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Dubious Cross-Border Insolvency Framework in India: The Need of a new Paradigm?
By Gaurav Chaliya and Nishtha Ojha. The authors are third year students at the National Law University, Jodhpur, India.
Introduction
In 2018, around 47 entities forming the part of corporate groups were reported to be in debt which reflects the necessity of having an effective cross-border legal framework. The flexibility in the framework of cross border insolvency helps in overcoming the hurdles encountered in cross border disputes. This framework essentially girdles around the principle of coordination and cooperation and in consonance with these principles the National Company Law Appellate Tribunal [“NCLAT”] in Jet Airways case has extended these principles by providing sufficient rights to Dutch trustee and observed that–
“as per law, he (Dutch Trustee) has a right to attend the meeting of the Committee of Creditors”
However, despite effective coordination and cooperation, the proceedings against one entity is questioned to be extended to others as first, the elemental issue concerned is that each entity is managed by its own interests and such extension may be prejudicial to the interest of other entities and second, the legal conundrum associated in determining the Centre of Main Interest [“COMI”] of an entity. With regards to the first question, it is imperative that extension of insolvency proceeding is not prejudicial to the interests of the other entities as it is only extended in case of existence of reasonable nexus between entities in terms of financial and commercial relationship which makes them interdependent on each other. The authors would elaborate upon the second question in the subsequent section.´
Deficient Regulatory Framework
Section 234 and 235 of the Insolvency and Bankruptcy Code, 2016 [“IBC”] governs the cross border disputes in India. Section 234 empowers the government to enter into bilateral agreements with another country and Section 235 provides that Adjudicating Authority can issue a letter of request, to a country with which bilateral agreement has been entered into, to deal with assets situated thereto.
As is evident, the impediments associated with this regulatory framework are: first, it does not provide for a legal framework for foreign representatives to apply to the Indian courts and most importantly these sections are not notified yet and second, the current legal framework under IBC provides for entering into bilateral treaties which is uncertain and in addition is a long term negotiation process. For instance, in Australia the regulatory framework therein was not sufficient to deal with the complexities associated with cross-border insolvencies as bilateral treaties can provide some solution but they are not easy to negotiate and have intrinsic intricacies. Consequently, it passed the Cross Border Insolvency Act, 2008 which provides adoption and enactment of the United Nations Commission on International Trade Law [“Model law”]. In light of same, India should also consider the enactment of the Model law though with modifications, one of which is suggested and dealt in the next section.
Resolving the Complications
Complications in the field of International Insolvency are never-ending primarily due to the lack of a comprehensive legal framework. The Model Law seeks to alleviate these complications by providing a pragmatic legal framework. As asserted earlier, Jet Airways case acknowledges and applies the principles enshrined under the Model Law. The Model Law, unlike any treaty or convention, is a model form of legislation which is adopted by 46 nations till date.
The Model Law sets out the principle of Centre of Main Interest [“COMI”] for determining the jurisdiction of the proceedings. Interestingly, it does not define the COMI and therefore, determining COMI possesses the greatest challenge. Also, the principal concern that remains is that the debtor can escape its liability by changing its COMI according to its favourable outcome. However, the Model law safeguards the rights of the creditor by providing that first, as per Article 16 of the Model Law, COMI corresponds to the place where debtor has its registered office and second, COMI is dependent on many other factors viz. seat of an entity having major stake in terms of control over assets and its significant operations, which is basically dependent upon the transparent assessment by the third parties. Consequently, the debtor cannot escape its liability by changing COMI as determination of the same is dependent upon assessment by third parties. Hence, the Model Law addresses the prime issues which are present in the current regulatory framework.
