February 15 2005
In SA Banque Worms vs Epoux Brachot bankruptcy proceedings were brought before the Paris Commercial Court in 1992. They were initiated against art dealer Brachot and a company of which Brachot was the manager.
A plan for a partial transfer of the debtors' assets was authorized by the court on May 10 1993. However, the plan did not include assets located abroad.
Worms was a registered creditor in France and filed a claim before a Spanish judge in order to make a seizure of real estate owned by the debtor and located in Spain.
Consequently, although Brachot presented a defence before the Spanish judges, he also filed a claim in France against Worms to preclude the bank from any other proceedings abroad.
On May 7 1999 the Nanterre Commercial Court dismissed the case.
However, Brachot appealed and the Versailles Court of Appeal repealed the judgment of the Nanterre Commercial Court and ordered the bank to withdraw its judicial action before any foreign judge, especially the action related to the Spanish real estate. The court of appeal asked the bank to justify the withdrawal of its Spanish claim and coerced it to do so by issuing a fine for the duration the Spanish claim was maintained.
The bank appealed to the French Supreme Court arguing, among other things, that the court of appeal had no jurisdiction to enjoin it to stop a judicial action abroad and that the court could not prevent a French creditor from filing an action before foreign judges in the territory where the debtor's real estate was located.
This appears to be the first time such a decision has been made by the Supreme Court and the first time it has supported the universality of bankruptcy, thus applying, with the necessary changes, the Anglo-Saxon judicial tool of an anti-suit injunction.
The Supreme Court rejected one of the arguments of Worms.
The court decided that:
"Wherever the real estate at stake is located, the personal injunction with respect to the defendant to act or to refrain from acting is valid, as long as it is rendered by a French judge who is materially competent for the bankruptcy proceedings."
Therefore, the court held that the personal injunction was not in breach of the French Civil Code and the French Civil Procedure Code provisions, particularly in regard to those dealing with the competence of French judges to stop any enforcement measure on real estate located abroad.
In addition, the court supported the principle of the universality of bankruptcy by stating that:
"Subject to the international treaties or EU provisions that are not applicable in the present case, and insofar as accepted by foreign legal orders, the (bankruptcy) administration pronounced in France spreads its effects wherever the debtor's assets are located."
Wherever the location of a debtor's assets, the Supreme Court ruling allows
any materially competent French judge to deliver a defendant a personal anti-suit
Some aspects of the decision are particularly significant.
With regard to the interpretation of the judgment, although the decision of the Versailles Court of Appeal was quashed by the Supreme Court, it is likely to have approved of the higher court's delivery of an anti-suit injunction à la française. The Supreme Court did not quash the ruling on those grounds. However, it did specify that such injunction would be valid only on the condition that the judge who delivers it is materially competent. This tempers the injunction's scope as well as the judge's power.
The boldness of the Supreme Court judgment is remarkable and some commentators argue that the decision provides a useful tool for international proceedings. However, other commentators fear its consequences and point out that anti-suit injunctions can be subject to retaliations, such as counter anti-suit injunctions or anti anti-suit injunctions. The value of the Supreme Court's initiative is therefore open to question. It is debatable whether it is worth validating anti-suit injunctions as they may seem to create more difficulties than they solve.
With regard to the decision's scope, while the case concerned Spain and France, the Versailles Court of Appeal did not apply the EU Regulation on Insolvency Proceedings (346/2000/EC), which was not in force at the time of the proceedings.
It is also interesting to compare Brachot to the Turner judgment of the European Court of Justice (ECJ) on April 27 2004. The mechanism at stake (ie, the anti-suit injunction) was the same as in Brachot.
In Turner, the ECJ considered whether it was:
"inconsistent with the [Brussels Convention of September 27 1968] to grant restraining orders against defendants who are threatening to commence or continue legal proceedings in another contracting state when those defendants are acting in bad faith with the intent and purpose of frustrating or obstructing proceedings before the English courts."
The ECJ decided that the Brussels Convention:
"is to be interpreted as precluding an injunction being granted whereby a court of a contracting state prohibits a party to proceedings that are pendng before it from commencing or continuing legal proceedings before a court of another contracting state, even where that party is acting in bad faith with a view to frustrating the existing proceedings."
The ECJ decision demonstrates that anti-suit injunctions are not welcome within the European judicial area. The issue with regard to EU Regulation Brussels I (formerly the Brussels Convention) is surely also valid with regard to the EU Insolvency Proceedings Regulation. Therefore, the equivalent of anti-suit injunctions introduced in France through the Supreme Court cannot be used within the European judicial area. It is open to question whether the anti-suit injunction may be used or delivered outside the European judicial area. If so, there is a risk that it will lead to retaliation from foreign courts where their jurisdiction is affected by anti-suit injunctions delivered in France.
For further information on this topic please contact Philippe Blaquier-Cirelli or Pascale Bloch at JeantetAssociés by telephone (+33 1 45 05 80 08) or by fax (+33 1 47 04 20 41) or by email (email@example.com or firstname.lastname@example.org).
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