexandre Malan

            Rechtsgebiete

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              Brexit – Jurisdiction and Enforcement of Judgments during the Transition Period

              10. Oktober 2020

              • England
              • Rechtsstreitigkeiten

              What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

              The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

              The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

              Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

              The judgment in question is doubly interesting.

              Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

              As the Constitutional Court very recently reiterated in its ruling dated last October, „judicial slowness has no place in the Magna Carta“. But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

              Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

              The plaintiffs sought the nullity of certain resolutions adopted at a shareholders‘ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

              The legislation in force at the time the meeting was held (prior to the 2014 reform) established that „resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties“ could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

              Following the 2014 reform, article 204 considers that „corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties“ can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

              But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to „law“ in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an „abuse of rights“, can such a situation be considered as „contrary to law“ for the purposes of the application of article 204 LSC?

              The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

              • formal or outwardly correct use of a right
              • causing damage to an interest not protected by a specific legal prerogative, and
              • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

              And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

              The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

              And on these premises, the Supreme Court reiterates and insists that the expression „contrary to the law“ in article 204 LSC must be understood as „contrary to the legal system“, which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

              And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

              It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

              And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an „in extremis“ recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

              Every employer should manage the risk of employee lawsuits.  Many companies believe that they treat their workers well and that their employees are happy.  As a result, they believe that they are not at risk of a lawsuit.  But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.

              Employers should proactively manage this risk instead of hoping lawsuits never come.  Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive.  It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations.  But employers can take steps before a dispute arises to reduce the impact of a lawsuit.  I discuss eight such steps below.

              First, employers should consider purchasing insurance that may cover employee claims.  In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance.  These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit.  They may also pay the employee the amount he or she demands or that a court awards.  Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.

              Second, employers should implement and enforce sexual harassment policies.  Policies like these discourage the type of behavior that can subject a company to liability.  But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.

              Third, employers should seriously examine disparities in pay and job roles.  If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination.  Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination.  Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.

              Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court.  Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them.  Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less.  But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.

              Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue.  Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job.  But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination.  Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.

              Sixth, employers should ensure they make consistent decisions.  If an employer allows one employee to work from home, other employees may want the same treatment.  And if an employer lays one employee off, she may wonder why another employee did not meet the same fate.  Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.

              Seventh, employers should frequently consult a lawyer they trust when employment issues arise.  Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.

              And finally, employers should consider settling disputes with employees, even if they are meritless.  No company wants an employee to take advantage of them.  But lawsuits are often more expensive and a hassle than the cost of a settlement.  Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.

              Summary

              Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.

              Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?

              • You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
              • Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
              • The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.

              Is the Judgment Debtor Subject to Personal Jurisdiction?

              Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
              Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.

              The Separate Entity Rule

              Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
              Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
              According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
              Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.

              Bringing Assets into the Jurisdiction

              Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
              This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
              This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.

              Takeways:

              • plaintiffs should ensure that they have personal jurisdiction over defendants not just under the laws of the jurisdiction where they bring suit, but also under the laws of the jurisdiction where they intend on enforcing judgments;
              • plaintiffs should ensure that the jurisdictions in which they enforce judgments have the power to actually collect defendants’ assets, since some may not do so under rules like the Separate Entity Rule.

              On 6 January 2022 Ukraine finally cancelled almost a two-year long moratorium for the creditor-trigged insolvencies. The moratorium was imposed in the late spring 2020 as a part of the nation’ response to first wave of COVID pandemic.

              In a nutshell, the moratorium prohibited creditors from requesting insolvency action against those debtors whose obligations matured after 12 March 2020. A separate set of measures also lifted an early warning duty obliging directors of the companies in distress to file for insolvency within one month from a moment when the distress appeared.

              The moratorium was heavily criticized by both domestic and international creditors, who legitimately blamed it for a non-selective approach.

              As further 2021 statistic shown, the moratorium never seemed to reach a goal proclaimed by it authors and made no increase for insolvency relief requests by the debtor companies.

              Instead, the country has been facing a steady increase in “zombie” companies having little to none liquidation value – and their owners clearly intending to get away with no creditor repayment.

              With the moratorium being lifted off the creditors do expect to show no mercy to their Ukrainian debtors. This particularly worries those debtors potentially involved in wrongful trade or fraudulent action. Even with the moratorium in place in 2021 Ukrainian courts confirmed more than UAH 150 mln in creditors loss to be paid by the insolvent companies’ management and owners themselves. This number is expected to triple in 2022 – and there already were Supreme Court’s 2021 judgements confirming liability of the real owners standing behind opaque shareholder company and nominal directors.

              As the creditors’ agitation grows, so do the debtor company owners’ concerns. As the owners\management liability process is extremely bespoke and often requires swift action, it is of crucial importance to get a throughout legal advise on either side – and much better to do that before the actual claim has been brought.

              In an important and very reasoned judgment delivered by the Court of Cassation of France on September 30, 2020, relating to the enforceability of arbitration clauses in international consumer contracts, the Supreme Court judged that these clauses must be considered unfair and cannot be opposed to consumers.  

              The Supreme Court traditionally insisted on the priority given to the arbitrator to decide on his own jurisdiction, laid down in Article 1448 of the Code of Civil Procedure (principle known as „competence-competence“, Jaguar, Civ. 1re, May 21, 1997, nos. 95-11.429 and 95-11.427). 

              The ECJ expressed its hostility towards such clauses when they are opposed to consumers. In Mostaza Claro (C-168/05), it referred to the internal laws of member states, while considering that the procedural modalities offered by states should not “make it impossible in practice or excessively difficult to exercise the rights conferred by public order to consumers (“Directive 93/13, concerning unfair terms in consumer contracts, must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment”).  

              It therefore referred to the national judge the right to implement its legislation on unfair terms, and therefore to decide, on a case-by-case basis, whether the arbitration clause should be considered unfair. This is what the Court of Cassation decided, ruling out the case-by-case method, and considering that in any event such a clause must be excluded in relations with consumers.  

              The Court of Cassation adopted the same solution in international employment contracts, where it traditionally considers that arbitration clauses contained in international employment contracts are enforceable against employee (Soc. 16 Feb. 1999, n ° 96-40.643). 

