EU SUCCESSION REGULATION RICHARD FRIMSTON

Speak, friend, and enter FOUR RIDDLES, PUZZLES AND CONUNDRUMS CONNECTED WITH THE EU SUCCESSION REGULATION

By Richard Frimston

of testamentary dispositions and succession ABSTRACT agreements, the acceptance and enforcement • Regulation (EU) No.650/2012 (the Succession of notarial authentic instruments and the Regulation)1 will become fully effective from 17 introduction of a European Certificate of August 2015 and change private Succession. Broadly, the member state of the (PIL) for estates and administration throughout deceased’s last habitual residence will have most of the EU. , and the succession law of the • Although the Succession Regulation will not apply state of last residence will apply to worldwide in Denmark, Ireland or the UK, its effects over assets of any kind. A testator may, however, property in the remainder of the EU and for instead choose a law of as the persons domiciled there will be far-reaching. applicable succession law. What individual • While the Succession Regulation is becoming more issues impinge on this broad picture? widely understood, there are a number of issues that are not yet clear and that have uncertain effects. ARE THE FRENCH AND ENGLISH Four of those issues are considered here. VERSIONS THE SAME, AND IS CLAWBACK ACTUALLY INCLUDED? 1. Regulation (EU) No.650/2012 of the European Parliament and of the Council of 4 July 2012 on jurisdiction, applicable law, recognition Article 1 defines the scope of the Succession and enforcement of decisions and acceptance and enforcement of Regulation. If the Succession Regulation authentic instruments in matters of succession and on the creation of a European Certificate of Succession. The text is available in does not apply, none of the other articles English at: bit.ly/succession_regulation_english and in French at apply. Thus none of the Succession Regulation bit.ly/succession_regulation_french applies to property passing by survivorship, since that is property passing otherwise than IN RELATION TO deaths occurring on or after by succession. 17 August 2015, the Succession Regulation will It is here that linguistic issues are particularly govern questions of jurisdiction, applicable law acute. Article 1.1 in the English version states: and recognition and enforcement, as well as ‘This Regulation shall apply to succession to the matters relating to the various forms of validity estates of deceased persons.’

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The French and German versions, however, to resolve this linguistic diversity in favour of do not refer to ‘an estate’, but state: ‘Le présent a single meaning is uncertain. règlement s’applique aux successions à cause The fact that Article 1.2(g) is expressed to be de mort’ and ‘Diese Verordnung ist auf die without prejudice to point (i) of Article 23.2 Rechtsnachfolge von Todes wegen anzuwenden’. cannot, of itself, bring matters within the scope of The differences are mirrored in theConvention the Succession Regulation if not included in Article of 1 August 1989 on the Law Applicable to 1.1. It can be argued that the exclusion enumerated Succession to the Estates of Deceased Persons in Article 1.2 should be construed narrowly and (Hague 32). Donovan Waters’ explanatory strictly, but, conversely, it is not easy to see how the report to Hague 32 was clear in stating that words of Article 1.1 can be read more broadly. ‘the estate of a deceased person, in the English It is clear that the intention of the EU Commission text, means all the property owned by the was that clawback should be included. If so, this deceased or in which he has a proprietary would mean that gifts and trusts validly created in interest at the date of his death’. say England and Wales by a person, T, domiciled and Article 1.1 also sets out that the Succession habitually resident there, should be brought back Regulation is not to apply to revenue, customs into account if T dies habitually resident in say or administrative matters. Article 1.2 defines France or Italy without having made a valid choice further exclusions. of the law of England and Wales as the applicable Of particular note is Article 1.2(g), which law. Such clawback would not be enforceable in the excludes ‘property rights, interests and assets UK, but could be enforced against assets in member created or transferred otherwise by succession, states participating in the Succession Regulation. for instance by way of gifts, joint ownership with The Succession Regulation deals with succession. a right of survivorship, pension plans, insurance It seems perfectly reasonable to argue that the contracts and arrangements of a similar nature, single meaning of the Succession Regulation is that without prejudice to point (i) of Article 23.2’. This it does not in any way determine the validity of any is based on Article 1(2)(d) of Hague 32, which, inter vivos gifts nor their effect or the extinction of however, lacks the final phrase ‘without prejudice those effects. The judges of the Court of Justice of to point (i) of Article 23.2’ (there is no equivalent the European Union (CJEU) can be heard in Hague 32). sharpening their pencils in readiness. The Waters report again clearly states: ‘Of course, Article 1(2)(d) [of Hague 32] having ARE DENMARK, IRELAND AND THE UK a very broad scope covering all inter vivos ‘MEMBER STATES’ AND DOES IT MATTER? dispositions including gifts, such gifts may The Treaty on the Functioning of the European give rise to an obligation to restore or account Union (TFEU) indicates that a third country is one when determining the shares of beneficiaries that is not a member state,1 while the expression under the law applicable under Article 7(2)(c). ‘member state’ includes all member states that are But even so the Convention does not in any parties to the EU treaties. way determine the validity of those gifts nor As set out in recitals 82 and 83, Denmark, Ireland their effect or the extinction of those effects.’ and the UK are not bound by or subject to the While it is clear that the aim of the French application of the Succession Regulation. In those version of the Succession Regulation and the recitals, they are referred to as member states, but intention of the EU legislators were to include there is no specific definition of ‘member state’ or any rights of clawback that may exist under the ‘third state’ in the Succession Regulation. applicable succession law, it is by no means clear that the English version has achieved this. How 1. See for example Article 63 TFEU

