In the November 2011 issue of The In-House Lawyer we looked at the Court of Appeal decision in New Cap Reinsurance Corporation Ltd (in liquidation) & anor v Grant & ors (as members of Lloyd’s Syndicate 991 for the 1997 Year of Account) & anor  and the decision, also in the Court of Appeal, of Rubin & anor v Eurofinance SA & ors , which preceded it.
The Supreme Court has now overturned the Court of Appeal’s decision in Rubin, which permitted the enforcement here of a judgment obtained by the claimants in New York insolvency proceedings, even though the defendants in the case were not subject to the jurisdiction of the New York court under the usual English common law rules relating to jurisdiction and the enforcement of foreign judgments here. The Court of Appeal’s decision to allow enforcement here was based on the premise that insolvency proceedings sit outside the usual common law rules, and that the jurisdiction of the foreign court in insolvency proceedings derives from its position as the court of the insolvent’s domicile.
The significance of the Court of Appeal’s decision was that it extended the common law rules relating to the enforcement of foreign judgments in this jurisdiction closer in line with the ‘universal’ approach to cross-border insolvency, adopted in European cross-border insolvency regulations and summarised by Lord Hoffmann in Cambridge Gas Transportation Corporation v Official Committee of Navigator Holdings  and In Re: HIH Casualty and General Insurance Ltd .
The universal approach to cross-border insolvency proceedings is intended to prevent inconsistent treatment of creditors and insolvents’ assets from one jurisdiction to another, arising out of the existence of different local insolvency rules applicable in each jurisdiction in which the insolvent’s assets are located. Summarising the concept of universalism in cross-border insolvency proceedings in Cambridge Gas, Lord Hoffmann said:
‘The English common law has traditionally taken the view that fairness between creditors requires that, ideally, bankruptcy proceedings should have universal application. There should be a single bankruptcy in which all creditors are entitled to and required to prove. No one should have an advantage because he happens to live in a jurisdiction where more of the assets or fewer of the creditors are situated.’
In HIH he said:
‘That principle [of universalism] requires that English courts should, so far as is consistent with justice and UK public policy, co-operate with the courts in the country of the principal liquidation to ensure that all the company’s assets are distributed to its creditors under a single system of distribution.’
The Court of Appeal’s decision in Rubin, and followed in New Cap, gave greater scope to insolvency officeholders to extend the reach of foreign main insolvency proceedings to assets located in this jurisdiction.
While not disagreeing with the aim of universalism, the Supreme Court has concluded that the decisions in Cambridge Gas and Rubin were wrong. It also found that the reasons relied on by the Court of Appeal in reaching its decision in New Cap (which followed Rubin) were also wrong, although it upheld that judgment for a different reason.
THE COURT OF APPEAL DECISIONS IN CAMBRIDGE GAS, RUBIN AND NEW CAP
These cases focused on the common law rules (and in the case of New Cap, the relationship of those rules to applicable statutory provisions) of cross-border jurisdiction and the enforcement of foreign judgments in this jurisdiction and, specifically, how those rules apply to judgments obtained in insolvency proceedings. Rubin and New Cap concerned the enforcement of judgments obtained in insolvency proceedings instituted in the US and Australia respectively, so the cross-border insolvency regulations as applicable between member states of the European Union (which adopts a ‘universalist’ approach) did not apply.
Where there is no treaty governing the enforcement of foreign judgments, as was the case in Rubin, the common law in this jurisdiction provides that a foreign judgment in personam (where the court determines the rights and obligations of an individual or entity in a claim) will be capable of enforcement here where it is given by a court of competent jurisdiction. A court has competent jurisdiction in the limited circumstances where the judgment debtor was either present in the foreign jurisdiction at the time the proceedings were commenced or submitted to the jurisdiction (by appearing in or agreeing to submit to them).
Insolvency proceedings are also subject to international cross-border insolvency rules adopted here by virtue of Regulation 2 of the Cross-Border Insolvency Regulations 2006 (the Regulations). The purpose of the Regulations is to determine when foreign insolvency proceedings (as distinct from judgments) should be recognised here, the consequences of recognition and to permit courts in enacting states to co-operate more effectively with foreign courts involved in insolvency matters. This 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 and assistance with regard to the insolvency generally. The Regulations do not, however, expressly provide for automatic recognition of judgments obtained in insolvency proceedings in foreign jurisdictions.
In Rubin, 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. The proceedings were not defended and default judgments were obtained against the defendants. They then sought to enforce judgment here.
In the High Court, the claimants’ application to enforce the New York judgments failed, because the claims against the defendants were ‘undoubtedly … judgment[s] in personam’ and the defendants were not present in New York and had not submitted to that court’s jurisdiction. The High Court also held that the Regulations did not lead to the automatic recognition of foreign judgments.
The decision of the High Court was overturned on the claimants’ appeal to the Court of Appeal.
Relying on the judgment of Lord Hoffmann in Cambridge Gas, the Court of Appeal held that insolvency proceedings were neither in personam nor in rem, but rather something different altogether, being, as Lord Hoffmann described them, ‘a collective proceeding to enforce rights and not to establish them’. It also decided that the proceedings brought in New York, and the judgments to be enforced in this jurisdiction, were insolvency proceedings.
