Case Comment: Rubin & Anor v Eurofinance SA & Ors; New Cap Reinsurance Corp & Anor v Grant & Ors  UKSC 46
29 Monday Oct 2012
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These two appeals, heard separately in the Court of Appeal, both consider whether, and if so in what circumstances, an order or judgment of a foreign court in proceedings to set aside prior transactions, such as preferences or transactions at an undervalue (avoidance proceedings), will be recognised and enforced in England and Wales. The appeals also raise the issue of whether enforcement of an order or judgment of a foreign court can be effected through the international assistance provision of the UNCITRAL Model Law implemented by the Cross-Border Insolvency Regulations 2006 or the assistance provisions of the Insolvency Act 1986, s 426.In both appeals the parties against whom judgments were made were neither present in the foreign country nor, they alleged, had they submitted to the jurisdiction of the foreign court.
The Supreme Court also gave permission for an intervention by written submission on behalf of Mr Irving Picard, as trustee for the US liquidation of Bernard L Madoff Investment Securities LLC, in relation to a trustee’s ability to enforce at common law in Gibraltar judgments of the US Bankruptcy Court against alleged preferential payments.
The decision is significant to cross-border insolvencies in relation to the ability to enforce foreign insolvency judgments within England andWales.
The facts, first instance decision and Court of Appeal decision
For a full background to the facts and earlier decisions please see here.
In summary, the key question in Rubin was whether a judgment of the US Federal Bankruptcy Court for the Southern District of New York (the “US Bankruptcy Court”) in respect of fraudulent conveyances and transfers and in default of appearance was enforceable in England at common law.
In New Cap the issue was whether a default judgment of the New South Wales Supreme Court, Equity Division for unfair preferences was enforceable under the Foreign Judgements (Reciprocal Enforcement) Act 1933.
At first instance in Rubin and followed in New Cap, it was held that the UNCITRAL Model Law would not lead to an automatic recognition of foreign judgments if such recognition was a departure from the established principles of private international law. On the basis that the judgments had been obtained in default, it was considered that the judgements were not directly enforceable under the principles of private international law.
On appeal, it was held that bankruptcy proceedings were distinct from other proceedings, because rather than determining or establishing the existence of rights, they were merely a mechanism designed to enable a creditor whose rights had already been admitted or established to enforce those rights. On that basis, the English court was required, where consistent with justice and public policy, to recognise the appointment of a foreign liquidator and provide assistance in foreign bankruptcy proceedings.
In New Cap, the Court of Appeal considered itself bound by Rubin and held that 1933 Act applied and that registration of the judgment would not be set aside for lack of jurisdiction in the foreign court, that the Insolvency Act 1986, s 426 could be utilised and was not excluded by s 6 of the 1933 Act, that s 6 of that Act would preclude an action at common law and that it was not necessary to decide if the courts’ power of assistance at common law was exercisable where the statutory power was available.
Consequently, whilst in neither case the respondent was present in the foreign country nor had it submitted to jurisdiction, the judgments were still considered enforceable against them.
The Supreme Court decision
The Supreme Court held by a majority of 4:1 that the appeal in Rubin would be allowed and that the foreign judgment was not enforceable. However, it was held that the appeal in New Cap would be dismissed on the basis that the Syndicate had submitted to the jurisdiction of the Australian Court.
The main issues considered by the Supreme Court were:
- If the rules at common law or under the 1933 Act, regulating those foreign courts which are to be regarded as competent for the purposes of the enforcement of judgments, apply to judgments in avoidance proceedings in insolvency and, if not, what rules do apply.
- In Rubin, whether enforcement may be effected through the Cross-Border Insolvency Regulations 2006.
- In New Cap, whether enforcement may be effected through the Insolvency Act 1986, s 426. New Cap also considered whether, if the judgment was enforceable it was enforceable at common law or under the 1933 Act.
- Whether foreign insolvency judgments are enforceable as a result of the submission by the judgment debtors to the jurisdiction of the foreign courts.
The Supreme Court found as follows:
- As a matter of policy, there should not be a more liberal rule for foreign insolvency judgments for the avoidance of transactions. The existence of a different rule for avoidance proceedings would result in the development of two aspects of jurisdiction: the requisite nexus between the insolvency and the foreign court and the requisite nexus between the judgment debtor and the foreign court. This would be likely to result in a radical departure from substantially settled law. Instead, it was considered that this is an area more suitable for legislation than judicial innovation. The court considered that the law relating to the enforcement of foreign judgments and the law relating to international insolvency were not areas of law which had in recent times been developed by “judicial-made” law. It was also considered detrimental to UK businesses if the principle was expanded without any corresponding benefit. Conversely, continuance with the existing principles would be unlikely to result in any serious injustice.
