Rubin and New Cap: Massive UK Supreme Court Ruling on International Insolvency, Enforcement and Jurisdiction

26 10 2012

Rubin & Anor (Joint Receivers and Managers of the Consumers Trust) v Eurofinance SA & Ors [2010] EWCA Civ 895 and New Cap Reinsurance Corporation Ltd & Anor v Grant & Ors [2011] EWCA Civ 971 were interesting cases and threw up important issues in international insolvency law. The UK Supreme Court has decided these cases as Rubin & Anor v Eurofinance SA & Ors [2012] UKSC 46. Broadly, the court’s judgment shed much needed light whether a foreign court’s order or judgment to set aside anterior transactions such as preferences or transactions at an undervalue (or avoidance proceedings) were (1) recognisable and enforceable in England and Wales and (2) enforceable through the international assistance provision of the UN Convention on International Trade Law (“UNCITRAL”) Model Law – which is implemented through the generally applicable Cross-Border Insolvency Regulations 2006 (“CBIR”) – or the assistance provisions of section 426 of the Insolvency Act 1986 (“IA86”) which applied to a limited number of countries including Australia. The Supreme Court held that the Dicey Rule, set out below at the end of this post, which arises from the operation of common law and  Foreign Judgments (Reciprocal Enforcement) Act 1933  (“the 1933 Act”), applied to foreign judgments in avoidance proceedings in insolvency.

Background in the Court of Appeal

I. Rubin & Anor (Joint Receivers and Managers of the Consumers Trust) v Eurofinance SA & Ors [2010] EWCA Civ 895

Rubin and others, the appellants (A), were receivers who appealed against Nicholas Strauss QC’s [2009] EWHC 2129 (Ch) decision to dismiss their application for enforcement of a New York judgment against Eurofinance and others, the respondents (R) who cross-appealed against the recognition of the New York proceedings as foreign main proceedings and the recognition of the appointment therein of A as foreign representatives. R had created a trust, operating under English law, and conducted a sales promotion scheme in Canada and the US. Money from the scheme received by the trust was distributed to R and others. R instituted proceedings in respect of the trust under Chapter 11 of the US Bankruptcy Code 1978 and applied in England to appoint A as receivers, and the trust was placed into insolvency proceedings in New York because nearly all its creditors and assets were in the US and Canada. A were given exclusive power – to prosecute all causes of action against potential defendants – pursuant to a plan of liquidation approved in New York.

Hence, A were appointed the trust’s legal representatives and foreign representatives. A brought proceedings in New York, known as adversary proceedings, against R and others but the latter did not submit to the New York court’s jurisdiction which entered judgment against them. Therefore, A made their application to the High Court in England under the CBIR to rule on whether (1) the New York proceedings, including the adversary proceedings, were recognisable as a foreign main proceeding in accordance with the Model UNCITRAL Law as set out in schedule 1 of the CBIR and (2) the judgment in the adversary proceedings was enforceable against R as a judgment of the English court under the Civil Procedure Rules 1998.

In Rubin, allowing the appeal and dismissing the cross-appeal, the Court of Appeal (Ward and Wilson LJJ, Henderson J read judgment) held that judgments made in New York in adversary proceedings following bankruptcy were judgments in the collective enforcement regime of the bankruptcy proceedings and were therefore subject to the private international law rules relating to bankruptcy. They were therefore recognised as a foreign main proceeding for the purposes of Schedule 1 of the CBIR. Ultimately, the judgment of the US Federal Bankruptcy Court for the Southern District of New York in default of appearance for approximately US$10m in respect of fraudulent conveyances and transfer was enforced in England at common law.

II. New Cap Reinsurance Corporation Ltd & Anor v Grant & Ors [2011] EWCA Civ 971

In New Cap the Court of Appeal (Mummery, McFarlane and Lloyd LJJ, read judgment), bound by the judgment in Rubin, held that was wrong to use section 426 of IA86 to enforce a judgment of a kind to which the 1933 Act applied, made in a country to which both provisions applied, if the 1933 Act could not be used.

AE Grant and others as members of Lloyd’s syndicate, the appellants (A), appealed against a decision reported as [2011] EWHC 677 (Ch) to make an order pursuant to section 426 of the IA86 that they should pay the respondent Australian reinsurance company New Cap (N) and the liquidator (L) pursuant to an Australian court order. A had entered into reinsurance contracts with N which had paid A sums by way of commutation of its liabilities. N subsequently went into liquidation and L, as its liquidator, brought proceedings in the Australian courts to recover and set aside the payments made to A by N as being a preference because N had been insolvent when they were made. A did not appear before the Australian courts and refused to submit to their jurisdiction.

