A recent decision of the Hungarian Curia (BH 2017.97) concerned an important question of European private international law: what is the effect of the opening of insolvency proceedings on jurisdiction to hear post-opening actions against the insolvent debtor?

The facts of the case were quite simple. An Austrian creditor had monetary claims, arising from a pre-insolvency contract, against a Hungarian debtor. The parties stipulated the exclusive international jurisdiction of the Austrian courts. Apparently, however, no litigation had been initiated before the Austrian courts either prior to or after the main insolvency proceedings against the Hungarian company were opened in Hungary. In contrast, the creditor lodged its claim in the insolvency proceedings opened in Hungary – in compliance with the Hungarian Insolvency Act (‘HIA’). The insolvency practitioner referred the case to the Hungarian insolvency court.

The Hungarian courts needed to decide, first of all, about jurisdiction.

The domestic insolvency law of Hungary follows the so-called vis attractiva concursus principle. This principle provides for the concentration of all litigation relating to the debtor in the insolvency court. Therefore, in a domestic context (assuming that no lawsuit is pending at the time of the opening of the insolvency proceedings), the jurisdiction for deciding the disputed creditor's claims moves from the court originally having jurisdiction to the insolvency court by force of law: only the latter forum has the competence to rule on monetary claims against the insolvent debtor (Section 38(3), HIA).

However, it is far from self-evident whether that domestic vis attractiva rule applies also in the arena of European private international law. What is the situation if the parties, by prorogation, have chosen the jurisdiction of the courts of a European Union (‘EU’) member state other than the state where subsequently the insolvency proceedings have been opened?

In cross-border situations, the question of international jurisdiction is directly addressed by EU legal instruments. Therefore, the answer mostly depends on whether such post-opening monetary actions against the insolvent debtor fall within the scope of the Brussels Ibis Regulation (‘BR’) or the European Insolvency Regulation (‘EIR’). While the former instrument allows the parties to determine which member state's courts shall hear the dispute (Articles 25, BR), the latter regulation rather rigidly allocates jurisdiction to the insolvency forum of the state where the insolvency proceedings have been opened (Articles 3 and 6, EIR). Thus, as long as an action (lodged claim) falls within the scope of the EIR, the insolvency forum will certainly have jurisdiction to hear the case. However, somewhat paradoxically, the conflict-of-laws provisions of the EIR (first of all Article 7(2)(f), EIR) may also have jurisdictional effects. If those provisions refer to a national insolvency law following the vis attractiva rule then that domestic vis attractiva may indirectly overrule the direct jurisdictional rule in the BR by, in effect, depriving the courts otherwise having jurisdiction on the basis of the BR from hearing actions against the insolvent debtor. This will be explained in more details later.

In its recent decision, the Hungarian Curia ruled that Hungarian insolvency courts do have international jurisdiction to rule on disputed creditor's claims against insolvent debtors. Therefore, goes on the ruling, ‘after the time of the opening of the insolvency proceedings it is no longer possible for the court whose jurisdiction has been agreed by the parties in their contract to rule on creditor's claims against the insolvency estate.’

Unfortunately, the published version of the ruling is rather concise and somewhat vague on the legal reasons underlying the decision.

The first conclusion of the Hungarian Curia – jurisdiction of Hungarian courts for disputed creditor’s claims – is less problematic. One way to extend the international jurisdiction of the insolvency forum to the disputed creditor's claim lodged in the insolvency proceedings is to classify them as insolvency-related (annex) actions. The roots of the category of ‘annex actions’ can be found in the so-called ‘insolvency exception’ to the BR (Article 1(2)(b), BR) and its predecessors. The insolvency exception provides that the Brussels regime does not apply to ‘bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings’. In the Gourdain judgement, the Court of Justice of the European Union (‘CJEU’) specified that in order to trigger the insolvency exception the action in question must derive directly from the insolvency proceedings and be closely linked with them. The prevailing view is that the decisive criterion is whether the right or obligation that is the basis of the action finds its source in the common rules of civil and commercial law, or in the derogating rules specific to insolvency proceedings. The Seagon ruling of the CJEU and subsequently the new Article 6 of the EIR made it clear that those annex actions falling outside the scope of the Brussels instruments basically fall within the scope of the jurisdictional provisions of the EIR. Therefore, if the proceedings brought before the insolvency forum to determine the legal grounds and the amount of the lodged creditor's claim can be classified as insolvency-related, then the international jurisdiction of the insolvency forum is established. There are indications in the case law supporting that view. J David Richards in Fondazione Enasarco v Lehman Brothers Finance S.A. concluded that proceedings which are an integral part of the liquidation proceedings and the purpose of which is not simply to establish whether the claimant has a good claim, but instead to determine the amount and the ranking of the claim for the purpose of liquidation, clearly fall within the category of annex actions.

