In New Cap Reinsurance Corporation Ltd (in liquidiation) & anor v A E Grant & ors as members of Lloyd’s Syndicate 991 for the 1997 Year of Account & anor , on 9 August 2011, the Court of Appeal opened up further routes for the enforcement of judgments made in foreign insolvency proceedings in England and Wales. This decision follows on from the judgment in Rubin & anor v Eurofinance SA & ors , given on 30 July 2010. An appeal to the Supreme Court in Rubin is due in March 2012. It is possible that an appeal maybe launched in New Cap.
These cases demonstrate the continuing judicial trend towards a universal approach to cross-border insolvency proceedings and is of relevance to everyone with cross-border business interests.
ENFORCEMENT OF FOREIGN JUDGMENTS GENERALLY
The enforcement of foreign judgments in England and Wales is governed by common law and also in the case of many (but not all) foreign jurisdictions, including between member states of the European Union, by treaty.
In the absence of treaty, the common law in England and Wales provides that a foreign judgment will be capable of enforcement here where it is given by a court of competent jurisdiction for a certain sum due from one person to another (Williams v Jones ). In deciding whether the foreign court is one of competent jurisdiction, the courts in England and Wales will apply our own rules of private international law not the law of the foreign court (Adams v Cape Industries plc ).
Jurisdiction can be in personam, where the court has jurisdiction to determine the rights and obligations of an individual or entity in a claim or in rem, where the jurisdiction of the court arises by reference to status of the thing or person concerned.
Under English law, a foreign court may have jurisdiction in personam where the judgment debtor was, at the time the proceedings were commenced, present in the foreign jurisdiction; or where the judgment debtor was claimant or counter-claimed in the foreign proceedings; or where the judgment debtor submitted to the foreign jurisdiction by appearing in the proceedings or by agreeing to submit to the jurisdiction before proceedings were issued.
These limited circumstances are intended to protect persons and corporations domiciled in England and Wales from being subjected here to the enforcement of foreign judgments rather than being sued here, in the jurisdiction of their domicile. In most cases, a defendant will not voluntarily submit to foreign proceedings and, except in the case of businesses with a presence in the foreign jurisdiction such as a branch office, will usually not be present in the foreign jurisdiction.
Foreign judgments in rem are capable of being enforced in England and Wales provided that the thing or person was properly subject of the foreign court’s jurisdiction and that will generally depend, in relation to things, on their location within the foreign jurisdiction at the relevant time.
The position with regard to insolvency proceedings is more complex. Insolvency proceedings are subject to international cross-border insolvency rules adopted by England and Wales by virtue of Regulation 2 of the Cross-Border Insolvency Regulations 2006. The purpose of the Regulations is to determine when foreign insolvency proceedings (as opposed to judgments) should be recognised in England and Wales, the consequences of recognition and to permit courts in enacting states to co-operate more effectively with foreign courts involved in insolvency matters.
The Regulations provide a mechanism for the recognition of foreign insolvency proceedings1 in England and Wales. Recognition of the foreign insolvency proceedings allows foreign officeholders to apply to the courts here for power to administer the assets of the debtor here and any additional relief that may be available to an officeholder here, including powers under ss238 (transactions at an undervalue) and 239 (preferences) of the Insolvency Act 1986 and for co-operation in with regard to the insolvency generally.
The purpose of the Regulations is to allow officeholders to administer insolvent estates without having to institute parallel insolvency proceedings in multiple jurisdictions where insolvent estates’ assets may be located and to ensure fairness between creditors located in different jurisdictions.
RUBIN V EUROFINANCE SA
In Rubin, the majority of the events in question took place in the United States and preceded the coming into force of the Regulations in 2006. It was for that reason that David Rubin and Henry Lan, the ‘foreign officeholders’ appointed in relation to the insolvency of The Consumers Trust, a trust created by Eurofinance SA, commenced proceedings against Eurofinance SA and other defendants for restitution of monies in the United States Bankruptcy Court for the Southern District of New York, rather than apply for relief in England and Wales direct. The proceedings were not defended and default judgments were obtained against the defendants.
The questions for the court here were therefore a) whether the proceedings in New York should be recognised as foreign main proceedings under the Regulations and b) whether the judgments given against Eurofinance SA and the other defendants could be enforced against them here.
At first instance, question a) was answered in the affirmative but the claimants’ application to enforce the judgments in b) failed, because the claims against the defendants were, according to the judge, ‘undoubtedly […] judgment[s] in personam’ and therefore not enforceable here unless they fell within the limited circumstances in which foreign in personam judgments can be enforced here, applying what he considered to be elements of the Privy Council decision in Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings plc .
