The actio pauliana is a remedy originating in Roman law that allows a creditor to impugn acts carried out by a debtor for the purpose of diminishing the debtor’s assets thus prejudicing the creditor’s rights of recovery. The remedy enables a creditor to obtain a declaration that a disposition made in fraud of the creditor’s rights is ineffective as against that creditor, allowing the assets to be pursued as though the impugned act had never occurred.

Under Maltese law, the action is regulated by article 1144 of the Civil Code (Chapter 16 of the Laws of Malta), which allows “Any creditor in his own name to impeach any act made by the debtor in fraud of his claims”. Where the impugned act is made under onerous title, such as a sale, the creditor must prove that both parties were aware of the debtor’s fraudulent intent. Where the act is by gratuitous title, only the debtor’s fraudulent intent must be established.

The actio pauliana, and equivalent avoidance actions found across civil-law jurisdictions, remains a powerful enforcement tool, particularly against debtors willing to employ creative means to avoid their obligations. Where all parties and assets are located in the same jurisdiction, questions of jurisdiction and applicable law rarely arise. If all parties are Maltese and the assets are situated in Malta, there is little doubt that the Maltese courts have jurisdiction and that Maltese law applies.

The position becomes more complex when a cross-border element is involved. In today’s economy, cross-border transactions are commonplace, and debtors are more easily able to transfer assets overseas and beyond the reach of creditors. Consider a Spanish creditor seeking to bring an actio pauliana against a Maltese debto, whose relationship is expressly governed by Maltese law and subject to the exclusive jurisdiction of the Maltese courts. The debtor transfers assets to a Norwegian third party under a contract governed by Norwegian law and subject to the jurisdiction of the Norwegian courts. The Spanish creditor wishes to file an actio pauliana to impugn the second transaction and preserve his enforcement rights. Which courts have jurisdiction to hear the claim? If proceedings are brought in Malta, can the Norwegian third party object to Maltese jurisdiction? If brought in Norway, can the Maltese debtor rely on the Maltese jurisdiction clause? Such questions create significant obstacles for creditors seeking effective enforcement.

The European Union’s private international law framework in civil and commercial matters principally comprises Regulation 1215/2012 on jurisdiction (“Brussels I Recast”), Regulation 593/2008 on applicable law in contractual matters (“Rome I”), and Regulation 864/2007 on applicable law in non-contractual matters (“Rome II”). None expressly addresses jurisdiction or applicable law in relation to the actio pauliana.

Under Brussels I Recast, the general rule is that a plaintiff must sue a defendant in the courts of the defendant’s domicile. Where several defendants of different domiciles are sued together, such defendants may be sued in the courts of either domicile, provided the claims against both defendants are closely related. This rule is often unsatisfactory to creditors seeking to assert an actio pauliana, particularly where the defendant’s domicile bears no connection with the underlying relationship between the parties or the assets disposed of.

This general rule, however, is supplemented by several heads of special jurisdiction, which allow a plaintiff to bring proceedings in other jurisdictions where the matter is closely related to a particular jurisdiction. In matters of contract, defined in the jurisprudence of the Court of Justice of the European Union (“CJEU”) as cases where one party freely assumes an obligation towards another, a defendant may be sued in the courts of the place of performance of the relevant obligation. In non-contractual matters, jurisdiction may lie in the courts of the place where the harmful event occurred. Certain disputes are also subject to exclusive jurisdiction, such as actions concerning rights in rem over immovable property, which fall within the jurisdiction of the courts where the property is situated. Whether an actio pauliana falls within any of these special heads of jurisdiction has long been an elusive question in CJEU jurisprudence.

The issue first arose in Reichert I (Case C-115/88), where the CJEU held that an actio pauliana concerning an immovable property transaction did not fall within the exclusive jurisdiction rules governing real rights over immovable property. The Court did not, however, indicate whether another alternative head of jurisdiction could apply. In Reichert II (Case C-261/90), the CJEU ruled that the actio pauliana could not be characterised as a non-contractual claim for the purposes of jurisdiction based on the place where the harmful event occurred. While eliminating another alternative head of jurisdiction, the CJEU notably stopped short of deciding whether it should be regarded as a contractual matter.

The issue returned before the CJEU in Feniks sp. z o.o. v Azteca Products & Services SL (Case C-337/17) (“Feniks”). In its judgment of 4 October 2018, the Court held that the actio pauliana is to be treated as a matter of contract, thereby conferring jurisdiction on the courts of the place where the relevant contractual obligation was to be performed. The Court reasoned that the action is aimed at protecting the creditor’s interest in the performance of obligations arising from its contract with the debtor.

This conclusion departed from the Advocate General’s Opinion in the same case, and has attracted considerable attention from commentators. A principle objection is that the third-party defendant is not a party to the contract between creditor and debtor and may have no knowledge of any dispute arising from it. The approach may therefore expose a defendant to proceedings in a jurisdiction with which it has little or no connection and where it could not reasonably have foreseen being sued. Academic opinion remains divided. The CJEU nevertheless reaffirmed the same position in Reitbauer and Others v Casamassima (Case C-722/17) (“Reitbauer”), delivered less than a year later.

In summary, one can deduce from these judgments that a creditor is not confined to bringing an actio pauliana in the defendant’s domicile, but has the option to alternatively file proceedings in the jurisdiction where the underlying contractual obligation with his debtor ought to be or have been performed, on the basis that the action is contractual in nature for the purposes of Brussels I Recast.

Although this jurisprudence provides welcome guidance, important questions remain unresolved. First, what happens where the parties agree on the exclusive jurisdiction of a court that is not the place of performance of the relevant obligation? Ordinarily, a valid jurisdiction clause supersedes the special jurisdiction rules for contractual matters. If an actio pauliana is based on such a contract, would the third-party defendant be bound to respect such a clause if proceedings are instituted in such jurisdiction of chocie? Or would jurisdiction continue to be determined by reference to the place of performance? The uncertainty revives the same concerns regarding foreseeability and legal certainty for third-party defendants.

Secondly, while the CJEU has developed a growing body of case law on jurisdiction, it has provided little guidance on the applicable law governing cross-border actio pauliana claims. Based on the reasoning in Feniks and Reitbauer, one might expect the Court to characterise the action as contractual for applicable law purposes as well, leading to the application of Rome I. On that basis, the governing law would likely be the law regulating the creditor-debtor relationship. Yet this raises the same foreseeability concerns, as a third party could find a transaction challenged under a legal system with which it has no meaningful connection. Whether the CJEU will eventually be called upon to address this issue remains to be seen.

Recent CJEU judgments have provided practitioners with greater certainty when advising on cross-border actio pauliana claims. Nevertheless, the current jurisprudence still falls short of delivering the clarity warranted by the importance and sensitivity of the remedy. Legislative clarification would be welcome, although the absence of express rules may well reflect a deliberate policy choice by the European Union legislature. Until further guidance emerges, creditors and practitioners must continue to rely on the principles established in Feniks and Reitbauer when planning cross-border enforcement strategies.