Newsletter 2/2017 – Insolvency and restructuring

Newsletter 2/2017
Insolvency and restructuring

New Supreme Court decision: Norwegian bankruptcy estate contests a foreign creditor’s pledge – matter is to be heard by Norwegian courts and subject to Norwegian law

The recent judgment delivered by the Supreme Court of Norway elaborates on questions regarding jurisdiction and choice of law in a matter raised by a Norwegian bankruptcy estate against a foreign pledgee. The bankruptcy estate claimed that i) the pledge is invalid; ii) the pledge does not have legal protection; and iii) the pledge is voidable – and further that all claims are subject to Norwegian jurisdiction and Norwegian law.

The defendant held that Norway was not the correct legal venue, and that the case should be dismissed. Moreover, the defendant argued that not all the claims were subject to Norwegian law.

The Supreme Court first concluded, due to the “insolvency exception” in article 1 no. 2 b), that all matters were excluded from the scope of the Lugano Convention. While the application of the exception in itself may suggest that the exempt matters – by way of operation of the convention as such – are subject to the same jurisdiction as that of the bankruptcy estate, the Court did not express a firm conclusion on this issue. Instead, the Court found it sufficient to set forth a general rule for Norwegian bankruptcies that the so-called connection criteria under Section 4-3 of the Civil Procedure Act normally will be fulfilled in such situations. Hence, when the insolvency exception of the Lugano convention is applied, it is normally unnecessary to further assess whether the exempt matters’ connection to Norway is sufficiently strong for Norwegian courts to have jurisdiction.

Consequently, the Court did not find grounds to dismiss the case due to lack of jurisdiction.

The Supreme Court then considered the choice of law issue, and found that all matters should be governed by Norwegian law, even though the pledge agreement stated English law. The Court considered it important to uphold predictability and clarity in such matters, and emphasized that an issue regarding the validity and legal protection of a security interest, and not the underlying claim, is closer connected to the laws of the debtor’s domicile than the security holder’s domicile. A decisive factor for the Court was that parties should not be able to influence the validity and legal protection for securities in assets through a choice of law clause in the security documents.

The Supreme Court consequently ruled that the matters of the pledge’s legal protection and validity, as well as voidability, should be governed by Norwegian law.

Read the decision here (Norwegian only).

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