The second conclusion of the Hungarian Curia – that no other courts are allowed to hear the creditor's claim – is more precarious. First of all, it is quite unusual for a court to establish the lack of jurisdiction of another court, which, in the case at hand, was the court named by the parties in their contract. More importantly, it is debatable whether the court chosen by the parties under the BR indeed loses its jurisdiction in favour of the insolvency forum, even if the lex concursus of the latter state follows the vis attractiva principle. Nothing in the law directly states that the commercial court originally chosen by the parties loses its jurisdiction to decide over the purely monetary claim against the insolvent debtor. Arguably, the case before the commercial court aiming at the determination of the contractual claims of the parties does not find its sources in the insolvency proceedings but in the commercial contract between the parties; thus, those claims do not qualify as insolvency-related. Therefore, the commercial court before which the claimant initiated the post-opening commercial litigation against the insolvent debtor may retain jurisdiction. That court, however, faces a difficult question: How to deal with the vis attractiva rule of the lex concursus of the state of insolvency which is to be applied throughout the EU in line with the EIR (Articles 7, 19-20, EIR)?

The relevant case law of the English courts is remarkably divergent. In Gibralcon, the claimant, a corporation registered in Gibraltar, brought a post-opening monetary claim against an insolvent Spanish company before the English High Court, whose exclusive jurisdiction had been chosen by the parties. Edwards-Stuart J. concluded that the English court did have jurisdiction and that jurisdiction was not affected by the Spanish lex concursus. He made it clear that ‘[t]his court will do no more than determine the rights of the parties under this contract, disputes which are subject to the exclusive jurisdiction of the courts of England and Wales, and make declarations accordingly, and, in particular, determine so far as it can which party is owed money by the other and how much … So if [the claimant] receives decisions that are in its favour from this court, it must lodge its claim in the Spanish insolvency proceedings. There will be no question of enforcement in this jurisdiction’. Edwards-Stuart J reiterated that the fact that the defendant in commercial proceedings is the subject of insolvency proceedings in another member state does not classify the litigation as insolvency-related and is not in itself a ground for dismissing the Brussels regime. Importantly, the conclusion was independent from the issue of how the Spanish domestic law dealt with the question of vis attractiva: in the EU arena, the jurisdiction is determined by the directly applicable EU instruments and the national rules on vis attractiva should not deprive the courts of another member state from international jurisdiction.

Indeed, there are some good arguments supporting the view that the commercial courts retain jurisdiction for actions vis-à-vis the insolvent debtor. Those actions do not affect the collective insolvency proceedings because the judgement has a merely declaratory nature: no individual enforcement may be requested that is disallowed by the universally applicable lex concursus (Articles 19-20, EIR). The insolvency forum may well be assisted by the declaratory ruling delivered by the forum chosen by the parties, which is probably more suitable to deal with the case, particularly if it applies its own law; otherwise, the insolvency court would face some issues in cases where foreign law applies and foreign language documents must be taken into consideration. Finally, also the legitimate expectation of the parties may justify the jurisdiction of the forum they have chosen. On the other hand, admittedly, the ‘parallel’ jurisdiction of the commercial court and the insolvency forum may, in lack of a lis pendens (or analogous) rule in the EIR (cf Articles 29 ff, BR), result in irreconcilable judgements and a conflict of competence.

However, the English Court of Appeal in Tchenguiz v Grant Thornton UK LLP recently ruled that the lex concursus, applicable across the member states, may indeed have jurisdictional effects upon civil and commercial proceedings of a type not excluded from the Brussels regime by the insolvency exception. In this context, so Lord J Briggs concluded, the Gibralcon case was simply wrongly decided to the extent that it can be interpreted as suggesting that nothing in the EIR can have a jurisdictional effect upon proceedings for which jurisdiction is allocated by the Brussels instruments. In other words, if the lex concursus applicable via the conflict-of-laws provisions of the EIR provides that only the insolvency forum has the power to decide on disputed post-opening monetary claims against the insolvent debtor that, in effect, deprives the forum otherwise having jurisdiction pursuant to the BR – so the court chosen by the parties – from hearing the case.

In the light of the foregoing, also the second conclusion of the Hungarian Curia that no court other than the insolvency forum is allowed to hear the creditor's claim against the insolvent debtor may be correct. Indeed, the opinion appears to prevail in recent European case law that the domestic vis attractiva rule, which applies throughout the EU via the EIR, may prevent courts other than the insolvency forum from entertaining post-opening actions against the insolvent debtor. Therefore, the Hungarian Curia seems to have adopted the majority opinion. On the other hand, there is a minority view suggesting that the commercial court retains its jurisdiction for such actions. Presumably, the CJEU will have the final say in the debate.

Zoltan Fabok is counsel at DLA Piper (Hungary) and fellow of INSOL International.