The actio pauliana is a legal remedy rooted in Roman law available to a creditor to challenge deliberate acts made by his debtor to reduce the value of the latter’s estate to an extent that it is insufficient to satisfy the creditor’s claims, for example by disposing of his assets, to the detriment of the creditor. Under Maltese law, a creditor can invoke the actio pauliana to impeach acts made by his debtor to defraud him.

Regulation (EU) No 1215/2012 (Brussels I Recast – the “Regulation”) has provided the foundation for interpreting jurisdictional questions associated with this remedy. Two landmark rulings of the European Court of Justice (the “ECJ”), namely Feniks (C-337/17)¹ and Reitbauer (C-722/17)², have shed light on the application of the Regulation’s jurisdictional provisions to the contextual framework of an actio pauliana. This article examines the facts, legal questions, and conclusions of these rulings, outlining their implications for creditors in the context of EU private international law.

Facts of the Case

Feniks, a Polish investor, entered into a contractual agreement with a debtor, who then failed to fulfil his obligations. Subsequently, the debtor transferred immovable property located in Spain to a Spanish entity named Azteca. Feniks, alleging that the transaction was made to defraud its interests by dissipating assets available for the enforcement of its claims, instituted an actio pauliana in Poland to annul the transfer.

The pertinent legal issue revolved around jurisdiction and the matter was referred to the ECJ by the Polish court, for a preliminary ruling. Feniks argued that Polish courts had jurisdiction to determine the action pauliana under Article 7(1)(a) of the Regulation, which provides that a person domiciled in a Member State may be sued in another Member State “in matters relating to a contract”. Azteca, on the other hand, contended that the action being an action in civil law, was unrelated to the contractual claim and should be governed by the general rule of jurisdiction based on the defendant’s domicile (Article 4 of the Regulation).

Conclusions of the Court

The ECJ found that the creditor’s reliance on the actio pauliana was inseparable from the underlying contractual relationship. The ECJ concluded that once the actio paulianais instituted on the basis of the creditor’s rights emerging from the conclusion of a contract, such action constitutes a matter “relating to a contract”, in terms of Article 7(1)(a). Consequently, since Poland is the jurisdiction where the contractual obligation was to be performed, Polish courts had authority to hear the case.

Around nine months after the Feniks preliminary ruling, the ECJ delivered the Reitbauer ruling which to some extent concerned a similar line of reasoning.

Facts of the Case

In this case Reitbauer and others, creditors based in Austria, concluded a construction contract with the debtor for works on a property in Austria. Subsequently, the debtor undertook to have a mortgage registered on the Austrian property in favour of a third-party Mr Casamassima, an Italian resident. The pledge was put into effect by means of a notarial deed in favour of Casamassima, with the result that the creditors’ ability to enforce their claims arising from the contract entered into with the debtor in Austria were subjugated to the prior rights of the pledgee thereby rendering the prospect of recovery bleak. Since the debtor’s payment obligations for the work carried out by the creditors were not honoured in full, the latter instituted an action for damages in Austria against the debtor. The creditors obtained a favourable judgement awarding damages against the debtor, which judgment however only became enforceable after the registration of the pledge. The creditors proceeded to institute an “action for avoidance” (which is analogous to the actio pauliana) in Austria, seeking to annul the notarial deed and to protect their rights of recovery.

In their arguments regarding jurisdiction, the plaintiffs contended that their action fell under article 7(1)(a) of the Regulation as their action was intrinsically linked to their contractual rights, and therefore the Austrian courts had jurisdiction. Casamassima on the other hand argued that the action’s connection to the contractual obligation was too remote to justify applying article 7(1)(a), advocating instead for the default jurisdiction of the defendant’s domicile in article 4(1), that is the Italian Courts.

Differently to the Feniks case, the Austrian court’s request for a preliminary ruling concerned the interpretation of Articles 24(1) and 24(5) of the Regulation, therefore taking a view different to that of the parties. If article 24(1) were to be applicable, it would confer exclusive jurisdiction on the Austrian Courts on the basis of rights in rem over immovable property. Alternatively, should it be determined that the proceedings in question fall within the realm of the enforcement of judgments, jurisdiction would be established on the basis of article 24(5). The ECJ’s concluded, however, that jurisdiction over the actions brought by the claimants was not subject to either of these specific provisions.

Conclusions of the Court

As in Feniks, the ECJ , agreeing with the claimants’ position, went on to confirm that the part of Reitbauer and others’ action for avoidance (which amounted to an actio pauliana) does in fact constitute a “matter relating to a contract” when arising from a contractual relationship, and that therefore the court of the place of performance of the contract enjoyed jurisdiction, namely Villach, Austria. The Court stated that the plaintiffs’ action sought to preserve their rights derived from the contract, thereby confirming the precedent set in Feniks.  The direct link between the remedy sought and the contractual obligation established the ground for jurisdiction in terms of article 7(1)(a) of the Regulation.

It is submitted that the ECJ’s rulings in Feniks and Reitbauer further strengthen the ability of creditors in contractual relationships to seek redress for recovery of debts using the actio pauliana without being hindered by cross-border jurisdictional hurdles and ensure consistency in the application of the Regulation by equipping creditors with an effective mechanism to address certain fraudulent asset transfers across borders. The ECJ’s decisions reduce the possibility of creditors being unduly burdened by jurisdictional barriers when seeking to annul transactions designed to frustrate their claims.

It is pertinent to note that these decisions do not address the substantive law governing the actio pauliana, leaving open questions about harmonisation in its application across Member States.

A criticism of the actio pauliana being interpreted in this manner, in the context of cross border cases such as the ones cited above, is the potentially far-reaching jurisdictional consequences of interpreting the actio pauliana as a “matter relating to a contract” in the context of the Regulation. This may raise concerns of lack of fairness, particularly for third-party defendants (e.g. purchasers or pledgees in good faith) who may be entirely unaware of the underlying contract between the original creditor and debtor. From their perspective, being drawn into litigation in a foreign jurisdiction, based solely on a contract to which they were not a party, can be burdensome and arguably unjust.

Furthermore, this interpretation results in a jurisdictional outcome that may appear disconnected from the defendant’s domicile or from the place where the allegedly fraudulent transaction occurred. For instance, under the ECJ’s reasoning, a defendant residing and acting entirely within one Member State may be summoned before the courts of another Member State solely on account of a contractual obligation between the creditor and debtor performed there, despite the defendant’s lack of any substantive connection to that forum. This could have implications for legal certainty and predictability, particularly in cross-border commercial transactions.

¹ Feniks sp. z o.o. vs Azteca Products & Services SL (C-337/17)

² Reitbauer et al. vs Casamassima (C-722/17)