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The final line of the Succession Regulation States’. Regulation (EC) No.4/2009 (the can certainly be interpreted as including these Maintenance Regulation) of 18 December 2008 three states as member states: ‘This Regulation specifically stipulates in Article 1.2: ‘In this shall be binding in its entirety and directly Regulation, the term “Member State” shall mean applicable on the Member States in accordance Member States to which this Regulation applies.’ with the Treaties’. The most similar equivalent example to the By virtue of protocols 21 and 22 to the EU Succession Regulation is perhaps that of Regulation treaties, the three member states will not be bound (EC) No.1346/2000 (the Insolvency Regulation), by or subject to the application of the Succession which applies to all member states other than Regulation, but other member states do not have Denmark. In that regulation there is also no the benefit of equivalent protocols to protocols 21 definition excluding Denmark from the definition or 22 and, therefore, the regulation will bind all of of ‘member state’. External evaluation of the those member states. Insolvency Regulation JUST/2011/JCIV/PR/0049/ If the aim had been to exclude the three states A4 refers in passing to Denmark as being a third from the definition of ‘member state’, it would state without any authority for such a reference. have been perfectly feasible to do so. The CJEU decision in Seagon v Deko Marty

If the aim had been to exclude Denmark, Ireland and the UK from the definition of ‘member state’, it would have been perfectly feasible to do so

The original form of the draft Succession C-339/07 related to issues involving Germany Regulation, as proposed by the Commission in and Belgium, and the Swedish Supreme Court COM (2009) 154, included a provision at Article 1.2 decision in Siv Ing Benum AS v Kinovox-Benum stating: ‘In this Regulation “Member State” means AB to issues involving Sweden and Norway,2 and the all the Member States with the exception of application of the Nordic Bankruptcy Convention Denmark[, the United Kingdom and Ireland].’ This of 7 November 1933, but these do not directly provision has not survived the legislative process address the issue. It would seem that the Swedish and does not appear in the Succession Regulation. Supreme Court was indicating that Denmark may In many EU regulations, such a definition is not be a third state. included, restricting the definition of a ‘member It may, therefore, be argued that, even though state’ to those that are bound by the specific Denmark, Ireland and the UK are not bound by or regulation. In the Brussels I regulation, for subject to provisions of the Succession Regulation, example, Article 1.3 (now amended in Brussels I the definition of ‘member state’ in the Succession bis) defined ‘the term “Member State” as meaning Regulation does still include Denmark, Ireland and Member States with the exception of Denmark’. the UK, and that, therefore, the definition of a third Similarly, in the Rome I regulation, Article 1.4 state also excludes Denmark, Ireland and the UK. states: ‘In this Regulation, the term “Member Expert opinions are divided as to whether State” shall mean Member States to which this each of Denmark, Ireland and the UK are Regulation applies. However, in Article 3(4) and Article 7, the term shall mean all the Member 2. Ö 743-11 of 31 January 2013

