Rubin v Eurofinance SA; & New Cap Reinsurance Corporation (In
Liquidation) v. A E Grant and others as Members of Lloyd’s Syndicate 991 for
the 1997 year of Account [2012] UKSC 46.
On 24 October 2012, the Supreme
Court handed down judgment on two appeals deciding whether, and if so, in what
circumstances, an order or a judgment of a foreign court in proceedings to set
aside prior transactions, would be recognised and enforceable in England and
Wales.
The issues were whether judgments
ordering the repayment of transactions against defendants in insolvency proceedings,
obtained in the United States and Australia (Rubin and New Cap,
respectively), could be recognised and enforced through English courts either:
(a) at common law; or
(b) under the Cross Border Insolvency Regulations 2006
(CBIR) which implements the UNCITRAL Model Law on cross board insolvency in the
UK; or
(c) under: (i) the Foreign Judgments (Reciprocal
Enforcement) Act 1933 (the 1933 Act) or (ii) section 426 Insolvency Act 1986),
which permits English courts to offer assistance to overseas courts in a limited
number of countries, including Australia, but not the United States.
Historically, it was necessary at
common law that certain criteria be satisfied before English courts would give
effect to a foreign judgment or order, namely for it to be established that the
relevant party had either submitted to the foreign jurisdiction or that the party
or the property in question was present within that jurisdiction.
In both appeals, the parties
against whom judgments were made were neither present in the particular foreign
jurisdiction nor, they alleged, had they submitted to those jurisdictions.
Therefore in both cases, judgments had been obtained in default.
The Supreme Court examined the
historical development in this area of law, with recent decisions appearing to
relax the common law criteria to enforce orders or judgments in overseas cross
border insolvency cases (Cambridge Gas
Transportation Corporation v Official Committee of Navigator Holdings plc [2006]
UKPC 26, and In re HIH Casualty and
General Insurance Ltd [2008] UKHL 21).
In Cambridge Gas, the Privy Council had found that a parent company
(Cambridge Gas) had submitted to the jurisdiction of the US Bankruptcy Court in
New York. Cambridge Gas, a Cayman Islands company, had held directly or
indirectly 70% of the shares of Navigator Holdings, an Isle of Man company.
Navigator Holdings had petitioned the US court for relief under Chapter 11 of
the US Bankruptcy Code and had submitted a plan to negotiate a reorganisation with
their creditors. The petition had been rejected by creditors who proposed their
own plan that was subsequently approved by the US Court who had then sent a
letter to the Manx court asking for assistance in giving effect to the plan and
confirmation of the insolvency order.
Whilst Navigator had submitted to
the jurisdiction of the US Court, Cambridge Gas had not. The Privy Council held
that Cambridge Gas, as the parent company, had indirectly participated in the
plan and therefore it could be carried into effect in the Isle of Man. The
reasoning for the decision was founded on the principle of universality which
underlined the common law principles of judicial assistance in international
insolvency. The application of those principles was sufficient to confer
jurisdiction on the Manx court.
In HIH Casualty and General Insurance Ltd, Lord Hoffmann had described
the importance of fostering the universalism of insolvency law by stating that it
was: “the golden thread running through English cross border insolvency law
since the 18th century.”
Nevertheless, the majority of the
Supreme Court justices refused to endorse these changes in the law by
recognising a separate category of insolvency judgments which could be enforced
in England and Wales in circumstances where a non-insolvency judgment could
not.
The Supreme Court held by a 3:2
majority (with Lords Mance and Clarke dissenting) that Cambridge Gas had been
wrongly decided, Cambridge Gas had not submitted to the US jurisdiction as it
had not been the subject of proceedings in the US court, nor that the property
in question had been in the jurisdiction.
In handing down judgment in Rubin, the Supreme Court allowed the
appeal, deciding that the judgments of the US courts were not enforceable on
any of the potential grounds mentioned above, ((a) – (c)).
Contrastingly in New Cap, the Court dismissed the appeal,
thereby enforcing the judgments of the Australian courts under the 1933 Act.
The Court found that the defendant in those proceedings had satisfied the common
law criteria of enforcement, by having previously submitted to the jurisdiction
of the Australian courts.
The Supreme Court ultimately held
that the rules were not more relaxed regarding judgments in foreign insolvency
proceedings for avoidance transactions. Indeed, the restrictive scope of the
criteria reflected the fact there was an absence of reciprocity on the part of
foreign countries.
In the sole dissenting opinion,
Lord Clarke averred that avoidance orders were central to insolvency
proceedings. To allow their enforcement was in keeping with modern principles
of universalism, as long as the decision was consistent with “justice” and UK “public
policy”. Co-operation between courts would ensure company assets were
distributed to creditors under a single system of distribution within the
context of insolvency, this being decided on a case-by-case basis.
Read the judgment here