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Martin KenneyManaging Partner at Martin Kenney & Co., Solicitors
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English Supreme Court rejects Universalist Approach

November 03, 2012 by Martin Kenney


The recent decision of the Supreme Court of England and Wales in the case of Rubin and another v Euro Finance SA [2012] UKSC 46 represents a return to a territorial approach in the context of insolvency proceedings.  The Supreme Court overturned the judgment of the Court of Appeals in what is considered to be a landmark decision, not on account of any pioneering legal argument but because it signals a return to the status quo and a rejection of the judicial trend towards a universal approach to cross-border insolvency proceedings. The Supreme Court judgment re-asserts the importance of the territorial limits of foreign jurisdiction and that any changes to that jurisdiction require implementation of appropriate legislation.    


There were in fact two appeals before the Supreme Court, an appeal against the Court of Appeals decisions in Rubin v. Eurofinance [2010] EWCA Civ 895 (Rubin) and New Cap Reinsurance Corporation v. Grant [2011] EWCA Civ 971 (New Cap). The appeals raised the issue of whether, and if so, in what circumstances, an order or judgment of a foreign court (in the case of Rubin that of the United States Bankruptcy Court for the Southern District of New York, and in the case of New Cap that of the New South Wales Supreme Court) in proceedings to adjust or set aside prior transactions, would be recognised and enforced in England. The appeals also raised the question whether enforcement may be effected through the international assistance provisions of the UNCITRAL Model Law (implemented in England by the Cross- Border Insolvency Regulations 2006 (SI 2006/1030) (“CBIR”)), which applies generally, or the assistance provisions of section 426 of the Insolvency Act 1986, which applies to a limited number of countries, including Australia. 


Insolvency proceedings are subject to international cross-border insolvency rules and in England and Wales these are adopted  by virtue of Regulation 2 of the CBIR.   The purpose of the CBIR is to determine when foreign insolvency proceedings  should be recognised, they provide a mechanism for the recognition of foreign insolvency proceedings in England and Wales. Recognition of the foreign insolvency proceedings allows foreign officeholders to apply to the courts in England and Wales for power to administer the assets of the debtor and any additional relief that may be available to an officeholder, and for co-operation in relation to the insolvency generally. 

The CBIR are designed 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. 

The Court of Appeal decision in Rubin, had the effect of allowing foreign officeholders who had brought proceedings in the US Bankruptcy Court for restitution of misappropriated monies  and had obtained default judgments, to enforce the judgments in the United Kingdom. The Court decided that a judgment of the US Bankruptcy Court against a defendant for, inter alia, the fraudulent transfer of property under s.544 of the US Bankruptcy Code, could be enforced in England and Wales, even where the defendant had not submitted to the jurisdiction of the US Bankruptcy Court. 


In New Cap the Court of Appeal considered itself bound by the decision of the Court of Appeal in Rubin. The High Court held that (a) the judgment in question was not enforceable under the Foreign Judgments (Reciprocal Enforcement) Act 1933 because, although it applied to Australian judgments, it did not apply to orders made in insolvency proceedings; but (b) the judgment was enforceable under the assistance provision of section 426 of the Insolvency Act 1986 (Section 426 had not been used in this way before, and was not an option in Rubin as the US is not a designated section 426 jurisdiction) and also at common law.  The Court of Appeal affirmed finding that the 1933 Act applied, and registration would not be set aside for lack of jurisdiction in the foreign court because of the Rubin decision; section 426 could also be used; and it was not necessary to decide whether the court’s power of assistance at common law was exercisable where the statutory power was available. 

In the New Cap appeal the appellants were members of Lloyd’s Syndicate Number 991 (“the Syndicate”) for the 1997 and 1998 years of account.  The Supreme Court found that having chosen to submit to New Cap's Australian insolvency proceeding, the Syndicate should be taken to have submitted to the jurisdiction of the Australian court responsible for the supervision of that proceeding and that it was on this basis that the Australian judgment was enforceable (as opposed to in reliance on the Court of Appeal Rubin decision). The Appeal in relation to New Cap was thus dismissed.   

The position was different in the Rubin appeal however. The Rubin appellants did not appear in the adversary proceedings, and it was not argued in the Supreme Court that Eurofinance SA  had submitted to the jurisdiction of the US Bankruptcy Court in any other way. 