DECEMBER 2014 12 WWW.STEP.ORG/JOURNAL EU SUCCESSION REGULATION RICHARD FRIMSTON within the definition of a ‘member state’ in not apply under Article 34 and that, therefore, the Succession Regulation. France should apply the internal law of England It has been argued that including all member and Wales and none of its PIL. states within the definition would create an unfair Similarly, if a UK citizen dies habitually resident position as between member states. It can, in the UK, but with immovable property in France, however, also be argued that it could be a matter is under UK PIL back to French law of European policy that the succession law of accepted under Article 34 or not? It may be that member states should be recognised and enforced the French courts will accept such renvoi on the throughout the EU, whether or not individual basis that the UK is not a member state but a third member states are bound by the Succession state, while the courts of the UK may argue that Regulation. For most purposes, there is no such an interpretation of Article 34 is incorrect particular confusion, since Denmark, Ireland and apply the law of England and Wales. Such and the UK are not bound by the Succession differences will only be resolved by a reference Regulation or subject to its application. to, and a decision of, the EUCJ. The main point of uncertainty relates to the In order to avoid uncertainty, however, question of renvoi. Article 34.1 only applies to individuals with connections to Denmark, Ireland third states. The implication, therefore, is that or the UK, and whose successions might be subject it does not apply to member states not bound by to renvoi back to member states subject to the the Succession Regulation and that there is to Succession Regulation, should consider making a be no renvoi from Denmark, Ireland or the UK choice of applicable law under Article 22, where to other member states, but the point is not available. Any reference to a ‘member state’ or clear. Article 34.2 would seem to apply in all to a ‘third state’ should be considered carefully, circumstances, so that a under and the distinctions between participating and Article 22 will certainly be a choice of the non-participating member states also fully internal law with no renvoi. thought through. If a French-domiciled person dies habitually resident in England and Wales, it could be argued WHAT CHOICES OF LAW OR that renvoi under UK PIL back to France does PROFESSIO JURIS ARE AVAILABLE AND WHAT ARE THE EFFECTS? Two separate choices are available, one of them having two different effects. Article 22 provides that a person may choose, or In order to avoid uncertainty, determine, the law of their nationality as the law to individuals with connections to govern the succession as a whole: a professio juris. Such a choice may be explicit or implicit. Thus, a Denmark, Ireland or the UK, and will made using law terms from the law of England whose successions might be subject and Wales may be an implicit choice of that law. to renvoi back to member states The transitional provisions in Articles 83.2 and 83.4 must be fully understood. subject to the Succession Regulation, In particular, the existence of a will, made under should consider making a the national law, triggers the automatic choice choice of applicable law under under Article 83.4, whether or not it is one of many. The only way to override the Article 83.4 Article 22, where available choice, before 17 August 2015, is to revoke existing national wills and make a new will specifically not under the national law. After that date, it will be