              The Supreme Court, although traditionally very favourable to arbitration, gradually builds up a set of specific exceptions to ensure the protection of the „weak“ party.

              Summary

              The recent post-Brexit trade deal makes no provision for jurisdiction or the enforcement of judgments.

              Therefore, the UK dropped out of the jurisdiction of the Brussels (Recast) Regulation (No. 1215/2012) on 31 December 2020.

              The EU has not yet approved the UK’s accession to the Lugano Convention, but may do in the future.

              Unless the transitional provisions from the Withdrawal Agreement apply, jurisdiction and enforcement of judgments will be governed by the Hague Convention 2005 if there is an applicable exclusive jurisdiction clause

              If the Hague Convention of 2005 does not apply, then the UK and EU courts will apply their own national rules.

              Judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

              On the first day of 2021 the UK left the EU regimes with which European lawyers are familiar. We appeared to enter “uncharted territory”. Not so. In fact, there are charts for this territory – or maps, to use a more modern word. You just need to know which maps.

              Whether you are a lawyer or a businessperson, in whatever country, you need answers to two questions. Which laws govern jurisdiction and enforcement of judgments between EU member states and the UK; and how should businesses act as a result?

              What happened?

              The EU and UK reached a post-Brexit trade deal, the Trade and Cooperation Agreement (“TCA”), on Christmas Eve 2020. The provisions of the TCA became UK law as the European Union (Future Relationship) Act on 31 December 2020. The TCA made provision for judicial cooperation in criminal matters, but did not mention judicial cooperation in civil matters, or jurisdiction and enforcement of judgments in civil and commercial proceedings.

              So where do we look for law on those matters?

              We look at the position immediately before Brexit. As every lawyer should know the Brussels (Recast) Regulation (No. 1215/2012) governed the enforcement and recognition of judgments between EU member states.

              Also, the Lugano Convention 2007 governs jurisdiction and enforcement of judgments in commercial and civil matters between EU member states and Iceland, Liechtenstein, Norway and Switzerland. It operates in substantially the same way as Brussels (Recast) does between EU member states.

              The UK was party to the Convention by virtue of its EU membership. Now that the UK is not a member of the EU, the contracting parties could agree that the UK could join the Lugano Convention as an independent contracting party, and there would be little change to the position on jurisdiction and enforcement. English jurisdiction clauses would continue to be respected and English court judgments would continue to be readily enforceable throughout EU member states and EFTA countries, and vice versa.

              The problem is that the EU has not agreed to the UK joining the Lugano Convention

              The UK submitted its application to accede to the Lugano Convention in its own right on 8 April 2020. But accession requires the consent of all contracting parties including the EU. Iceland, Norway and Switzerland have indicated their support for the UK’s accession, but the EU’s position is still not yet clear and the TCA is silent on this matter.

              While the EU still may belatedly support the UK’s accession to Lugano, it does not currently apply. In any case, a three-month time-lag applies between agreement and entry into force, unless all the contracting parties agree to waive it.

              Where are we now?

              If the transitional provisions provided for by the Withdrawal Agreement as explained in my previous post do not apply, the Brussels (Recast) Regulation will not apply to jurisdiction and enforcement between the EU and UK.

              If they do not, then you first need to decide whether the Hague Convention on Choice of Court Agreements 2005 is applicable. The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The Hague Convention first came into force for the UK when the EU acceded on 1 October 2015 and the UK re-acceded after Brexit in its own right with effect from 1 January 2021.

              The Hague Convention 2005 applies if:

              • The dispute falls within the scope of the Convention as provided for by Article 2 – e.g. the Convention does not apply to employment and consumer contracts or claims for personal injury;
              • There is an exclusive jurisdiction clause within the meaning of Article 3; and
              • The exclusive jurisdiction clause is entered into after the Convention came into force for the country whose courts are seized, and proceedings are commenced after the Convention came into force for the country whose courts are seized within the meaning of Article 16.

              There is some uncertainty as to whether EU member states will treat the Hague Convention as having been in force from 1 October 2015, or only from when the UK re-accedes on 1 January 2021. The UK’s view is that the Convention will apply to the UK from 1 October 2015; the EU’s view is that it will apply to the UK from 1 January 2021. What is not in dispute is that for exclusive English jurisdiction clauses agreed on or after 1 January 2021, the contracting states will respect exclusive English jurisdiction clauses and enforce the resulting judgments.

              If the 2005 Hague Convention does not apply, then the UK and EU courts will apply their own national rules to questions of jurisdiction and enforcement. In the UK, the rules will essentially be the same as the ‘common-law’ rules currently on enforcement applied to non-EU parties, for example the United States.

              The Norwegian exception

              The UK and Norway have reached an agreement which extends and updates an old mutual enforcement treaty, the 1961 Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters between the UK and Norway, which will apply if the UK does not re-accede to the Lugano Convention. The practical effect of this agreement is that judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

              How should your business act now?

              The applicable legal framework for each dispute will depend on the facts of each case. You should review the dispute resolution clauses in your cross-border contracts to assess how they may be affected by Brexit and to seek specialist advice where necessary. You should also seek advice on dispute resolution provisions when entering into new cross-border contracts in 2021.

              International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.

              The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.

              What are the best practices to manage international receivables?

              The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.

              The following main points were mentioned as worth considering at an early status of the negotiations and business development.

              Verification of the identity of the company

              Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.

              Request of financial  information

              What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance  with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.

              Use the right contract

              What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…

              Write down your agreements

              Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?

              Follow your contract

              If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.

              Document all transactions

              From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.

              Has the debtor risen objections?

              Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.

              Be clear on the accrual of interests for late payments

              In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.

              Seek guarantees for your credits

              This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.

              Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.

              Check out our webinar on debt collection

              On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.

              You can watch the recording of the webinar here.

              Legalmondo’s helpdesk on international credit collection

              If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.

              Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.

              Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in  Charlivari v. Sté Equivalanza, n°17/03703.

              It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices;  the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).

              Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.

              Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.