The judge concluded: ‘… the principle of universalism [in insolvency proceedings] is directed at ensuring so far as possible a uniform and fair system for distributing the assets of an insolvent estate with assets in more than one jurisdiction as between those who have a claim to them. It has nothing whatsoever to do with how or in what jurisdiction a possible asset of the insolvent estate consisting of a claim against third parties is to be established’. The judge decided that the international rules given effect by the Regulations did not replace the common law rules applicable to claims in personam.
On appeal to the Court of Appeal, Ward LJ agreed that the judgments of the US Court appeared to be classically judgments in personam, in that they were orders requiring the defendants to pay various sums of money. Given that none of the defendants were present in New York and that they had not submitted to that Court’s jurisdiction they appeared to have an impregnable defence.
However, the judgment of Lord Hoffmann in Cambridge Gas came to the aid of the Court of Appeal and the claimants. Lord Hoffmann held in Cambridge Gas that bankruptcy proceedings were neither in personam or in rem, but rather something different altogether, being ‘a collective proceeding to enforce rights and not to establish them’.
The question then was whether the proceedings brought by the claimants in New York, and the judgments to be enforced in England and Wales, were bankruptcy proceedings or simply claims to establish (rather than enforce) rights brought incidental to the bankruptcy.
Ward LJ decided that the claimants’ claims in New York, pursuant to provisions equivalent to ss238 and 239 of the Insolvency Act 1986 (relating to transactions at an undervalue and preferences) were bankruptcy proceedings and that the ordinary rules for enforcing (or not) foreign judgments in personam do not apply to bankruptcy proceedings, including actions brought by officeholders against third parties for the collective benefit of creditors. The rationale of the decision was based on the concept that proceedings in relation to bankruptcy and insolvency are for the purposes of the collective enforcement regime and that the jurisdiction of the foreign court derives from its position as the court of the bankrupt’s domicile. Ward LJ relied on Lord Hoffmann’s comments inCambridge Gas: ‘… the purpose of recognition is to enable the foreign office holder or the creditors to avoid having to start parallel insolvency proceedings and to give them the remedies to which they would have been entitled if the equivalent proceedings had taken place in the domestic forum’.
He also relied on In Re: HIH Casualty and General Insurance Ltd : ‘… the process of collection of assets will include, for example, the use of powers to set aside voidable dispositions, which may vary considerably from those in the English statutory scheme’.
In Ward LJ’s judgment, the assistance to be given under the Regulations, pursuant to the principle of universality, extended to the enforcement of the New York judgments.
NEW CAP REINSURANCE V GRANT
In New Cap the position was significantly different to that in Rubin, by reason of the treaty arrangements that exist between the United Kingdom and Australia regarding the reciprocal arrangements for enforcement of judgments and arrangements for mutual assistance in relation to insolvency proceedings. The question was whether those arrangements allowed alternative methods for recognition of foreign judgments and how those arrangements impacted on the decision in Rubin.
New Cap Reinsurance Corporation is an Australian reinsurance company. The defendants were members of a Lloyd’s syndicate, which placed reinsurance business with it. New Cap paid sums to the defendants in respect of its liabilities to them. Shortly after it went into liquidation. The Australian liquidators brought proceedings in New South Wales for recovery of the payments as preferences, as New Cap had been insolvent when it made them.
The defendants did not accept the jurisdiction of the New South Wales court and did not take part in the proceedings. New Cap sought to enforce the default judgment it had obtained in New South Wales here by means of a letter of request, asking the English court to order the defendants to pay the sums, pursuant to s426 of the Insolvency Act 1986, which provides that ‘… the courts having jurisdiction in relation to insolvency law in any part of the UK shall assist the courts having the corresponding jurisdiction in any other part of the UK or any relevant country or territory’.
Australia is a relevant country pursuant to the Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986.
The High Court acceded to the application by ordering the defendants to pay the sums of money, pursuant to s426 of the Insolvency Act 1986. The defendants appealed.
The question for the Court of Appeal was whether assistance under s426 extended to the enforcement of a foreign judgment. Furthermore it considered the interaction of that section with, and the implementation of the statutory provisions for the enforcement of foreign judgments under, the Foreign Judgments (Reciprocal Enforcement) Act 1933, applicable to the UK and Australia and, finally, the interaction of those provisions with the common law position following Rubin.
