It is well known that London is the great judicial capital for divorces, attracting cases relating to high-net-worth individuals (“big money cases”), where the domicile of either spouse suffices, without prejudice to other attributional jurisdictional criteria under which the English judiciary (Family Division of the High Court of Justice) may decide the divorce. It is also commonly understood that in cases of economic imbalance between spouses, one may request ancillary or financial relief, and the judge must consider three criteria to determine a final lump sum payment: namely, needs, compensation, and fairness; this latter criterion allowing the distribution of matrimonial property, a concept which, if necessary, may extend also to assets belonging exclusively to the other spouse that precede the marriage or were acquired by inheritance.
If all of the foregoing is by no means trifling, when one enters into the enforcement mechanisms of financial relief orders (i.e. declaratory judgments establishing the final amount to be paid or lump sum payment), surprising jurisdictional issues emerge, requiring attention. The English family courts have held that it is permissible to issue orders for enforcement of financial relief orders in the form of receivership orders addressed to companies of the party condemned to pay in the divorce, even if the defendant is domiciled abroad and the company subject to the order is foreign—being incorporated abroad, having its registered office abroad, and possessing all of its assets abroad. The content of the receivership order is the appointment of a receiver to whom, under Section 37 of the Senior Courts Act 1981, all powers of control, management, disposition, and encumbrance are conferred over the shares or interests of the foreign company referred to in the order, without any justification as to the extraterritorial jurisdiction assumed over foreign companies by such pronouncements. Indeed, the receivership order may even be adopted inaudita altera parte, against the debtor’s foreign company, without prejudice to the possibility of later appeal. As to the debtor’s ownership over the company subject to the order, it is not necessary that the debtor meets the requirements of a formal owner; it suffices that the debtor holds a beneficial interest in that company.
What to do in the jurisdiction of an EU Member State confronted with this type of English extraterritorial orders? The first answer is that such orders directly contravene the principle of exclusive jurisdiction of the courts of the place of enforcement, as established in Article 24(5) of Regulation (EU) No 1215/2012 (Brussels I bis) and in Article 22(e) of the Spanish Judiciary Act (LOPJ). Plainly, foreign enforcement orders cannot be executed in Spain without the cooperation of Spanish courts, the applicable regime varying according to the appropriate EU PIL instrument (Brussels I bis, Brussels II ter, Brussels III, etc.) or Hague Convention. In the absence of a European Regulation—as is the case regarding the United Kingdom following Brexit on 31 December 2020—any foreign decision must first undergo an exequatur procedure as a precondition for its recognition and enforcement in Spain (Articles 42.1, 50 and 51 of the Spanish Law 29/2015 on International Judicial Cooperation in Civil Matters). The date of the actual implementation of Brexit is crucial because all judicial decisions of the United Kingdom requested after that date cannot benefit from any EU PIL Regulation and become subject to the prior exequatur requirement, a procedure in which the exclusive jurisdiction for enforcement matters by Spanish courts deems that recognition is possible only with respect to foreign judicial decisions of a declaratory nature, but not those issued in enforcement proceedings of a prior declaratory decision or which involve enforcement measures or orders.
In a perfect world, one could think that receivership orders have little currency outside the jurisdictions where express recognition of such extraterritorial enforcement orders exists, so that the English judge issues them as mere empty gestures, contingent wholly on the reaction of the jurisdiction whose exclusive enforcement jurisdiction is invaded—because the English court does not verify ex ante whether the jurisdiction in question accepts them (e.g., another common law jurisdiction with reciprocal recognition) or rejects them. However, the issuance of such measures by English courts may lead to unforeseeable situations when the appointed receiver assumes ownership and subsequently transfers the shares of the Spanish company to the applicant spouse in a London notary, without any legal foundation other than the receivership order itself. The invalidity of such transfer is clear under Spanish law, for it invades exclusive jurisdiction and disregards Spanish corporate law in its entirety in such transfers. Although it could be said that such invalidity must be declared by a Spanish court. An additional complexity arises if the spouse invested with the shares by the English notarial deed decides to adopt a corporate resolution appointing a new director, thereby resulting in a duality of ownership and social directors, which is particularly disruptive to legal certainty to say the least. Of course, challenging the corporate resolution before the Mercantile Court is the next step, as it is all about a Spanish company subject solely to Spanish corporate legislation. In this regard, the Mercantil Registry should have control mechanisms to ensure that such duality never attains any legal effect within Spanish territory.
The DGSJFP Resolution of 10 April 2024 precisely upheld the suspension of registration of corporate resolutions adopted as a consequence of a chain of events similar to what has been described above. Indeed, the Mercantile Registry (art. 6 RRM) must verify the capacity and legitimacy of those executing the registrable act, the validity of its content, as well as the legality of the extrinsic form of the document. This should enable the finding of lack of competence and powers of those who have taken the corporate resolution, since the title of transfer (the English notarial deed) does not comply with principle of equivalence, and being founded solely on an executive English judicial order, violates the exclusive jurisdiction of Spanish courts, so that its illegality is patent. The said Resolution suspends registration but refers the question as to “whoever the true holder of the company may be to the decision of the competent judge, whose function the registrar cannot replace”.
More explicitly, the DGSJFP Resolutions of 15 and 16 April 2005 regards a notarial deed executed in Spain of transfer of real estate property as payment in kind following a corporate resolution adopted in Miami—namely, the appointment of a sole director of a Spanish LLC—where the true will of the general meeting is replaced by a judicial execution act pursuant to a U.S. judgment of Miami Dade County. The Resolution holds that both the registrar and the appellant base their positions on the foreign judicial resolutions accompanying the title, something which cannot be disregarded, concluding that the defect must be confirmed, in the sense that the judicial resolutions accompanying the registrable title lack efficacy in Spain, inasmuch as the corresponding exequatur procedure has not been undertaken, adding that without such recognition, the foreign judgment cannot produce any legal effect in Spain beyond admissibility as evidence of the existence of the judgment.
Indeed, the Property Registry exercises exhaustive controls over registrable acts and it is highly unlikely that registration may occur based on an English receivership order or other foreign procedural enforcement instrument that replaces the true corporate will and attempts to impose a registral holder in Spain—even where there are Spanish notarial deeds supplemental to the British notarial title and acceptance by the purported new holder—referring in all such cases to the requirement of prior judicial exequatur (cf. DGSJFP Resolutions of 2 March 2023 and 26 June 2023, which originate from the same case as the DGSJFP Resolution of 10 April 2024 discussed here).
Of course, as a preventive measure, it is possible to file a negative exequatur in the Spanish courts against such orders; the Spanish first-instance court with jurisdiction over the negative exequatur cannot reach any conclusion other than declaring the violation of exclusive jurisdiction of the Spanish courts. The order of such court in the negative exequatur yields the res judicata effect regarding the inefficacy in Spain of the receivership order and any other legal business deriving from it, even though further rulings by other courts on the invalidity of share transfers, corporate resolutions, etc., may be necessary. It is also advisable to request, with the negative exequatur petition, a corresponding preventive annotation of claim in the Mercantile Registry, in order to prevent, during the exequatur procedure, any de facto use of the receivership order—disregarding judicial control and without exequatur—as a basis for share transfers and for the adoption of corporate resolutions intended for registration in the Mercantile Registry.
By Miguel Checa, Of Counsel at KINSHIP, Doctor in Law (UCM).