DECEMBER 2014 13 WWW.STEP.ORG/JOURNAL EU SUCCESSION REGULATION RICHARD FRIMSTON possible in a national will to state that no choice that is to be defined), the PIL of that third state is is made and that the applicable law is to be that included, in so far as it makes a renvoi to the law of of the habitual residence. Ensuring an effective a member state or to the law of another third state choice and an unwanted choice is not simple. that would apply its own law. Many testators and practitioners will be caught No renvoi is to apply to the laws referred to in out and surprised both that a choice has been Article 21(2) (closely connected escape clause), made and by the widespread effects, which are Article 22 (professio juris), Article 27 (formal by no means obvious. validity of DoPuDs), Article 28(b) (declaration of A choice of the law of England and Wales acceptance of a succession) and Article 30 (special (whether explicit, implicit or automatic) brings succession regimes). with it the whole of that law. This is likely to include Thus, the professio juris of national law by, the whole of the law of administration, even though for example, a US citizen living in Spain would not understood in the member state involved. be of the relevant internal state law and would Claims under the Inheritance (Provision for Family not include its conflicts/PIL rules relating to and Dependants) Act 1975 are also likely to be movables and immovables. included, even though the deceased died domiciled Which matters are to be classified as internal law outside England and Wales, since this restriction is rules, and which matters of PIL, will be a matter for likely to be categorised as a matter of PIL rather the forum. Article 24 does not include such issues than internal law. A choice of law can also bring as being necessarily defined within the scope of the property within the reach of UK IHT under one of applicable law. It may well be, therefore, that such the old UK estate tax double-tax agreements, such questions would be regarded as being matters to be as those with France, India or Pakistan. decided autonomously. Local restrictions, such as The substantive validity of the act whereby the those in the law of England and Wales, in, for professio juris is made is to be governed by the example, the Inheritance (Provision for Family and chosen, or determined, national law (Article 22.3). Dependants) Act 1975 or the Administration of It is not clear how this provision meshes with Estates Act 1925, limiting them to English and Articles 24 and 25. Welsh or assets, may be classified as PIL This Article 22 professio juris is completely rules to be disapplied under Article 34.2. separate from the choice that can be made in However, there is now considerable uncertainty relation to the admissibility and substantive as to the position of, say, a French domiciliary validity of a disposition of property upon habitually resident in London. If it is correct that death (DoPuDs: broadly, a will or a succession the UK is not a third state for the purposes of the agreement) and the binding effects of a succession Succession Regulation, then it is not clear as to agreement under Articles 24 and 25. It would whether the succession would be subject to the seem that the choice of a particular nationality internal succession law of England and Wales, so for one does not preclude the choice of a that French internal succession law would not different nationality for the other. apply to their movables, or to the succession law However, it is only an Article 22 professio of England and Wales, including its own existing juris in favour of another member state that PIL, so that French internal succession law would will enable the ‘parties concerned’ to choose continue apply to their movables. that member state for the purposes of jurisdiction Immovable property in, for example, France under Article 5. will remain subject to French succession law for persons habitually resident in third states, RENVOI such as the US or Canada, with PIL rules that Article 34 by implication abolishes renvoi but, if direct that the law of the situs applies to the applicable law is that of a third state (however immovables, unless such a person makes

DECEMBER 2014 14 WWW.STEP.ORG/JOURNAL EU SUCCESSIONFOREWORD REGULATION THE EDITORS RICHARD FRIMSTON a valid professio juris of the law of their nationality presumed that, if a participating member under Article 22. state has general or subsidiary jurisdiction, It is not clear as to whether the use of the singular it will require such assets to be brought in the reference of ‘a renvoi’ to the law of a member into account. state or to the law of another third state is to be interpreted as meaning that such renvoi is not CONCLUSION accepted by the law of two different member Many clients and practitioners may not be aware states. Such would be the case where a person that an implied or automatic choice of applicable is habitually resident in the US with immovable succession law may already have been made, by property in both Germany and France. It is virtue of an existing will. Even more may not be presumed that the use of the singular is not aware of the full effects of such a choice. While a meaningful, and that renvoi would be accepted choice of the law of England and Wales or in such a case. another jurisdiction may sound sensible, The inherent conflict between Article 34 – the importation of such law into civil law and tax that partial renvoi can be valid – and Article systems may cause as many problems as it solves. 21.1 – that the law determined will govern The effects of the Succession Regulation are by the succession as a whole – has not been no means straightforward. How the different clarified. It is presumed that the words ‘unless meanings of the different language versions are otherwise provided for in this Regulation’ to be resolved and unified will be a conundrum mean that the renvoi of part will override for the CJEU to solve in due course. In the the unitarian principle. meantime, we must puzzle it out on our own as However, will participating member states best we can. require assets outside those states not passing under the Succession Regulation professio juris, whether by virtue of partial renvoi or RICHARD FRIMSTON TEP IS A PARTNER otherwise, to be brought into account in the AND HEAD OF THE PRIVATE CLIENT TEAM AT sharing out of the assets in member states RUSSELL-COOKE LLP, AND CHAIR OF THE subject to the Succession Regulation? It is STEP EU COMMITTEE

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