The Court of Appeal went on to hold that the ordinary rules relating to the enforcement of foreign judgments in personam did not apply to judgments obtained in insolvency proceedings, even toin personam judgments, on the basis that insolvency proceedings 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. It should be noted here that the Court of Appeal distinguished a claim by an insolvency officeholder for recovery of a preference or an equivalent claim as being an insolvency proceeding as against a non-insolvency proceeding brought by a liquidator of an insolvency company, such as a contractual claim for a debt.
Accordingly, the assistance to be given under the Regulations could extend to the enforcement of the New York judgments (which were insolvency proceedings) without offending against the usual common law requirements. Per Lord Hoffmann’s comments in Cambridge Gas:
‘… the purpose of recognition is to enable the foreign officeholder 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.’
The position in New Cap was different because of the existence of treaty arrangements between the UK and Australia regarding the enforcement of judgments and 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 paid sums to the defendants in respect of its liabilities to them shortly before going into liquidation. Its liquidators in Australia sought to recover the payments from the defendants as preferences and, on obtaining judgment in Australia, in default of the defendants appearing, sought to enforce the judgment here pursuant to a letter of request under s426 of the Insolvency Act 1986, which provides that:
‘The courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or any relevant country or territory’.
The High Court acceded to the application by ordering the defendants to pay the sums of money referred to in the judgment. The defendants appealed. The question on appeal was whether assistance under s426 extended to the enforcement of a foreign judgment. Furthermore it considered the interaction of that section with the statutory provisions for the enforcement of foreign judgments under Foreign Judgments (Reciprocal Enforcement) Act 1933 (the 1933 Act), applicable to the UK and Australia and its interaction with the common law position following Rubin.
The 1933 Act provides a mechanism for the recognition here of foreign judgments of applicable states, including Australia. 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 1933 Act provides that jurisdiction lies ‘if the jurisdiction of the [foreign] court is recognised by the law of the registering court’.
Following Rubin, the Court of Appeal recognised the Australian court’s jurisdiction (being the court of domicile of the insolvent company) and held that the 1933 Act provided a mechanism for the registering of the judgment here and that there was no reason in principle why assistance under s426 of the Insolvency Act 1986 could not extend to the enforcement of a foreign court judgment. It also decided that s6 of the 1933 Act 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 United Kingdom.’
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”.’
THE SUPREME COURT’S DECISIONS
The Supreme Court noted in Rubin that the questions to be resolved were whether the New York judgment was a judgment in personam within the existing common law rules relating to the enforcement of foreign judgments in this jurisdiction or an insolvency order and part of the insolvency proceedings, and whether the court should:
‘… as a matter of policy… in the interests of universality of insolvency proceedings, devise a rule for the recognition and enforcement of judgments in foreign insolvency proceedings which is more expansive, and more favourable to [insolvency officeholders] than the traditional common law rules… or should it be left to legislation?’
The Supreme Court stated that there was no doubt that the Rubin judgment was in personam and that this had been accepted by the Court of Appeal and the parties to the proceedings and that, as such, the usual common law rules relating to the enforcement of foreign in personam judgments were applicable, unless the court holds that a separate rule should apply to such judgments in insolvency proceedings.
In the Supreme Court’s view, the answer to that should be in the negative, for a number of reasons. It did not see a difference in principle between a foreign judgment for a debt brought by a liquidator of an insolvent company (which was not treated as insolvency proceedings by the Court of Appeal in Rubin) and a foreign judgment for repayment of a preferential payment (which was treated as insolvency proceedings) and it saw no reason why there should be different rules for enforcement of such judgments in this jurisdiction. It disliked the necessary implication of the Court of Appeal’s distinction of having separate jurisdictional rules for different types of proceedings. Finally, it noted that the Court of Appeal’s decision in Rubin amounted to a radical departure from substantially settled law and that there was a reason for the limited scope of the rules for the enforcement of foreign judgments in this jurisdiction (being that defendants to proceedings should be sued in the jurisdiction of their domicile and should not be forced to defend foreign proceedings unless they were present in that jurisdiction or chose to do so).
The Supreme Court also noted that, where Parliament had widened the scope for the enforcement of foreign judgments, as it had in relation to the EC Insolvency Regulations, it had done so by treaty, providing for reciprocity (the Rubin judgment simply allowed a way in to this jurisdiction without ensuring reciprocity from the foreign jurisdiction) and following lengthy negotiation and consultation.
Accordingly it felt that the issue was a matter for the legislature and not a matter for judicial innovation, particularly as judicial innovation could only change the law in this jurisdiction, without providing reciprocity from foreign jurisdictions, to the detriment of UK businesses.
It followed, in the majority view of the Supreme Court, that Cambridge Gas was wrongly decided. It also followed that the reasoning behind the Court of Appeal’s decision in New Cap was also defective. Nevertheless the Supreme Court upheld the decision in New Cap because it decided that, on the facts, the defendants in New Cap had submitted to the jurisdiction of the Australian Court and that, for that reason, the Australian judgment
fell within the usual common law rules for the enforcement of foreign judgments in personam in this jurisdiction. However, registration of the Australian judgment had to be by way of the 1933 Act, as the 1933 Act applied to insolvency proceedings.