In India, the Report of Insolvency Law Committee [“ILC”] was constituted to examine the issues related to IBC, which recommended the impending need to adopt the Model Law. However, the proposed draft disregards the objective of coordination and cooperation among all nations by mandating the requirement of reciprocity. The authors subscribe to the view, that, until the Model Law has been adopted to a significant extent by other counties, the absolute requirement of reciprocity as postulated under the draft should be done away with and courts should be given the discretion on case to case basis. As such an absolute requirement of reciprocity i.e. entering into a treaty with other countries take us back to the present legal framework in India by limiting adjudicating authority’s power to only 46 countries. For instance, in case the corporate debtor has COMI in country A, which has adopted the Model Law, whereas his assets are located in country B, which has not adopted the Model Law. In such a situation, if the requirement of reciprocity is imposed then the administration of assets in country B would become difficult, as an entity in country B would always be reluctant to become a part of the insolvency proceedings relying on probable defences such as of lex situs and absence of bilateral agreements.
In essence, this whole process would be detrimental to the interest of the creditor as it would hamper the maximization of the value of assets. Moreover, in Rubin v. Eurofinance, the Supreme Court of U.K. has observed that the court is allowed to use the discretion provided to it by the system. Hence, by this approach courts are allowed to cooperate and coordinate with those countries that are acquiescent to return the favour. It is pertinent to clarify that by granting discretion to court, the authors do not concede to the practice of Gibb’s principle. Rather the said principle is inherently flawed as it does not recognise the foreign insolvency process preceding over English law per contra courts generally expects other jurisdictions to accept their judgements.
Concluding Remarks
After a careful analysis of present cross border legal framework in India, it can be ascertained that current system is highly ineffective and in light of instances provided, the adoption of the Model Law with modifications seems to be a better alternative. The Model Law provides an orderly mechanism as it recognises the interest of the enforcing country by taking into account its public policy and national interest. The Appellate Tribunal in Jet Airways case has attempted to extend the principles of the Model Law into domestic case laws therefore it is optimal time that India adopts such legislation. Though with regards to the problem of reciprocity as pointed earlier, the absolute requirement or non-requirement of the reciprocity would not solve the problem and according to Rubin’s case, discretion should be given to the courts which would widen the scope of the application of the law, thereby, being in consonance with the objectives of the principles i.e. of effective cooperation and coordination among all nations. Hence, the Model law contains enough of the measures to prevent any misuse of the process and adopting it with modifications would resolve the problem associated.
Claims Against Corporate Defendant Founded on Customary International Law Can Proceed in Canada
By Stephen G.A. Pitel, Faculty of Law, Western University
Eritrean mine workers who fled from that country to British Columbia sued the mine’s owner, Nevsun Resources Ltd. They sought damages for various torts including battery, false imprisonment and negligence. They also sought damages for breaches of customary international law. Their core allegation was that as conscripted labourers in Eritrea’s National Service Program, they were forced to work in the mine in intolerable conditions and Nevsun was actively involved in this arrangement.
Nevsun moved to strike out all of the claims on the basis of the act of state doctrine. It also moved to strike out the proceedings based on violations of customary international law because they were bound to fail as a matter of law.
In its decision in Nevsun Resources Ltd v Araya, 2020 SCC 5, the Supreme Court of Canada has held (by a 7-2 decision) that the act of state doctrine is not part of Canadian law (para. 59) and so does not preclude any of the claims. It has also held (by a 5-4 decision) that the claims based on customary international law are not bound to fail (para. 132) and so can proceed.
Act of State Doctrine
Justice Abella, writing for five of the court’s nine judges, noted that the act of state doctrine had been heavily criticized in England and Australia and had played no role in Canadian law (para 28). Instead, the principles that underlie the doctrine were subsumed within the jurisprudence on “conflict of laws and judicial restraint” (para 44).
In dissent, Justice Cote, joined by Justice Moldaver, held that the act of state doctrine is not subsumed by choice of law and judicial restraint jurisprudence (para. 275). It is part of Canadian law. She applied the doctrine of justiciability to the claims, finding them not justiciable because they require the determination that the state of Eritrea has committed an internationally wrongful act (para. 273).
This division raises some concerns about nomenclature. How different is “judicial restraint” from “non-justiciability”? Is justiciability an aspect of an act of state doctrine or is it a more general doctrine (see para. 276)? Put differently, it appears that the same considerations could be deployed by the court either under an act of state doctrine or without one.