              Richard Samuel

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                The Protection of Community Design in the European Union

                17. September 2020

                • Europa
                • Geistiges Eigentum
                • Rechtsstreitigkeiten

                What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

                The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

                The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

                Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

                The judgment in question is doubly interesting.

                Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

                As the Constitutional Court very recently reiterated in its ruling dated last October, „judicial slowness has no place in the Magna Carta“. But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

                Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

                The plaintiffs sought the nullity of certain resolutions adopted at a shareholders‘ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

                The legislation in force at the time the meeting was held (prior to the 2014 reform) established that „resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties“ could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

                Following the 2014 reform, article 204 considers that „corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties“ can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

                But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to „law“ in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an „abuse of rights“, can such a situation be considered as „contrary to law“ for the purposes of the application of article 204 LSC?

                The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

                • formal or outwardly correct use of a right
                • causing damage to an interest not protected by a specific legal prerogative, and
                • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

                And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

                The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

                And on these premises, the Supreme Court reiterates and insists that the expression „contrary to the law“ in article 204 LSC must be understood as „contrary to the legal system“, which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

                And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

                It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

                And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an „in extremis“ recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

                Every employer should manage the risk of employee lawsuits.  Many companies believe that they treat their workers well and that their employees are happy.  As a result, they believe that they are not at risk of a lawsuit.  But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.

                Employers should proactively manage this risk instead of hoping lawsuits never come.  Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive.  It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations.  But employers can take steps before a dispute arises to reduce the impact of a lawsuit.  I discuss eight such steps below.

                First, employers should consider purchasing insurance that may cover employee claims.  In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance.  These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit.  They may also pay the employee the amount he or she demands or that a court awards.  Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.

                Second, employers should implement and enforce sexual harassment policies.  Policies like these discourage the type of behavior that can subject a company to liability.  But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.

                Third, employers should seriously examine disparities in pay and job roles.  If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination.  Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination.  Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.

                Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court.  Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them.  Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less.  But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.

                Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue.  Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job.  But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination.  Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.

                Sixth, employers should ensure they make consistent decisions.  If an employer allows one employee to work from home, other employees may want the same treatment.  And if an employer lays one employee off, she may wonder why another employee did not meet the same fate.  Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.

                Seventh, employers should frequently consult a lawyer they trust when employment issues arise.  Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.

                And finally, employers should consider settling disputes with employees, even if they are meritless.  No company wants an employee to take advantage of them.  But lawsuits are often more expensive and a hassle than the cost of a settlement.  Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.

                Summary

                Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.

                Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?

                • You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
                • Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
                • The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.

                Is the Judgment Debtor Subject to Personal Jurisdiction?

                Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
                Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.

                The Separate Entity Rule

                Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
                Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
                According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
                Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.

                Bringing Assets into the Jurisdiction

                Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
                This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
                This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.

                Takeways:

                • plaintiffs should ensure that they have personal jurisdiction over defendants not just under the laws of the jurisdiction where they bring suit, but also under the laws of the jurisdiction where they intend on enforcing judgments;
                • plaintiffs should ensure that the jurisdictions in which they enforce judgments have the power to actually collect defendants’ assets, since some may not do so under rules like the Separate Entity Rule.

                On 6 January 2022 Ukraine finally cancelled almost a two-year long moratorium for the creditor-trigged insolvencies. The moratorium was imposed in the late spring 2020 as a part of the nation’ response to first wave of COVID pandemic.

                In a nutshell, the moratorium prohibited creditors from requesting insolvency action against those debtors whose obligations matured after 12 March 2020. A separate set of measures also lifted an early warning duty obliging directors of the companies in distress to file for insolvency within one month from a moment when the distress appeared.

                The moratorium was heavily criticized by both domestic and international creditors, who legitimately blamed it for a non-selective approach.

                As further 2021 statistic shown, the moratorium never seemed to reach a goal proclaimed by it authors and made no increase for insolvency relief requests by the debtor companies.

                Instead, the country has been facing a steady increase in “zombie” companies having little to none liquidation value – and their owners clearly intending to get away with no creditor repayment.

                With the moratorium being lifted off the creditors do expect to show no mercy to their Ukrainian debtors. This particularly worries those debtors potentially involved in wrongful trade or fraudulent action. Even with the moratorium in place in 2021 Ukrainian courts confirmed more than UAH 150 mln in creditors loss to be paid by the insolvent companies’ management and owners themselves. This number is expected to triple in 2022 – and there already were Supreme Court’s 2021 judgements confirming liability of the real owners standing behind opaque shareholder company and nominal directors.

                As the creditors’ agitation grows, so do the debtor company owners’ concerns. As the owners\management liability process is extremely bespoke and often requires swift action, it is of crucial importance to get a throughout legal advise on either side – and much better to do that before the actual claim has been brought.

                In an important and very reasoned judgment delivered by the Court of Cassation of France on September 30, 2020, relating to the enforceability of arbitration clauses in international consumer contracts, the Supreme Court judged that these clauses must be considered unfair and cannot be opposed to consumers.  

                The Supreme Court traditionally insisted on the priority given to the arbitrator to decide on his own jurisdiction, laid down in Article 1448 of the Code of Civil Procedure (principle known as „competence-competence“, Jaguar, Civ. 1re, May 21, 1997, nos. 95-11.429 and 95-11.427). 

                The ECJ expressed its hostility towards such clauses when they are opposed to consumers. In Mostaza Claro (C-168/05), it referred to the internal laws of member states, while considering that the procedural modalities offered by states should not “make it impossible in practice or excessively difficult to exercise the rights conferred by public order to consumers (“Directive 93/13, concerning unfair terms in consumer contracts, must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment”).  

                It therefore referred to the national judge the right to implement its legislation on unfair terms, and therefore to decide, on a case-by-case basis, whether the arbitration clause should be considered unfair. This is what the Court of Cassation decided, ruling out the case-by-case method, and considering that in any event such a clause must be excluded in relations with consumers.  

                The Court of Cassation adopted the same solution in international employment contracts, where it traditionally considers that arbitration clauses contained in international employment contracts are enforceable against employee (Soc. 16 Feb. 1999, n ° 96-40.643). 

