Co-Contributor: Sally Willcock
The Decision in Overview
The English Supreme Court has this week delivered a landmark judgment which comprehensively sets out the circumstances in which a foreign insolvency judgment can be recognized and enforced in England Rubin and another v Eurofinance SA and Ors 2012 UKSC 46. In so doing, the Supreme Court has overruled the seminal decision of Hoffman LJ in Cambridge Gas  UKPC 26 and has set clear limits on the ability of the English Court to recognize and enforce judgments issued in foreign insolvency proceedings. By a majority of 4:1 the Supreme Court has held that no special private international law rules of common law apply to the recognition and enforcement of foreign judgments in the context of insolvency. The Court also has ruled that neither the Cross-border Insolvency Regulations 2006 (which give effect in England to the UNCITRAL Model Law on Cross-border Insolvency) nor section 426 Insolvency Act 1986 provide a basis for recognition or enforcement of foreign insolvency judgments.
The decision is likely to have significant consequences for cross-border insolvencies as it represents a narrowing of the scope for English Courts to recognize and enforce insolvency judgments in England. It also places limitations upon the extent to which English courts can grant assistance at common law to foreign insolvency proceedings. Nevertheless, in setting out clear rules as to the scope of the English Court’s power to recognize and enforce foreign insolvency judgments, the decision brings greater certainty. It seems likely, however, that parallel sets of proceedings may now more frequently have to be opened in cross-border insolvency cases.
This decision does not affect the recognition by the English Courts of foreign judgments falling within the ambit of the EC Regulation on Insolvency Proceedings (Council Regulation (EC) No 1346/2000), and such judgments are automatically enforceable in England pursuant to the provisions of that regulation.
The English Supreme Court’s decision in Rubin relates to a combined appeal from decisions of the Court of Appeal in Rubin and Ors v Eurofinance SA and Ors 2010 EWCA Civ 895 (as discussed in our prior blog entry, Eurofinance: English Court Enforces as an English Judgment a U.S. Bankruptcy Court Judgment), and New Cap Reinsurance Corporation Limited and Ors v AE Grant and Ors 2011 EWCA Civ 971. The Supreme Court also considered the written submissions of Irving Picard, the SIPA trust in the Bernard L Madoff Investment Securities LLC case. Both Rubin and New Cap are cases in which the English Court was being asked to enforce default judgments entered in U.S. and Australian avoidance actions after the respective defendants failed to appear. In Rubin, the English Appeal Court had held that it had power under both English common law principles and under the Cross-border Insolvency Regulations 2006 to enforce a $10 millon default judgment entered by the Bankruptcy Court for the Southern District of New York with respect to asserted fraudulent transfers. In New Cap, the Court of Appeal followed Rubin and also found that the English Court had jurisdiction to enforce a judgment obtained by an Australian liquidator under section 426 Insolvency Act 1986 and under the Foreign Judgments (Reciprocal Enforcement) Act 1933.
The Relevant English Legal Framework
In hearing the combined appeals, the Supreme Court considered the available gateways through which a foreign insolvency judgment can potentially be recognized and enforced in England. Broadly, and by way of background, these gateways are as follows:
1. Judgments within the scope of the mandatory EC Regulation on Insolvency Proceedings – Such judgments are automatically recognized within the 26 Member States of the European Union who are bound by this regulation. This regulation did not apply on the facts before the Court.
2. S426 Insolvency Act 1986 – Under this statutory provision, the English Court is permitted to give assistance in relation to insolvency proceedings commenced in any of the 19, largely former-Commonwealth countries that are designated territories for the purposes of this provision.
3. The Cross-border Insolvency Regulations 2006 –These provisions implement the Model Law on Cross-Border Insolvency (equivalent, but with slight variations, to chapter 15 of the U.S. Bankruptcy Code .) These provisions are expressly stated to operate co-extensively with the English common law.
4. English private international law.
5. The Foreign Judgments (Reciprocal Enforcement) Act 1933 (‘the 1933 Act’) – An act that was established to facilitate the enforcement of civil and commercial judgments by establishing a procedure for the registration of a foreign judgment in the UK. Judgments so registered are enforceable in the same way as judgments of the English Court. Countries brought within the scope of the 1933 Act through secondary legislation include Australia.
Leaving aside any additional considerations arising in an insolvency context, English private international law rules permit English courts to recognize and enforce foreign judgments made against an identified entity (‘in personam’ judgments) if the person against whom the judgment is given was present in the foreign jurisdiction when the proceedings started, or if they had participated or submitted to the proceedings. This rule is for convenience often referred to as Dicey’s Rule 36.
In Cambridge Gas, Hoffman LJ had held that the ordinary rules of English common law that apply to enforcing foreign judgments (whether the Dicey 36 Rule relating to in personam claims or the private international law rules which apply where judgments make determinations relating to rights in property (in rem claims)) do not apply to judgments entered in bankruptcy proceedings. He held that special rules apply in the context of cross-border insolvency because the purpose of bankruptcy proceedings is “to provide a mechanism of collective execution against the property of the debtor” and that its purpose was not to “determine or establish the existence of rights.” Developing his argument, he held that the principle of universality underlay the common law principles of judicial assistance in international insolvency and that those principles permitted the domestic court to assist the foreign court by doing whatever it could have done in the case of a domestic insolvency case. In the later case of HIH Casualty and General Insurance Ltd  UKHL 21, Lord Hoffman went further and said:
The primary rule of private international law which seems to me applicable to this case is the principle of (modified) universalism, which has been the golden thread running through English cross-border insolvency law since the 18th century. That principle 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 Supreme Court’s Analysis
The Supreme Court approached the questions before it as one of policy and did not agree that in the interests of universality of bankruptcy procedures there should be a more liberal rule for judgments given in foreign bankruptcy proceedings for the avoidance of transactions. This would require the English Courts to develop two aspects of jurisdiction: namely the requisite nexus between the foreign insolvency and the English Courts and the requisite connection between the judgment debtor and the foreign court. Their lordships considered that the relevant principles here should be decided by Parliament and not by the judiciary. The Court also highlighted that in many cases insolvency office holders would be able to pursue remedies through the English Courts. The Court concluded, by majority, that the decision in Cambridge Gas was wrongly decided.
Accordingly, the Supreme Court concluded that there was there was no basis for recognizing the U.S. judgment in Rubin under English common law as the requirements set out in the Dicey Rule 36 (namely as to submission
as to the foreign jurisdiction) were not satisfied on the facts there. The Court also held that there was nothing expressly or by implication in the Cross-border Insolvency Regulations 2006 that enabled the English Courts to recognise or enforce foreign judgments against third parties.
In New Cap, the Supreme Court held that, although the syndicate against whom the relevant default judgment had been obtained did not take any steps in the avoidance proceedings brought by the Australian liquidator, it had nevertheless submitted to the Australian jurisdiction by choosing to prove in the Australian liquidation. The Court ruled that the syndicate “should not be allowed to benefit from the insolvency proceeding without the burden of complying with the orders made in that proceeding.” In these circumstances, the 1933 Act applied to the Australian judgment, and enforcement should be by way of registration under the 1933 Act rather than under the common law. Having made this finding, it was not necessary for the Court to reach a decision as to the application of S426 Insolvency Act 1986. The Supreme Court’s obiter findings on this point are likely in practice to be treated as highly influential. Here the Court concluded, having examined the construction and history of the provisions, that S426 Insolvency Act 1986 does not provide a statutory basis upon which foreign judgments (outside the jurisdictions comprising the United Kingdom) could be enforced.
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