The real division on this point is that Justice Cote concluded that the court “should not entertain a claim, even one between private parties, if a central issue is whether a foreign state has violated its obligations under international law” (para. 286). She noted that the cases Justice Abella relied on in which Canadian courts have examined and criticized the acts of foreign states are ones in which that analysis was required to ensure that Canada comply with its own obligations as a state (para. 304). In contrast, in this case no conduct by Canada is being called into question.
In Justice Abella’s view, a Canadian court can indeed end up determining, as part of a private civil dispute, that Eritrea has engaged in human rights violations. She did not, however, respond to Justice Cote’s point that her authorities were primarily if not all drawn from the extradition and deportation contexts, both involving conduct by Canada as a state. She did not squarely explain why the issue of Eritrea’s conduct was justiciable or not covered by judicial restraint in this particular case. Having held that the act of state doctrine was not part of Canadian law appears to have been sufficient to resolve the issue (para. 59).
Claims Based on Violations of Customary International Law
The more significant split relates to the claims based on violations of customary international law. The majority concluded that under the “doctrine of adoption”, peremptory norms of customary international law are automatically adopted into Canadian domestic law (para. 86). So Canadian law precludes forced labour, slavery and crimes against humanity (paras. 100-102). Beyond that conclusion, the majority fell back on the hurdle for striking out claims, namely that they have to be bound (“plain and obvious”) to fail. If they have a prospect of success, they should not be struck out. The majority found it an open question whether these peremptory norms bind corporations (para. 113) and can lead to a common law remedy of damages in a civil proceeding (para. 122). As a result the claims were allowed to proceed.
Four of the judges dissented on this point, in reasons written by Brown and Rowe JJ and supported by Cote and Moldaver JJ. These judges were critical of the majority’s failure to actually decide the legal questions raised by the case, instead leaving them to a subsequent trial (paras. 145-147). In their view, the majority’s approach “will encourage parties to draft pleadings in a vague and underspecified manner” which is “likely not to facilitate access to justice, but to frustrate it” (para. 261). The dissent was prepared to decide the legal questions and held that the claims based on violations of customary international law could not succeed (para. 148).
In the dissent’s view, the adoption into Canadian law of rules prohibiting slavery, forced labour and crimes against humanity did not equate to mandating that victims have a civil claim for damages in response to such conduct (para. 172). The prohibitions, in themselves, simply did not include such a remedy (para. 153). The right to a remedy, the dissent pointed out, “does not necessarily mean a right to a particular form, or kind of remedy” (para. 214).
Further, as to whether these rules can be directly enforced against corporations, the dissent was critical of the complete lack of support for the majority’s position: “[i]t cites no cases where a corporation has been held civilly liable for breaches of customary international law anywhere in the world” (para. 188). As Justice Cote added, the “widespread, representative and consistent state practice and opinio juris required to establish a customary rule do not presently exist to support the proposition that international human rights norms have horizontal application between individuals and corporations” (para. 269).
On this issue, one might wonder how much of a victory the plaintiffs have achieved. While the claims can now go forward, only a very brave trial judge would hold that a corporation can be sued for a violation of customary international law given the comments of the dissenting judges as to the lack of support for that position. As Justices Brown and Rowe put it, the sole authority relied on by the majority “is a single law review essay” (para. 188). Slender foundations indeed.
ERA: Recent European Court of Human Rights Case Law in Family Matters (conference report)
Report written by Tine Van Hof, researcher at the University of Antwerp
On the 13th and 14th of February 2020, the Academy of European Law (ERA) organized a conference on ‘Recent ECtHR Case Law in Family Matters’. This conference was held in Strasbourg and brought together forty participants coming from twenty-one different countries. This report will set out some of the issues addressed at the conference.
The presentation, made by Ksenija Turkovi?, Judge at the European Court of Human Rights, focused on children on the move and more specifically on minors in the context of migration. On this topic the European Court of Human Rights (ECtHR) has developed a child-specific human rights approach. This approach implies taking into account three particular concepts: vulnerability, best interests and autonomy. Judge Turkovi? pointed to the interesting discussion on whether vulnerability could only apply to young migrant children. On this discussion, there is now agreement that the vulnerability applies to all children under the age of 18 and regardless whether they are accompanied by adults. The ECtHR made very clear in its case law that migrant children are especially vulnerable and that this vulnerability is a decisive factor that takes precedence over the children’s migrant status. This vulnerability also plays a role in the cases on the detention of children. The more vulnerable a person is, the lower the threshold for a situation of detention to fall within the scope of Article 3 of the European Convention on Human Rights (ECHR), encompassing the prohibition of torture.