                The Supreme Court, although traditionally very favourable to arbitration, gradually builds up a set of specific exceptions to ensure the protection of the „weak“ party.

                Summary

                The recent post-Brexit trade deal makes no provision for jurisdiction or the enforcement of judgments.

                Therefore, the UK dropped out of the jurisdiction of the Brussels (Recast) Regulation (No. 1215/2012) on 31 December 2020.

                The EU has not yet approved the UK’s accession to the Lugano Convention, but may do in the future.

                Unless the transitional provisions from the Withdrawal Agreement apply, jurisdiction and enforcement of judgments will be governed by the Hague Convention 2005 if there is an applicable exclusive jurisdiction clause

                If the Hague Convention of 2005 does not apply, then the UK and EU courts will apply their own national rules.

                Judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

                On the first day of 2021 the UK left the EU regimes with which European lawyers are familiar. We appeared to enter “uncharted territory”. Not so. In fact, there are charts for this territory – or maps, to use a more modern word. You just need to know which maps.

                Whether you are a lawyer or a businessperson, in whatever country, you need answers to two questions. Which laws govern jurisdiction and enforcement of judgments between EU member states and the UK; and how should businesses act as a result?

                What happened?

                The EU and UK reached a post-Brexit trade deal, the Trade and Cooperation Agreement (“TCA”), on Christmas Eve 2020. The provisions of the TCA became UK law as the European Union (Future Relationship) Act on 31 December 2020. The TCA made provision for judicial cooperation in criminal matters, but did not mention judicial cooperation in civil matters, or jurisdiction and enforcement of judgments in civil and commercial proceedings.

                So where do we look for law on those matters?

                We look at the position immediately before Brexit. As every lawyer should know the Brussels (Recast) Regulation (No. 1215/2012) governed the enforcement and recognition of judgments between EU member states.

                Also, the Lugano Convention 2007 governs jurisdiction and enforcement of judgments in commercial and civil matters between EU member states and Iceland, Liechtenstein, Norway and Switzerland. It operates in substantially the same way as Brussels (Recast) does between EU member states.

                The UK was party to the Convention by virtue of its EU membership. Now that the UK is not a member of the EU, the contracting parties could agree that the UK could join the Lugano Convention as an independent contracting party, and there would be little change to the position on jurisdiction and enforcement. English jurisdiction clauses would continue to be respected and English court judgments would continue to be readily enforceable throughout EU member states and EFTA countries, and vice versa.

                The problem is that the EU has not agreed to the UK joining the Lugano Convention

                The UK submitted its application to accede to the Lugano Convention in its own right on 8 April 2020. But accession requires the consent of all contracting parties including the EU. Iceland, Norway and Switzerland have indicated their support for the UK’s accession, but the EU’s position is still not yet clear and the TCA is silent on this matter.

                While the EU still may belatedly support the UK’s accession to Lugano, it does not currently apply. In any case, a three-month time-lag applies between agreement and entry into force, unless all the contracting parties agree to waive it.

                Where are we now?

                If the transitional provisions provided for by the Withdrawal Agreement as explained in my previous post do not apply, the Brussels (Recast) Regulation will not apply to jurisdiction and enforcement between the EU and UK.

                If they do not, then you first need to decide whether the Hague Convention on Choice of Court Agreements 2005 is applicable. The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The Hague Convention first came into force for the UK when the EU acceded on 1 October 2015 and the UK re-acceded after Brexit in its own right with effect from 1 January 2021.

                The Hague Convention 2005 applies if:

                • The dispute falls within the scope of the Convention as provided for by Article 2 – e.g. the Convention does not apply to employment and consumer contracts or claims for personal injury;
                • There is an exclusive jurisdiction clause within the meaning of Article 3; and
                • The exclusive jurisdiction clause is entered into after the Convention came into force for the country whose courts are seized, and proceedings are commenced after the Convention came into force for the country whose courts are seized within the meaning of Article 16.

                There is some uncertainty as to whether EU member states will treat the Hague Convention as having been in force from 1 October 2015, or only from when the UK re-accedes on 1 January 2021. The UK’s view is that the Convention will apply to the UK from 1 October 2015; the EU’s view is that it will apply to the UK from 1 January 2021. What is not in dispute is that for exclusive English jurisdiction clauses agreed on or after 1 January 2021, the contracting states will respect exclusive English jurisdiction clauses and enforce the resulting judgments.

                If the 2005 Hague Convention does not apply, then the UK and EU courts will apply their own national rules to questions of jurisdiction and enforcement. In the UK, the rules will essentially be the same as the ‘common-law’ rules currently on enforcement applied to non-EU parties, for example the United States.

                The Norwegian exception

                The UK and Norway have reached an agreement which extends and updates an old mutual enforcement treaty, the 1961 Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters between the UK and Norway, which will apply if the UK does not re-accede to the Lugano Convention. The practical effect of this agreement is that judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

                How should your business act now?

                The applicable legal framework for each dispute will depend on the facts of each case. You should review the dispute resolution clauses in your cross-border contracts to assess how they may be affected by Brexit and to seek specialist advice where necessary. You should also seek advice on dispute resolution provisions when entering into new cross-border contracts in 2021.

                International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.

                The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.

                What are the best practices to manage international receivables?

                The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.

                The following main points were mentioned as worth considering at an early status of the negotiations and business development.

                Verification of the identity of the company

                Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.

                Request of financial  information

                What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance  with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.

                Use the right contract

                What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…

                Write down your agreements

                Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?

                Follow your contract

                If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.

                Document all transactions

                From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.

                Has the debtor risen objections?

                Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.

                Be clear on the accrual of interests for late payments

                In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.

                Seek guarantees for your credits

                This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.

                Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.

                Check out our webinar on debt collection

                On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.

                You can watch the recording of the webinar here.

                Legalmondo’s helpdesk on international credit collection

                If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.

                Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.

                Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in  Charlivari v. Sté Equivalanza, n°17/03703.

                It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices;  the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).

                Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.

                Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.

                Christian Montana

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                  Spain | Request for annulment of arbitration awards and Public Order

                  30. August 2020

                  • Spanien
                  • Schiedsgerichtsbarkeit
                  • Rechtsstreitigkeiten

                  What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

                  The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

                  The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

                  Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

                  The judgment in question is doubly interesting.