The Court of Appeal in Rubin relied extensively on the judgments of Lord Hoffman in Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings [2006] UKPC 26 (Cambridge Gas) and in Re HIH Casualty and General Insurance Ltd [2008] UKHL 21.  Lord Collins delivering the judgment of the Supreme Court in Rubin opined that Cambridge Gas had been wrongly decided. 


The decision of the Privy Council, delivered by Lord Hoffman, in Cambridge Gas was considered to be a landmark judgment and has been quoted in international insolvency proceedings on too many occasions to mention, (making the decision of the Supreme Court in Rubin all the more discussion worthy).  Lord Hoffman found that in dealing with the recognition and enforcement of foreign judgments, in addition to the categories of judgments in personam and in rem there was a third category consisting of judgments arising out of foreign bankruptcy proceedings. The Privy Council found that bankruptcy proceedings were distinct from proceedings in personam and in rem in that bankruptcy proceedings were "collective proceedings to enforce rights not to establish them". 


Given that conclusion the Privy Council found that the primary rule of private international law was the principle of universalism, which required the English Courts to cooperate with the courts in the country of the principal liquidation to ensure that all company's assets were distributed to its creditors under a single system of distribution. 


The Privy Council adopted a principle that has become known as modified universalism which proposes that the forum court should, where consistent with justice and public policy, recognise the appointment of the foreign liquidator and provide assistance to the foreign court in bankruptcy proceedings by doing whatever it could in the case of a domestic insolvency.   


Proceeding on this basis the Court of Appeal in Rubin considered that it had to decide whether it was faced with an order arising out of bankruptcy proceedings or whether the judgment was rather a judgment in personam and therefore unenforceable.  The Court of Appeal concluded that notwithstanding the existence of all the indicia of a judgment in personam the judgment should be enforced. Ward LJ concluded that Lord Hoffman's definition of bankruptcy proceedings could properly be extended to include special claims maintainable at the suit of the officeholder against third parties for the collective benefit of all creditors and as such, the judgment was governed by the private international rules relating to bankruptcy.  


Lord Collins delivering the leading judgment of the Supreme Court in Rubin  re-stated the application of the common law rules on the enforcement of foreign judgments to insolvency orders and confirmed that there is no separate rule for judgments issued in insolvency proceedings, thus dispensing with Lord Hoffman’s third category. The position post Rubin is that in order to enforce foreign insolvency orders at common law in England, foreign officeholders will have to show that the judgment debtor: 


(a) was present in the jurisdiction at the time proceedings were instituted, 

(b) was the claimant or counter-claimant in the foreign proceedings, 

(c) had submitted to the foreign proceedings by voluntarily appearing, or 

(d) had submitted to the foreign proceedings by agreement.  


Lord Collins held that there is no difference in principle between a foreign insolvency judgment on an ordinary debt claim and an order for repayment of a preference.  Lord Collins considered that what the court was being asked to do in treating them differently in effect was to legislate a change and that such was "a matter for the legislature and not for judicial innovation". 


Lord Collins held that Cambridge Gas had been wrongly decided because the US bankruptcy order in that case was a decision in rem affecting the ownership of shares, being property belonging to someone who was not subject to the jurisdiction of the foreign court.   Lord Collins also held that the CBIR giving effect to the Model Law, are not designed to provide for the reciprocal enforcement of judgments. 


While it was widely expected that the Supreme Court would overturn the court of Appeal in Rubin, the finding that Cambridge Gas was wrongly decided was not.  The repercussions of of the Supreme Court decision in this context may be far more extensive than expected.   The Cambridge Gas principle has been widely considered and applied. 



Interestingly the High Court of England Wales ruled earlier this year that it can assist office holders in foreign insolvency proceedings using its common law powers even if the circumstances technically fall outside assistance legislation. In Schmitt v Deichmann [2012] EWHC 62, the High Court considered the Court of Appeal decisions in Rubin and New Cap, inter alia, and concluded that the Court had an inherent jurisdiction under the common law to assist foreign insolvency office holders, by treating them as it would domestic office holders. The High Court opined that a broad commercial support of international comity is more important than a rigid application of black letter law, thus a distinctly different approach to that of the subsequent Supreme Court decision in Rubin.  



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