Family unification and the free movement of family status was the second topic of the day. Michael Hellner, professor at Stockholm University, discussed several cases of the ECtHR (Ejimson v Germany) and the Court of Justice of the EU (CJEU) (K.A. v Belgium, Coman and S.M.). He concluded that family life does not automatically create a right of residence but it can create such a right in certain circumstances. In the Coman case for example, the CJEU decided that Romania had to recognize the marriage between the two men for the purpose of enabling such persons to exercise the rights they enjoy under EU law (i.e. free movement). Professor Hellner noted that it seems to be quite easy to circumvent national law in the future if one looks at the Coman case. He considered it positive if the consequence was that same-sex marriages and surrogacy arrangements created abroad were recognized. However, he made the interesting observation that it might be a very different story if one thinks about child marriages and the recognition thereof.
Maria-Andriani Kostopoulou, consultant in family law for the Council of Europe, thereafter shared her insights on parental rights, pre-adoption foster care and adoption. She discussed i.a. the evolution in the case law of the ECtHR on the representation of the child before the Court. In the Strand-Lobben case, the Court stated that the issue of representation does not require a restrictive or technical approach and thus made clear that a certain level of flexibility is necessary. In the Paradisio and Campanelli case, the ECtHR provided three criteria that should be taken into account for assessing the representation of the child: the link between the child and the representative, the subject-matter of the case and any potential conflict of interests between the interests of the child and those of the representative. The latest case, A. and B. against Croatia, introduced a security safeguard. In this case, the ECtHR asked the Croatian Bar Association to appoint a legal representative for the child for the procedure before the ECtHR since the Court was not sure that there were no conflict of interests between the child and the mother, who proposed to be the representative.
To end the first conference day, Dmytro Tretyakov, lawyer at the Registry of the ECtHR, enlightened us about the misconceptions and best practices of submitting a case to the Court. His most important tips for a submission to the Court are the following:
- Use the current application form and not an old one;
- Submit well in time and certainly within the six-month period;
- Summarize the facts of the case on the three pages provided. This summary has to be clear, readable (for those that do it in handwriting) and comprehensible;
- To state claims, refer to the relevant Article from the ECHR (do not cite it) and explain what the specific problem is with regard to that Article;
- Support each claim with documents; and
- Sign the form in the correct boxes and carefully look where the signature of the applicant and where the signature of the representative is required.
The second day of the conference started with the presentation of Nadia Rusinova, attorney-at-law and lecturer at the Hague University of Applied Science, on international child abduction. She discussed i.a. the issue of domestic violence in child abduction cases. Several questions can be raised in this regard, for example: what constitutes domestic violence? When should a court accept the domestic violence to be established? What is adequate protection in light of the Hague Convention on International Child Abduction (1980) and who decides on this? In the case O.C.I. and others v Romania, one of the questions was whether there is such a thing as light violence that does not amount to a grave risk in the sense of Article 13(1)(b) of the Hague Convention. The ECtHR approached this issue very critically and stated that no form of corporal punishment is acceptable. Regarding the adequate measures, the Court stated that domestic authorities have a discretion to decide what is adequate but the measures should be in place before ordering the return of the child. Another point raised by Ms. Rusinova is the time factor that is required. If one looks at Article 11(2) of the Hague Convention and at Article 11(3) of the Brussels IIbis Regulation together, six weeks is the required time period for the return proceedings. The Brussels IIbis Recast clarified that the procedure should take no more than six weeks per instance. However, according to Ms. Rusinova it is hardly possible to do the procedures in six weeks; it will only work when the proceeding is not turned into an adversarial proceeding in which all kinds of claims of both parents are dealt with.