- With regard to the position under the Cross Border Insolvency Regulations 2006, there was nothing expressly or by implication in the UNICTRAL Model Law that applied to the recognition or enforcement of foreign judgments against third parties. Fundamentally, the Model Law was not designed to provide for reciprocal enforcement of judgments.
- In New Cap, there had been a submission to the jurisdiction of the Australian Court. While the Syndicate had made it clear they objected to the jurisdiction of the Australian Courts, by submitting proofs of debt and having the Syndicate’s solicitors comment in writing on evidence presented to the Australian Court, as well as attending and participating in creditors’ meetings, the Syndicate had submitted to the jurisdiction of the Courts of Australia. In addition, the Syndicate had at creditors’ meetings voted in favour of a scheme of arrangement and, consequently, the Syndicate should not be allowed to benefit from the insolvency proceedings without suffering the burden of complying with any orders made in those proceedings.
- For completeness, the court continued to consider the position under the Insolvency Act holding that s 426(4) and (5) were not concerned with the enforcement of judgments. S 425(1) and (2) were considered to deal only with the enforcement of orders of one part of the UK within another part. In relation to the 1933 Act, it was held that this would apply to the Australian judgment and that enforcement should be by way of registration under the 1933 Act. Conversely in Rubin it was held that, as the appellants had not appeared in the adversary proceedings and as it had not been argued in the proceedings that the appellant had submitted in any other way, there had been no submission to the jurisdiction of the US Courts and accordingly the judgment was not enforceable.
Dissenting on Rubin, Lord Clarke stated that allowing the enforcement of avoidance proceedings was in keeping with the principle of modified universalism requiring the English Courts, so far as is consistent with justice and UK public policy, to co-operate with the courts in the country of the principal liquidation to ensure that a company’s assets are distributed to the creditors under a single system.
The Supreme Court also revisited the decision in Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings Plc  UKPC 26. Cambridge Gas considered whether an order of the New York court was enforceable within the Isle of Man. Cambridge Gas held directly or indirectly 70% of the shares of Navigator Holdings, an Isle of Man company. Navigator petitioned the US Bankruptcy Court for relief and submitted a plan to negotiate a reorganisation with their creditors. This petition was not accepted by the bondholders who proposed their own plan under which the assets of Navigator would be vested in their creditors. The US Court approved the bondholders’ plan and sent a letter to the Manx court asking for assistance in giving effect to the plan and confirmation of the order.
Whilst Navigator had submitted to the jurisdiction of the US Courts, Cambridge Gas never had. However, it was held that as the parent company of Cambridge Gas had participated, the plan could be carried into effect in the Isle of Man. The principle of universality underlay the common law principles of judicial assistance in international insolvency and those principles were sufficient to confer jurisdiction on the Manx court. In addition, Navigator had already submitted to the jurisdiction of the US Courts by bringing the proceedings.
The Supreme Court held on a 3:2 majority (with Lords Mance and Clarke dissenting) that Cambridge Gas had been wrongly decided. Cambridge Gas had not submitted to the jurisdiction of the US Courts unlike Navigator, Cambridge Gas was not subject to personal jurisdiction in the US Bankruptcy Court and the property in question was in the Isle of Man and not subject to the jurisdiction of the US bankruptcy court.
The recognition of foreign bankruptcies by the English courts has been common place since the mid-eighteenth century. However, these cases clarify the principles on which recognition of judgments made in such bankruptcies will be permissible and the limitations to attempts to enforce a foreign judgment in default.
The cases also provide a useful warning as to the risks of taking any actions in foreign bankruptcy proceedings which may later be considered to equate to a submission to the jurisdiction of the foreign court.
It should be noted that the decision does not affect the recognition and enforcement of judgments under the EC Regulation on Insolvency or under the Directive relating to the reorganisation and winding up of Credit Institutions and Insurance Undertakings.
Going forward, it is to be seen whether courts in other common law jurisdictions will follow the Privy Counsel in Cambridge Gas or the Supreme Court in Rubin/New Cap.