The author of this post is Michiel Poesen, PhD candidate at KU Leuven.
This post tells a short story about the fate of European private international law’s neutrality paradigm… Our story starts where you probably would not expect it: the 2019 Belgian company law reform.
In 2019, the Belgian legislature reformed the Company Law Code in a bid to attract more investors to Belgium. (For the record, the previous government also launched the idea of offering businesses an interesting venue for transnational litigation–the Brussels International Business Court or BIBC, which did not make it through).
One of the reform’s key elements was to make company law leaner and more flexible. Facilitating this flexibilisation, the legislature also revised the Belgian private international law provisions pertaining to company law. In sympathy with the well-known CJEU case law on the freedom of establishment in the EU, the legislature traded the seat principle for the incorporation principle as the connecting factor for the law applicable to and adjudicatory jurisdiction over companies (Articles 109–110 Code of Private International Law; Article 111 contains a list of legal questions governed by the lex societatis).
Clearly, the incorporation principle gives up on the traditional idea that the connecting factor for companies should be based on a physical element such as the presence of a company’s place of administration (see R Michaels, ‘Globalizing Savigny? The State in Savigny’s Private International Law and the Challenge from Europeanization and Globalization’ in M Stolleis & W Streeck (eds), Aktuelle Fragen zu politischer und rechtlicher Steuerung im Kontext der Globalisierung (Nomos 2007) 142).
Interestingly, the statute provides for one carve-out concerning adjudicatory jurisdiction (I should thank Professor Joeri Vananroye and Professor Stijn De Dier for bringing it to my attention). Claims relating to the personal liability of directors towards third parties can be brought in the Belgian courts if the company has its ‘main establishment’ in Belgium and has a merely formal connection the state where it is incorporated:
… the Belgian courts have jurisdiction over actions concerning the liability of directors of corporations resulting from Article 2:56, §1, of the Corporations and Associations Code towards third parties other than the corporation that arose out of acts committed in the performance of their administrative function, provided that the main establishment of the legal person is in Belgium, while the legal person is incorporated outside if the European Union [or indeed an EFTA state that ratified the Lugano II Convention] and has a merely formal connection to that state [Translation by the author, the authentic text is available in Dutch and French in the Belgian state gazette].
The main establishment ‘is determined by taking into account primarily the place of administration, as well as the centre of its business and activities, and in subsidiary order the statutory seat’ (Article 4, §3 Code of Private International Law, available in English here – although not yet reflecting the 2018 overhaul). This, in fact, is a special tort jurisdiction rule that seeks to shield Belgian residents from companies who operate in Belgium but are incorporated outside of the EU (e.g. for fiscal or organisational purposes).
The Belgian legislature enacted this provision to strike a balance between a company’s freedom to choose the forum pursuant to the incorporation principle and the protection of general interests in Belgium, such as environmental protection or the fight against tax fraud (see here, at 144–145).
Private international lawyers will be interested to know that finding the physical ‘seat’ (Sitz in classical Savignyan terms) of the tortious relationship between a director and a third party, however, was not part of the legislature’s motives. This is quite interesting. For it demonstrates how the legislature sought to balance material interests through the law of conflict of jurisdictions (see Michaels, supra, 140–141).
Hence, the legislature was not enticed by European private international law’s traditional focus on finding the legal relationship’s geographical connection (which one American realist provocatively called ‘transcendental nonsense’ long before the Belgian company law reform; FS Cohen, ‘Transcendental Nonsense and the Functional Approach’ (1935) 35 Columbia Law Review 811).