Samuel Fulli-Lemaire, professor at the University of Strasbourg, addressed the interesting evolution of reproductive rights and surrogacy. In the case of C. and E. v France, the French Court of Cassation asked the ECtHR for an advisory opinion on the question whether the current state of the case law in France was compatible with the obligations under Article 8 ECHR (the right to respect for private and family life). The status of the French case law was that the genetic parent was fully accepted but the other intended parent was required to adopt the child if he or she wished to establish parentage links. The ECtHR replied that the obligation under Article 8 entailed that there must be a possibility of recognition of the parent-child relationship but that it is up to the States to decide how to do this. Adoption is a sufficient method of recognizing such relationship, provided that it is quick and effective enough. The Court also refers to the possibility of transcription of the birth certificate as an alternative to adoption. However, professor Fulli-Lemaire pointed out that there is a misconception on what transcription means under French law. The mere transcription of the birth certificate does not establish legal parentage in France. The fact that the ECtHR says that an intended parent can adopt or transcribe the birth certificate is therefore tricky because under French law the effects of the two methods are not at all the same.
The very last presentation of the conference was given by Gabriela Lünsmann, attorney-at-law and member of the Executive Board of the Lesbian and Gay Federation in Germany. She spoke about LGBTQI rights as human rights and hereby focused i.a. on transsexuals’ gender identity and the case of X. v North-Macedonia. The question raised in that case is whether the state must provide for a procedure to recognize a different gender. The applicant had tried to change their gender but North-Macedonia did not offer any possibility to undergo an operation or to have medical treatment in that regard. The applicant then went abroad for treatment. Back in North-Macedonia, he had his name changed but it was not possible to change his officially registered gender. The applicant claimed that this amounted to a violation of Article 8 ECHR and specially referred to the obligation of the state to respect a person’s physical and psychological integrity. The Court found that there was indeed a violation. What is as yet unclear, and is thus an interesting point for reflection, is whether states are under an obligation to provide for a procedure for the recognition of a change of gender without the person having had an operation.
The author would like to thank ERA for the excellent organization of the conference and for the interesting range of topics discussed.
News
Book Launch: Governance of Artificial Intelligence in the European Union What Place for Consumer Protection?
Marion Ho-Dac (Artois University) and Cécile Pellegrini (Lyon Catholic University) are hosting a conference at Lyon Catholic University on Friday 29 September 2023 on the occasion of the launch of their book “Governance of Artificial Intelligence in the European Union What Place for Consumer Protection?”.
The book tackles the interplay between Artificial Intelligence (AI) governance and consumer protection on the European Union (EU) market. An in-depth analysis of the existing and future EU legal framework is conducted in order to assess its capacity to meet the challenges posed by AI. The effectiveness of consumer rights, and more widely of fundamental rights, in the digital single market calls for a regulatory ecosystem that fosters trust and therefore, upstream, transparency and explainability of AI systems. Hence, the book explores different normative paths – from hard law to standardization – as well as monitoring and supervision tools – from ethics to media literacy – that could progressively lead to an inclusive and comprehensive EU governance structure for AI. Several book’s chapters highlight the complexity of balancing conflicting interests such as the protection of consumers against the adverse impacts of AI, supporting AI development and technological innovation and putting AI at the service of empowered consumers. Ultimately, the book offers important insights into thinking about tomorrow’s digital consumer in EU law, inviting a rethinking of European policy boundaries and related legal regimes.
The full programme for the event can be found here.
Praxis des Internationalen Privat- und Verfahrensrechts (IPRax) 5/2023: Abstracts
The latest issue of the „Praxis des Internationalen Privat- und Verfahrensrechts“ (IPRax) features the following articles:
(These abstracts can also be found at the IPRax-website under the following link: https://www.iprax.de/en/contents/)
European Yearbook of International Economic Law 2024: Call for abstracts (and papers)
The editors of the European Yearbook of International Economic Law (EYIEL) welcome abstracts from scholars and practitioners at all stages of their career for the EYIL 2024. This year’s Focus Section will concentrate on International and European Economic Law – Moving Towards Integration? In the General Section, the EYIEL will address Current Challenges, Developments and Events in European and International Economic Law.