                  Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

                  As the Constitutional Court very recently reiterated in its ruling dated last October, „judicial slowness has no place in the Magna Carta“. But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

                  Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

                  The plaintiffs sought the nullity of certain resolutions adopted at a shareholders‘ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

                  The legislation in force at the time the meeting was held (prior to the 2014 reform) established that „resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties“ could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

                  Following the 2014 reform, article 204 considers that „corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties“ can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

                  But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to „law“ in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an „abuse of rights“, can such a situation be considered as „contrary to law“ for the purposes of the application of article 204 LSC?

                  The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

                  • formal or outwardly correct use of a right
                  • causing damage to an interest not protected by a specific legal prerogative, and
                  • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

                  And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

                  The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

                  And on these premises, the Supreme Court reiterates and insists that the expression „contrary to the law“ in article 204 LSC must be understood as „contrary to the legal system“, which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

                  And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

                  It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

                  And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an „in extremis“ recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

                  Every employer should manage the risk of employee lawsuits.  Many companies believe that they treat their workers well and that their employees are happy.  As a result, they believe that they are not at risk of a lawsuit.  But in my work, I frequently see employment relationships sour and employees surprise management by retaining a lawyer.

                  Employers should proactively manage this risk instead of hoping lawsuits never come.  Defending a business against litigation by a current or former employee takes a lot of time and can be very expensive.  It can also be incredibly frustrating to see an employee the company once trusted making false and damaging allegations.  But employers can take steps before a dispute arises to reduce the impact of a lawsuit.  I discuss eight such steps below.

                  First, employers should consider purchasing insurance that may cover employee claims.  In the United States, this insurance is called Employment Practices Liability (“EPLI”) Insurance.  These kinds of insurance policies may pay for a lawyer to defend the company in the event of a lawsuit.  They may also pay the employee the amount he or she demands or that a court awards.  Although insurance costs money, many companies prefer to pay regular and foreseeable premiums than sudden, steep, and unpredictable legal fees and employee payouts.

                  Second, employers should implement and enforce sexual harassment policies.  Policies like these discourage the type of behavior that can subject a company to liability.  But in many jurisdictions, they may also provide a defense to a company in the event an employee sues the company for allowing the harassment to take place.

                  Third, employers should seriously examine disparities in pay and job roles.  If the highest paid employees at a company are largely male and the lowest paid employees are largely female, then an employee may claim that the employer engages in sex discrimination.  Similarly, if the executives of a company are largely white but its blue-collar workers are largely people of color, an employee may allege that the company engages in racial discrimination.  Rather than litigate these issues, a company should investigate whether those disparities exist in its own workplace and address them if they do.

                  Fourth, employers should consider whether they want employment disputes to go to arbitration instead of to court.  Employers can largely determine this by including an arbitration clause in the offer letters they send to employees upon hiring them.  Arbitration has some advantages: it tends to move quicker, it is private, it has the reputation for being a friendly forum for employers, and it tends to cost less.  But it also has some downsides: it does not permit appeals on the merits of the dispute and it can cost more than litigation depending on the kind of case.

                  Fifth, any time an employee discloses that he or she has a health issue, the company should immediately consider how to accommodate that issue.  Many employers may disregard the disclosure of a health issue if it does not seem important to the employee’s job.  But if the employee later believes that the employer penalized him or her because of the health issue, the employee may claim discrimination.  Before that happens, an employer should work with an employee to make sure the health issue does not impede job performance.

                  Sixth, employers should ensure they make consistent decisions.  If an employer allows one employee to work from home, other employees may want the same treatment.  And if an employer lays one employee off, she may wonder why another employee did not meet the same fate.  Employers may reduce the risk of a lawsuit by setting firm policies and abiding by them.

                  Seventh, employers should frequently consult a lawyer they trust when employment issues arise.  Spending a few hundred dollars to speaking to a lawyer for an hour before firing an employee or before responding to an employee complaint can help an employer avoid a lawsuit that may cost tens or even hundreds of thousands of dollars.

                  And finally, employers should consider settling disputes with employees, even if they are meritless.  No company wants an employee to take advantage of them.  But lawsuits are often more expensive and a hassle than the cost of a settlement.  Spending a lot of money on defense, even if successful, may be more expensive than just compromising and paying the employee a fraction of what they demand.

                  Summary

                  Courts around the world issue judgments against defendants who hold assets in the United States. For example, some judgments may be against American corporations that do business abroad or local citizens who maintain bank accounts with American banks. Once a plaintiff prevails in the foreign lawsuit, she may have to initiate a proceeding in the United States to use that judgment to actually collect the defendant’s American assets. But this process, which is called domestication, has some specific rules that may be helpful to know before moving forward.

                  Why should you read this post about issues that may arise in domesticating foreign judgments in the United States?

                  • You already read my post about enforcing judgments issued by one court in the United States in a different court elsewhere in the country, but you want more judgment enforcement content.
                  • Cross-border disputes feel more exotic and fancy than local people who are mad at each other.
                  • The word domesticating makes you think that lawyers can take a wild judgment and teach it to live in a house with people.

                  Is the Judgment Debtor Subject to Personal Jurisdiction?

                  Pursuant to the Uniform Foreign Money Judgments Recognition Act, American courts may seek proof that a foreign judgment is legitimate before enforcing it. One issue courts often examine is whether the judgment debtor was subject to personal jurisdiction in the foreign country. If the court holds that the defendant was not subject to jurisdiction abroad, the court may not enforce the judgment in the United States. To determine whether personal jurisdiction existed abroad, courts may examine both the foreign jurisdiction’s law and American law, as the court did in this case.
                  Additionally, American courts may also require that the judgment debtor also be subject to personal jurisdiction in the United States. Following a New York appellate court decision, some lawyers argued that the process of domesticating a judgment in the United States was a merely “ministerial function” and not a full lawsuit that required personal jurisdiction over the judgment debtor. But the New York appellate court clarified in another decision that personal jurisdiction is required over judgment debtors when domesticating foreign judgments.