An Australian court in New South Wales ordered that A repay the money. It also requested the English courts to exercise their section 426, IA86 jurisdiction and aid/assist their decision by ordering that A should pay N the money ordered or that L be allowed to bring proceedings in the English courts to set aside the payments as preferences. The High Court in England held that the 1933 Act did not apply to orders made in insolvency proceedings so it would not have been open to L to register the Australian order under the 1933 Act. Yet the common law jurisdiction enabled the court to make the same order as it would make under section 426 of the 1986 Act. From A’s purview, the common law jurisdiction did not allow the English court to make the payment order that it made. A also submitted that the in the event the order were registered, the registration should be set aside. L maintained that the phrase “civil or commercial matters” in article 4(a) of the Reciprocal Enforcement of Foreign Judgments (Australia) Order 1994, referring to judgments to which part I of the 1993 Act applied, did not include insolvency proceedings.

In sum, in New Cap, bound by the earlier decision in Rubin, a default judgment of the New South Wales Supreme Court for about US$8m in respect of unfair preferences under Australian law was enforced under the 1933 Act and, alternatively, pursuant to the IA86.

Dismissing the appeal and finding the decision of the Court of Appeal in Rubin to be directly relevant in two ways Lloyd LJ, para 83, held that:

  • The 1933 Act does apply to judgments under which a sum of money is payable made in insolvency proceedings by a recognised court, subject to the terms of the order by which the court is recognised.
  • The 1994 Order recognised the relevant Australian courts in terms such that any judgment of such a court which falls within the definition in section 11(1) of the 1933 Act is a judgment to which Part I of the Act applies. The use of the phrase “civil or commercial matter” in the Order does not limit the class so as to exclude money judgments issued in insolvency proceedings.
  • If the New South Wales order had been registered, or were to be registered, it could not now be set aside under section 4(1)(a)(ii) because of the effect of the Court of Appeal’s decision in Rubin.
  • Section 426 of the IA86 can also be used to seek assistance with a view to the enforcement of a money judgment issued in foreign insolvency proceedings. That is not excluded by section 6 of the 1933 Act.
  • The judge’s exercise of his discretion under section 426 was not at fault, and the position in that respect is not altered by [the] conclusion as to the application of the 1933 Act.
  • Because the judgment is registrable under the 1933 Act, section 6 of that Act would prevent the liquidator from enforcing it by bringing an action on it at common law.
  • It is unnecessary to consider or decide whether the court’s common law power to assist a foreign liquidator is exercisable where the statutory power is available.
  • It is also unnecessary to consider the effect of the declaration in paragraph 1 of the New South Wales order taken together with section 8 of the 1933 Act.
  • I would uphold the judge’s order as made under section 426.

The Supreme Court

The UK’s court of final recourse noted that in both appeals the parties against whom the judgments were made were not present in the foreign country and they had not submitted to the jurisdiction. Since both judgments were in personam, the issue at the heart of these appeals was whether the existing principles were applicable or whether the court needed to adopt separate rules for judgments in personam in avoidance proceedings, where the judgments were central to the purposes of the insolvency proceedings or part of the mechanism of collective execution.

The UK Supreme Court – Lords Walker, Mance, Clarke, Sumption and Collins JJSC – allowed the appeal in Rubin by a majority of 4:1 (Lord Clarke dissenting). It held that there should not be special rules for avoidance judgments. It dismissed the appeal in New Cap because the Syndicate submitted to the jurisdiction of the Australian Court. Giving the leading judgment spread over 177 paragraphs, Lord Collins distributed his thoughts in ten distinct sections which can be extracted as: I Introduction, II International co-operation and assistance, III The Cambridge Gas [2006] UKPC 26 (it is worth noting that Lord Collins thought that this case was wrongly decided but whilst Lord Mance JSC agreed with him on the whole, they disagreed on this point, para 178) and HIH [2008] UKHL 21 decisions, IV The cases before the court and the issues, V The first issue: recognition and enforcement of foreign judgments in insolvency proceedings, VI Issue 2: Rubin: Enforcement under the CBIR, VII Issue 3: New Cap: Enforcement through assistance under section 426 of the Insolvency Act 1986, VIII Submission (“If the Dicey Rule applies the judgments in issue will be enforceable in England if the judgment debtors submitted to the jurisdiction of the foreign court”, para 156), IX New Cap: enforcement at common law or under the 1933 Act, X Disposition.

For the court, in broad terms under the 1933 Act and the common law, a foreign court had jurisdiction to give a judgment in personam (capable of recognition and enforcement against the person whom the judgment was given) in cases where the person (1) was present in the foreign court when proceedings were instituted (2) was a claimant, or counterclaimant, in the foreign proceedings (3) submitted to the jurisdiction of the foreign court by voluntarily appearing in the proceedings or (4) agreed to submit to the jurisdiction of the foreign court before the commencement of the proceedings.

Lord Collins opined that – as a matter of policy – it was not in the interests of the universality of bankruptcy and similar procedures that there should be a more liberal rule for judgments given in foreign insolvency proceedings for the avoidance of transactions: para 115. His Lordship, para 117, formulated this view because different rule for avoidance proceedings would mean courts would have to develop two aspects of jurisdiction (i) a requisite nexus between the insolvency and the foreign court and (ii) a requisite nexus between the judgment debtor and the foreign court.

