EUPillar C 147/12 ÖFAB, Östergötlands Fastigheter AB v Frank Koot and Evergreen Investments BV (Fifth Chamber)

Summary

The case was referred to the CJEU in proceedings between ÖFAB (established in Sweden), and Mr Koot (residing in Netherlands) and Evergreen Investments (established in the Netherlands) concerning the refusal by the latter to meet the debts of Copperhill (a limited company established in Sweden). Although Copperhill was undercapitalised, it continued to carry on business and ordered excavation works from two local companies, ie Toréns and Kakelmässan for the building of a hotel. Upon suspending its payments because of financial difficulties, the Swedish courts made a company reconstruction order concerning Copperhill under which Toréns and Kakelmässan were only partially paid for their claims against Copperhill. The outstanding balance of the claims had been acquired by a company which brought two actions against Mr Koot (a member of the board of directors of Copperhill) and Evergreen (one of Copperhill’s shareholders) in Sweden by relying on Swedish Law on limited liability companies. At that time, Mr Koot, a former member of the board of directors of Copperhill, was the deputy director and Evergreen was holding 90% shares of Copperhill. By finding that Art 5(1) or (3) was not applicable and relying on Art 2(1), the court decided that it had no jurisdiction. At appeal, the referring court, upon the request of Invest which then transferred its claims to ÖFAB, asked some questions to the CJEU on the interpretation of Arts 2, 5(1) and 5(3). The first three questions concerned whether the actions against the defendants relate to tort, delict or quasi-delict covered by Art 5(3) because they allowed Copperhill to continue to carry on business although it had been undercapitalised and forced to go into liquidation. The CJEU noted that the actions do not constitute insolvency proceedings and do not concern the exclusive prerogative of the liquidator to be exercised in the interests of the general body of creditors, but of rights which ÖFAB is free to exercise in its own interests. It accordingly found that they fall within the scope of Brussels I. It then reaffirmed the principles it set in its case law on Brussels I and Brussels Convention as regards the concepts of ‘matters relating to contract’ and ‘matters relating to tort, delict or quasi-delict’. Then, it observed that the actions in the present case seek to compensate the harm resulting from the fact that the companies were unable to obtain full payment from Copperhill for the work they had carried out. It found that the actions are covered by Art 5(3). The CJEU found the fourth question inadmissible due to the lack of the factual and legislative context of the question. The fifth and sixth questions concerned where the harmful event occurred in this case. The CJEU observed that the place where the harmful event occurred must be highly predictable for both the applicants and the defendants, and also it must be a particularly close connecting factor between the dispute and the courts of the place where the harmful event occurred. It held that it is the place where the company carried out its business and the financial situation related to those activities were connected to. The last question concerned whether the fact that the claim at issue had been transferred from the original creditor to another had any impact on the determination of jurisdiction under Art 5(3). By considering a tort continues to be closely connected to the place where the harmful event occurred even though the claims at issue have been transferred, it held that this transfer has no such impact. It observed that a contrary answer would make jurisdiction unpredictable. This was a very useful interpretation by the CJEU reaffirming the narrow scope of the insolvency exception in Art 1(2)(b) and giving guidance on the place where the harmful event occurred due to the actions of directors and shareholder by considering proximity and ease of taking evidence.