                  The Separate Entity Rule

                  Litigants frequently seek to domesticate foreign judgments in the United States because defendants often have accounts at American banks. The United States may also seem like an attractive place to domesticate a judgment because nearly every major bank in the world has an office or does business in the United States. But just because a bank is subject to jurisdiction in the United States does not mean that courts will definitely enforce foreign judgments against the assets they hold.
                  Instead, jurisdictions like New York apply the “Separate Entity Rule.” This rule treats each branch of a financial institution as if it were a separate entity. This means that, for example, a New York judgment can only be used to collect assets from a Swiss bank that are held at a New York branch of that bank. The judgment cannot, however, be used to collect assets held at Swiss branches.
                  According to New York’s highest court, the purpose of the Separate Entity Rule is to encourage banks to do business in a jurisdiction without fear that they are subjecting all of their international assets to local judgments. And it is to prevent other jurisdictions from exposing American banks to foreign judgments in return. It also makes it easier for bank branches to comply with only one country’s laws, avoiding conflicts between different countries’ laws or judgments, and to perform searches of only local assets and not assets worldwide.
                  Because of this rule, judgment creditors from outside of the United States should only domesticate judgments in the same place where the judgment debtors’ assets are, not just where their banks are located.

                  Bringing Assets into the Jurisdiction

                  Although litigants often need to domesticate a judgment to collect assets in another jurisdiction, there are some instances where a court can order a party to move assets into the jurisdiction.
                  This issue arose in a prominent case in New York. In that case, the court held that a defendant that is subject to personal jurisdiction in New York can be ordered to bring physical property it possesses into New York to satisfy a judgment. It held in a later case that this does not conflict with the Separate Entity Rule because that rule only applies to bank accounts at bank branches.
                  This principle may be helpful for litigants who want to domesticate a judgment against a defendant who is subject to personal jurisdiction in the United States, but who has physical property outside of the country. This may provide the American legal system’s procedures for judgment collection while also enabling the judgment creditor to collect foreign property.

                  Takeways:

                  • plaintiffs should ensure that they have personal jurisdiction over defendants not just under the laws of the jurisdiction where they bring suit, but also under the laws of the jurisdiction where they intend on enforcing judgments;
                  • plaintiffs should ensure that the jurisdictions in which they enforce judgments have the power to actually collect defendants’ assets, since some may not do so under rules like the Separate Entity Rule.

                  On 6 January 2022 Ukraine finally cancelled almost a two-year long moratorium for the creditor-trigged insolvencies. The moratorium was imposed in the late spring 2020 as a part of the nation’ response to first wave of COVID pandemic.

                  In a nutshell, the moratorium prohibited creditors from requesting insolvency action against those debtors whose obligations matured after 12 March 2020. A separate set of measures also lifted an early warning duty obliging directors of the companies in distress to file for insolvency within one month from a moment when the distress appeared.

                  The moratorium was heavily criticized by both domestic and international creditors, who legitimately blamed it for a non-selective approach.

                  As further 2021 statistic shown, the moratorium never seemed to reach a goal proclaimed by it authors and made no increase for insolvency relief requests by the debtor companies.

                  Instead, the country has been facing a steady increase in “zombie” companies having little to none liquidation value – and their owners clearly intending to get away with no creditor repayment.

                  With the moratorium being lifted off the creditors do expect to show no mercy to their Ukrainian debtors. This particularly worries those debtors potentially involved in wrongful trade or fraudulent action. Even with the moratorium in place in 2021 Ukrainian courts confirmed more than UAH 150 mln in creditors loss to be paid by the insolvent companies’ management and owners themselves. This number is expected to triple in 2022 – and there already were Supreme Court’s 2021 judgements confirming liability of the real owners standing behind opaque shareholder company and nominal directors.

                  As the creditors’ agitation grows, so do the debtor company owners’ concerns. As the owners\management liability process is extremely bespoke and often requires swift action, it is of crucial importance to get a throughout legal advise on either side – and much better to do that before the actual claim has been brought.

                  In an important and very reasoned judgment delivered by the Court of Cassation of France on September 30, 2020, relating to the enforceability of arbitration clauses in international consumer contracts, the Supreme Court judged that these clauses must be considered unfair and cannot be opposed to consumers.  

                  The Supreme Court traditionally insisted on the priority given to the arbitrator to decide on his own jurisdiction, laid down in Article 1448 of the Code of Civil Procedure (principle known as „competence-competence“, Jaguar, Civ. 1re, May 21, 1997, nos. 95-11.429 and 95-11.427). 

                  The ECJ expressed its hostility towards such clauses when they are opposed to consumers. In Mostaza Claro (C-168/05), it referred to the internal laws of member states, while considering that the procedural modalities offered by states should not “make it impossible in practice or excessively difficult to exercise the rights conferred by public order to consumers (“Directive 93/13, concerning unfair terms in consumer contracts, must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment”).  

                  It therefore referred to the national judge the right to implement its legislation on unfair terms, and therefore to decide, on a case-by-case basis, whether the arbitration clause should be considered unfair. This is what the Court of Cassation decided, ruling out the case-by-case method, and considering that in any event such a clause must be excluded in relations with consumers.  

                  The Court of Cassation adopted the same solution in international employment contracts, where it traditionally considers that arbitration clauses contained in international employment contracts are enforceable against employee (Soc. 16 Feb. 1999, n ° 96-40.643). 

                  The Supreme Court, although traditionally very favourable to arbitration, gradually builds up a set of specific exceptions to ensure the protection of the „weak“ party.

                  Summary

                  The recent post-Brexit trade deal makes no provision for jurisdiction or the enforcement of judgments.

                  Therefore, the UK dropped out of the jurisdiction of the Brussels (Recast) Regulation (No. 1215/2012) on 31 December 2020.

                  The EU has not yet approved the UK’s accession to the Lugano Convention, but may do in the future.

                  Unless the transitional provisions from the Withdrawal Agreement apply, jurisdiction and enforcement of judgments will be governed by the Hague Convention 2005 if there is an applicable exclusive jurisdiction clause

                  If the Hague Convention of 2005 does not apply, then the UK and EU courts will apply their own national rules.