Observing (para 127) that “the dicta in Cambridge Gas and HIH do not justify the result which the Court of Appeal reached”, his Lordship held that the approach was a radical departure from substantially settled law and he did not see it as an incremental development of existing principles. Departing from settled law on recognition and enforcement of judgments was more suitable for the legislature than judicial innovation: para 129. The restricted scope of the existing rules reflects the fact that there is no expectation of reciprocity on the part of foreign countries: para 128. And the law relating to the enforcement of foreign judgments and the law relating to international insolvency are not areas of law which have in recent times been left to be developed by judge-made law: para 129.

The introduction of judge-made law extending the recognition and enforcement of foreign judgments would be only to the detriment of United Kingdom businesses without any corresponding benefit: para 130.

No serious injustice resulted from complying with the traditional rule and several other avenues remained open to officeholders. Rubin could have been founded on proceedings by trustees in England for the benefit of creditors under an express trust, and avoidance claims by the liquidator of an Australian company may be the subject of a request by the Australian court under the IA86,  “[a]voidance claims by a liquidator of an Australian company may be the subject of a request by the Australian court pursuant to section 426(4) of the Insolvency Act 1986, applying Australian law under section 426(5). In appropriate cases, article 23 of the Model Law will allow avoidance claims to be made by foreign representatives under the Insolvency Act 1986. In the cases where the insolvent estate has its centre of main interests in the European Union, judgments will be enforceable under Article 25 [Recognition and enforceability of other judgments] of the EC Insolvency Regulation”: para 131.

Lord Collins (and Lord Walker and Lord Sumption agreed) held that the earlier Privy Council decision in Cambridge Gas was wrongly decided as there was no basis for the recognition of the US Bankruptcy order in the Isle of Mann in that case: para 132. Although agreeing that Cambridge Gas was distinguishable, Lord Mance reserved judgment on whether it was wrongly decided: para 178.

In respect of enforcement under the CBIR, there was nothing express or implied in the UNICTRAL Model Law that applied to the recognition or enforcement of foreign judgments against third parties: paras 142 – 144.

In relation to New Cap, Lord Collins held owing to the fact that the Syndicate had submitted to the jurisdiction of Australia having chosen to prove in New Cap’s Australian insolvency proceedings, it should not be allowed to benefit from the insolvency proceedings in this way without the burden of complying with orders made in that proceeding: see paras 156 – 157.

Given the circumstances, the 1933 Act applied to the Australian judgment and its enforcement should be by way of registration under the 1933 Act rather than at common law. Because the Syndicate submitted to the Australian jurisdiction, the issue of enforcement under the IA86 did not arise. However, the court thought that the relevant subsections of the IA86 were not concerned with enforcement of judgments having examined their construction and the statutory history: paras 152 – 154.

Contrary to the Court of Appeal’s [2012] 2 WLR 1095 decision that section 426(4) of the IA86 was available as a tool for the enforcement of the judgment, the court could not “discern any recommendation which would suggest that section 426(4) applies to the enforcement of foreign judgments”: para 154.

In relation to the Rubin appeal Lord Clarke dissented and relied on the principle that avoidance orders made by a foreign courts in bankruptcy proceedings (personal or corporate), which the court has jurisdiction to entertain, were enforceable if it could fairly be said to have been made in personam or in rem: para 193. For his Lordship, provided that the bankruptcy court has jurisdiction in the bankruptcy, it was possible to have an order in rem incidental to bankruptcy proceedings but which is enforceable at common law: paras 195 – 196.

For Lord Clarke, avoidance orders are central to bankruptcy proceedings. To allow for their enforcement was in keeping with the principle of modified universalism requiring 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 a company’s assets are distributed to the creditors under a single system of distribution: para 199. This needed to be worked out on a case-by-case basis depending on the facts of the particular case: paras 200 – 201.

For the sake of completeness, the Dicey Rule applied by Lord Collins in paras 156 – 169 of his judgment in relation to judgment debtors submitting to the jurisdiction of the foreign court can be extracted as:

A court of a foreign country outside the United Kingdom has jurisdiction to give a judgment in personam capable of enforcement or recognition as against the person against whom it was given in the following cases: 



First Case? If the person against whom the judgment was given was, at the time the proceedings were instituted, present in the foreign country. 



Second Case? If the person against whom the judgment was given was claimant, or counterclaimed, in the proceedings in the foreign court. 



Third Case? If the person against whom the judgment was given submitted to the jurisdiction of that court by voluntarily appearing in the proceedings.

Fourth Case? If the person against whom the judgment was given had before the commencement of the proceedings agreed, in respect of the subject matter of the proceedings, to submit to the jurisdiction of that court or of the courts of that country.

The Supreme Court’s Judgment is available below

email: asadakhan@me.com


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