Finland: Supreme Court Considers International Jurisdiction Of Finnish Courts Over Claims For Recovery In Bankruptcy

Introduction

In a recent case, decision 2012:63, the Supreme Court of Finland considered whether the District Court of Turku had international jurisdiction over an action for recovery in bankruptcy brought against two foreign companies. The Supreme Court considered the receivables in question to be the property of foreign companies located in Finland. On that basis, a judgment regarding recovery in bankruptcy could be enforced. Therefore, the matter had a close enough factual connection to Finland for the Finnish District Court to exercise international jurisdiction over the action.

Background

The case involved the bankruptcy of Semi-Tech Oy, a Finnish company. Semi-Tech Oy had received short-term loan financing (USD 10,000,000) from its Bermuda-registered parent company, Akai Holdings Limited (Akai). Semi-Tech Oy had amortized the debt and the remaining receivables of Akai (USD 9,200,000) were transferred to Tremendous Springs Limited (Tremendous), a company registered in the British Virgin Islands. Afterwards, Akai declared bankruptcy in Hong Kong and Bermuda after which the transfer of the receivables to Tremendous was contested by the receivers of Akai.

Semi-Tech Oy was declared bankrupt before the District Court of Turku. Both Akai and Tremendous secured the same claim (USD 9,200,000 with interest) in the bankruptcy of Semi-Tech Oy. In a legally valid judgment in Semi-Tech Oy's bankruptcy, the court ordered that the claim be paid to whichever creditor—Akai or Tremendous—could demonstrate, either by a mutually binding agreement or a legally valid judgment, to be the rightful creditor.

The bankrupt's estate of Semi-Tech Oy brought an action against both Akai and Tremendous in the District Court of Turku to recover loan instalments it had paid to Akai. The bankrupt's estate of Semi-Tech Oy considered the District Court of Turku to have international jurisdiction over the action for recovery because the action had a firm connection to the bankruptcy proceedings of Semi-Tech Oy and the defendants owned property in Finland. The bankrupt's estate of Semi-Tech Oy argued that Akai and Tremendous had receivables from Semi-Tech Oy, compounding of the distribution quota payable to them on the basis of the judgment in Semi-Tech Oy's bankruptcy and that these receivables were not dependent on the outcome of the action for recovery. According to the bankrupt's estate of Semi-Tech Oy, the receivables were, among others, distrainable and the competence of the court was not dependent on whom—Akai or Tremendous—the receivables belonged to.

Both Akai and Tremendous contested the international jurisdiction of the Finnish District Court. They argued that the dispute over which defendant would be paid the distribution quota was still unresolved. According to them, the distribution quota could not be distrained from either defendant and, thus, could not be considered as property granting international jurisdiction to Finnish Courts.

Decisions

The District Court stated that a matter must have some kind of a connection to the country in question in order for the courts of that country to have international jurisdiction over it.

According to the applicable law—Section 1, Clause 1 of Chapter 10 of the Finnish Code of Judicial Procedure—a claim against a citizen of a foreign country is considered to be within the jurisdiction of the Finnish locality wherein the person is apprehended or has property. In practice, the provision applies to legal persons as well as natural persons.

The District Court of Turku reasoned that it would have jurisdiction over the dispute if the defendants owned property in Turku at the time the action was initiated. However, the District Court noted that which defendant would be paid the distribution quota was still in dispute. Legal praxis provides that the competence of the court cannot be based on disputed property. Therefore, the District Court held that the distribution quota could not be considered property granting it international jurisdiction over the matter and dismissed the action.

The Court of Appeal upheld the decision of the District Court.

The Supreme Court granted leave to appeal to the bankrupt's estate of Semi-Tech Oy. The Supreme Court considered whether the District Court has international jurisdiction over the action for recovery in bankruptcy.

On basis of applicable provisions and principles, the Supreme Court considered that the property granting jurisdiction must have an adequate and actual connection to Finland. Further preconditions were that the judgment was enforceable, the property distrainable and its value not so low that it would not have any relevance in the execution.

In its ruling, the Supreme Court stated that a firm connection between an action for recovery and bankruptcy proceedings in Finland was not sufficient to establish an actual and adequate connection to Finland. With respect to whether the District Court possessed international jurisdiction over the matter, the Supreme Court reasoned that the deciding question was whether the distribution quota payable to Akai and Tremendous was considered to be property owned by a foreign company and located in Finland on basis of which a judgment awarding recovery would be enforceable in Finland. Though the court had not yet determined whether the claim belonged to Akai or Tremendous, the Supreme Court held the claim sufficiently individualized to be enforceable under the valid Finnish Enforcement Code. Because the ownership of the receivables was still in dispute, the Supreme Court found that the receivables were at that point distrainable from both Akai and Tremendous. The Supreme Court also found that the amount of the receivables was not so low as to have no relevance in the execution. Therefore, the Supreme Court held that the matter had such an actual connection to Finland that the District Court of Turku had international jurisdiction over the recovery action.

The Supreme Court returned the matter to the District Court.

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