The Foreign Judgments (Reciprocal Enforcement) Act 1933 provides a mechanism for the recognition here of foreign judgments of applicable states. The principal issue for recognition of such judgments is whether the foreign court giving judgment has jurisdiction. In the case of insolvency proceedings such as those brought by New Cap, s4(2) of the Foreign Judgments (Reciprocal Enforcement) Act 1933 jurisdiction lies: ‘… in the case of a judgment given in action other than any such action as is mentioned in para a) or para b) of this subsection, if the jurisdiction of the [foreign] court is recognised by the law of the registering court’.
Following Rubin, the Court of Appeal concluded that it must recognise the jurisdiction of the New South Wales court in this case and that therefore the Foreign Judgments (Reciprocal Enforcement) Act 1933 provided a mechanism for the registering of the judgment here. The Court of Appeal also concluded that only basis for setting aside registration would have been if the New South Wales court did not have jurisdiction.
The next questions were whether s426 of the Insolvency Act 1986 extended to the enforcement of foreign judgments and whether the statutory process under the Foreign Judgments (Reciprocal Enforcement) Act 1933 excluded New Cap’s reliance on s426 of the Insolvency Act 1986.
In relation to those questions, the Court of Appeal decided that there was no reason in principle why assistance under s426 of the Insolvency Act 1986 could not extend to the enforcement of a judgment of a foreign court, despite there being no precedent of that having been done before. It also decided that s6 of the Foreign Judgments (Reciprocal Enforcement) Act 1933 did not preclude reliance on s426 of the Insolvency Act 1986. Section 6 states: ‘… no proceedings for the recovery of a sum payable under a foreign judgment, being a judgment to which this part of this Act applies, other than by way of registration of the judgment, shall be entertained by any court in the UK’.
The Court of Appeal held that New Cap’s letter of request procured a judgment here for an amount equivalent to the sums due under the New South Wales judgment. Lloyd LJ stated that this did not amount to proceedings for recovery of a sum payable under a foreign judgment, saying: ‘I do not regard an application to the English court for assistance by way of enforcement of a foreign judgment for the payment of money in insolvency proceedings to be the same as “proceedings for the recovery of a sum payable under a foreign judgment”’.
That conclusion is perhaps surprising and must mean that an application for assistance under a letter of request is not a ‘proceeding’. Had he decided otherwise, New Cap would have been able to register the New South Wales judgment under the Foreign Judgments (Reciprocal Enforcement) Act 1933 and thereby achieve the same result.
Finally, the Court of Appeal confirmed that the terms of s6 of the Foreign Judgments (Reciprocal Enforcement) Act 1933 did preclude New Cap from relying on the common law for enforcing the New South Wales judgment.
Together Rubin and New Cap show the increasing willingness of the courts here to give effect to the purpose of a universal model of cross-border insolvency. In both cases, the defendants avoided appearing in the foreign proceedings with the intention of relying on the rules governing the enforcement of foreign judgments here. In both cases their strategy failed, albeit in both cases, the decision could potentially be reversed in whole or in part by the Supreme Court in March 2012.
Notably the cases provide a comprehensive overview as to the methods of enforcing foreign judgments relating to insolvency proceedings. It is possible to draw the following conclusions:
- The courts will interpret the discretionary power to give assistance under s426 of the Insolvency Act 1986 and under the 2006 Regulations as including the power to enforce a foreign judgment in bankruptcy proceedings deriving from a court of competent jurisdiction;
- In the absence of other factors, the presumption is that the discretion will be exercised in favour of the foreign officeholder;
- There are, in relation to many states, statutory provisions for the reciprocal enforcement of judgments that may be used for the purpose of enforcing foreign judgments from courts of competent jurisdictions;
- At least in respect of the Foreign Judgments (Reciprocal Enforcement) Act 1933, the statutory mechanism for registering foreign judgments does not preclude the exercise of the discretion to enforce a foreign judgment under s426 of the Insolvency Act 1968;
- Where there are no reciprocal arrrangements between states, as was the case with the US before the coming into effect of the 2006 Regulations, the common law will also allow for the enforcement of a foreign judgment of a court of competent jurisdiction here in bankruptcy proceedings.
- A court of competent jurisdiction in relation to bankruptcy proceedings is the court of the bankrupt’s domicile, per Rubin.
It would be a major surprise if the Supreme Court upsets what appears to be a comprehensive universal approach towards foreign judgments in bankruptcy proceedings by overturning Rubin in March 2012. However, until then at least the long arm of insolvency law stretches ever wider.
1) The distinction between proceedings and judgments here is important. The Regulations do not expressly provide for the mutual recognition of judgments but rather provide for mutual recognition of the proceedings.