                  Judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

                  On the first day of 2021 the UK left the EU regimes with which European lawyers are familiar. We appeared to enter “uncharted territory”. Not so. In fact, there are charts for this territory – or maps, to use a more modern word. You just need to know which maps.

                  Whether you are a lawyer or a businessperson, in whatever country, you need answers to two questions. Which laws govern jurisdiction and enforcement of judgments between EU member states and the UK; and how should businesses act as a result?

                  What happened?

                  The EU and UK reached a post-Brexit trade deal, the Trade and Cooperation Agreement (“TCA”), on Christmas Eve 2020. The provisions of the TCA became UK law as the European Union (Future Relationship) Act on 31 December 2020. The TCA made provision for judicial cooperation in criminal matters, but did not mention judicial cooperation in civil matters, or jurisdiction and enforcement of judgments in civil and commercial proceedings.

                  So where do we look for law on those matters?

                  We look at the position immediately before Brexit. As every lawyer should know the Brussels (Recast) Regulation (No. 1215/2012) governed the enforcement and recognition of judgments between EU member states.

                  Also, the Lugano Convention 2007 governs jurisdiction and enforcement of judgments in commercial and civil matters between EU member states and Iceland, Liechtenstein, Norway and Switzerland. It operates in substantially the same way as Brussels (Recast) does between EU member states.

                  The UK was party to the Convention by virtue of its EU membership. Now that the UK is not a member of the EU, the contracting parties could agree that the UK could join the Lugano Convention as an independent contracting party, and there would be little change to the position on jurisdiction and enforcement. English jurisdiction clauses would continue to be respected and English court judgments would continue to be readily enforceable throughout EU member states and EFTA countries, and vice versa.

                  The problem is that the EU has not agreed to the UK joining the Lugano Convention

                  The UK submitted its application to accede to the Lugano Convention in its own right on 8 April 2020. But accession requires the consent of all contracting parties including the EU. Iceland, Norway and Switzerland have indicated their support for the UK’s accession, but the EU’s position is still not yet clear and the TCA is silent on this matter.

                  While the EU still may belatedly support the UK’s accession to Lugano, it does not currently apply. In any case, a three-month time-lag applies between agreement and entry into force, unless all the contracting parties agree to waive it.

                  Where are we now?

                  If the transitional provisions provided for by the Withdrawal Agreement as explained in my previous post do not apply, the Brussels (Recast) Regulation will not apply to jurisdiction and enforcement between the EU and UK.

                  If they do not, then you first need to decide whether the Hague Convention on Choice of Court Agreements 2005 is applicable. The Hague Convention 2005 applies between EU Member States, Mexico, Singapore and Montenegro. The Hague Convention first came into force for the UK when the EU acceded on 1 October 2015 and the UK re-acceded after Brexit in its own right with effect from 1 January 2021.

                  The Hague Convention 2005 applies if:

                  • The dispute falls within the scope of the Convention as provided for by Article 2 – e.g. the Convention does not apply to employment and consumer contracts or claims for personal injury;
                  • There is an exclusive jurisdiction clause within the meaning of Article 3; and
                  • The exclusive jurisdiction clause is entered into after the Convention came into force for the country whose courts are seized, and proceedings are commenced after the Convention came into force for the country whose courts are seized within the meaning of Article 16.

                  There is some uncertainty as to whether EU member states will treat the Hague Convention as having been in force from 1 October 2015, or only from when the UK re-accedes on 1 January 2021. The UK’s view is that the Convention will apply to the UK from 1 October 2015; the EU’s view is that it will apply to the UK from 1 January 2021. What is not in dispute is that for exclusive English jurisdiction clauses agreed on or after 1 January 2021, the contracting states will respect exclusive English jurisdiction clauses and enforce the resulting judgments.

                  If the 2005 Hague Convention does not apply, then the UK and EU courts will apply their own national rules to questions of jurisdiction and enforcement. In the UK, the rules will essentially be the same as the ‘common-law’ rules currently on enforcement applied to non-EU parties, for example the United States.

                  The Norwegian exception

                  The UK and Norway have reached an agreement which extends and updates an old mutual enforcement treaty, the 1961 Convention for the Reciprocal Recognition and Enforcement of Judgments in Civil Matters between the UK and Norway, which will apply if the UK does not re-accede to the Lugano Convention. The practical effect of this agreement is that judgments will continue to be reciprocally enforceable between the UK and Norway from 1 January 2021.

                  How should your business act now?

                  The applicable legal framework for each dispute will depend on the facts of each case. You should review the dispute resolution clauses in your cross-border contracts to assess how they may be affected by Brexit and to seek specialist advice where necessary. You should also seek advice on dispute resolution provisions when entering into new cross-border contracts in 2021.

                  International debt recovery is perhaps one of the most challenging issues in business. Companies are usually excited when starting their new international ventures, but when payments of distributors, clients, franchisees… stop, difficulties arise, particularly when they happen abroad. Recovery is most of the times complicated, causes expenses, nightmares and sometimes undertakings simply decide to give up. We herein provide some tips to consider in the prevention phase.

                  The following is a summary of the ideas which were discussed in a webinar organized by Legalmondo and the Chamber of Commerce of Treviso/Belluno in Italy in November 11, 2020.

                  What are the best practices to manage international receivables?

                  The first question regards the best practices companies could put into practice to avoid or, at least, to try to minimize the impact of lack of payment when international businesses are concerned.

                  The following main points were mentioned as worth considering at an early status of the negotiations and business development.

                  Verification of the identity of the company

                  Who is the company we are dealing with? It is important to check its existence, legal situation and capacity to carry on business. And also, the faculties or authorization of the person signing the type of contract. Is this the right authorized person? Has this person followed the legal requirements to do it? In particular, during this period of international pandemic, when the electronic signatures are used and when agreements are frequently signed with non-original signatures but only on pdf documents.

                  Request of financial  information

                  What is the credit rating of the company? Seek to obtain official accounting information, either filed with the register of companies (when possible according to the local rules), or through private investigation research: tax regularity certificate to attest that the company is in compliance  with applicable rules (in places when this is possible), comfort letters from shareholders or third parties (banks)… It is important to have a reasonable certitude about the capacity of that company to carry on the concrete business. And when possible, to do it on a regular basis.

                  Use the right contract

                  What is the correct type of contract for the commercial relationship? Seek advice from a lawyer specialized in the law of the country where the debt will be collected. This will be an essential element, for example, to know when the ownership of the acquired asset is legally transferred; when the parties have agreed to pay the invoices; the validity of the general conditions (or if they have to be drafted in the local language or in the language of the negotiations or what happens when they are contradictory: the seller’s and the purchaser’s); whether this is a distribution contract or a mere supply of products and the related obligations and consequences depending on the applicable law…

                  Write down your agreements

                  Avere le condizioni per iscritto non solo sul tipo di contratto ma anche sulle modalità, condizioni e ritardi di pagamento. Ed essere consapevoli del tipo di documenti necessari per la validità dell’accordo. Uno scambio di e-mail creerebbe un obbligo? Sarebbero necessari passaggi più formali per avere un contratto / obbligo valido (notaio, registrazione, firma separata di alcune condizioni)?

                  Follow your contract

                  If there is a contract in place, it is important to follow what has been signed or agreed, to ensure that these conditions are then respected. A different and sustained commercial practice could imply a tacit change the original written agreement.

                  Document all transactions

                  From the order by the client/distributor, its acceptance by the manufacturer, the transport document, linked to the receipt of goods, and until the final invoice, all paperwork should be clear and consistent. In case of lack of payment, all these documents might be necessary to prove the correct performance of the contract.

                  Has the debtor risen objections?

                  Also check your own defaults. It is quite frequent that the non-paying party justifies its decision on a previous breaching. If there is such previous alleged infringement by a supplier, for instance (related to the shipment of goods: delays, defective products, etc.), it will be probably more complicated to ask for the payment from the distributor or, at least, it will be required an additional procedure.

                  Be clear on the accrual of interests for late payments

                  In EU countries, legislation based on the 2011/7 Directive allows to combat late payment in commercial transactions with special interest rates: make sure this is mentioned in the contract, as non-EU based companies might not be aware of this, and the difference with the general legal interest can be substantial.

                  Seek guarantees for your credits

                  This obviously can vary depending on the type of contract and the relationship between the parties. A guarantee is advisable not only at the beginning, but also when the relationship lasts for several years. Sometimes, trust in your counterparty in the past makes more difficult to ask for additional guaranties and this could imply that late payments are not correctly managed.

                  Consider also additional guaranties on sold goods such as, when permitted by the law, retention of title. This will imply that the ownership remains in the vendor’s hand until the complete payment. In some cases, it is also possible to have additional guarantees when the retention of title can be registered at special public registries. These special conditions should also be verified locally in order to know their extent and to respect the way they shall be agreed, accepted, and documented.

                  Check out our webinar on debt collection

                  On November 11, 2020, I had the pleasure to participate to the webinar on International Debt Collection organized by the Chamber of Commerce of Treviso and Belluno and Legalmondo: we discuss the best practices and share practical information on debt collection in Spain, Germany, France, USA, China, Vietnam and Singapore.

                  You can watch the recording of the webinar here.

                  Legalmondo’s helpdesk on international credit collection

                  If you would like to know more about how to collect a debt overseas, you can find the reports of our experts from 20 countries here.

                  Unfair commercial behaviours between professionals are sanctioned in Sections L442-1 and seq. of the French Commercial Code. French Courts tend to consider that those dispositions of the Commercial Code are mandatory, in particular Section L442-1, II of the Code on abrupt termination of commercial relationships. Based on this section, an operator can be held liable if he terminates a commercial relationship without respecting a prior notice which duration depends on the duration of the relationship.

                  Although this is considered to be a mandatory law, the French Supreme Court considers that it does not preclude to bring a dispute before foreign Courts in compliance with a jurisdiction clause (Civ.1, 8 July 2010, Doga, n°09-67013). Moreover, Courts have ruled for a long time now that arbitrators are entitled to apply national mandatory laws (Court of Appeal of Paris, 19 March 1993, Labinal, n°9221091). In the case Doga above quoted, the Court concluded that arbitrators are also entitled to apply Sections 442-1, II of the Commercial Code related to the conditions of termination of commercial relationship. Therefore, if a contract contains an arbitration clause, the judge is obliged to give priority to the arbitrators to decide on their own jurisdiction to decide on the case (principle « compétence-compétence ») in conformity with Section 1465 of the French Procedural Code. This solution was confirmed in a recent decision rendered on 5 September 2019 by the Court of Appeal of Paris in  Charlivari v. Sté Equivalanza, n°17/03703.

                  It is noteworthy to underline that two sets of sanctions are considered under Sections 442-1 and seq. of the Commercial Code: the first sanction allows the victim of unfair practice to seek damages (for instance for abrupt termination of commercial relationship) against the author of unfair practices;  the second sanction is decided by the public administration, under the authority of the Ministry of Economics : the Ministry is entitled to bring the case to Courts, which can then decide to fine the party who is liable of unfair practices (the fine can be up to 5% of the turnover made in France by the person liable or 5 Million EUR).

                  Therefore, one single matter can give rise to two procedures at the same time, the first one initiated by the victim and the second one at the request of the Ministry of Economics (Section L442-4 of the Code). In a case Apple v. Ministre de l’Economie, the Supreme Court (Civ.1, 6 juillet 2016, n° 15-21811) considered that the action of the Ministry of Economics cannot be decided by arbitrators, even if the contract contains an arbitration clause, because of the specificity of this action, which is not based on the contract by itself but on powers that the Ministry draws from the law.

                  Therefore, a clear distinction must be made between the two procedures: one is subject to the application of the dispute resolution clause (either national Courts, even foreign, or arbitration tribunals), when damages are sought from the author of unfair practices, including abrupt termination; the other one can be brought only before French national Courts, and the dispute resolution clause has no effect, in cases which are brought by the Ministry of Economics for administrative sanctions against the same author.

                  Javier Gaspar

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